SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to signed on its behalf by the undersigned, thereunto
duly authorized.
MERCURY FINANCE COMPANY
Registrant
March 30, 1995 John N. Brincat
Date John N. Brincat
Chief Executive Officer
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 registrants and in the capacities and on the dates
indicated.
John N. Brincat
March 30, 1995 John N. Brincat
Date Chief Executive Officer
James A. Doyle
March 30, 1995 James A. Doyle
Date Principal Accounting Officer
Charley A. Pond
March 30, 1995 Charley A. Pond
Date Principal Financial Officer
The Board of Directors of the registrant has given the following
persons its power of attorney for signing this report on its behalf
and on behalf of the individual directors of the registrant.
John N. Brincat
March 30, 1995 John N. Brincat
Date Chief Executive Officer
James A. Doyle
March 30, 1995 James A. Doyle
Date Principal Accounting Officer
Charley A. Pond
March 30, 1995 Charley A. Pond
Date Principal Financial Officer
As attorneys in fact pursuant to power of attorney granted to said
parties.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 19980
<SECURITIES> 14184
<RECEIVABLES> 1039867
<ALLOWANCES> (88965)
<INVENTORY> 0
<CURRENT-ASSETS> 478452
<PP&E> 9650
<DEPRECIATION> 6158
<TOTAL-ASSETS> 1036403
<CURRENT-LIABILITIES> 58069
<BONDS> 750820
<COMMON> 116080
0
0
<OTHER-SE> 111434
<TOTAL-LIABILITY-AND-EQUITY> 1036403
<SALES> 211565
<TOTAL-REVENUES> 252472
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 64731
<LOSS-PROVISION> 7376
<INTEREST-EXPENSE> 39375
<INCOME-PRETAX> 140990
<INCOME-TAX> 54445
<INCOME-CONTINUING> 86545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86545
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
Annual Report
OUR BUSINESS
Mercury Finance Company is the largest independent financier of previously
owned automobiles in the United States. Its operating subsidiaries serve a
network of over 5,000 new and used car dealers through its 247 neighborhood
offices in 25 states. The Company also makes direct cash loans and offers
credit insurance to its customers. Mercury's stock is traded on the New York
Stock Exchange and the Chicago Stock Exchange under the symbol MFN.
CONTENTS
Financial Highlights - 1
Letter to Shareholders - 4
Operations Review: Growth Quality - 6
Financial Review - 10
Directors and Officers - 29
Shareholder Information - 29
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share amounts)
<TABLE>
Text 1994 1993 Change
<S> <C> <C> <C>
Net Income $86,545 $64,927 33.3%
Net Income Per Share $.74 $.56 33.5%
Finance Receivables $1,039,867 $820,287 26.8%
Shareholders' Equity $227,514 $193,527 17.6%
Return on Average Equity 40.23% 38.95%
Return on Average Assets 9.71% 9.12%
Net Charge Offs Against
Allowance to Average Finance
Receivables .47% .49%
</TABLE>
DEAR SHAREHOLDERS
I am please to report that 1994 was another year of record results and growth
for Mercury Finance Company. Eleven years ago we started this business with
the belief that we could offer financing to markets often overlooked by the
financial services industry. That idea produced financing volume for our
Company of over $1.1 billion for 1994.
FOR 44 CONSECUTIVE QUARTERS, we have achieved record earnings. Net finance
receivables at December 31, 1994 were a record $1.04 billion compared to
$820.3 million a year earlier. Net earnings increased 33.3% to $86.5 million
or $.74 per share - up $21.6 million or $.18 per share from a year ago. These
results were achieved through volume growth at the branch level as well as an
increase in the number of branch offices. Mercury added 31 new branch offices
during 1994 and at year end, had 247 offices operating in 25 states.
Our insurance business continues to grow. Premiums and commission grew to
$29.6 million in 1994 from $21.0 million in 1993. As an agent for various
carriers, Mercury offers credit related insurance products to customers who
request them.
In addition, certain warranty and service plans provided by third party
companies are available for sale to our customers through our branch network
or dealers when contracts purchased.
In August, Mercury renegotiated and increased its revolving credit agreement
with 18 major U.S. and foreign banking institutions while obtaining a 20%
reduction in the carrying fee. The $400 million credit line provides the
required back-up liquidity to our commercial paper program. Mercury's
commercial paper program supplements its long-term, fixed-rate debt borrowings
and in addition, reduces our reliance on the more interest sensitive
short-term debt. In 1995 and beyond, we plan to continue our strategy of
borrowing fixed-rate, long-term funds and we will consider entering both the
public and private markets as the need arises.
<PAGE>
OUR ACQUISITION OF MIDLAND FINANCE CO., a Chicago based company with over 40
years experience in consumer finance, was completed in September 1994.
Midland specializes in purchasing non-auto sales finance contracts and
extending direct consumer loans. This particular opportunity will enable
Mercury to expand into new markets as well as achieve further penetration of
existing ones.
In addition, we expect to open 30 to 35 new offices in 1995, several of which
represent new markets for Mercury in Oregon, Pennsylvania and Delaware. This
carefully planned expansion should enable us to sustain quality results while
achieving our targeted annual growth rate of 20% to 25% in finance
receivables.
CONTRARY TO OUR EARNINGS PERFORMANCE, Mercury's stock price declined during
the year, as did the financial indexes for the New York Stock Exchange and
Standard and Poor's. Our stock, however, rose steadily throughout the first
part of 1995 and in light of Mercury's outstanding history and our outlook for
the coming year, we are encouraged that this upward trend will continue. We
believe the declines in the financial sector of the markets were largely
attributable to investor concern over rising interest rates. While interest
rate increases are always a concern, our earnings are somewhat protected by
the actions we've taken over the past few years to extend the maturities of
a large portion of our fixed-rate debt portfolio. As a result of these
actions, our average interest rate paid on interest bearing liabilities was
6.43%. We expect our margin to remain strong in 1995.
Another factor we feel impacted our stock during the second part of 1994 was
investor concern over legal action against our Alabama subsidiary. Mercury
Finance Corporation of Alabama was the subject of a lawsuit regarding the
disclosure of a dealer discount. The court in Barbour County, Alabama ruled
in favor of the plaintiff. However, after the completion of post-trial
motions on January 26, 1995, the amount of damages awarded was significantly
reduced and an agreement to settle the case was entered into to avoid the
continuing costs and risks of an appeal. Although this matter is now
concluded, we maintain the position that our practices comply with state and
federal law.
OUR FOCUS FOR THE FUTURE will be continued earnings growth that will build
value for our shareholders. We will maintain stringent cost controls and
guard against fluctuations in interest rates to protect our profit margins.
Delivery of superior service to our dealers and customers while seeking
opportunities in the growing used car market will remain high priorities for
Mercury. Acquisition opportunities will continue to be reviewed scrupulously
as they arise and will be prusued only when they complement our businesses and
will immediately contribute to earnings. We will continue to invest in people
who get the job done better, faster and smarter than anyone else.
I thank each of our employees for their continued commitment to growth and
achievement. Their dedication and professional work ethics have earned our
Company an outstanding reputation for quality and service. I would also like
to express my appreciation to each of our shareholders for their loyalty and
support.
John N. Brincat
John N. Brincat
President and Chief Executive Officer
February 28, 1995
GROWTH QUALITY
In our eleven year history, Mercury Finance Company has become the largest
independent financier of used automobiles in the United States. What started
as a group of neighborhood offices offering loans to enlisted military
personnel, has grown to a network of 247 branch offices that specialize in
used car financing for over 5,000 auto dealers throughout the country.
FINANCING THE SALE of used cars remains our primary business and during 1994,
contributed over 85% of receivables. We typically purchase sales finance
contracts from franchised and independent auto dealers. We often provide
credit and noncredit-related insurance products in both an agent and direct
capacity.
<PAGE>
Our insurance premiums and commissions during the past year totaled $29.5
million in revenues, a 41% increase over 1993. In addition, we provide direct
consumer loans at our neighborhood branches for major appliances, small dollar
durable goods, and other personal needs. Many of these loans are to existing
and former auto accounts with established credit. Our consumer loan activity
grew by 36% during the year and receivables totaled $135.5 million at year
end. Our growth is a result of our willingness and ability to structure loans
and financing programs that meet the unique needs of our customers. The
Midland acquisition will provide excellent opportunities for further expansion
of consumer loans. While Mercury's strategy is to grow every part of its
business, the primary focus will continue to be used car financing.
TRENDS in the automobile industry point towards tremedous growth in the used
car market, Mercury's specialty niche for the past 11 years. Franchised auto
dealers sold an estimated two million more used vehicles than new vehicles in
1994, and this difference is expected to widen over the next three years as
more previously leased vehicles are returned to the market to be sold. As the
prices of new cars continue to reise and auto leasing gains in popularity, we
anticipate a much broader used car market with higher quality, competitively
priced vehicles.
Total used car sales are estimated to have exceeded 17 million vehicles for
the year, representaing sales of nearly $170 billion. Cash transactions
accounted for about 25% of this market, leaving 75% or approximately $128
billion to be financed. Mercury currently finances less than 1% of this
market, however, we are well positioned for significantly higher levels of
volume. We recognize that this growth must be managed, and managed well.
OUR PEOPLE are the single most important factor in maintaining a high level
of consistent performance. Everyone understands that our superior level of
service is the only product which will differentiate Mercury from other
companies. It means working with our customers and dealer network to satisfy
their needs. We must ask the righ questions, analyze the risks, and deliver
timely answers. Customer loyalty is something that must be earned everyday
in every office. Our dealer network has grown dramatically because we have
focused on the the market's needs and have delivered results through
consistent and reliable financing.
Mercury is committed to providing opportunities and incentives to keep its
employees motivated to perform at the exceptional levels we expect. In-house
training programs have been instrumental in developing strong supervisory and
managerial talent to meet the needs of our branch office expansion. Our
Manager Qualification and Accelerated Training Programs were developed to
instill the "Mercury way of doing business" and assure that our practices are
consistent throughout the country. We continually evaluate and modify these
programs to offer the latest in technology and related industry skills to keep
our employees a step ahead of the competition. Their continuing ability to
manage the variables of the business has enabled Mercury to meet and exceed
the aggressive performance goals we have set for ourselves.
COST CONTROL is critical to our continued profitability, and we have
successfully controlled our funding costs as well as administrative operating
costs. Stringent credit standards and close monitoring of delinquent accounts
have kept Mercury's losses well below the industry norm for over a decade.
For 1994, our losses as a percentage of total receivables were .47%,
consistent with our past performance. Our track record has proven that we can
achieve strong growth without compromising the quality of our loan portfolio.
AS COMPETITION intensifies in the used car financing market, we are confident
that our experience and growth strategies will keep Mercury miles ahead of any
newcomer. Carefully planned expansion while controlling operating costs will
keep Mercury #1 in the industry. We challenge any competitor to match our
performance, the professionalism of our people and most importantly, the
expertise we've developed in this market over the past eleven years.
FIVE YEAR SELECTED FINANCIAL DATA
(Dollars in thousands except per share amounts)
<PAGE>
<TABLE>
Text 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT
Interest income $211,565 $165,054 $121,531 $99,199 $81,053
Interest expense 39,375 32,933 29,525 28,796 27,544
Net interest income 172,190 132,121 92,006 70,403 53,509
Provision for finance credit losses 7,376 6,392 4,330 3,984 3,688
Net 164,814 125,729 87,676 66,419 49,821
Other income 40,907 29,342 20,345 16,339 13,715
Other expenses 64,731 50,204 34,359 29,256 25,864
Income before income taxes and
cumulative effect of change in
accounting principle 140,990 104,867 73,662 53,502 37,672
Income taxes 54,445 40,174 27,939 20,686 14,461
Income before cumulative effect of
change in accounting principle 86,545 64,693 45,723 32,816 23,211
Cumulative effect of change in
accounting principle 0 234 0 0 0
Net income $86,545 $64,927 $45,723 $32,816 $23,211
Net income per share $.74 $.56 $.39 $.29 $.21
Dividends per share $.29 $.20 $.14 $.09 $.07
Market value per share $13.00 $19.13 $11.16 $9.46 $3.14
SELECTED BALANCES AT YEAR END
Total assets $1,036,403 $797,090 $593,703 $498,437 $408,911
Finance receivables (Gross) 1,272,430 1,004,517 747,573 618,455 504,836
Finance receivables (Net of unearned
charges) 1,039,867 820,287 618,648 514,586 417,964
Allowance for finance credit losses 22,488 18,344 13,198 11,334 9,307
Nonrefundable dealer reserves 66,477 57,241 38,262 28,226 18,335
Senior debt, commercial paper and other 449,945 260,260 200,000 169,135 153,131
Senior debt, term notes 265,375 266,000 175,500 143,000 113,000
Subordinated debt 35,500 35,000 41,000 51,000 51,000
Shareholders' equity 227,514 193,527 144,920 105,089 70,659
SELECTED RATIOS
Net income to average assets 9.71% 9.12% 8.36% 7.24% 6.20%
Net income to average shareholders'
equity 40.23 38.95 37.62 36.91 38.03
Earnings to fixed charges 4.48 4.10 3.44 2.82 2.35
Net charge offs against allowance to
average finance receivables .47 .49 .43 .42 .46
Allowance for finance credit losses to
finance receivables 2.16 2.24 2.13 2.20 2.23
Shareholders' equity to assets 21.95 24.28 24.40 21.08 17.28
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
MERCURY FINANCE COMPANY:
We have audited the accompanying consolidated balance sheets of Mercury
Finance Company and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in shareholders' 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
Mercury Finance 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 disclousres 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 Mercury
Finance Company 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.
As discussed in the notes to the consolidated financial statements, Mercury
Finance Company changed its method of accounting for income taxes in 1993 to
adopt the provisions of the Financial Accounting Standards Board's SFAS No.
109, ACCOUNTING FOR INCOME TAXES.
As discussed in note 9 to the consolidated financial statements, Mercury
Finance Company and its subsidiary Mercury Finance Company of Alabama are
named as defendants in a number of lawsuits pending in state and Federal
Courts in Alabama. The cases include claims for alleged truth-in-lending
violations, nondisclosures, misrepresentations, wrongful repossessions of
vehicles, and deceptive trade practices, among other things. Mercury Finance
Company is vigorously defending this litigation, however, the outcome of this
litigation and the amount of damages, if any, that may ultimately be incurred
cannot presently be determined.
Accordingly, no provision for any liability that may result from such
litigation has been recognized in the accompanying consolidated financial
statements except for the Circuit Court of Barbour County, Alabama case as
discussed in the note.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
January 31, 1995, except as to note 9, which is as of Februrary 20, 1995
Chicago, Illinois
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
Text 1994 1993
<S> <C> <C>
ASSETS
Cash $19,980 $11,621
Investments 14,184 10,533
Finance Receivables 1,039,867 820,287
Less allowance for finance credit losses (22,488) (18,344)
Less nonrefundable dealer reserves (66,477) (57,241)
Finance receivables, net 950,902 744,702
Prepaid pension expense 507 1,040
Deferred income taxes 7,290 5,511
Premises and equipment (at cost less
accumulated depreciation of $6,158 and
$4,513) 3,492 2,745
Goodwill 15,404 10,113
Other assets (including repossessions) 24,644 10,825
TOTAL ASSETS $1,036,403 $797,090
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Senior debt, commercial paper and notes $449,945 $260,260
<PAGE>
Senior debt, term notes 265,375 266,000
Subordinated debt 35,500 35,000
Accounts payable and other liabilities 53,401 39,076
Income taxes payable 4,668 3,227
TOTAL LIABILITIES 808,889 603,563
SHAREHOLDERS' EQUITY
Common stock-$1.00 par value:
300,000,000 shares authorized
1994-116,079,703 shares outstanding
1993-115,648,624 shares outstanding 116,080 115,649
Paid in capital 6,384 2,856
Retained earnings 128,157 75,193
Treasury stock-1,839,705 & 63,205 shares
at cost (23,107) (171)
TOTAL SHAREHOLDERS' EQUITY 227,514 193,527
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,036,403 $797,090
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts) Years ended
December 31,
Text 1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME
Finance charges, fees and other interest $211,565 $165,054 $121,531
Interest expense 39,375 32,933 29,525
Net interest income 172,190 132,121 92,006
Provision for finance credit losses 7,376 6,392 4,330
Net interest income after provision for finance
credit losses 164,814 125,729 87,676
OTHER INCOME
Insurance commissions 20,507 12,318 7,529
Insurance premiums 9,056 8,648 5,973
Fees and other 11,344 8,376 6,843
Total other income 40,907 29,342 20,345
OTHER EXPENSES
Salaries and employee benefits 36,852 29,058 19,928
Occupancy expense 3,730 3,216 2,189
Equipment expense 1,665 1,244 856
Data processing expense 2,551 1,984 1,765
Insurance claims expense 2,722 3,338 2,314
Other operating expenses 17,211 11,364 7,307
Total other expenses 64,731 50,204 34,359
Income before income taxes and cumulative effect
of change in accounting principle 140,990 104,867 73,662
Applicable income taxes 54,445 40,174 27,939
Income before cumulative effect of change in
accounting principle 86,545 64,693 45,723
Cumulative effect of change in accounting principle 0 234 0
NET INCOME $86,545 $64,927 $45,723
NET INCOME PER COMMON SHARE $.74 $.56 $.39
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts)
Common Paid in Retained Treasury
Text Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $42,278 $422 $62,560 ($171) $105,089
1992 net income 45,723 45,723
Stock options exercised 1,299 8,963 10,262
Cash dividends ($.14 per share) (16,154) (16,154)
Transfer to Paid in Capital 38,437 (38,437) 0
Two for one stock split 42,548 (42,548) 0
Balance at December 31, 1992 86,125 5,274 53,692 (171) 144,920
1993 net income 64,927 64,927
Stock options exercised 703 6,328 7,031
Cash dividends ($.20 per share) (23,351) (23,351)
Transfer to Paid in Capital 20,075 (20,075) 0
Four for three stock split 28,821 (28,821) 0
Balance at December 31, 1993 115,649 2,856 75,193 (171) 193,527
1994 net income 86,545 86,545
Stock options exercised 431 3,528 3,959
Cash dividends ($.29 per share) (33,581) (33,581)
Treasury stock acquired (22,936) (22,936)
Balance at December 31, 1994 $116,080 $6,384 $128,157 ($23,107) $227,514
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands) Years ended December 31,
Text 1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $86,545 $64,927 $45,723
Adjustments to reconcile net income to cash
provided by operating activities:
Provisions for finance credit losses 7,376 6,392 4,330
Net finance receivables charged off against
allowance for finance credit losses (4,284) (3,702) (2,466)
Provision for deferred income taxes (1,779) (1,305) (841)
Depreciation 902 673 401
Amortization of goodwill 614 385 0
Gain on sale of marketable equity securities 0 0 (192)
Net (increase) decrease in other assets (13,246) (1,189) (2,591)
Net increase (decrease) in other liabilities 14,929 6,245 2,070
Net increase in nonrefundable dealer
reserves 5,727 18,979 10,036
Net cash provided by operating activities 96,784 91,405 56,470
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on finance receivables 694,792 572,992 437,807
Finance receivables originated or acquired (887,902) (724,104) (541,869)
Purchases of marketable equity securities 0 0 (3,118)
Proceeds from sales of marketable
equity securities 0 0 3,310
Net (increase) decrease in investment
securities (3,651) 811 (2,930)
Purchases of premises and equipment (1,456) (1,032) (874)
Acquisition:
Assets acquired (26,014) (55,504) 0
Liabilities assumed 16,866 43,746 0
Net assets acquired (9,148) (11,758) 0
Excess of purchase price over net assets
acquired (goodwill) (5,905) (10,498) 0
Net cash used in investing activities (213,270) (173,589) (107,674)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in senior debt,
commercial paper 184,485 55,289 30,865
Senior debt, term notes retired (35,125) (79,500) (30,000)
Subordinated debt retired (2,320) (6,000) (10,000)
Senior debt, term notes issued 30,000 135,000 62,500
Stock options exercised 3,959 7,031 10,262
Dividends paid (33,581) (23,351) (16,154)
Treasury stock acquired (23,936) 0 0
Net cash provided by financing activities 124,482 88,469 47,473
Net increase (decrease) in cash 7,996 6,285 (3,731)
CASH AT BEGINNING OF YEAR 11,621 4,820 8,551
CASH ACQUIRED 363 516 0
CASH AT END OF YEAR $19,980 $11,621 $4,820
Supplemental Disclosures
Income taxes paid to federal and state
governments $53,262 $39,160 $22,181
Interest paid to creditors $39,502 $33,038 $28,634
</TABLE>
See accompanying notes to consolidated financial statement.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993, and 1992 (Dollars in thousands except per share
amounts)
1) ORGANIZATION AND AFFILIATIONS
Mercury Finance Company ("Mercury"), through its predecessor companies,
commenced operations in February 1984 and through December 31, 1994
extablished separate consumer finance subsidiaries in 25 states, doing
business in 247 offices under the Mercury Finance Company, MFC Finance
Company, MERC Finance Company, Gulfco Finance Company and Midland Finance Co.
names.
