<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
-------------- -----------
Commission File No. 2-82551
HORRIGAN AMERICAN, INC.
Incorporated in the State of Pennsylvania
I.R.S. Employer Identification Number: 23-2224614
Address of Principal Executive Office:
6 Commerce Drive
Shillington, Pennsylvania 19607-9704
Registrant's Telephone Number is: (610) 775-5199
Securities Registered Pursuant to Section 12 (b) of the Act: None
Securities Registered Pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
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/
The number of shares outstanding of each of the registrant's class of
common stock, as of February 28, 1995: 3,126,882 shares of Common Stock at $1
par value.
The aggregate market value of the voting stock held by non-affiliates as
of February 28, 1995 was $13,636,311.
Documents Incorporated by Reference: None
===============================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
CERTAIN RECENT DEVELOPMENTS
In November, 1994 the Company determined that is was appropriate for it to
consider its strategic alternatives and, in particular, the possibilities
of raising additional capital from a larger company, arranging for its
shareholders to sell a portion of their holdings, some combination of these
alternatives, or a sale of its business as a whole. The Company has engaged
an investment banking firm to advise it about its alternatives and to identify
possible investors or purchasers.
To date no decision has been made with respect to these matters, and no
potential investor or purchaser has been identified to the Company. It is not
possible to predict with any assurance whether the Company will continue as an
independent company or be acquired in whole or part by a larger concern, or in
what form or at what price any such transaction might be accomplished. Nor has
the Company established any time frame within which it will make a decision.
GENERAL NATURE OF BUSINESS
The Company's business is principally divided into two segments:
commercial equipment leasing and commercial financing, and investments in
commercial real property leasing and rental projects.
The Company's assets primarily consist of: receivables from commercial
borrowers; direct finance leases with commercial lessees; and interests in
partnerships which own commercial real estate and rent it to others,
generally under operating leases.
As of December 31, 1994, approximately 81% of such assets were receivables
which arose from commercial equipment leasing and commercial financing, and
19% was real property owned by the Company and leased or rented to others
under operating leases.
COMMERCIAL EQUIPMENT LEASING AND COMMERCIAL FINANCING
The Company conducts its commercial equipment leasing and commercial
lending operations, on a national basis, primarily from its corporate
headquarters located in Reading, Pennsylvania. Additionally, the Company
maintains offices in Crestview Hills, Kentucky (a suburb of Cincinnati,
Ohio), Deerfield, Illinois (a suburb of Chicago), Portland, Oregon and
Orlando, Florida. Marketing personnel are also located in Pittsburgh,
Pennsylvania; San Diego and Los Angeles, California; Knoxville, Tennessee;
Boston, Massachusetts; Denver, Colorado; Seattle, Washington; and Chicago,
Illinois.
The Company conducts its leasing and lending activities in several ways. A
portion of its business is generated with customized sales aid leasing
programs for vendors of equipment. Direct customer solicitation programs
(telemarketing, mail solicitations, and direct customer visits and referrals)
focusing primarily on present and former lessees and commercial borrowers
also generate business for the Company. Also, four affinity marketing
divisions generate volume for the Company -- American Legal Funding which
offers funding programs specifically designed for the legal profession; the
Information Systems Funding Group which offers leasing and lending services
for the use or ownership of mid-size computers and computer software to
businesses; American Reli Financial which provides leasing and lending
services to general equipment rental centers; and Golf Capital which provides
<PAGE> 3
leasing and lending services to the country club and golf course industry.
Additionally, the Company through its General Services Division provides
equipment leases and asset-based loans to a broader range of customers not
serviced by the four affinity marketing divisions.
Sales aid leasing programs are programs wherein the Company provides full
pay out or finance instruments (usually on a nonrecourse basis to the product
seller) to assist sellers of commercial equipment in merchandising their
products. The Company approves all contracts prior to authorizing purchase of
the equipment under the sales aid leasing programs. No one program commitment
is expected to exceed 10% of the Company's annual commercial leasing/lending
volume.
As of December 31, 1994, the Company held $206,000 in repossessed
equipment and equipment returned to it at the conclusion of the lease terms
(classified as other assets on the consolidated financial statements).
Repossessed and returned equipment is initially recorded at no more than 70%
of estimated fair value and is periodically written down until resold.
Acquisitions
On June 1, 1994, the Company purchased all of the capital stock of
American Capital Leasing Corporation ("ACL"), whose principal business
consists of financing and leasing equipment. (See Note R to the consolidated
financial statements.) The Company operates the acquired business as a
separate subsidiary. The Company has retained all five employees of ACL.
On June 1, 1993, the Company purchased all of the capital stock of Canyon
Capital, Inc. ("Canyon"), whose principal business consisted of financing and
leasing equipment. The Company does not operate the acquired business under
the trade name Canyon and intends to liquidate the portfolio of leases and
loans while soliciting certain lessees for additional new business.
On January 31, 1992, the Company purchased substantially all the assets of
Reli Financial Corp. ("Reli"), whose principal business consists of providing
financing to the equipment rental industry. The Company continues to operate
this acquired business (as well as the other rental and financing activities)
under the trade name "American Reli Financial". Reli's pre-acquisition
policies, procedures and systems have been evaluated, and integrated with the
Company's management practices. Direct solicitation remains the focus
activity of this division, and has increased the Company's market penetration
through expanded direct marketing efforts and trade show participation.
Direct Finance Leasing
Finance leases, often referred to as full pay out or capital leases, are
non-cancellable contracts, generally for a longer term than operating leases,
under which the original equipment cost to the Company is generally less than
the stream of periodic payments to be received from the lessee during the
initial lease term.
The Company's direct finance leases are those which meet one or more of
the following four criteria: (a) the lease transfers ownership of the
property to the lessee by the end of the lease term; (b) the lease gives the
lessee an option to purchase the property at a price that is sufficiently
lower than the expected fair value of the property at the time the option
becomes exercisable such that its exercise appears, at the inception of the
lease, to be reasonably assured; (c) the lease term is equal to 75% or more
of the estimated economic life of the property; or (d) the present value of
the minimum lease payments at the beginning of the lease term equals or
exceeds 90% of the fair value of the property.
In the case of its direct finance leases, the Company retains title to the
asset, yet the lessee generally bears the contractual risk of loss and the
duty to maintain and insure the asset. The Company's principal exposure on a
direct finance lease is the lessee's ability to make payments (i.e., the
credit risk); therefore, only after the Company is satisfied of the lessee's
credit worthiness and of its ability to make future lease payments, and upon
receipt of an executed lease, does the Company issue a purchase order to a
manufacturer or vendor for the equipment. Generally, the lessee pays the
Company, over the non-cancellable term of the lease, an amount equal to the
<PAGE> 4
purchase price of the leased equipment, less its estimated unguaranteed residual
value, if any, at the end of the lease term, plus a gross profit. The lessee
generally has the option at the conclusion of the term of the lease to either
(1) renew the lease; (2) purchase the equipment at its then market value or for
a predetermined amount; or (3) return the equipment to the Company. The Company
records a direct finance lease on its books as a receivable. The terms of direct
finance leases vary in length with the size of the lease and the estimated
useful life of the leased property and generally range from 12 to 60 months. The
average original term of the Company's direct finance leases is approximately 37
months.
Direct finance leases are originated through dealer sales organizations,
or directly with the lessee. Approximately 40 marketing representatives and
support staff present the Company's leasing programs to dealer/vendors
(thereby providing their customers the alternative of lease financing when
acquiring various types of equipment), and/or engage in direct solicitation
programs focusing on present and former lessees and also potential new
lessees, generally through telemarketing and direct mail solicitation.
Because the Company generally purchases equipment from dealers on a
nonrecourse basis, the leasing transaction provides a sale for the
dealer/vendor of the product. Frequently, former or existing lessees request
to lease additional equipment from the Company. Upon re-examination and
approval of the credit risk (including the lessee's credit, capacity to pay,
and nature of the leased property) the Company makes a decision to purchase
equipment for lease to the direct lessee.
As of year-end 1994, the Company owned and serviced 5,184 direct finance
lease contracts. No individual lessee had direct finance leases accounting
for more than 1.4% of the total finance lease contracts outstanding as of
December 31, 1994. (See note C to the consolidated financial statements for
concentration of credit risk related to finance receivables.) Direct finance
lease contracts (direct finance leasing receivables plus residual valuation
less unearned income) totalled $123,040,000 as of December 31, 1994.
Commercial Financing
The Company engages in commercial financing transactions with various
commercial customers. Commercial loans are generally secured by inventory,
receivables, equipment, or real estate. Installment loan agreements under
which a seller of commercial equipment enters into an installment sale of
equipment to a buyer are discounted by and assigned to the Company. Criteria
to qualify for commercial loans include credit worthiness, ability to make
future payments, and the quality of collateral used to secure the loans. As
of December 31, 1994, the Company had 1,022 commercial loans totalling
$31,088,000.
As of December 31, 1994, the Company held $600,000 in real estate from
foreclosures on one commercial loan. The real estate is recorded at estimated
fair value (net of disposal costs) and is included in other assets on the
consolidated financial statements.
REAL ESTATE
The Company, through American Real Estate Investment and Development Co.,
a wholly-owned subsidiary, is in the business of making and managing
investments in commercial real property for itself and on behalf of third
party investors. This activity principally involves the formation and
management of investment partnerships, asset management, and related advisory
and funding activities. The Company's portfolio was acquired through
sale/leaseback transactions, where existing buildings are purchased and
leased back to the seller; build-to-suit projects, where buildings are
constructed for lease to a specific tenant; or through the acquisition of
specific properties from third parties. In some instances, properties are
acquired in joint venture with other investors or management companies.
Presently the Company subcontracts all day-to-day asset management
responsibilities to third parties with whom the Company works closely.
The emphasis the Company places on the activities of buying, managing
and/or selling properties tends to vary from time to time in concert with the
markets and the Company's objectives. Beginning 1991, the Company primarily
<PAGE> 5
focused on managing and refinancing its existing properties. The selective
purchase of real estate assets resumed in 1994 as certain market conditions
appeared attractive. The Company also remained active in the sale of certain
individual assets and groups of assets, as it does from time to time. It is
likely that certain property sales will be consummated in 1995 based on present
marketing activity.
The forty-three properties owned and managed as of December 31, 1994 are
classified as follows: eighteen are office buildings, sixteen are industrial
buildings, two are limited service hotels, five are various retail centers,
and two are various other commercial properties. Fifteen of the properties
are multi-tenant, excluding the hotels. In these projects, assistance in
leasing and other onsite management activities is provided either by
co-managing partners local to the project or through third party management
companies (or both). The Company is general partner in Hampton Inn hotels in
Flint, Michigan, and Allentown, Pennsylvania, and provides hotel management
services through American Hotel Management, Inc., a subsidiary of the
Company.
The Company has in a select few instances made operating loans to
individuals or corporate entities in connection with its real estate
investment activities. These loans are included in the "Commercial Financing"
section.
Write-down
The Company's commercial real estate is affected by market driven changes
in value and by specific factors affecting individual properties. Market
conditions improved in 1994, and appear to have recovered substantially since
falling in previous years.
Generally accepted accounting principles which govern the Company's
reporting of its carrying value of assets do not permit the Company to
increase the reported book value (original cost less accumulated
depreciation) of properties which increase in fair value. However, properties
that are believed to have experienced material decreases below book value, of
a permanent nature, must be written down by the Company in the current
reporting period at the time of such determination. As of June 30, 1992,
eleven properties were believed to have had an estimated current fair value
materially below book value. The Company, in order to reflect this value
degradation, incurred a charge to earnings, net of deferred taxes and net of
losses allocable to minority interests, of $2,773,000 and reduced its share
of reported book value in real estate assets by $4,302,000, to $33,836,000.
As of December 31, 1993, the Company incurred an additional charge to
earnings, net of deferred taxes, of $322,000, and reduced its share of
reported book value in real estate assets by $488,000 to $31,419,000.
Management used the best information reasonably available to develop its
estimates of market value. Future changes to these estimates may be necessary
if conditions differ substantially from the assumptions used in developing
these valuations.
Investment in Real Estate Partnerships
The following table is a summary of the Company's total investment in and
operating results from consolidated and unconsolidated real estate
partnerships based on the Company's specific ownership percentages. (See
"Write-down.")
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------
Income Before Taxes Noncash expenses included Gain on
Year Investment in Real From Real Esta in Income Sale of
Ended Estate Partnerships Partners Before Taxes Partnership
12/31 Consolidated Investee Consolidated Investee Total Write-down Depreciation Interests
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $11,361 $121 $ 1,116 $ 773 $ 1,889 $ -- $1,078 $307
1993 9,441 (8) 380 (39) 341 488 1,146 --
1992 4,684 66 (3,209) (229) (3,438) 4,302 1,216 1
1991 7,496 978 111 (96) 15 -- 1,081 547
1990 6,941 468 86 (199) (113) -- 908 --
</TABLE>
<PAGE> 6
Investment in real estate partnerships increased in 1994 as a result of
the acquisition of two new partnerships, offset by several asset sales and
the sale of the Company's interest in one partnership. In January, 1995,
interest in one of the real estate partnerships acquired in 1994 was sold for
a gain.
Investment in real estate partnerships increased in 1993 primarily due to
the conversion of debt owed by the partnerships to the Company into capital,
capital contributions by the Company as part of the restructuring of one
partnership, and the purchase of limited partnership interests previously
held by third parties. The decrease in 1992 was due to the write-down of
property values (see "Write- down,"). Excluding the write-down, investment
levels in 1992 increased $578,000 from 1991. Substantially all of the
increase resulted from the purchase of limited partnership interests in
investee partnerships previously held by third parties.
Although since its inception the Company has not sold properties
representing a material amount of its investment in real estate partnerships,
it is likely in the near future that property sales will represent a more
significant part of the Company's real estate business.
Income before taxes from real estate partnerships is the aggregate of the
Company's proportionate share of such income from all partnerships in which
the Company has ownership interests. This income measure includes both income
or loss from operations (i.e., rental income less operating expenses,
interest charges, and depreciation), and income or loss from the sale of
properties owned by the partnerships. Income before taxes in 1994 increased
from both recurring operations, due to improved occupancy and stabilized
operating rentals, and the sale of various partnership properties. Income
before taxes in 1993 and 1992 was negatively impacted by the write-downs
described above. Excluding the write-down in 1993, income before taxes was
$829,000. Excluding the write-down of $4,302,000 (including an adjustment for
$198,000 of losses attributable to minority interests), income before taxes
from real estate partnerships in 1992 was $666,000, an improvement from 1991.
The improvement in 1993 and 1992 was substantially attributable to lower
interest costs rather than an improvement in the operation of the Company's
real estate. In general, profitability from operations remains susceptible to
the impact of lease expirations and the lowering of certain rents, although
this risk has somewhat diminished.
The sale of the Company's interest in one partnership to a third party,
through the exercise of a purchase option, accounted for the gain on sale of
partnership interests in 1994. In 1993 and 1992 the Company generated only a
nominal gain on sale of partnership interests as no meaningful sales activity
was conducted. This inactivity was due primarily to poor market conditions
resulting from general investor uncertainty over values and concerns over
real estate's relative illiquidity. The Company's activities in earlier years
had consisted of sales involving one to three partnerships. The Company
considers sales based on (i) the Company's need for additional liquidity,
(ii) the extent to which the Company has access to the market for limited
partnership capital, and (iii) the attractiveness of the Company's
partnership interests as a vehicle for resale to limited partner investors.
The extent of gain on sale of partnership interests is dependent on a
number of factors: the selling price (which is dependent on the yields
necessary to attract investors as compared with the yields generated by the
partnership), selling costs, and the book value of the interests being sold,
against which gain is measured. The book value of a given interest is
dependent in part on depreciation charges previously taken, which in turn is
a function of the length of time the partnership interest has been held prior
to sale and other factors. Because of the interaction of these various
factors, the Company's gain on sale of partnership interests has not shown
any consistent pattern over the last five years, and the Company does not
expect to recognize significant gains from the sale of partnership interests
in the near term.
Real Estate Financing and Contingencies
The Company has commercial loans outstanding to, and has guaranteed
portions of the debt of, eight unconsolidated real estate partnerships (See
notes E and O to the consolidated financial statements). The Company's
ownership interest in these partnerships range from 15% to 58.2% in 1994 and
<PAGE> 7
from 10% to 58.2% in 1993. As of December 31, 1994 and 1993, commercial loans
outstanding to these partnerships totalled $2,299,000 and $2,412,000,
respectively, and the guaranteed portions of the debt of these partnerships
were $2,253,000 and $2,400,000, respectively.
COMPETITION
The Company competes with a number of financial institutions, including:
domestic and foreign commercial and savings banks; independent leasing and
finance companies; captive manufacturer-related, vender-affiliated leasing
and finance companies; and diversified financial services companies,
including insurance companies and pension funds, other credit grantors and
other real estate investment companies. These competitors include large
companies operating on a national basis and smaller local entities. Based
upon Asset Finance & Leasing Digest's most recent listing, the Company was
the 40th largest finance company in the United States, based on 1993
originations (as measured by cost of new equipment added) and the 41st
largest based on 1993 portfolio size.
Competition is based on the size and length of contracts, the interest or
rental rate, other finance and service charges, assessment of the residual
value, name recognition, reputation and customer service. The Company
believes that it has been able to compete successfully against larger
competitors because its employees' in-depth knowledge of the industries they
are serving and the availability of information through its systems enable
the Company to offer superior response to its customers' needs.
EMPLOYEES
As of December 31, 1994, the Company had 75 full-time and 4 part-time
employees. The Company encourages its employees to participate in college and
other professionally-sponsored programs to further their knowledge and
professional expertise. Effective January 1, 1994, the Company has a 401(k)
plan covering substantially all employees who qualify as to age and length of
service. This plan includes a profit sharing component. Previously, the
Company had two defined contribution profit sharing plans. The Company
provides health, life, and disability insurance protection; educational
assistance; supplemental health care expense reimbursement; and other
standard employee benefits during, but not after, employment with the
Company.
<PAGE> 8
CERTAIN FINANCIAL COVENANTS
In connection with various bank loans, AEL Leasing Co., Inc., American
Commercial Credit Corp., and American Capital Leasing Corporation, as well as
American Equipment Leasing Co., Inc. (a wholly-owned subsidiary of Horrigan
American, Inc. that owns all the stock of those three subsidiaries), have
made certain agreements with respect to their capital structures and other
matters, the most significant of which are described below.
(i) American Equipment Leasing Co., Inc. and its subsidiaries, on a
consolidated basis, must maintain (a) a minimum cash flow ratio of
receipts to disbursements, as specifically defined, of 1 to 1, (b) a ratio
of debt to tangible net worth not in excess of 7 to 1, and (c) a minimum
tangible net worth of $21,000,000. As of December 31, 1994, the cash flow
ratio of receipts to disbursements was 1.32 to 1.00, the ratio of debt to
tangible net worth was 4.21 to 1.00, and tangible net worth totalled
$28,772,000.
(ii) AEL Leasing Co., Inc., American Commercial Credit Corp. and
American Capital Leasing Corporation, on a separate company basis, must
each maintain a ratio of debt to tangible net worth not in excess of 7 to
1. As of December 31, 1994, the ratio of debt to tangible net worth was
3.92 to 1.00 in AEL Leasing Co., Inc., 4.88 to 1.00 in American Commercial
Credit Corp. and 2.78 to 1.00 in American Capital Leasing Corporation.
The Company is in compliance with the above covenants as of December 31,
1994.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
See note M to the consolidated financial statements for information
relating to the Company's total revenues, operating profit, and identifiable
assets by industry segments.
AVERAGE INTEREST RATES
The following table sets forth information regarding weighted average
interest rates on the Company's borrowed funds during the periods indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-term borrowings ........ 5.36% 4.42% 5.31% 7.27% 9.28%
Long-term borrowings ........ 7.29% 7.56% 8.85% 10.06% 10.43%
Total borrowings ............ 7.00% 7.24% 8.57% 9.77% 10.24%
</TABLE>
ITEM 2. PROPERTIES
PROPERTY
The Company owns (through a consolidated real estate partnership) the
Horrigan American, Inc. headquarters building in Flying Hills, Reading,
Pennsylvania, which also houses the AEL Leasing Co., Inc. corporate staff and
most of the commercial leasing and lending staff of this subsidiary, and
other tenants. This office space is suitable and adequate for the Company's
office staff and supporting computer operations, which principally utilize
telephone, fax, and computer equipment. The Company has space available in
these facilities which should adequately cover its growth requirements.
The Company leases its commercial leasing/lending offices in Deerfield,
Illinois (a suburb of Chicago), Crestview Hills, Kentucky (a suburb of
Cincinnati, Ohio), Portland, Oregon and Orlando, Florida. American Real
Estate Investment and Development Co. leases its corporate office in Chicago,
Illinois. Rental expense for the year 1994 for the Company's leased offices
was $167,000. These leases expire at various times through July, 2000. (See
note N to the consolidated financial statements.) The Company believes that
alternative office space is available in all areas.
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
The Company is party (plaintiff or defendant) to certain legal actions.
While any litigation has an element of uncertainty, management, after
reviewing these actions with legal counsel, is of the opinion that the
liability, if any, resulting from these actions will not have a material
effect on the financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
There is no trading market for the registrant's common stock. See Item
13, "Certain Relationships and Related Transactions" for agreements restricting
the right of individual parties to dispose of their stock in the Company.
At February 28, 1995, there were 64 holders of common stock of the
Registrant.
Common stock dividends were paid quarterly in 1994 and in January
and July of 1993. Total dividends paid were $1,182,566 and $459,805 in 1994 and
1993, respectively. (See Item 8, "Consolidated Statements of Changes in
Stockholders' Equity.")
See Item 8, Note J to the consolidated financial statements for covenants
which restrict payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenues ....................................$ 28,625 $ 25,657 $ 23,096 $ 29,335 $ 29,684
Earnings (loss) from continuing operations (note 3) $ 3,688 $ 3,047 $ (413) $ 1,382 $ 1,218
Total assets ......................................$ 194,330 $ 164,953 $ 153,263 $ 158,787 $ 173,529
Long-term debt ....................................$ 131,213 $ 113,315 $ 112,465 $ 116,445 $ 121,479
Per common share (note 1)
Earnings (loss) from continuing operations .....$ 1.18 $ .92 $ (.13) $ .41 $ .36
Cash dividends declared ........................$ .38 $ .14 $ .08 $ .086 $ .166
Weighted average shares outstanding (note 1) ...... 3,120,916 3,278,159 3,310,584 3,328,109 3,361,468
Ratio of earnings to fixed charges (note 2) ....... 1.62 1.54 -- 1.17 1.14
</TABLE>
See accompanying notes to selected financial data.
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO SELECTED FINANCIAL DATA
1. Per Share Amounts Earnings from continuing operations per common share were
computed using weighted average shares and dilutive stock options
outstanding during each year after deducting preferred dividend requirements
from net earnings, and the purchase of treasury stock. Earnings per common
share assuming full dilution were not reported because dilution arising from
the stock options is less than three percent.
2. Ratio of Earnings to Fixed Charges The ratio of earnings to fixed charges
has been computed by dividing earnings plus fixed charges by the fixed
charges. Earnings for this purpose includes earnings from continuing
operations plus income taxes less equity in undistributed earnings of
unconsolidated affiliates. Fixed charges are considered to consist of
interest expense attributable to continuing operations and the portion of
rentals deemed representative of the interest factor. The ratio of earnings
to fixed charges is not expected to change by more than 10% as a result of
this offering. The Company guaranteed $2,253,000 of debt of unconsolidated
real estate partnerships as of December 31, 1994. The amount of fixed
charges associated with this guaranteed debt was $205,000 for 1994. The
computation of the ratio of earnings to fixed charges does not include the
fixed charges associated with the guaranteed debt because the Company has
not been required to honor the guarantees nor is it probable that the
Company will be required to honor the guarantees. In 1992, earnings from
continuing operations were inadequate to cover fixed charges by $269,000.
However, the ratio of earnings to fixed charges is not intended to disclose
cash flow from operations. In addition to the normal noncash expenses, such
as depreciation and provision for possible lease and loan losses, the
provision for write-down of real estate negatively affects the ratio for
1992. The ratio of earnings to fixed charges would be 1.35 if the provision
for write-down of real estate were excluded.
<PAGE> 11
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO SELECTED FINANCIAL DATA
3. Earnings (Loss) from Continuing Operations In 1993, the net earnings
included an after-tax charge of $322,000 which resulted from the write-down
of the Company's real estate assets by $488,000. Excluding the after-tax
effect of this write-down, the Company's results of operations in 1993 were
$3,369,000. In 1992, the net loss included an after-tax charge of $2,773,000
which resulted from the write-down of the Company's real estate assets by
$4,302,000. Excluding the after-tax effect of this write-down, the Company's
results of operations in 1992 were $2,360,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
EARNINGS (LOSS)
The Company generated net earnings of $3,688,000 for 1994, a 21% increase
from net earnings of $3,047,000 for 1993. The Company incurred a net loss of
$413,000 in 1992.
As a result of an overall revaluation of its real estate portfolio, the
Company reduced the book value of its real estate assets by $4,302,000 as of
June 30, 1992, and incurred a related after-tax, non- cash charge to earnings
of $2,773,000. As of December 31, 1993, the Company reduced the book value of
its real estate assets by an additional $488,000, and incurred a related
after-tax, non-cash charge to earnings of $322,000. (See "Business -- Real
Estate -- Writedown".) Excluding the after-tax effect of these write-downs,
the Company's results of operations in 1993 were $3,369,000, a 42.8% increase
from adjusted earnings of $2,360,000 in 1992.
TOTAL FINANCE REVENUE
Commercial leasing and financing revenue was $18,625,000 in 1994,
$17,401,000 in 1993 and $18,869,000 in 1992.
The Company's sales efforts have resulted in an increase in total volume
of new leases and loans in each of the past two years. This increase in
outstanding finance receivables has increased the average outstanding balance
of finance receivables and has started to offset the effect of lower yields.
Net direct finance lease receivables and commercial finance receivables
totalled $148,073,000 as of December 31, 1994 compared to $122,144,000 as of
December 31, 1993.
The decrease in commercial leasing and financing revenue in 1993 was
attributable primarily to lower effective yields on the lease and loan
portfolio. Lower yields resulted from both relatively lower market interest
rates which lowered the Company's lease and loan rates, and to the mix of the
Company's newly acquired leases and loans, which includes higher transaction
sizes where credit quality and rate sensitivity are believed to be higher.
While revenue levels have been lower than preferred by the Company,
reductions in credit losses have favorably impacted the Company.
FINANCE REVENUE MARGIN
Finance revenue margin represents the difference between total finance
revenues and the amount the Company pays as interest on short-term borrowings
and long-term debt allocated to finance receivables. The Company's finance
revenue margin was $11,642,000 for 1994, $10,890,000 for 1993, and
$10,425,000 for 1992.
The Company's finance revenue margin increased $752,000 (6.9%) in 1994
from 1993. Total finance revenues increased 7.0% in 1994 from 1993 and
interest expense increased 7.2% for the same period. The average interest
rate at which the Company prices its products decreased 121 basis points to
13.22% in 1994 from 14.43% in 1993. The average interest rate on the
Company's borrowings decreased 24 basis points to 6.60% in 1994 from 6.84% in
1993.
<PAGE> 12
Finance revenue margin increased in 1994 as a result of the $25,929,000
growth in finance receivables and the 7% increase in total finance revenues.
Interest expense increased at a faster rate than finance revenue due to
increased leverage.
The Company's finance revenue margin increased $465,000 (4.5%) in 1993
from 1992. This increase in finance revenue margin was the result of a faster
decrease (22.9%) in interest expense than the 7.8% decrease in total finance
revenues. The average interest rate at which the Company prices its products
decreased 111 basis points to 14.43% in 1993 from 15.54% in 1992. The average
interest rate on the Company's borrowings decreased 149 basis points to 6.84%
in 1993 from 8.33% in 1992.
The 1993 increase in finance revenue margin was due to the purchase of two
portfolios of finance receivables, during 1993, at a higher interest rate
spread. The Company continues to market higher average balance commercial
leasing and financing contracts, with lower yields to achieve improved asset
quality and economies of operations. The Company's Asset and Liability
Committee reviews this risk regularly and manages the matching of debt with
these finance receivables.
