SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 6, 1997
Mercury Finance Company
(Exact name of registrant as specified in charter)
Delaware 1-10176 36-3627010
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
100 Field Drive, Lake Forest, Illinois 60045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 295-8600
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events.
The Registrant hereby files its Consolidated Financial Statements as of
December 31, 1996, 1995 (As Restated), and 1994, which are attached hereto as
Exhibit 99.1 to this Form 8-K and incorporated herein by reference.
On November 6, 1997, the Registrant issued a press release, a copy of which
is attached hereto as Exhibit 99.2 to this Form 8-K and incorporated herein by
reference.
The Registrant has also entered into a First Amendment to Forbearance
Agreement dated as of November 6, 1997 between the Registrant and certain
lenders, a Fourth Limited Waiver Agreement dated as of November 6, 1997
between the Registrant and certain lenders, a Fourth Limited Waiver
Agreement dated as of November 6, 1997 between the Registrant and Credit
Suisse First Boston Management, a Fourth Limited Waiver Agreement dated as of
November 6, 1997 between the Registrant and PaineWebber, Inc., and a
Forbearance and Fourth Limited Waiver Agreement dated as of November 6, 1997
between the Registrant and Credit Suisse First Boston Management Corporation,
each of which is attached hereto as Exhibits 99.3, 99.4, 99.5, 99.6 and 99.7,
respectively, to this form 8-K and are incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description of Document
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG Peat Marwick LLP
99.1 The Registrant's Consolidated Financial Statements as
of December 31, 1996, 1995 (As Restated), and 1994.
99.2 Press release dated November 6, 1997 issued by the
Registrant.
99.3 First Amendment to Forbearance Agreement dated as of
November 6, 1997 between the Registrant and certain
lenders.
99.4 Fourth Limited Waiver Agreement dated as of
November 6, 1997 between the Registrant and certain
lenders.
99.5 Fourth Limited Waiver Agreement dated as of
November 6, 1997 between the Registrant and Credit
Suisse First Boston Management.
99.6 Fourth Limited Waiver Agreement dated as of
November 6, 1997 between the Registrant and
PaineWebber, Inc.
99.7 Forbearance and Fourth Limited Waiver Agreement
dated as of November 6, 1997 between the Registrant
and Credit Suisse First Boston Management
Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Mercury Finance Company
Date: November 6, 1997 By: /s/ William A. Brandt, Jr.
Its: President
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated October 10, 1997, included in this form 8-K, into Mercury Finance
Company's previously filed Form S-8 Registration Statement File Nos. 33-28513
and 33-28693 and Form S-8 Registration Statement dated June 26, 1989 and Form S-
8A dated July 6, 1989.
/s/ Arthur Andersen LLP
Chicago, Illinois
October 29, 1997
EXHIBIT 23.2
Consent of Independent Public Accountants
The Board of Directors
Mercury Finance Company:
RE: REGISTRATION STATEMENTS ON FORM S-8
- Employee Stock Purchase Plan
- 1989 Stock Option and Incentive Compensation Plan
- 401(k) Plan
We consent to incorporation by reference in the subject Registration Statements
(filed with the Securities and Exchange Commission on May 3, 1989, May 11, 1989
and June 26, 1989) of Mercury Finance Company of our report dated February 12,
1996 except as to notes 2, 5, 12, 14, and 15 which are dated as of October 27,
1997, relating to the consolidated balance sheet of Mercury Finance Company and
subsidiaries as of December 31, 1995, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for each of the years in
the two-year period ended December 31, 1995, which report appears in the
December 31, 1996 financial statements filed on Form 8-K of Mercury Finance
Company.
/s/ KPMG Peat Marwick
Chicago, Illinois
October 29, 1997
EXHIBIT 99.1
Mercury Finance Company
And Subsidiaries
Financial Statements
As of December 31, 1996, 1995 (As Restated), and 1994
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Mercury Finance Company:
We have audited the accompanying consolidated balance sheet of Mercury Finance
Company and subsidiaries as of December 31, 1996, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mercury Finance Company and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
As further discussed in Notes 1 and 5 to the financial statements, effective in
1996, the Company changed its methodology for evaluating the adequacy of the
allowance for finance credit losses by adopting a static pooling methodology.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, on January 29, 1997, the Company announced accounting
irregularities, discovered subsequent to December 31, 1996, causing it to
violate its debt covenants which curtailed the availability of credit and caused
the Company to miss scheduled debt payments. Also, as discussed in Note 16, the
Company incurred significant losses in 1996 and is continuing to incur losses in
1997. In addition, as further described in Note 10, the Company has been named
as a defendant in litigation generally arising from the restatement of earnings
for 1995 and interim earnings for 1996 as a result of the accounting
irregularities. The Securities and Exchange Commission and the United States
Attorney for the Northern District of Illinois have also commenced
investigations. Management's plans in regard to these matters are described in
Notes 10 and 16. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Chicago, Illinois
October 10, 1997
Independent Auditors' Report
The Board of Directors and Shareholders
Mercury Finance Company:
We have audited the accompanying consolidated balance sheet of Mercury Finance
Company and subsidiaries as of December 31, 1995, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each
of the years in the two-year period ended December 31, 1995. 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 disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Mercury Finance Company and subsidiaries as of December 31, 1995, and the
results of their operations and their cash flows for each of the years in
the two-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick
February 12, 1996, except as to notes 2, 5, 12, 14, and 15
which are dated as of October 27, 1997
Chicago, Illinois
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(dollars in thousands) December 31,
1996 1995
(as restated)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 20,957 $ 22,967
Short-term investments (at amortized cost which
approximates fair value) 43,411 48,114
Investments available-for-sale, at fair value 161,781 181,304
Investments held-to-maturity, at cost (fair value of $8,025
and $12,909) 7,765 12,625
Finance Receivables 1,160,423 1,197,776
Less allowance for finance credit losses (97,762) (46,366)
Less nonrefundable dealer reserves (89,378) (61,961)
FINANCE RECEIVABLES, NET 973,283 1,089,449
Deferred income taxes, net 33,356 21,353
Income taxes receivable 53,764
Premises and equipment (at cost, less accumulated
depreciation of $9,157 and $7,247) 7,266 7,022
Goodwill 14,463 15,274
Reinsurance receivable 93,458 89,962
Deferred acquisition costs and present value of future
profits 62,809 23,242
Other assets (including repossessions) 71,047 86,786
TOTAL ASSETS $ 1,543,360 $ 1,598,098
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Senior debt, commercial paper and notes $ 525,051 $ 489,990
Senior debt, term notes 488,625 438,750
Subordinated notes 22,500 29,500
Accounts payable and other liabilities 81,282 70,268
Unearned premium and claim reserves 239,573 195,761
Reinsurance payable 17,444 105,081
Income taxes payable 9,261
TOTAL LIABILITIES 1,374,475 1,338,611
CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY
Common stock - $1.00 par value per share:
300,000,000 shares authorized
1996 - 177,719,447 shares outstanding
1995 - 176,477,520 shares outstanding 177,719 176,478
Paid in capital 6,539 39
Retained earnings 37,349 118,138
Unrealized appreciation on available-for-sale securities,
net of tax 942 1,969
Treasury stock - 5,402,957 and 3,896,557 shares, at cost (53,664) (37,137)
TOTAL SHAREHOLDERS' EQUITY 168,885 259,487
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,543,360 $ 1,598,098
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(dollars in thousands, except per share amounts) Years ended December 31,
1996 1995 1994
(as restated)
<S> <C> <C> <C>
INTEREST INCOME
Finance charges and loan fees $ 258,602 $ 249,913 $ 210,891
Investment income 13,287 5,153 674
Total finance charges, fees and investment income 271,889 255,066 211,565
Interest expense 64,789 57,303 39,375
Interest income before provision for finance
credit losses 207,100 197,763 172,190
Provision for finance credit losses 215,171 32,641 7,376
NET INTEREST INCOME (LOSS) (8,071) 165,122 164,814
OTHER INCOME
Insurance commissions 3,929 21,365 20,507
Insurance premiums 83,277 29,686 9,056
Fees and other 14,779 7,298 11,344
TOTAL OTHER INCOME 101,985 58,349 40,907
OTHER EXPENSES
Salaries and employee benefits 54,942 48,590 36,852
Occupancy expense 5,923 4,880 3,730
Equipment expense 3,158 2,041 1,665
Data processing expense 2,366 3,071 2,551
Incurred insurance claims and other underwriting
expense 47,243 17,703 2,722
Other operating expenses 29,665 27,078 17,211
TOTAL OTHER EXPENSES 143,297 103,363 64,731
Income (loss) before income taxes (49,383) 120,108 140,990
Provision (benefit) for income taxes (20,415) 45,979 54,445
NET INCOME (LOSS) $ (28,968) $ 74,129 $ 86,545
NET INCOME (LOSS) PER COMMON SHARE $ (0.17) $ 0.43 $ 0.49
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
(dollars in thousands, except per share amounts)
Common Paid in Retained Unrealized Treasury
Stock Capital Earnings Appreciation Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $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 ($.19 per share) (33,581) (33,581)
Treasury stock acquired (22,936) (22,936)
Balance at December 31, 1994 116,080 6,384 128,157 (23,107) 227,514
1995 net income (as restated) 74,129 74,129
Stock options exercised 1,573 11,181 12,754
Cash dividends ($.25 per share) (42,849) (42,849)
Transfer to Paid in Capital 41,299 (41,299)
Three for two stock split 58,825 (58,825)
Unrealized appreciation on
available-for-sale securities,
net of tax 1,969 1,969
Treasury stock acquired (14,030) (14,030)
Balance at December 31, 1995
(as restated) 176,478 39 118,138 1,969 (37,137) 259,487
1996 net loss (28,968) (28,968)
Stock options exercised 1,241 6,500 7,741
Cash dividends ($.25 per share) (51,821) (51,821)
Unrealized depreciation on
available-for-sale securities,
net of tax (1,027) (1,027)
Treasury stock acquired (16,527) (16,527)
Balance at December 31, 1996 $177,719 $ 6,539 $ 37,349 $ 942 $(53,664) $ 168,885
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(dollars in thousands) Years ended December 31,
1996 1995 1994
(as restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (28,968) $ 74,129 $ 86,545
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for finance credit losses 215,171 32,641 7,376
Credit for deferred income taxes (11,432) (10,595) (1,779)
Depreciation and amortization 5,207 4,361 1,498
Gain on sale of investment securities (769) (19) (24)
Net increase in reinsurance receivable (3,496) (37,476)
Net increase in deferred acquisition costs and
present value of future profits (39,567) (2,176) (220)
Net increase in taxes receivable (53,764)
Net (increase) decrease in other assets 15,739 (14,044) (13,008)
Net decrease in reinsurance payable (87,637) (14,116)
Net increase in unearned premium and claim reserves 43,812 10,970 10
Net increase (decrease) in taxes payable (9,261) 4,593 1,441
Net increase (decrease) in other liabilities (1,920) 3,120 13,478
Net increase (decrease) in nonrefundable dealer reserves (47,032) (4,516) 5,727
Net cash provided by (used in) operating activities (3,917) 46,872 101,044
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on finance receivables 860,190 825,779 690,508
Principal originated or acquired on finance receivables (912,163) (992,450) (887,902)
Purchases of investment securities (24,010) (7,896)
Purchases of short term and available for sale investment
securities (83,816)
Purchases of held to maturity investment securities (8,480)
Proceeds from sales and maturities of short term and
available for sale investment securities 104,774 55,694 3,938
Proceeds from maturities of held to maturity investment
securities 13,393 3,413 331
Net purchase of premises and equipment (2,254) (4,683) (1,456)
Assets acquired (393,318) (26,014)
Liabilities assumed 310,519 16,866
Net assets acquired 0 (82,799) (9,148)
Purchase price less than (in excess of) fair value of net
assets acquired 10,299 (5,905)
Net cash used in investing activities (28,356) (208,757) (217,530)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings of senior debt, commercial paper and
notes 35,061 40,045 184,485
Borrowings of senior debt, term notes 90,000 200,000 30,000
Repayments of senior debt, term notes (40,125) (26,625) (35,125)
Repayments of subordinated notes (7,000) (6,000) (2,320)
Stock options exercised 7,741 12,754 3,959
Cash dividends paid (38,887) (42,849) (33,581)
Treasury stock acquired (16,527) (14,030) (22,936)
Net cash provided by financing activities 30,263 163,295 124,482
Net increase (decrease) in cash and cash equivalents (2,010) 1,410 7,996
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 22,967 19,980 11,621
CASH ACQUIRED 1,577 363
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,957 $ 22,967 $ 19,980
Supplemental Disclosures
Income taxes paid to federal and state governments $ 40,092 $ 51,967 $ 53,262
Interest paid to creditors $ 62,079 $ 57,797 $ 39,502
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 (as restated) and 1994
(dollars in thousands except per share amounts)
1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mercury Finance Company ("Mercury" or the "Company") is a consumer finance
company doing business in 31 states under its own name and through its
subsidiaries MFC Finance Company, MERC Finance Company, Gulfco Investment Inc.