On April 1, 1993 Mercury acquired all the shares of Gulfco Investment Inc. for
$22.3 million in cash. Gulfco Investment Inc. was the parent company which
owned all of the stock of Gulfco Finance Company and Gulfco Life Insurance
Company.
Gulfco Finance Company conducted its consumer finance business through a
branch network of 62 offices located in Louisiana, Mississippi and Texas. The
acquisition was accounted for under the purchase method of accounting.
Accordingly their results of operations have been included in the consolidated
financial statements of income and statements of cash flow since the date of
acquisition. The excess of cost over fair value of net assets acquired
(goodwill) relating to the acquisition is being amortized over twenty years
on the straight line method.
On September 30, 1994 Mercury acquired all the shares of Midland Finance Co.
for $15.1 million in cash and the assumption of its net liabilities. Midland
Finance Co. conducted its consumer finance business through a central office
in Chicago, Illinois. The acquisition was accounted for under the purchase
method of accounting. Accordingly their results of operations have been
included in the consolidated financial statements of income and statements of
cash flow since the date of acquisition. The excess of cost over fair value
of net assets acquired (goodwill) relating to the acquisition is being
amortized over twenty years on the straight line method.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting and reporting policies of Mercury conform to generally accepted
accounting principles and to the general practice within the finance and
insurance industries. The consolidated financial statements include the
accounts of the consumer finance subsidiaries, Mercury Life Insurance Company
("Mercury Life"), Gulfco Investment Inc. ("Gulfco"), Midland Finance Co.
("Midland") and Gulfco Life Insurance Company ("Gulfco Life"). In addition
certain data from prior years has been reclassified to conform to the 1994
presentation.
REVENUE RECOGNITION
- - CONSUMER FINANCE SUBSIDIARIES
Finance charges on precomputed loans and sales finance contracts are credited
to unearned finance charges at the time the loans and sales finance contracts
are made or acquired. Interest income is calculated using the interest method.
If a precompute account becomes 60 or more days contractually delinquent and no
full contractual payment is received in the month the account attains such
delinquency status, the accrual of income is suspended until one or more full
contractual monthly payments are received. Interest on interest bearing loans
and sales finance contracts is calculated on a 360-day year basis and recorded
on the accrual basis; accrual is suspended during the time an account is 60 or
more days contractually delinquent. Late charges and deferment charges on all
contracts are taken into income as collected. Extension fees are taken into
income on the same basis as finance charges.
Fees and other income are derived from the sale of other products and services.
- - INSURANCE OPERATIONS
In conjunction with their lending practices, the consumer finance subsidiaries,
as agents for Gulfco Life and unaffiliated insurers, offer credit life,
accident and health and property insurance to borrowers who obtain finance
receivables directly from the consumer finance subsidiaries, and to borrowers
under sales finance contracts and financing contracts purchased from merchants
and automobile dealers. Commissions on credit life insurance and credit
accident and health insurance earned by Mercury are taken into income over the
average terms of the related policies on the sum-of-the months digits method.
<PAGE>
Mercury Life and Gulfco Life are engaged primarily in the business of
reinsuring and direct writing respectively, of credit life and accident and
health insurance policies issued to borrowers of finance receivables and sales
finance contracts originated by Mercury. The policies insure the holder of a
sales finance contract or other debt instrument for the outstanding balance
payable in the event of death or disability of the debtor. Premiums are earned
over the life of the contracts using pro rata and sum-of-the months digits
methods.
Mercury Life and Gulfco Life have established policy liabilities
and claim reserves. The claim reserves are based upon accumulated estimates of
claims reported, plus estimates of incurred but unreported claims.
ALLOWANCE FOR FINANCE CREDIT LOSSES
Mercury maintains an allowance for finance credit losses at a level which, in
the opinion of management, provides adequately for current and possible future
losses that may develop in the present receivables portfolio. Management
evaluates allowance requirements by examining current delinquencies, the
characteristics of the accounts, the value of the underlying collateral, and
general economic conditions and trends. Management also evaluates the
availability of dealer reserves to absorb finance credit losses. A provision
for losses is charged to earnings in an amount sufficient to maintain the
allowance.
Direct installment loans on which no payment is received within 149 days, on a
recency basis, are charged off. Sales finance contracts which are
contractually delinquent 150 days arre charged off monthly before they become
180 days delinquent. Accounts which are deemed uncollectible prior to the
maximum charge-off period are charged off immediately. Management may
authorize an extension if collection appears imminent during the next calendar
month.
INVESTMENTS
Investments include principally short-term money market instruments and bonds
for which the Company has both the intent and ability to hold to maturity.
Investments are carried at amortized cost.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
are depreciated on a straight-line basis over their estimated useful lives.
NONREFUNDABLE DEALER RESERVES
As part of Mercury's purchase of sales finance contracts, arrangements are
entered into with dealers, whereby reserves are established to protect Mercury
from potential losses associated with such contracts. As part of Mercury's
agreement with the dealers, a protion of the proceeds from the sales finance
contracts is retained by Mercury and is available to Mercury to charge
specific accounts against. Mercury negotiates the amount of the reserves with
the dealers based upon various criteria, one of which is the credit risk
associated with the sales finance contracts being purchased. Dealer reserves
amounted to $66,477 and $57,241 at December 31, 1994 and 1993, respectively.
INTEREST EXCHANGE AGREEMENTS
The interest differential to be paid or received on interest exchange
agreements is accrued monthly and is recognized over the life of the
agreement.
INCOME TAXES
The consumer finance subsidiaries are members of Mercury's consolidated
Federal income tax group. The consumer finance subsidiaries file individual
state income tax returns.
Mercury Life and Gulfco Life file their own tax returns and are not part of
Mercury's consolidated tax group for Federal and state income tax purposes.
Effective January 1, 1993 Mercury adopted the provisions of Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1993 consolidated statement of income. Under the asset
and liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial staatement carrying amounts of existing assets and liabilities
and their respective tax bases.
<PAGE>
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 Statement 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. Prior to
adoption of Statement 109, Mercury accounted for income taxes under APB 11.
3) FINANCE RECEIVABLES
Direct loans generally have terms of 12 to 24 months with maximum terms of 36
months; secured loans are generally collateralized by real or personal
property. Sales finance contracts are accounted for on a discount basis and
generally have maximum terms of 18 to 36 months with maximum terms of 48
months. Finance Receivables outstanding at December 31, 1994 and 1993, were
as follows:
<TABLE>
Text 1994 1993
<S> <C> <C>
DIRECT FINANCE RECEIVABLES
Interest bearing $34,191 $11,148
Precompute 101,281 88,146
Total direct finance receivables 135,472 99,294
SALES FINANCE RECEIVABLES 1,136,958 905,223
Total gross finance receivables 1,272,430 1,004,517
Less: Unearned finance charges 222,284 174,440
Unearned commissions,
insurance premiums and
insurance claim reserves 10,279 9,790
Finance receivables $1,039,867 $820,287
</TABLE>
Included in finance receivables at December 31, 1994 and 1993 were $10,201 and
$8,465, respectively, of receivables for which interest accrual had been
suspended. Contractual maturities of the finance receivables by year are not
readily available at December 31, 1994 and 1993, but experience has shown that
such information is not significant in that receivables may be renewed,
converted, or paid in full prior to actual maturity.
Principal cash collections (excluding finance charges earned) for the years
ended December 31, 1994 and 1993, were as follows:
<TABLE>
Text 1994 1993
<S> <C> <C>
DIRECT FINANCE RECEIVABLES
Principal cash collections $70,892 $78,704
Percent of average net balances 82.09% 125.83%
SALES FINANCE RECEIVABLES
Principal cash collections $623,900 $494,288
Percent of average net balances 72.60% 74.35%
</TABLE>
A summary of the activity in the allowance for finance credit
losses for the years ended December 31, was as follows:
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $18,344 $13,198 $11,334
Allowance acquired 1,052 2,456 0
Provision for finance credit
losses 7,376 6,392 4,330
Finance receivables charged off (6,467) (4,882) (2,921)
Recoveries 2,183 1,180 455
Balance at end of year $22,488 $18,344 $13,198
</TABLE>
<PAGE>
4) SENIOR AND SUBORDINATED DEBT, LINES OF CREDIT AND
COMMITMENT FEES
Senior and Subordinated debt at December 31, 1994 and 1993,
consisted of the following:
<TABLE>
Text 1994 1993
<S> <C> <C>
SENIOR DEBT, COMMERICAL PAPER & NOTES $449,945 $260,260
SENIOR DEBT, TERM NOTES
Due 1994-interest rate 9.79% $0 $5,000
Due 1994-interest rate 9.21% 0 28,500
Due 1995-interest rate 9.02% 10,000 10,000
Due 1995-interest rate 5.88% 15,000 15,000
Due 1995-interest rate 7.13% * 125 0
Due 1996-interest rate 9.00% 25,000 25,000
Due 1996-interest rate 6.41% 15,000 15,000
Due 1996-interest rate 7.125%* 125 0
Due 1997-interest rate 7.67% 15,000 15,000
Due 1997-interest rate 8.15% 17,500 17,500
Due 1997-interest rate 6.29% 24,000 24,000
Due 1997-interest rate 7.13%* 1,125 0
Due 1997-interest rate 6.86%* 1,500 0
Due 1998-interest rate 6.70% 35,000 35,000
Due 1998-interest rate 6.16% 76,000 76,000
Due 1998-interest rate 8.62% 20,000 0
Due 1998-interest rate8.50% 10,000 0
Total senior debt, term notes $265,375 $266,000
</TABLE>
*Debt assumed with Midland Acquisition
<TABLE>
Text 1994 1993
<S> <C> <C>
SUBORDINATED DEBT
Due 1997-interest rate 9.76% 20,000 20,000
Due 1998-interest rate 10.86% 15,000 15,000
Due 1998-interest rate 7.38%* 500 0
Total subordinated debt $35,000 $35,000
</TABLE>
*Debt assumed with Midland Acquisition
The following table sets forth information with respect to
maturities of senior and subordinated debt at December 31, 1994.
<TABLE>
Senior debt
commercial Senior debt Subordinated
Text Paper & Notes Term Notes Debt Total
<S> <C> <C> <C> <C>
1995 $449,945 $25,125 $0 $475,070
1996 0 40,125 0 40,125
1997 0 59,125 20,000 79,125
1998 0 141,000 15,500 156,500
Total $449,945 $265,375 $35,500 $750,820
</TABLE>
Credit facilities extended by banks and related commitment fees at
December 31, 1994 and 1993, were as follows:
<TABLE>
Text 1994 1993
<S> <C> <C>
Unused bank lines $20,000 $20,000
Revolving credit facilities 400,000 310,000
Total lines of credit $420,000 $330,000
Commitment fees (charged to
interest expense) $928 $799
</TABLE>
<PAGE>
The revolving credit facilities have commitment periods through August 31,
1997 and are subject to annual extension for additional one year periods at
the request of Mercury with the consent of each of the banks in the facility.
Currently the facilities carry a weighted average annual commitment fee of 1/4
of 1% of the total amount. Outstanding borrowings bear interest at floating
rates, at Mercury's option, either equal to the reference bank's prime rate,
or 1/2 of 1% above LIBOR rate.
5) INTEREST EXCHANGE AGREEMENTS
In the past Mercury had entered into interest exchange agreements ranging in
maturity from one to five years. These agreements called for Mercury to pay
interest at a fixed rate and receive interest at a floating rate on notional
amounts. The net (income) expense associated with these agreements, which is
included in interest expense in the accompanying consolidated statements of
income, was $192, $1,197 and $2,045 in 1994, 1993 and 1992, respectively. At
December 31, 1994 Mercury was not a party to open interest exchange
agreements.
6) DIVIDEND RESTRICTIONS
Payment of dividends by Mercury are subject to certain limitations in the
various debt agreements and the revolving credit facilities.
Under the most restrictive provisions of these agreements, approximately
$47,036 of the retained earnings of Mercury at December 31, 1994 were
available for distribution.
7) COMMON STOCK
During the period since the Company became an independent publicly
traded Company the following stock splits have been distributed:
<TABLE>
Dates Type
<S> <C>
December 28, 1989 4 for 3 split
October 31, 1990 4 for 3 split
June 10, 1991 4 for 3 split
December 5, 1991 4 for 3 split
June 19, 1992 2 for 1 split
June 22, 1993 4 for 3 split
</TABLE>
Earnings per share is computed by dividing net income by the total of weighted
average common shares and common stock equivalents outstanding during the
periods, adjusted for all stock splits. The calculated averages were as
follows:
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Weighted Average:
Common Shares 115,909,646 115,317,944 113,414,712
Treasury Shares (348,105) (63,205) (63,205)
Common Equivalents 1,205,356 1,711,704 3,112,513
Total 116,766,897 116,966,443 116,464,020
</TABLE>
8) STOCK OPTIONS
Under the terms of Mercury's 1989 Stock Option and Incentive Compensation
Plan, 16,558,024 common shares were reserved for the future granting of
options to officers, non-employee directors and other key employees. Options
become exercisable in whole or in part immediately after the date of grant at
the closing price of Mercury's common stock on the date of grant. Options are
forfeited upon termination of employement. Shares available for future grants
totaled, 1,363,120 and 4,414,870 at December 31, 1994 and 1993 respectively.
<PAGE>
<TABLE>
<CAPTION>
Activity with respect to stock options follows:
(As adjusted for all stock splits)
Text 1994 1993
<S> <C> <C>
Outstanding January 1 4,168,198 4,370,672
Options granted (average price of
$16.75 in 1994 and $15.72 in 1993) (30,000) (86,382)
Options exercised (average price of
$5.61 in 1994 and $5.31 in 1993) (431,079) (815,616)
Outstanding December 31 6,788,869 4,168,198
</TABLE>
<PAGE>
The average option price under the plans was $11.30 and $6.70 at
December 31, 1994 and 1993 respectively.
9) CONTINGENCIES AND LEGAL MATTERS
In the normal course of its business, the Company and its subsidiaries are
named as defendants in legal proceedings. A number of such actions are
pending in the various states in which subsidiaries of the Company do
business. It is the policy of the Company and its subsidiaries to vigorously
defend litigation, but the Company and (or) its subsidiaries have and may in
the future enter into settlements of claims where management deems
appropriate.
On August 4, 1994, a verdict of $90,000 in compensatory and $50,000,000 in
punitive damages was rendered against Mercury Finance Corporation of Alabama
("Mercury Alabama"), a subsidiary of the Company, in the Circuit Court of
Barbour County, Alabama. On January 26, 1995, the Circuit Court of Barbour
County, Alabama, entered an order requiring a new trial unless the plaintiff
accepted a reduction of the punitive damage award from $50,000,000 to
$2,000,000. Following the entry of the January 26, 1995 order, parties
entered into a joint motion to vacate the verdict and judgment and dismiss the
case pursuant to a settlement of the plaintiff's claim for an amount less than
the reduced punitive damage award. Mercury Alabama has accrued the cost of
the settlement as of December 31, 19944, and the consolidated statement
of income for the year ended December 31, 1994 reflects this accrual.
As of December 31, 1994, Mercury Alabama was a defendant or counterclaim
defendant in approximately 40 other lawsuits pending in state and federal
courts in Alabama, the majority of which had been filed since the entry of the
August 4, 1994 Barbour County jury verdict. The cases (some of which also
name the Company as a defendant) include claims for alleged truth-in-lending
violations, nondisclosures, misrepresentations, wrongful repossessions of
vehicles and deceptive trade practices, among other things. The relief
requested by the plaintiffs varies but includes requests for compensatory,
statutory and punitive damages, as well as declaratory and equitable relief.
As of February 20, 1995, several of the cases pending on December 31, 1994
(including the Circuit Court of Barbour County, Alabama, case discussed above,
which had resulted in a judgment against Mercury Alabama) have been settled.
In addition, approximately ten cases have been filed against Mercury Alabama
since December 31, 1994, and the Company has been joined as a defendant in a
number of cases in which it previously had not been named as a party.
A number of the pending Alabama cases are brought as putative class actions.
On October 14, 1994, the Circuit Court of Barbour County, Alabama, certified a
plaintiff class in a case alleging breach of contract and fraud claims against
Mercury Alabama and the Company in connection with Alabama financing
transactions. The court has not yet ordered the transmittal of notice to the
class.
Although management is of the opinion that the resolution of these proceedings
will not have a material effect on the financial position of the Company, it
is not possible at this time to estimate (except for the Circuit Court of
Barbour County case discussed previously) the amount of damages or settlement
expenses that may be incurred. Accordingly, no provision has been made in
the consolidated financial statements for any of the pending proceedings
except for the Circuit Court of Barbour County, Alabama case.
10) PENSION PLAN AND OTHER EMPLOYEE BENEFITS
Substantially all employees of Mercury are covered by non-contributory defined
<PAGE>
benefit pensions plans. total pension expense aggregated $634, $554, and $113
in 1994, 1993 and 1992 respectively.
The following table sets forth the funded status of Mercury's qualified plan
amounts recognized in the 1994, 1993 and 1992 consolidated financial
statements.
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Actuarial present value of
benefit obligation:
Accumulated benefit obligations,
including vested benefits of
$4,407, $4,296, and $1,227 $4,973 $4,905 $1,615
Projected benefit obligation for
service rendered to date (7,596) (8,193) (3,562)
Plan assets at fair value 9,303 9,685 5,027
Plan assets in excess of
projected benefit obligation 1,707 1,492 1,465
Unrecognized net asset as of
December 31, being recognized
over 22 years (830) (337) (361)
Unrecognized net loss (gain) (437) (185) (59)
Unrecognized prior service cost 67 70 435
Prepaid pension expense $507 $1,040 $1,480
Components of net pension expense:
Service cost-benefits earned
during the period $964 $764 $434
Interest cost on projected
benefit obligation 567 416 139
Actual return on plan assets 321 (1,809) (401)
net amortization and deferral (1,198) 1,183 (59)
Net periodic pension expense $654 $554 $113
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8.25%, 7.25% and 7.5% at
December 31, 1994, 1993 and 1992 respectively. The rates of increase in
future compensation was 5.5% - 7% at December 31, 1994, 1993 and 1992. The
expected long-term rate of return on plan assets in 1994, 1993 and 1992 was
9%.
Mercury also maintains a nonqualified, unfunded pension benefit plan for
certain employees whose calculated benefit payments under the qualified plan
are expected to exceed the limits imposed by Federal tax law. The projected
benefit obligations of the plan, and the expenses related to this plan, are
not material.
Mercury has an employee stock purchase plan and a tax deferred Retirement
Savings Trust (401-k) plan; employees are eligible to participate in the plans
after having attained specified terms of service. Both plans cover
substantially all full time employees of Mercury and provide for employee
contributions and partial matching contributions by Mercury. The expenses
related to these plans are not material.
11) INCOME TAXES
The components of the 1994, 1993 and 1992 provisions were as follows:
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
CURRENT INCOME TAX EXPENSE
Federal $48,365 $35,792 $24,633
State 7,859 5,453 4,147
Total 56,224 41,245 28,780
Deferred income tax benefit (1,779) (1,305) (841)
Total income tax provision $54,445 $39,940 $27,939
</TABLE>
<PAGE>
The effective tax rates on income before income taxes were 38.6%, 38.3% and
37.9% in 1994, 1993, and 1992 respectively. State income taxes accounted for
the difference between the effective income tax rate and the statutory Federal
tax rate of 35% for 1994 and 1993 and 34% for 1992. The total income tax
benefit reflected in shareholders' equity for stock options exercised was
$1,535, $2,698, and $6,211 in 1994, 1993 and 1992 respectively. Deferred
income taxes result primarily from timing differences in the recognition of
the provision for finance credit losses and recognition of the pension expense
for tax and financial reporting purposes.
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset at December 31, are presented below:
<TABLE>
Text 1994 1993
<S> <C> <C>
Deferred tax asset:
Allowance for finance credit losses
and prepaid pension expense $8,048 $6,784
Deferred tax liability:
Premises and equipment depreciation
and other miscellaneous items 758 1,273
Net deferred tax asset $7,290 $5,511
</TABLE>
No valuation allowance for deferred tax assets has been recorded at December
31, 1994 and 1993 as the Company believes it is more likely than not that the
tax deferred tax assets will be realized in the future.