PROVISION FOR POSSIBLE LEASE AND LOAN LOSSES
The provision for possible lease and loan losses decreased $196,000
(12.5%) to $1,377,000 in 1994 and decreased $617,000 (28.2%) to $1,573,000 in
1993. The following table details the components of the provision for
possible lease and loan losses as of and for the years ended December 31,
1994, 1993 and 1992.
(In thousands)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Provision Allowance
for Possible for Gross Allowance
Lease and Net Loss Experience Possible Investment as a % of
Year Loan --------------------------------------- Acquired Lease and Loan in Gross
Ended Losses Charge-offs Recoveries Net Losses Allowance(A) Losses Receivables Receivables
- ------- -------------- ------------- ------------ ------------ ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL LEASING AND FINANCING
1994 $1,377 (1,792) 818 (974) 214 $6,055 $175,686 3.45%
1993 $1,573 (2,736) 1,136 (1,600) 852 $5,438 $144,313 3.77%
1992 $2,190 (3,205) 1,178 (2,027) 240 $4,613 $127,880 3.61%
</TABLE>
(A) The balance of the allowance for possible lease and loan losses increased
as a result of the acquisition of portfolios of finance receivables.
The Company maintains an allowance for possible lease and loan losses
based on a periodic evaluation of the finance receivable portfolio.
Management considers current economic conditions, diversification of the loan
portfolio, historical loss experience, results of loan reviews, borrower's
financial and managerial strengths, the adequacy of underlying collateral and
other relevant factors in its evaluation. While management uses the best
available information to make such evaluations, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluations. This allowance reflects an amount
that in management's opinion is adequate to absorb known and inherent losses
in the portfolio. Receivables which are determined to be uncollectible are
charged off against the allowance for possible lease and loan losses, and
recoveries on accounts previously charged off are credited to it.
As of December 31, 1994, the Company allocated $135,000 of the allowance
for possible lease and loan losses in anticipation of future losses on
certain individually significant accounts. This allocated allowance decreased
$155,000 in 1994 from 1993. As of December 31, 1993, the Company allocated
$290,000 of the allowance for possible lease and loan losses in anticipation
of future losses on certain individually significant accounts. This allocated
allowance decreased $125,000 in 1993 from 1992.
The Company's net charge-offs of commercial leasing and financing
receivables decreased by $625,000 (73.4%) in 1994 from 1993. The Company's
<PAGE> 13
net charge-offs of commercial leasing and financing receivables decreased by
$427,000 (21.1%) in 1993 from 1992. The decrease in net losses was the result of
improved underwriting standards, improved adjusting procedures, aggressive use
of legal remedies, strong remarketing efforts, and a healthier economy.
The Company continues to improve its asset quality and control
delinquency. The Company's tighter credit standards and more focused efforts
within several market niches, has enhanced asset quality. In certain
situations, larger down payments, additional security deposits, and/or
shorter terms are now required. An asset review committee monitors the
quality of the Company's assets. The Company's improved collection and
adjusting procedures have resulted in effective control of delinquent
receivables. Management believes the allowance for possible lease and loan
losses is adequate to cover estimated future credit losses.
NET OPERATING LEASE REVENUES
Net operating lease revenues represent rents on real estate and equipment
operating leases offset by related interest and depreciation expenses. Net
operating lease revenues decreased $365,000 (18.1%) in 1994 over 1993,
although total operating lease revenues increased $31,000 (0.6%) to
$5,712,000. Total equipment operating lease revenues increased $87,000 and
real estate operating leases revenue decreased $56,000 resulting from the
sale of properties in 1994 and 1993. Interest expense attributable to net
operating lease revenues increased $321,000 (12.8%) due to an increase in
mortgage debt outstanding during the period and higher interest rates. On
December 31, 1993, loans from the Company to several partnerships were
converted to capital contributions to these partnerships. The corresponding
interest incurred on this debt in 1994 is reflected as interest to fund real
estate operating leases. In 1993, this interest was appropriately included in
the Company's finance revenue margin. Depreciation expense attributable to
operating leases increased $75,000 (6.5%) primarily the result of an increase
in equipment operating leases and the acquisition of real estate property in
July and December, 1994, offset by a decrease in depreciation on real estate
operating leases due to the sale of properties in 1994 and 1993, and a lower
basis for certain real estate properties due to a $488,000 write-down to fair
value on December 31, 1993.
Net operating lease revenues increased $61,000 (3.1%) in 1993 over 1992,
although total operating lease revenues decreased $254,000 (4.3%) to
$5,681,000. The decrease in total operating lease revenues in 1993 was due
primarily to decreases in lease revenue resulting from the sale of two
properties in 1993 and the write-off of uncollectible rents, offset by rents
received on certain properties which were on a non-accrual basis in 1992, and
the collection of lease arrearages on three properties. Interest expense
attributable to net operating lease revenues decreased $289,000 due to lower
interest rates on a portion of the outstanding mortgage debt and less
mortgage debt outstanding during the period. Depreciation expense
attributable to operating leases decreased $26,000, primarily the result of
the lower basis for certain real estate properties due to the write-down to
fair value during 1992, and the sale of two properties, offset by an increase
in depreciation due to equipment operating leases generated in 1993.
The Company's principal objectives for its real estate business are to (1)
manage its properties aggressively, maintaining the integrity of the assets
through appropriate capital expenditures, (2) accelerate paydown of the debt
associated with those properties as available cash flow permits, (3) hold
most assets for long-term investment, (4) consider the selective sale of
individual properties or groups of properties, and (5) selectively invest in
additional real estate.
The Company's aggregate investment in real estate is not expected to
significantly appreciate in value over the next several years. In addition,
net operating lease revenues from some existing investments may decline in
the short to intermediate term, as rents under many existing leases are
expected to remain flat or decrease as leases expire over the next several
years. While this will tend to depress the Company's profitability in its
real estate operations for a period of time, it is expected that the
Company's real estate investments (after third party mortgage debt service
obligations and overhead expenses) will continue to provide positive cash
flow to the Company.
<PAGE> 14
The commercial real estate business is subject to several risks which
management reviews on a regular basis. These risks are identified below with
the status of each as of December 31, 1994:
1. Credit risks.
There are various levels of credit risks inherent in the Company's rent
receivables. A total of $2,000 of rents were thirty-one or more days past
due.
2. General market conditions nationally or within specific geographic
areas.
The Company is maintaining an ownership interest, ranging from 10% to
100%, in 43 real estate properties with an original cost of $63,325,000 in
the following states, with the percentage of concentration indicated in
parenthesis: Florida (27%), Pennsylvania (22%), New Jersey (14%), Michigan
(10%) and other (27%).
3. Greater difficulty in releasing or selling special purpose buildings.
The Company's special purpose buildings include three day-care facilities.
None are presently for sale and all are fully occupied. The Company also
owns and manages two limited-service hotels. The Company sold its interest
in a nursing home property in December, 1994.
4. Vacancies.
Total vacancy (excluding the hotels), based on the portfolio's total
square footage, approximated 5.3%. The vacancy percentage included partial
vacancies in eleven real estate projects, some of which may require
additional cash from the Company until the properties are substantially
leased. Management is actively pursuing new tenants for these properties.
5. Property repairs and improvements.
Preservation of the quality and value of commercial real estate properties
requires that repairs and improvements occur regularly. In a majority of
the Company's properties, the obligation to incur such expenditures has
been passed to the tenants. Provided the tenants have the financial
resources to comply, the Company is able to avoid or defer this
responsibility. In other cases, the responsibility is retained by the
Company, and repairs and improvements are funded out of current operating
lease cash flows or through cash reserves; and if necessary through
increased investments or additional borrowings.
The timing and amount of repairs or improvements is determined by the
operating history and present level of operating lease revenue levels of
the property, by the Company's plans for a property (such as a sale,
lease, or renovation), and in some cases by regulatory directives. In
1992, the Americans with Disabilities Act ("ADA") was passed, requiring
the improvement of many properties under certain conditions in order to
accommodate the needs of the physically disabled. In certain of the
Company's properties, meeting ADA requirements will necessitate
improvements at various times. The Company estimates that the cost of such
improvements will not be material relative to the aggregate cost of the
properties.
It is estimated that, not including potential ADA requirements, up to
approximately $629,000 of improvements may be made within the next twelve
months. Approximately 36% of the cost of these improvements will be funded
through operating cash generated by the partnerships, and the balance
through additional debt.
6. Mortgage loan rollover.
The extension or replacement of existing mortgage loans as they come due
continue to involve a high degree of risk in the current and reasonably
foreseeable future. Such loans, when available, are frequently at lower
loan amounts. In 1995, approximately $5,009,000 of third party mortgage
debt will come due and will require negotiation or replacement financing.
It is expected that a substantial portion of this debt will be
renegotiated for extended terms with existing lenders. To the extent any
<PAGE> 15
such debt is not extended in maturity, the Company expects to seek funding
from other lenders or provide funding internally, if necessary. As
interest rates have been increasing, however, any such extensions or new
loans may be at higher interest rates than in the recent past. This has
the potential to decrease the Company's operating margin, as several
factors can tend to reduce the ability to achieve higher revenues to
offset such increases. Such factors include the timing of rent adjustments
and market limitations.
7. Valuation of real estate properties.
A decline in the market value of the Company's investment in real estate
can provide risk to the Company in several ways. To the extent the
declines indicate a reduction in the rentals expected on a property, the
Company will experience a decline in operating lease revenues. Also, lower
values can reduce the amount of available loan borrowings or equity
capital available from third parties to the Company to fund its continued
ownership of the properties, and can reduce eventual sale proceeds if
properties are sold and values have not recovered.
In general, conditions affecting the value of individual properties can
change from period to period. Conditions include an extremely wide variety
of factors outside the control of the Company. In the case of many of the
Company's real estate operating leases, a change in conditions can also
include the early termination of a favorable lease caused by a tenant's
financial difficulties or the modification of such a lease arising out of
the negotiation of a new lease with a tenant. The Company is presently in
negotiations involving several of its properties, any of which may result
in lower operating lease revenues in future periods.
As of December 31, 1994, there were no properties believed to have an
estimated current fair value materially below book value. Future changes
to the property valuations may be necessary if any conditions differs
substantially from the assumptions used in developing current valuations.
OTHER OPERATING REVENUES
Other operating revenues increased $1,713,000 (66.5%) to $4,288,000 in
1994 from 1993. Customer service fees decreased $143,000 (11.7%) primarily
due to a continued reduction in insurance premiums earned as a result of the
discontinuance of the lease insurance program and fewer late charges earned
due to lower overall delinquency. Management income increased $39,000 (17.5%)
due to a fee received in connection with the sale of one real estate
property. Furniture and equipment sales, net of cost of goods sold, increased
$483,000 (69.6%) due to increased volume in the modular and systems furniture
business but the Company disposed of this line of business in March, 1995.
The Company's share of income in unconsolidated real estate partnerships
increased $812,000 primarily due to a pre-tax gain of approximately $813,000
from the sale of one real estate property in June, 1994, and an increase in
revenues generated by certain partnerships. Gain on sale of equity securities
decreased $381,000 (92.7%) due to less sales activity in 1994. Other income
increased $415,000 (74.6%) primarily due to a gain on the sale of a
partnership interest and the recovery of finance receivables which were
charged off prior to the Company's acquisition of those charged off finance
receivables.
Other operating revenues increased $4,283,000 to $2,575,000 in 1993 from a
loss of $1,708,000 in 1992. The loss in 1992 resulted from the write-down of
the Company's real estate portfolio by $4,302,000 in June 1992. A $488,000
provision for write-down of real estate was recorded in 1993 (see "Business
- -- Real Estate -- Write-down"). Customer service fees decreased $260,000
primarily due to a reduction in insurance premiums earned as a result of the
discontinuance of the lease insurance program in mid-1992 and fewer late
charges earned. Management income decreased $88,000 primarily due to
nonrecurring fees earned in 1992 from the negotiation of the sale of certain
equipment. Furniture and equipment sales increased $296,000 due to the entry
into the modular furniture business and the achievement of higher volume. The
Company's share of losses in unconsolidated real estate partnerships
decreased $190,000. Gain on sale of debt and equity securities increased
$405,000. Other income decreased $74,000.
<PAGE> 16
OPERATING EXPENSES
Operating expenses increased $1,029,000 (11.7%) to $9,860,000 in 1994.
Salaries, related taxes, and employee benefits increased $695,000 (15.2%) due
to an increase in incentive compensation, the addition of several marketing
personnel, and the addition of employees through the acquisition of American
Capital Leasing Corporation. Depreciation and amortization decreased $111,000
(19.8%) primarily due to a continued reduction in lease insurance expense due
to the discontinuance of this program in 1992. All remaining expenses
increased $445,000 (12.0%) due to an increase in the maintenance and repair
of various real estate properties, an increase in rent expense and the
addition of operating expenses incurred by American Capital Leasing
Corporation.
Operating expenses decreased $152,000 (1.7%) to $8,831,000 in 1993.
Salaries, related taxes, and employee benefits decreased $80,000 (1.7%) due
to a reduction in number of employees, offset by an increase in incentive
compensation. Depreciation and amortization decreased $36,000 (6.0%)
primarily due to a reduction in lease insurance expense due to the
discontinuance of this program in July 1992, offset by the write-off of
deferred costs associated with a mortgage which was subsequently refinanced.
All remaining expenses decreased $36,000 (1.0%) due to an across the board
reduction in expenses offset by fees paid to third party management companies
to assist in managing the day-to-day operations of most of the real estate
properties owned by the Company (this increase, however, is offset by a
reduction in salary expense for the Company's real estate investment
subsidiary) and consultant expenses incurred due to the acquisition of the
capital stock of Canyon Capital, Inc. in June 1993 (see "Business --
Commercial Equipment Leasing and Commercial Financing -- Acquisitions"). The
Company continues to control operating expenses based on the above analysis;
however, further expense reductions are necessary to improve profitability.
PROVISION FOR INCOME TAXES
Income taxes for 1994 were $2,502,000; for 1993 were $1,900,000; and for
1992 were $144,000 (including $241,000 of state income taxes for the
Company's profitable subsidiaries). The effective income tax rates for 1994,
1993 and 1992 were 39.4%, 37.4% and 28.8%, respectively (see note L to the
consolidated financial statements). The effective tax rate is higher than the
statutory federal income tax rate due principally to the provision for state
income taxes, net of federal tax benefit.
Income taxes for 1994 and 1993 increased $602,000 and $1,756,000,
respectively due to higher pre-tax income. Income taxes for 1992 decreased
$744,000 due to a pre-tax loss, principally the result of the net provision
for real estate write-down which provided a $1,310,000 income tax benefit.
Effective January 1, 1993, the Company adopted SFAS No. 109. This change
in the method of accounting for income taxes had no cumulative effect on the
1993 consolidated statement of operations (see note A to the consolidated
financial statements).
NET INVESTMENT IN FINANCE RECEIVABLES AND PROPERTY UNDER OPERATING LEASES
Net direct finance lease receivables and commercial finance receivables
totaled $148,073,000 as of December 31, 1994 compared to $122,144,000 as of
December 31, 1993, a net increase of $25,929,000 for the year. Property under
operating leases, net of accumulated depreciation, increased $3,391,000,
resulting primarily from the acquisition of two properties.
The increase in finance receivables was in accordance with the Company's
growth plans. The Company's sales efforts have generated a larger volume of
new leases and loans in 1994 due to increased penetration into focus markets,
while maintaining the Company's policy of tight credit standards. In
addition, the Company's lease and loan portfolio expanded through the
acquisition of American Capital Leasing Corporation on June 1 (see "Business
- -- Commercial Equipment Leasing and Commercial Financing -- Acquisitions").
Future originations will be dependent to a large extent upon economic
conditions and the Company's ability to sell services in a competitive market
environment. The Company continues to look for opportunities to acquire
portfolios of leases and loans which will compliment the Company's existing
finance receivables.
<PAGE> 17
The change in property under operating leases is in accordance with
management strategy. The Company's activities in buying and selling
properties varies in concert with the markets. Additional purchases of real
estate assets are considered as certain market conditions appear attractive.
Sales are considered at various times depending on such factors as pricing,
capital needs, and tenant interests.
LIQUIDITY
Liquidity represents the Company's ability to meet ongoing financial
obligations. The Company's ongoing liquidity is dependent upon continued
profitability and collection of its receivables and rentals, the ability to
sell equipment or collect purchase option payments at the conclusion of
maturing equipment leases, the sale of Subordinated Investment Certificates,
the ability to secure new senior debt (loans from banks and other financial
institutions), the ability to secure real estate mortgage financing, to sell
real estate, and to sell equity interests in real estate partnerships, and
the ability to obtain other financing.
Net cash provided by continuing operating activities was $6,769,000 for
1994, $7,175,000 for 1993 and $7,411,000 for 1992.
The Company's direct finance lease receivables and equipment operating
leases are funded primarily with unsecured senior debt. The Company generally
attempts to match new leases with borrowings of like maturity and amount in
which the interest rate is fixed at the time of the borrowing. Additionally,
the Company borrows term debt with varying maturities and short-term floating
interest rate debt, and uses Subordinated Investment Certificate debt. The
Company's commercial finance receivables are similarly match funded by
various forms of unsecured senior debt and Subordinated Investment
Certificate debt. The Company has unused lines of credit totalling
$56,382,000 as of December 31, 1994. (See "Capital Resources").
The Company's investment in real estate (property under operating leases)
is leveraged substantially with borrowings by the Company. Much of the debt
is comprised of mortgage loans securing individual properties. Of the
mortgage debt, a substantial amount is nonrecourse to the Company, with the
balance being recourse through guarantees by Horrigan American, Inc. or its
real estate subsidiary. Of the investment in real estate not funded with
mortgage debt, a substantial amount is funded indirectly by the Company with
Subordinated Investment Certificate debt.
In the opinion of management, the Company's liquidity position is
sufficient under present circumstances.
<PAGE> 18
CAPITAL RESOURCES
Future growth of the Company will depend in significant measure on its
ability to obtain additional lines of credit and other financing, the
continued sale of Subordinated Investment Certificates, the sale of equity
interests in real estate partnerships and continued profitability. As of
December 31, 1994, the Company had the following debt structure:
<TABLE>
<CAPTION>
(In thousands)
- ---------------------------------------------------------------
Debt Outstanding and
Availability/Lines of Credit
-----------------------------------
Total In
Availability Use Unused
- ---------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Borrowings:
Investment Certificate .. $ -- $ 3,143 $ --
Fixed Rate .............. 37,707 20,000 17,707
Floating Rate ........... 5,000 250 4,750
------------ ---------- --------
Sub-Total ........... 42,707 23,393 22,457
------------ ---------- --------
Long-Term Debt:
Recourse
Investment Certificate .. -- 25,864 --
Junior Subordinated Debt -- 103 --
Unsecured Funding Program 86,890 52,965 33,925
Fixed Rate .............. 24,543 24,543 --
Term Loan ............... -- 2,000 --
Real Estate Mortgages ... -- 5,005 --
Other long-term debt .... -- 156 --
Nonrecourse ..............
Real Estate Mortgages ... -- 20,577 --
------------ ---------- --------
Sub-Total ........... 111,433 131,213 33,925
------------ ---------- --------
TOTAL DEBT ............... $154,606
==========
TOTAL AVAILABILITY ....... $154,140 $56,382
============ ========
</TABLE>
Total stockholders' equity increased by $1,789,000 from December 31, 1993
to December 31, 1994 primarily due to the net earnings of $3,688,000 for
1994, offset by the payment of dividends ($1,190,000) and the decrease in the
net unrealized holding gains for available-for-sale securities ($622,000).
Refer to Notes H and I to the consolidated financial statements for
disclosure of the outstanding short-term and long-term debt, including lines
of credit information. In the opinion of management, the Company's capital
resources are sufficient under present circumstances to satisfy its capital
requirements based upon present asset growth projections, current leverage,
continued profitability and historic ability to secure new sources of
borrowings.
INFLATION
The Company's financial statements, and the related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which generally require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due
to inflation. The primary impact of inflation on the operation of the Company
is reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant
impact on the Company's performance than the effects of general levels of
inflation.
<PAGE> 19
INTEREST RATES
Interest rates do not necessarily move in the same direction or in the
same magnitude as the price of goods and services. Management believes that
continuation of its efforts to manage the rates, liquidity and interest
sensitivity of the Company's assets and liabilities is necessary to generate
an acceptable return on assets and return on equity.
Interest rate sensitivity management seeks to avoid fluctuating net
interest margins and to enhance consistent growth of net interest margins
through periods of changing interest rates.
Interest rate risks arise when interest-earning assets mature or when
their rates of interest change in time frames that are different from those
of interest-bearing liabilities. The matching of assets and liabilities may
be analyzed by examining the extent to which they are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity
"gap." An asset or liability is said to be interest rate sensitive within a
specific time period if it will mature or reprice within that time period.
The interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specific
time period and the amount of interest-bearing liabilities maturing or
repricing within that same time period. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities. A gap is considered negative when the amount of
interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income while a positive gap would
tend to result in an increase in net interest income. During a period of
falling interest rates, a negative gap would tend to result in an increase in
net interest income while a positive gap would tend to adversely affect net
interest income.
The rate of growth in interest free sources of funds (e.g., stockholders'
equity) will influence the level of interest sensitive funding sources. In
addition, the absolute level of interest rates will affect the volume of
earning assets and funding sources. As a result of these limitations, the
interest sensitivity gap is only one factor to be considered in estimating
the net finance revenue margin. The Company monitors and adjusts the gap
position, taking into consideration current interest rate projections, and
maintaining flexibility if rates move contrary to expectations.
As of December 31, 1994, the Company had a three-month negative cumulative
gap of 3.8%, a six-month negative cumulative gap of 3.3% and a twelve-month
negative cumulative gap of 2.8% on total earning assets of $185,551,000. The
cumulative gaps for years two through ten ranged from 9.7% positive to 4.7%
positive. These percentages are reflective of scheduled principal payments
only and have not been adjusted for anticipated early pay-offs. The
relatively short duration of many of the Company's earning assets indicates
that the interest rate sensitivity gap will probably remain within its
present, rather narrow, margin under current market interest rate conditions.
Management believes the Company's cumulative gap ranges are satisfactory for
achieving acceptable net interest margins.
The Company has interest rate swap agreements outstanding where the
Company pays fixed interest rates and receives variable interest rates. The
following table contains information concerning these agreements as of
December 31, 1994:
<TABLE>
<CAPTION>
1994
----
<S> <C>
Number of agreements ........................ 4
Notional principal amount ................... $7,587,701
Weighted average maturity ................... 2.4 years
Weighted average fixed rate payable ......... 5.79%
Weighted average variable rate receivable ... 6.19%
Original notional principal amount .......... $8,500,000
Range of maturities ......................... 1.17 to 3.33 years
Range of fixed rates payable ................ 4.25% to 6.95%
Range of variable rates receivable .......... 6.06% to 6.38%
</TABLE>
<PAGE> 20
Interest expense is adjusted for the net amount receivable or payable
under the interest rate swap agreements. The following table contains
information concerning these agreements for the year ended December 31, 1994:
<TABLE>
<CAPTION>
1994
----
<S> <C>
Weighted average fixed rate payable ..... 5.79%
Weighted average variable rate receivable 4.90%
Interest paid ........................... $38,530
Interest received ....................... $ 7,822
Net interest expense recorded ........... $30,708
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
HORRIGAN AMERICAN, INC.
We have audited the accompanying consolidated balance sheets of Horrigan
American, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Horrigan
American, Inc. and subsidiaries as of December 31, 1994 and 1993 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
January 31, 1995
Philadelphia, Pennsylvania
<PAGE> 21
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1994 1993
---- ----
(In thousands)
----------------------
<S> <C> <C>
Cash .................................................................... $ 1,947 $ 2,160
Debt and equity securities .............................................. 2,335 2,697
Net investment in finance receivables ................................... 148,073 122,144
Equity investments in real estate partnerships .......................... 121 (8)
Property under operating leases, net .................................... 35,022 31,631
Property and equipment, net ............................................. 2,560 2,301
Other assets ............................................................ 4,272 4,028
-------- --------
$194,330 $164,953
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings ................................................... $ 23,393 $ 16,305
Accounts payable and accrued expenses ................................... 6,468 4,244
Customer deposits ....................................................... 2,316 2,188
Long-term debt:
Recourse ............................................................... 110,636 94,880
Nonrecourse ............................................................ 20,577 18,435
-------- --------
Total Liabilities .................................................... 163,390 136,052
-------- --------
Minority interest .................................................... 494 244
-------- --------
Stockholders' equity:
Preferred stock, $100 par value: 8% noncumulative, nonvoting: authorized
20,000 shares; issued and outstanding 0 shares in 1994 and 1,952
shares in 1993 ....................................................... -- 195
Common stock, $1 par value: authorized 10,000,000 shares; issued
3,128,262 shares in 1994 and 3,111,766 shares in 1993; outstanding
3,126,762 shares in 1994 and 3,111,766 shares in 1993 ................ 3,128 3,112
Capital in excess of par value ......................................... 106 --
Net unrealized holding gains for available-for-sale securities, net of
tax .................................................................. 752 1,374
Retained earnings ...................................................... 26,474 23,976
Less treasury stock, at cost; 1,500 shares in 1994 and 0 shares in 1993 (14) --
-------- --------
Total Stockholders' Equity ........................................... 30,446 28,657
-------- --------
$194,330 $164,953
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 22
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands, except per share amounts) 1994 1993 1992
--------- --------- ----------
<S> <C> <C> <C>
Finance revenues:
Commercial leasing and financing revenue .............. $18,625 $17,401 $18,869
Interest expense ...................................... 6,983 6,511 8,444
------- ------- --------
Finance revenue margin ............................... 11,642 10,890 10,425
Provision for possible lease and loan losses .......... 1,377 1,573 2,190
------- ------- --------
Finance revenues after provision for possible lease
and loan losses ................................... 10,265 9,317 8,235
------- ------- --------
Operating lease revenues:
Rents on real estate operating leases ................. 5,500 5,556 5,850
Rents on equipment operating leases ................... 212 125 85
------- ------- --------
Total operating lease revenues ....................... 5,712 5,681 5,935
Interest expense ...................................... 2,838 2,517 2,806
Depreciation .......................................... 1,222 1,147 1,173
------- ------- --------
Net operating lease revenues ......................... 1,652 2,017 1,956
------- ------- --------
Other operating revenues (losses):
Customer service fees ................................. 1,075 1,218 1,478
Management and broker income .......................... 262 223 311
Furniture and equipment sales, net of cost of goods
sold ................................................ 1,177 694 345
Equity gain (loss) in real estate partnerships ........ 773 (39) (229)
Provision for write-down of real estate ............... -- (488) (4,302)
Gain on sale of debt and equity securities ............ 30 411 6
Other income .......................................... 971 556 683
------- ------- --------
Total other operating revenues (losses) .............. 4,288 2,575 (1,708)
------- ------- --------
Operating expenses:
Salaries and employee benefits ........................ 5,261 4,566 4,646
Depreciation and amortization ......................... 449 560 596
Other taxes ........................................... 653 633 738
Credit and collection ................................. 249 324 328
Other expenses ........................................ 3,248 2,748 2,675
------- ------- --------
Total operating expenses ............................. 9,860 8,831 8,983
------- ------- --------
Earnings (loss) before income taxes and minority
interest .............................................. 6,345 5,078 (500)
Income tax provision .................................. 2,502 1,900 144
------- ------- --------
Earnings (loss) before minority interest ............... 3,843 3,178 (644)
Minority interest (income)/loss ....................... (155) (131) 231
------- ------- --------
Net earnings (loss) .................................... $ 3,688 $ 3,047 $ (413)
======= ======= ========
Net earnings (loss) per common share ................... $ 1.18 $ 0.92 $ (0.13)
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 23
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net unrealized
Capital holding gains
in excess for available-
Preferred Common of par for-sale Retained Treasury
(In thousands) stock stock value securities earnings stock
- -------------------------------- ----------- -------- ----------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1992 .. $ 195 $3,581 $ 1,136 $ -- $23,333 $(1,368)
Net loss ...................... -- -- -- -- (413) --
Cash dividends declared
($.080 per common share) .... -- -- -- -- (265) --
($8.00 per preferred share) . -- -- -- -- (16) --
Purchase of treasury stock at
cost -- 39,278 shares ....... -- -- -- -- -- (269)
Issuance of 16,045 shares in
connection with incentive
stock options ............... -- 16 76 -- -- --
Issuance of 476 shares ........ -- 1 3 -- -- --
------ ------ ------- ------ ------- -------
Balance as of December 31, 1992 195 3,598 1,215 -- 22,639 (1,637)
Net earnings .................. -- -- -- -- 3,047 --
Cash dividends declared
($.14 per common share) ..... -- -- -- -- (459) --
($8.00 per preferred share) . -- -- -- -- (16) --
Purchase of treasury stock at
cost -- 200,566 shares ...... -- -- -- -- -- (1,373)
Issuance of 11,300 shares in
connection with non-qualified
stock options ............... -- 11 58 -- -- --
Issuance of 734 shares ........ -- 1 4 -- -- --
Retirement of treasury stock --
497,934 shares .............. -- (498) (1,277) -- (1,235) 3,010
Change in carrying value, net
of tax ...................... -- -- -- 1,374 -- --
------ ------ ------- ------ ------- -------
Balance as of December 31, 1993 195 3,112 -- 1,374 23,976 --
------ ------ ------- ------ ------- -------
Net earnings .................. -- -- -- -- 3,688 --
Cash dividends declared
($.38 per common share) ..... -- -- -- -- (1,182) --
($4.00 per preferred share) . -- -- -- -- (8) --
Purchase of treasury stock at
cost -- 1,500 shares ........ -- -- -- -- -- (14)
Issuance of 15,825 shares in
connection with non-
qualified stock options ..... -- 15 102 -- -- --
Issuance of 671 shares ........ -- 1 4 -- -- --
Purchase and retirement of
preferred shares ............ (195) -- -- -- -- --
Change in carrying value, net
of tax ...................... -- -- -- (622) -- --
------ ------ ------- ------ ------- -------
Balance as of December 31, 1994 $ -- $3,128 $ 106 $ 752 $26,474 $ (14)
====== ====== ======= ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 24
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands) 1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Finance revenues received ................................ $ 16,618 $ 15,498 $ 16,790
Rentals and other cash received .......................... 10,150 9,534 9,115
Lease purchase options received .......................... 2,753 2,695 3,306
Dividends received ....................................... 27 26 36
Interest paid ............................................ (9,711) (9,069) (11,395)
Cash paid to suppliers and employees ..................... (11,083) (9,027) (8,770)
Income taxes paid ........................................ (1,985) (2,482) (1,671)
--------- -------- --------
Net cash provided by operating activities (note P) ...... 6,769 7,175 7,411
--------- -------- --------
Cash flows from investing activities:
Originations and purchases of finance receivables ........ (99,748) (74,552) (57,064)
Principal collections of finance receivables ............. 85,501 75,629 74,769
Acquisition of assets of Reli Financial Corp. ............ -- -- (21,404)
Acquisition of capital stock of Canyon Capital, Inc.