and subsidiary and Midland Finance Co. (the "consumer finance subsidiaries").
The Company also offers certain insurance services through its subsidiary,
Lyndon Property Insurance Company and subsidiaries ("Lyndon"). The Company's
borrowers generally would not be expected to qualify for traditional financing,
such as that provided by commercial banks or automobile manufacturers' captive
finance companies.
BASIS OF PRESENTATION
The accounting and reporting policies of Mercury conform to generally accepted
accounting principles for the finance and insurance industries. The
consolidated financial statements include the accounts of the Company, the
consumer finance subsidiaries and Lyndon. All significant intercompany accounts
and transactions have been eliminated. In addition, certain amounts from prior
years have been reclassified to conform to the 1996 presentation.
REVENUE RECOGNITION - CONSUMER FINANCE SUBSIDIARIES
Finance charges on precomputed loans and sales finance contracts (collectively
referred to as "precompute accounts") 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 (actuarial) method to produce
constant rates of interest (yields). If a precompute account becomes greater
than 60 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 when an account is 60 or more days contractually delinquent. Late
charges and deferment charges on all contracts are taken into income as
collected. 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 Lyndon 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, accident and health and
property insurance from unaffiliated insurers are earned by Mercury over the
average terms of the related policies on the sum-of-the-months digits method.
See Note 3 for a discussion of the disposition of Lyndon.
Lyndon is engaged in the business of reinsuring and direct writing of credit
life, accident and health and various other property and casualty insurance
policies issued to borrowers under direct consumer loan and sales finance
contracts originated by Mercury and other companies. 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. Insurance
premiums are earned over the life of the contracts principally using pro-rata
and sum-of-the-months digits methods or in relation to anticipated benefits to
the policy holders.
Lyndon has established policy liabilities and claim reserves. The claim
reserves are based upon accumulated estimates of claims reported, plus estimates
of incurred but unreported claims.
FINANCE RECEIVABLES, ALLOWANCE FOR FINANCE CREDIT LOSSES AND NONREFUNDABLE
DEALER RESERVES
Mercury originates direct consumer loans and acquires individual sales finance
contracts from third party dealers. Finance receivables consist of
contractually scheduled payments from sales finance contracts net of unearned
finance charges, direct finance receivables and credit card receivables. The
Company's borrowers typically have limited access to traditional sources of
consumer credit due to past credit history or insufficient cash to make the
required down payment on an automobile. As a result, receivables originated or
acquired by the Company are generally considered to have a higher risk of
default and loss than those of other consumer financings.
Statement of Financial Accounting Standards ("SFAS") 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases," 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 the
Company's reported results of operations or financial condition.
Unearned finance charges represent the balance of finance income (interest)
remaining from the capitalization of the total interest to be earned over the
original term of the related precompute account.
Mercury acquires a majority of its sales finance contracts from dealers at a
discount. The level of discount is based on, among other things, the credit
risk of the borrower. The discount, which is the difference between the amount
financed and the acquisition cost, represents nonrefundable dealer reserves
which are available to absorb future credit losses over the life of the acquired
loan. Historical loss experience on the Company's sales finance receivables has
shown that the acquisition discount recorded as nonrefundable dealer reserves is
not adequate to cover potential losses over the life of the loans. In 1996,
Mercury adopted a reserving methodology commonly referred to as "static
pooling". The method previously used by the Company analyzed reserve adequacy
on a total portfolio basis. The static pooling reserving methodology allows
Mercury to stratify components of its sales finance receivables portfolio (i.e.,
non refundable dealer reserves, principal loan balances, and related loan
charge-offs) into separately identified and chronologically ordered monthly
pools. A portion of the dealer reserve is made available to cover estimated
credit losses for each identified monthly pool based on a pro rata calculation
over the weighted average term of each specific pool.
The allowance for finance credit losses is maintained by direct charges to
operations in amounts that are intended to provide adequate reserves on the
Company's finance receivables portfolio to absorb possible credit losses
incurred on loans that are considered to be impaired in excess of the available
nonrefundable dealer reserves. Management evaluates the allowance requirements
by examining current delinquencies, the characteristics of the accounts, the
value of the underlying collateral, the availability of the nonrefundable dealer
reserves to absorb credit losses on impaired loans and general economic
conditions and trends.
The Company applies SFAS 114 and 118, which address the accounting by creditors
for impairment of a loan and related income recognition and disclosures. In
accordance with SFAS 114, the Company's approach for estimating losses results
in a measure of impairment based on discounting expected future cash flows
(including the anticipated proceeds from repossessed collateral) at the loan's
original yield. If the measure of the impaired receivable is less than the net
recorded investment in the receivable, the Company recognizes an impairment by
creating an additional allowance for finance credit losses in excess of the
nonrefundable dealer reserves available to absorb losses, with a corresponding
charge to provision for finance credit losses. Generally, the Company considers
receivables more than 60 days contractually delinquent to be impaired.
Direct installment loans on which no payment is received within 149 days, on a
recency basis, are charged off. Sales finance accounts (net of unearned finance
charges) which are contractually delinquent 150 days are charged off monthly
before they become 180 days delinquent. Accounts which are deemed uncollectable
prior to the maximum charge-off period are charged off immediately. Management
may authorize a temporary extension if collection appears imminent during the
next calendar month.
INVESTMENTS
The Company classifies its investments as held-to-maturity securities and
available-for-sale securities. Held-to-maturity securities are reported at
cost, adjusted for amortization of premium or discount, and available-for-sale
securities are reported at fair value with unrealized gains and losses excluded
from earnings and reported in a separate component of stockholder's equity, net
of applicable income taxes.
Fair values for held-to-maturity and available-for-sale fixed maturity
securities are based on quoted market prices, where available. For securities
not actively traded, fair values are estimated using values obtained from
independent pricing services. Short-term investments are carried at cost, which
approximates their fair value. Realized gains and losses from sales or
liquidation of investments are determined using the specific identification
basis.
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.
REINSURANCE ACTIVITIES
In the normal course of business, Lyndon assumes and cedes reinsurance on both a
pro rata and excess basis. Reinsurance provides greater diversification of
business and limits the maximum net loss potential arising from large claims.
Although the ceding of reinsurance does not discharge an insurer from its
primary legal liability to a policy holder, the reinsuring company assumes the
related insurance risk. Lyndon monitors the financial condition of its
reinsurers on a periodic basis.
DEFERRED ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS
Policy acquisition costs, representing commissions, premium taxes and certain
other underwriting expenses, are deferred and amortized over policy terms.
Estimates of future revenues, including investment income and tax benefits, are
compared to estimates of future costs, including amortization of policy
acquisition costs, to determine if business currently in force is expected to
result in a net loss. No revenue deficiencies have been determined in the
periods presented. The present value of future profits represents the portion
of the purchase price of Lyndon allocated to the future profits attributable to
the insurance in force at the date of acquisition. The present value of future
profits is amortized in relationship to the expected emergence of such future
profits.
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return
and individual state tax returns in most states.
Mercury recognizes deferred tax assets and liabilities 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. 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.
The Company evaluates reserves for deferred tax assets to determine whether they
are deemed to be likely of realization. In making its determination, management
considers the possible recovery of taxes already paid but does not assume the
generation of additional taxable income in the future. No reserves against
deferred tax assets were considered necessary in 1996 and 1995.
IMPAIRMENT OF LONG-LIVED ASSETS
In March, 1995, the Financial Accounting Standards Board ("the FASB") issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to
be Disposed of," which is effective for financial statements issued for fiscal
years beginning after December 15, 1995. SFAS 121 requires that long-lived
assets and certain identifiable intangibles that are used in operations be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of assets might not be recoverable. The adoption of
SFAS 121 did not have a material effect on the Company's financial condition or
results of operations.
At each balance sheet date, the Company evaluates the realizability of goodwill
(and other intangibles) based on expectations of non-discounted cash flows and
operating income for each subsidiary having a material goodwill balance. The
Company believes that no material impairment of goodwill exists at December 31,
1996.
STOCK-BASED COMPENSATION
In October, 1995, the FASB issued SFAS 123, "Accounting for Stock-based
Compensation" which is effective for fiscal years beginning after December 31,
1995. This statement defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting. The Company has elected, as permitted under
SFAS 123, to continue to measure compensation cost for its plan using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS 128, "Earnings per Share" and SFAS 129,
"Disclosure of Information about Capital Structure". SFAS 128 establishes
standards for computing and presenting earnings per share. SFAS 129 establishes
standards for disclosing information about an entity's capital structure. These
statements are effective for financial statements issued for periods ending
after December 15, 1997. Management does not expect the adoption of these
statements to have a significant impact on the financial position and results of
operations of the Company.
In July 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income.
Management does not expect the adoption of this statement to have a significant
impact on the financial position and results of operations of the Company. This
statement is effective for financial statements issued for periods beginning
after December 15, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. The accounts which are subject to such estimation
techniques include the allowance for finance credit losses as more fully
discussed in Note 5. Actual results could differ from these estimates.