As discussed in note 1, the Company adopted Statement 109 as of January 1,
1993. The cumulative effect of this change in accounting for income taxes of
$234 is determined as of January 1, 1993 and is reported separately in the
consolidated statement of income for the year end December 31, 1993.
12) LEASES
Mercury and its subsidiaries lease offices generally under cancelable
operating leases expiring in various years through 2000. Most of these leases
are renewable for periods ranging from three to five years. Future minimum
payments, by year and in the aggregate, under operating leases with initial or
remaining terms of one year or more consisted of the following at December 31,
1994:
<TABLE>
Year Amount
<S> <C>
1995 $3,226
1996 2,543
1997 1,954
1998 1,251
1999 and after 556
Total $9,530
</TABLE>
It is expected that in the normal course of business, office leases
that expire will be renewed or replaced by leases on other
properties. Total rent expense approximated $3,169, $2,619, and
$1,905 in 1994, 1993 and 1992 respectively.
13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value. Fair value estimates are made
at a specific point in time for Mercury's financial instruments;
they are subjective in nature and involve uncertainties, matters of
significant judgment and, therefore, cannot be determined with
precision. Fair value estimates do not reflect the total value of
Mercury as a going concern.
INVESTMENTS
For those investments, which consist primarily of short-term money
market instruments, the carrying amount is a reasonable estimate of
fair value. For bonds the estimated fair value is based on quoted
market price.
FINANCE RECEIVABLES
The fair value of finance receivables is computed using estimated
market rates of return desired by bulk purchasers.
SENIOR DEBT, COMMERCIAL PAPER
The debt consists principally of short term commercial paper for
which the carrying amount is a reasonable estimate of fair value.
SENIOR AND SUBORDINATED DEBT, TERM NOTES
Rates currently available to Mercury for debt with similar terms
and remaining maturities are used to estimate the fair value of
existing debt.
<PAGE>
INTEREST EXCHANGE AGREEMENTS
The fair value of interest exchange agreements is the estimated
amount that Mercury would receive or (pay) to terminate the
interest exchange agreements at the reporting date, taking into
account current interest rates and the current creditworthiness of
the exchange agreement counterparties.
The estimated fair values of Mercury's financial instruments at
December 31, were as follows:
<TABLE>
1994
Carrying Fair
Text Amount Value
<S> <C> <C>
FINANCIAL ASSETS:
Cash $19,980 $19,980
Investments 14,184 13,928
Finance Receivables 1,039,867 1,096,249
Less Allowance for Finance Credit
Losses (22,488) (22,488)
Total $1,051,543 $1,107,669
FINANCIAL LIABILITIES:
Senior Debt, Commercial Paper $449,945 $449,945
Senior Debt, Term Notes 265,375 255,618
Subordinated Debt 35,500 35,746
Total $750,820 $741,309
1993
FINANCIAL ASSETS:
Cash $11,621 $11,621
Investments 10,533 10,783
Finance Receivables 820,827 859,189
Less Allowance for Finance Credit
Losses (18,344) (18,344)
Total $824,097 $863,249
FINANCIAL LIABILITIES:
Senior Debt, Commercial Paper $260,260 $260,260
Senior Debt, Term Notes 266,000 272,612
Subordinated Debt 35,000 38,210
Total $561,260 $571,082
Off-Balance Sheet Financial
Instruments:
Interest Exchange Agreements $145 $339
Notional Amount $15,000
</TABLE>
<PAGE>
14) QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
Balance Sheet Average for the Quarter 1994
Text 4th Qrtr 3rd Qrtr 2nd Qrtr 1st Qrtr
<S> <C> <C> <C> <C>
ASSETS
Cash $14,742 $13,859 $12,629 $13,464
Investments 12,600 12,448 11,746 11,248
Finance Receivables 1,000,640 932,434 892,076 839,051
Allowance for Credit Losses (22,002) (20,331) (19,617) (18,681)
Nonrefundable Dealer Reserves (71,261) (68,829) (65,818) (59,675)
Other Assets 48,356 34,910 30,153 29,805
Total Assets $983,075 $904,491 $861,169 $815,212
LIABILITIES AND SHAREHOLDERS'
EQUITY
Senior Debt, Short Term $385,243 $316,070 $288,452 $258,582
Senior Debt, Long Term 264,533 265,167 266,000 266,000
Subordinated Debt 35,750 35,000 35,000 35,000
Other Liabilities 67,888 64,814 61,044 58,820
Total Shareholders' Equity 229,661 223,440 210,673 196,810
Liabilities and Shareholders'
Equity $893,075 $904,491 $861,169 $815,212
INCOME STATEMENT
Interest Income $59,531 $53,399 $50,818 $47,816
Interest Expense 11,575 9,969 9,302 8,528
Net Interest Income 47,956 43,430 41,516 39,288
Provision for Credit Losses 2,543 1,657 1,409 1,766
Net Interest Income after
Credit Losses 45,413 41,773 40,107 37,522
Other Income 13,575 10,228 8,588 8,516
Other Expenses 20,653 15,362 14,523 14,192
Income Before Income Taxes 38,335 36,639 34,172 31,846
Applicable Income Taxes 14,827 14,158 13,170 12,290
Cumulative Effect of Change in
Accounting Principle 0 0 0 0
Net Income $23,508 $22,481 $21,002 $19,556
Average Common & Equivalent
Shares Outstanding 115,429 117,194 117,221 117,224
Per Common Share (adjusted for
stock splits)
Net Income $.20 $.19 $.18 $.17
Cash Dividend .08 .07 .07 .07
Market Price:
High 15 1/8 17 5/8 18 7/8 19 1/8
Low 11 1/8 13 1/2 15 1/8 14 3/4
Close at End of Period 13 1/8 14 1/2 16 1/2 16 7/8
Ratios
Net Interest Margin 18.97% 18.42% 18.36% 18.43%
Net Income to Average Assets 9.57 9.94 9.76 9.60
Net income to Average
Shareholders' Equity 40.94 40.25 39.88 39.75
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Average for the Quarter 1993
Text 4th Qrtr 3rd Qrtr 2nd Qrtr 1st Qrtr
<S> <C> <C> <C> <C>
ASSETS
Cash $10,803 $10,381 $10,934 $8,167
Investments 12,512 10,968 12,101 4,899
Finance Receivables 804,369 772,338 726,745 636,725
Allowance for Credit Losses (18,106) (17,648) (16,852) (13,553)
Nonrefundable Dealer Reserves (57,712) (55,628) (49,170) (41,619)
Other Assets 27,780 28,643 23,146 16,258
Total Assets $779,646 $749,054 $706,904 $610,877
LIABILITIES AND SHAREHOLDERS'
EQUITY
Senior Debt, Short Term $275,624 $255,392 $225,477 $193,783
Senior Debt, Long Term 230,583 233,000 232,167 181,333
Subordinated Debt 35,000 35,000 40,000 41,000
Other Liabilities 53,701 53,006 48,249 46,388
Total Shareholders' Equity 184,738 172,656 161,011 148,373
Liabilities and Shareholders'
Equity $779,646 $749,054 $706,904 $610,877
INCOME STATEMENT
Interest Income $46,029 $43,389 $41,172 $34,464
Interest Expense 8,476 8,423 8,635 7,399
Net Interest Income 37,553 34,966 32,537 27,065
Provision for Credit Losses 1,345 1,762 1,722 1,564
Net Interest Income after
Credit Losses 36,208 33,204 30,815 25,501
Other Income 8,238 8,123 7,283 5,699
Other Expenses 14,055 13,283 13,455 9,411
Income Before Income Taxes 30,391 28,044 24,643 21,789
Applicable Income Taxes 11,799 10,989 9,299 8,087
Cumulative Effect of Change in
Accounting Principle 0 0 0 234
Net Income $18,592 $17,055 $15,344 $13,936
Average Common & Equivalent
Shares Outstanding 117,294 117,154 116,833 116,569
Per Common Share (adjusted for
stock splits)
Net Income $.16 $.15 $.13 $.12
Cash Dividend .06 .06 .04 .04
Market Price:
High 20 3/8 19 1/8 15 7/8 16 1/8
Low 15 1/2 15 1/2 12 1/8 10 7/8
Close at End of Period 19 1/8 19 1/8 15 7/8 14 3/8
Ratios
Net Interest Margin 18.42% 17.89% 17.60% 16.81%
Net Income to Average Assets 9.54 9.11 8.68 9.13
Net income to Average
Shareholders' Equity 40.26 39.51 38.12 37.57
</TABLE>
The common stock of Mercury Finance Company began trading on the New York
Stock Exchange on April 11, 1989 under the symbol MFN. Mercury common stock
is also traded on the Chicago Stock Exchange.
On December 31, 1994 Mercury had approximately 4,100 holders of record of
common stock, exclusive of holders of shares in "street" or nominee names.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
The following discussion is intended to assist readers in their analysis of
the accompanying consolidated financial statements and notes that are
presented elsewhere in this Annual Report of Mercury Finance Company.
FINANCIAL CONDITION
ASSETS AND FINANCE RECEIVABLES
Total assets of Mercury increased 30% to $1.0 billion at December 31, 1994.
This follows an increase of 34% during 1993. Finance receivables increased
27% to $1.0 billion at December 31, 1994 which compared to an increase of
33% during 1993. The increase in assets and finance receivables are primarily
attributable to the production of receivables from the increased number of
offices operated by Mercury, the Midland acquisition and increased volume in
existing offices. The Mercury offices in Florida, Texas and Illinois
accounted for approximately 50% of all finance receivables, with the
remainder being generated in the other 22 states where Mercury offices are
located. The total number of offices was 247 at December 31, 1994, 218 at
December 31, 1993 and 133 at December 31, 1992. The following tables
summarize the composition of finance receivables at December 31:
<PAGE>
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Sales finance receivables $1,136,958 $905,223 $698,230
Direct finance receivables 135,472 99,294 49,343
Total gross finance receivables 1,272,430 1,004,517 747,573
Less: Unearned finance charges 222,284 174,440 123,005
Unearned commissions, insurance
premiums and insurance claim
reserves 10,279 9,790 5,920
Finance receivables $1,039,867 $820,287 $618,648
</TABLE>
<TABLE>
Gross Finance Receivables By
Year of Office Openings 1994 1993 1992
<S> <C> <C> <C>
Offices open at 12/31/92 $1,112,208 $893,383 $747,573
1993 Acquisition of Gulfco 0 74,799 0
1993 office openings 78,515 36,335 0
1994 office openings 41,060 0 0
1994 Acquisition of Midland 40,647 0 0
Total gross finance receivables $1,272,430 $1,004,517 $747,573
</TABLE>
ALLOWANCE AND PROVISION FOR FINANCE CREDIT LOSSES
Mercury maintains an allowance for losses at a level which, in the opinion of
management, provides adequately for current and possible future losses in the
finance receivables portfolio. Management evaluates allowance requirements by
examining current delinquencies, the characteristics of the accounts, the
value of the underlying collateral, and general economic conditions and
trends. Management also evaluates the availability of dealer reserves to
absorb finance credit losses. A provision for losses is charged to earnings
in an amount sufficient to maintain the allowance. The following table sets
forth a reconciliation of the changes in the allowance for finance credit
losses for the three years ended December 31:
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $18,344 $13,198 $11,334
Allowance acquired 1,052 2,456 0
Provision charged to expense 7,376 6,392 4,330
Finance receivables charged-off (6,467) (4,882) (2,921)
Recoveries 2,183 1,180 455
Balance at year end $22,488 $18,344 $13,198
Finance receivables at year end $1,039,867 $820,287 $618,648
Allowance as a percent of finance
receivables outstanding 2.16% 2.24% 2.13%
</TABLE>
The increase in the provision and allowance for finance credit losses in 1994
and 1993 is primarily attributable to the increase in finance receivables
outstanding.
As part of Mercury's purchase of sales finance contracts, arrangements are
entered into with dealers, whereby reserves are established to protech Mercury
from potential losses associated with such contracts. As part of Mercury's
agreement with the dealers, a portion of the proceeds from the sales finance
contracts are retained by Mercury and are available to Mercury to charge
specific accounts against. Mercury negotiates the amount of the reserves
with the dealers based upon various criteria, one of which is the credit risk
associated with the sales finance contracts being purchased. Dealer reserves
amounted to $66,477 and $57,241 at December 31, 1994 and 1993, respectively.
DEBT
The primary source for funding Mercury's finance receivables comes from debt
issued by Mercury. At December 31, 1994, Mercury had total debt of $750.8
million, which compares to $561.3 million and $416.5 million at December 31,
1993 and 1992, respectively. During 1994 Mercury issued $30.0 million in
senior term notes at an average rate of 8.6%.
<PAGE>
The following table represents Mercury's debt instruments and the corresponding
rates on the debt at the end of the periods indicated:
<TABLE>
Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
Text Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Senior Debt:
Commercial
paper $449,945 6.4% $260,260 3.5% $200,000 4.2%
Term Notes 265,375 7.1 266,000 7.2 175,500 8.4
Subordinated
debt 35,500 10.2 35,000 10.2 41,000 9.9
Total $750,820 6.8% $561,260 5.7% $416,500 6.5%
</TABLE>
The interest rates in the preceding table do not include certain costs related
to the placement of debt, costs associated with debt assumed in the
acquisition of Gulfco, fees associated with the revolving credit facility and
interest associated with interest exchange agreements which are amortized to
interest expense. The effect of such costs which are included in interest
expense in the consolidated financial statements increases the effective
interest rate by approximately 30 basis points.
SHAREHOLDERS' EQUITY
The other primary source for funding the growth in finance receivables comes
from the retention of earnings by Mercury. Total shareholders' equity at
December 31, 1994 was $227.5 million which compares with $193.5 million at
December 31, 1993. During the year Mercury had net income of $86.5 million,
paid dividends of $33.6 million and purchased back 1.8 million shares costing
$22.9 million. At December 31, 1994, Mercury's shareholders' equity as a
percent of total assets was 21.95% which compares with 24.28% at December 31,
1993.
RESULTS OF OPERATIONS
NET INCOME
For the year ended December 31, 1994, Mercury had net income of $86.5 million,
which represents an increase of 33% from the $64.9 million earned in 1993.
The increase in net income is primarily attributable to income derived from
increased finance receivables outstanding caused by additional offices opened
during 1993 and 1994 and increased volume in existing offices.
INTEREST INCOME AND INTEREST EXPENSE
The largest single component of net income is net interest income which is the
difference between interest income and interest expense. For the year ended
December 31, 1994, net interest income was $172.2 million, which compares
with $132.1 million and $92.0 million in 1993 and 1992, respectively. The
primary factor attributable to the growth in net interest income is the
volume increase in finance receivables outstanding.
<PAGE>
For the year ended December 31, 1994, Mercury's net interest margin, which is
the ratio of net interest income divided by average interest earning assets,
was 18.55%. This compares with a net interest margin of 17.73% and 16.07% in
1993 and 1992, respectively. The change in the net interest margin is
primarily attributable to interest rate changes on interest earning assets.
The changes in interest rates are reflective of general interest rate trends
in the U.S. economy.
The following table summarizes net interest income and the net interest
margin for the three years ended December 31:
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Average interest earning assets $928,060 $745,164 $572,564
Average interest bearing liabilities 612,700 494,590 386,235
Net $315,360 $250,574 $186,329
Interest income $211,565 $165,054 $121,531
Interest expense 39,375 32,933 29,525
Net interest income $172,190 $132,121 $92,006
Rate earned 22.80% 22.15% 21.23%
Rate paid 6.43 6.65 7.64
Net 16.37% 15.50% 13.59%
Net interest margin 18.55% 17.73% 16.07%
</TABLE>
OTHER INCOME
In addition to finance charges and interest, Mercury derives commission
income from the sale of other credit related products. These products include
insurance relating to the issuance of credit life, accident and health and
other credit insurance policies to borrowers of Mercury. Other credit-related
sources of revenue are derived from the sale of other products and services.
Insurance premiums are earned by the life insurance subsidiaries as a
reinsurer of credit life and accident and health policies issued through
Mercury branch offices.
For the year ended December 31, 1994, Mercury experienced increases primarily
in its insurance commission, insurance premiums and other fee income. This is
primarily attributable to additional loan volume, increased commission rates,
income from Gulfco and the increased number of borrowers obtaining these
types of products. The following table summarizes the amounts earned from
these products for the three years ended December 31:
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Insurance commissions $20,507 $12,318 $7,529
Insurance premiums 9,056 8,648 5,973
Vehicle protection club memberships 3,929 3,478 2,807
Fees and other 7,415 4,898 4,036
Total $40,907 $29,342 $20,345
Other income as a % of average
interest earning assets 4.41% 3.94% 3.55%
</TABLE>
OTHER EXPENSES
In addition to interest expense and the provision for finance credit losses,
Mercury incurs other operating expenses in the conduct of its business.
During 1994 other operating expenses increased 30% over 1993, which in turn
had increased 46% over 1992. During the same period, total assets of Mercury
have increased 30% and 34%. During 1994 additional legal fees and settlement
costs were incurred associated with a judgment which was rendered against one
of Mercury's subsidiaries in Alabama. The following table summarizes the
components of other expenses for the three years ended December 31:
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Salaries and employee benefits $36,852 $29,058 $19,928
Insurance claims expense 2,722 3,338 2,314
Other operating expenses 25,157 17,808 12,117
Total $64,731 $50,204 $34,359
Operating expenses as a % of
average interest earning assets 6.97% 6.74% 6.00%
</TABLE>
<PAGE>
INCOME TAXES
Income taxes increased 36% to $54.4 million when compared with $40.2 million
and $27.9 million in 1993 and 1992, respectively. The increase in income
taxes is primarily attributable to a higher level of pretax earnings and an
increased Federal Tax Rate. The effective tax rates on income before income
taxes were 38.6%, 38.3% and 37.9% in 1994, 1993 and 1992, respectively.
CREDIT LOSSES AND DELINQUENCIES
Direct finance receivables on which no payment is received within 149 days,
on a recency basis, are charged off. Sales finance receivables which are
contractually delinquent 150 days are charged off monthly before they become
180 days delinquent. Accounts which are deemed uncollectible prior to the
maximum charge-off period are charged off immediately. Management may
authorize an extension if collection apprars imminent during the next calendar
month.
The following table sets forth information relating to charge-offs, the
allowance for finance credit losses and dealer reserves:
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Loss provision charged to income $7,376 $6,392 $4,330
Charge-offs net of recoveries 4,284 3,702 2,466
Allowance for finance credit losses
at end of period 22,488 18,344 13,198
Dealer reserves at end of period 66,477 57,241 38,262
</TABLE>
RATIOS
<TABLE>
Text 1994 1993 1992
<S> <C> <C> <C>
Net charge-offs against allowance to
average finance receivables .47% .49% .43%
Allowance for finance credit losses at
end of period 2.16% 2.24% 2.13%
Dealer reserves to sales finance
receivables at end of period 5.84% 6.32% 5.48%
</TABLE>
If an account becomes 60 or more days contractually delinquent and no full
contractual payment is received in the month the account attains such
delinquency status, it is classified as delinquent. The following table sets
forth certain information regarding 60 day and greater contractually
delinquent accounts, at December 31:
<TABLE>
60 Days and Over Delinquencies 1994 1993 1992
<S> <C> <C> <C>
Sales finance receivables $7,492 $5,366 $5,509
Direct finance receivables 2,709 3,099 1,156
Total $10,201 $8,465 $6,665
Outstanding:
Sales finance receivables $1,136,958 $905,223 $698,230
Direct finance receivables 135,472 99,294 49,343
Total $1,272,430 $1,004,517 $747,573
Delinquency as a % of Receivables
Outstanding:
Sales finance receivables .66% .59% .79%
Direct finance receivables 2.00% 3.12% 2.34%
Total .80% .84% .89%
</TABLE>
<PAGE>
LIQUIDITY AND FINANCIAL RESOURCES
Because the consumer finance business involves the purchase and carrying of
receivables, a relatively high ratio of borrowings to net worth is customary
and is an important element in Mercury's operations. Mercury endeavors to
maximize its liquidity by diversifying its sources of funds which include
(a) cash from operations, (b) the issuance of short-term commercial paper,
and (c) direct borrowings available from commercial banks and insurance
companies, consisting of short-term lines of credit and long-term senior and
subordinated notes. Most of the assets of Mercury are at fixed rates, and
have an average initial maturity of approximately 24 months. Of Mercury's
total debt, 40% has an original maturity of greater than one year at a fixed
rate of interest.