(net of cash received) ................................. -- (4,138) --
Acquisition of capital stock of American Capital Leasing
Corporation (net of cash received) (note R) ............ (3,986) -- --
Acquisition of debt and equity securities ................ (725) (166) (106)
Proceeds from sale of debt and equity securities ......... 175 673 211
Acquisition of property under operating leases ........... (6,914) (328) (369)
Proceeds from sale of property under operating leases .... 608 1,476 540
Acquisition of property and equipment .................... (442) (182) (282)
Proceeds from sale of property and equipment ............. 2 5 1
Acquisition of equity, partnership and long-term
investments ............................................ (132) (164) (491)
Proceeds from sale of equity, partnership and long-term
investments ............................................ 1,372 152 127
Insurance premium paid increasing cash value ............. (21) (30) (64)
--------- -------- --------
Net cash used by investing activities ................... (24,310) (1,625) (4,132)
--------- -------- --------
Cash flows from financing activities:
Issuance of common stock ................................. 122 74 96
Minority capital received ................................ 256 -- 37
Dividends paid and partnership distributions ............. (1,351) (629) (522)
Acquisition of preferred stock and treasury stock ........ (209) (1,373) (269)
Short-term debt borrowings ............................... 195,850 87,250 59,640
Short-term debt repayment ................................ (196,100) (84,986) (59,890)
Long-term debt borrowings ................................ 73,582 54,236 51,581
Long-term debt repayment ................................. (54,558) (59,663) (58,041)
Certificate borrowings ................................... 5,588 6,307 9,000
Certificate repayment .................................... (5,350) (6,566) (6,364)
Net change in customer deposits .......................... (502) (242) (342)
--------- -------- --------
Net cash provided by (used by) financing activities ..... 17,328 (5,592) (5,074)
--------- -------- --------
Net decrease in cash ...................................... (213) (42) (1,795)
Cash at beginning of year ................................ 2,160 2,202 3,997
--------- -------- --------
Cash at end of year ...................................... $ 1,947 $ 2,160 $ 2,202
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 25
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of Horrigan
American, Inc., nine wholly-owned subsidiaries (American Equipment Leasing
Co., Inc., AEL Leasing Co., Inc., American Commercial Credit Corp., American
Capital Leasing Corporation, AEL Holdings, Inc., Horrigan American
Securities, Inc., American Real Estate Investment and Development Co.,
American Hotel Management, Inc. and The Business Outlet, Inc.), and
thirty-one real estate partnership investments, wherein the Company is
maintaining a controlling interest, ranging from 10% to 100% (the Company).
All significant intercompany balances and transactions have been
eliminated in consolidation.
Investments in nine real estate partnerships, wherein the Company is not
maintaining a controlling interest, are stated at cost plus equity in
undistributed net earnings since dates of acquisition.
Minority interest, as reported in the consolidated balance sheets,
includes the income or loss for the minority investors of real estate
partnerships. This minority interest balance fluctuates due to current year
income or loss, contributions to, and distributions from, the partnerships;
changes in ownership percentages; or the addition or deletion of partnerships
from the group of consolidated partnerships.
Debt and Equity Securities
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS No. 115). This statement requires
investments in equity securities with a readily determinable fair value and
investments in all debt securities to be classified at the date of
acquisition in one of three categories. The three categories are (1) held to
maturity -- carried at amortized cost; (2) available for sale -- carried at
fair value (with unrealized gains and losses, net of tax, flowing through a
separate component of stockholders' equity); and (3) trading account --
carried at fair value (with unrealized gains and losses flowing through the
income statement). Effective December 31, 1993, the Company adopted SFAS No.
115. The fair value of securities is based on quoted market prices. Prior to
1993, the Company carried all debt securities at amortized cost (because it
had the intent and ability to hold such securities until maturity) and all
equity securities at the lower of aggregate cost or market.
Net Investment in Finance Receivables
Net investment in finance receivables consists of commercial leasing and
financing receivables, and lease residual value receivables. Receivables are
stated at gross balances net of unearned income and net of the allowance for
possible lease and loan losses.
Real Estate Investment Activity
Included in Equity Investments in Real Estate Partnerships and Property
Under Operating Leases are various investments in commercial real estate.
This activity principally involves the formation and management of investment
partnerships, property management, and related advisory and funding
activities. The forty-three properties owned and managed as of December 31,
1994 are classified as follows: eighteen are office buildings, sixteen are
<PAGE> 26
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE A -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
industrial buildings, two are limited service hotels, five are various retail
centers and two are various other commercial properties. Fifteen of the
properties are multi-tenant, excluding the hotels. Significant geographic
concentrations (based on property cost) within the portfolio are: Florida (27%),
Pennsylvania (22%), New Jersey (14%) and Michigan (10%).
Real estate properties are recorded at the lower of cost or net realizable
value. Properties that are believed to have experienced material decreases in
net realizable value below book value, of a permanent nature, are written
down in the current reporting period at the time of such determination. In
making such determinations, consideration is given to such factors as cash
flows, reserves, vacancy factors, capitalization rates and growth rates.
On a periodic basis, or upon the occurrence of a triggering event (e.g.,
default of a major tenant), management performs an internal valuation on such
properties. These valuations reflect current expectations relating to cash
flows, reserves, vacancy factors, capitalization rates and growth rates. If
such valuation results in the devaluation of a property, which management
believes is other than temporary, that valuation is recognized as a charge to
earnings in the current period.
Revenue Recognition
The accounting for nonrefundable fees and costs associated with
originating or acquiring loans and initial direct costs of leases is
presented in accordance with Statement of Financial Accounting Standards No.
91.
Income on direct finance leases included in the minimum lease payments is
deferred and earned on the interest method to reflect a constant periodic
rate of return on the net investment in the lease. Residual values of leased
equipment represent the estimated fair value of the equipment at the
conclusion of the lease. Residual values for direct finance leases are earned
on the interest method over the life of the related leases.
Income on commercial finance receivables is earned on the interest method
to reflect a constant periodic rate of return.
The accrual of income on finance receivables is discontinued once a
finance receivable becomes one day past due. Also, when in management's
judgment it is determined that a reasonable doubt exists as to the
collectibility of additional income, future payments are applied to the
principal balance only, and the finance receivable is classified as
non-performing.
Rentals from equipment operating leases are recognized as income when due.
Depreciation is provided on the double declining-balance method over the
useful life of the equipment as follows: transportation and machinery
equipment -- five years; office, data processing and other equipment -- four
to five years.
Rentals from real estate operating leases are recognized as income when
due. Depreciation is provided on the straight-line method over the useful
life of the property: nineteen to thirty-nine years.
Loan Impairment
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS No. 114). In October 1994, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures" (SFAS No. 118) which amends SFAS No. 114. These
statements require that certain impaired loans be measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate. This statement excludes leases as defined in SFAS
No. 13, Accounting for Leases.
<PAGE> 27
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE A -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
Effective January 1, 1994, the Company adopted SFAS No. 114 and SFAS No.
118. The cumulative effect of this change in the method of accounting for
loan impairment is $0 to the 1994 consolidated statement of operations. The
Company will recognize future changes in the present value of impaired loans
by reporting the entire charge as bad-debt expense in the same manner in
which impairment initially was recognized.
Allowance for Possible Lease and Loan Losses
The allowance for possible lease and loan losses is based on a periodic
evaluation of the finance receivable portfolio and reflects an amount that in
management's opinion is adequate to absorb known and inherent losses in the
portfolio.
Management considers a variety of factors when evaluating the allowance
recognizing that an inherent risk of loss always exists in the lending
process. Consideration is given to the impact of current economic conditions,
diversification of the loan portfolio, historical loss experience, results of
loan reviews, borrower's financial and managerial strengths, the adequacy of
underlying collateral and other relevant factors. While management uses the
best available information to make such evaluations, future adjustments to
the allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluation. The provision for possible lease
and loan losses is charged to operating expense. Lease and loan losses are
charged directly against the allowance and recoveries on previously
charged-off leases and loans are added to the allowance.
Derivative Financial Instruments
Interest rate swap agreements are entered into as hedges against
fluctuations in the interest rates of specifically identified liabilities.
There is no effect on the total liabilities of the Company, however, net
amounts receivable or payable under agreements designated as hedges are
recorded as adjustments to the interest expense related to the hedged
liability.
Property and Equipment
Depreciation on fixed assets (not including property leased to others) is
provided primarily by the straight-line method over the estimated useful
lives of the respective asset classes as follows: building and improvements
- -- five to forty years; office and data processing equipment -- two to eight
years.
Income Taxes
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109) requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability
method of accounting for income taxes. Under the asset and liability method
of SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Effective January 1, 1993, the Company adopted SFAS No. 109. The
cumulative effect of this change in the method of accounting for income taxes
was $0 to the 1993 consolidated statement of operations.
<PAGE> 28
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE A -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992 and prior years, deferred income taxes were recognized for income and
expense items that were reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year
of the calculation. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in tax rates.
Retirement and Postemployment Benefits
Effective January 1, 1994, the Company has a 401(k) plan covering
substantially all employees who qualify as to age and length of service. This
plan includes a profit sharing component. During 1993 and 1992, the Company
had two defined contribution profit sharing plans. The contribution
percentage is determined each year by the Board of Directors of each
subsidiary of the Company. Profit sharing expense, aggregating $299,000,
$315,000 and $295,000 in 1994, 1993 and 1992, respectively, was reported as
salaries and employee benefits. The Company currently has no postretirement
benefits as contemplated under Statement of Financial Accounting Standards
No. 106, nor postemployment benefits as contemplated under Statement of
Financial Accounting Standards No. 112.
Earnings Per Common Share
Earnings per common share are computed using weighted average shares and
dilutive stock options outstanding during each year after deducting preferred
dividend requirements from net income. Earnings per common share assuming
full dilution are not reported because dilution arising from the stock
options is less than three percent.
Reclassifications
Prior period amounts have been reclassified when necessary to conform to
the current year's presentation.
NOTE B -- DEBT AND EQUITY SECURITIES
The following is a summary of information as of and for the years ended
December
31:
<TABLE>
<CAPTION>
Gross Gross
Aggregate unrealized unrealized Gross Gross
Aggregate fair holding holding realized realized
(In thousands) cost value gains losses Proceeds gains losses
- -------------- --------- ------ ---------- ---------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale equity securities:
1994 ......... $1,195 $2,335 $1,140 $ -- $175 $ 30 $ --
1993 ......... $ 615 $2,697 $2,082 $ -- $629 $413 $ 1
Equity securities:
1992 ......... $ 666 $1,991 $1,325 $ -- $ 66 $ 9 $ 3
Debt securities:
1994 ......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
1993 ......... $ -- $ -- $ -- $ -- $ 44 $ -- $ 1
1992 ......... $ 53 $ 48 $ -- $ 5 $145 $ -- $ --
</TABLE>
<PAGE> 29
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE C -- NET INVESTMENT IN FINANCE RECEIVABLES
Net investment in finance receivables and maximum terms remaining as of
December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Maximum
terms-months
-------------
(In Thousands) 1994 1993 1994 1993
- --------------- -------- -------- ------ ------
<S> <C> <C> <C> <C>
Commercial financing receivables ............ $ 31,088 $ 35,050 63 63
Direct finance leasing receivables .......... 138,253 104,320 58 58
-------- --------
Total receivables .......................... 169,341 139,370
Residual valuation .......................... 6,345 4,943 58 58
Unearned income ............................. (21,558) (16,731)
Allowance for possible lease and loan losses (6,055) (5,438)
-------- --------
Total net investment ....................... $148,073 $122,144
======== ========
</TABLE>
Installments due on total receivables for each of the five years
subsequent to December 31, 1994 are as follows: 1995, $76,659,000; 1996,
$49,359,000; 1997, $26,909,000 1998, $10,458,000; 1999, $3,963,000; and
thereafter, $1,993,000.
Included within the finance receivables are non-performing leases and
loans on which the Company is applying payments to principal only. Such
receivables approximated $245,000 and $101,000 as of December 31, 1994 and
1993, respectively. If these receivables had been current in accordance with
their original terms, finance revenue in 1994, 1993 and 1992 would have
increased $35,000, $39,000 and $100,000, respectively.
The Company's credit risk of finance receivables arises in the normal
course of business, principally from commercial businesses, throughout the
United States with some geographic concentration (based on equipment cost) in
California (17%), Pennsylvania (9%), Texas (8%), New York (6%) and Florida
(6%). There is also some leased asset equipment concentration (based on total
receivables) in construction (28%), computers and computer software (26%),
manufacturing/machine tools (5%) and party rental equipment (5%). The Company
has identified by industry type (based on total receivables) the following
significant concentrations of credit risk as of December 31, 1994: Equipment
Rental (36%), Attorneys (14%) and manufacturing/machine tools (7%). The
Company retains title to the equipment asset in the case of its direct
finance leasing receivables, while the lessee bears the contractual risk of
loss and the duty to maintain and insure the asset. The commercial financing
receivables are generally secured by inventory, receivables, real estate or
equipment.
NOTE D -- ALLOWANCE FOR POSSIBLE LEASE AND LOAN LOSSES
The following is a summary of the Company's allowance for possible lease and
loan losses as of and for the years ended December 31:
<TABLE>
<CAPTION>
Balance at Charge-offs, Balance at
beginning net of Acquired end
(In thousands) of year Provision recoveries Allowance of year
- -------------- ------------ ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1994 ......... $5,438 1,377 (974) 214(A) $6,055
1993 ......... $4,613 1,573 (1,600) 852(A) $5,438
1992 ......... $4,210 2,190 (2,027) 240(A) $4,613
</TABLE>
(A) The balance of the allowance for possible lease and loan losses
increased as a result of the acquisition of portfolios of finance
receivables.
<PAGE> 30
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE E -- EQUITY INVESTMENTS IN REAL ESTATE PARTNERSHIPS
Investments in nine unconsolidated real estate partnerships consist of total
ownership interests ranging from 10% to 58.2%.
Summary combined financial information for the investee partnerships as of
and for the years ended December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---------- ----------
<S> <C> <C>
Land, building and improvements, net . $ 10,350 $ 13,648
Other assets ......................... 1,365 1,111
Long-term debt .................... (11,077) (14,318)
Other liabilities ................. (187) (205)
-------- --------
Net assets ........................... $ 451 $ 236
======== ========
Revenue: .............................
Rents on real estate operating
leases .......................... $ 1,076 $ 1,175
Hotel revenue & other ............. 4,570 4,982
Gain on sale of property and
equipment ....................... 2,399 291
-------- --------
Total revenue .................. 8,045 6,448
======== ========
Net income ........................... $ 2,684 $ 349
======== ========
</TABLE>
The unamortized portion of the excess of cost over the Company's share of
net assets of investee partnerships was $33,000 and $56,000 as of December
31, 1994 and 1993, respectively.
The Company provides management services to the investee partnerships
under terms of an agreement. The revenue for these services, aggregating
$262,000, $230,000 and $223,000 in 1994, 1993 and 1992, respectively, was
reported as management income.
The Company has commercial loans outstanding to investee partnerships of
$2,299,000 and $2,412,000 as of December 31, 1994 and 1993, respectively. The
Company has also guaranteed the debt (refer to note O) of certain
unconsolidated real estate partnerships.
The Company has sold certain partnership interests. Total gain on sale of
the partnership interests, aggregating $307,000, $0 and $1,000 in 1994, 1993
and 1992, respectively, was reported as other income.
NOTE F -- PROPERTY UNDER OPERATING LEASES
The following is a schedule of the Company's investment in property under
operating leases as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------- ---------
<S> <C> <C>
Real Estate Cost:
Land ........................... $ 7,922 $ 7,002
Building and improvements ...... 32,653 29,782
------- -------
Total ....................... 40,575 36,784
Accumulated depreciation ....... (5,934) (5,365)
------- -------
Real estate, net ............. 34,641 31,419
------- -------
Equipment Cost:
Transportation and office
equipment .................... 666 335
Accumulated depreciation ....... (285) (123)
------- -------
Equipment, net ............... 381 212
------- -------
Property under operating leases ... $35,022 $31,631
======= =======
</TABLE>
<PAGE> 31
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE F -- PROPERTY UNDER OPERATING LEASES -- (Continued)
Depreciation for each of the three years ended December 31 follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- --------------------- -------- -------- --------
<S> <C> <C> <C>
Depreciation Expense:
Real estate ...... $1,049 $1,053 $1,144
Equipment ........ 173 94 29
-------- -------- --------
Total .......... $1,222 $1,147 $1,173
======== ======== ========
</TABLE>
The estimated minimum future rental revenues on operating leases for each
of the five years subsequent to December 31, 1994 are as follows: 1995,
$5,695,000; 1996, $4,575,000; 1997, $3,795,000; 1998, $3,498,000; 1999,
$3,433,000; and thereafter, $18,837,000.
NOTE G -- PROPERTY AND EQUIPMENT
Property and equipment utilized by the Company is summarized by major
classifications as follows as of December 31:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------- ---------
<S> <C> <C>
Buildings (owned by consolidated real estate
partnerships) .......................................... $ 1,856 $ 2,189
Office and data processing equipment .................... 2,229 2,216
------- -------
4,085 4,405
Accumulated depreciation ................................ (1,697) (2,276)
------- -------
2,388 2,129
Land (owned by consolidated real estate partnerships) ... 172 172
------- -------
$ 2,560 $ 2,301
======= =======
</TABLE>
Land and building value is based on the percentage of space occupied by
the Company. For the years ended December 31, 1994, 1993 and 1992,
depreciation of $301,000, $308,000 and $294,000, respectively, was provided
on the Company's property and equipment.
NOTE H -- SHORT-TERM BORROWINGS
Short-term borrowings represent: (1) Amounts payable to banks, including
unsecured demand notes with fixed interest rates and unsecured floating or fixed
interest rate lines of credit of $42,707,000 as of December 31, 1994. The
Company has the option to borrow $13,707,000 in long-term, fixed rate loans at
negotiated rates which would reduce the available short-term lines of credit
when elected. Short-term lines of credit in use as of December 31, 1994 are
$20,250,000. (2) Amounts payable upon demand to holders of floating interest
rate subordinated investment certificates.
<PAGE> 32
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE H -- SHORT-TERM BORROWINGS -- (Continued)
The following is a summary of information pertaining to such borrowings as
of and for the years ended December 31:
<TABLE>
<CAPTION>
Weighted Maximum Average Weighted
average amount amount average
Category Balance interest outstanding outstanding interest
of at end of rate at during during rate during
(In thousands) borrowings year end of year the year the year the year
------------ ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1994 ......... (1) Banks $20,250 6.68% $20,250 $16,896 5.66%
1994 ......... (2) Other $ 3,143 4.10% $ 3,732 $ 3,690 4.01%
- ------------------------------------------------------------------------------------------------
1993 ......... (1) Banks $13,500 4.41% $13,500 $ 8,807 4.44%
1993 ......... (2) Other $ 2,805 4.00% $ 4,286 $ 3,810 4.39%
- ------------------------------------------------------------------------------------------------
1992 (A) ..... (1) Banks $ 6,250 4.61% $ 8,000 $ 5,389 5.28%
1992 (A) ..... (2) Other $ 3,644 5.00% $ 4,592 $ 3,803 5.37%
</TABLE>
(A) Average amount outstanding during the year is computed by dividing the
total monthly outstanding principal balances by 12.
Weighted average interest rate during the year is computed by dividing
the actual short-term interest expense by the average short-term
borrowings outstanding.
NOTE I -- LONG-TERM DEBT
Long-term debt as of December 31, 1994 and 1993 consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------- ---------
<S> <C> <C>
Senior debt:
Unsecured notes payable to banks and other financial
institutions, with interest rates from 4.77% to 9.30%, due
through December, 1998 .................................... $79,508 $63,733
Nonrecourse debt:
Nonrecourse notes payable to banks, with interest rates
from 6.88% to 10.5%, due at various dates through December,
2004. The notes are collateralized by real estate property 20,577 18,358
Nonrecourse note payable to bank with interest at prime
plus 3% ................................................... -- 77
Other long-term debt:
Secured notes payable to banks, with interest rates from
6.88% to 10.5%, due at various dates through May, 2008. The
notes are collateralized by real estate property .......... 5,005 5,080
Unsecured notes payable, with interest rates from 6.25% to
15.05%, due at various dates through April, 1998 .......... 156 --
</TABLE>
<PAGE> 33
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE I -- LONG-TERM DEBT -- (Continued)
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---------- ----------
<S> <C> <C>
Subordinated investment certificate debt:
Certificates subordinated in right of payment to indebtedness
of the Company (including indebtedness of any subsidiary
guaranteed by the Company) for money borrowed from banks or
other financial institutions. The fixed rate certificates have
various rates from 5.15% to 10.5% and mature at various dates
to 2002 ....................................................... 25,864 25,964
Junior subordinated debenture debt:
A 9% debenture due in 2002 subordinated in right of payment to
indebtedness of the Company (including indebtedness of any
subsidiary guaranteed by the Company) for money borrowed from
banks, other financial institutions and subordinated investment
certificate holders ........................................... 103 103
-------- --------
Total long-term debt ..................................... $131,213 $113,315
======== ========
</TABLE>
The Company has $111,433,000 in unsecured lines of credit with banks. The
total lines in use as of December 31, 1994 are $77,508,000.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1994 are as follows: 1995, $58,728,000; 1996,
$31,659,000; 1997, $16,143,000; 1998, $4,828,000; 1999, $12,545,000; and
thereafter, $7,310,000.
NOTE J -- CERTAIN COVENANTS
The terms of certain unsecured loan agreements provide for various
restrictive covenants. The most significant of these provide that: (1)
American Equipment Leasing Co., Inc. and its subsidiaries, AEL Leasing Co.,
Inc., American Commercial Credit Corp. and American Capital Leasing
Corporation, on a consolidated basis, shall maintain (a) a minimum cash flow
ratio of receipts to disbursements, as specifically defined, of 1 to 1 (b) a
ratio of debt to tangible net worth not in excess of 7 to 1 and (c) a minimum
tangible net worth of $21,000,000. (2) AEL Leasing Co., Inc., American
Commercial Credit Corp. and American Capital Leasing Corporation, on a
separate Company basis, shall maintain a ratio of debt to tangible net worth
not in excess of 7 to 1.
The Company is in compliance with the above covenants as of December 31,
1994.
<PAGE> 34
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE K -- STOCKHOLDERS' EQUITY
The 8% noncumulative and nonvoting preferred stock was purchased and retired
by the Company in April, 1994. The preferred stock dividend was paid in January
and April, 1994.
The common stock of the Company is covered by an agreement restricting its
sale, redemption or transfer.
The Company terminated on November 30, 1992 a non-qualified stock option plan
for certain key employees. The options are exercisable at a price of 100% of the
fair market value of the stock on the date that the option is granted. Options
granted under the plan are exercisable at any time and expire five years from
the date of issuance. An analysis of the activity in this plan for the last
three years follows:
<TABLE>
<CAPTION>
Option price
Number of common shares per share for
1994 1993 1992 current year
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Options outstanding, January 1..... 74,970 102,620 141,500 --
Options exercised ................ (15,825) (11,300) (16,045) $7.41
Options forfeited ................ (5,175) (16,350) (22,835) $7.41
------- ------- -------
Options outstanding, December 31... 53,970 74,970 102,620
======= ======= =======
</TABLE>
The total options outstanding, by each year's option price, as of December
31, 1994 are: 23,900 at $7.79 and 30,070 at $6.43.
NOTE L -- INCOME TAXES
The total provision for income taxes for the years ended December 31
consists of:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Deferred income tax (benefit)
Federal .................... $ 195 $ (18) $ (979)
State ...................... 87 124 (157)
------ ------- --------
Total deferred ........ 282 106 (1,136)
------ ------- --------
Current income tax
Federal .................... 1,843 1,596 882
State ...................... 377 198 398
------ ------- --------
Total current ......... 2,220 1,794 1,280
------ ------- --------
Total provision ....... $2,502 $1,900 $ 144
====== ====== ========
</TABLE>
The sources of deferred income taxes (benefits) and the tax effect of each
for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Direct finance lease revenue and expenses ............. $ 330 $ 141 $ (743)
Alternative minimum tax credit ........................ -- -- 1,083
Partnership revenue and expenses including write-down
of real estate ....................................... 57 (216) (1,310)
State tax provision (less than) in excess of state
taxes currently payable .............................. 87 124 (157)
Other ................................................. (192) 57 (9)
----- ----- --------
Total deferred .................................. $ 282 $ 106 $ (1,136)
===== ===== ========
</TABLE>
<PAGE> 35
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE L -- INCOME TAXES -- (Continued)
The following is a reconciliation between the statutory federal income tax
rate and the effective income tax rate on the total provision for income
taxes for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate applied to
earnings (loss) before income taxes and minority
interest .......................................... 34.0% 34.0% (34.0%)
Limited taxability of dividend income .............. (0.1) (0.1) (1.7)
State taxes, net of federal tax benefit ............ 4.8 4.2 31.8
Tax-exempt interest income ......................... -- -- (1.2)
Minority interest of partnership investments ....... (0.6) (0.7) 31.6
Purchase accounting adjustment ..................... 1.5 0.3 3.4
Other, net ......................................... (0.2) (0.3) (1.1)
---- ---- ----
Effective rate ............................... 39.4% 37.4% 28.8%
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1994 and 1993, in accordance with SFAS No. 109, are presented
below:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
------------- ---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for possible lease and loan
losses .................................. $ 1,195 $ 840
Partnership revenue and expenses including
write-down of real estate ............... 1,584 1,674
Other .................................... 202 167
------- -------
Total gross deferred tax assets ..... 2,981 2,681
------- -------
Deferred tax liabilities:
Direct finance lease revenue and expenses (2,349) (1,229)
Net unrealized holding gains for
available-for- sale securities .......... (388) (708)
Other .................................... (147) (71)
------- -------
Total gross deferred tax liabilities (2,884) (2,008)
------- -------
Deferred income taxes, net .......... $ 97 $ 673
======= =======
</TABLE>
In order to fully realize the gross deferred tax asset, the Company will
need to generate future taxable income of approximately $8,800,000. Based
upon the Company's current and historical tax history and the anticipated
level of future taxable income, management of the Company believes the
existing deductible temporary differences will, more likely than not, reverse
in future periods in which the Company generates net taxable income. There
can be no assurance, however, that the Company will generate any earnings or
any specific level of continuing earnings.