2) RESTATEMENT OF 1995 FINANCIAL STATEMENTS
In January, 1997, Mercury discovered that certain improper adjustments had been
made to overstate earnings in previously issued financial statements. As a
result, a Special Committee of the Board of Directors commenced an investigation
of the misstatements of previously issued financial statements. As a result of
this investigation, Mercury has restated the previously reported financial
statements for 1995 as follows:
<TABLE>
<CAPTION>
<S> <C>
Decrease in finance charges
and loan fees $ 15,350
Increase in provision for
finance credit losses 1,800
Decrease in other income 19,562
Increase in other expenses 2,130
Decrease in income before
income taxes 38,842
Decrease in provision for
income taxes 14,064
Decrease in net income
for 1995 and decrease
in retained earnings as
of December 31, 1995 $ 24,778
Decrease in net income per
common share $0.14
</TABLE>
3) ACQUISITIONS AND DISPOSITIONS
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. This acquisition was accounted for under the purchase method
of accounting. Accordingly, Midland's results of operations have been included
in the consolidated 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 October 20, 1995, Mercury acquired all the shares of ITT Lyndon Property
Insurance Company and ITT Lyndon Life Insurance Company for $72.5 million in
cash and a note payable of $8.6 million due in connection with the run-off of
certain reinsurance business. ITT Lyndon Property Insurance Company and ITT
Lyndon Life Insurance Company conducted their business through a central office
in St. Louis, Missouri. Following the acquisition, the names of the companies
were changed to Lyndon Property Insurance Company and Lyndon Life Insurance
Company and Mercury contributed its investment in Twin Mercury Life Insurance
Company and Gulfco Life Insurance Company to Lyndon. The acquisition was
accounted for under the purchase method of accounting. Accordingly, their
results of operations have been included in the consolidated statements of
income and statements of cash flows since the date of acquisition.
As a result of the matters described in Note 2, subsequent to December 31, 1996,
Lyndon's claims paying ability was downgraded by A.M. Best to a rating of B with
negative implications. This action, together with regulatory concerns and the
liquidity needs of Mercury, caused Mercury to decide to dispose of Lyndon. On
March 28, 1997, Mercury executed a Stock Purchase Agreement between Mercury
Finance Company and Frontier Insurance Group, Inc. ("Frontier") for the sale of
Lyndon to Frontier for $92 million. The sale, which closed on June 3, 1997,
resulted in a loss to Mercury of approximately $25 million net of earnings
through the date of sale. This loss was reflected in Mercury's 1997 first
quarter consolidated statement of income. Management has determined that it is
in the best interest of the Company to remain in the insurance business and
formed a new captive insurance subsidiary during 1997, MFN Insurance Company.
As a result, the sale of Lyndon is not considered the discontinuation of a
business. The loss associated with the sale of Lyndon will not be tax
deductible to the Company as a loss on the sale of a consolidated subsidiary is,
under certain circumstances, not deductible for tax purposes.
4) INVESTMENTS
All investment securities are held by Lyndon, other than short-term
investments. See Note 3 for discussion of disposition of Lyndon. The
amortized cost, gross unrealized gains and losses and approximate fair
values for available-for-sale and held-to-maturity securities by major
security type at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1996
AVAILABLE-FOR-SALE:
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 9,490 $ 13 $ (78) $ 9,425
Obligations of states and
political subdivisions 68,397 1,378 (391) 69,384
Corporate securities 63,629 882 (443) 64,068
Mortgage backed
securities 18,816 166 (78) 18,904
Total available-for-sale $160,332 $ 2,439 $(990) $161,781
HELD-TO-MATURITY:
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $2,833 $ 17 $(31) $2,819
Obligations of states and
political subdivisions 3,787 75 (1) 3,861
Corporate securities 850 33 0 883
Other securities 295 174 (7) 462
Total held-to-maturity $7,765 $299 $(39) $8,025
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
December 31, 1995
AVAILABLE-FOR-SALE:
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 10,802 $ 75 $ (3) $ 10,874
Obligations of states and
political subdivisions 50,864 853 (142) 51,575
Corporate securities 91,672 2,246 (1) 93,917
Mortgage backed
securities 14,238 37 (18) 14,257
Other securities 10,681 0 0 10,681
Total available-for-sale $178,257 $3,211 $(164) $181,304
HELD-TO-MATURITY:
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 1,950 $ 27 $ (3) $ 1,974
Obligations of states and
political subdivisions 2,994 77 (1) 3,070
Corporate securities 1,046 70 0 1,116
Other securities 6,320 0 0 6,320
Equity securities 315 121 (7) 429
Total held-to-maturity $ 12,625 $ 295 $ (11) $ 12,909
</TABLE>
At December 31, 1996 the amortized cost and estimated market value of available-
for-sale and held-to-maturity securities are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
December 31, 1996
AVAILABLE-FOR-SALE
Due in one year or less $ 13,747 $ 13,291
Due after one year through five years 54,042 54,377
Due after five years through ten years 29,012 29,568
Due after ten years 44,715 45,641
Mortgage-backed securities 18,816 18,904
Total available-for-sale 160,332 161,781
HELD-TO-MATURITY
Due in one year or less 681 685
Due after one year through five years 3,022 3,036
Due after five years through ten years 2,460 2,504
Due after ten years 1,602 1,800
Total held-to-maturity 7,765 8,025
Total debt investment securities $168,097 $169,806
</TABLE>
5) 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 generally accounted for on a discount
basis and generally have terms of 18 to 36 months with maximum terms of 48
months. Mercury Card receivables are mainly unsecured balances. The
Company's finance receivables are primarily with individuals located in the
southeastern, central and western United States. As of December 31, 1996,
approximately 19.9%, 18.9% and 9.6% of finance receivables were from
branches located in Florida, Texas and Louisiana, respectively. Loans
outstanding at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
DIRECT FINANCE RECEIVABLES
Interest bearing $ 25,117 $ 39,862
Precompute 127,516 112,263
Total direct finance receivables 152,633 152,125
SALES FINANCE RECEIVABLES
Total sales finance receivables 1,159,848 1,256,631
Total gross finance receivables 1,312,481 1,408,756
Less: Unearned finance charges (228,405) (234,792)
Unearned commissions,
insurance premiums and
insurance claim reserves (7,253) (8,720)
Total net finance receivables 1,076,823 1,165,244
UNSECURED CREDIT CARD
Total unsecured credit card 83,600 32,532
Total finance receivables $1,160,423 $1,197,776
</TABLE>
Included in finance receivables at December 31, 1996 and 1995 were $69,507 and
$41,249, 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, 1996 and 1995, but experience has shown that
such information is not an accurate forecast of the timing of future cash
collections due to the amount of renewals, conversions, repossessions, or
payoffs prior to actual maturity.
Repossessed assets, classified as other assets, primarily consists of vehicles
held for resale and vehicles which have been sold for which payment has not been
received. Repossessed assets are carried at estimated fair value. At December
31, 1996 and 1995, repossessed assets totaled approximately $6,700 and $10,621,
respectively.
Principal cash collections (excluding finance charges earned) for the years
ended December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
DIRECT FINANCE RECEIVABLES
Principal cash collections $125,494 $105,901
Percent of average net balances 97% 98%
SALES FINANCE RECEIVABLES
Principal cash collections $646,481 $728,641
Percent of average net balances 65% 72%
</TABLE>
At the direction of new management in 1997, a thorough review of the finance
receivable portfolio was performed which resulted in substantial additional
provisions for finance credit losses in 1996. Effective January, 1996, Mercury
converted to a more sophisticated portfolio manager software system, which
enables the Company to perform a more comprehensive loan analysis. As further
discussed in Note 1, effective in 1996 the Company adopted static pooling. In
management's view, static pooling provides a more sophisticated and
comprehensive analysis of the adequacy of the reserves and is preferable to the
method previously used. If management had not adopted static pooling, the 1996
provision for finance credit losses would have been decreased by approximately
$89 million.
As a part of its adoption of the static pooling reserving methodology, the
Company adjusted its newly identified nonrefundable dealer reserve pools to
eliminate any negative pools, (i.e., those where related loan charge-offs
exceeded available nonrefundable dealer reserve pool balances), and to reflect
certain previous sales finance charge-offs as reductions in dealer reserves as
opposed to reductions in the allowance for finance credit losses. The net
effect of these adjustments was to increase nonrefundable dealer reserves by $74
million and decrease the allowance for finance credit losses by a corresponding
amount. A summary of the activity in the allowance for finance credit losses
for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 46,366 $22,488 $18,344
Allowance acquired - - 1,052
Provision for finance credit losses 215,171 32,641 7,376
Finance receivables charged off,
net of recoveries (89,326) (8,763) (4,284)
Transfer to non-refundable dealer
reserves (74,449) - -
Balance at end of year $ 97,762 $46,366 $22,488
</TABLE>
A summary of the activity in nonrefundable dealer reserves for the years ended
December 31, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 61,961 $ 66,477 $ 57,241
Discounts acquired on new volume 67,442 98,559 84,252
Transfer from the allowance for
finance credit losses 74,449 - -
Losses absorbed, net of recoveries (114,474) (96,117) (70,419)
Other - (6,958) (4,597)
Balance at end of year $ 89,378 $ 61,961 $ 66,477
</TABLE>
6) SENIOR AND SUBORDINATED DEBT AND LINES OF CREDIT
As a result of the 1996 net loss, accounting irregularities, and related
matters, Mercury violated its debt and financial covenants permitting the
holders of its Senior Term Notes and Subordinated Debt to accelerate all such
debt which, if accelerated, would result in all of such debt being currently due
and payable. In addition, the Company is no longer permitted by the terms of
certain debt instruments to pay dividends. Senior and subordinated debt at
December 31, 1996 and 1995, consisted of the following (assuming that the
Company remained in compliance with its debt covenants):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
SENIOR DEBT, COMMERCIAL PAPER AND NOTES $525,051 $489,990
SENIOR DEBT, TERM NOTES
Due 1996 - interest rate 9.00% $ 0 $ 25,000
Due 1996 - interest rate 6.41% 0 15,000
Due 1996 - interest rate 7.13% 0 125
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% 125 125
Due 1997 - interest rate 6.41% 40,000 40,000
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 20,000
Due 1998 - interest rate 8.50% 10,000 10,000
Due 1998 - interest rate 7.13% 1,000 1,000
Due 1998 - interest rate 7.16% 25,000 25,000
Due 1999 - interest rate 6.56% 20,000 0
Due 1999 - interest rate 6.76% 31,000 0
Due 1999 - interest rate 7.33% 30,000 30,000
Due 2000 - interest rate 6.66% 10,000 0
Due 2000 - interest rate 6.94% 15,000 0
Due 2000 - interest rate 7.42% 58,000 58,000
Due 2001 - interest rate 7.02% 10,000 0
Due 2001 - interest rate 7.50% 30,000 30,000
Due 2002 - interest rate 7.14% 4,000 0
Due 2002 - interest rate 7.59% 17,000 17,000
TOTAL SENIOR DEBT, TERM NOTES $488,625 $438,750
SUBORDINATED DEBT
Due 1996 - interest rate 9.76% $ 0 $ 4,000
Due 1996 - interest rate 10.86% 0 3,000
Due 1997 - interest rate 9.76% 12,000 12,000
Due 1997 - interest rate 10.86% 3,000 3,000
Due 1998 - interest rate 10.86% 7,500 7,500
TOTAL SUBORDINATED DEBT $ 22,500 $ 29,500
</TABLE>
The following table sets forth information with respect to future maturities of
senior and subordinated debt at December 31, 1996 (assuming that the Company
remained in compliance with its debt covenants):
<TABLE>
<CAPTION>
Senior Debt
Commercial Senior Debt Subordinated
Paper & Notes Term Notes Debt Total
<S> <C> <C> <C> <C>
1997 $ 525,051 $ 96,625 $ 15,000 $ 636,676
1998 - 167,000 7,500 174,500
1999 - 81,000 - 81,000
2000 - 83,000 - 83,000
2001 - 40,000 - 40,000
2002 - 21,000 - 21,000
TOTAL $ 525,051 $488,625 $ 22,500 $1,036,176
</TABLE>
As noted above, the Company is in default of its credit agreements. The Company
continues to negotiate with all of its lenders in an attempt to reach a
consensual agreement. See Note 16 for additional information.