ACCOUNTING CHANGES
In December 1986, the Financial Accounting Standards Board issued FASB
Statement No. 91 which relates to the accounting for nonrefundable fees and
cost associated with originating or acquiring loans. The staement requires
that loan origination and commitment fees and certain direct loan origination
costs be deferred and amortized as an adjustment to the related loan's yield.
Mercury has not adopted the provisions of this statement because adoption
would not have a material effect on Mercury's reported results of operation or
financial condition.
Effective January 1, 1993 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1993 consolidated statement of income. Under the asset
and liability method of Statement 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 Statement 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. Prior to adoption of SFAS 109 Mercury
accounted for income taxes under APB 11.
The Financial Accounting Standards Board has issued FASB Statement No. 114,
Accounting by Creditors for Impairment of a Loan. Management believes that
this statement will not have a material effect on Mercury's reported results
of operation or financial condition.
The Financial Accounting Standards Board has issued FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities. This
statement did not have a material effect on Mercury's reported results of
operation or financial condition.
The Financial Accounting Standards Board has also issued FASB Statement
No. 119, Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments. Mercury holds no such derivative financial insturments
at December 31, 1994.
BOARD OF DIRECTORS
The Honorable Daniel J. Terra - Chairman of the Board
John N. Brincat - President and Chief Executive Officer
Dennis H. Chookaszian - Chairman and Chief Executive Officer of CNA
Insurance Cos.
William C. Croft - Chairman of the Board of Clements National Company
Clifford R. Johnson - Retired Executive Vice President of Jewel
Companies, Inc.
Andrew McNally IV - Chairman and Chief Executive Officer of Rand McNally & Co.
Bruce I. McPhee - Vice Chairman of Kimball Hill Homes, Inc.
Fred G. Steingraber - Chairman and Chief Executive Officer of
A.T. Kearney, Inc.
Philip J. Wicklander - President of Wicklander Printing Corporation
<PAGE>
EXECUTIVE OFFICERS
The Honorable Daniel J. Terra, Chairman of the Board
John N. Brincat, President and Chief Executive Officer
James A. Doyle, Senior Vice President, Controller and Secretary
Richard P. Bosson, Vice President, Operations
Jeffrey R. Brincat, Vice President, Administration
John N. Brincat, Jr., Vice President, Operations
Michael H. Caul, Vice President, Operations
Steven G. Gould, Vice President, Operations
Charley A. Pond, Vice President, Treasurer and Chief Financial Officer
John J. Pratt, Vice President, Operations
Edward G. Stautzenbach, Vice President, Marketing
Sheila M. Tilson, Assistant Vice President, Assistant Secretary
SHAREHOLDER INFORMATION
Corporate Headquarters:
Mercury Finance Company
40 Skokie Boulevard
Northbrook, IL 60062
708-564-3720
Shareholder Relations Officer: Charley A. Pond, Vice President and Treasurer
Transfer Agent and Registrar:
Harris Trust Company of New York c/o
Harris Trust & Savings Bank
311 West Monroe Street
Chicago, IL 60606
312-461-7369
Annual Meeting:
The annual shareholders' meeting will be held Monday, April 10, 1995 at
10:00 A.M. at Harris Trust & Savings Bank, 111 West Monroe Street, 8th Floor,
Chicago, IL 60606
Form 10-K:
Copies of Mercury Finance Company's annual report and 10-k as filed with the
Securities and Exchange Commission, may be obtained from the Shareholder
Relations Department.
Dividend Reinvestment:
Dividends may be automatically reinvested in Mercury Finance Company common
stock. Inquires regarding this service should be directed to:
Harris Trust Company of New York
Dividend Reinvestment
P.O. Box A3309
Chicago, IL 60690
312-461-7369
Exhibit 10AX
9/29/94
STOCK ACQUISITION AGREEMENT
THIS AGREEMENT is made this 30th day of September, 1994 among
Edmund Mizel and Gerald Mizel (collectively the "Sellers") and
Mercury Finance Company, a Delaware corporation (the "Buyer").
WHEREAS, the Sellers are the owners of all of the issued and
outstanding shares of capital stock of Midland Finance Co., an
Illinois corporation (the "Company");
WHEREAS, the Company is engaged in the business of purchasing and
servicing retail installment contracts from dealers of various
products and services, originating and servicing direct installment
loans and related activities (the "Business");
WHEREAS, the Buyer desires to acquire the Company and its Business
through the purchase of all, but not less than all, of the shares
of capital stock of the Company; and
WHEREAS, the Sellers are willing to sell such shares to the Buyer;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the
parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 THE TRANSACTION. At the Closing, the Sellers shall sell,
transfer, assign and deliver to Buyer, and Buyer shall purchase and
accept all of each Seller's right, title and interest in and to,
the number of shares of the Stock (as defined in Section 1.2) owned
by each of them.
1.2 CAPITAL STOCK. The Company's entire equity capital consists
of the following class of common shares:
<TABLE>
PAR SHARES SHARES SHARES
CLASS VALUE AUTHORIZED ISSUED OUTSTANDING
<S> <C> <C> <C> <C>
Common $100 10,000 2,000 1,503.50
</TABLE>
All shares currently issued and outstanding are owned beneficially
and of record by the Sellers. The 1,503.50 issued and outstanding
shares of the Company are hereinafter referred to as the "Stock".
ARTICLE II
CONSIDERATION FOR TRANSFER
<PAGE>
2.1 PURCHASE PRICE. The aggregate purchase price for the Stock
(the "Purchase Price") shall be equal to (x) the product of 1.625
multiplied by the Closing Date Book Value (as hereinafter defined)
of the Company (as reflected on the Closing Balance Sheet (as
hereinafter defined)) less (y) $300,000.
2.2 PAYMENT OF PURCHASE PRICE. The purchase price shall be
payable in cash at the Closing by wire transfer of immediately
available funds directly to each Seller, based upon the percentage
of the shares of Stock owned by each such Seller (66.578% to Edmund
Mizel and 33.422% to Gerald Mizel). At Closing, Buyer shall pay to
Sellers U.S. $14,805,000. The amount payable shall be adjusted
pursuant to Section 3.6 at such time as the Closing Balance Sheet
(as hereinafter defined) is finalized pursuant to Section 3.5.
ARTICLE III
THE CLOSING AND TRANSFER OF STOCK
3.1 CLOSING. The sale of the Stock contemplated by this Agreement
(the "Closing") shall occur at the offices of the Company, 7300
North Western Avenue, Chicago, Illinois, at 9:00 A.M. on September
30, 1994 or at such other time or place as may be mutually agreed
upon by the parties (the "Closing Date").
3.2 DELIVERIES BY SELLERS. At the Closing, Sellers shall deliver
or cause to be delivered the following:
(a) certificates evidencing all of the Stock with fully executed
stock powers;
(b) certificates of the Secretary of the Company certifying copies
of the minute book and stock record book of the Company and a
Certificate of Incorporation of the Company certified as of a
recent date by the Secretary of State of Illinois;
(c) a certificate of good standing as of a recent date from the
Secretary of State of Illinois;
(d) a list of all bank accounts, safe deposit boxes and lock boxes
maintained by the Company and a list of all authorized signatories
thereto; and
(e) resignations of Edmund Mizel from all positions with the
Company and such other resignations of officers and directors of
the Company as are requested by Buyer in writing prior to Closing.
3.3 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver or
cause to be delivered the following:
(a) payment of the estimation of the Purchase Price as provided in
Article II herein by wire transfer of immediately available funds;
and
(b) a certified copy of the resolutions adopted by the Board of
Directors of Buyer authorizing the transactions contemplated by
this Agreement.
<PAGE>
3.4 CLOSING AGREEMENTS. At the Closing, the parties shall
execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, the following:
(a) an Employment Agreement with Gerald Mizel in a form acceptable
to all parties; and
(b) a Real Estate Lease Agreement in a form acceptable to all
parties.
3.5 CLOSING BALANCE SHEET. After Closing, the Sellers shall
prepare, or cause to be prepared, a balance sheet for the Company
as of the Closing Date (adding back the $300,000 payment to Norman
Mizel made prior to Closing and without giving effect to the
transactions contemplated hereby or the termination of the
Company's Subchapter S election) which shall be certified by KPMG
Peat Marwick (the "Closing Balance Sheet") and once certified shall
be deemed final and binding for all purposes. Work papers in
connection with the audit by KPMG Peat Marwick shall be made
available to Buyer, Sellers and their respective agents. The
Sellers shall deliver the Closing Balance Sheet to Buyer within 120
days of the Closing Date. After Closing, the Buyer and the Company
shall permit Sellers and their representatives to have full and
free access to the Company's books and records for preparation of
the Closing Balance Sheet and shall permit Sellers and their
representatives to have full and free access to consult with and
obtain the services of the Company's auditors and employees (at no
charge) for preparation of the Closing Balance Sheet. The Closing
Balance Sheet shall be prepared in accordance with the principles
described on Exhibit 3.5. The net book value of the Company
determined in accordance with Exhibit 3.5 based on the Closing Date
Balance Sheet shall be the Closing Date Book Value. All legal fees
of McDermont, Will & Emery and the fees of The Chicago Corporation
shall be obligations of the Sellers and shall be paid by the
Sellers. KPMG Peat Marwick shall be deemed to be engaged jointly
by the Sellers, the Company and Buyer. The fees of KPMG Peat
Marwick shall be shared equally by the Sellers on the one hand and
the Buyer on the other hand.
3.6 PAYMENT ADJUSTMENTS. Within 5 days after delivery of the
Closing Balance sheet by Sellers to Buyer, the parties hereto shall
make such payments in immediately available funds as may be
necessary so that the amounts paid or caused to be paid by Buyer
for the Stock are adjusted to equal (x) the product of 1.625
multiplied by the Closing Date Book Value less (y) $300,000.
ARTICLE IV
COLLECTIVE REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers hereby represent and warrant to the Buyer as follows as
of the date of this Agreement:
4.1 ORGANIZATION AND QUALIFICATION POWERS. The Company is a
corporation duly incorporated, validly existing and in good
<PAGE>
standing under the law of the State of Illinois. The Company is
not qualified to do business as a foreign corporation in any other
State.
4.2 CAPITALIZATION. The Company's entire authorized capital stock
consists of 10,000 Common Shares, $100 par value, of which 2,000
shares are presently issued and 1,503.5 are presently outstanding
(with 496.5 treasury shares). All of the issued and outstanding
shares have been duly authorized and validly issued and are fully
paid and nonassessable. There are no outstanding options, rights,
warrants, conversion rights or other agreements or commitments to
which the Company or the Sellers are a party or which are binding
upon the Company or the Sellers providing for the issuance or
transfer by the Company of additional shares of the capital stock
of the Company, or restricting the transfer of the Stock, except
those being canceled on this date. The Sellers are the sole
shareholders of the Company.
4.3 CONFLICTS. Except as provided on Exhibit 4.9, neither the
execution nor the delivery of this Agreement by Sellers nor the
consummation by Sellers of the transactions contemplated hereby,
will conflict with or result in a breach of the terms, conditions
or provisions of or constitute a default under the Articles of
Incorporation or By-laws of the Company or any material agreement
regarding borrowed money to which the Company is a party or
otherwise bound.
4.4 SUBSIDIARIES. The Company does not control through equity
ownership any other corporation, association or other business
entity.
4.5 FINANCIAL STATEMENTS. To the best knowledge of Sellers, the
Statements of Earnings and Retained Earnings and Statements of Cash
Flows of the Company for each of the two years in the period ended
April 30, 1994 and the Balance Sheets as of April 30, 1994 and 1993
attached hereto as Exhibit 4.5(a) (the "Financial Statements"),
when taken as a whole, present fairly, in all material respects,
the financial position of the Company at the respective dates
indicated and the results of its operations and cash flows for the
respective periods indicated in conformity with generally accepted
accounting principles. Buyer acknowledges that Sellers own certain
paintings and other personal property not reflected on the
Company's financial statements, but located on the premises leased
by the Company, which are described in all material respects on
Exhibit 4.5(b).
4.6 INTERIM CHANGE. Since April 30, 1994, to the best knowledge
of the Sellers, there has not been (i) any material adverse change
in the financial condition of the Company; (ii) any damage,
destruction or loss, whether or not covered by insurance,
materially and adversely affecting the tangible assets of the
Company; or (iii) any increase in the compensation or benefits
payable or to become payable by the Company to any of its
<PAGE>
employees, other than in the ordinary course of business.
4.7 INSURANCE. Exhibit 4.7 contains a summary list of all
policies of insurance currently maintained by the Company that are
material to its operations.
4.8 REAL ESTATE. The Company owns no real estate. Exhibit 4.9
lists all leases of real estate to which the Company is a party.
4.9 MATERIAL CONTRACTS. All contracts and agreements to which the
Company is a party or is otherwise bound, meeting any of the
descriptions set forth below (the "Material Contracts") are listed
on Exhibit 4.9 attached hereto:
(a) any lease of machinery, equipment or other personal property
requiring the payment of annual rentals in excess of $25,000; (b)
any contract or agreement for the purchase of any equipment,
materials or supplies in excess of $25,000;
(c) any construction or other similar agreement involving any
expenditure in excess of $25,000;
(d) any indebtedness, obligation or liability for borrowed money
in excess of $25,000 (excluding trade payables), or any instrument
guaranteeing any indebtedness, obligation or liability of any other
party in excess of $25,000; and
(e) any joint venture, partnership or other similar arrangement
involving a sharing of profits.
4.10 EMPLOYEES; BENEFIT PLANS. The Company has no written
employment agreements, nor to its best knowledge, any oral
employment agreements specifying a specific term of employment and
level of compensation, with any employees of the Company. The
Financial Statements reflect all profit-sharing plans, pension
plans and other deferred compensation plans of the Company with its
employees. To the best knowledge of the Sellers, the Company is in
compliance in all material respects with all statutes, orders and
regulations applicable to such plans except for those instances
which would not have a material adverse effect on the Company. The
Company is not a party to any collective bargaining agreement. The
Company has not suffered or sustained any organized labor disputes
resulting in any organized work stoppage of groups of employees.
4.11 TAXES. To the best knowledge of Sellers, all federal, state,
county and other tax returns, reports and declarations of every
nature (including income, employment, excise, property, sales and
use taxes) required to be filed by or on behalf of the Company have
been filed or will be filed by their respective due dates, if
before Closing, or an extension thereof will have been obtained and
all taxes shown as being due thereon have or will have been paid.
There are no outstanding agreements or waivers extending the
statute of limitations with respect to the assessment of any taxes.
4.12 LICENSES AND PERMITS. To the best knowledge of the Sellers,
the licenses and permits held by the Company are all of such items
<PAGE>
that are necessary or required by law to own the Purchased Assets
and conduct the Business, except where failure to hold such item
could not reasonably be expected to have a material adverse effect
on the Company.
4.13 TRANSACTIONS WITH AFFILIATES. Except with respect to the
lease for the facility at 7541 N. Western Avenue, Chicago,
Illinois, no Affiliate of the Company:
(a) owns any equity interest in any corporation or other entity
which is a competitor, lessor, lessee, customer or supplier of the
Company (other than holdings of less than five percent of publicly
traded corporations or other entities);
(b) has any cause of action or other claim against or owes any
material amount to, or is owed any material amount by, the Company;
(c) has any interest in or owns any material property or right used
in the conduct of the Business;
(d) is a party to any Material Contract; or
(e) has outstanding any loan or advance from the Company, except
expense account advances.
The term "Affiliate" shall mean any shareholder of the Company and
any member of the immediate family of a shareholder (being a
spouse, brother, sister, descendant or ancestor) or any
corporation, partnership, trust or other entity in which a
shareholder and/or any such immediate family member has a majority
equity interest.
4.14 LITIGATION; COMPLIANCE WITH LAW. Except with respect to
KETONA CHANDLER v. BOB WATSON CHEVROLET - GEO AND MIDLAND FINANCE
CO., the Company has not been served with written notice of and, to
Sellers' best knowledge, has not been overtly threatened with any
material lawsuit, arbitration or official governmental proceeding,
other than claims in response to collection efforts of the Company.
To Sellers' best knowledge, the Company is in compliance with all
federal, state and local laws and regulations affecting the
Business, except for those instances which are not reasonably
expected to have a material adverse effect on the Business.
4.15 BROKERS. With the exception of fees due to The Chicago
Corporation, neither the Company nor the Sellers have any liability
to any broker, finder or agent or has agreed to pay any brokerage
fees, commissions or finders fees with respect to this Agreement or
the transactions contemplated hereby.
ARTICLE V
INDIVIDUAL REPRESENTATIONS AND WARRANTIES OF SELLERS
<PAGE>
Each Seller hereby represents, warrants and covenants as to himself
as follows:
5.1 AUTHORITY. The Seller has full legal capacity, right, power
and authority, without the consent of any other person, to execute
and deliver this Agreement, and to carry out the transactions
contemplated hereby. All actions required to be taken by the
Seller to authorize the execution, delivery and performance of this
Agreement and all transactions contemplated hereby have been duly
and properly taken.
5.2 VALIDITY. This Agreement has been, and the documents to be
delivered at Closing will be, duly executed and delivered and are
the lawful, valid and legally binding obligations of the Seller,
except to the extent limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors'
rights generally or by general equitable principles. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation of
any lien, charge or encumbrance or the acceleration of any
indebtedness or other obligation of the Seller and are not
prohibited by, do not violate or conflict with any provision of,
and do not result in a default under or a breach of (i) any
material instrument or agreement to which the Seller is a party or
otherwise bound (except those being canceled on this date), (ii)
any regulation, order, decree or judgment of any court or
governmental agency applicable to the Seller, or (iii) any law
applicable to the Seller.
5.3 OWNERSHIP OF STOCK. As of the date hereof, Sellers are, and
at the Closing shall be, the record and beneficial owners of all
the outstanding Stock, and the Seller has good title to the shares
of Stock registered in his name and the absolute right, power and
capacity to sell, assign, transfer and deliver the same to Buyer
free and clear of any liens, encumbrances, pledges, security
interests, restrictive agreements, transfer restrictions, voting
trust arrangements or claims.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer hereby represents and warrants to the Company and the
Sellers, as follows:
6.1 AUTHORITY. Buyer has full legal right, power and authority,
without the consent of any other person, to execute and deliver
this Agreement and to carry out the transactions contemplated
hereby. All corporate and other actions required to be taken by
Buyer to authorize the execution, delivery and performance of this
Agreement and all transactions contemplated hereby have been duly
and properly taken.
<PAGE>
6.2 VALIDITY. This Agreement and the documents to be delivered at
Closing have been duly executed and delivered by Buyer and are the
lawful, valid and legally binding obligations of Buyer, except to
the extent limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or
by general equitable principles. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby will not result in the creation of any lien,
charge or encumbrance or the acceleration of any indebtedness or
other obligation of Buyer and are not prohibited by, do not violate
or conflict with any provision of, and do not result in a default
under or a breach of (i) Buyer's charter or By-laws, (ii) any
material instrument or agreement to which Buyer is a party or
otherwise bound, (iii) any regulation, order, decree or judgment of
any court or governmental agency applicable to Buyer, or (iv) any
law applicable to Buyer.
6.3 DUE ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state
of its incorporation, with full power and authority to own or lease
its properties and to carry on the business in which it is engaged.
6.4 NO REGISTRATION. Buyer acknowledges that the Stock has not
been registered under the Securities Act of 1933 or the securities
laws of any state or other regulatory body.
6.5 INTENT. Buyer is acquiring the Stock for investment and not
with a view towards the resale or distribution thereof.
6.6 SOPHISTICATION AND INVESTIGATION. Buyer is a sophisticated
investor, familiar with the business of the Company so that it is
capable of evaluating the merits and risks of its investment in the
Company. Buyer has had the opportunity to investigate on its own
the Company's business, management and financial affairs and has
had the opportunity to review the Company's operations and
facilities. All information requested by Buyer has been provided
to Buyer. Buyer acknowledges that the representations and
warranties set forth herein are the only representations and
warranties that it is entitled to rely upon with respect to its
purchase of the Stock.
ARTICLE VII
COVENANTS RELATING TO THE SELLERS
The Sellers hereby agree to cause the Company to keep, perform and
fully discharge the following covenants and agreements.