For income tax reporting purposes: The Company has no credit carryover to
offset regular tax liability during 1994.
For financial reporting purposes: (1) The Company records a provision for
income taxes on the minority interest share of loss absorbed by the Company
from any partnership investment. (2) The Company has no credit carryover to
offset regular tax liability during 1994. (3) The Company records a deferred
tax liability on the net unrealized holding gains for available-for-sale
securities in accordance with SFAS No. 115.
<PAGE> 36
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE M -- BUSINESS SEGMENTS
The Company operates principally in three business segments, reports a fourth
segment pertaining to general corporate and other, and discloses any significant
transaction which is not specifically related to the normal operations of a
segment:
COMMERCIAL LEASING AND FINANCING -- leasing of various types of equipment
under direct finance and operating leases, lease financing programs, and direct
cash loans to commercial businesses.
REAL ESTATE -- leasing of real estate property under operating leases, and
investments in real estate. Two limited service hotel operations provide
operating earnings on two equity investments. Real estate management,
development and advisory services; and hotel management services are included.
FURNITURE AND EQUIPMENT SALES -- selling various types of office furniture
and equipment, and servicing equipment sold.
GENERAL CORPORATE AND OTHER -- includes investment activities other than real
estate; and consolidating elimination entries which are not material.
UNALLOCATED GENERAL CORPORATE EXPENSE -- consists of interest expense
allocated to the investments in marketable securities and long-term investments.
Revenues by segment are comprised of revenues from unaffiliated customers;
intersegment revenues are not significant.
Operating profit is total revenue less directly incurred costs and expenses,
and allocated corporate operating costs and expenses.
Identifiable assets by industry are those assets of the Company that are used
exclusively in or are reasonably allocated to operations in each industry.
Assets employed by the segment "general corporate and other" are principally
cash, investments exclusive of the real estate industry segment, and property
and equipment.
The following segment information is reconciled to the related consolidated
financial statements' amounts.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- -------------- ---- ---- ----
<S> <C> <C> <C>
Revenues by business segment:
Commercial leasing and financing .............. $20,400 $19,009 $20,862
Real estate ................................... 6,984 5,493 1,822
Furniture and equipment sales ................. 1,177 694 345
General corporate and other ................... 64 461 67
------- ------- -------
Total .................................... $28,625 $25,657 $23,096
======= ======= =======
Operating earnings (loss) by business segment:
Commercial leasing and financing .............. $ 5,497 $ 5,220 $ 4,230
Real estate ................................... 800 (713) (4,744)
Furniture and equipment sales ................. 201 175 31
General corporate and other ................... (81) 440 52
------- ------- -------
Total .................................... 6,417 5,122 (431)
Unallocated general corporate expense ......... (72) (44) (69)
------- ------- -------
Earnings (loss) before income taxes and
minority interest ............................ $ 6,345 $ 5,078 $ (500)
======= ======= =======
</TABLE>
<PAGE> 37
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE M -- BUSINESS SEGMENTS -- (Continued)
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- --------------- ---- ---- ----
<S> <C> <C> <C>
Identifiable assets by segment:
Commercial leasing and financing $150,944 $126,294 $111,578
Real estate .................... 39,465 35,486 37,559
Furniture and equipment sales .. 1,400 681 777
General corporate and other .... 2,521 2,492 3,349
-------- -------- --------
Total ..................... $194,330 $164,953 $153,263
======== ======== ========
Capital expenditures:
Commercial leasing and
financing:
Direct finance leases ..... $ 28,002 $ 24,383 $ 28,300
Operating leases .......... 348 328 75
Other ..................... 425 163 211
Real estate: ...................
Operating leases .......... 6,566 -- 294
Other ..................... 2 -- 2
Furniture and equipment sales .. 15 19 81
General corporate and other .... -- -- --
-------- -------- --------
Total ..................... $ 35,358 $ 24,893 $ 28,963
======== ======== ========
Depreciation and amortization:
Commercial leasing and
financing:
Direct finance leases ..... $ -- $ -- $ --
Operating leases .......... 173 94 29
Other ..................... 304 304 413
Real estate:
Operating leases .......... 1,049 1,053 1,144
Other ..................... 106 223 150
Furniture and equipment sales .. 39 33 33
General corporate and other .... -- -- --
-------- -------- --------
Total ..................... $ 1,671 $ 1,707 $ 1,769
======== ======== ========
</TABLE>
NOTE N -- LEASES
Rental expense included in operating expenses for each of the years in the
three-year period ended December 31, 1994 was $167,000, $77,000 and $64,000,
respectively.
As of December 31, 1994, the Company is committed to minimum rentals under
various operating leases totaling $760,000. The minimum annual rentals for each
of the five years subsequent to December 31, 1994 are as follows: 1995,
$197,000; 1996, $145,000; 1997, $134,000; 1998, $110,000; and 1999, $110,000;
and thereafter, $64,000.
NOTE O -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingent liabilities on which management does not anticipate any material
losses. Such commitments and contingent liabilities expose the company to
various degrees and types of risks, including credit risk, interest rate risk,
and liquidity risk.
A summary of significant commitments and contingent liabilities as of
December 31 follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- -------------- ---- ----
<S> <C> <C>
Unused lines of credit ........................................ $48,403 $38,183
Commitments to fund leases and loans .......................... $ 2,138 $ 924
Financial guarantees for unconsolidated real estate
partnerships ................................................. $ 2,253 $ 2,400
</TABLE>
<PAGE> 38
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE O -- COMMITMENTS AND CONTINGENCIES -- (Continued)
Unused lines of credit represent conditional offers by the Company to lend
additional funds to qualified customers. Commitments to fund leases and loans
represent finance agreements secured by the Company wherein the equipment
collateral has not yet been delivered. Financial guarantees are conditional
commitments issued by the Company guaranteeing performance by an
unconsolidated real estate partnership to a third party.
As of December 31, 1994, the Company was party (plaintiff or defendant) to
certain legal actions. While any litigation has an element of uncertainty,
management, after reviewing these actions with legal counsel, is of the
opinion that the liability, if any, resulting from these actions will not
have a material effect on the financial condition or results of operations of
the Company.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. This involvement
under existing agreements is in the form of interest rate swap agreements
where the Company pays a fixed interest rate and receives a variable interest
rate. The Company manages its exposure to changes in interest rates on
certain floating-rate short-term borrowings up to the interest rate swap
notional principal amount outstanding. This strategy is utilized as an
alternative to fixed-rate long-term borrowings under the Company's interest
rate sensitivity objective of matching fixed-rate assets and fixed-rate
liabilities within a reasonable range, as measured with the Company's "gap"
analysis.
Interest rate swap transactions are not reflected in the above table. The
notional principal amounts of outstanding agreements were $7,587,701 and
$2,000,000 as of December 31, 1994 and 1993. The weighted average maturity of
these agreements was 2.4 and 2.2 years as of December 31, 1994 and 1993. The
weighted average fixed rate paid by the Company was 5.79% and the weighted
average variable rate received by the Company was 6.10% as of December 31,
1994.
The Company is exposed to loss (additional interest expense) in the event
of nonperformance by the counterparties to its agreements, whenever the
variable rate receivable exceeds the fixed rate payable as specified in the
agreements. The Company enters into agreements with credit worthy
counterparties and anticipates that counterparties will be able to fully
satisfy their obligations under the agreements. The Company does not obtain
collateral or other security to support these agreements.
NOTE P -- CASH FLOW INFORMATION
The following is the reconciliation of net earnings (loss) to net cash
provided by operating activities for the years ended December 31:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- -------------- ---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) ................................... $3,688 $3,047 $ (413)
Noncash expenses, revenues, losses and gains included
in net earnings (loss):
Depreciation and amortization ........................ 1,671 1,707 1,769
Excess of provision for income taxes over (under)
income taxes paid .................................. 517 (582) (1,527)
Net change in prepaid expenses and payables .......... (82) 437 351
Decrease (increase) in income receivable ............. 5 136 (7)
Lease purchase options: cash received in excess of
earned ............................................. 1,484 1,682 2,126
</TABLE>
<PAGE> 39
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE P -- CASH FLOW INFORMATION -- (Continued)
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- -------------- ---- ---- ----
<S> <C> <C> <C>
Increase (decrease) in interest payable ............... $ 108 $ (41) $ (145)
Gain on sale of debt and equity securities, finance and
operating leases, property and equipment, and
investments ......................................... (1,407) (1,479) (1,283)
Provision for possible lease and loan losses .......... 1,377 1,573 2,190
Equity (gain) loss in real estate partnerships and
associated companies ................................ (747) 76 279
Provision for write-down of real estate ............... -- 488 4,302
Minority interest income (loss) ....................... 155 131 (231)
------- ------- -------
Net cash provided by operating activities .............. $ 6,769 $ 7,175 $ 7,411
======= ======= =======
</TABLE>
The following is a schedule of noncash investing and financing activities
for the years ended December 31:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- -------------- ---- ---- ----
<S> <C> <C> <C>
Acquisition of American Capital Leasing Corporation
(1994) and Canyon Capital, Inc. (1993):
Net investment in finance receivables .................. $ 9,542 $ 12,186 $ --
Other assets ........................................... $ 67 $ 87 $ --
Short-term debt assumed ................................ $(7,000) $ (4,985) $ --
Long-term debt assumed ................................. $ -- $ (5,656) $ --
Security deposits ...................................... $ (630) $ (1,392) $ --
Other liabilities ...................................... $(1,365) $ (240) $ --
Deferred income taxes assumed .......................... $ (614) $ -- $ --
Change in carrying value of available-for-sale
securities:
Investments in debt and equity securities .............. $ (942) $ 2,082 $ --
Deferred tax liabilities ............................... $ 320 $ (708) $ --
Net unrealized holding gains for available-for-sale
securities ........................................... $ 622 $ (1,374) $ --
Real estate partnerships, previously accounted for on the
equity method, now included in the consolidated
financial statements:
Operating lease assets and other assets acquired ....... $ -- $ -- $ 1,927
Long-term debt and other liabilities assumed ........... $ -- $ -- $(1,683)
Partnership capital .................................... $ -- $ -- $ (244)
Investment interest in real estate partnership received
from minority interest in payment of commercial finance
receivable ............................................. $ -- $ 397 $ 100
Land received in foreclosure of commercial finance
receivable ............................................. $ -- $ -- $ 627
Sales of ownership interest in real estate partnerships,
previously included in the consolidated financial
statements:
Operating lease assets and other assets acquired ....... $(1,604) $ -- $ --
Long-term debt and other liabilities assumed ........... $ 1,318 $ -- $ --
Partnership capital .................................... $ 286 $ -- $ --
</TABLE>
<PAGE> 40
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE P -- CASH FLOW INFORMATION -- (Continued)
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- -------------- ---- ---- ----
<S> <C> <C> <C>
Assets acquired:
Goodwill associated with acquisition of business ....... $ 151 $-- $--
Furniture and fixtures acquired through capital
lease ................................................ $ 36 $-- $--
Long-term debt ......................................... $(187) $-- $--
</TABLE>
NOTE Q -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS No. 107), requires the estimation of fair
values of financial instruments, as defined in SFAS No. 107.
Limitations
Estimates of fair value are made at a specific point in time, based upon,
where available, relevant market prices and information about the financial
instrument. Such estimates do not include any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. For a substantial portion of the Company's
financial instruments, no quoted market exists. Therefore, estimates of fair
value are necessarily based on a number of significant assumptions (many of
which involve events outside the control of management). Such assumptions
include assessments of current economic conditions, perceived risks
associated with these financial instruments and their counterparties, future
expected loss experience and other factors. Given the uncertainties
surrounding these assumptions, the reported fair values represent estimates
only and, therefore, cannot be compared to the historical accounting model.
Use of different assumptions or methodologies are likely to result in
significantly different fair value estimates.
The estimated fair values presented neither include nor give effect to the
values associated with the Company's existing customer relationships,
property, equipment, goodwill or certain tax implications related to the
realization of unrealized gains or losses.
The following methods and assumptions were used by the Company to estimate
the fair value as of December 31, 1994 of each class of financial instrument.
Debt and equity securities
The fair value of debt and equity securities are based on quoted market
values.
Net investment in finance receivables
The fair value of net investment in finance receivables with variable
rates and no significant change in credit risk approximates the carrying
amount. The fair value of fixed-rate finance receivables is estimated by
discounting future cash flows using current rates at which similar leases and
loans would be made to borrowers with similar credit ratings and for similar
remaining maturities. Included in direct finance leasing receivables is the
fair value of lessee purchase options which approximates the net residual
valuation carrying amount.
Short-term borrowings
The fair value of short-term borrowings (refer to note H) is the amount
payable.
Customer deposits
Customer deposits are interest bearing and non-interest bearing deposits
received on finance lease receivables and real estate operating leases. The
carrying amount of these deposits approximates fair value.
<PAGE> 41
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE Q -- FAIR VALUES OF FINANCIAL INSTRUMENTS -- (Continued)
Long-term debt
The fair value of the Company's fixed rate long-term debt is estimated
using discounted cash flow analyses based on the estimated current rates
offered by banks to the Company for debt of similar remaining maturities, or
current rates offered by the Company for subordinated investment certificate
debt with similar remaining maturities. The fair value of floating rate
long-term debt approximates the carrying amount.
Unused lines of credit
Proceeds from both short-term and long-term lines of credit are issued at
current market rates at the time of each borrowing. The fair value of such
unused lines is considered nominal.
Commitments
Unused lines of credit and commitments to fund leases and loans: the
Company does not charge a fee to extend lines of credit and commitments to
fund leases and loans to customers. Extension of credit is conditional upon
Company approval (of the amount, rate, and maturity) at the time of request.
The fair value of unused lines of credit and commitments to fund leases and
loans is considered nominal.
Financial guarantees for unconsolidated real estate partnerships: the
Company receives nominal fees for two agreements, and the estimated cost to
terminate such guarantees is considered nominal.
Derivative financial instruments: the fair value of interest rate swap
agreements is based on the cost to terminate the agreement. The costs were
obtained from the counterparties. The Company does not use the interest rate
swaps for trading purposes. See Note O to the Consolidated Financial
Statements.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------ -----------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- -------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Debt and equity securities ................. $ 2,335 $ 2,335 $ 2,697 $ 2,697
-------- -------- -------- --------
Net investment in finance receivables
Commercial financing receivables .......... $ 31,088 $ 30,132 $ 35,050 $ 34,952
Direct finance leasing receivables ........ 123,040 118,605 92,532 91,856
Allowance for possible lease and loan
losses .................................. (6,055) -- (5,438) --
Total net investment .................... $148,073 $148,737 $122,144 $126,808
-------- -------- -------- --------
Short-term borrowings ...................... $ 23,393 $ 23,393 $ 16,305 $ 16,305
-------- -------- -------- --------
Customer deposits .......................... $ 2,316 $ 2,316 $ 2,188 $ 2,188
-------- -------- -------- --------
Long-term debt
Senior debt ............................... $ 79,508 $ 78,638 $ 63,733 $ 63,876
Nonrecourse and other debt ................ 25,738 25,492 23,515 24,205
Subordinated debt ......................... 25,967 26,452 26,067 27,191
-------- -------- -------- --------
Total long-term debt .................... $131,213 $130,582 $113,315 $115,272
-------- -------- -------- --------
Derivative financial instruments: ..........
(Gain) loss to terminate interest rate swap
agreements ............................... $ (1) $ (127) $ 1 $ 4
-------- -------- -------- --------
</TABLE>
<PAGE> 42
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE R -- ACQUISITIONS
On June 1, 1993, the Company purchased all of the capital stock of Canyon
Capital, Inc. ("Canyon") whose principal business consisted of financing and
leasing equipment, for $4,270,000 in cash. Until the purchase, Canyon was a
wholly-owned subsidiary of KOA Holdings, Inc. The purchase price was based
principally on the book value of the common stock multiplied by a factor of
126.8%. The acquisition has been accounted for as a purchase and, accordingly,
the results of operations of Canyon have been included in the Company's
consolidated financial statements since the acquisition date.
On June 1, 1994, the Company purchased all of the capital stock of American
Capital Leasing Corporation ("ACL") whose principal business consists of
financing and leasing equipment, for $3,869,000 in cash. The purchase price was
based principally on the book value of the common stock multiplied by a factor
of 109.5%, less a credit because of ACL's deferred tax liability. The
acquisition has been accounted for as a purchase and, accordingly, the results
of operations of ACL have been included in the Company's consolidated financial
statements since the acquisition date.
The following unaudited pro forma financial information for the years ended
December 31, 1994 and 1993 presents the combined results of operations of the
Company, ACL and Canyon as if the acquisitions had occurred as of the beginning
of 1993, after giving effect to certain adjustments. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the Company, ACL and Canyon constituted a single entity during
such periods.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Commercial leasing and financing revenue.... $19,251,000 $20,465,000
Net earnings .............................. $ 3,705,000 $ 3,159,000
Earnings per share ........................ $ 1.18 $ 0.97
</TABLE>
In conjunction with the Company's acquisition of ACL, ACL recorded a total
pre-tax loss of $96,000 for the five months ended May 31, 1994 (consisting of
a non-recurring pre-tax charge of $400,000 and normal pre-tax operating
earnings of $304,000). The non-recurring pre-tax charge recorded by ACL was
for an expense accrual in conjunction with this transaction. This adjustment
is not reflected in the above pro formas because it is considered to be
non-recurring. Also, the pro forma adjustments record premium expense and
additional interest expense, and a provision for income taxes for the
conversion of ACL from an S corporation to a C corporation.
NOTE S -- SUBSEQUENT EVENT
Certain shareholders of the Company, through a stock swap exchange offer,
have committed to an exchange of at least 21,806 shares of the Company's common
stock for 90% of the common stock of the Company's wholly-owned subsidiary, The
Business Outlet, Inc., and additional commitments may be received. The exchange
of shares is expected to be recorded, for accounting purposes, as a sale of
investment in March 1995. The Company anticipates recognizing no significant
gain or loss. The major business activity of this subsidiary was reported as the
Furniture and Equipment Segment in Note M.
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
AMERICAN CAPITAL LEASING CORPORATION:
We have audited the accompanying balance sheet of American Capital Leasing
Corporation as of December 31, 1993, and the related statements of
operations, stockholders' equity, and cash flows for the vear then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Capital Leasing
Corporation as of December 31, 1993, and the results of its operations, and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
January 5, 1994, except for note 7,
which is as of June 1, 1994
Portland, Oregon
<PAGE> 44
AMERICAN CAPITAL LEASING CORPORATION
BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
<S> <C>
ASSETS (Note 5)
Current assets:
Cash ................................................................... $ 122,121
Net investment in direct financing leases (note 2) ..................... 3,622,736
Prepaid expenses ....................................................... 33,350
-----------
Total current assets ................................................. 3,778,207
Net investment in direct financing leases (note 2) ...................... 7,869,224
Furniture and equipment, net (note 3) ................................... 56,152
Other assets ............................................................ 1,840
-----------
$11,705,423
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ....................................................... $ 987,209
Amount due to affiliated company (note 6) .............................. 101,856
Other accrued liabilities .............................................. 87,399
Note payable to bank (note 5) .......................................... 6,100,000
-----------
Total current liabilities ............................................ 7,276,464
-----------
Lease deposits (non-interest bearing) ................................... 560,532
Stockholders' equity (note 2):
Common stock of $1 par value. Authorized 10,000 shares; issued and
outstanding 10,000 shares ........................................... 10,000
Additional paid-in capital ............................................. 2,000,205
Retained earnings ...................................................... 1,858,222
-----------
Total stockholders' equity ........................................... 3,868,427
Commitments (notes 4 and 7) .............................................
-----------
$11,705,423
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 45
AMERICAN CAPITAL LEASING CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
<S> <C>
Lease income .............................. $1,899,155
Other income .............................. 27,372
----------
Total income ........................... 1,926,527
General, administrative and selling
expenses ................................. 502,224
Provision for possible credit losses ...... 122,000
Interest expense .......................... 455,428
----------
Net income ............................. $ 846,875
==========
Net earnings per share .................... $ 84.69
==========
</TABLE>
See accompanying notes to financial statements.
===============================================================================
AMERICAN CAPITAL LEASING CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Number
of shares
outstanding Additional Total
common Common paid-in Retained stockholders'
stock stock capital earnings equity
------- ------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balances, at December 31, 1992..... 10,000 $10,000 $2,000,205 $1,011,347 $3,021,552
Net income ....................... -- -- -- 846,875 846,875
------ ------- ---------- ---------- ----------
Balances, at December 31, 1993..... 10,000 $10,000 $2,000,205 $1,858,222 $3,868,427
====== ======= ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 46
AMERICAN CAPITAL LEASING CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
<S> <C>
Cash flows provided by operating activities:
Net income ......................................... $ 846,875
---------
Adjustments to reconcile net income to net cash
provided
(used) by operating activities:
Depreciation and amortization ................... 21,505
Increase in allowance for uncollectible leases .. 60,912
Changes in assets and liabilities:
Increase in net investment in direct
financing leases ........................... (859,563)
(Increase) decrease in prepaid expenses ..... 6,339
Increase in accounts payable ................ 653,181
Increase in amount due to affiliated company 4,365
Increase in other accrued liabilities ....... 15,215
Increase in lease deposits .................. 64,243
---------
Total adjustments ......................... (33,803)
---------
Net cash provided by operating activities . 813,072
---------
Cash flows used by investing activities --
Purchase of equipment .............................. (10,810)
---------
Net cash used by investing activities ..... (10,810)
---------
Cash flows used by financing activities --
Net reduction under line of credit agreement ....... (800,000)
---------
Net cash used by financing activities ..... (800,000)
---------
Net increase in cash ...................... 2,262
Cash at beginning of year ............................. 119,859
---------
Cash at end of year ................................... $ 122,121
=========
Supplemental disclosure of cash flow information --
Cash paid during the year for interest ............. $ 460,127
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 47
AMERICAN CAPITAL LEASING CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(1) SUMMARY OF ACCOUNTING POLICIES
(a) Nature of Business
American Capital Leasing Corporation (the Company) was incorporated in the
State of Oregon on September 5, 1989. The Company leases diversified types of
equipment, generally for a period of three to five years which represents a
substantial portion of the estimated economic life of the equipment.
(b) Accounting for Unearned Lease Income
The Company accounts for its leases as direct financing leases under the
provisions of Statement of Financial Accounting Standards No. 13, and
accordingly, the aggregate lease payments to be received over the term of the
leases plus the estimated residual value are capitalized as the Company's net
investment in the leases. The excess of the investment in the leases over the
cost of the equipment (unearned lease income) is recognized as income over
the term of the leases on the interest method to reflect a constant periodic
rate of return on the net investment in the leases.
(c) Furniture and Equipment
The Company records all furniture and equipment at cost. Depreciation is
provided over the estimated useful lives of the respective assets on the
straight-line basis (generally five to ten years).
(d) Income Taxes
The Company and its stockholders have elected treatment as an S
Corporation under Federal income tax regulations whereby the Company is not
subject to corporate income taxes. Accordingly, there is no provision for
income taxes included in the accompanying financial statements.
(e) Earnings Per Share
Earnings per common share are based on the weighted average number of
common shares outstanding during the period. The weighted average number of
common shares used in the earnings per common share computation for the year
ended December 31, 1993 was 10,000 shares.
(2) NET INVESTMENT IN DIRECT FINANCING LEASES
The following lists the components of the net investment in direct
financing leases as of December 31, 1993:
<TABLE>
<CAPTION>
<S> <C>
Total minimum lease payments receivable ..... $13,484,084
Less allowance for uncollectibles ........... 178,912
-----------
13,305,172
Add estimated unguaranteed residual values of
leased equipment ........................... 1,766,689
-----------
15,071,861
Less unearned income ........................ 3,579,901
-----------
Net investment in direct financing leases $11,491,960
===========
Net investment classified as:
Current .................................. 3,622,736
Noncurrent ............................... 7,869,224
-----------
$11,491,960
===========
</TABLE>
<PAGE> 48
Future minimum lease payments to be received on direct financing leases
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------
<S> <C>
1994 $ 5,535,197
1995 4,117,533
1996 2,180,242
1997 1,135,889
1998 515,223
-----------
Total $13,484,084
===========
</TABLE>
The realization of the estimated residual value of leased property depends
on the ultimate sale of the leased equipment at the end of the lease term.
The residual value is not a part of the contractual agreement with the lessee
but is based on values that have been realized in the past by the principals
in the Company and their history with similar businesses.
(3) FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following at December 31, 1993:
<TABLE>
<CAPTION>
<S> <C>
Automobiles ...................... $ 41,515
Furniture ........................ 16,151
Office equipment ................. 36,260
Computer software ................ 19,795
--------
Total cost .................... 113,721
Less accumulated depreciation ..... 57,569
--------
Net furniture and equipment ..... $ 56,152
========
</TABLE>
(4) LEASES
The Company leases office facilities under a month-to-month agreement and
equipment under a long-term lease agreement. The equipment lease is
classified as an operating lease and expired in November 1993. Rental expense
for all leases was $16,470 for the year ended December 31, 1993.
(5) NOTE PAYABLE TO BANK
Note payable at December 31, 1993 of $6,100,000 consists of draws upon the
Company's loan and security agreement (hereinafter referred to as the
agreement) with First Interstate Bank of Oregon. If the bank declines the
Company's request to renew the agreement upon its expiration (June 30, 1994)
or any subsequent expiration date, the Company shall be entitled to convert
the then outstanding principle balance to an installment term loan (due 48
months from such expiration date). Borrowings under the agreement are secured
by a continuing security interest in all goods of the Company (including
receivables, intangible assets, furniture and equipment and cash) currently
owned or hereinafter acquired by the Company. The agreement contains certain
restrictive covenants with which the Company was in compliance as of December
31, 1994.
(6) RELATED PARTY TRANSACTIONS
During the year ended December 31, 1993, the Company made equipment
purchases from an affiliated company, in the amount of $678,578. Amounts due
to such affiliated company of $101,856 related to these transactions are
reflected as amount due to affiliated company in the accompanying balance
sheet.
(7) SUBSQUENT EVENT
On June 1, 1994, the Company entered into an agreement with American
Equipment Leasing Co., Inc. (the buyer) wherein the Company agreed to sell
all of its outstanding common stock as of June 1, 1994 to the buyer. Pursuant
to the agreement, the Company is obligated to pay certain miscellaneous costs
related to the acquisition in the amount of $400,000.
<PAGE> 49
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED STATEMENT OF OPERATIONS
The attached pro forma financial information gives effect to the
acquisition of American Capital Leasing Corporation ("ACL") by the Company.
The pro forma consolidated condensed statements of operations for the year
ended December 31, 1993 reflects the operations of the combined entities as
though the acquisition has been made at the beginning of 1993. It should be
read in conjunction with the historical consolidated financial statements and
notes thereto of the Company and ACL as of and for the year ended December
31, 1993.
The pro forma financial information does not purport to be indicative of
the actual results of operations that would have occurred if the acquisition
had been consummated on the date indicated or that may be obtained in the
future. Adjustments in anticipation of cost savings through consolidation of
the Company and ACL are not included.
The pro forma adjustments reflected in the pro forma statements of
operations include adjustments to amortize the premium on the acquired net
investment in finance receivables; to record the interest incurred on funds
borrowed to fund the purchase and to refinance all outstanding debt of ACL,
and to remove ACL's historical interest expenses; and to apply the Company's
estimated incremental income tax rate.