The Company had a forbearance agreement with its creditors which, including
extensions, expired October 1, 1997. Under the terms of the forbearance
agreement, the Company made interest payments on senior debt through September
30, 1997 at default rates of interest, subject to a maximum rate of nine percent
(9.0%) and subordinated note holders received interest at a rate of five and
one-half percent (5.5%). In addition, the agreement required the periodic
payment of excess cash to be applied as reduction of outstanding principal.
Approximately $101 million of principal has been paid to creditors under the
forbearance agreement. The Company is currently negotiating the terms of an
additional extension of this forbearance agreement.
7) DIVIDEND RESTRICTIONS
Management does not expect that dividends will be paid in the foreseeable
future.
8) COMMON STOCK
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>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Weighted Average:
Common Shares 177,129,351 175,631,175 173,864,469
Treasury Shares (4,361,499) (3,182,283) (522,158)
Common Equivalents - 1,660,524 1,808,034
Total 172,767,852 174,109,416 175,150,345
</TABLE>
As the Company incurred a net loss for the year ended December 31, 1996, common
share equivalents totaling 923,236 would be anti-dilutive to earnings per share
and have not been included in the weighted average shares calculation.
The Company has determined that the implementation of SFAS 128 "Earnings Per
Share", would have had no effect on the calculated earnings per share for the
period ended December 31, 1996. This standard prescribes that when computing
the dilution of options, the Company is to use its average stock price for the
period, rather than the more dilutive greater of the average share price or end-
of-period share price required by APB Opinion 15. As the options are excluded
from the calculation due to the anti-dilutive characteristics indicated above,
there is no effect on the earnings per share calculation.
9) STOCK OPTIONS
Under the terms of Mercury's 1989 Stock Option and Incentive Compensation Plan
("the Plan"), 24,837,036 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 up to two years 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 employment. Shares available for future
grants totaled 134,055 and 891,055 at December 31, 1996 and 1995, respectively.
Activity with respect to stock options is as follows (as adjusted for all stock
splits):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Outstanding January 1 8,714,492 10,183,320 6,252,314
Options granted (average price of
$11.10 in 1996, $11.38 in 1995
and $11.17 in 1994) 1,300,250 1,582,375 4,622,625
Forfeited (543,250) (428,750) (45,000)
Options exercised (average price of
$4.48 in 1996, $3.12 in 1995
and $3.74 in 1994) (1,503,573) (2,622,453) (646,619)
Outstanding December 31 7,967,919 8,714,492 10,183,320
</TABLE>
The average option price under the plan was $10.53, $9.45 and $7.53 at December
31, 1996, 1995 and 1994, respectively.
Under the provisions of SFAS 123, the Company has elected to continue to account
for the Plan under the provisions of APB Opinion No. 25 and make the necessary
pro forma net income and earnings per share disclosures required by SFAS 123.
Subsequent to December 31, 1996, upon the announcement of the discovery of the
accounting irregularities and financial statement restatement described in Notes
2 and 16, the market value of the Company's common stock declined dramatically.
Management thus believes that the market value of the Company's common stock
during 1996 and 1995 was overstated. Because a key component of the fair value
calculation (and the related pro forma net income and earnings per share
disclosures) is the market value of the Company's stock, the fair value and
other disclosures required under SFAS 123 for 1996 and 1995 are not considered
meaningful.
On June 13, 1997, a number of the above options were canceled. Most employees
were re-granted their existing options at a new price of $3 per share. New
options were also granted to certain employees on this date. Management is
currently performing the calculation for the potential impact on the Company's
financial statements.
10) CONTINGENCIES AND LEGAL MATTERS
The Company has been named as a defendant in a variety of lawsuits generally
arising from the Company's announcement on January 29, 1997 that it would
restate previously reported financial information for prior years and interim
earnings for 1996 as a result of the discovery of accounting irregularities. To
date, forty-four actions against the Company are pending in United States
District Court for the Northern District of Illinois, six cases are pending
against the Company in Illinois Chancery Court, and nine cases are pending in
the Delaware Chancery Court. One case is pending in Hamilton County, Ohio,
Municipal Court. The complaints seek compensatory damages, attorneys' fees and
costs.
Forty of the lawsuits pending in the Northern District of Illinois are class
actions which allege claims under Section 10 of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. These lawsuits name one or more
officers or directors of the Company as additional defendants. One case pending
in the Northern District of Illinois alleges derivative claims seeking to
recover damages on behalf of the Company from certain of the Company's officers
and directors. Thirty-nine of the non-derivative cases pending in the Northern
District of Illinois were consolidated pursuant to a Stipulation entered on
April 30, 1997. Certain plaintiffs have filed motions for appointment of one or
more lead plaintiffs, each of which is pending. One of the cases pending in the
Northern District of Illinois seeks to represent a class of participants in
Mercury's employee retirement plan and alleges ERISA violations arising out of
the plan's investment in Mercury's allegedly overvalued stock. Two cases
pending in the Northern District of Illinois allege non-class securities fraud
and common law claims. Three of the Illinois state court actions are class
actions alleging claims under the Illinois Securities Act, the Illinois Consumer
Fraud and Deceptive Business Practices Act and common law claims of negligence,
fraud and negligent misrepresentation. The other Illinois state court actions
are derivative actions which seek to recover damages on behalf of the Company
from certain of the Company's officers and directors. Each of the Delaware
state court actions is a derivative action which seeks to recover damages on
behalf of the Company from certain of the Company's officers and directors. The
case pending in Municipal Court in Hamilton, Ohio, alleges violations of Ohio
State securities law and common law. The Company is unable to predict the
potential financial impact of the litigation.
The Securities and Exchange Commission is investigating the events giving rise
to the accounting irregularities. Those events are also under investigation by
the United States Attorney for the Northern District of Illinois and the Federal
Bureau of Investigation, which executed a search warrant on the Company's
premises on February 3, 1997. The Company is cooperating fully in these
investigations.
On January 10, 1997, the Company entered into an agreement (the "Agreement")
with BankBoston Corporation ("BankBoston") pursuant to which the Company was to
acquire all of the outstanding stock of Fidelity Acceptance Corporation, a
subsidiary of BankBoston, in return for the issuance of approximately 32.7
million shares of the Company's common stock. On January 30, 1997, BankBoston
notified the Company that it was terminating the Agreement as a result of
breaches of the Agreement resulting from the accounting irregularities described
above. On July 10, 1997, BankBoston notified Mercury that BankBoston intended
to seek appropriate compensation for its damages resulting from such breaches.
The Company is unable to predict the potential financial impact of the
litigation.
In the normal course of its business, Mercury and its subsidiaries are named as
defendants in legal proceedings. A number of such actions, including fifteen
cases which have been brought as putative class actions, are pending in the
various states in which subsidiaries of Mercury do business. It is the policy
of Mercury and its subsidiaries to vigorously defend litigation, but Mercury and
(or) its subsidiaries have and may in the future enter into settlements of
claims where management deems appropriate. Although management is of the
opinion that the resolution of these proceedings will not have a material effect
on the financial position of Mercury, it is not possible at this time to
estimate the amount of damages or settlement expenses that may be incurred.
No provision has been made in the consolidated financial statements for the
costs or expenses that have been or will be incurred subsequent to December 31,
1996 with respect to any of the above matters.
11) PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Substantially all employees of Mercury are covered by non-contributory defined
benefit pension plans. Total pension expense aggregated $770, $317, and $654 in
1996, 1995 and 1994 respectively.
The following table sets forth the funded status of Mercury's qualified plans
amounts recognized in the 1996, 1995 and 1994 consolidated financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Actuarial present value of
benefit obligation:
Accumulated benefit obligations,
including vested benefits of
$6,231, $5,631 and $4,407 $ 7,024 $ 6,430 $ 4,973
Projected benefit obligation
for service rendered to date $(10,686) $(9,763) $(7,596)
Plan assets at fair value 13,638 11,542 9,303
Plan assets in excess of
projected benefit obligation 2,952 1,779 1,707
Unrecognized net asset
as of December 31, being
recognized over 15-22 years (391) (442) (830)
Unrecognized net gain (3,272) (1,397) (437)
Unrecognized prior service cost 100 106 67
Prepaid (accrued) pension expense $ (611) $ 46 $ 507
Components of net pension expense:
Service cost-benefits earned
during the period $ 1,060 $ 884 $ 964
Interest cost on projected
benefit obligation 727 601 567
Actual return on plan assets (2,085) (1,743) 321
Net amortization and deferral 1,068 575 (1,198)
Net periodic pension expense $ 770 $ 317 $ 654
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.5% at December 31, 1996 and
1995, and 8.25% at December 31, 1994. The rates of increase in future
compensation were 5.5% - 7.0% at December 31, 1996, 1995 and 1994. The expected
long-term rate of return on plan assets in 1996, 1995 and 1994 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 these
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.
Subsequent to December 31, 1996, as discussed in Note 9, the market value of the
Company's common stock declined dramatically. At December 31, 1996, the
employee stock purchase plan, 401(k) Plan and Mercury Finance Company Retirement
Plan ("Retirement Plan") held significant shares of Mercury stock. All Mercury
stock held by the 401(k) Plan and Retirement Plan was sold during 1997.
12) INCOME TAXES
The components of the 1996, 1995 and 1994 provisions (benefits) were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CURRENT INCOME TAX EXPENSE (BENEFIT)
Federal $ (8,274) $47,858 $48,365
State (709) 8,716 7,859
Total (8,983) 56,574 56,224
Deferred income tax benefit (11,432) (10,595) (1,779)
Total income tax provision (benefit) $(20,415) $45,979 $54,445
</TABLE>
The differences between the U.S. federal statutory income tax rate and the
Company's effective rate are:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory federal income tax (35.0)% 35.0% 35.0%
State income taxes, net of
federal tax benefit (3.0) 3.3 3.6
Other, net (3.3) - -
Total (41.3)% 38.3% 38.6%
</TABLE>
The total income tax benefit reflected in shareholders' equity for stock options
exercised was $4,400, $7,363 and $1,535 in 1996, 1995 and 1994 respectively.