7.1 INTERIM CONDUCT OF BUSINESS. From the date hereof until the
Closing, the Company shall operate the Business as a going concern
consistent with prior practice and in the ordinary course of
business (except as may be authorized pursuant to, or necessitated
by, this Agreement). Without limiting the generality of the
foregoing, from the date hereof until the Closing, except for
<PAGE>
transactions expressly approved in writing by Buyer, the Company
shall:
(a) not declare, set aside or pay any dividend or make any other
distribution with respect to the capital stock of the Company;
(b) not merge or consolidate with or agree to merge or consolidate
with, nor purchase or agree to purchase all or substantially all of
the assets of, nor otherwise acquire any corporation, partnership,
or other business organization;
(c) not sell, lease or otherwise dispose of or agree to sell, lease
or otherwise dispose of any substantial portion of its assets,
properties, rights or claims, except in the ordinary course of
business;
(d) not authorize for issuance, issue, sell or deliver any
additional shares of its capital stock or any securities or
obligations convertible into shares of its capital stock, or issue
or grant any option, warrant or other right to purchase any shares
of its capital stock; and
(e) not split, combine or reclassify any shares of its capital
stock of any class or redeem or otherwise acquire, directly or
indirectly, any shares of its capital stock;
PROVIDED, HOWEVER, that on or before the Closing, the Company shall
pay a bonus of $300,000 to Norman Mizel for services rendered.
7.2 ACCESS. The Company shall give Buyer and its representatives
reasonable access to all properties, books, contracts, commitments
and records upon reasonable prior notice during business hours and
shall furnish Buyer with all financial and operating data and other
information as to the Business and the properties and assets of the
Company in its possession as Buyer may from time to time reasonably
request.
7.3 COVENANT NOT TO COMPETE. Each of the Sellers severally agrees
as to himself that he will not, directly or indirectly, engage in
any manner in the consumer finance business within Illinois or
Wisconsin for a period of five years from Closing, except (i) on
behalf of the Company or Buyer, or (ii) through the ownership of an
interest in a publicly traded company, not exceeding five percent
(5%) of the outstanding shares.
ARTICLE VIII
COVENANTS OF BUYER
Buyer hereby agrees to keep, perform and fully discharge the
following covenants and agreements.
8.1 CONFIDENTIALITY. Buyer shall comply in all respects with the
Confidentiality Agreement previously delivered by Buyer.
<PAGE>
8.2 CONSENTS AND APPROVALS. The Buyer shall use all reasonable
efforts to obtain any and all requisite consents or approvals
necessary for Buyer to close on the purchase of the Stock and shall
use all reasonable efforts to take any and all other action
required for its purchase of the Stock hereunder.
8.3 INCOME TAX RETURNS. As soon as practicable after the close of
the Company's tax year, the Sellers and their accountants shall
prepare the final federal and state S corporation income tax
returns for the Company (the "Final Tax Returns"). Buyer and the
Company shall permit the Sellers and their accountants to have full
and free access to the Company's books and records and to consult
with and obtain the services of the Company's auditors and
employees, without charge, to the extent such access and
consultation are necessary or helpful for preparation of the Final
Tax Returns. The Final Tax Returns shall, in accordance with
Internal Revenue Code Section 1362(e) (6), reflect the income of
the Company for the period beginning January 1, 1994 and ending on
the Closing Date and shall otherwise be prepared on a basis
consistent with the Company's historical practices. The Final Tax
Returns shall be filed by the Company no later than the due dates
for such returns (including extensions, if authorized by the
Sellers).
8.4 TAX ADJUSTMENTS.
(a) Buyer shall not, without the prior written consent of Sellers,
amend any income tax return of the Company for any taxable period
of the Company ending on or prior to the Closing Date ("Pre-Closing
Tax Period").
(b) Buyer shall promptly notify the Sellers in writing upon receipt
by Buyer or the Company of notice of any pending or threatened tax
audits of, or assessments against, the Company for any Pre-Closing
Tax Period. Sellers shall have the right to control, or to
represent the Company in, any tax audit or administrative or court
proceedings relating to any Pre-Closing Tax Period and to employ
counsel of their choice at their expense. Buyer and the Company
shall have the right to participate in any such proceeding and
Sellers agree that they will cooperate with Buyer and the Company
and their counsel in any material aspect of any such proceeding.
In that regard, Sellers shall not, without the consent of Buyer
(which shall not be unreasonably withheld), agree to any settlement
which creates an adjustment of a timing nature which results
unfavorably in the form of increased taxable income or increased
tax liability to Buyer or the Company for any taxable period of the
Company commencing after the Closing Date.
(c) Buyer and the Company shall permit the Sellers and their
counsel to have full and free access to the Company's books and
records and to consult with the Company's auditors and employees,
without charge, to the extent such access and consultation are
necessary or helpful to prosecute or defend any pending or
<PAGE>
threatened tax audits, or assessments against, the Company for any
Pre-Closing Tax Period.
8.5 FAMILY NOTES. Within 30 days after the Closing, Buyer shall
pay or cause the Company to pay in full the notes described in
Exhibit 8.5.
8.6 ACCESS. After Closing, Buyer and the Company shall give
Sellers and their representatives reasonable access to all
properties, books, contracts, commitments and records of the
Company for any reasonable purpose as Sellers may from time to time
request.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
Each and all of the obligations of Buyer to consummate the
transactions contemplated by this Agreement are subject to
fulfillment prior to or at the Closing of the following conditions:
9.1 ACCURACY OF WARRANTIES; PERFORMANCE OF COVENANTS. The
representations and warranties of the Sellers contained herein
shall be accurate in all material respects, except for changes
occurring in the ordinary course of business since the date hereof.
The Sellers shall have performed in all material respects all of
the obligations and complied with each and all of the covenants
required to be performed or complied with on or prior to the
Closing.
9.2 NO PENDING ACTION. No injunctive action or proceeding before
any court or governmental body will be pending wherein an
unfavorable judgment, decree or order would prevent the carrying
out of this Agreement or any of the transactions contemplated
hereby or declare unlawful the transactions contemplated by this
Agreement.
9.3 HART-SCOTT-RODINO. Any applicable waiting period and any
extension thereof provided for in the HSR Act shall have expired.
9.4 CONDITION OF BUSINESS AND ASSETS. The Business and the assets
of the Company shall not have been materially and adversely
affected in any way by any natural disaster, fire, flood, war or
labor disturbance, whether or not covered by insurance.
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
Each and all of the obligations of the Sellers to consummate the
transactions contemplated by this Agreement are subject to
fulfillment prior to or at the Closing of the following conditions:
10.1 ACCURACY OF WARRANTIES; PERFORMANCE OF COVENANTS. The
representations and warranties of Buyer contained herein shall be
<PAGE>
accurate in all material respects as if made on and as of the
Closing Date, as well as on the date when made. Buyer shall have
performed in all material respects all of the obligations and
complied with each and all of the covenants required to be
performed or complied with on or prior to the Closing.
10.2 NO PENDING ACTION. No injunctive action or proceeding before
any court or governmental body will be pending wherein an
unfavorable judgment, decree or order would prevent the carrying
out of this Agreement or any of the transactions contemplated
hereby or declare unlawful the transactions contemplated by this
Agreement.
10.3 HART-SCOTT-RODINO. Any applicable waiting period and any
extension thereof provided for in the HSR Act shall have expired.
ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 SURVIVAL. All representations and warranties of the Sellers
shall survive the Closing and be enforceable for a period of six
months following the Closing Date, but shall thereafter be of no
further force or effect, except as they relate to claims for
indemnification for which a legal proceeding has been commenced
within such six month period by Buyer in a Proper Court (as
hereinafter defined).
11.2 INDEMNIFICATION. (a) Each Seller, severally and not
jointly, shall indemnify and hold harmless the Buyer from and
against its Applicable Percentage of any and all loss, damage and
expense (including court costs and reasonable attorneys' fees but
by any misrepresentation or breach of warranty or failure to
fulfill any covenant or agreement of the Sellers in Article IV.
The Applicable Percentage shall be 33.422% for Gerald Mizel and
66.578% for Edmund Mizel.
(b) Each Seller shall individually indemnify and hold harmless the
Buyer from and against any and all loss, damage and expense
(including court costs and reasonable attorneys' fees but excluding
the cost of Buyer's or its affiliate's employees) caused by any
misrepresentations or breach of warranty or failure to fulfill any
covenant or agreement of such Seller in Article V.
(c) Buyer shall indemnify and hold harmless Sellers from and
against any and all loss, damage, expense (including court costs
and reasonable attorneys' fees) caused by any misrepresentation,
breach of warranty or failure to fulfill any covenant or agreement
of the Buyer contained herein, as well as any claims of third
parties related to the Company.
11.3 NOTICE. As a condition to the indemnification hereunder, any
party seeking indemnification shall give prompt and complete
written notice to the indemnifying party of the facts and
<PAGE>
circumstances giving rise to the claim. Buyer shall not settle or
compromise any claim by a third party for which Buyer is entitled
to indemnification hereunder without the prior written consent of
Sellers, unless legal action shall have been instituted against
Buyer and Sellers shall not have taken control of such suit within
60 days after notification thereof by Buyer, which Buyer shall
cause to occur within five days of its notice thereof. In
connection with any claim giving rise to indemnification hereunder
resulting from or rising out of any claim or legal proceeding by a
person other than Buyer, Sellers, at their sole cost and expense,
may, upon written notice to Buyer, assume the defense of any such
claim or legal proceeding without prejudice to the right of Sellers
thereafter to contest their obligation to indemnify Buyer in
respect to the claims asserted therein. If Sellers shall select
counsel to conduct the defense of such claims and legal proceedings
and at their sole cost and expense shall take all steps which they
believe are appropriate in the defense or settlement thereof (all
legal and other fees and expenses, settlement costs and other costs
are collectively referred to as "Assumed Costs"). Buyer shall be
entitled to participate in (but not control) the defense of any
such action with its own counsel and at its own expense. If
Sellers do not assume the defense of any such claim or litigation
resulting therefrom in accordance with the terms hereof, Buyer may
defend such claim or litigation in such a manner as it may deem
appropriate, including settling such claim or litigation on such
terms as Buyer may deem appropriate after giving 10 days' notice of
the same to Sellers and obtaining the consent of Sellers, which may
not be unreasonably withheld.
11.4 GENERAL PROVISIONS RELATING TO INDEMNIFICATION. (a) No
claim may be made against Sellers for indemnification pursuant to
this Article XI for any individual loss of less than $10,000.
Losses of $10,000 or more are referred to herein as "Qualified
Losses". Sellers shall not be required to make any payments
pursuant to this Article XI unless and until the aggregate amount
of all Qualified Looses shall exceed $200,000, as to which Sellers
shall be responsible only for the excess over $200,000. The
maximum aggregate amount recoverable from Sellers shall be (i)
$500,000 less (ii) the Assumed Costs, after which the Sellers shall
have no further liability (i.e., the recovery from Edmund Mizel
plus the recovery from Gerald Mizel plus the Assumed Costs may not
exceed $500,000).
(b) Sellers shall have no obligation to indemnify Buyer for
consequential damages, special damages, incidental damages,
indirect damages, lost profits or similar items.
(c) Sellers shall have no liability under this Article XI to the
extent arising from actions taken or not taken by Buyer, the
Company or their affiliates or any event or other occurrence after
the Closing Date.
(d) The party entitled to indemnification shall take all
<PAGE>
reasonable steps to mitigate all indemnifiable liabilities and
damages upon and after becoming aware of any event which could
reasonably be expected to give rise to any liabilities and damages
that are indemnifiable hereunder.
(e) Buyer shall not bring a claim or be entitled to
indemnification with respect to facts or circumstances resulting in
a breach of any representation, warranty, covenant or agreement of
which Buyer had knowledge on or before the Closing Date. All
matters disclosed on any schedule attached hereto shall be deemed
disclosed on all other schedules hereto. Disclosure of items not
required to be disclosed shall not create any inference of
materiality.
(f) Buyer's losses, damages and expenses recoverable hereunder
shall be reduced by any available insurance proceeds and the
available federal and state income tax savings, if any, resulting
from the liability. If any claim is covered by insurance, Buyer
shall use all reasonable efforts to recover the amount of such
claim from the issuer of such insurance before seeking
indemnification hereunder.
(g) To the extent that the Buyer is compensated for a breach of a
representation, warranty or covenant of Sellers through the
mechanism in Sections 3.5 and 3.6, Buyer shall be precluded from
any further right to recover damages or impose liability on either
Seller through indemnification pursuant to Article XI or otherwise.
(h) To the extent that Sellers discharge any claim for
indemnification hereunder, Sellers shall be subrogated to all
rights of Buyer against third parties.
(i) After the Closing, the indemnification rights provided
hereunder shall be the exclusive remedy of the parties with respect
to any dispute arising out of or related to this Agreement and the
transactions contemplated hereby.
ARTICLE XII
GENERAL PROVISIONS
12.1 AMENDMENT AND WAIVER. No amendment or waiver of any
provision of this Agreement shall in any event be effective, unless
the same shall be in writing and signed by the parties hereto, and
then such amendment, waiver or consent shall be effective only in
the specific purpose for which given.
12.2 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be sent by
registered or certified mail, postage prepaid, as follows:
(a) If to the Sellers:
Edmund Mizel
613 Kincaid
Highland Park, Illinois 60035
<PAGE>
and
Gerald Mizel
835 Edgewood Road
Highland Park, Illinois 60035
With a copy to:
McDermott, Will & Emery
227 W. Monroe Street
Chicago, Illinois 60606
Attention: Grant A. Bagan
(b) if to Buyer:
Mercury Finance Company
40 Skokie Boulevard
Suite 200
Northbrook, Illinois 60062
Attention: John N. Brincat, President
With a copy to:
Mercury Finance Company
40 Skokie Boulevard
Suite 200
Northbrook, Illinois 60062
Attention: Mark E. Dapier, General Counsel
Any party may change its address for receiving notice by written
notice given to the others named above. All such notices shall be
effective when deposited in the mail addressed as set forth above.
12.3 KNOWLEDGE. For purposes of this Agreement, the phrases "to
the best knowledge of Sellers", "to Sellers' best knowledge",
"known to Sellers" and phrases with similar language or effect
shall mean the actual conscious knowledge of Edmund Mizel and
Gerald Mizel at the time of Closing.
12.4 GOVERNING LAW AND JURISDICTION. Any questions concerning the
interpretation and enforcement of this Agreement shall be governed
by the law of the State of Illinois, without the application of its
choice of law rules. All judicial proceedings brought with respect
to this Agreement shall be brought in any state or federal court of
competent jurisdiction in the State of Illinois located in Cook
County, and the parties generally and unconditionally accept the
exclusive jurisdiction of the aforesaid courts ("Proper Courts").
The parties waive, to the fullest extent permitted by applicable
law, any objection which they may now or hereafter have to the
bringing of any such action or proceeding in such jurisdiction.
12.5 COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same Agreement.
<PAGE>
12.6 PARTIES IN INTEREST. This Agreement shall bind and inure to
the benefit of the parties named herein and their respective heirs,
successors and assigns.
12.7 ENTIRE TRANSACTION. This Agreement, including the Exhibits
attached hereto and the documents delivered pursuant hereto,
constitutes the entire agreement among the parties with respect to
the transactions contemplated hereby and supersede all other
agreements and understandings among the parties.
12.8 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
12.9 EXPENSES. Except as otherwise expressly provided herein,
each party to this Agreement shall pay its own costs and expenses
in connection with the transactions contemplated hereby.
12.10 DISCLOSURES. Except with respect to the press release
initialed by the parties on the date hereof, neither party shall
disclose the terms of this transaction pursuant to any press
release or other disclosure without the prior written consent of
the other party, except as required by law. In no event shall
Buyer disclose the amount of the purchase price or the identity of
the Sellers without the written consent of the Sellers.
IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be duly executed all as of the date first written above.
BUYER:
MERCURY FINANCE COMPANY
By: John N. Brincat
John N. Brincat
Title: President
SELLERS:
Edmund Mizel
Edmund Mizel
Gerald Mizel
Gerald Mizel
EXHIBIT 3.5
ACCOUNTING PRINCIPLES
The Closing Balance Sheet shall employ the accounting principles
and methods consistent with those used by the Company in the
preparation of audited financial statements. The Closing Balance
Sheet shall reflect accounting adjustments, including charges to
earned income, required to achieve the following results:
No open direct loan over 90 days delinquent by use of the recency
method.
No open retail installment sales account over 90 days delinquent by
use of the contractual method.
<PAGE>
Open finance receivables which are delinquent 61-90 days under
their respective methods, shall not exceed 3.5% of total balances
outstanding.
Allowance for losses will be maintained at 3% of the outstanding
balances for both direct loans and retail installment sales
accounts.
Dealer reserves and holdbacks to be no less than 7.7% of the gross
balances of retail installment contracts.
Adjustment of deferred insurance commissions to reflect the rule of
78's as of the date of the Final Statement.
No liability will be reflected on the Final Statement for any
contingent liability to the extent not reflected on the Company's
August 31, 1994 balance sheet.
EXHIBIT 4.5(a)
KPMG Peat Marwick
MIDLAND FINANCE CO.
Financial Statements
April 30, 1994 and 1993
(With Independent Auditors' Report Thereon)
MIDLAND FINANCE CO.
<TABLE>
TABLE OF CONTENTS
Name Pages(s)
<S> <C>
Independent Auditors's Report 1
Financial Statements:
Balance Sheets 2-3
Statements of Earnings and Retained Earnings 4
Statements of Cash Flows 5
Notes to Financial Statements 6-10
</TABLE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
MIDLAND FINANCE CO.:
We have audited the accompanying balance sheets of Midland Finance
Co. as of April 30, 1994 and 1993, and the related statements of
earnings and retained earnings and cash flows for the years 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 audits.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Midland
Finance Co. as of April 30, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick
KPMG Peat Marwick
June 24, 1994
<TABLE>
MIDLAND FINANCE CO.
<CAPTION>
Balance Sheets
April 30, 1994 and 1993
Assets 1994 1993
<S> <C> <C>
Cash $ 830,300 $ 1,102,580
Finance Receivables (including amounts
maturing after one year)(note 2):
Retail installment contracts 23,598,122 21,343,506
Direct installment loans 8,720,480 7,663,880
32,318,602 29,007,386
Inventory of repossessions 1,106 6,225
32,319,708 29,013,611
Deductions:
Unearned finance charges 7,511,023 6,811,495
Allowance for losses 969,558 870,221
8,480,581 7,681,716
Finance receivables and
repossessions, net 23,839,127 21,331,895
Other receivables and assets 62,366 77,840
Prepaid expenses 620 2,448
Fixed assets, at cost, less
accumulated depreciation 167,975 217,177
$24,900,388 $22,731,940
See accompanying notes to
financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, short term $ 5,060,000 $ 5,575,000
Accounts and insurance premiums
payable and accruals 1,628,370 1,420,689
Dealers' reserves and holdbacks 1,993,668 2,166,341
Unearned insurance commissions 233,220 208,306
Senior long-term debt (note 4) 4,500,000 3,125,000
Subordinated long-term debt (note 4) 2,970,282 2,954,909
16,385,540 15,450,245
Stockholders' equity (notes 5 and 7):
Common stock, $100 par value per
share.
Authorized 10,000 shares;
issued 2,000 shares 200,000 200,000
Retained earnings 8,640,760 7,407,607
8,840,760 7,607,607
Less treasury common stock, at
cost - 496.5 shares 325,912 325,912
Total Stockholders' equity 8,514,848 7,281,695
Commitments (note 8)
$24,900,388 $22,731,940
</TABLE>
<PAGE>
<TABLE>
MIDLAND FINANCE CO.
<CAPTION>
Statements of Earnings and Retained Earnings
Years ended April 30, 1994 and 1993
Text 1994 1993
<S> <C> <C>
Income:
Financed charges earned:
Retail installment contracts $ 4,802,507 $ 4,333,564
Direct installment loans 2,907,288 2,608,927
Insurance commissions 357,254 480,810
Collection charges 562,560 427,916
Miscellaneous (14) 75
Total income 8,629,595 7,851,292
Expenses:
Operating expenses (note 9) 5,886,922 5,562,344
Provision for credit losses
(recoveries) (278,209) (186,883)
Interest 905,790 857,845
Total expenses 6,514,503 6,233,306
Earnings before income taxes 2,115,092 1,617,986
State income tax expense (note 3) 31,939 15,686
Net earnings 2,083,153 1,602,300
Retained earnings at beginning of year 7,407,760 6,880,307
Retained earnings before dividends 9,490,760 8,482,607
Deduct cash dividends 850,000 1,075,000
Retained earnings at end of year $ 8,640,760 $ 7,407,607
</TABLE>
See accompanying notes to financial statements
<TABLE>
MIDLAND FINANCE CO.