<PAGE> 50
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Year ended December 31, 1993
($ In thousands, except per share data)
<TABLE>
<CAPTION>
Horrigan ACL Pro Forma
Historical Historical Adjustments Pro Forma
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Finance Revenues:
Commercial leasing and financing
revenues ........................... $ 17,401 $1,899 $ (312)(a) $ 18,988
Interest expense ...................... 6,511 455 307 (b) 7,273
---------- ---------- ------ ----------
Finance revenue margin ............. 10,890 1,444 (619) 11,715
Provision for possible lease and loan
losses ............................. 1,573 122 0 1,695
---------- -------- ------ ----------
Finance revenues after provision for
possible lease and loan losses .... 9,317 1,322 (619) 10,020
---------- ---------- ------ ----------
Net operating lease revenues ........... 2,017 0 0 2,017
Total other operating revenues ......... 2,575 27 0 2,602
Operating expenses: ....................
Salaries and employees benefits ....... (4,566) (237) 0 (4,803)
Other expenses ........................ (4,265) (265) 0 (4,530)
---------- ---------- ------ ----------
Earnings (loss) before income taxes and
minority interest ..................... 5,078 847 (619) 5,306
Provision for income taxes ............ 1,900 0 87 (c) 1,987
---------- ---------- ------ ----------
Earnings (loss) before minority interest 3,178 847 (706) 3,319
Minority interest loss ................ (131) 0 0 (131)
---------- ---------- ------ ----------
Net earnings (loss) .................... $ 3,047 $ 847 $ (706) $ 3,188
========== ========== ====== ==========
Net earnings per common share .......... $ 0.92 $ 0.97
========== ==========
Weighted number of shares outstanding .. 3,278,159 3,278,159
========== ==========
</TABLE>
- ------
(a) The finance receivables acquired were valued at their estimated fair values
as of May 31, 1994. The resulting premium is being amortized against finance
revenue over the remaining life of the portfolio to produce a constant yield
to maturity.
(b) The debt to fund the purchase of the capital stock of ACL and to pay-off all
of the outstanding debt as of June 1, 1994 has been borrowed under existing
Company credit lines at a rate of 7.3%. ACL's historical interest expense
has been removed and replaced with estimated interest expense under the new
funding terms using average balances outstanding for the period.
(c) The pro forma adjustment to the provision for income taxes is calculated
using an estimated incremental income tax rate of 38%.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE> 51
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Management
The names and positions of the executive officers and directors of
Horrigan American, Inc. (including certain executive officers of certain of its
subsidiaries) are shown below. Also shown is the year in which each was first
elected as an officer or director of Horrigan American, Inc. (or of its
predecessor, Horrigan Companies, Inc.) or of the relevant subsidiary.
All of the officers except Richard W. Horrigan devote substantially all of
their time to the activities of the Company.
<TABLE>
<CAPTION>
Year of
Name Birth Position
- ---- ------- -------------------------------------------
<S> <C> <C>
John F. Horrigan, Jr........................ 1928 Chairman of the Board of Directors and
Assistant Secretary (1952)
Richard W. Horrigan*........................ 1928 Vice Chairman of the Board of Directors and
Treasurer (1952)
Arthur A. Haberberger....................... 1937 President, Chief Executive Officer, Assistant
Secretary and Director (1963)
W. Michael Horrigan......................... 1947 Senior Vice President, Assistant Secretary and
Director (1976)
Sidney D. Kline, Jr......................... 1932 Director (1979)
John A. Mullineaux, Jr.*.................... 1950 Director (1983)
Elizabeth Horrigan Rathz*................... 1959 Director (1987)
Althea L. A. Skeels*........................ 1951 Director (1990)
Richard W. Horrigan, Jr.*................... 1957 Director (1992)
Joanne Haberberger.......................... 1944 Senior Vice President, Chief Human Resources
Officer and Secretary (1981)
John F. Horrigan, III....................... 1960 Vice President, Funds Management (1993)
Robert Ordway............................... 1945 Senior Vice President and Chief Financial
Officer (1978)
Vincent A. Faino............................ 1952 Executive Vice President of AEL Leasing Co., Inc.
(1991)
</TABLE>
- ----------
* Audit Committee member
Each director serves until the next annual meeting of shareholders and
until his successor is duly elected and qualified. All officers are elected to
annual terms and serve at the pleasure of the Board of Directors.
JOHN F. HORRIGAN, JR., is Chairman of the Board of Directors and Assistant
Secretary of the Company, and a director and an executive officer of each of its
operating subsidiaries. He has been employed by the Company since 1953.
<PAGE> 52
RICHARD W. HORRIGAN is Vice Chairman of the Board of Directors and
Treasurer of the Company. Mr. Horrigan is associated with the Company part time;
his principal occupation is President of Dick Horrigan Volkswagen, Inc. and
President of Dick Horrigan, Inc., both of Reading, Pennsylvania. Mr. Horrigan is
a member of the Berks County Regional Advisory Committee of Meridian Bancorp,
Inc., Reading, Pennsylvania; and Past Chairman of the Board and member of the
Executive Committee of the American Imported Automobile Dealers Association,
Washington, D.C.
ARTHUR A. HABERBERGER is President, Chief Executive Officer, Assistant
Secretary, and a director of the Company and of its leasing and commercial
financing subsidiaries and a director and an executive officer of each of its
other operating subsidiaries. He has been employed by the Company since 1963.
W. MICHAEL HORRIGAN is Senior Vice President, Assistant Secretary, and a
director of the Company, and a director and Executive Vice President of its
leasing and commercial financing subsidiaries. He has been employed by the
Company since 1971.
SIDNEY D. KLINE, JR., is a director of the Company and of its leasing and
commercial financing subsidiaries. He is a principal in the law firm of Stevens
& Lee, Reading, Pennsylvania. Mr. Kline is also a director of Meridian Bancorp,
Inc., and two of its subsidiaries (Meridian Bank and Meridian Asset Management,
Inc.), The Bachman Company, and Reading Eagle Company.
JOHN A. MULLINEAUX, JR., is a director of the Company and of its leasing
and commercial financing subsidiaries. Since February 1993, Mr. Mullineaux has
been President of Fenner Manheim, Manheim, Pennsylvania, a division of Fenner,
Inc. From September 1990 until February 1993, he was Vice President and General
Manager of Fenner Manheim, and from October 1984 until September 1990, he was
Vice President, Finance, of Fenner Manheim. He is also a director of Fenner,
Inc. Mr. Mullineaux is a certified public accountant.
ELIZABETH HORRIGAN RATHZ is a director of the Company and of its leasing
and commercial financing subsidiaries. Ms. Rathz has been employed as an
investment banking consultant with CoreStates Financial Corp., Philadelphia,
Pennsylvania, since 1993. From 1986 to 1993, she was employed with CoreStates in
the Investment Banking Division, where she held the position of Assistant Vice
President from 1987 to 1988 and Vice President from 1988 to 1993.
ALTHEA L. A. SKEELS is a director of the Company and of its leasing and
commercial financing subsidiaries. In December 1994, Ms. Skeels co-founded Main
Street Investment Advisors, Inc., a registered investment advisory firm
headquartered in Moorestown, New Jersey. From March 1990 through October, 1994,
she was Executive Vice President of Rittenhouse Financial Services, Inc., a
registered investment advisory firm headquartered in Radnor, Pennsylvania. From
1975 to March 1990, Ms. Skeels was employed by Deloitte & Touche and its
predecessor firm, Touche Ross & Co., and was a partner in the firm since 1987.
Ms. Skeels is a certified public accountant.
RICHARD W. HORRIGAN, JR., is a director of the Company and of its leasing
and commercial financing subsidiaries. Since 1989, he has been Vice President of
Customer Service and Finance with Wilkerson Corporation in Englewood, Colorado.
He currently serves as a director of the Colorado Society of Certified Public
Accountants, and as a director and secretary of the Financial Executive
Institute, Rocky Mountain Chapter. Mr. Horrigan is a certified public
accountant.
JOANNE HABERBERGER is Senior Vice President, Chief Human Resources
Officer, and Secretary of the Company, and Vice President, Chief Human Resources
Officer and Secretary of its leasing and commercial financing subsidiaries. She
has been employed by the Company since 1980. Ms. Haberberger is also a director
of Inroads, a non-profit employee assistance program, and of the Reading Area
Trainers Organization Chapter of the American Society for Training and
Development.
<PAGE> 53
JOHN F. HORRIGAN, III, is Vice President, Funds Management, of the Company
and of its leasing and commercial financing subsidiaries and a director of one
of its leasing and financing subsidiaries. He is also President and a director
of the Company's real estate investment and development subsidiary. He has been
employed by the Company since 1987. He is a member of the Illinois Bar
Association.
ROBERT ORDWAY is Senior Vice President and Chief Financial Officer of the
Company and of its leasing and commercial financing subsidiaries, and a director
and officer of its investment subsidiary. He has been employed by the Company
since 1977. Mr. Ordway is a certified public accountant.
VINCENT A. FAINO is Executive Vice President of the Company's leasing and
commercial financing subsidiaries, and President of the leasing subsidiary's
legal market division. He has been employed by the Company since 1982. Mr. Faino
is a member of the Equipment Leasing Association Lease Management Institute.
John F. Horrigan, Jr., Richard W. Horrigan and W. Michael Horrigan are
brothers. Elizabeth Horrigan Rathz and John F. Horrigan, III, are children of
John F. Horrigan, Jr., and Richard W. Horrigan, Jr. is the son of Richard W.
Horrigan. Mr. and Mrs. Haberberger are spouses.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash compensation from the Company and
its subsidiaries of the following executive officers of the Company.
<TABLE>
<CAPTION>
All Other
Annual Compensation Compensation
--------------------- -------------
Name and Salary Bonus (Note A)
Principal Position Year $ $ $
------------------ ---- ------ ----- -------
<S> <C> <C> <C> <C>
John F. Horrigan, Jr. 1994 $120,000 $33,766 $24,411
Chief Executive Officer 1993 $119,100 $53,506 $21,843
1992 $112,503 $49,906 $ 9,259
Arthur A. Haberberger 1994 $127,404 $58,190 $18,415
Chief Operating Officer 1993 $110,077 $66,120 $23,972
1992 $103,962 $47,189 $ 9,461
W. Michael Horrigan 1994 $ 87,200 $21,086 $15,192
Senior Vice President 1993 $ 86,321 $22,462 $14,275
1992 $ 84,500 $23,123 $ 5,548
Vincent A. Faino 1994 $117,286 $ 4,730 $10,535
Senior Vice President 1993 $105,810 $ 2,465 $11,232
1992 $101,583 $12,308 $11,339
John F. Horrigan, III 1994 $ 86,800 $30,301 $ 9,092
Vice President 1993 $ 85,000 $17,990 $11,024
1992 $ 70,000 $19,515 $ 8,319
</TABLE>
NOTE A: All other compensation for the year ended December 31, 1994 includes the
following: for J. F. Horrigan. Jr. - split dollar insurance ($1,477), group life
insurance over $50,000 ($1,197), 401(k) employer match and profit sharing plan
contribution ($16,237) and director fees ($5,500); for A. A. Haberberger - group
life insurance over $50,000 ($9OO), 401(k) employer match and profit sharing
contribution ($12,015) and director fees ($5,500); for W. M. Horrigan - group
life insurance over $50,000 ($348), 401(k) employer match and profit sharing
contribution ($9,344) and director fees ($5,500); for V. A. Faino - group life
insurance over $50,000 ($10) and 401(k) employer match and profit sharing
contribution ($10,525); and for J. F. Horrigan, III - group life insurance over
$50,000 ($5) and 401(k) employer match and profit sharing contribution ($9,087).
<PAGE> 54
The Company is party to employment agreements with each of the named
officers. Under these agreements the Company is to pay for 1995 a minimum of
$110,000 to John F. Horrigan, Jr., $135,000 to Mr. Haberberger, $90,600 to W.
Michael Horrigan, $100,000 to Mr. Faino and $91,000 to John F. Horrigan, III.
The agreements provide these officers with such benefits as life and health
insurance, seniority bonuses, salary continuation to dependents in the event of
death, and participation in the Company's 401(k) Plan. They also provide for the
Company to pay an officer who is discharged without cause up to one year's
compensation based on his pre-termination salary and incentive bonuses. At
present, such payments would amount to approximately $146,636 to John F.
Horrigan, Jr., $180,518 to Mr. Haberberger and $107,641 to W. Michael Horrigan.
Each director receives a fee of $1,000 for each meeting attended.
Successive meetings of directors of the Company and its subsidiaries held on the
same day are treated as a single meeting for this purpose. Each member of the
Audit Committee receives $150 for each meeting attended. Directors receive in
addition an annual retainer of $1,500 for service on all Boards of Directors of
which they are members.
Stock Options
The following table sets forth certain information regarding options
exercised during 1994 by the named executive officers of the Company and the
unexercised options for these individuals as of December 31, 1994.
Aggregated Option Exercises in 1994 and December 31, 1994 Option Value
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Shares Options at In-the-Money
Acquired Value 12/31/94 Options at
On Exercise Realized (Note A) 12/31/94
Name (#) ($) (#) ($)
---- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
John F. Horrigan, Jr...................... 2,250 $4,702 7,785 $20,685
Arthur A. Haberberger..................... 2,250 $4,702 7,785 $20,685
W. Michael Horrigan....................... - - 4,800 $12,256
Vincent A. Faino.......................... 1,400 $2,926 4,300 $11,376
John F. Horrigan, III..................... - - 4,800 $12,256
</TABLE>
NOTE A: All options are exercisable as of December 31, 1994.
Long-Term Incentive Plans
The following table sets forth certain information regarding the number of
units awarded to each of the named executive officers of the Company in 1994
under the Company's Phantom Stock Plan.
Long-Term Incentive Plans - Awards in 1994
<TABLE>
<CAPTION>
Number of Performance or Period Until
Shares, Units Maturation or Payout
Name or Other Rights (see below)
---- --------------- --------------------------
<S> <C> <C>
John F Horrigan. Jr............................ 3,000 Retirement
Arthur A. Haberberger.......................... 5,000 Retirement
W. Michael Horrigan............................ 2,000 Retirement
Vincent A. Faino............................... 3,000 Retirement
John F. Horrigan. III.......................... 3,000 Retirement
</TABLE>
<PAGE> 55
The Phantom Stock Plan authorizes awards in the form of "phantom stock
units," each of which entitles the recipient to a future payment based on a
hypothetical investment in a share of Common Stock. The Plan is administered by
an administrative committee consisting of three directors of the Company, none
of whom is eligible to participate in the Plan. Participation in the Plan is
restricted to key officers of the Company and its principal subsidiaries, as
determined by the administrative committee.
A phantom stock unit does not represent or entitle the recipient to any
equity securities of the Company but instead involves the creation of an
unfunded account for the recipient, the value of which is measured by reference
to the value of the Company's common stock. Units vest in stages between the
fifth and tenth anniversaries of an officer's becoming a participant in the
Plan. Vesting is accelerated upon the participant's normal retirement, death or
disability. All units are forfeited (even if previously vested) if a participant
resigns or is dismissed for cause. The value of a participant's account is
determined at the time of his or her retirement, death or disability, or at the
time the participant is discharged by the Company without cause, to be equal to
(1) the excess of the per-share fair market value of the Company's common stock
at that time over the per-share fair market value at the respective dates of
awards of units, times the number of units credited to the account at the time
of determination, plus (2) the per-share amount by which common stock dividends
paid in any year after an award of units exceeds 20% of the consolidated net
earnings per share of the Company for the immediately preceding fiscal year,
times the number of units credited to the account at the relevant dividend
payment dates.
Payment at the value of a participant's account is made beginning at the
time of the participant's normal retirement, death or disability, or at the time
a participant who is discharged without cause with vested units in his or her
account reaches age 62. The Company may elect to pay the account value in a lump
sum or in installments (with interest) over ten years.
Compensation Committee Interlocks and Insider Participation
In 1994, the Company formed an Executive Compensation Committee, comprised
of John A. Mullineaux, Jr., Elizabeth A. Rathz, and Althea L. A. Skeels,
directors of the Company. None of the committee members is or has ever been an
officer or employee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table contains the indicated information as of February 28,
1994, concerning the ownership of the Company's common stock (the only class of
voting securities), by the Company's directors and executive officers and by all
persons who to the Company's knowledge own beneficially more than 5% of the
Company's common stock. Except as otherwise indicated, such ownership consists
of sole voting and investment power. Some or all of these persons may be deemed
to be "parents" of the Company.
<TABLE>
<CAPTION>
Number of Rights to Percent
shares owned acquire of class
------------ --------- --------
<S> <C> <C> <C>
John F. Horrigan, Jr................................. 299,167(1) 7,785 9.8
6 Commerce Drive
Shillington, PA
Richard W. Horrigan.................................. 286,608(2) - 9.2
3817 Reiff Place
Reiffton, PA
W. Michael Horrigan.................................. 223,344 4,800 7.3
6 Commerce Drive
Shillington, PA
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
Number of Rights to Percent
shares owned acquire of class
------------ --------- --------
<S> <C> <C> <C>
Arthur A. Haberberger................................ 315,775(3) 7,785 10.3
6 Commerce Drive
Shillington, PA
Sidney D. Kline, Jr.................................. 6,168 - 0.2
21 Merrymount Road
Wyomissing, PA
John A. Mullineaux, Jr............................... 7,855 - 0.2
141 West Sunhill Road
Manheim, PA
Elizabeth Horrigan Rathz............................. 137,181(4) - 4.4
2611 Fountain Hill Drive
Wexford, PA
Richard W Horrigan, Jr............................... 62,064(5) - 2.0
9729 E. Ida Circle
Greenwood Village, CO
Althea L. A. Skeels.................................. 2,328 - 0.1
767 Golf View Road
Moorestown, NJ
John F. Horrigan, III................................ 329,484(6)(7) 4,800 10.7
401 South LaSalle, Suite 608
Chicago, IL
Mary Jo Dever........................................ 315,644(7)(8) - 10.1
12 High Street
Mt. Penn, Reading, PA
All directors and executive officers (15 persons).... 1,698,996 45,370 55.0
</TABLE>
- ----------
(1) Includes 1,760 shares owned jointly by Mr. J. F. Horrigan, Jr., and
his wife.
(2) Includes 1,800 shares owned jointly by Mr. R. W. Horrigan and his wife.
(3) Includes 40,490 shares held by Mr. Haberberger as trustee under trusts
established by Mr. W. Michael Horrigan for his children and not reflected
opposite Mr. Horrigan's name in the table.
(4) Includes 19,650 shares held by Ms. Rathz and her husband as custodians for
their children.
(5) Includes 1,075 shares held by Mr. Richard W. Horrigan, Jr. and his wife as
custodians for their child.
(6) Includes 25,953 shares held by Mr. John F. Horrigan, III and his wife as
custodians for their children.
(7) Includes 200,000 shares held by the Horrigan Family Trust (established by
J. F. Horrigan, Jr.), of which Mr. John F. Horrigan, III and Ms. Mary Jo
Dever are co-trustees.
(8) Includes 20,153 shares held by Ms. Dever and her husband as custodians for
their child.
Solely for the purpose of presenting information on the cover of this
report concerning the market value of voting stock held by non-affiliates, the
Company has excluded shares owned or controlled by its directors or executive
officers.
<PAGE> 57
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and all the individual common stockholders are parties to an
agreement restricting the right of the individual stockholders to dispose of
their stock in the Company and (with certain exceptions for transfers to family
members and to other stockholders) giving the Company or the other individual
parties to the agreement, in the event of a voluntary sale by one of the
individuals, the right but not the obligation to purchase the shares of common
stock offered for sale by the individual. The agreement provides that the
purchase price in such event will be determined as of the last day of the
calendar quarter immediately preceding such purchase, by any reasonable method
selected by the Board of Directors of the Corporation. In the event the Company
and the other individual stockholders decline to purchase all the common stock,
the other individual common stockholders retain the right to purchase the common
stock at a price offered by the third party.
The Company is party to an agreement with Mr. Arthur A. Haberberger under
which the Company is obligated upon Mr. Haberberger's death, at the option of
his estate, to purchase any or all shares of the Company owned by Mr.
Haberberger at his death. The purchase price will be determined consistently
with the method used under the stockholders' agreement described in the
preceding paragraph. For purposes of funding its obligation under this agreement
the Company maintains insurance in the amount of $3,000,000 on Mr. Haberberger's
life. If the insurance proceeds are insufficient, the balance of the purchase
price is payable, with interest, over a period of not more than ten years. If
Mr. Haberberger's estate elects to require the Company to purchase no shares, or
shares with a purchase price of less than $3,000,000, then his children and a
trust established by him can require the Company to purchase shares held by
them, so long as the total purchase price for their shares and any shares
purchased from Mr. Haberberger's estate does not exceed $3,000,000.
The Company is party to agreements with John F. Horrigan, Jr., Richard W.
Horrigan and W. Michael Horrigan under which the Company is obligated upon
death, at the option of the decedant's estate, to purchase up to a specific
amount of shares of the Company then owned by the decedant. The purchase price
will be determined consistently with the method used under the stockholders'
agreement described above. The maximum number of shares to be purchased is that
number of shares for which the aggregate purchase price does not exceed the
proceeds received by the Company from life insurance policies maintained by the
Company in the amounts of $750,000 on Mr. J. F. Horrigan, Jr.; $500,000 on Mr.
R. W. Horrigan, and $1,000,000 on Mr. W. M. Horrigan.
J. F. Horrigan, Jr. and eight investment partnerships consisting of
various combinations of J. F. Horrigan, Jr., A. A. Haberberger, Sidney D.
Kline, Jr., and various members of their families have invested as
limited partners in nine real estate partnerships sponsored by American Real
Estate Investment and Development Co. ("American Real Estate"), a wholly-owned
subsidiary of the Company (see "Business - Real Estate"). American Real Estate
is a general partner in each of the real estate partnerships and is also a
limited partner in four of them. The Company is a general partner (in addition
to American Real Estate) in one of the partnerships. Unaffiliated persons are
limited partners in eight of the real estate partnerships. In each case, the
investment partnership acquired its interest in the real estate partnership on
terms not more favorable than those offered to American Real Estate and the
Company and to unaffiliated persons. The Company leases its Corporate Office
(which also contains various leasing departments) from one of the real estate
partnerships for an annual rental of $343,000. The Company is also leasing
storage space from another real estate partnership for an annual rental of
$5,000. The Company has loaned $2,115,000 to five of the real estate
partnerships and has guaranteed $1,540,000 of indebtedness of two of the real
estate partnerships. Mr. and Mrs. Haberberger are limited partners in a
partnership to which the Company has finance receivables of $183,000 outstanding
as of December 31, 1994.
Stevens & Lee, of which Sidney D. Kline, Jr. is a principal, has from time
to time performed legal services for the Company and may perform services for
the Company in 1995.
<PAGE> 58
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed (or incorporated by reference, as
indicated) as part of this report:
1. Financial statements: Horrigan American, Inc. and subsidiaries:
- consolidated balance sheets as of December 31, 1994 and 1993;
- consolidated statements of earnings for the years ended December 31,
1994, 1993 and 1992;
- consolidated statements of changes in stockholders' equity for the
years ended December 31, 1994, 1993 and 1992;
- consolidated statements of cash flows for the years ended December
31, 1994, 1993 and 1992
- notes to consolidated financial statements.
2. Financial statement schedules.- None.
3. Exhibits. The following exhibits are filed herewith or incorporated by
reference, as indicated. Exhibits 10.1 through 10.7, 10.16 through 10.18, and
10.21 are compensatory contracts, plans or arrangements in which certain
members of registrant's management participate.
Certain exhibits are incorporated by reference to registrant's
registration statement on Form S-2, No. 33-52745, filed March 18, 1994 (the
"1994 Registration Statement") or Amendment No. 1 thereto, filed April 26, 1994
(the "1994 Amendment"); to registrant's current report on Form 8-K, dated June
15, 1994 (the "1994 8-K"); to registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 (the "1993 10-K"); to registrant's registration
statement on Form S-2, No. 33-59620, filed March 16, 1993 (the "1993
Registration Statement"); to registrant's current report on form 8-K, filed June
16, 1993 (the "1993 8-K"); to registrant's annual report on Form 10-K for the
year ended December 31, 1992 (the "1992 10-K"); to registrant's registration
statement on Form S-2, No. 33-46346, filed March 12, 1992 (the "1992
Registration Statement"); to registrant's current report on Form 8-K, filed
February 18, 1992 (the "1992 8-K"); to registrant's annual report on Form 10-K
for the year ended December 31, 1991 (the "1991 10-K"); to registrant's
registration statement on Form S-2, No. 33-39469, filed March 15, 1991 (the
"1991 Registration Statement"); to registrant's annual report on Form 10-K for
the year ended December 31, 1990 (the "1990 10-K"); to registrant's registration
statement on Form S-2, No. 33-33771, filed March 7, 1990 (the "1990 Registration
Statement"), to registrant's annual report on Form 10-K for the year ended
December 31, 1989 (the "1989 10-K"); to registrant's registration statement on
Form S-2, No. 33-28009, filed April 7, 1989 (the "1989 Registration Statement");
to registrant's registration statement on Form S-2, No. 33-20953, filed March
30, 1988 (the "1988 Registration Statement"); to registrant's Annual Report on
Form 10-K for the year ended December 31, 1987 (the "1987 Form 10-K"); to
registrant's registration statement on Form S-2, No. 33-12869, filed March 24,
1987 (the "1987 Registration Statement"); to registrant's registration statement
on Form S-2, No. 33-4051, filed March 17, 1986 (the "1986 Registration
Statement"); to registrant's Annual Report on Form 10-K for the year ended
December 31, 1985 (the "1985 Form 10-K"); to registrant's registration statement
on Form S-1, No. 2-96525, filed March 19, 1985 (the "1985 Registration
Statement"), to registrant's Registration Statement on Form S-1, No. 2-90161,
filed March 26, 1984 (the "1984 Registration Statement"); to registrant's
registration statement on Form S-1, No. 2-82551, filed March 21, 1983 (the "1983
Registration Statement") or Amendment No. 1 thereto, filed April 28, 1983 (the
"1983 Amendment"); to Amendment No. 1 to the registration statement on Form S-1.
No. 2-76479, of registrant's predecessor, Horrigan Companies, Inc. ("HCI"),
filed April 14, 1982 (the "1982 Amendment"); to Amendment No. 1, filed April 24,
1981, to HCI's registration statement on Form S-1, No. 2-71420, (the "1981
Amendment"); or to Amendment No. 1 to HCI's registration statement on Form S-1,
No. 2-58452; filed July 1, 1977 (the "1977 Amendment").
<PAGE> 59
<TABLE>
<CAPTION>
Exhibit Exhibit Incorporation by Reference
No. Description (if applicable)
- -------- ------------------------------------- -----------------------------------------
<S> <C> <C>
2.1 Asset Purchase Agreement dated Exhibit 1 to the 1992 8-K is incorporated
January 31, 1992, among Reli Financial by reference
Corp., American Commercial Credit
Corp., and AEL Leasing Co., Inc.
(Schedules, described in the agreement,
are omitted but will be furnished
supplementally to the Commission upon
request.)
2.2 Non-Competition Agreement dated Exhibit 2 to the 1992 8-K is incorporated
January 31, 1992, among General by reference
Electric Capital Corporation,
LeaseAmerica Corporation, Reli
Financial Corp., AEL Leasing Co., Inc.,
and American Commercial Credit Corp.
2.3 Agreement for Purchase and Sale of Exhibit 1 to the 1993 8-K is incorporated
Stock dated June 1, 1993, between KOA by reference
Holdings, Inc. and American Commercial
Credit Corp. (Schedules and exhibits,
described in the agreement, are omitted
but will be furnished supplementally to
the Commission upon request.)
2.4 Non-Competition Agreement dated June Exhibit 2 to the 1993 8-K is incorporated
1, 1993, between KOA Holdings, Inc. and by reference
American Commercial Credit Corp.
2.5 Consulting Agreement dated June 1, Exhibit 3 to the 1993 8-K is incorporated
1993, between American Commercial by reference
Credit Corp. and Thomas O'Connor
2.6 Agreement for Purchase and Sale of Stock Exhibit 1 to the 1994 8-K is
dated June 1, 1994, among Mitchell incorporated by reference
Jacobson, Marjorie Gershwind and American
Equipment Leasing Co., Inc. (Schedules
and exhibits, described in the agreement,
are omitted but will be furnished
supplementally to the Commission on Request)
2.7 Non-Competitive Agreement dated June 1, 1994, Exhibit 2 to the 1994 8-K is
among Mitchell Jacobson, Marjorie Gershwind incorporated by reference
and American Leasing Co., Inc.