Temporary differences between the amounts reported in the financial statements
and the tax basis of assets and liabilities result in deferred taxes. Deferred
tax assets and liabilities at December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for finance credit losses
and prepaid pension expense $37,382 $17,885
Unearned premiums and ceding fees 13,632 -
Purchase accounting adjustments - 4,830
Other 2,919 -
Deferred tax assets 53,933 22,715
DEFERRED TAX LIABILITIES:
Unrealized appreciation on
available-for-sale securities 507 1,362
Policy acquisition costs 18,011 -
Other 2,059 -
Deferred tax liabilities 20,577 1,362
Net deferred tax assets $33,356 $21,353
</TABLE>
No valuation allowance for deferred tax assets has been recorded at December 31,
1996 and 1995, as Mercury believes it is more likely than not that the deferred
tax assets will be realized in the future under the existing tax laws at
December 31, 1996. This conclusion is based on the extremely short period in
which the existing deductible temporary differences, primarily related to
finance credit losses, will reverse and the existence of sufficient taxable
income within the carryback period of three years available under the existing
tax law at December 31, 1996. However, under new tax laws enacted in August
1997, the carryback period has been shortened thereby limiting the source of
taxable income available to realize the Company's tax benefits for deductible
temporary differences.
The Taxpayer Relief Act of 1997 ("the Act") was signed into law in August 1997.
A provision of the Act is to reduce the Net Operating Loss carryback period from
three years to two years beginning after August 5, 1997. For tax reporting
purposes, this new law restricts net operating losses, if any, incurred in 1998
to be carried back to 1996, where the Company did not have taxable income versus
under the previous legislation, any 1998 net operating losses would carry back
to 1995, where the Company has reported significant taxable income. For
financial reporting purposes, the change in the tax law raises a question as to
the realizability of the deferred tax asset that is recorded in the financial
statements because as of January 1, 1998, the reversal of the temporary
differences that give rise to the deferred taxes, primarily the allowance for
credit losses, can no longer be carried back to periods of taxable income.
Accordingly, it is likely that the Company will record a full valuation
allowance on all deferred tax assets for temporary differences originated
beginning in the third quarter of 1997 and it is expected that any deferred tax
assets on the books at December 31, 1997 will require substantial, if not
complete, valuation allowances. In accordane with SFAS 109, "Accounting for
Income Taxes," the effect of tax law changes are accounted for in the period in
which the law was enacted.
13) LEASES
Mercury and its subsidiaries lease office space generally under cancelable
operating leases expiring in various years through 2003. 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,
1996:
<TABLE>
<CAPTION>
Year Amount
<C> <C>
1997 $ 4,085
1998 3,231
1999 2,123
2000 1,107
2001 and after 668
Total $11,214
</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 $4,392, $4,176 and $3,169 in 1996, 1995 and 1994, respectively.
14) DISCLOSURES OF 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,
and matters of significant judgment and, therefore, cannot be determined with
precision. Fair value estimates assume the continuation of Mercury as a going
concern.
CASH AND CASH EQUIVALENTS
Due to the short term nature of these items, management believes that the
carrying amount is a reasonable estimate of fair value.
INVESTMENTS
For bonds, the estimated fair value is based on quoted market price. For other
investments, which consist primarily of short-term money market instruments, the
carrying amount is a reasonable estimate of fair value.
FINANCE RECEIVABLES
The Company's financing program allows for the establishment of interest rates
on contracts which typically is the maximum rate allowable by the state in which
the branch is doing business. The Company's financing revenues are not
materially impacted by changes in interest rates given that the stated rates on
existing contracts are the highest allowed by law. As such, the finance
receivable balances recorded on a historical basis in the financial statements
approximate fair value. For 1995, the fair value of the finance receivables was
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 discount the future cash flows related to existing debt
and arrive at an estimate of fair value.
The estimated fair values of Mercury's financial instruments at December 31,
have not been adjusted for the events disclosed in Notes 10 and 16 which have a
substantial negative impact on these estimates, were as follows:
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash $ 20,957 $ 20,957 $ 22,967 $ 22,967
Investments 212,957 213,217 242,043 242,327
Finance Receivables 973,283 973,283 1,089,449 1,143,095
Total $1,207,197 $1,207,457 $1,354,459 $1,408,389
FINANCIAL LIABILITIES:
Senior Debt, Commercial Paper and
Notes $ 525,051 $ 525,051 $489,990 $489,990
Senior Debt, Term Notes 488,625 476,469 438,750 443,437
Subordinated Debt 22,500 22,711 29,500 30,715
Total $1,036,176 $1,024,231 $958,240 $964,142
</TABLE>
15) BUSINESS SEGMENT DATA
The Finance Segment consists of the noninsurance segment of Mercury. The
Insurance Segment consists of Lyndon. Included in revenues are interest income
before provision for finance credit losses and total other income. Operating
profit represents income before income taxes and includes interest expense, as
financing costs are integral to the Company's operations. Income by segment
assumes each business services its own debt (including acquisition debt). The
segments generally provide for income taxes as if separate returns were filed
subject to certain consolidated return limitations and benefits. The following
table presents the business segment data of Mercury (dollars in millions):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES
Finance $203.2 $218.3 $203.5
Insurance 105.9 37.8 9.6
Total $309.1 $256.1 $213.1
OPERATING PROFITS (LOSSES)
Finance $(89.4) $107.7 $137.9
Insurance 40.0 12.4 3.1
Total $ (49.4) $120.1 $141.0
NET INCOME (LOSS)
Finance $(56.0) $66.3 $84.4
Insurance 27.0 7.8 2.1
Total $(29.0) $74.1 $86.5
IDENTIFIABLE ASSETS
Finance $1,123.4 $1,168.1 $1,025.1
Insurance 420.0 430.0 11.3
Total $1,543.4 $1,598.1 $1,036.4
</TABLE>
16) GOING CONCERN
The Company incurred losses in the twelve months ended December 31, 1996.
Substantially all of its outstanding debt is subject to acceleration or has
matured by its terms as a result of the Company's defaults of its various
lending agreements. In addition, the Company is under investigation by the U.S.
Attorney for the Northern District of Illinois and has been named as a defendant
in various lawsuits generally arising from the restatement of previously
reported financial information for 1995 and interim periods in 1996 as described
in Note 10. The Company is also incurring significant costs in relation to the
investigations discussed in Notes 2 and 10 and the resolution of its debt
restructuring. In addition, the Company is continuing to experience losses in
1997.
As a result of the above matters, the Board has hired the services of a crisis
manager to assist in the turnaround of the business operations. In addition, an
investment banker was retained to assist in the refinancing of existing debt
and/or explore strategy alternatives. There can be no assurances that the
Company will be successful in its attempt to consummate a refinancing or
restructuring. Thus, there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements have been
prepared on the basis that the Company is a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
EXHIBIT 99.2
TO BUSINESS EDITOR:
Mercury Finance Releases 1996, 1995, 1994 Financial Statements
Creditors Extend Forbearance Agreement
CHICAGO, Nov. 6 /PRNewsire/ -- Mercury Finance Company (NYSE: MFN) today
released audited, consolidated financial statements for 1996, 1995 (restated)
and 1994. The December 31, 1996 balance sheet remains unchanged from that
disclosed on July 15, 1997. Arthur Andersen LLP issued the audit report on the
1996 statements and KPMG Peat Marwick issued the audit reports on the 1995
(restated) and 1994 statements. As disclosed earlier, the Arthur Andersen LLP
report contains a going concern exception.
"We have essentially fulfilled the promises we made earlier this year to
put Mercury Finance's financial reporting in order. With this release of the
financial statements for 1996-1994, we now have reliable financial information
with which to go forward," said William A. Brandt, Jr., president and chief
executive officer.
The 1996 income statement shows a net loss of $28,968,000 or $0.17 per
share. Net income for 1995, as restated, and 1994 were $74,129,000 ($0.43 per
share) and $86,545,000 ($0.49 per share), respectively. The 1995 financial
statements have been restated for the previously disclosed accounting
irregularities lowering net income for 1995 by approximately $25 million or $.14
per share. The impact of the financial irregularities on previous periods was
not material. The 1996 income statement includes the effect of adopting a new
method of accounting for credit losses commonly referred to as "static
pooling." The result of adopting this method was to increase the provision
for credit losses in 1996 by approximately $89 million.
Mercury also announced that it had reached an agreement with its creditors
to extend, until March 2, 1998, the forbearance agreement that had been in
effect since July and which had expired on October 1.
The agreement provides that Mercury will continue to keep interest current
on its funded debt and will make periodic payments to reduce principal as cash
flow permits. Mercury anticipates making payments of approximately $35 million
to reduce principal in early November. Mercury now has $904 million of
institutional debt outstanding.
In consideration of the payment of principal and interest, creditors have
pledged not to take action against the company under their debt agreements prior
to March 2, 1998, unless the forbearance agreement is breached or otherwise is
terminated early. The agreement may be terminated after January 10, 1998, in
the event Mercury does not have a proposal meeting certain criteria for the
restructuring, refinancing or sale of its business.
Mercury continues to work with the investment banking firm of Salomon
Brothers to assist it in its ongoing exploration of strategic alternatives
including development of a business and restructuring plan.
Mercury also reported that the previously granted creditor waivers, which
permit the company to continue to pledge its assets as collateral for its credit
facility with Bank of America Business Credit (BABC) have been extended to
January 6, 1998, the date the facility currently expires. No funds are
outstanding to BABC under the facility and have not been since the line was
repaid in May, 1997. Mercury currently has cash balances of approximately $70
million. Mercury's liquidity has resulted in part from receipts on collections
of loans exceeding disbursements for new loans. Mercury does not foresee any
need to draw on its credit facility and may permit it to expire by its own
terms.
<TABLE>
<CAPTION>
MERCURY
Condensed Consolidated Statement of Income
(dollars in thousands except per share amounts)
1996 1995 1994
as restated
<S> <C> <C> <C>
Finance charges, fees and other interest 271,889 255,066 211,565
Interest expense (64,789) (57,303) (39,375)
Net interest income 207,100 197,763 172,190
Provision for credit losses (215,171) (32,641) (7,376)
Net interest income after provision for finance credit
losses (8,071) 165,122 164,814
Other operating income 101,985 58,349 40,907
Other operating expenses (143,297) (103,363) (64,731)
Income (loss) before income taxes (49,383) 120,108 140,990
Applicable income taxes (benefit) (20,415) 45,979 54,445
Net income (loss) (28,968) 74,129 86,545
Net income (loss) per share ($0.17) $0.43 $0.49
Condensed Consolidated Balance Sheets
(dollars in thousands)
12/31/96 12/31/95
Assets
Cash and investments 233,914 265,010
Finance receivables 1,160,423 1,197,776
Less: allowance for credit losses (97,762) (46,366)
Less: nonrefundable dealer reserves (89,378) (61,961)
Finance receivables, net 973,283 1,089,449
Other assets 336,163 243,639
Total Assets 1,543,360 1,598,098
Liabilities and Shareholders' equity
Senior debt, commercial paper and notes 525,051 489,990
Senior debt, term notes 488,625 438,750
Subordinated debt 22,500 29,500
Accounts payable and other liabilities 338,299 380,371
Total Liabilities 1,374,475 1,338,611
Shareholders' Equity 168,885 259,487
Total Liabilities and Shareholders' Equity 1,543,360 1,598,098
</TABLE>
SOURCE Mercury Finance Company
Contact: Joe Kopec or Jim Fitzpatrick, both of Dilenschneider Group,
312-553-0700
EXHIBIT 99.3
FIRST AMENDMENT TO FORBEARANCE AGREEMENT
This First Amendment to Forbearance Agreement, dated as of November 6, 1997
(this "Amendment"), is between Mercury Finance Company, a Delaware corporation
(the "Company"), and the person(s) listed on the signature pages of this
Amendment (collectively or individually, the "Lender"). Capitalized terms used
in this Amendment and not otherwise defined have the meanings assigned to such
terms in the Forbearance Agreement (referred to below).