<CAPTION>
Statements of Cash Flows
Years ended April 30, 1994 and 1993
<PAGE>
List 1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,083,153 $ 1,602,300
Adjustments to reconcile net
earnings to net cash provided
by operating activities
Provision for credit losses
(recoveries) (278,209) (186,883)
Depreciation 92,017 126,804
Changes in assets and liabilities
Decrease in other assets 399,967 193,666
Decrease in other liabilities (68,021) (74,197)
Net cash provided by operating
activities 2,228,907 1,661,690
Cash flows from investing activities:
Collections on finance receivables 33,045,414 28,551,033
Finance receivables acquired, net (35,529,159) (28,825,023)
Purchases of fixed assets (42,815) (46,982)
Net cash used in investing activities: (2,526,560) (320,972)
Cash flows from financing activities:
Net increase (decrease) in short-term
notes payable (515,000) 75,000
Issuance of long-term notes payable:
Capital notes 18,373 5,000
Senior notes 2,375,000 0
Repayments of long-term notes
payable:
Senior notes (1,000,000) (125,000)
Capital notes (3,000) (37,600)
Dividends paid (850,000) (1,075,000)
Net cash provided by (used in)
financing activities 25,373 (1,157,600)
Net increase (decrease) in cash (272,280) 183,118
Cash at beginning of year 1,102,580 919,462
Cash at end of year $ 830,300 $ 1,102,580
Supplemental disclosure of cash flow
information:
Income taxes paid (note 3) $ 31,939 $ 15,686
Interest paid to creditors 905,098 861,232
</TABLE>
See accompanying notes to financial statements.
MIDLAND FINANCE CO.
Notes to Financial Statements
April 30, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Finance Charge Income
Midland Finance Co. (Company) recognizes finance charge income
using the interest (actuarial) method of accounting for finance
charges and interest on finance receivables. Unearned finance
<PAGE>
charges on sales finance contracts acquired in the fiscal year are
reduced by amounts transferred to dealer reserves. Remaining
unearned finance charges are transferred to income using the
interest method. Extension fees and late charges are credited to
income when received.
Insurance Commission Fees
Insurance commissions are credited to income when earned, if
material, or credited to income when received, if minor in amount.
Allowance for Losses
The allowance for losses is maintained by direct charges to
operations at an amount which in management's judgment is adequate
to absorb potential losses on existing receivables that may become
uncollectible. The allowance has been maintained historically at
3% of gross outstanding receivables. Receivables deemed
uncollectible by management are charged off, including any direct
loan with no full payment in the preceding three months and any
retail finance contract that is contractually past due 90 days or
more. The allowance for losses is also credited for any subsequent
recoveries.
Dealer Reserves
As part of the Company's financing of retail installment notes,
dealer reserves are established to protect the Company from
potential losses associated with such notes. A portion of the
proceeds from the retail installment notes is retained by the
Company and is available to the Company against which to charge
related receivables. The amount of reserves is based upon various
criteria, one of which is the credit risk associated with the
retail installment notes.
(2) FINANCE RECEIVABLES
The retail installment contracts are collateralized principally by
automobiles and other goods and generally have a maximum term of 36
months; direct installment loans generally have a maximum term of
25 months.
<TABLE>
MIDLAND FINANCE CO.
<CAPTION>
Notes to Financial Statements
The contractual maturities of retail installment contracts and
direct installment loans at April 30, 1994 were as follows:
Retail Direct
installment installment
Name contracts loans
<S> <C> <C>
12 months or less $ 7,832,540 $ 2,264,787
13 to 24 months 10,799,892 6,042,455
25 to 36 months 4,472,362 413,238
Over 36 months 493,328 0
$23,598,122 $ 8,720,480
</TABLE>
<PAGE>
Experience of the Company has shown that a substantial portion of
the receivables will be renewed or paid in full prior to their
contractual maturity. Accordingly, the foregoing is not intended
to be a forecast of future cash collections.
During the years ended April 30, 1994 and 1993 principal cash
collections were as follows:
<TABLE>
Text 1994 1993
<S> <C> <C>
Retail installment contracts:
Amount $25,445,432 $22,136,024
Percent of average net balances 139% 134%
Direct installment loans:
Amount $ 5,995,365 $ 5,445,081
Percent of average net balances 89% 89%
</TABLE>
(3) INCOME TAXES
The Company maintains "S" Corporation tax status with the Internal
Revenue Service. As a result, the Company's earnings are not
subject to Federal income tax. The Company is, however, subject to
the State of Illinois Replacement Tax.
The provision for state taxes for the years ended April 30, 1994
and 1993 was $31,939 and $15,686 respectively.
MIDLAND FINANCE CO.
Notes to Financial Statements
(4) LONG-TERM DEBT
The long-term debt outstanding at April 30, 1994 and 1993 was as
follows (maturities are for the years ended April 30):
<TABLE>
Text 1994 1993
<S> <C> <C>
Senior long-term debt:
9.75%-due $125,000 each October 31,
with final payment of $625,000
due October 31, 1993 $0 $ 625,000
10.10%-due October 31, 1994 1,500,000 1,500,000
9.95%-due April 30, 1996 0 1,000,000
6.86%-due June 11, 1997 1,500,000 0
7.125%-due $125,000 each October 31,
with final payment of $1,125,000
due October 31, 1997 1,500,000 0
Total senior long-term debt $4,500,000 $3,125,000
Subordinated long-term debt:
Subordinated notes:
10%-due October 31, 1993 0 500,000
10.60%-due October 31, 1994 1,000,000 1,000,000
9.66%-due April 30, 1996 500,000 500,000
7.375%-due October 31, 1998 500,000 0
Total subordinated notes 2,000,000 2,000,000
<PAGE>
Capital notes:
Maturities from May 1993 to March
1995, interest rates from 6.5% to
8.75% 0 954,909
Maturities from May 1994 to March
1996 interest rates from 6.0% to
7.5% 970,282 0
Total subordinated long-term debt $2,970,282 $2,954,909
</TABLE>
MIDLAND FINANCE CO.
Notes to Financial Statements
The long-term debt agreements limit the Company's borrowings,
restrict the payment of dividends, and require the Company to
maintain equity and liquid net worth at certain amounts (note 5).
(5) RETAINED EARNINGS
At April 30, 1994 approximately $4,747,400 of retained earnings was
free from dividend restrictions imposed by certain long-term debt
agreements. Other provisions of the agreements limit borrowings
and provide for the maintenance of liquid net worth (as defined) at
minimum amounts ($2,970,300 at April 30, 1994); liquid net worth at
that date was approximately $8,332,900.
(6) EMPLOYEES' PROFIT SHARING PLAN AND TRUST
The Company, under the provisions of the Midland Finance Co.
Employees' Profit Sharing Plan and Trust (the Trust), makes annual
contributions to the Trust which are determined at each year end by
the Board of Directors in an amount not to exceed that allowable as
a deduction under the Internal Revenue Code. Provisions for
contributions for the years ended April 30, 1994 and 1993 amounted
to $155,000 and $150,000, respectively.
(7) RELATED PARTY TRANSACTIONS
(a) AGREEMENTS WITH OFFICER-STOCKHOLDERS
On July 7, 1972 the Company entered into an agreement with three
officer-stockholders of the Company which provides, among other
things, for: (a) the purchase by the Company, at the option of any
stockholder, of all of the common shares of the Company owned by
the stockholder at a price to be determined as provided for by the
agreement, such purchase price payable 10% in cash and 90% in the
form of a junior capital note payable over a period of seven years
from date of issuance; (b) the purchase by the Company, under
certain circumstances, of common shares of the Company held by a
stockholder upon his death at a price per share to be determined as
provided for by the agreement, payment to be made in cash to the
extent possible under provisions of the Company's long-term debt
agreements, with the balance to be paid in the form of a junior
capital note payable over a period of three years from date of
issuance; and (c) the obtaining of additional life insurance on the
lives of the three officer-stockholders.
Effective May 8, 1975 one of the officer-stockholders of the
Company exercised his option to sell all of the 496.5 shares of
<PAGE>
common stock of the Company owned by him to the Company, and
terminated his employment under provisions of agreements entered
into during 1972. The purchase price of the stock was $325,912.
(b) RENTAL AGREEMENT
Three officers, two of whom are stockholders, acquired the
Company's principal place of operations from a third party who
previously leased the building to the Company. During 1993 and
1994, the Company paid rent to the officer-stockholders totaling
approximately $45,000. No signed lease is in place; therefore, the
rentals are not included in the schedule of future scheduled rental
payments in note 8. Monthly rent payments during 1994 were
approximately $3,800.
(8) LEASE COMMITMENTS
Rental expense for the years ended April 30, 1994 and 1993 amounted
to $278,043 and $202,418, respectively.
The following is a schedule of future schedule rental payments
required under all leases as of April 30, 1994:
<TABLE>
Year ending Minimum
April 30 rental payments
<S> <C>
1995 $132,720
</TABLE>
In addition, the Company has (four) four-year options to renew the
lease on the current service facility. The first of these options
would begin on May 1, 1995 and the renewal option must be exercised
by October 31, 1994. Minimum rental payments for this renewal
period would be as follows:
<TABLE>
Year ending Minimum
April 30 rental payments
<S> <C>
1996 $127,483
1997 134,982
1998 134,982
1999 134,982
Total $532,429
</TABLE>
(9) OPERATING EXPENSES
Miscellaneous operating expense of $157,786 for the fiscal year
ending April 30, 1993 includes $147,797 of nonrecurring charges
arising from a settlement of a liability for unclaimed property
with the Illinois Department of Financial Institutions. This
liability covered the period from fiscal year 1977 through fiscal
1992, and was settled without any assessment of penalty or
interest.
Exhibit 4.5(b)
INVENTORY OF PERSONAL PROPERTY ON MIDLAND FINANCE CO. PREMISES
WHICH IS OWNED BY MIZEL FAMILY MEMBERS
<PAGE>
LOCATED AT 7300 N. WESTERN AVENUE
<TABLE>
Description Owner
<S> <C>
Framed watercolor of Horses
Japanese style-by Kingo Fuji Norman Mizel
Framed photograph of Matador Norman Mizel
Clock on stand, Constructed using circuit board Norman Mizel
Electronic computer-Franklin Dictionary Norman Mizel
Painting in lobby-Paris, France '63
River Seine and buildings Gerald Mizel
Painting by Whiting-houses, river and boats Gerald Mizel
Contents of two-drawer file cabinet Norman Mizel
1 typewriter - IBM Wheelwriter 3/serial #790056 Edmund Mizel
1 computer disk drive KHL Electronics/
serial #0002690 Edmund Mizel
1 computer keyboard Lite-On/serial #K900337892 Edmund Mizel
1 computer monitor KHL Electronics/serial
#MB-00300840 Edmund Mizel
LOCATED AT 7541 N. WESTERN AVENUE
Abstract painting approximately 6'7" x 4'10"
Artist-Kikuo Saito Gerald Mizel and
Edmund Mizel
</TABLE>
INVENTORY OF PERSONAL PROPERTY OF GERALD MIZEL
LOCATED AT 7541 N. WESTERN AVENUE
Seven paintings and their subject descriptions
1- Pears - still life
2- Portrait of Girl
3- Sailboat
4- Portrait of Arab
5- Scene of Michigan Avenue - Chicago
6- Fishing Boat Scene - DeLisio (Artist)
7- Street Scene - Ohly (Artist)
All award plaques and personal photos including one photo of
Father, one caricature of Daughte and three photos - California
scene.
One stuffed bone fish
Twenty Antique Replicas - Cars & Trains
Wall Barometer, Temperature & Humidity
One marble wall clock
One desk lamp
One marble ashtray - One marble container
One wood electric desk clock
One leather pencil holder
Two anchor book ends
Contents of one of two four-drawer filing cabinets - Gerald Mizel
Contents of one two-drawer filing cabinet - Gerald Mizel
CONTENTS IN MAIN OFFICE
Contents of one of four two-drawer filing cabinets-Gerald Mizel
CONTENTS IN ACCOUNTING OFFICE
One painting - New York skyline
Contents of two four-drawer filing cabinets - Gerald Mizel
<PAGE>
EXHIBIT 4.7
SUMMARY LIST OF INSURANCE POLICIES
<TABLE>
Expiration
Type of Policy Carrier & Description of Policy Date
<S> <C> <C>
Workers Compensation EMPLOYERS INSURANCE OF WAUSAU, A 01/01/95
and Employers MUTUAL COMPANY (Workers Comp-per 12:01 A.M.
Liability Insurance state law) Employers Liability -
Policy $1,000,000 Bodily Injury by
disease - Bodily Injury by
accident $500,000 each accident-
Bodily Injury by disease $500,000
each employee
Commercial Umbrella EMPLOYERS INSURANCE OF WAUSAU Same as
Liability Policy General Aggregate Limit $5,000,000 above
Products-Completed operation
Aggregate Limit - $5,000,000
Bodily Injury and Property Damage
Each Occurrence-Limit-$5,000,000
Personal and Advertising Injury
Each Person-Limit-$5,000,000
Business Auto EMPLOYERS OF WAUSAU Same as
Coverage Combined Liability-$1,000,000 each above
accident. Auto Medical Payments-
$5,000. Uninsured Motorist,
Under Insured Motorist-$1,000,000-
Physical Damage Comprehensive-
$250 deductible - Physical Damage
Collision - $500 deductible -
Hired or borrowed autos -
Repossessed Autos
Trademark Policy WAUSAU GENERAL INSURANCE COMPANY Same as
Personal Property, Glass coverage above
Liability-General Aggregate-Limit
$1,000,000. Products-Completed
Operations-Limit-$1,000,000.
Personal & Advertising Injury -
$1,000,000. Each Occurrence
Limit - $1,000,000. Fire Damage
Limit (any one fire)-$50,000.
Medical Expense Limit (any one
person)-$5,000.
Property and WAUSAU NATIONWIDE INSURANCE GROUP 01/01/95
Liability Insured First Illinois Bank of
Evanston as Trustee under Trust
No. R-3772 covers 7541 N. Western
Ave., Chicago Fire and Liability
Policy
</TABLE>
MIDLAND FINANCE CO. EMPLOYEES PROFIT-SHARING PLAN AND TRUST
<PAGE>
<TABLE>
Expiration
Type of Policy Carrier & Description of Policy Date
<S> <C> <C>
Fiduciary Policy AETNA - $1,000,000 02/17/95
Pension and Welfare
Fund Policy
</TABLE>
MATERIAL CONTRACTS*
<TABLE>
Company Service or Equipment Month Annual
<S> <C> <C> <C>
Ace Disposal 7300 N. Western $25.00 $
Ace Disposal 7541 N. Western 220.00
Ace Disposal 7560 N. Western 50.00
Ace Disposal 7300 N. Western 65.00
AT&T Phone system 1,709.51
Brinks Delivery of deposits to 440.00
bank
Business Equipment Typewriter maintenance 2,771
Service
CBS Maintenance photostat 1,865
machine
Canteen 4 Beverage machines (90 280.00
days notice)
IBM Computer maintenance 490.00
Kanak & Sons Maintenance photostat 850
machine
Knank & Sons Maintenance photostat 1,045
machine
Megasys Software support 550.00
Norman Security Surveillance cameras 196.57
Pitney Bowes Maintenance & rental 38.00
postage meter
Rem Con Ltd. Maintenance photostat 600
machine
Security Link Security system-7300 N. 215.29
Western
Security Link Security system-7541 N. 413.65
Western
Security Link Security system-7560 N. 38.15
Western
Smithereen
Exterminating 920
Standard Register Maintenance check protector 210
Maintenance
Xerox Corp. Maintenance photostat 287
machine
First Chicago Trust real estate lease and variable,
Company, as estoppel letter with
Trustee** minimum of
$10,623.58
per month
plus
certain
other
expenses
and
periodic
increases
George Tavoularis, garage $230.50
Agent (subject to
increase
variable)
The Chicago Financial Advisory
Corporation Services
</TABLE>
* Not all agreements listed are material.
** Notice of sale of Stock must be given.
<PAGE>
LOANS FROM BANKS
<TABLE>
Bank Principal Amount Rate
<S> <C> <C>
Bank of America $1,200,000 5.625%
Harris Trust & Savings Bank 1,300,000 5.9375%
NBD Bank - Detroit 500,000 6.11%
Bank One, Chicago, NA 300,000 5.95%
Bank One, Chicago, NA 1,100,000 6%
Bank One, Chicago, NA 800,000 6.10%
</TABLE>
SENIOR TERM DEBT
<TABLE>
Date of Original
Agreement Lender Rate Amount Balance
<S> <C> <C> <C> <C>
6/16/93 Bank One, Chicago, IL 7.125% $1,500,000 $1,500,000
6/11/93 LaSalle Bank Lakeview 6.85% $1,500,000 $1,500,000
10/31/90 Minnesota Mutual Life 10.10% $1,000,000 $1,000,000
Insurance Company
10/31/90 National Travelers 10.10% $500,000 $500,000
Life Co. (This note
has been reassigned
twice and is now held
by Salkeld & Co. Acct.
No. 92574 at Bankers
Trust Co., New York,
N.Y.)
</TABLE>
SENIOR SUBORDINATED TERM DEBT
<PAGE>
<TABLE>
Date of Original
Agreement Lender Rate Amount Balance
<S> <C> <C> <C> <C>
6/16/93 Bank One, Chicago, IL 7.375% $500,000 $500,000
4/30/91 American Bankers Life 9.66% $500,000 $500,000
Assurance Company of
Florida
10/31/90 Minnesota Mutual Life 10.60% $1,000,000 $1,000,000
Insurance Company
</TABLE>
Change of control of the Company will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a
default under the terms of the above 7 agreements.
Capital Notes - See Exhibit 8.7
MIDLAND FINANCE CO.
CAPITAL NOTES PAYABLE
<TABLE>
Maturity Interest
Date Amount Rate Payee
<S> <C> <C> <C>
09/30/94 $10,000 7% Kenneth Wollack, Trustee under
Seymour Wollack Trust, est. by
T/A 10/18/79 (to be paid at
maturity)
10/31/94 10,000 5.50% Helen G. Salzman
11/30/94 10,000 6.50% Lilligal Trust
11/30/94 5,000 6.50% Judith Vicar or Susan Zeff
12/31/94 3,000 6.50% Dana Jo Adelstein-Schwartz
12/31/94 3,000 6.50% David Aaron Adelstein
12/31/94 5,000 6.50% Robert M. Adelstein Insurance
Trust
12/31/94 2,600 6.50% Phyllis F. Penzik
01/31/95 145,000 6.25% Miriam Temkin or Meyer Temkin
01/31/95 50,000 6.25% Meyer Temkin or David Temkin
02/28/95 30,207.54 6% Deborah K. Adelstein-Morrison
02/28/95 18,854.35 6% Dana Jo Adelstein-Schwartz
02/28/95 11,121.09 6% David A. Adelstein
02/28/95 5,000 6% Dena H. Chaness Revocable
Trust U/A 7/19/88
02/28/95 5,000 6% Susan Zeff
02/28/95 35,000 6% Helen G. Salzman
02/28/95 25,000 6.75% Helen G. Salzman
02/28/95 7,500 6.50% Laura Siegel
03/31/95 55,000 6.25% Miriam Temkin
03/31/95 50,000 6.25% Meyer Temkin or David Temkin
03/31/95 25,000 6% Helen G. Salzman
03/31/95 25,000 6.50% Laura Siegel and Jeffrey Siegel
05/31/95 10,000 6.50% Lilligal Trust
06/30/95 5,000 7.25% Dena H. Chaness Revocable
Trust U/A 7/19/88
06/30/95 200,000 7.25% Helen G. Salzman
<PAGE>
07/31/95 25,000 7.25% Helen G. Salzman
07/31/95 4,000 6.50% Phyllis F. Penzik
08/31/95 7,000 6% Joseph Singer
12/31/95 10,000 6% Dena H. Chaness Revocable
Trust U/A 7/19/88
12/31/95 4,000 6% Kenneth Wollack Trustee under
Seymour Wollack Trust est. by
T/A 10/18/79
12/31/95 10,000 6% Phyllis F. Penzik
01/31/96 10,500 6% Kenneth Wollack Trustee under
Seymour Wollack Trust est. by
T/A 10/18/79
03/31/96 6,000 6% Kenneth Wollack Trustee under
Seymour Wollack Trust est. by
T/A 10/18/79
06/30/96 2,500 7.25% Hermine Waltz
</TABLE>
EXHIBIT 10AY
EMPLOYMENT AGREEMENT
This Agreement, dated as of January 1, 1994, between Mercury
Finance Company, a Delaware corporation (hereinafter referred to as
the "Company"), and John N. Brincat (hereinafter referred to as the
"Employee").