3.1 Registrant's articles of incorporation Exhibit 3.1 to the 1989 10-K is
incorporated by reference
3.2 Amendments to articles of incorporation Exhibit 3.1 to the 1990 10-K is
incorporated by reference
3.3 Registrant's by-laws Exhibit 3.2 to the 1989 10-K is
incorporated by reference
3.4 Amendment to by-laws Exhibit 3.3 to the 1991 10-K is
incorporated by reference
4.1 Indenture dated as of July 21, 1977 Exhibit 4(c) to the 1977 Amendment is
incorporated by reference
4.2 First Supplemental Indenture Exhibit 4(a)(2) to the 1981 Amendment is
incorporated by reference
4.3 Second Supplemental Indenture Exhibit 4(a)(3) to the 1982 Amendment is
incorporated by reference
4.4 Third Supplemental Indenture Exhibit 4.4 to the 1983 Registration
Statement is incorporated by reference
4.5 Fourth Supplemental Indenture Exhibit 4.5.1 to the 1983 Amendment is
incorporated by reference
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
Exhibit Exhibit Incorporation by Reference
No. Description (if applicable)
- -------- ------------------------------------- -----------------------------------------
<S> <C> <C>
4.6 Fifth Supplemental Indenture Exhibit 4.7 to the 1984 Registration
Statement is incorporated by reference
4.7 Sixth Supplemental Indenture Exhibit 4.8 to the 1985 Registration
Statement is incorporated by reference
4.8 Seventh Supplemental Indenture Exhibit 4.11 to the 1986 Registration
Statement is incorporated by reference
4.9 Eighth Supplemental Indenture Exhibit 4.11 to the 1987 Registration
Statement is incorporated by reference
4.10 Ninth Supplemental Indenture Exhibit 4.12 to the 1988 Registration
Statement is incorporated by reference
4.11 Tenth Supplemental Indenture Exhibit 4.13 to the 1989 Registration
Statement is incorporated by reference
4.12 Eleventh Supplemental Indenture Exhibit 4.12 to the 1990 Registration
Statement is incorporated by reference
4.13 Twelfth Supplemental Indenture Exhibit 4.13 to the 1991 Registration
Statement is incorporated by reference
4.14 Thirteenth Supplemental Indenture Exhibit 4.14 to the 1991 10-K is
incorporated by reference
4.15 Fourteenth Supplemental Indenture Exhibit 4.15 to the 1992 Registration
Statement is incorporated by reference
4.16 Fifteenth Supplemental Indenture Exhibit 4.16 to the 1993 Registration
Statement is incorporated by reference
4.17 Sixteenth Supplemental Indenture Exhibit 4.17 to the 1994 Registration
Statement is incorporated by reference
4.18 Seventeenth Supplemental Indenture Exhibit 4.19 to the 1994 Amendment
is incorporated by reference
4.19 Form of Passbook Series Subordinated Exhibit 4.16 to the 1992 Registration
Investment Certificates Statement is incorporated by reference
Unsecured Funding Program*
4.20 Schedule identifying lenders and certain Filed herewith
terms
4.21 Example of loan and suretyship Exhibit 4.16a to the 1993
agreements with various lenders. 10-K is incorporated by reference
Employment agreements:
10.1 J. F. Horrigan, Jr.
10.2 A. A. Haberberger
10.3 W. M. Horrigan Filed herewith
10.4 V. A. Faino
10.5 J. F. Horrigan, III
Split-Dollar Insurance
10.6 J. F. Horrigan, Jr., 11/27/85 Exhibits 10.8 and 10.9 to the 1985 10-K
10.7 R. W. Horrigan, 11/27/85 are incorporated by reference
10.8 Amended and Restated Shareholders Exhibit 10.21 to the 1985 10-K is
Agreement dated as of April 16, 1985 incorporated by reference
10.9 Amendment to Exhibit 10.8 Filed herewith
Redemption Agreements
10.10 J. F. Horrigan, Jr. Exhibits 10.8 through 10.10 to the 1993
10.11 A. A. Haberberger 10-K are incorporated by reference
10.12 W. M. Horrigan
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
Exhibit Exhibit Incorporation by Reference
No. Description (if applicable)
- -------- ------------------------------------- -----------------------------------------
<S> <C> <C>
10.13 Amedment to Exhibit 10.10 Filed herewith
10.14 Amedment to Exhibit 10.11 Filed herewith
10.15 Amedment to Exhibit 10.12 Filed herewith
10.16 Horrigan American. Inc. Exhibit 10.12 to the 1993 10-K
401(k) Retirement Plan is incorporated by reference
10.17 Amendment to Exhibit 10.16 Filed herewith
10.18 1987 Stock Option Plan Exhibit 10.20 to the 1987 10-K is
incorporated by reference
10.19 Stockholders Agreement for Outside Exhibit 10.25 to the 1985 10-K is
Directors dated March 25, 1985 incorporated by reference
10.20 Amendment to Exhibit 10.19 Filed herewith
10.21 Phantom Stock Plan Exhibit 10.15 to the 1993 10-K is
incorporated by reference
11 Statement of calculation of earnings per Filed herewith
share
12 Statement of calculation of ratios of Filed herewith
earnings to fixed charges
22 Subsidiaries of the Registrant Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
- ----------
* Other instruments defining the rights of holders of long-term debt of
registrant and its subsidiaries are not filed, pursuant to paragraph
(b)(4)(iii)(A) of Item 601 of Regulation S-K. Registrant agrees to furnish a
copy of any such instrument to the Commission upon request.
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HORRIGAN AMERICAN, INC.
DATED: March 20, 1995 By: /s/ JOHN F. HORRIGAN, JR
------------------------------
John F. Horrigan, Jr.
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ JOHN F. HORRIGAN, JR. Chairman of the Board of Directors March 20, 1995
- ----------------------------
John F. Horrigan, Jr.
/s/ RICHARD W. HORRIGAN Vice Chairman of the Board of March 20, 1995
- ---------------------------- Directors
Richard W. Horrigan
/s/ ARTHUR A. HABERBERGER President (principal executive officer) March 20, 1995
- ---------------------------- and Director
Arthur A. Haberberger
/s/ W. MICHAEL HORRIGAN Director March 20, 1995
- ----------------------------
W. Michael Horrigan
/s/ SIDNEY D. KLINE, JR. Director March 20, 1995
- ----------------------------
Sidney D. Kline, Jr.
/s/ ROBERT ORDWAY Senior Vice President (principal March 20, 1995
- ---------------------------- financial and accounting officer)
Robert Ordway
</TABLE>
<PAGE> 63
Exhibit 4.20
AEL LEASING CO., INC.
AMERICAN COMMERCIAL CREDIT CORP.
AMERICAN CAPITAL LEASING CORPORATION
UNSECURED FUNDING PROGRAM
JANUARY 31, 1995
<TABLE>
<CAPTION>
Credit
Bank Facility Renewal Date Interest Rate
---- -------- ------------ -------------
<S> <C> <C> <C>
Bank of Pennsylvania................... $ 9,500,000 June 30, 1995 Note #2
Citizens Bank ......................... 5,000,000 June 30, 1995 Note #5
Midlantic Bank (Phila.) ............... 1,769,278 June 30, 1995 Note #3
CoreStates............................. 5,000,000 June 30, 1995 Note #2
First National Bank of Maryland........ 7,500,000 June 30, 1995 Note #2
Meridian Bank.......................... 25,000,000 June 30, 1995 Note #1
National City Bank, Kentucky........... 9,500,000 June 30, 1995 Note #2
Nations Bank........................... 10,500,000 June 30, 1995 Note #2
PNC Bank............................... 13,000,000 June 30, 1995 Note #4
-----------
Total............................... $86,769,278
</TABLE>
- ----------
Note #1 U.S. Treasury Notes (24 to 36 Months) plus 200 basis points with a
ceiling interest rate of prime plus 3/4% and a floor interest rate of
prime minus 3/4%.
Note #2 Negotiated interest rate at time of takedown.
Note #3 Company has elected to liquidate the outstanding balance.
Note #4 Negotiated interest rate at time of takedown with a cap of base rate
plus 75 basis points.
Note #5 190 basis points over treasuries of like maturities.
<PAGE> 64
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1995, by and between
Horrigan American, Inc. (hereinafter called "Company") and J. F. Horrigan, Jr.
(hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of diversified
financial services. The Officer is presently serving as Chairman of the Board.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to perform
such duties as may be determined and assigned to him by his immediate
supervisor.
2. Performance. The Officer agrees to devote all of his working time and best
efforts to the performance of his duties as Chairman of the Board and to
the performance of other such duties as are assigned to him from time to
time by his immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter
specifically provided, the term of this Agreement shall be from January 1,
1995, through December 31, 1995; provided, however, that this Agreement
shall be extended by one calendar day for each expired calendar day after
January 1, 1995, until December 31, 1995, with the alternate termination of
this Agreement not later than December 31, 1996. Notwithstanding the
foregoing extension of the Agreement, the Company and the Officer may
mutually agree to renegotiate this Agreement or enter into a new Agreement
after December 31, 1995.
4. Compensation. Compensation, wherever used in this Agreement, shall mean all
base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any capacity
hereunder, including services as an officer, member of any committee,
or any other duties assigned to him by his immediate supervisor, the
Company agrees to pay the Officer a base salary of $110,000 per annum,
payable in equal semi-monthly installments on the fifteenth (15th) and
last day of each month. The Company, at its option, may increase the
Officer's compensation at any time at its convenience.
(b) The Company further agrees to pay the Officer incentive compensation
according to the following program:
HAI Super Hurdle Plan
HAI Hurdle Plan
AEL/ACC/AELH Hurdle Plan
ARE Hurdle Plan
Phantom Stock Plan
<PAGE> 65
5. Life Insurance. The Officer agrees that the Company, at its discretion, may
apply for and procure in its own name and for its own benefit, life
insurance in any amount or amounts considered advisable and that the
Officer shall have no right, title, or interest therein; and, further, he
agrees to submit to any reasonable medical or other examination and to
execute and deliver any application or other instrument, in writing,
necessary to effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the Company
will compensate the Officer for his eligible business expenses to include:
travel, meals, and miscellaneous expenses incurred locally; and travel,
meals, lodging, and miscellaneous expenses incurred while the Officer is
away on business. Such reimbursement shall be made by the Company upon
submission of a signed statement by the Officer itemizing such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this
Agreement at any time upon two (2) months' notice to the Officer; and
the Company shall be obligated to pay the Officer two (2) months'
compensation plus one (1) month's compensation pro-rated for each two
(2) years of continuous service as an Officer (vice president or
above) of the Company or any affiliated sister company, up to a
maximum of ten (10) additional months' compensation. A month's
compensation shall be determined as the greater of:
(1) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six (6) month
period and one-twelfth (1/12) of any incentive compensation which
was paid to the Officer during the prior twelve (12) month period
or
(2) The combined of one-sixth (1/6) of the base compensation which
was paid to the Officer during the prior six-month period and a
pro rata share, based upon the number of full weeks worked, of
any incentive compensation due and owing for the year in which
the Officer is terminated. If the Officer is separated by the
Company in accordance with Paragraph 7(a), it is expressly
understood that it is not a termination of employment as defined
in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this
Agreement at any time upon two (2) months' notice to the Company, and
the Company shall be obligated to pay to the Officer two (2) months'
compensation. A month's compensation shall be determined as defined in
7(a).
(c) Involuntary Company Termination: The Company may also terminate this
Agreement on one (1) day's notice, if the termination is for any of
the following employment-related causes, and, in that event, the
Company shall not be obligated to pay the Officer any further
compensation:
(c-1) Willful failure or refusal of the Officer to adequately perform
the duties and obligations of his employment, if such willful
failure or refusal is determined upon review by an arbitration
committee of three (3) Officers appointed by the Chief Human
Resources Officer.
<PAGE> 66
(c-2) Any breach by the Officer of the provisions of this Agreement,
if such breach is determined upon review by an arbitration
committee of three (3) Officers appointed by the Chief Human
Resources Officer.
(c-3) Conviction of the Officer for any felony or other criminal
offense involving dishonesty or moral turpitude which is related
to his employment with the Company or to his duties as an
Officer.
(c-4) Other just cause, if such just cause is determined upon review
by an arbitration committee of three (3) Officers appointed by
the Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this Agreement,
it shall terminate immediately. Unless the Officer has left a
different designation on file with the Company, the Officer's
surviving spouse or, if there is no surviving spouse, the minor
children (to include all children who are full-time students
regardless of age) or, if there are no surviving children, the
Officer's estate shall be entitled to receive six (6) months'
compensation due the Officer. A month's compensation shall be
determined as defined in paragraph 7(a). This compensation shall be
paid in equal monthly installments, commencing the first of the month
following the Officer's death, and shall be paid proportionately over
a period of eighteen (18) months.
(b) In addition, should the Officer at any time die while a party to this
Agreement, the Company shall pay within three (3) months after the
date of the Officer's death, a death benefit of Five Thousand Dollars
($5,000.00) to the Officer's surviving spouse or, if there is no
surviving spouse, to the surviving children in equal shares or, if
there are no surviving children, to the Officer's estate, unless the
Officer has left a different designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should fail
to perform his duties hereunder on account of illness or other incapacity,
and such illness or incapacity shall continue for a period of six (6)
months, the Company shall have the right to terminate this Agreement. In
that event, the Company shall be obligated to pay the Officer his
compensation up to the date of termination. Such compensation may be
reduced by the amount of any proceeds received by the Officer from any
Company-funded program such as disability insurance, Worker's Compensation,
or Social Security, during the six (6) month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of its
business for a period of one (1) month, this Agreement shall automatically
terminate without further liability on the part of either the parties
hereto.
11. Restrictions.
(a) The Officer acknowledges that:
<PAGE> 67
(a-1) During the course of his employment with the Company and during
the term of this Agreement, the Officer has and shall continue
to have access to learn, be provided with, prepare, or create
Confidential Information, all of which is of substantial value
to the Company's business and the disclosure of which would be
harmful to the Company.
(a-2) In the event, either during the term of this Agreement or any
time thereafter, the Officer should disclose to any other person
or entity any such Confidential Information, use for the
Officer's own benefit or for the benefit of any other person or
entity any such Confidential Information, or make copies or
notes of any such Confidential Information except as may be
required in the normal course of the Officer's duties, such
conduct would be inconsistent with and a breach of the
confidence and trust inherent in the Officer's position with the
Company, unless such information has already become common
knowledge, or unless the Officer is compelled to disclose such
information by governmental process.
(b) During the term of this Agreement, the Officer agrees to devote all of
his working time and best efforts to further the interests of the
Company, and he shall not directly or indirectly, alone or as a
partner, officer, director, or stockholder of any other institution,
be engaged in any other commercial activity whatsoever, or continue or
assume any other corporate affiliations without the consent of the
Board of Directors of the Company.
EXCEPTION: It shall not be deemed a violation of this Agreement for
the Officer to engage in independent consulting activities including
Corporate Directorships for third party companies and individuals, and
to retain the compensation therefore for his individual use, providing
such consultation does not involve services and advice given to any
firm or company on the activities and business of this Company or any
of its subsidiaries or affiliates, and further provided such
consultation is not with a customer or competitor of the Company
without the prior written approval of the Board of Directors of
Company. It is further understood that such consulting shall be on
personal time.
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized
items.
(c-2) The Company has a proprietary interest in the identity of its
customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have access
to and become familiar with various trade secrets and highly
confidential information of the Company, including but not
necessarily limited to, documents and information regarding the
Company's services, systems, lease and financing programs,
re-marketing programs, sales, pricing, costs, specialized
requirements of customers, prospective applicants for
employment, current employees, information recorded on present
or past credit applications, current or past financing vehicles
or products by and between the Company and the banking community
or related community, internal managerial accounting systems,
and information systems. The Officer acknowledges that such
confidential information and trade secrets are owned and shall
continue to be owned solely by the Company.
<PAGE> 68
(d) The Officer covenants to the Company that for a period of one (1) year
following the date of Termination of Employment, as defined in
Paragraph 7 of this Agreement, he shall not, either directly or
indirectly, or through any person or other entity, or by any other
means:
(d-1) Use confidential information or trade secrets for any purpose
whatsoever or divulge such information to any person other than
the Company or persons to whom the Company has given consent,
unless such information has already become common knowledge, or
unless the Officer is compelled to disclose such information by
governmental process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or
corporation who is or was a customer of the Company (customer is
defined as dealer, manufacturer, vendor, borrower, lessee, or
any other person or entity who deals with the Company in its
normal course of business) at the time of termination of the
Officer's employment. The Officer agrees not to solicit such
customers on behalf of himself or any other person, company,
firm, or corporation.
(e) In the event that a court of competent jurisdiction determines that
the provisions of paragraph 11(c) and 11(d), or any part thereof, are
invalid or unenforceable by reason of overly broad territorial or
excessive time restrictions or otherwise, then the parties to the
Agreement request such court to modify such restrictions or paragraph
to the extent necessary in order that the same shall be valid and
enforceable and to enforce the same to that extent.
(f) Upon his separation of employment for any reason, the Officer shall
immediately deliver to the Company all documentation and other
property which belongs to the Company which pertains to the business
or financial affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach, violation,
or default by the Officer of the provisions contained in paragraphs
11(d) and 11(f) of this Agreement would result in irreparable harm and
damage to the Company, which harm and damage would be extremely
difficult to quantify and, accordingly, the Officer consents to the
jurisdiction of a court of equity and (1) the entry of an injunction,
temporary or permanent, enjoining the Officer from competing with the
Company in violation of the provisions of paragraph 11(d) hereof, and
(2) the entry by said court of an order requiring the Officer to
deliver to the Company documentation or other property which belongs
to the Company as required in paragraph 11(f).
<PAGE> 69
12. Benefits. The Company agrees to provide the Officer during the term of this
Agreement such additional benefits, commonly known as "employee benefits,"
which are generally extended by the Company to its Officers.
Notwithstanding the foregoing and provided the Officer remains employed by
the Company, all employee benefits received by the Officer at the time of
the effective date of this Agreement shall be maintained throughout the
term of this Agreement, unless expressly prohibited by law or unless any or
all such employee benefits are discontinued, decreased, or in any way
modified by the Company for all Officers, for all persons serving in a
capacity similar to that of the Officer, or for all employees of the
Company. Employee benefits include, but are not limited to, holidays,
vacations, health insurance, life/accidental death insurance, long-term
disability insurance, short-term disability benefits, expense supplement
plan, educational assistance program, employee assistance program, health
maintenance organization, sick leave, Christmas cash bonus, and service
recognition awards. Any intended modification of employee benefits as
defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the Company
will extend to the Officer a period of sixty (60) calendar days, during
which the Officer shall have the right to exercise any stock options, in
whole or in part, as may have been granted under the Horrigan American,
Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Arbitration. Any controversy arising from or related to this Agreement
shall be determined by arbitration in the City of Reading in accordance
with the rules of the American Arbitration Association, and judgment upon
any such determination or award may be entered in any court having
jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors
and assigns.
------------------------------- ---------------------------
Horrigan American, Inc. Officer
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE> 70
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1995, by and between
Horrigan American, Inc. (hereinafter called "Company") and Arthur A. Haberberger
(hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of diversified
financial services. The Officer is presently serving as President and Chief
Executive Officer of the Company.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to perform
such duties as may be determined and assigned to him by his immediate
supervisor.
2. Performance. The Officer agrees to devote all of his working time and best
efforts to the performance of his duties as President and Chief Executive
Officer and to the performance of other such duties as are assigned to him
from time to time by his immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter
specifically provided, the term of this Agreement shall be from January 1,
1995, through December 31, 1995; provided, however, that this Agreement
shall be extended by one calendar day for each expired calendar day after
January 1, 1995, until December 31, 1995, with the alternate termination of
this Agreement not later than December 31, 1996. Notwithstanding the
foregoing extension of the Agreement, the Company and the Officer may
mutually agree to renegotiate this Agreement or enter into a new Agreement
after December 31, 1995.
4. Compensation. Compensation, wherever used in this Agreement, shall mean all
base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any capacity
hereunder, including services as an officer, member of any committee,
or any other duties assigned to him by his immediate supervisor, the
Company agrees to pay the Officer a base salary of $135,000 per annum,
payable in equal semi-monthly installments on the fifteenth (15th) and
last day of each month. The Company, at its option, may increase the
Officer's compensation at any time at its convenience.
(b) The Company further agrees to pay the Officer incentive compensation
according to the following program:
HAI Super Hurdle Plan
HAI Hurdle Plan
AEL/ACC/AELH Hurdle Plan
ARE Hurdle Plan
Phantom Stock Plan
<PAGE> 71
5. Life Insurance. The Officer agrees that the Company, at its discretion, may
apply for and procure in its own name and for its own benefit, life
insurance in any amount or amounts considered advisable and that the
Officer shall have no right, title, or interest therein; and, further, he
agrees to submit to any reasonable medical or other examination and to
execute and deliver any application or other instrument, in writing,
necessary to effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the Company
will compensate the Officer for his eligible business expenses to include:
travel, meals, and miscellaneous expenses incurred locally; and travel,
meals, lodging, and miscellaneous expenses incurred while the Officer is
away on business. Such reimbursement shall be made by the Company upon
submission of a signed statement by the Officer itemizing such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this
Agreement at any time upon two (2) months' notice to the Officer; and
the Company shall be obligated to pay the Officer two (2) months'
compensation plus one (1) month's compensation pro-rated for each two
(2) years of continuous service as an Officer (vice president or
above) of the Company or any affiliated sister company, up to a
maximum of ten (10) additional months' compensation. A month's
compensation shall be determined as the greater of:
(1) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six (6) month
period and one-twelfth (1/12) of any incentive compensation which
was paid to the Officer during the prior twelve (12) month period
or
(2) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six-month period
and a pro rata share, based upon the number of full weeks worked,
of any incentive compensation due and owing for the year in which
the Officer is terminated.
If the Officer is separated by the Company in accordance with
Paragraph 7(a), it is expressly understood that it is not a
termination of employment as defined in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this
Agreement at any time upon two (2) months' notice to the Company, and
the Company shall be obligated to pay to the Officer two (2) months'
compensation. A month's compensation shall be determined as defined in
7(a).
(c) Involuntary Company Termination: The Company may also terminate this
Agreement on one (1) day's notice, if the termination is for any of
the following employment-related causes, and, in that event, the
Company shall not be obligated to pay the Officer any further
compensation:
<PAGE> 72
(c-1) Willful failure or refusal of the Officer to adequately perform
the duties and obligations of his employment, if such willful
failure or refusal is determined upon review by an arbitration
committee of three (3) Officers appointed by the Chief Human
Resources Officer.
(c-2) Any breach by the Officer of the provisions of this Agreement,
if such breach is determined upon review by an arbitration
committee of three (3) Officers appointed by the Chief Human
Resources Officer.
(c-3) Conviction of the Officer for any felony or other criminal
offense involving dishonesty or moral turpitude which is related
to his employment with the Company or to his duties as an
Officer.
(c-4) Other just cause, if such just cause is determined upon review
by an arbitration committee of three (3) Officers appointed by
the Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this Agreement,
it shall terminate immediately. Unless the Officer has left a
different designation on file with the Company, the Officer's
surviving spouse or, if there is no surviving spouse, the minor
children (to include all children who are full-time students
regardless of age) or, if there are no surviving children, the
Officer's estate shall be entitled to receive six (6) months'
compensation due the Officer. A month's compensation shall be
determined as defined in paragraph 7(a). This compensation shall be
paid in equal monthly installments, commencing the first of the month
following the Officer's death, and shall be paid proportionately over
a period of eighteen (18) months.
(b) In addition, should the Officer at any time die while a party to this
Agreement, the Company shall pay within three (3) months after the
date of the Officer's death, a death benefit of Five Thousand Dollars
($5,000.00) to the Officer's surviving spouse or, if there is no
surviving spouse, to the surviving children in equal shares or, if
there are no surviving children, to the Officer's estate, unless the
Officer has left a different designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should fail
to perform his duties hereunder on account of illness or other incapacity,
and such illness or incapacity shall continue for a period of six (6)
months, the Company shall have the right to terminate this Agreement. In
that event, the Company shall be obligated to pay the Officer his
compensation up to the date of termination. Such compensation may be
reduced by the amount of any proceeds received by the Officer from any
Company-funded program such as disability insurance, Worker's Compensation,
or Social Security, during the six (6) month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of its
business for a period of one (1) month, this Agreement shall automatically
terminate without further liability on the part of either the parties
hereto.
<PAGE> 73
11. Restrictions.
(a) The Officer acknowledges that:
(a-1) During the course of his employment with the Company and during
the term of this Agreement, the Officer has and shall continue
to have access to learn, be provided with, prepare, or create
Confidential Information, all of which is of substantial value
to the Company's business and the disclosure of which would be
harmful to the Company.
(a-2) In the event, either during the term of this Agreement or any
time thereafter, the Officer should disclose to any other person
or entity any such Confidential Information, use for the
Officer's own benefit or for the benefit of any other person or
entity any such Confidential Information, or make copies or
notes of any such Confidential Information except as may be
required in the normal course of the Officer's duties, such
conduct would be inconsistent with and a breach of the
confidence and trust inherent in the Officer's position with the
Company, unless such information has already become common
knowledge, or unless the Officer is compelled to disclose such
information by governmental process.
(b) During the term of this Agreement, the Officer agrees to devote all of
his working time and best efforts to further the interests of the
Company, and he shall not directly or indirectly, alone or as a
partner, officer, director, or stockholder of any other institution,
be engaged in any other commercial activity whatsoever, or continue or
assume any other corporate affiliations without the consent of the
Board of Directors of the Company.
EXCEPTION: It shall not be deemed a violation of this Agreement for
the Officer to engage in independent consulting activities including
Corporate Directorships for third party companies and individuals, and
to retain the compensation therefore for his individual use, providing
such consultation does not involve services and advice given to any
firm or company on the activities and business of this Company or any
of its subsidiaries or affiliates, and further provided such
consultation is not with a customer or competitor of the Company
without the prior written approval of the Board of Directors of
Company. It is further understood that such consulting shall be on
personal time.
<PAGE> 74
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized
items.
(c-2) The Company has a proprietary interest in the identity of its
customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have access
to and become familiar with various trade secrets and highly
confidential information of the Company, including but not
necessarily limited to, documents and information regarding the
Company's services, systems, lease and financing programs,
re-marketing programs, sales, pricing, costs, specialized
requirements of customers, prospective applicants for
employment, current employees, information recorded on present
or past credit applications, current or past financing vehicles
or products by and between the Company and the banking community
or related community, internal managerial accounting systems,
and information systems. The Officer acknowledges that such
confidential information and trade secrets are owned and shall
continue to be owned solely by the Company.
(d) The Officer covenants to the Company that for a period of one (1) year
following the date of Termination of Employment, as defined in
Paragraph 7 of this Agreement, he shall not, either directly or
indirectly, or through any person or other entity, or by any other
means:
(d-1) Use confidential information or trade secrets for any purpose
whatsoever or divulge such information to any person other than
the Company or persons to whom the Company has given consent,
unless such information has already become common knowledge, or
unless the Officer is compelled to disclose such information by
governmental process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or
corporation who is or was a customer of the Company (customer is
defined as dealer, manufacturer, vendor, borrower, lessee, or
any other person or entity who deals with the Company in its
normal course of business) at the time of termination of the
Officer's employment. The Officer agrees not to solicit such
customers on behalf of himself or any other person, company,
firm, or corporation.
(e) In the event that a court of competent jurisdiction determines that
the provisions of paragraph 11(c) and 11(d), or any part thereof, are
invalid or unenforceable by reason of overly broad territorial or
excessive time restrictions or otherwise, then the parties to the
Agreement request such court to modify such restrictions or paragraph
to the extent necessary in order that the same shall be valid and
enforceable and to enforce the same to that extent.
(f) Upon his separation of employment for any reason, the Officer shall
immediately deliver to the Company all documentation and other
property which belongs to the Company which pertains to the business
or financial affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach, violation,
or default by the Officer of the provisions contained in paragraphs
11(d) and 11(f) of this Agreement would result in irreparable harm and
damage to the Company, which harm and damage would be extremely
difficult to quantify and, accordingly, the Officer consents to the
jurisdiction of a court of equity and (1) the entry of an injunction,
temporary or permanent, enjoining the Officer from competing with the
Company in violation of the provisions of paragraph 11(d) hereof, and
(2) the entry by said court of an order requiring the Officer to
deliver to the Company documentation or other property which belongs
to the Company as required in paragraph 11(f).