PRELIMINARY STATEMENTS
1. The Company and the Lender are parties (or as to the Lender, is a
successor in interest to a party) to the Forbearance Agreement, dated as of July
11, 1997 (the "Forbearance Agreement").
2. The Company has requested that the Forbearance Agreement be amended,
inter alia, to extend the automatic Termination Date of the Forbearance Period
from September 30, 1997 to March 2, 1998.
3. The Lender is willing to extend the automatic Termination Date of the
Forbearance Period from September 30, 1997 to March 2, 1998 but only on the
terms and conditions stated herein.
AGREEMENT
In consideration of the premises and mutual agreements contained in this
Amendment and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties to this Amendment agree as
follows:
1. AMENDMENTS TO FORBEARANCE AGREEMENT.
On the date this Amendment becomes effective, after satisfaction by the
Company of each of the conditions set forth in Section 3 hereof:
1.1 ESCROW. Section 1.1 of the Forbearance Agreement hereby is amended by
deleting the reference to "September 30, 1997" in the definition of "Escrow" and
replacing it with "January 9, 1997 and February 27, 1998".
1.2 EXCESS CASH. Section 1.1 of the Forbearance Agreement hereby is
amended by deleting the reference to "$3,650,000" in the definition of "Excess
Cash" and replacing it with "$3,000,000".
1.3 TERMINATION DATE. Section 1.1 of the Forbearance Agreement hereby is
amended by deleting the reference to "September 30, 1997" in the definition of
"Termination Date" and replacing it with "March 2, 1998".
1.4 EFFECT OF TERMINATION DATE. Section 2.2 of the Forbearance Agreement
hereby is amended by deleting the reference to "September 30, 1997" and
replacing it with "March 2, 1998".
1.5 NO OTHER WAIVER OR AGREEMENTS. Section 2.4 of the Forbearance
Agreement hereby is amended by amending and restating such section in its
entirety as follows:
"NO OTHER WAIVERS OR AGREEMENTS. Except for the forbearance agreed to
herein as specifically set forth herein, and, if the Lender is a party to
the Third Limited Waiver Agreement dated as of July 11, 1997 and the Fourth
Limited Waiver Agreement dated as of October 1, 1997, the Third Limited
Waiver Agreement and the Fourth Limited Waiver Agreement, respectively, the
Lender has not agreed to any waiver, modification or amendment of the
Existing Agreements, or its rights in respect thereof and the Existing
Agreements remain in full force and effect and are the valid and binding
obligations of the Company, enforceable in accordance with their respective
terms except as limited by bankruptcy, insolvency or similar laws generally
affecting the enforcement of creditors' rights generally."
1.6 PAYMENT OF INTEREST.
(A) Subsection (B) under Section 3.2 of the Forbearance Agreement hereby is
amended by deleting the reference to "October 1, 1997" and replacing it with
"March 2, 1998".
(B) Subsection (B) under Section 3.2 of the Forbearance Agreement hereby is
amended by adding a new sentence at the end of such section as follows:
"Notwithstanding the foregoing sentence, the payment due on October
31, 1997 shall be made on the date the conditions set forth in Section 3.1
of the First Amendment to Forbearance Agreement, dated as of November 6,
1997, between the parties hereto have been met (the "Closing Date")."
(C) Subsection (D) under Section 3.2 of the Forbearance Agreement hereby is
amended by adding a new sentence at the end of the first sentence as follows:
"On January 9, 1998 and February 27, 1998, the Company will pay to the
Lender all accrued and unpaid interest calculated to and including January
9, 1998 and February 27, 1998, respectively, excluding any accrued and
unpaid interest owing to the Lender as a result of the application of a
Default Rate in excess of 9.00% per annum."
1.7 ACKNOWLEDGEMENT; OTHER AGREEMENTS. Section 3.3 of the Forbearance
Agreement hereby is amended by amending and restating the fourth sentence of
such section as follows:
"Prior to March 2, 1998, the Company will make no payment on account
of subordinated debt other than that agreed to by the holders of
subordinated debt in the Forbearance and Third Limited Waiver Agreement
between the Company and the holders of subordinated debt dated as of July
11, 1997 and in the Forbearance and Fourth Limited Waiver Agreement between
the Company and the holders of subordinated debt dated as of October 1,
1997 (in either case, without regard to any amendment, modification or
supplement thereof after such dates)."
1.8 CASH SWEEP. Section 3.4 of the Forbearance Agreement hereby is
amended by deleting each reference to "$3,650,000" and replacing them with
"$3,000,000" and by adding two new sentences after the second sentence in such
section as follows:
"Five business days following the Closing Date, the Company will pay
to the Lender its Funded Debt Pro Rata Share of the aggregate amount of
Excess Cash calculated as of the close of business on October 31, 1997 less
the interest payment and escrow payment which will be made on the Closing
Date. Thereafter, so long as the Forbearance Period has not been
terminated, on December 5, 1997, January 8, 1998 and February 6, 1998, the
Company will pay to the Lender its Funded Debt Pro Rata Share of the
aggregate amount of Excess Cash of the Company calculated as of the close
of business (i) November 28, 1997, (ii) December 31, 1997 and (iii) January
30, 1998, respectively. On March 2, 1998, the Company will pay to the
Lender its Funded Debt Pro Rata Share of the aggregate amount of Excess
Cash calculated as of the close of business on February 27, 1998."
1.9 CERTAIN INFORMATION.
(A) Section 3.6 of the Forbearance Agreement hereby is amended by
inserting "and/or any investment banking firm retained by the Steering Committee
(subject to execution of a confidentiality agreement by such investment banking
firm)" following both references to "Policano & Manzo" in the second sentence of
such section.
(B) Section 3.6 of the Forbearance Agreement hereby is amended by adding
three new sentences after the second sentence in such section as follows:
"The Company acknowledges that the Steering Committee may retain an
investment banking firm to assist the Steering Committee in connection with
the market evaluation and exploration process and other matters pertaining
to the Company. Subject to the Company's approval of the institution so
retained (which approval shall not be unreasonably withheld), the Company
agrees to pay (or to reimburse the Steering Committee for) the fees, costs
and expenses incurred in connection with the retention of such investment
banking firm in an amount not to exceed $100,000 per month. Additionally,
a representative of Policano & Manzo shall be permitted to participate in
and be provided with the status of significant substantive negotiations
conducted between the Company and/or advisors of the Company and any party
identified through the market evaluation and exploration process; provided;
however; that prior to the Termination Date, Policano & Manzo shall not
engage in substantive negotiations, or have any discussions outside the
presence of representatives of the Company or its advisors, with any such
party."
(C) Section 3.6 of the Forbearance Agreement hereby is further amended by
adding one new sentence after the end of such section as follows:
"The Steering Committee may share any such information provided to it
or Policano & Manzo by the Company or its advisors with any investment
banking firm retained by the Steering Committee."
1.10 ESCROW. Section 3.10 of the Forbearance Agreement hereby is amended
by amending and restating such section in its entirety as follows:
"By no later than the Closing Date, the Company agrees to establish
the Escrow that shall be used solely by the Company in accordance with the
terms of the Escrow Agreement to fund the payments required to be made on
January 9, 1998 to the Lender under this Agreement and other holders of
Funded Debt as contemplated by this Agreement. By no later than January
13, 1998, the Company agrees to establish the Escrow that shall be used
solely by the Company in accordance with the terms of the Escrow Agreement
to fund the payments required to be made on February 27, 1998 to the Lender
under this Agreement and other holders of Funded Debt as contemplated by
this Agreement."
1.11 TOLLING. Section 3.12 of the Forbearance Agreement hereby is amended
by deleting each reference to "November 1, 1997" and replacing them with "April
1, 1998".
1.12 TERMINATION EVENTS.
(A) Subsection (D) of Section 4.1 of the Forbearance Agreement hereby is
amended by amending and restating such section in its entirety as follows:
"(D) failure of the Company to deliver to the Steering Committee
within 5 business days of the following delivery dates (i) unaudited
financial statements for the third quarter of 1997 as soon as available but
in no event later than November 15, 1997, (ii) unaudited financial
statements for the fourth quarter of 1997 as soon as available but in no
event later than February 15, 1998 and (iii) unaudited monthly financial
statements as soon as available but in no event later than (a) October 31,
1997 for the September 1997 statements, (b) November 30, 1997 for the
October, 1997 statements, (c) December 31, 1997 for the November, 1997
statements, (d) January 31, 1998 for the December, 1997 statements (e)
March 2, 1998 for the January, 1998 statements;"
(B) Subsection (E) of Section 4.1 of the Forbearance Agreement hereby is
amended by amending and restating such section in its entirety as follows:
"(E) the Company's consolidated net income before income taxes,
professional fees and restructuring costs including, but not limited to,
the BABC Bridge Loan facility fees and expenses and any loss on the sale by
the Company of the stock of Lyndon Property Insurance Group and its
subsidiaries as reported in the Company's unaudited income statements is
less than (i) ($22,500,000) for the third quarter of 1997, (ii)
($30,000,000) for the four months ended October 31, 1997, (iii)
($37,500,000) for the five months ended November 30, 1997, (iv)
($45,000,000) for the six months ended December 31, 1997 and (v)
($52,500,000) for the seven months ended January 31, 1998;"
(C) Subsection (I) of Section 4.1 of the Forbearance Agreement hereby is
amended by deleting the reference to "and" after the semicolon in such
subsection.
(D) Subsection (J) of Section 4.1 of the Forbearance Agreement hereby is
amended by deleting the period at the end of such subsection and replacing it
with a semicolon.
(E) Section 4.1 of the Forbearance Agreement hereby is further amended by
adding new Subsections (K), (L) and (M) as follows:
"(K) the Company fails by January 10, 1998 to receive a bona fide
offer in writing capable of acceptance as to a transaction that would
provide for cash consideration in an amount not less than 100% of the
Funded Debt (a "Qualifying Offer") that has not been rejected by the
Company or withdrawn by the offeror or which has not expired or been
terminated in accordance with its terms;
(L) from and after January 10, 1998, the Company shall fail to be in
possession of a Qualifying Offer that has not been rejected by the Company
or withdrawn by the offeror or which has not expired or been terminated in
accordance with its terms; and
(M) the Company makes a payment on account of settling any claim with
respect to any of the state or federal securities or shareholder derivative
lawsuits filed against it generally arising from the Company's announcement
on January 29, 1997 that it would restate previously reported financial
information for prior years and interim earnings for 1996 as a result of
the discovery of accounting irregularities, provided, however that nothing
shall preclude the Company from making a payment in settlement of any other
claims arising in the ordinary course of business."