Recitals
The Employee has been employed by the Company for a substantial
period of time and currently serves as the President and Chief
Executive Officer thereof and as a member of the Company's Board of
Directors. Because of the Employee's extensive experience and his
familiarity with its affairs, the Company wishes to assure that it
will continue to have the Employee available to perform duties
substantially similar to those currently being performed by him and
to continue to contribute to the growth and success of the Company
as he has in the past. The Employee is willing to commit to
continue in the performance of his services for the Company upon
the terms and conditions set forth herein.
Covenants
NOW, THEREFORE, in consideration of the mutual promises herein
contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. Employment - The Company hereby agrees to employ Employee as
its President and Chief Executive Officer to perform the duties
described herein, and Employee hereby accepts such employment on
the terms and conditions stated herein.
2. Term of Employment - Subject to provisions for termination set
forth herein, the term of Employee's employment hereunder shall
commence on the date hereof and shall expire on December 31, 1998.
3. Duties of Employee - Employee shall be the President and Chief
Executive Officer of the Company and shall perform such duties and
responsibilities for the Company as may be assigned to him by the
Board of Directors thereof and which are not unreasonably
inconsistent with the duties of such position as President and
Chief Executive Officer, including such duties as are currently
being performed by the Employee. Further, Employee shall continue
to report to the Company's Board of Directors. During the term of
his employment, Employee shall devote substantially all of his
business time, attention and energy, and his reasonable best
efforts, to the interests and business of the Company and to the
performance of his duties and responsibilities on behalf of the
Company. The Company will use its best efforts to cause the
Employee to be elected a Director of the Company and will cause the
Employee to be included as a nominee for Director in any proxy
solicitation by management. The provisions of this Section 3 are
<PAGE>
subject to Section 8 hereof.
4. Compensation
(a) Salary - Throughout the term of Employee's employment
hereunder and pursuant to Sections 9(a) and 9(b) hereof, the
Company shall pay Employee, for services to be rendered by him
hereunder, a guaranteed base salary at an annual rate, less all
applicable federal and state income tax withholding, FICA taxes and
other payroll taxes, payable bi-weekly as follows:
Year Salary
1994 $300,000
1995 $360,000
1996 $430,000
1997 $520,000
1998 $600,000
(b) Bonus
(i) Throughout the term of Employee's employment hereunder,
Employee shall be entitled to an annual bonus, which annual bonus
shall be paid in a single installment for each year, not later than
January 31 of the year following the year for which such annual
bonus is earned. If Employee becomes disabled (as such term is
defined in Section 9(a) hereof) or dies while employed hereunder,
Employee shall receive a final bonus hereunder which shall be pro-
rated based upon the number of days in the calendar year prior to
his disability or death and shall be paid to him or his estate not
later than January 31 of the year following the year in which he
became disabled or died.
Each such annual bonus shall be calculated based upon the
consolidated net after tax earnings of the Company during the
period of January 1 through December 31 of each year hereof. For
purposes of calculating the amount of said bonus "Net After Tax
Earnings" shall be determined in accordance with generally accepted
accounting principles and shall be defined for purposes of this
Agreement as the consolidated net earnings of the Company after
applicable federal and state income taxes and before accrual of
said bonus on the Company's books and records but excluding capital
gains or losses and/or income or losses from extraordinary or non-
recurring items. "Net After Tax Earnings" shall include the
earnings of any entity acquired by the Company after the date
hereof.
(ii) The amount of the annual bonus shall be 1% of Net After Tax
Earnings.
(c) Superbonus - In addition to the annual bonus set forth above
Employee shall be paid a "Superbonus" based upon annual increases
in Net After Tax Earnings Per Share (which for purposes of this
Agreement shall be defined as the consolidated net earnings per
<PAGE>
share of the Company after applicable state and federal income
taxes and before accrual of said bonus on the Company's books and
records but excluding capital gains or losses and/or income or
losses from extraordinary non-recurring items and including
earnings of any entity acquired by the Company after the date
hereof) are in excess of the Net After Tax Earnings Per Share of
the Company in the prior calendar year but calculated using the
equivalent total dollar amount of incremental change as follows:
- - If Net After Tax Earnings Per Share increase 0 - 19.99%, no
Superbonus shall be earned or paid.
- - If Net After Tax Earnings Per Share increase 20% to 29.99%,
Superbonus shall be 2.5% of the entire amount of the increase in
excess of the prior calendar year's Net After Tax Earnings Per
Share.
- - If Net After Tax Earnings Per Share increase 30% to 39.99%,
Superbonus shall be 3% of the entire amount of the increase in
excess of the prior calendar year's Net After Tax Earnings Per
Share.
- - If Net After Tax Earnings Per Share increase 40% or more,
superbonus shall be 3.5% of the entire amount of the increase in
excess of the prior calendar year's Net After Tax Earnings Per
Share.
The Superbonus, if any, shall be paid in the same manner and
subject to the same terms as the annual bonus as described in
4(b)(i) hereof.
5. Working Facilities and Fringe Benefits
(a) The Employee shall be furnished with office space, secretarial
assistance and such other facilities and services as are
appropriate to his position and adequate for the performance of his
duties. The Company also shall provide to Employee during the term
of employment fringe benefits and perquisites at least equal to
those provided to Employee immediately prior to the date hereof,
and the Company shall not discriminate against Employee with
respect to any vacation or holiday plan, medical, hospital, life
and disability insurance programs, retirement and 401(k) programs
and other similar welfare benefit and remuneration programs from
time to time made available to the Officers and key employees of
the Company.
(b) Employee shall also be eligible to receive during such
employment hereunder, grants of stock options pursuant to the
Company's amended and restated 1989 Stock Option and Incentive
Compensation Plan (the Plan). Except as may be otherwise provided
in this Agreement any stock options granted to Employee under the
Plan prior to or during the term hereof shall become immediately
exercisable in the event of the termination of Employee's
<PAGE>
employment hereunder by the Company for any other reason than cause
as outlined in Section 9(c) hereof.
(c) In addition to options which may be granted to Employee as set
forth in 5(b) hereof, Employee is hereby granted incentive stock
options totaling 2,500,000 shares subject to the following terms
(the Incentive Options):
(1) Provided the Net After Tax Earnings Per Share of the Company
increase as set forth in (2) below, the right of Employee to
exercise the Incentive Options shall vest over the term of this
Agreement at the rate of 500,000 shares per calendar year.
(2) The vesting of these Incentive Options is conditioned upon the
Company's Net After Tax Earnings Per Share increasing by not less
than 20% over the Company's Net After Tax Earnings Per Share for
the prior calendar year. The date of vesting shall be the date the
Company's Net Earnings Per Share are determined.
(3) In the event during any calendar year of this Agreement, the
Company's Net After Tax Earnings Per Share do not increase by at
least 20% as set forth in (2) above, then Employee will lose all
right and future claim to 500,000 shares of this 2,500,000 share
Incentive Option grant.
(4) Employee shall have the right to exercise all or any portion
as Employee may determine of these Incentive Options upon vesting
or any time thereafter prior to January 1, 2000.
(5) The exercise price for any vested Incentive Options shall be
the fair market value of the Company's common stock on December 10,
1993 which is $17.375 per share.
(6)Except as modified by this Agreement the Plan as defined in 5(b)
hereof shall otherwise apply to these Incentive Options.
6. Expenses - The Company shall pay or reimburse Employee for all
reasonable expenses actually incurred or paid by him in the
performance of services rendered by him pursuant to this Agreement.
Such expenses shall be supported by the documentary evidence
required to substantiate them as income tax deductions.
7. Covenant Restricting Competition; Nondisclosure of Confidential
Information
(a) Employee acknowledges that his services are special and
unique, and of an unusual and extraordinary character which gives
them peculiar value, the loss of which cannot adequately be
compensated in damages. Therefore, Employee agrees that he will
not, except with the written consent of the Company, for a
continuous period of three (3) years commencing immediately
following termination of Employee's employment by the Company
hereunder, directly or indirectly engage or become interested in,
<PAGE>
as a partner, director, officer, principal, agent or employee, any
business which competes with services performed, marketed or in
development by the Company at the time of such termination.
(b) Employee acknowledges that in his employment he is or will be
making use of, acquiring or adding to, confidential information of
the Company, and is or will be familiar with the Company's
business, activities, employees, customers and suppliers.
Therefore, in order to protect such confidential information and to
protect other employees who depend upon the Company for regular
employment, Employee agrees that, except in connection with his
employment by the Company, or with the consent of the Company, he
will not during or after the term of his employment by the Company
in any way utilize any of said confidential information and he will
not copy, reproduce, or take with him the original or any copies of
said confidential information to anyone.
(c) In the event of a breach of the covenants contained in this
Section 7, the Company, as the case may be, shall be entitled to an
injunction restraining such breach in addition to any other
remedies provided by law.
(d) If any provision of this Section 7 is adjudged by a court to
be invalid or unenforceable, the same will in no way affect any
other provision of this Section 7 or any other part of this
Agreement, the application of such provision in any other
circumstances or the validity or enforceability of this Agreement.
If any such provision, or any part thereof, is held to be
unenforceable because of the duration of such provision or the area
covered thereby, the parties agree that the court making such
determination will have the power to reduce the duration and/or
area of such provision, and/or to delete specific words or phrases,
and in its reduced form such provision will then be enforceable and
will be enforced.
8. Sale or Merger of the Company - This Agreement is binding upon
and shall be for the benefit of the successors and assigns of the
Company, including any corporation or any other form of business
organization with which the Company may merge or consolidate,
whether or not the Company shall be the surviving company under the
terms thereof, or to which it may transfer substantially all of its
assets. Employee shall not assign his interest in this Agreement
or any part thereof. In the event of such merger, sale or
consolidation all stock options granted to Employee under the Plan
and including all Incentive Options granted hereunder shall be
immediately vested and exercisable.
9. Termination by Company
(a) Disability - The Company may terminate the active employment
of the Employee if, in the reasonable judgment of the Board of
Directors of the Company, he becomes unable to satisfactorily
perform his duties and responsibilities hereunder during the term
<PAGE>
of his employment because of mental or physical disability. Upon
such termination, the Employee shall be relieved of all further
obligations hereunder except obligations pursuant to Section 7. In
the event of such termination, the Company shall continue to pay to
the Employee, until the end of the term of his employment
hereunder, a salary at a rate equal to the annual rate of the
guaranteed base salary in effect on the date of such termination
(as set forth in Section 4(a)). Notwithstanding the foregoing, the
amounts so payable shall be reduced by any amounts payable to the
Employee during the term of his employment hereunder pursuant to
any disability benefit or wage continuation plan of the Company in
effect.
(b) Death - In the event of the death of the Employee during the
term, the Company shall make, until the end of the term of
employment hereunder, payments at a rate equal to the annual rate
of guaranteed base salary as set forth in Section 4(a) in effect on
the date of death. In addition, the Company shall also pay pro
rata the bonus earned, if any, in accordance with Section 4(b)
hereof. The payments to be made under this Section 9(b) shall not
be reduced by reason of any insurance proceeds payable directly to
the Employee's beneficiaries or estate pursuant to insurance
carried or provided by the Company, and shall be made to such
beneficiary as the Employee may designate for that purpose in
written notice given prior to his death, or if the Employee has not
so designated, then to the personal representative of his Estate.
(c) Termination For Cause - In the event of fraud, defalcation, or
other similar dishonesty of the Employee involving the operations,
funds or other assets of the Company is established, or Employee is
convicted of a crime involving moral turpitude, or Employee
breaches the terms of this Agreement in any material respect, then
the Company may terminate this Agreement upon giving written notice
to the Employee, and thereafter neither the Employee, his surviving
spouse nor his estate shall be entitled to any further salary,
other compensation or options from the Company pursuant to this
Agreement, but the Employee's obligations under Section 7 shall
remain in effect. The parties agree that the provisions of this
Section 9(c) shall not be utilized in any manner by the Company to
avoid, negate or frustrate application of the provisions of Section
10 of this Agreement.
10. Termination by Employee
(a) If Position Changes - It is the intention of the parties that
the Employee will be the President and Chief Executive Officer of
the Company during the entire term of employment hereunder. In the
event that, at any time during the term hereunder, Employee,
without his consent, does not hold such positions and have the
duties and responsibilities that would normally be expected of the
President and Chief Executive Officer of the Company (except by
reason of termination under Section 9), Employee may terminate his
employment hereunder by giving to the Secretary of the Company
<PAGE>
written notice of such termination within three months after this
right to terminate arises. The Company shall be obligated for
compensation due Employee in accordance with Section 4 and Section
5 hereof.
(b) Lump Sum Payment - In the event of termination pursuant to
subsection (a) of this Section 10, the Company shall pay to the
Employee, in a lump sum and within 30 days of such termination, an
amount equal to the aggregate guaranteed base salary which would
have been payable to the Employee pursuant to Section 4(a) hereof
during the remaining portion of the term hereunder had such
termination not occurred. In addition, the Company shall also pay
pro rata the bonus earned, if any, in accordance with Section 4(b)
hereof.
11. Consent of the Company - Any act, request, approval, consent
or opinion of the Company under this Agreement must be in writing
and may be authorized, given or expressed only by resolution of the
Board of Directors of the Company, or by such other persons as the
Board of Directors of the Company may designate.
12. Notices - Any notice required hereunder to be given shall be
in writing and if:
(a) By the Company to Employee shall be directed to him at his
address set forth below, or to such other address as he shall have
furnished in writing to the Company; or
(b) By Employee to the Company shall be directed to the Secretary
of such entity at such entity's current address at the time such
notice is given, or to such designee or other address as the Board
of Directors of the Company shall name and have furnished in
writing to Employee.
13. Governing Law - This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois
applicable to contracts made and to be performed therein.
14. Enforcement Expenses and Arbitration - The Company agrees to
reimburse the Employee for all costs and expenses incurred by him
(including the reasonable fees of his counsel) in successfully
enforcing any of his rights under this Agreement or any claim
arising out of the breach thereof. In addition, the parties
acknowledge the relative economic power of the Company versus the
Employee, and the ability of the Company to resist the conclusion
of litigation should the Employee institute legal proceedings to
enforce this Agreement or to recover damages for the breach
thereof. In recognition of this, any controversy or claim arising
out of or relating to this Agreement shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, at the sole election of the
Employee; provided, however, that an action by the Company to
enforce its rights under Section 7 hereof shall be excluded from
<PAGE>
the arbitration provisions of this Section 14. Any such election
by Employee shall be made in written notice given to the Company
any time after such controversy or claim arises, and in the event
Employee is served with process relating to any court proceeding
concerning any such claim or controversy commenced by the Company,
such election, to be effective, shall be made in written notice
within 15 days of the time Employee is served with such process.
Commencement of court proceedings by Employee shall be deemed an
election not to arbitrate. In the event the Company commences
court proceedings (other than an action by the Company solely to
enforce its rights under Section 7 hereof) and is given notice of
the election to arbitrate by the Employee within the time period
set forth above, the Company, as the case may be, agrees to
promptly dismiss such court proceedings and submit to arbitration.
In the event of such arbitration, judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction
thereof.
15. Renegotiation - In the event of any change in the Internal
Revenue Code of the United States or in any other applicable tax
law which effects the deductibility by the Company of salary
expense (excluding incentive based compensation such as bonuses or
stock options), the Company and Employee agree to renegotiate the
terms of this Agreement in order to best comply with such law
change and carry out the intent of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
MERCURY FINANCE COMPANY
By Daniel J. Terra
Daniel J. Terra
The Honorable Daniel J. Terra
Title: Chairman
John N. Brincat
John N. Brincat
Address: 21367 West Boschome Circle Drive
Kildeer, Illinois 60047
EXHIBIT 10AZ
TERM NOTE
U.S. $10,000,000 December 15, 1994
FOR VALUE RECEIVED, MERCURY FINANCE COMPANY, (the "Company"),
promises to pay to the order of Norddeutsche Landesbank
Girozentrale (the "Bank") at the office of the Bank located at 1270
Avenue of The Americas, New York, New York 10020 or such other
place as the holder hereof may from time to time appoint in
writing, in lawful money of the United States of America in
immediately available funds, the principal sum of Ten Million
Dollars ($10,000,000) on December 14, 1998. The Company also
promises to pay interest (computed on the basis of a 360 day year
for actual days elapsed) at said office in like money on the unpaid
principal amount hereof from time to time outstanding from the date
hereof until maturity semi-annually on the 15th day of each June
and December, commencing on June 15, 1995, and on the maturity
hereof, at the rate of 8.50 per annum. If any payment of principal
or interest becomes due on a day on which the banks in New York,
New York are required or permitted by law to remain closed, such
payment may be made on the next succeeding business day on which
such banks are open, and such extensions shall be included in
computing interest in connection with such payment. The Company
further agrees that this Note shall bear interest after any stated
or accelerated maturity hereof at a rate 2% per annum in excess of
the rate established from time to time by the Bank as its prime
rate, payable on demand. In no event shall interest be payable
hereunder in excess of the maximum rate of interest permitted under
applicable law. The Company agrees to pay principal, interest and
all other amounts due hereunder without defense, counterclaim,
setoff or any deduction or withholding except as expressly required
by law.
In consideration of the granting of the loan evidenced by this
Note, the Company hereby agrees as follows:
1. Indemnity. The Company hereby indemnifies the Bank against
any loss or reasonable expenses which the Bank may sustain or incur
as a consequence of any default in payment of the principal amount
of the loan evidenced by this Note (the "Loan") or any part thereof
or interest accrued thereon or any other amount due hereunder, or
as a consequence of the occurrence of any default hereunder with
respect to the Loan, or as a consequence of the receipt or recovery
by the Bank of all or any part of the Loan other than on the
maturity date thereof. For purposes of this paragraph the
determination by the Bank of such losses and reasonable expenses
shall be conclusive if made reasonably and in good faith.
2. Representations, Warranties and Covenants.
(a) Except as modified in this Section 2, the provisions of each of
the representations, warranties, covenants and agreements of the
Company set forth in Section 2 (except Section 2.12), 7 and 8 of
<PAGE>
that certain $76,000,000 Senior Note Agreement dated as of December
1, 1993 among the Company and the institutions signatory thereto
(the "Note Agreement"), including the definitions set forth therein
and the references to exhibits therein are hereby incorporated in
this Note verbatim to the same extent as if set forth in full
herein, and for the purposes of this Note are not subject to
alteration by any amendment, modification, supplement, consent or
waiver relating to such representations, warranties, covenants and
agreements in the Note Agreement and, in any event, are not subject
to extinction at any time prior to payment in full of all amounts
hereunder, whether upon termination, for any reason, of the Note
Agreement or otherwise. In the event that any holder of Debt (as
defined in the Note Agreement) is or becomes entitled to the
benefit of any covenant or agreement of the Company contained in
Section 7.8(a), Section 7.10 or Section 12 of the Note Agreement
and which is more restrictive than the covenant or agreement
contained in said sections, then such more restrictive covenant or
agreement shall be deemed to be incorporated into this Note by
reference at the time such holder of Debt becomes so entitled and
the Bank shall be entitled to the benefits thereof with respect to
this Note in addition to the existing covenants and agreements
contained in said sections so long as this Note remains
outstanding.
For purposes of this Note all representations and warranties in the
Note Agreement shall be deemed to be made as of the following
dates:
Section 2.1 - September 30, 1994
Section 2.3 - December 15, 1994
Section 2.4(a) - 1993
Section 2.4(b) - September 30, 1994
Section 2.4(c) - September 30, 1994
Section 2.11(a) - December 31, 1993
Section 2.11(b) - Line 4, December 31, 1993
Line 6, December 31, 1994
Section 2,15(b) - January 1, 1994
Further, Section 2.6 of the Note Agreement is modified by adding at
the beginning of that section the following, "Except for the case
of Willie Ed Johnson v. Mercury Finance Corporation of Alabama, et
al ..."
(b) Such representations, warranties, covenants and agreements as
so incorporated herein shall be modified and construed as follows:
(i) The term "Company" wherever used therein shall mean the
<PAGE>
Company as defined in this Note;
(ii) The terms "Purchasers" wherever used thereinshall mean the
Bank as defined in this Note;
(iii) The term "Notes" wherever used therein shall mean this Note;
(iv) The term "hereunder" wherever used therein shall mean under
this Note;
(v) The terms "Default" and "Event of Default" wherever used
therein shall mean an Event of Default as defined in this Note;
(vi) The term "Existing Debt Agreements" wherever used therein
shall mean the agreements described on the schedule attached to
this Note.