<PAGE> 75
12. Benefits. The Company agrees to provide the Officer during the term of this
Agreement such additional benefits, commonly known as "employee benefits,"
which are generally extended by the Company to its Officers.
Notwithstanding the foregoing and provided the Officer remains employed by
the Company, all employee benefits received by the Officer at the time of
the effective date of this Agreement shall be maintained throughout the
term of this Agreement, unless expressly prohibited by law or unless any or
all such employee benefits are discontinued, decreased, or in any way
modified by the Company for all Officers, for all persons serving in a
capacity similar to that of the Officer, or for all employees of the
Company. Employee benefits include, but are not limited to, holidays,
vacations, health insurance, life/accidental death insurance, long-term
disability insurance, short-term disability benefits, expense supplement
plan, educational assistance program, employee assistance program, health
maintenance organization, sick leave, Christmas cash bonus, and service
recognition awards. Any intended modification of employee benefits as
defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the Company
will extend to the Officer a period of sixty (60) calendar days, during
which the Officer shall have the right to exercise any stock options, in
whole or in part, as may have been granted under the Horrigan American,
Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Arbitration. Any controversy arising from or related to this Agreement
shall be determined by arbitration in the City of Reading in accordance
with the rules of the American Arbitration Association, and judgment upon
any such determination or award may be entered in any court having
jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors
and assigns.
----------------------------- ---------------------------
Horrigan American, Inc. Officer
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE> 76
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1995, by and between AEL
Leasing Co., Inc., and American Commercial Credit Corp. (hereinafter called
"Company") and W. Michael Horrigan (hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of commercial leasing
and lending. The Officer is presently serving as Executive Vice President and
Chief Administrative Officer of the Company.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to perform
such duties as may be determined and assigned to him by his immediate
supervisor.
2. Performance. The Officer agrees to devote all of his working time and best
efforts to the performance of his duties as Executive Vice President and
Chief Administrative Officer and to the performance of other such duties
as are assigned to him from time to time by his immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter
specifically provided, the term of this Agreement shall be from January 1,
1995, through December 31, 1995; provided, however, that this Agreement
shall be extended by one calendar day for each expired calendar day after
January 1, 1995, until December 31, 1995, with the alternate termination
of this Agreement not later than December 31, 1996. Notwithstanding the
foregoing extension of the Agreement, the Company and the Officer may
mutually agree to renegotiate this Agreement or enter into a new Agreement
after December 31, 1995.
4. Compensation. Compensation, wherever used in this Agreement, shall mean
all base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any capacity
hereunder, including services as an officer, member of any
committee, or any other duties assigned to him by his immediate
supervisor, the Company agrees to pay the Officer a base salary of
$90,600 per annum, payable in equal semi-monthly installments on the
fifteenth (15th) and last day of each month. The Company, at its
option, may increase the Officer's compensation at any time at its
convenience.
(b) The Company further agrees to pay the Officer incentive compensation
according to the following program:
(b-1) HAI Super Hurdle
(b-2) AEL/ACC/AELH Hurdle
(b-3) Phantom Stock Plan
(b-4) Originations
.001 of Golf Capital Originations over $9,000,000
<PAGE> 77
5. Life Insurance. The Officer agrees that the Company, at its discretion,
may apply for and procure in its own name and for its own benefit, life
insurance in any amount or amounts considered advisable and that the
Officer shall have no right, title, or interest therein; and, further,
he agrees to submit to any reasonable medical or other examination and
to execute and deliver any application or other instrument, in writing,
necessary to effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the
Company will compensate the Officer for his eligible business expenses
to include: travel, meals, and miscellaneous expenses incurred locally;
and travel, meals, lodging, and miscellaneous expenses incurred while
the Officer is away on business. Such reimbursement shall be made by the
Company upon submission of a signed statement by the Officer itemizing
such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this
Agreement at any time upon two (2) months' notice to the Officer;
and the Company shall be obligated to pay the Officer two (2)
months' compensation plus one (1) month's compensation pro-rated for
each two (2) years of continuous service as an Officer (vice
president or above) of the Company or any affiliated sister company,
up to a maximum of ten (10) additional months' compensation. A
month's compensation shall be determined as the greater of:
(1) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six (6) month
period and one-twelfth (1/12) of any incentive compensation
which was paid to the Officer during the prior twelve (12) month
period or
(2) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six-month period
and a pro rata share, based upon the number of full weeks
worked, of any incentive compensation due and owing for the year
in which the Officer is terminated.
If the Officer is separated by the Company in accordance with
Paragraph 7(a), it is expressly understood that it is not a
termination of employment as defined in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this
Agreement at any time upon two (2) months' notice to the Company,
and the Company shall be obligated to pay to the Officer two (2)
months' compensation. A month's compensation shall be determined as
defined in 7(a).
(c) Involuntary Company Termination: The Company may also terminate this
Agreement on one (1) day's notice, if the termination is for any of
the following employment-related causes, and, in that event, the
Company shall not be obligated to pay the Officer any further
compensation:
<PAGE> 78
(c-1) Willful failure or refusal of the Officer to adequately
perform the duties and obligations of his employment, if
such willful failure or refusal is determined upon review by
an arbitration committee of three (3) Officers appointed by
the Chief Human Resources Officer.
(c-2) Any breach by the Officer of the provisions of this
Agreement, if such breach is determined upon review by an
arbitration committee of three (3) Officers appointed by the
Chief Human Resources Officer.
(c-3) Conviction of the Officer for any felony or other criminal
offense involving dishonesty or moral turpitude which is
related to his employment with the Company or to his duties
as an Officer.
(c-4) Other just cause, if such just cause is determined upon
review by an arbitration committee of three (3) Officers
appointed by the Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this Agreement,
it shall terminate immediately. Unless the Officer has left a different
designation on file with the Company, the Officer's surviving spouse or,
if there is no surviving spouse, the minor children (to include all
children who are full-time students regardless of age) or, if there are
no surviving children, the Officer's estate shall be entitled to receive
six (6) months' compensation due the Officer. A month's compensation
shall be determined as defined in paragraph 7(a). This compensation
shall be paid in equal monthly installments, commencing the first of the
month following the Officer's death, and shall be paid proportionately
over a period of eighteen (18) months.
(b) In addition, should the Officer at any time die while a party to this
Agreement, the Company shall pay within three (3) months after the date
of the Officer's death, a death benefit of Five Thousand Dollars
($5,000.00) to the Officer's surviving spouse or, if there is no
surviving spouse, to the surviving children in equal shares or, if there
are no surviving children, to the Officer's estate, unless the Officer
has left a different designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should fail
to perform his duties hereunder on account of illness or other incapacity,
and such illness or incapacity shall continue for a period of six (6)
months, the Company shall have the right to terminate this Agreement. In
that event, the Company shall be obligated to pay the Officer his
compensation up to the date of termination. Such compensation may be reduced
by the amount of any proceeds received by the Officer from any
Company-funded program such as disability insurance, Worker's Compensation,
or Social Security, during the six (6) month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of its
business for a period of one (1) month, this Agreement shall automatically
terminate without further liability on the part of either the parties
hereto.
<PAGE> 79
11. Restrictions.
(a) The Officer acknowledges that:
(a-1) During the course of his employment with the Company and during
the term of this Agreement, the Officer has and shall continue to
have access to learn, be provided with, prepare, or create
Confidential Information, all of which is of substantial value to
the Company's business and the disclosure of which would be
harmful to the Company.
(a-2) In the event, either during the term of this Agreement or any time
thereafter, the Officer should disclose to any other person or
entity any such Confidential Information, use for the Officer's
own benefit or for the benefit of any other person or entity any
such Confidential Information, or make copies or notes of any such
Confidential Information except as may be required in the normal
course of the Officer's duties, such conduct would be inconsistent
with and a breach of the confidence and trust inherent in the
Officer's position with the Company, unless such information has
already become common knowledge, or unless the Officer is
compelled to disclose such information by governmental process.
(b) During the term of this Agreement, the Officer agrees to devote all of
his working time and best efforts to further the interests of the
Company, and he shall not directly or indirectly, alone or as a partner,
officer, director, or stockholder of any other institution, be engaged
in any other commercial activity whatsoever, or continue or assume any
other corporate affiliations without the consent of the Board of
Directors of the Company.
EXCEPTION: It shall not be deemed a violation of this Agreement for the
Officer to engage in independent consulting activities including
Corporate Directorships for third party companies and individuals, and
to retain the compensation therefore for his individual use, providing
such consultation does not involve services and advice given to any firm
or company on the activities and business of this Company or any of its
subsidiaries or affiliates, and further provided such consultation is
not with a customer or competitor of the Company without the prior
written approval of the Board of Directors of Company. It is further
understood that such consulting shall be on personal time.
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized items.
(c-2) The Company has a proprietary interest in the identity of its
customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have access to
and become familiar with various trade secrets and highly
confidential information of the Company, including but not
necessarily limited to, documents and information regarding the
Company's services, systems, lease and financing programs,
re-marketing programs, sales, pricing, costs, specialized
requirements of customers, prospective applicants for employment,
current employees, information recorded on present or past credit
applications, current or past financing vehicles or products by
and between the Company and the banking community or related
community, internal managerial accounting systems, and information
systems. The Officer acknowledges that such confidential
information and trade secrets are owned and shall continue to be
owned solely by the Company.
<PAGE> 80
(d) The Officer covenants to the Company that for a period of one (1)
year following the date of Termination of Employment, as defined
in Paragraph 7 of this Agreement, he shall not, either directly or
indirectly, or through any person or other entity, or by any other
means:
(d-1) Use confidential information or trade secrets for any
purpose whatsoever or divulge such information to any person
other than the Company or persons to whom the Company has
given consent, unless such information has already become
common knowledge, or unless the Officer is compelled to
disclose such information by governmental process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or
corporation who is or was a customer of the Company
(customer is defined as dealer, manufacturer, vendor,
borrower, lessee, or any other person or entity who deals
with the Company in its normal course of business) at the
time of termination of the Officer's employment. The Officer
agrees not to solicit such customers on behalf of himself or
any other person, company, firm, or corporation.
(e) In the event that a court of competent jurisdiction determines that
the provisions of paragraph 11(c) and 11(d), or any part thereof,
are invalid or unenforceable by reason of overly broad territorial
or excessive time restrictions or otherwise, then the parties to the
Agreement request such court to modify such restrictions or
paragraph to the extent necessary in order that the same shall be
valid and enforceable and to enforce the same to that extent.
(f) Upon his separation of employment for any reason, the Officer shall
immediately deliver to the Company all documentation and other
property which belongs to the Company which pertains to the business
or financial affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach,
violation, or default by the Officer of the provisions contained in
paragraphs 11(d) and 11(f) of this Agreement would result in
irreparable harm and damage to the Company, which harm and damage
would be extremely difficult to quantify and, accordingly, the
Officer consents to the jurisdiction of a court of equity and (1)
the entry of an injunction, temporary or permanent, enjoining the
Officer from competing with the Company in violation of the
provisions of paragraph 11(d) hereof, and (2) the entry by said
court of an order requiring the Officer to deliver to the Company
documentation or other property which belongs to the Company as
required in paragraph 11(f).
<PAGE> 81
12. Benefits. The Company agrees to provide the Officer during the term of this
Agreement such additional benefits, commonly known as "employee benefits,"
which are generally extended by the Company to its Officers. Notwithstanding
the foregoing and provided the Officer remains employed by the Company, all
employee benefits received by the Officer at the time of the effective date
of this Agreement shall be maintained throughout the term of this Agreement,
unless expressly prohibited by law or unless any or all such employee
benefits are discontinued, decreased, or in any way modified by the Company
for all Officers, for all persons serving in a capacity similar to that of
the Officer, or for all employees of the Company. Employee benefits include,
but are not limited to, holidays, vacations, health insurance,
life/accidental death insurance, long-term disability insurance, short-term
disability benefits, expense supplement plan, educational assistance
program, employee assistance program, health maintenance organization, sick
leave, Christmas cash bonus, and service recognition awards. Any intended
modification of employee benefits as defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the Company
will extend to the Officer a period of sixty (60) calendar days, during
which the Officer shall have the right to exercise any stock options, in
whole or in part, as may have been granted under the Horrigan American,
Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Arbitration. Any controversy arising from or related to this Agreement shall
be determined by arbitration in the City of Reading in accordance with the
rules of the American Arbitration Association, and judgment upon any such
determination or award may be entered in any court having jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors and
assigns.
---------------------------------- ------------------------
AEL Leasing Co., Inc. Officer
American Commercial Credit Corp.
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE> 82
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1995 by and between AEL
Leasing Co., Inc., and American Commercial Credit Corp. (hereinafter called
"Company") and Vincent A. Faino (hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of equipment leasing
and commercial lending. The Officer is presently serving as Senior Vice
President, Marketing and Sales, of the Company; and President, American Legal
Funding.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to perform
such duties as may be determined and assigned to him by his immediate
supervisor.
2. Performance. The Officer agrees to devote all of his working time and best
efforts to the performance of his duties as Senior Vice President, Marketing
and Sales, of the Company; and President, American Legal Funding, and to the
performance of other such duties as are assigned to him from time to time by
his immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter specifically
provided, the term of this Agreement shall be from January 1, 1995, through
December 31, 1995; provided, however, that this Agreement shall be extended
by one calendar day for each expired calendar day after January 1, 1995,
until December 31, 1995, with the alternate termination of this Agreement
not later than December 31, 1996. Notwithstanding the foregoing extension of
the Agreement, the Company and the Officer may mutually agree to renegotiate
this Agreement or enter into a new Agreement after December 31, 1995.
4. Compensation. Compensation, wherever used in this Agreement, shall mean all
base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any capacity
hereunder, including services as an officer, member of any committee, or
any other duties assigned to him by his immediate supervisor, the
Company agrees to pay the Officer a base salary of $80,000 per annum,
payable in equal semi-monthly installments on the fifteenth (15th) and
last day of each month. The Company, at its option, may increase the
Officer's compensation at any time at its convenience.
(b) The Company further agrees to pay the Officer incentive compensation
according to the following program:
(b-1) HAI Super Hurdle
(b-1) Phantom Stock Plan
<PAGE> 84
(b-3) Originations
.000300 of Monthly Accounts Payable up to $100,000,000
.000315 of Monthly Accounts Payable over $100,000,000
Payment will be made monthly in conjunction with the pay period
following the final determination of accounts payable for the month.
(b-3) Profit
.005 of Monthly Profit After Tax and GAAP Adjustments up to
$3,200,000
.006 of Monthly Profit After Tax and GAAP Adjustments over
$3,200,000
Payment will be made monthly in conjunction with the pay period
following the final determination of profit after tax and GAAP
adjustments for the month.
(b-4) Portfolios
$3,000 for each $5,000,000 of cash advances generated by the Officer
(c) It is understood that the minimum combined base and incentive
compensation, exclusive of the HAI Super Hurdle, paid to the Officer
will be $100,000 per year.
Note: Projected earnings at budgeted volume and budgeted profit and assuming
attainment of Hurdle bonus = $138,000.
5. Life Insurance. The Officer agrees that the Company, at its discretion, may
apply for and procure in its own name and for its own benefit, life
insurance in any amount or amounts considered advisable and that the Officer
shall have no right, title, or interest therein; and, further, he agrees to
submit to any reasonable medical or other examination and to execute and
deliver any application or other instrument, in writing, necessary to
effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the Company
will compensate the Officer for his eligible business expenses to include:
travel, meals, and miscellaneous expenses incurred locally; and travel,
meals, lodging, and miscellaneous expenses incurred while the Officer is
away on business. Such reimbursement shall be made by the Company upon
submission of a signed statement by the Officer itemizing such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this Agreement
at any time upon two (2) months' notice to the Officer; and the Company
shall be obligated to pay the Officer two (2) months' compensation plus
one (1) month's compensation pro-rated for each two (2) years of
continuous service as an Officer (vice president or above) of the
Company or any affiliated sister company, up to a maximum of ten (10)
additional months' compensation. A month's compensation shall be
determined as the greater of:
<PAGE> 85
(1) The combined total of one-sixth (1/6) of the base compensation which
was paid to the Officer during the prior six (6) month period and
one-twelfth (1/12) of any incentive compensation which was paid to
the Officer during the prior twelve (12) month period or
(2) The combined total of one-sixth (1/6) of the base compensation which
was paid to the Officer during the prior six-month period and a pro
rata share, based upon the number of full weeks worked, of any
incentive compensation due and owing for the year in which the
Officer is terminated.
If the Officer is separated by the Company in accordance with Paragraph
7(a), it is expressly understood that it is not a termination of
employment as defined in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this Agreement
at any time upon two (2) months' notice to the Company, and the Company
shall be obligated to pay to the Officer two (2) months' compensation. A
month's compensation shall be determined as defined in 7(a).
(c) Involuntary Company Termination: The Company may also terminate this
Agreement on one (1) day's notice, if the termination is for any of the
following employment-related causes, and, in that event, the Company
shall not be obligated to pay the Officer any further compensation:
(c-1) Willful failure or refusal of the Officer to adequately perform
the duties and obligations of his employment, if such willful
failure or refusal is determined upon review by an arbitration
committee of three (3) Officers appointed by the Chief Human
Resources Officer.
(c-2) Any breach by the Officer of the provisions of this Agreement, if
such breach is determined upon review by an arbitration committee
of three (3) Officers appointed by the Chief Human Resources
Officer.
(c-3) Conviction of the Officer for any felony or other criminal offense
involving dishonesty or moral turpitude which is related to his
employment with the Company or to his duties as an Officer.
(c-4) Other just cause, if such just cause is determined upon review by
an arbitration committee of three (3) Officers appointed by the
Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this Agreement,
it shall terminate immediately. Unless the Officer has left a different
designation on file with the Company, the Officer's surviving spouse or,
if there is no surviving spouse, the minor children (to include all
children who are full-time students regardless of age) or, if there are
no surviving children, the Officer's estate shall be entitled to receive
six (6) months' compensation due the Officer. A month's compensation
shall be determined as defined in paragraph 7(a). This compensation
shall be paid in equal monthly installments, commencing the first of the
month following the Officer's death, and shall be paid proportionately
over a period of eighteen (18) months.
<PAGE> 86
(b) In addition, should the Officer at any time die while a party to
this Agreement, the Company shall pay within three (3) months
after the date of the Officer's death, a death benefit of Five
Thousand Dollars ($5,000.00) to the Officer's surviving spouse or,
if there is no surviving spouse, to the surviving children in
equal shares or, if there are no surviving children, to the
Officer's estate, unless the Officer has left a different
designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should
fail to perform his duties hereunder on account of illness or other
incapacity, and such illness or incapacity shall continue for a period
of six (6) months, the Company shall have the right to terminate this
Agreement. In that event, the Company shall be obligated to pay the
Officer his compensation up to the date of termination. Such
compensation may be reduced by the amount of any proceeds received by
the Officer from any Company-funded program such as disability
insurance, Worker's Compensation, or Social Security, during the six (6)
month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of
its business for a period of one (1) month, this Agreement shall
automatically terminate without further liability on the part of either
the parties hereto.
11. Restrictions.
(a) The Officer acknowledges that:
(a-1) During the course of his employment with the Company and
during the term of this Agreement, the Officer has and shall
continue to have access to learn, be provided with, prepare,
or create Confidential Information, all of which is of
substantial value to the Company's business and the
disclosure of which would be harmful to the Company.
(a-2) In the event, either during the term of this Agreement or
any time thereafter, the Officer should disclose to any
other person or entity any such Confidential Information,
use for the Officer's own benefit or for the benefit of any
other person or entity any such Confidential Information, or
make copies or notes of any such Confidential Information
except as may be required in the normal course of the
Officer's duties, such conduct would be inconsistent with
and a breach of the confidence and trust inherent in the
Officer's position with the Company, unless such information
has already become common knowledge, or unless the Officer
is compelled to disclose such information by governmental
process.
(b) During the term of this Agreement, the Officer agrees to devote
all of his working time and best efforts to further the interests
of the Company, and he shall not directly or indirectly, alone or
as a partner, officer, director, or stockholder of any other
institution, be engaged in any other commercial activity
whatsoever, or continue or assume any other corporate affiliations
without the consent of the Board of Directors of the Company.
<PAGE> 87
EXCEPTION: It shall not be deemed a violation of this Agreement
for the Officer to engage in independent consulting activities
including Corporate Directorships for third party companies and
individuals, and to retain the compensation therefore for his
individual use, providing such consultation does not involve
services and advice given to any firm or company on the activities
and business of this Company or any of its subsidiaries or
affiliates, and further provided such consultation is not with a
customer or competitor of the Company without the prior written
approval of the Board of Directors of Company. It is further
understood that such consulting shall be on personal time.
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized
items.
(c-2) The Company has a proprietary interest in the identity of
its customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have
access to and become familiar with various trade secrets and
highly confidential information of the Company, including
but not necessarily limited to, documents and information
regarding the Company's services, systems, lease and
financing programs, re-marketing programs, sales, pricing,
costs, specialized requirements of customers, prospective
applicants for employment, current employees, information
recorded on present or past credit applications, current or
past financing vehicles or products by and between the
Company and the banking community or related community,
internal managerial accounting systems, and information
systems. The Officer acknowledges that such confidential
information and trade secrets are owned and shall continue
to be owned solely by the Company.
(d) The Officer covenants to the Company that for a period of one (1)
year following the date of Termination of Employment, as defined
in Paragraph 7 of this Agreement, he shall not, either directly or
indirectly, or through any person or other entity, or by any other
means:
(d-1) Use confidential information or trade secrets for any
purpose whatsoever or divulge such information to any person
other than the Company or persons to whom the Company has
given consent, unless such information has already become
common knowledge, or unless the Officer is compelled to
disclose such information by governmental process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or
corporation who is or was a customer of the Company
(customer is defined as dealer, manufacturer, vendor,
borrower, lessee, or any other person or entity who deals
with the Company in its normal course of business) at the
time of termination of the Officer's employment. The Officer
agrees not to solicit such customers on behalf of himself or
any other person, company, firm, or corporation.
<PAGE> 88
(e) In the event that a court of competent jurisdiction determines
that the provisions of paragraph 11(c) and 11(d), or any part
thereof, are invalid or unenforceable by reason of overly broad
territorial or excessive time restrictions or otherwise, then the
parties to the Agreement request such court to modify such
restrictions or paragraph to the extent necessary in order that
the same shall be valid and enforceable and to enforce the same to
that extent.
(f) Upon his separation of employment for any reason, the Officer
shall immediately deliver to the Company all documentation and
other property which belongs to the Company which pertains to the
business or financial affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach,
violation, or default by the Officer of the provisions contained
in paragraphs 11(d) and 11(f) of this Agreement would result in
irreparable harm and damage to the Company, which harm and damage
would be extremely difficult to quantify and, accordingly, the
Officer consents to the jurisdiction of a court of equity and (1)
the entry of an injunction, temporary or permanent, enjoining the
Officer from competing with the Company in violation of the
provisions of paragraph 11(d) hereof, and (2) the entry by said
court of an order requiring the Officer to deliver to the Company
documentation or other property which belongs to the Company as
required in paragraph 11(f).
12. Benefits. The Company agrees to provide the Officer during the term of this
Agreement such additional benefits, commonly known as "employee benefits,"
which are generally extended by the Company to its Officers. Notwithstanding
the foregoing and provided the Officer remains employed by the Company, all
employee benefits received by the Officer at the time of the effective date
of this Agreement shall be maintained throughout the term of this Agreement,
unless expressly prohibited by law or unless any or all such employee
benefits are discontinued, decreased, or in any way modified by the Company
for all Officers, for all persons serving in a capacity similar to that of
the Officer, or for all employees of the Company. Employee benefits include,
but are not limited to, holidays, vacations, health insurance,
life/accidental death insurance, long-term disability insurance, short-term
disability benefits, expense supplement plan, educational assistance
program, employee assistance program, health maintenance organization, sick
leave, Christmas cash bonus, and service recognition awards. Any intended
modification of employee benefits as defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the Company
will extend to the Officer a period of sixty (60) calendar days, during
which the Officer shall have the right to exercise any stock options, in
whole or in part, as may have been granted under the Horrigan American,
Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
<PAGE> 89
15. Arbitration. Any controversy arising from or related to this Agreement shall
be determined by arbitration in the City of Reading in accordance with the
rules of the American Arbitration Association, and judgment upon any such
determination or award may be entered in any court having jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors and
assigns.
-------------------------------- --------------------------
AEL Leasing Co., Inc. Officer
American Commercial Credit Corp.
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE> 90
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1995, by and between
American Real Estate Investment and Development Co. (hereinafter called
"Company") and John F. Horrigan, III (hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of commercial real
estate investment and development. The Officer is presently serving as President
and Chief Operating Officer of the Company.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to perform
such duties as may be determined and assigned to him by his immediate
supervisor.
2. Performance. The Officer agrees to devote all of his working time and best
efforts to the performance of his duties as President and Chief Operating
Officer and to the performance of other such duties as are assigned to him
from time to time by his immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter specifically
provided, the term of this Agreement shall be from January 1, 1995, through
December 31, 1995; provided, however, that this Agreement shall be extended
by one calendar day for each expired calendar day after January 1, 1995,
until December 31, 1995, with the alternate termination of this Agreement
not later than December 31, 1996. Notwithstanding the foregoing extension of
the Agreement, the Company and the Officer may mutually agree to renegotiate
this Agreement or enter into a new Agreement after December 31, 1995.
4. Compensation. Compensation, wherever used in this Agreement, shall mean all
base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any capacity
hereunder, including services as an officer, member of any committee, or
any other duties assigned to him by his immediate supervisor, the
Company agrees to pay the Officer a base salary of $91,000 per annum,
payable in equal semi-monthly installments on the fifteenth (15th) and
last day of each month. The Company, at its option, may increase the
Officer's compensation at any time at its convenience.
(b) The Company further agrees to pay the Officer incentive compensation
according to the following program:
HAI Super Hurdle Plan
HAI Hurdle Plan
AEL/ACC/AELH Hurdle Plan
ARE Hurdle Plan
Phantom Stock Plan
<PAGE> 91
5. Life Insurance. The Officer agrees that the Company, at its discretion, may
apply for and procure in its own name and for its own benefit, life
insurance in any amount or amounts considered advisable and that the Officer
shall have no right, title, or interest therein; and, further, he agrees to
submit to any reasonable medical or other examination and to execute and
deliver any application or other instrument, in writing, necessary to
effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the Company
will compensate the Officer for his eligible business expenses to include:
travel, meals, and miscellaneous expenses incurred locally; and travel,
meals, lodging, and miscellaneous expenses incurred while the Officer is
away on business. Such reimbursement shall be made by the Company upon
submission of a signed statement by the Officer itemizing such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this Agreement
at any time upon two (2) months' notice to the Officer; and the Company
shall be obligated to pay the Officer two (2) months' compensation plus
one (1) month's compensation pro-rated for each two (2) years of
continuous service as an Officer (vice president or above) of the
Company, up to a maximum of ten (10) additional months' compensation. A
month's compensation shall be determined as the greater of:
(1) The combined total of one-sixth (1/6) of the base compensation which
was paid to the Officer during the prior six (6) month period and
one-twelfth (1/12) of any incentive compensation which was paid to
the Officer during the prior twelve (12) month period or:
(2) The combined total of one-sixth (1/6) of the base compensation which
was paid to the Officer during the prior six-month period and a pro
rata share, based upon the number of full weeks worked, of any
incentive compensation due and owing for the year in which the
Officer is terminated.
If the Officer is separated by the Company in accordance with Paragraph
7(a), it is expressly understood that it is not a termination of employment
as defined in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this Agreement
at any time upon two (2) months' notice to the Company, and the Company
shall be obligated to pay to the Officer two (2) months' compensation. A
month's compensation shall be determined as defined in 7(a).
(c) Involuntary Company Termination: The Company may also terminate this
Agreement on one (1) day's notice, if the termination is for any of the
following employment-related causes, and, in that event, the Company
shall not be obligated to pay the Officer any further compensation:
(c-1) Willful failure or refusal of the Officer to adequately perform
the duties and obligations of his employment, if such willful
failure or refusal is determined upon review by an arbitration
committee of three (3) Officers appointed by the Chief Human
Resources Officer.
<PAGE> 92
(c-2) Any breach by the Officer of the provisions of this Agreement, if
such breach is determined upon review by an arbitration committee
of three (3) Officers appointed by the Chief Human Resources
Officer.