1.13 SUCCESSORS AND ASSIGNS. The second sentence of section 7.5 of the
Forbearance Agreement is amended by deleting the phrase "so long as this
Agreement has not been terminated" and replacing that phrase with "prior to the
Termination Date."
2. REPRESENTATIONS AND WARRANTIES.
To induce the Lender to enter into this Amendment, the Company represents
and warrants to the Lender that:
2.1 CORPORATE AUTHORITY; NO CONFLICTS. The execution and delivery by the
Company of this Amendment and the performance of the Company's obligations under
this Amendment (i) are within its corporate powers, (ii) are duly authorized by
its board of directors and, if necessary, its stockholders, (iii) are not in
contravention of the terms of its articles or certificate of incorporation or
by-laws or of any indenture, agreement or undertaking to which it is a party or
by which it or any of its property is bound, (iv) does not, as of the date
hereof, require any consent, registration or approval of any governmental
authority, (v) does not contravene any material contractual or governmental
restriction binding upon it and (vi) will not result in the imposition of any
lien, claim or encumbrance upon any of its property under any existing
indenture, mortgage, deed of trust, loan or credit agreement or other material
agreement or instrument to which it is a party or by which its property may be
bound or affected.
2.2 NO TERMINATION EVENT; REPRESENTATIONS AND WARRANTIES. As of the date
hereof, (a) no Termination Event under the Forbearance Agreement, as amended by
this Amendment, has occurred and is continuing or will result from the
amendments set forth in this Amendment and (b) the representations and
warranties of the Company contained in the Forbearance Agreement, as amended by
this Amendment, are true and correct.
3. CONDITIONS TO EFFECTIVENESS.
The obligation of the Lender to make the amendments contemplated by this
Amendment, and the effectiveness thereof, are subject to the following:
3.1 DOCUMENTS. The Lender has received all of the following, each duly
executed and dated as of the date of this Amendment (or such other date as shall
be satisfactory to the Lender) in form and substance satisfactory to the Lender:
(A) fully executed counterparts to this Amendment and Fourth Limited
Waiver Agreement;
(B) executed Amendments and Fourth Limited Waiver Agreements on the same
terms as this Amendment and the Lender's Fourth Limited Waiver
Agreement from other holders of Funded Debt satisfactory to the
Lender, but excluding the Forbearance and Fourth Limited Waiver
Agreement dated as of the date hereof between the Company and Credit
Suisse First Boston Corporation;
(C) certified resolutions of the board of directors of the Company
authorizing or ratifying the execution, delivery and performance of
this Amendment; and
(D) the Forbearance and Fourth Limited Waiver Agreement dated as of
the date hereof between the Company and Credit Suisse First
Boston Corporation.
3.2 EFFECTIVE TIME. Subject to the satisfaction of Section 3.1 hereof,
the effective time of this Amendment shall be deemed to be 12:01 a.m. October 1,
1997.
4. MISCELLANEOUS.
4.1 SECTION TITLES. The preliminary statements to this Amendment and the
section titles used in this Amendment are for convenience only and do not affect
the construction of this Amendment.
4.2 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which together constitute one instrument.
4.3 ENTIRE AGREEMENT. This Amendment constitutes the full and entire
understanding of the Company and the Lender with respect to the subject matter
of this Amendment. To the extent that any term of this Amendment is
inconsistent with or contrary to any term of the Forbearance Agreement, this
Amendment shall govern and control.
4.4 SUCCESSORS AND ASSIGNS. This Amendment inures to the benefit of, and
is binding upon the successors and assigns of, each of the Company and the
Lender.
4.5 GOVERNING LAW. This Amendment will be interpreted, and the rights and
liabilities of the Company and the Lender determined, in accordance with the
internal laws of the State of Illinois.
4.6 SEVERABILITY. Wherever possible, each provision of this Amendment
will be interpreted in a manner as to be effective and valid under applicable
law. If any provision of this Amendment is held to be prohibited by or invalid
under applicable law, such provision is ineffective only to the extent of such
prohibition or invalidity and the remaining provisions of this Amendment remain
unaffected and in full force and effect.
4.7 SIGNATURE PAGE REPRESENTATIONS OF COMMERCIAL PAPER HOLDERS. As to
holders of commercial paper, each and every Schedule 1 attached to the signature
pages of this Amendment are true and correct.
4.8 AMENDED AND RESTATED SCHEDULE OF EXISTING AGREEMENTS. Schedule 1 to
the Forbearance Agreement is hereby amended and restated such that any reference
in the Forbearance Agreement to "Schedule 1" shall mean a reference to the
Schedule 1 attached hereto.
* * *
EXHIBIT 99.4
FOURTH LIMITED WAIVER AGREEMENT
This Fourth Limited Waiver Agreement (this "Agreement") dated as of November 6,
1997 is entered into between Mercury Finance Company, a Delaware corporation
("Mercury"), and the lender whose name appears on the signature pages hereof
(the "Lender").
W I T N E S S E T H:
WHEREAS, the Lender or its predecessor in interest is a party to or beneficiary
of one or more credit agreements, note agreements or other agreements,
instruments or other documents with or executed by Mercury including those
listed on Schedule 1 hereto pursuant to which Lender has extended credit to
Mercury (collectively, the "Existing Agreements");
WHEREAS, Mercury is in default under various provisions of the Existing
Agreements;
WHEREAS, in late January 1997, Mercury began experiencing a severe liquidity
crisis and required immediate emergency financing to continue its operations;
WHEREAS, in February 1997, to meet such emergency financing needs, Mercury and
certain of its subsidiaries (collectively, the "Borrowers") entered into a Loan
and Security Agreement with BankAmerica Business Credit, Inc. ("BABC") dated as
of February 7, 1997 (the "Bridge Loan Agreement") providing the Borrowers with a
secured revolving loan facility in an aggregate principal amount not to exceed
$50 million and having a maturity of March 10, 1997, with an option to extend
(the "Bridge Loan");
WHEREAS, the Borrowers desired financing beyond March 10, 1997 to continue their
operations and therefore extended the maturity date of the Bridge Loan to
June 10, 1997 in accordance with the Second Amendment to Loan and Security
Agreement dated March 12, 1997 (the "Second Amendment");
WHEREAS, the Borrowers required financing beyond June 10, 1997 to continue their
operations and therefore BABC agreed to extend the maturity date of the Bridge
Loan to January 6, 1998, in accordance with the terms set forth in the Third
Amendment attached hereto as Exhibit A (the "Third Amendment");
WHEREAS, certain provisions of the Existing Agreements unless waived prohibit
the Borrowers from granting liens on their assets to secure indebtedness for
borrowed money and/or require that the Lender be granted an equal or ratable
lien on such assets in the event such a lien is granted to another lender;
WHEREAS, in connection with the Bridge Loan, Mercury requested the Lender to
waive such provisions of the Existing Agreements to permit the Borrowers to
obtain the emergency financing they needed through March 10, 1997, and the
Lender or its assignor granted such a waiver pursuant to a Limited Waiver
Agreement dated as of February 7, 1997;
WHEREAS, in connection with the extension of the maturity date of the Bridge
Loan from March 10, 1997 to June 10, 1997, Mercury requested the Lender to waive
such provisions of the Existing Agreements to permit the Borrowers to obtain the
financing they needed to continue their operations through June 10, 1997, and
the Lender or its assignor granted such a waiver pursuant to a Second Limited
Waiver Agreement dated as of March 10, 1997;
WHEREAS, in connection with the extension of the maturity date of the Bridge
Loan from June 10, 1997 to January 6, 1998, Mercury requested the Lender to
waive such provisions of the Existing Agreements to permit the Borrowers to
obtain the financing they need to continue their operations, and the Lender or
its assignor granted such waiver only to September 30, 1997 pursuant to a Third
Limited Waiver Agreement dated July 11, 1997;
WHEREAS, the Lender is now willing to waive certain limited provisions of the
Existing Agreements through January 6, 1998 to permit BABC to fund the Bridge
Loan upon request of Mercury;
WHEREAS, the Lender and certain other holders of Funded Debt (as defined below)
have entered into Forbearance Agreements dated July 11, 1997 and are executing
a First Amendment to Forbearance Agreement of even date herewith (collectively,
the "Amendment to Forbearance Agreements") pursuant to which an escrow for the
benefit of holders of Funded Debt is being established to fund payment of
certain amounts required to be paid to such holders of Funded Debt under the
Amendment to Forbearance Agreements (the "Forbearance Escrow"); and
WHEREAS, the Lender desires to waive certain limited provisions of the Existing
Agreements to permit Mercury to establish the Forbearance Escrow;
NOW, THEREFORE, in consideration of the premises and mutual agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Mercury and Lender agree as follows:
1. Treatment of Existing Indebtedness. Mercury has represented to the Lender
that neither it nor its subsidiaries intend to repay, retire, make a
distribution to or on account of, or make an interest payment on account of, any
existing indebtedness for borrowed money, other than the Bridge Loan, including,
but not limited to, indebtedness on account of commercial paper, note
agreements, loan agreements, subordinated debt agreements or any of the
indebtedness listed on Schedule 2 hereto (collectively, "Funded Debt"), except
as contemplated in the Amendment to Forbearance Agreements or any agreements
attached thereto, unless the Lender receives in connection with such payment or
distribution, and subject to applicable subordination agreements, its pro rata
portion of such payment or distribution on account of indebtedness owing to the
Lender under the Existing Agreements.
2. Waiver. Solely in connection with the Bridge Loan in accordance with the
terms and conditions of the Third Amendment, the Lender waives through 11:59(pm)
central standard time on January 6, 1998 compliance with any of the provisions
of the Existing Agreements that (a) prohibit or restrict the granting of
security interests, liens or mortgages by any of the Borrowers to BABC (the
"BABC Liens") to secure the Bridge Loan or (b) result in or require the creation
of a security interest, lien or mortgage in favor of the Lender on any assets of
the Borrowers as a result of the granting of the BABC Liens to secure the Bridge
Loan; provided, that the waivers set forth in this Section 2 shall be effective
on the conditions that (i) the aggregate principal amount of loans outstanding
to the Borrowers under the Bridge Loan does not exceed $50 million at any time
and (ii) the BABC Liens secure only the Bridge Loan and do not secure any other
indebtedness for borrowed money including Funded Debt outstanding as of the date
hereof or hereafter. The Lender waives compliance with any provisions of the
Existing Agreements that (a) prohibit or restrict the creation or operation of
the Forbearance Escrow and/or the entering into of the Amendment to Forbearance
Agreement (b) result in or require the creation of an escrow, security interest,
lien or mortgage in favor of the Lender on any assets of the Borrowers as a
result of the creation or operation of the Forbearance Escrow and/or the
entering into of the Amendment to Forbearance Agreement.