3. Events of Default. If any one or more of the following events
("Events of Default") shall occur, the entire unpaid balance of the
principal of and interest on the Loan shall immediately become due
and payable:
(a) Failure to make any payment of principal on the Loan when due;
or,
(b) Failure to make any payment of interest on the Loan or any
other amount payable by the Company hereunder within five days
after the same shall become due; or,
(c) Failure to observe or perform any of the covenants and
agreements of the Company contained in the Note Agreement as
incorporated herein in accordance with Section 2 hereof; or,
(d) Failure by the respective parties hereunder or
thereunder to perform any other term, condition or covenant of this
Note or any other agreement, instrument or document delivered
pursuant hereto or in connection herewith or therewith, which shall
remain unremedied for a period of 30 days after notice thereof
shall have been given by the Bank to the Company; or,
(e) (i) Failure to perform any term, condition or covenant of
any bond, note, debenture, loan agreement, indenture, guaranty,
trust agreement, mortgage or other instrument or agreement in
connection with the borrowing of money or the obtaining of advances
or credit to which the Company or any Subsidiary (as defined in the
Note Agreement) is a party or by which it is bound, or by which any
of its properties or assets may be affected (a "Debt Instrument"),
so that, as a result of any such failure to perform (regardless of
the satisfaction of any requirement for the giving of appropriate
notice thereof or the lapse of time), the indebtedness included
therein or secured or covered thereby may be declared due and
payable prior to the date on which such indebtedness would
otherwise become due and payable; or,
(ii) any event or condition referred to in any Debt Instrument
shall occur or fail to occur, so that, as a result thereof
(regardless of the satisfaction of any requirement for the giving
of appropriate notice thereof or the lapse of time), the
indebtedness included therein or secured or covered thereby may be
declared due and payable prior to the date on which such
indebtedness would otherwise become due and payable; or,
(iii) any indebtedness included in any Debt Instrument or secured
or covered thereby is not paid when due; or,
<PAGE>
(f) Any representation or warranty made in writing to the Bank in
this Note or in connection with the making of the Loan or any
certificate, statement or report made in compliance with this Note,
shall have been false in any material respect when made; or,
(g) An order for relief under the Federal Bankruptcy Code as now
or hereafter in effect, shall be entered against the Company or any
Subsidiary; or the Company or any Subsidiary shall become
insolvent, generally fail to pay its debts as they become due, make
an assignment for the benefit of creditors, file a petition in
bankruptcy, be adjudicated insolvent or bankrupt, petition or apply
to any tribunal for the appointment of a receiver or any trustee
for it or a substantial part of its assets, or shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution, or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or if there
shall have been filed any such petition or application, or any such
proceeding shall have been commenced against it, which remains
undismissed for a period of thirty days or more, or the Company or
any Subsidiary or endorser or guarantor hereof by any act or
omission shall indicate its consent to approval of or acquiescence
in any such petition, application or proceeding or the appointment
of a receiver of or any trustee for it or any substantial part of
any of its properties, or shall suffer any such receivership or
trusteeship to continue undischarged for a period of thirty days or
more; or,
(h) Any judgment against the Company or any Subsidiary or any
attachment, levy or execution against any of its properties for an
amount in excess of $5,000,000 shall remain unpaid, unstayed on
appeal, undischarged, unbonded or undismissed for a period of sixty
days or more.
(The term "Subsidiary" shall have the same meaning as defined in
the Note Agreement, and for the purposes of this Note is not
subject to alteration by any amendment, modification, supplement,
consent or waiver in connection with the Note Agreement.)
4. Miscellaneous.
(a) All agreements, representations and warranties made herein
shall survive the delivery of this Note. The Company waives trial
by jury, set-off and counterclaim of any nature or description in
any litigation in any court with respect to, in connection with, or
arising out of, this Note or any instrument or document delivered
pursuant hereto or the validity, protection, interpretation,
collection or enforcement hereof.
(b) No modification or waiver of or with respect to any provision
of this Note, or consent to any departure by the Company from any
of the terms or conditions hereof, shall in any event be effective
unless it shall be in writing and signed by the Bank, and then such
waiver or consent shall be effective only in the specific instance
<PAGE>
and for the purpose for which given. No notice to or demand on the
Company in any case shall, of itself, entitle it to any other or
further notice or demand in similar or other circumstances.
(c) Each and every right granted to the Bank hereunder or under
any other document delivered hereunder or in connection herewith,
or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of the Bank or
the holder of this Note to exercise, and no delay in exercising,
any right shall operate as a waiver thereof, nor shall any single
or partial exercise of any right preclude any other or future
exercise thereof or the exercise of any other right.
(d) In the event that this Note is placed in the hands of an
attorney for collection by reason of any default hereunder, the
Company agrees to pay reasonable attorney's fees so incurred. The
Company promises to pay all expenses of any nature as soon as
incurred whether in or out of court and whether incurred before or
after this Note shall become due at its maturity date or otherwise
and costs which the Bank may deem necessary or proper in connection
with the satisfaction of the indebtedness.
(e) The Company hereby waives presentment, demand for payment,
protest, notice of protest, notice of dishonor, and any or all
other notices or demands except as otherwise expressly provided for
herein.
(f) All accounting terms not otherwise defined in this Note shall
have the meaning ascribed thereto under generally accepted
accounting principles.
5. Notices. All notices, requests and other communications
pursuant to this Note shall be in writing, either by letter
(delivered by hand or sent by certified mail, return receipt
requested) or telegram, addressed as follows:
(a) if to the Company:
Mercury Finance Company
40 Skokie Boulevard, Suite 200
Northbrook, Illinois 60062
Attention: President
and,
(b) if to the Bank:
Norddeutsche Landesbank Girozentrale New York
1270 Avenue of The Americas
New York, New York 10020
Attention: Ms. Petra Frank-Witt
Any notice, request or communication hereunder shall be deemed to
have been given when deposited in the mails, postage prepaid,
addressed as aforesaid. Any party may change the person or address
<PAGE>
to whom or which the notices are to be given hereunder, but any
such notice shall be effective only when actually received by the
party to whom it is addressed.
6. Assignments and Participations. The Bank may assign, transfer
or grant participations in this Note and the Loan at any time.
7. Governing Law. This Note and the rights and obligations of
the parties shall be construed and interpreted in accordance with
the laws of the State of New York.
(a) The Company agrees that, in addition to the right of the Bank
to commence and maintain actions and proceedings in any other
jurisdiction pursuant to this Note, all actions and proceedings
relating directly or indirectly to this Note may be litigated in
U.S. Federal and New York State courts located within the State of
New York, and the Company irrevocably submits to the nonexclusive
personal jurisdiction of such courts. THE COMPANY IRREVOCABLY
WAIVES TRIAL BY JURY AND ANY OBJECTION, INCLUDING WITHOUT
LIMITATION, OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE
TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
JURISDICTION.
(b) The Company agrees to maintain at all times a duly appointed
authorized agent for the service of process of the aforesaid
courts. The Company hereby appoints CT Corporation System or a
substitute person or entity (with prior notification to the Bank)
as its agent ("Process Agent"), to receive on behalf of it and its
property service of copies of the summons and complaint and any
other process which may be served by the Bank and irrevocably
agrees that it will not permit such appointment to be terminated or
in any way modified. Service may be made by mailing or delivering
a copy of such process to the Company in care of the Process Agent
and by notifying the Company of such mailing or delivery, and the
Company irrevocably authorizes and directs the Process Agent to
accept such service on its behalf. A an alternative method of
service, the Company also irrevocably consents to the service of
any and all process in any such action or proceeding by the mailing
of copies of such process at its address specified in Section 5 by
certified or registered United States mail, postage prepaid, return
receipt requested. The Company agrees that any final judgment in
any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law and hereby irrevocably submits to the
jurisdiction of the courts of each jurisdiction in which any person
shall seek to enforce such judgment. Nothing herein shall affect
the right of the Bank to serve legal process in any other manner
permitted by law or affect the right of the Bank to bring any
action or proceeding against the Company or its property in the
courts of any other jurisdiction.
<PAGE>
MERCURY FINANCE COMPANY
By Charley A. Pond
Charley A. Pond
Its Vice President and Treasurer
EXHIBIT 10BA
TERM NOTE
U.S. $20,000,000 December 15, 1994
FOR VALUE RECEIVED, MERCURY FINANCE COMPANY, (the "Company"),
promises to pay to the order of The Long-Term Credit Bank of Japan,
Ltd. (the "Bank") at the office of the Bank located at 190 South
LaSalle Street, Chicago, Illinois 60603 or such other place as the
holder hereof may from time to time appoint in writing, in lawful
money of the United States of America in immediately available
funds, the principal sum of Twenty Million Dollars ($20,000,000)
on December 14, 1998. The Company also promises to pay interest
(computed on the basis of a 360 day year for actual days elapsed)
at said office in like money on the unpaid principal amount hereof
from time to time outstanding from the date hereof until maturity
semi-annually on the 15th day of each June and December, commencing
on June 15, 1995, and on the maturity hereof, at the rate of 8.62
per annum. If any payment of principal or interest becomes due on
a day on which the banks in Chicago, Illinois are required or
permitted by law to remain closed, such payment may be made on the
next succeeding business day on which such banks are open, and such
extensions shall be included in computing interest in connection
with such payment. The Company further agrees that this Note shall
bear interest after any stated or accelerated maturity hereof at a
rate 2% per annum in excess of the rate established from time to
time by the Bank as its prime rate, payable on demand. In no event
shall interest be payable hereunder in excess of the maximum rate
of interest permitted under applicable law. The Company agrees to
pay principal, interest and all other amounts due hereunder without
defense, counterclaim, setoff or any deduction or withholding
except as expressly required by law.
In consideration of the granting of the loan evidenced by this
Note, the Company hereby agrees as follows:
1. Indemnity. The Company hereby indemnifies the Bank against any
loss or reasonable expenses which the Bank may sustain or incur as
a consequence of any default in payment of the principal amount of
the loan evidenced by this Note (the "Loan") or any part thereof or
interest accrued thereon or any other amount due hereunder, or as
a consequence of the occurrence of any default hereunder with
respect to the Loan, or as a consequence of the receipt or recovery
by the Bank of all or any part of the Loan other than on the
maturity date thereof. For purposes of this paragraph the
determination by the Bank of such losses and reasonable expenses
shall be conclusive if made reasonably and in good faith.
2. Representations, Warranties and Covenants.
(a) Except as modified in this Section 2, the provisions of each of
the representations, warranties, covenants and agreements of the
Company set forth in Section 2 (except Section 2.12), 7, 8 and 11
of that certain $76,000,000 Senior Note Agreement dated as of
<PAGE>
December 1, 1993 among the Company and the institutions signatory
thereto (the "Note Agreement"), including the definitions set forth
therein and the references to exhibits therein are hereby
incorporated in this Note verbatim to the same extent as if set
forth in full herein, and for the purposes of this Note are not
subject to alteration by any amendment, modification, supplement,
consent or waiver relating to such representations, warranties,
covenants and agreements in the Note Agreement and, in any event,
are not subject to extinction at any time prior to payment in full
of all amounts hereunder, whether upon termination, for any reason,
of the Note Agreement or otherwise. In the event that any holder
of Debt (as defined in the Note Agreement) is or becomes entitled
to the benefit of any covenant or agreement of the Company
contained in Section 7.8(a), Section 7.10 or Section 12 of the Note
Agreement and which is more restrictive than the covenant or
agreement contained in said sections, then such more restrictive
covenant or agreement shall be deemed to be incorporated into this
Note by reference at the time such holder of Debt becomes so
entitled and the Bank shall be entitled to the benefits thereof
with respect to this Note in addition to the existing covenants and
agreements contained in said sections so long as this Note remains
outstanding.
For purposes of this Note all representations and warranties in the
Note Agreement shall be deemed to be made as of the following
dates:
Section 2.1 - September 30, 1994
Section 2.3 - December 15, 1994
Section 2.4(a) - 1993
Section 2.4(b) - September 30, 1994
Section 2.4(c) - September 30, 1994
Section 2.11(a) - December 31, 1993
Section 2.11(b) - Line 4, December 31, 1993
Line 6, December 31, 1994
Section 2,15(b) - January 1, 1994
Further, Section 2.6 of the Note Agreement is modified by adding at
the beginning of that section the following, "Except for the case
of Willie Ed Johnson v. Mercury Finance Corporation of Alabama, et
al ..."
(b) Such representations, warranties, covenants and agreements as
so incorporated herein shall be modified and construed as follows:
(i) The term "Company" wherever used therein shall mean the Company
as defined in this Note;
<PAGE>
(ii) The terms "Purchasers" wherever used therein shall mean the
Bank as defined in this Note;
(iii) The term "Notes" wherever used therein shall mean this Note;
(iv) The term "hereunder" wherever used therein shall mean under
this Note;
(v) The terms "Default" and "Event of Default" wherever used
therein shall mean an Event of Default as defined in this Note;
(vi) The term "Existing Debt Agreements" wherever used therein
shall mean the agreements described on the schedule attached to
this Note.
3. Events of Default. If any one or more of the following events
("Events of Default") shall occur, the entire unpaid balance of the
principal of and interest on the Loan shall immediately become due
and payable:
(a) Failure to make any payment of principal on the Loan when due;
or,
(b) Failure to make any payment of interest on the Loan or any
other amount payable by the Company hereunder within five days
after the same shall become due; or,
(c) Failure to observe or perform any of the covenants and
agreements of the Company contained in the Note Agreement as
incorporated herein in accordance with Section 2 hereof; or,
(d) Failure by the respective parties hereunder or thereunder to
perform any other term, condition or covenant of this Note or any
other agreement, instrument or document delivered pursuant hereto
or in connection herewith or therewith, which shall remain
unremedied for a period of 30 days after notice thereof shall have
been given by the Bank to the Company; or,
(e) (i) Failure to perform any term, condition or covenant of any
bond, note, debenture, loan agreement, indenture, guaranty, trust
agreement, mortgage or other instrument or agreement in connection
with the borrowing of money or the obtaining of advances or credit
to which the Company or any Subsidiary (as defined in the Note
Agreement) is a party or by which it is bound, or by which any of
its properties or assets may be affected (a "Debt Instrument"), so
that, as a result of any such failure to perform (regardless of the
satisfaction of any requirement for the giving of appropriate
notice thereof or the lapse of time), the indebtedness included
therein or secured or covered thereby may be declared due and
payable prior to the date on which such indebtedness would
otherwise become due and payable; or,
(ii) any event or condition referred to in any Debt Instrument
shall occur or fail to occur, so that, as a result thereof
(regardless of the satisfaction of any requirement for the giving
of appropriate notice thereof or the lapse of time), the
indebtedness included therein or secured or covered thereby may be
declared due and payable prior to the date on which such
indebtedness would
<PAGE>
otherwise become due and payable; or,
(iii) any indebtedness included in any Debt Instrument or secured
or covered thereby is not paid when due; or,
(f) Any representation or warranty made in writing to the Bank in
this Note or in connection with the making of the Loan or any
certificate, statement or report made in compliance with this Note,
shall have been false in any material respect when made; or,
(g) An order for relief under the Federal Bankruptcy Code as now or
hereafter in effect, shall be entered against the Company or any
Subsidiary; or the Company or any Subsidiary shall become
insolvent, generally fail to pay its debts as they become due, make
an assignment for the benefit of creditors, file a petition in
bankruptcy, be adjudicated insolvent or bankrupt, petition or apply
to any tribunal for the appointment of a receiver or any trustee
for it or a substantial part of its assets, or shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution, or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or if there
shall have been filed any such petition or application, or any such
proceeding shall have been commenced against it, which remains
undismissed for a period of thirty days or more, or the Company or
any Subsidiary or endorser or guarantor hereof by any act or
omission shall indicate its consent to approval of or acquiescence
in any such petition, application or proceeding or the appointment
of a receiver of or any trustee for it or any substantial part of
any of its properties, or shall suffer any such receivership or
trusteeship to continue undischarged for a period of thirty days or
more; or,
(h) Any judgment against the Company or any Subsidiary or any
attachment, levy or execution against any of its properties for an
amount in excess of $5,000,000 shall remain unpaid, unstayed on
appeal, undischarged, unbonded or undismissed for a period of sixty
days or more. (The term "Subsidiary" shall have the same meaning
as defined in the Note Agreement, and for the purposes of this Note
is not subject to alteration by any amendment, modification,
supplement, consent or waiver in connection with the Note
Agreement.)
4. Miscellaneous.
(a) All agreements, representations and warranties made herein
shall survive the delivery of this Note. The Company waives trial
by jury, set-off and counterclaim of any nature or description in
any litigation in any court with respect to, in connection with, or
arising out of, this Note or any instrument or document delivered
pursuant hereto or the validity, protection, interpretation,
collection or enforcement hereof.
<PAGE>
(b) No modification or waiver of or with respect to any provision
of this Note, or consent to any departure by the Company from any
of the terms or conditions hereof, shall in any event be effective
unless it shall be in writing and signed by the Bank, and then such
waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice to or demand on the
Company in any case shall, of itself, entitle it to any other or
further notice or demand in similar or other
circumstances.
(c) Each and every right granted to the Bank hereunder or under
any other document delivered hereunder or in connection herewith,
or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of the Bank or
the holder of this Note to exercise, and no delay in exercising,
any right shall operate as a waiver thereof, nor shall any single
or partial exercise of any right preclude any other or future
exercise thereof or the exercise of any other right.
(d) In the event that this Note is placed in the hands of an
attorney for collection by reason of any default hereunder, the
Company agrees to pay reasonable attorney's fees so incurred. The
Company promises to pay all expenses of any nature as soon as
incurred whether in or out of court and whether incurred before or
after this Note shall become due at its maturity date or otherwise
and costs which the Bank may deem necessary or proper in connection
with the satisfaction of the indebtedness.
(e) The Company hereby waives presentment, demand for
payment, protest, notice of protest, notice of dishonor, and any or
all other notices or demands except as otherwise expressly provided
for herein.
(f) All accounting terms not otherwise defined in this Note shall
have the meaning ascribed thereto under generally accepted
accounting principles.
5. Notices. All notices, requests and other communications
pursuant to this Note shall be in writing, either by letter
(delivered by hand or sent by certified mail, return receipt
requested) or telegram, addressed as follows:
(a) if to the Company:
Mercury Finance Company
40 Skokie Boulevard, Suite 200
Northbrook, Illinois 60062
Attention: President
and,
(b) if to the Bank:
<PAGE>
The Long-Term Credit Bank of Japan, Ltd.
Chicago Branch
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Mr. John R. Carley, Vice President
Any notice, request or communication hereunder shall be deemed to
have been given when deposited in the mails, postage prepaid,
addressed as aforesaid. Any party may change the person or address
to whom or which the notices are to be given hereunder, but any
such notice shall be effective only when actually received by the
party to whom it is addressed.
6. Assignments and Participations. The Bank may assign, transfer
or grant participations in this Note and the Loan at any time.
7. Governing Law. This Note and the rights and obligations of
the parties shall be construed and interpreted in accordance with
the laws of the State of New York.
(a) The Company agrees that, in addition to the right of the Bank
to commence and maintain actions and proceedings in any other
jurisdiction pursuant to this Note, all actions and proceedings
relating directly or indirectly to this Note may be litigated in
U.S. Federal and New York State courts located within the State of
New York, and the Company irrevocably submits to the nonexclusive
personal jurisdiction of such courts. THE COMPANY IRREVOCABLY
WAIVES TRIAL BY JURY AND ANY OBJECTION, INCLUDING WITHOUT
LIMITATION, OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE
TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
JURISDICTION.
(b) The Company agrees to maintain at all times a duly appointed
authorized agent for the service of process of the aforesaid
courts. The Company hereby appoints CT Corporation System or a
substitute person or entity (with prior notification to the Bank)
as its agent ("Process Agent"), to receive on behalf of it and its
property service of copies of the summons and complaint and any
other process which may be served by the Bank and irrevocably
agrees that it will not permit such appointment to be terminated or
in any way modified. Service may be made by mailing or delivering
a copy of such process to the Company in care of the Process Agent
and by notifying the Company of such mailing or delivery, and the
Company irrevocably authorizes and directs the Process Agent to
accept such service on its behalf. A an alternative method of
service, the Company also irrevocably consents to the service of
any and all process in any such action or proceeding by the mailing
of copies of such process at its address specified in Section 5 by
certified or registered United States mail, postage prepaid, return
receipt requested. The Company agrees that any final judgment in
any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law and hereby irrevocably submits to the
jurisdiction of the courts of each jurisdiction in which any person
shall seek to enforce such judgment. Nothing herein shall affect
the right of the Bank to serve legal process in any other manner
permitted by law or affect the right of the Bank to bring any
action or proceeding against the Company or its property in the
courts of any other jurisdiction.
MERCURY FINANCE COMPANY
By Charley A. Pond
Charley A. Pond
Its Vice President and Treasurer