(c-3) Conviction of the Officer for any felony or other criminal offense
involving dishonesty or moral turpitude which is related to his
employment with the Company or to his duties as an Officer.
(c-4) Other just cause, if such just cause is determined upon review by
an arbitration committee of three (3) Officers appointed by the
Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this Agreement,
it shall terminate immediately. Unless the Officer has left a different
designation on file with the Company, the Officer's surviving spouse or,
if there is no surviving spouse, the minor children (to include all
children who are full-time students regardless of age) or, if there are
no surviving children, the Officer's estate shall be entitled to receive
six (6) months' compensation due the Officer. A month's compensation
shall be determined as defined in paragraph 7(a). This compensation
shall be paid in equal monthly installments, commencing the first of the
month following the Officer's death, and shall be paid proportionately
over a period of eighteen (18) months.
(b) In addition, should the Officer at any time die while a party to this
Agreement, the Company shall pay within three (3) months after the date
of the Officer's death, a death benefit of Five Thousand Dollars
($5,000.00) to the Officer's surviving spouse or, if there is no
surviving spouse, to the surviving children in equal shares or, if there
are no surviving children, to the Officer's estate, unless the Officer
has left a different designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should fail
to perform his duties hereunder on account of illness or other incapacity,
and such illness or incapacity shall continue for a period of six (6)
months, the Company shall have the right to terminate this Agreement. In
that event, the Company shall be obligated to pay the Officer his
compensation up to the date of termination. Such compensation may be reduced
by the amount of any proceeds received by the Officer from any
Company-funded program such as disability insurance, Worker's Compensation,
or Social Security, during the six (6) month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of its
business for a period of one (1) month, this Agreement shall automatically
terminate without further liability on the part of either the parties
hereto.
11. Restrictions.
<PAGE> 93
(a) The Officer acknowledges that:
(a-1) During the course of his employment with the Company and during
the term of this Agreement, the Officer has and shall continue to
have access to learn, be provided with, prepare, or create
Confidential Information, all of which is of substantial value to
the Company's business and the disclosure of which would be
harmful to the Company.
(a-2) In the event, either during the term of this Agreement or any time
thereafter, the Officer should disclose to any other person or
entity any such Confidential Information, use for the Officer's
own benefit or for the benefit of any other person or entity any
such Confidential Information, or make copies or notes of any such
Confidential Information except as may be required in the normal
course of the Officer's duties, such conduct would be inconsistent
with and a breach of the confidence and trust inherent in the
Officer's position with the Company, unless such information has
already become common knowledge, or unless the Officer is
compelled to disclose such information by governmental process.
(b) During the term of this Agreement, the Officer agrees to devote all of
his working time and best efforts to further the interests of the
Company, and he shall not directly or indirectly, alone or as a partner,
officer, director, or stockholder of any other institution, be engaged
in any other commercial activity whatsoever, or continue or assume any
other corporate affiliations without the consent of the Board of
Directors of the Company.
EXCEPTION: It shall not be deemed a violation of this Agreement for the
Officer to engage in independent consulting activities including
Corporate Directorships for third party companies and individuals, and
to retain the compensation therefore for his individual use, providing
such consultation does not involve services and advice given to any firm
or company on the activities and business of this Company or any of its
subsidiaries or affiliates, and further provided such consultation is
not with a customer or competitor of the Company without the prior
written approval of the Board of Directors of Company. It is further
understood that such consulting shall be on personal time.
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized items.
(c-2) The Company has a proprietary interest in the identity of its
customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have access to
and become familiar with various trade secrets and highly
confidential information of the Company, including but not
necessarily limited to, documents and information regarding the
Company's services, systems, lease and financing programs,
re-marketing programs, sales, pricing, costs, specialized
requirements of customers, prospective applicants for employment,
current employees, information recorded on present or past credit
applications, current or past financing vehicles or products by
and between the Company and the banking community or related
community, internal managerial accounting systems, and information
systems. The Officer acknowledges that such confidential
information and trade secrets are owned and shall continue to be
owned solely by the Company.
<PAGE> 94
(d) The Officer covenants to the Company that for a period of one (1) year
following the date of Termination of Employment, as defined in Paragraph
7 of this Agreement, he shall not, either directly or indirectly, or
through any person or other entity, or by any other means:
(d-1) Use confidential information or trade secrets for any purpose
whatsoever or divulge such information to any person other than
the Company or persons to whom the Company has given consent,
unless such information has already become common knowledge, or
unless the Officer is compelled to disclose such information by
governmental process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or corporation
who is or was a customer of the Company (customer is defined as
dealer, manufacturer, vendor, borrower, lessee, or any other
person or entity who deals with the Company in its normal course
of business) at the time of termination of the Officer's
employment. The Officer agrees not to solicit such customers on
behalf of himself or any other person, company, firm, or
corporation.
(e) In the event that a court of competent jurisdiction determines that the
provisions of paragraph 11(c) and 11(d), or any part thereof, are
invalid or unenforceable by reason of overly broad territorial or
excessive time restrictions or otherwise, then the parties to the
Agreement request such court to modify such restrictions or paragraph to
the extent necessary in order that the same shall be valid and
enforceable and to enforce the same to that extent.
(f) Upon his separation of employment for any reason, the Officer shall
immediately deliver to the Company all documentation and other property
which belongs to the Company which pertains to the business or financial
affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach, violation, or
default by the Officer of the provisions contained in paragraphs 11(d)
and 11(f) of this Agreement would result in irreparable harm and damage
to the Company, which harm and damage would be extremely difficult to
quantify and, accordingly, the Officer consents to the jurisdiction of a
court of equity and (1) the entry of an injunction, temporary or
permanent, enjoining the Officer from competing with the Company in
violation of the provisions of paragraph 11(d) hereof, and (2) the entry
by said court of an order requiring the Officer to deliver to the
Company documentation or other property which belongs to the Company as
required in paragraph 11(f).
<PAGE> 95
12. Benefits. The Company agrees to provide the Officer during the term of this
Agreement such additional benefits, commonly known as "employee benefits,"
which are generally extended by the Company to its Officers. Notwithstanding
the foregoing and provided the Officer remains employed by the Company, all
employee benefits received by the Officer at the time of the effective date
of this Agreement shall be maintained throughout the term of this Agreement,
unless expressly prohibited by law or unless any or all such employee
benefits are discontinued, decreased, or in any way modified by the Company
for all Officers, for all persons serving in a capacity similar to that of
the Officer, or for all employees of the Company. Employee benefits include,
but are not limited to, holidays, vacations, health insurance,
life/accidental death insurance, long-term disability insurance, short-term
disability benefits, expense supplement plan, educational assistance
program, employee assistance program, health maintenance organization, sick
leave, Christmas cash bonus, and service recognition awards. Any intended
modification of employee benefits as defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the Company
will extend to the Officer a period of sixty (60) calendar days, during
which the Officer shall have the right to exercise any stock options, in
whole or in part, as may have been granted under the Horrigan American,
Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Arbitration. Any controversy arising from or related to this Agreement shall
be determined by arbitration in the City of Reading in accordance with the
rules of the American Arbitration Association, and judgment upon any such
determination or award may be entered in any court having jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors and
assigns.
--------------------------------- -------------------------
American Real Estate Investment Officer
and Development Co.
c/o Horrigan American, Inc.
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE> 96
Exhibit 10.9
AMENDMENT, dated as of September 30, 1994, to Amended and Restated
Shareholders' Agreement, dated April 16, 1985 (as heretofore amended, the
"Shareholders' Agreement"), among HORRIGAN AMERICAN, INC., a Pennsylvania
corporation (the "Corporation"), and the holders of common shares (the
"Shareholders") of the Corporation.
The Shareholders' Agreement provides that, in certain instances, the
purchase price of common shares of the Corporation (the "Common Shares") will be
determined on the basis of valuations performed for the Corporation's Employee
Stock Ownership Plan. As a result of the termination of the Corporation's
Employee Stock Ownership Plan, it is necessary to amend the Shareholders'
Agreement to provide a different basis for determining the purchase price of the
Common Shares in those instances.
NOW, THEREFORE, the parties agree as follows, intending to be legally
bound.
1. Section 5 of the Shareholders' Agreement is amended to read as follows:
"5. The purchase price for any Common Share purchased hereunder,
other than on the basis of the right of first refusal after it has been
offered to a third person pursuant to the terms of Sections 3 and 4 hereof,
shall be as determined, as of the last day of the calendar quarter
immediately preceding such purchase, by any reasonable method selected by
the Board of Directors of the Corporation."
2. Except as expressly modified hereby, the Shareholders' Agreement remains
in full force and effect.
3. This Amendment may be executed in any number of counterparts, no one of
which need be signed by all parties, but all of which collectively shall
constitute one and the same instrument.
<PAGE> 97
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
HORRIGAN AMERICAN, INC.
By ______________________
John F. Horrigan, Jr.
Chairman of the Board
Shareholders
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
<PAGE> 98
Exhibit 10.13
AMENDMENT, dated as of September 30, 1994, to Redemption Agreement, dated
December 31, 1992 (the "Redemption Agreement"), between HORRIGAN AMERICAN, INC.,
a Pennsylvania corporation (the "Company"), and JOHN F. HORRIGAN, JR.
The Redemption Agreement provides that, in certain instances, the purchase
price of common shares of the Company (the "Shares") will be determined on the
basis of valuations performed for the Company's Employee Stock Ownership Plan or
other independent appraisal. As a result of the termination of the Company's
Employee Stock Ownership Plan, and the consequent elimination of the need for
the Company to obtain independent appraisals of the Shares for purposes other
than the Redemption Agreement and certain other agreements, it is desirable to
amend the Redemption Agreement to provide a different basis for determining the
purchase price of the Shares in those instances.
NOW, THEREFORE, the parties agree as follows, intending to be legally
bound.
1. Section 4 of the Redemption Agreement is amended to read as follows:
"4. Purchase Price. The purchase price for any Shares to be
purchased by the Company pursuant to this Agreement shall be as determined,
as of the last day of the calendar quarter immediately preceding such
purchase, by any reasonable method selected by the Board of Directors of the
Company."
2. Except as expressly modified hereby, the Redemption Agreement remains in
full force and effect.
3. This Amendment may be executed in any number of counterparts, no one of
which need be signed by all parties, but all of which collectively shall
constitute one and the same instrument.
<PAGE> 99
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
_______________________________
John F. Horrigan, Jr.
HORRIGAN AMERICAN, INC.
By_____________________________
Arthur A. Haberberger
President
<PAGE> 100
Exhibit 10.14
AMENDMENT, dated as of September 30, 1994, to Redemption Agreement, dated
September 3, 1992 (the "Redemption Agreement"), between HORRIGAN AMERICAN, INC.,
a Pennsylvania corporation (the "Company"), and ARTHUR A. HABERBERGER.
The Redemption Agreement provides that, in certain instances, the purchase
price of common shares of the Company (the "Shares") will be determined on the
basis of valuations performed for the Company's Employee Stock Ownership Plan or
other independent appraisal. As a result of the termination of the Company's
Employee Stock Ownership Plan, and the consequent elimination of the need for
the Company to obtain independent appraisals of the Shares for purposes other
than the Redemption Agreement and certain other agreements, it is desirable to
amend the Redemption Agreement to provide a different basis for determining the
purchase price of the Shares in those instances.
NOW, THEREFORE, the parties agree as follows, intending to be legally
bound.
1. Section 5 of the Redemption Agreement is amended to read as follows:
"5. Purchase Price. The purchase price for any Shares to be purchased by
the Company pursuant to this Agreement shall be as determined, as of the last
day of the calendar quarter immediately preceding such purchase, by any
reasonable method selected by the Board of Directors of the Company."
2. Except as expressly modified hereby, the Redemption Agreement remains in
full force and effect.
3. This Amendment may be executed in any number of counterparts, no one of
which need be signed by all parties, but all of which collectively shall
constitute one and the same instrument.
<PAGE> 101
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
_______________________________
Arthur A. Haberberger
HORRIGAN AMERICAN, INC.
By_____________________________
John F. Horrigan, Jr.
Chairman of the Board
<PAGE> 102
Exhibit 10.15
AMENDMENT, dated as of September 30, 1994, to Redemption Agreement, dated
December 31, 1992 (the "Redemption Agreement"), between HORRIGAN AMERICAN, INC.,
a Pennsylvania corporation (the "Company"), and W. MICHAEL HORRIGAN.
The Redemption Agreement provides that, in certain instances, the purchase
price of common shares of the Company (the "Shares") will be determined on the
basis of valuations performed for the Company's Employee Stock Ownership Plan or
other independent appraisal. As a result of the termination of the Company's
Employee Stock Ownership Plan, and the consequent elimination of the need for
the Company to obtain independent appraisals of the Shares for purposes other
than the Redemption Agreement and certain other agreements, it is desirable to
amend the Redemption Agreement to provide a different basis for determining the
purchase price of the Shares in those instances.
NOW, THEREFORE, the parties agree as follows, intending to be legally
bound.
1. Section 4 of the Redemption Agreement is amended to read as follows:
"4. Purchase Price. The purchase price for any Shares to be purchased by
the Company pursuant to this Agreement shall be as determined, as of the last
day of the calendar quarter immediately preceding such purchase, by any
reasonable method selected by the Board of Directors of the Company."
2. Except as expressly modified hereby, the Redemption Agreement remains in
full force and effect.
3. This Amendment may be executed in any number of counterparts, no one of
which need be signed by all parties, but all of which collectively shall
constitute one and the same instrument.
<PAGE> 103
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
_______________________________
W. Michael Horrigan
HORRIGAN AMERICAN, INC.
By_____________________________
Arthur A. Haberberger
President
<PAGE> 104
Exhibit 10.17
AMENDMENT
TO THE
HORRIGAN AMERICAN, INC. 401(k) RETIREMENT PLAN
As authorized by Section 7.1 of the Horrigan American, Inc. 401(k) Retirement
Plan ("Plan") as amended and restated effective January 1, 1989, the employer,
Horrigan American, Inc. , hereby amends the Plan in the following manner
effective January 1, 1995:
FIRST: Section 4.4(b) is amended to provide for participant loans in the event
that a participant experiences an immediate and heavy financial need. As
amended, Section 4.4(b) shall read as follows:
(b) Participant Loans
(1) Terms and Conditions
The plan will provide loans to participants in accordance with the
conditions and restrictions set forth below.
(A) Application and Approval - A participant may file a written
application with the plan administrator for a loan of a stated amount and
term and for a stated purpose. The application shall include a demonstration
of an immediate and heavy financial need as described under the Hardship
Withdrawal provisions of Section 4.4(a).
The application shall be consented to by the participant's spouse, and
the spousal consent shall be witnessed by a plan representative or notary
public. Such spousal consent will not be required if the loan amount is not in
excess of $3,500 or if, with respect to the participant, this plan is not a
direct or indirect transferee of a defined benefit plan, money purchase pension
plan (including a target benefit plan), or a stock bonus or profit sharing plan
which would otherwise have provided for a qualified joint and survivor life
annuity as the normal form of distribution payment to the participant. If
spousal consent is required hereunder, it shall be obtained in compliance with
and have the effect described in Section 5.3(h) of the plan.
All loans shall be subject to the approval of the plan administrator.
Loans shall be available to all participants on a reasonably equivalent and
non-discriminatory basis. No loan will be approved in the absence of a
demonstration of an immediate and heavy financial need as described under the
Hardship Withdrawal provisions of Section 4.4(a) and a determination that the
participant has the ability to repay the loan. Further, in considering a loan,
the plan administrator may take into account the availability of cash in the
fund. No loans shall be made to any owner-employee or to any
shareholder-employee (within the meaning of Code Section 1379(b)).
An assignment or pledge of any portion of the participant's interest in
the plan and a loan, pledge, or assignment with respect to any insurance
contract purchased under the plan, shall be treated as a participant loan under
this paragraph.
(B) Amount - No loan shall exceed the participant's current vested
accrued benefit. Further no loan to any participant may be made to the
extent that such loan, when added to the outstanding balance of all other
loans to the participant, would exceed the lesser of:
(i) $50,000, reduced by the excess (if any) of -
a. the highest outstanding balance of loans from the
plan during the one-year period ending on the day before the
date on which such loan is made, over
<PAGE> 105
b. the outstanding balance of loans from the plan on the
date on which such loan is made; or
(ii) One-half the present value of the nonforfeitable accrued
benefit of the participant which is credited to his accounts.
For the purpose of the above limitation, all loans from all plans of
the employer and other members of a group of employers described in Code
Sections 414(b), 414(c), and 414(m) shall be aggregated. The amount of the loan
may not be less than the minimum loan amount which may be established by the
plan administrator for the plan on a uniform and non-discriminatory basis. Such
minimum loan amount shall not exceed $1,000. Loans shall not be made available
to highly compensated employees, (as defined in Code Section 414(q)) in an
amount greater than the amount made available to other employees, except to the
extent that the then vested account balances may be greater.
(C) Term - The period of repayment for any loan shall be arrived
at by mutual agreement between the plan administrator and the participant;
provided that any such loan will by its terms require repayment within
five years unless such loan is used to acquire or construct a dwelling
unit which within a reasonable time (determined at the time the loan is
made) will be used as the principal residence of the participant or a
member of the family of the participant. Repayment shall, in any event, be
made before the participant's normal retirement age, and the loan shall
not be renewable. The loan shall require substantially level payments of
principal and interest not less frequently than quarterly.
(D) Interest Rate - Each loan shall bear reasonable interest at a
fixed rate to be determined by the plan administrator. The plan
administrator shall not discriminate among participants in the matter of
interest rates; but loans granted at different times may bear different
interest rates if, in the opinion of the plan administrator, the
differences in rates are justified by general economic conditions. The
plan administrator shall determine the interest rate by using the prime
rate plus 1%. The rate shall be set not less frequently than at the
beginning of each calendar quarter for all loans approved during that
period.
(E) Security - Each loan shall be evidenced by the borrowing
participant's promissory note, in the amount of the loan, plus interest,
payable to the order of the plan. Also, each loan shall be adequately
secured by the participant's assignment to the plan of all of the right,
title or interest in and to the fund up to the amount of the outstanding
loan balance.
Default on the note shall be treated as a distributable event
under this plan subject to the restrictions below. In the event of
default, foreclosure on the note and attachment of security shall not
occur until after the earlier of a distribution made under Section 4.3 or
Section 4.4(a) of this plan or the elapse of 90 days without the default
being cured and in any case not later than the date which is the fifth
anniversary of the making of the loan. However, to the extent the loan is
attributable to the participant's employee 401(k) elective deferral
account, employee nondeductible contribution account, employer matching
contribution's account (which is being treated as a qualified matching
contribution account under Section 3.6) or qualified non-elective
contribution account, attachment of security shall not occur until the
participant separates from service or attains age 59 1/2. If any amount of
principal or interest is outstanding to any participant at a time when
distribution of benefits is to be made, then such loan, including accrued
interest thereon, shall be treated as a partial distribution of the total
benefit payable to such participant or former participant, and the note
canceled. In such an event, the participant's vested accrued benefit under
the applicable accounts shall be reduced pro rata.
(2) Participant Loan Sub-Accounts
In the case of a participant who has been granted a loan hereunder,
the plan administrator shall establish a participant loan sub-account for the
participant in an amount equal to the initial principal amount of the loan.
Interest and principal payments made by a participant shall be deposited and
invested under the plan's specified investment provisions. Any additional fees
or charges or taxes incurred with respect to the administration of participant
loan sub-account may be charged to such participant's account, or such fee may
be paid by the employer.
SECOND: All other provisions of the Plan remain in full force and effect.
Executed this 1st day of February, 1995 by the duly authorized agent of
Horrigan American, Inc.
_______________________________
Title: _______________________________
<PAGE> 106
Exhibit 10.20
AMENDMENT, dated as of September 30, 1994, to Stockholders' Agreement for
Outside Directors, dated March 15, 1985 (the "Shareholders' Agreement"), among
HORRIGAN AMERICAN, INC., a Pennsylvania corporation (the "Corporation"), and the
undersigned directors of the Corporation who are shareholders of the
Corporation.
The Shareholders' Agreement provides that, in certain instances, the
purchase price of common shares of the Corporation (the "Common Shares") will be
determined on the basis of valuations performed for the Corporation's Employee
Stock Ownership Plan. As a result of the termination of the Corporation's
Employee Stock Ownership Plan, it is necessary to amend the Shareholders'
Agreement to provide a different basis for determining the purchase price of the
Common Shares in those instances.
NOW, THEREFORE, the parties agree as follows, intending to be legally
bound.
1. Section 7 of the Shareholders' Agreement is amended to read as follows:
"7. The purchase price for any Common Share purchased hereunder, other than
on the basis of an applicable Right of First Refusal, shall be as determined, as
of the last day of the calendar quarter immediately preceding such purchase, by
any reasonable method selected by the Board of Directors of the Corporation."
2. Except as expressly modified hereby, the Shareholders' Agreement remains
in full force and effect.
3. This Amendment may be executed in any number of counterparts, no one of
which need be signed by all parties, but all of which collectively shall
constitute one and the same instrument.
<PAGE> 107
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
HORRIGAN AMERICAN, INC.
By_____________________________
John F. Horrigan, Jr.
Chairman of the Board
Outside Directors
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
_______________________(SEAL) _______________________(SEAL)
<PAGE> 108
Exhibit 11
Horrigan American, Inc. and Subsidiaries
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SCHEDULE OF COMMON SHARES OUTSTANDING
Number of common shares outstanding at January l ........ 3,111,766 3,300,298 3,323,055 3,339,761 3,360,096
Common shares issued .................................... 16,496 12,034 16,521 12,792 24,400
Treasury stock acquired, net ............................ (1,500) (200,566) (39,278) (29,498) (44,735)
--------- --------- --------- --------- ---------
Number of common shares outstanding at December 31 ...... 3,126,762 3,111,766 3,300,298 3,323,055 3,339,761
========= ========= ========= ========= =========
Weighted average number of common shares
outstanding (see note 1, to selected financial data).... 3,120,916 3,278,159 3,310,584 3,328,109 3,361,468
========= ========= ========= ========= =========
SCHEDULE OF NET EARNINGS APPLICABLE TO
COMMON SHARES (in thousands of dollars, except per share data)
Earnings (loss) from continuing operations.............. $3,688 $3,047 $(413) $1,382 $1,218
Cash dividends declared on preferred stock.............. (8) (16) (16) (16) (16)
--------- --------- --------- --------- ---------
Earnings (loss) from continuing operations applicable to
common shares.......................................... $3,680 $3,031 $(429) $1,366 $1,202
========= ========= ========= ========= =========
Earnings (loss) from continuing operations per common
share(1)............................................... $1.18 $ .92 $(.13) $ .41 $ .36
========= ========= ========= ========= =========
</TABLE>
- ----------
(1) Earnings (loss) per common share is the same on both a primary and fully
diluted basis.
<PAGE> 109
Exhibit 12
Horrigan American, Inc. and Subsidiaries
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Earnings (loss) from continuing operations before income taxes
and after deducting minority interest ..................... $ 6,190 $ 4,947 $ (269) $ 2,270 $ 1,959
Add fixed charges
Interest ................................................... 9,821 9,028 11,250 12,879 13,773
Portion of rents representative of the interest factor ..... 209 162 194 174 180
-------- -------- -------- -------- --------
Total fixed charges ...................................... 10,030 9,190 11,444 13,053 13,953
-------- -------- -------- -------- --------
Total earnings as adjusted ............................... $ 16,220 $ 14,137 $ 11,175 $ 15,323 $ 15,912
======== ======== ======== ======== ========
Ratio of earnings to fixed charges ........................... 1.62 1.54 .98 1.17 1.14
======== ======== ======== ======== ========
</TABLE>
The Company guaranteed $2,253,000 of debt of unconsolidated real estate
partnerships as of December 31, 1994. The amount of fixed charges associated
with this guaranteed debt was $205,000 for 1994. The computation of the ratio of
earnings to fixed charges does not include the fixed charges associated with the
guaranteed debt because the Company has not been required to honor the
guarantees nor is it probable that the Company will be required to honor the
guarantees.
In 1992, earnings from continuing operations were inadequate to cover fixed
charges by $269,000. However, the ratio of earnings to fixed charges is not
intended to disclose cash flow from operations. In addition to the normal
noncash expenses, such as depreciation and provision for possible lease and loan
losses, the provision for write-down of real estate negatively affects the ratio
for 1992. The ratio of earnings to fixed charges would be 1.35 if the provision
for write-down of real estate were excluded.
<PAGE> 110
Exhibit 22
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of Names under which subsidiary
Subsidiary Incorporation does business
---------- ------------- ----------------------------
<S> <C> <C>
American Equipment Leasing Co., Inc............... Pennsvlvania
AEL Leasing Co., Inc.............................. Pennsylvania American Equipment Leasing
American Legal Funding
American Municipal Funding
American Rental Services
American Reli Financial
Information Systems Funding Group
Golf Capital Corporation
American Commercial Credit Corp................... Pennsylvania
American Capital Leasing Corporations............. Delaware
AEL Holdings, Inc................................. Delaware
The Business Outlet, Inc.......................... Pennsylvania
American Real Estate Investment and
Development Co.................................. Pennsylvania
American Hotel Management, Inc.................... Pennsylvania
</TABLE>
<TABLE>
<CAPTION>
Subsidiary Partnerships State of Registration
----------------------- ---------------------
<S> <C>
(Each partnership does business under its legal name only)
ARE Moorestown Partners............................................ Pennsylvania
ARE Amcare One Partners............................................ Pennsylvania
ARE Amcare Three Partners.......................................... Pennsylvania
ARE Amcare Four Partners........................................... Pennsylvania
ARE Norfolk Partners............................................... Pennsylvania
ARE Flying Hills One Partners...................................... Pennsylvania
ARE Lehigh Valley Partners......................................... Pennsylvania
ARE Fleetwood Partners............................................. Pennsylvania
ARE Cincinnati Three Limited Partnership........................... Pennsylvania
ARE Pottsville Partners............................................ Pennsylvania
ARE Wadsworth Partners............................................. Pennsylvania
American AMDEV Limited Partnership I............................... Michigan
ARE Florida One Limited Partnership................................ Pennsylvania
ARE South Fifth Street Partners.................................... Pennsylvania
ARE Tallahassee Limited Partners................................... Pennsylvania
ARE Dayton Limited Partnership..................................... Pennsylvania
ARE West Reading Partnership....................................... Pennsylvania
ARE Riverfront Partnership......................................... Pennsylvania
ARE Wyomissing Partners............................................ Pennsylvania
AA & G Partners.................................................... Pennsylvania
ARE Sikeston Limited Partnership................................... Pennsylvania
ARE Middleton Limited Partnership................................. Pennsylvania
ARE Old Bridge Limited Partnership................................. Pennsvlvania
ARE Mentor Limited Partnership..................................... Pennsylvania
ARE Amcare Five Limited Partnership................................ Pennsylvania
S. G. Development Limited Partnership.............................. Michigan
Eastern Boulevard Associates....................................... Pennsylvania
ARE Houston One Limited Partnership............................... Pennsylvania
ARE Central Texas Limited Partnership.............................. Pennsylvania
ARE Central Florida Limited Partnership............................ Pennsylvania
ARE Sarasota Limited Partnership................................... Pennsylvania
ARE Royal Palm Limited Partnership................................. Pennsylvania
ARE Delray Limited Partnership..................................... Pennsylvania
ARE Haddonfield Limited Partnership................................ Pennsylvania
ARE Central Florida Two Limited Partnership........................ Pennsylvania
The Eight Hundred L.L.C............................................ Illinois
Thomas Drive Partners.............................................. Pennsylvania
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,947,000
<SECURITIES> 2,335,000
<RECEIVABLES> 154,128,000
<ALLOWANCES> 6,055,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 45,498,000
<DEPRECIATION> 7,916,000
<TOTAL-ASSETS> 194,330,000
<CURRENT-LIABILITIES> 0
<BONDS> 154,606,000
<COMMON> 3,128,000
0
0
<OTHER-SE> 27,318,000
<TOTAL-LIABILITY-AND-EQUITY> 194,330,000
<SALES> 1,177,000
<TOTAL-REVENUES> 27,448,000
<CGS> 0
<TOTAL-COSTS> 11,082,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,377,000
<INTEREST-EXPENSE> 9,821,000
<INCOME-PRETAX> 6,345,000
<INCOME-TAX> 2,502,000
<INCOME-CONTINUING> 3,688,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,688,000
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