3. Effect on Existing Agreements; Reservation of Rights. In the event of any
conflict between the terms hereof and the terms of any Existing Agreement or any
instruments, documents or agreements executed in connection therewith with
respect to the subject matter of this Agreement, the terms of this Agreement
shall govern and control. Each of the Existing Agreements and such other
related instruments, documents or agreements, and all obligations of Mercury and
all rights and remedies of the Lender thereunder or under applicable law shall
remain in full force and effect except to the extent expressly amended or waived
in accordance with the terms hereof or the Amendment to Forbearance Agreement
entered into between Mercury and the Lender. No defaults or events of default
existing as of the date hereof under the Existing Agreements are being waived.
The terms of this Agreement shall not be affected by the termination of the
Forbearance Period (as defined in the Amendment to Forbearance Agreement).
4. Representations. The Lender represents that it has not assigned or
transferred the indebtedness owing to it under the Existing Agreements or it has
assigned or transferred such indebtedness subject to this Agreement and is duly
authorized to enter into and perform this Agreement. Mercury represents to the
Lender that it is duly authorized to enter into and perform this Agreement.
Mercury further represents to the Lender that transactions contemplated by the
Third Amendment will not result in or require the creation of a security
interest, lien or mortgage in favor of any holder of commercial paper.
5. Entire Agreement. This Agreement constitutes the full and entire
understanding of the parties hereto with respect to the subject matter hereof.
6. Severability. Wherever possible, each provision of this Agreement shall be
interpreted in a manner as to be effective and valid under applicable law. If
any provision of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity and the remaining provisions of this Agreement
shall remain unaffected and in full force and effect.
7. Governing Law. This Agreement shall be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with the internal
laws of the State of Illinois.
8. Successors and Assigns. This Agreement shall inure to the benefit of, and
be binding upon the successors and assigns of, each of the parties hereto.
9. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument.
* * * * *
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
first above written.
MERCURY FINANCE COMPANY,
a Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
Name of Lender:
EXHIBIT A
FOURTH AMENDMENT
SCHEDULE 2
See attached list of Funded Debt entitled "Mercury Finance Company Long Term
Debt & Swaps December 31, 1996" (to the extent not listed below).
Senior Note Agreement dated as of May 1, 1992, as amended - $17,500,000 8.15%
Senior Notes, due May 27, 1997.
Senior Note Agreement dated as of March 1, 1992, as amended - $15,000,000 7.67%
Senior Notes, due March 6, 1997.
Senior Note Agreement dated as of July 1, 1993, as amended - $24,000,000 6.29%
Senior Notes, due December 16, 1997.
Note Purchase Agreement dated as of March 1, 1993, as amended - $35,000,000
6.70% Senior Notes, due March 26, 1998.
Senior Note Agreement dated as of December 1, 1993, as amended - $76,000,000
6.16% Senior Notes, due December 15, 1998.
Senior Note Agreement dated as of June 29, 1995, as amended -
$25,000,000 7.16% Senior Notes, Series A, due June 29, 1998
$30,000,000 7.33% Senior Notes, Series B, due June 29, 1999
$58,000,000 7.42% Senior Notes, Series C, due June 29, 2000
$30,000,000 7.50% Senior Notes, Series D, due June 29, 2001 and
$17,000,000 7.59% Senior Notes, Series E, due June 29, 2002.
Senior Note Agreement dated as of April 5, 1996, as amended -
$31,000,000 6.76% Senior Notes, Series A, due April 5, 1999
$15,000,000 6.94% Senior Notes, Series B, due April 5, 2000
$10,000,000 7.02% Senior Notes, Series C, due April 5, 2001 and
$4,000,000 7.14% Senior Notes, Series D, due April 2, 2002.
Term Note dated March 22, 1996 in the principal amount of $20,000,000, payable
to The Industrial Bank of Japan, Limited.
Term Note dated December 15, 1994 in the principal amount of $20,000,000,
payable to The Long-Term Credit Bank of Japan, Ltd.
Bank of America Debt Agreements $50,000,000.
Loan Agreement dated as of October 30, 1991, as amended, in favor of Allomon
Funding Corporation, as assigned to Mellon Bank, N.A.
Term Note dated as of March 22, 1996 in the original principal amount of
$10,000,000.
Term Note dated as of December 15, 1994 in the original principal amount of
$10,000,000.
Subordinated Debt Agreement/Notes
Bank One Midland Debt
All Commercial Paper issued by the Company including the attached List of
Commercial Paper entitled "Mercury Finance Company - Schedule of Commercial
Paper."
Commercial Paper Master Note dated as of December 6, 1993.
Any and all Letters of Credit
EXHIBIT 99.5
FOURTH LIMITED WAIVER AGREEMENT
This Fourth Limited Waiver Agreement (this "Agreement") dated as of
November 6, 1997 is entered into between Mercury Finance Company, a Delaware
corporation ("Mercury") and Credit Suisse First Boston Management Corporation
("CS/FB"), holder of $16,625,000 in Mercury Commercial Paper acquired on
February 5, 1997 from PaineWebber Inc., successor to Kidder, Peabody & Co.,
Incorporated (the "Dealer") under that certain Commercial Paper Dealer
Agreement dated as of March 25, 1991 (the "Dealer Agreement").
W I T N E S S E T H :
WHEREAS, Dealer is party to the Dealer Agreement under which Mercury has
issued commercial paper to customers of the Dealer (the "Customers"), one of
whom is CS/FB, which commercial paper is in default;
WHEREAS, Mercury is in default under various provisions of other lending
agreements with various institutions;
WHEREAS, in late January 1997, Mercury began experiencing a severe
liquidity crisis and required immediate emergency financing to continue its
operations;
WHEREAS, in February 1997, to meet such emergency financing needs, Mercury
and certain of its subsidiaries (collectively, the "Borrowers") entered into a
Loan and Security Agreement with BankAmerica Business Credit, Inc. ("BABC")
dated as of February 7, 1997 (the "Bridge Loan Agreement") providing the
Borrowers with a secured revolving loan facility in an aggregate principal
amount not to exceed $50 million and having a maturity of March 10, 1997, with
an option to extend (the "Bridge Loan");
WHEREAS, the Borrowers required financing beyond March 10, 1997 to continue
their operations and therefore extended the maturity date of the Bridge Loan to
June 10, 1997 in accordance with the Second Amendment to Loan and Security
Agreement dated March 12, 1997 (the "Second Amendment");
WHEREAS, the Borrowers required financing beyond June 10, 1997 to continue
their operations and therefore BABC agreed to extend the maturity date of Bridge
Loan to January 6, 1998, in accordance with the terms set forth in the Third
Amendment attached hereto as Exhibit A (the "Third Amendment");
WHEREAS, certain provisions of the Dealer Agreement unless waived prohibit
the Borrowers from granting liens on their assets to secure indebtedness for
borrowed money and/or require that the Dealer be granted an equal or ratable
lien on such assets in the event such a lien is granted to another lender;
WHEREAS, in connection with the Bridge Loan, Mercury requested the Dealer,
on behalf of itself but not its Customers, to waive such provisions of the
Dealer Agreement to permit the Borrowers to obtain the financing they needed to
continue their operations through March 10, 1997, and the Dealer and CS/FB, as
one of the Dealer's Customers, granted such a waiver pursuant to a Limited
Waiver Agreement dated as of February 7, 1997;
WHEREAS, in connection with the extension of the maturity date of the
Bridge Loan from March 10, 1997 to June 10, 1997, Mercury requested the Dealer,
on behalf of itself but not its Customers, to waive such provisions of the
Dealer Agreement to permit the Borrowers to obtain the financing they needed to
continue their operations through June 10, 1997, and the Dealer and CS/FB, as
one of the Dealer's Customers, granted such a waiver pursuant to a Limited
Waiver Agreement dated as of March 10, 1997;
WHEREAS, in connection with the extension of the maturity date of the
Bridge Loan from June 10, 1997 to January 6, 1998, Mercury requested the Dealer,
on behalf of itself but not its Customers, to waive such provisions of the
Dealer Agreement to permit the Borrowers to obtain the emergency financing they
need to continue their operations, and the Dealer and CS/FB, as one of the
Dealer's Customers, granted such a waiver only to September 30, 1997 pursuant to
a Third Limited Waiver Agreement dated July 11, 1997;
WHEREAS, the Dealer, on behalf of itself but not its Customers, is now
willing to waive certain limited provisions of the Dealer Agreement through
January 6, 1998 to permit BABC to fund the Bridge Loan upon request of Mercury;
WHEREAS, CS/FB, as one of the Dealer's Customers, is willing to waive in
like manner and to like extent;
WHEREAS, Mercury has entered into Forbearance Agreements dated July 11,
1997 and is executing a First Amendment to Forbearance Agreements of even date
herewith (collectively, the "Amendment to Forbearance Agreements") with certain
holders of Funded Debt (as such term is defined in the Forbearance Agreements)
pursuant to which an escrow for the benefit of holders of Funded Debt is being
established to fund payment of certain amounts required to be paid to such
holders of Funded Debt under the Amendment to Forbearance Agreements (the
"Forbearance Escrow"); and
WHEREAS, CS/FB desires to waive certain limited provisions of the Dealer
Agreement to permit Mercury to establish the Forbearance Escrow;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mercury and CS/FB agree as
follows:
1. Waiver. Solely in connection with the Bridge Loan in accordance with
the terms and conditions of the Third Amendment, CS/FB waives through 11:59(pm)
central standard time on January 6, 1998 compliance with any of the provisions
of the Dealer Agreement that (a) prohibit or restrict the granting of security
interests, liens or mortgages by any of the Borrowers to BABC (the "BABC Liens")
to secure the Bridge Loan or (b) result in or require the creation of a security
interest, lien or mortgage in favor of the Dealer or its customers on any assets
of the Borrowers as a result of the granting of the BABC Liens to secure the
Bridge Loan; provided, that the waivers set forth in this Section shall be
effective on the conditions that the (i) aggregate principal amount of loans
outstanding to the Borrowers under the Bridge Loan does not exceed $50 million
at any time and (ii) the BABC Liens secure only the Bridge Loan and do not
secure any other indebtedness for borrowed money outstanding as of the date
hereof or hereafter. CS/FB waives compliance with any provisions of the Dealer
Agreement that (a) prohibit or restrict the creation or operation of the
Forbearance Escrow and/or the entering into of the Forbearance Agreement or
(b) result in or require the creation of an escrow, security interest, lien or
mortgage in favor of CS/FB on any assets of the Borrowers as a result of the
creation or operation of the Forbearance Escrow and/or the entering into of the
Forbearance Agreement.
2. Entire Agreement. This Agreement constitutes the full and entire
understanding of the parties hereto with respect to the subject matter hereof.
3. Governing Law. This Agreement shall be interpreted, and the rights
and liabilities of the parties hereto determined, in accordance with the laws of
the State of New York.
4. Successors and Assigns. This Agreement shall insure to the benefit
of, and be binding upon the successors and assigns of, each of the parties
hereto.
5. Counterparts. This Agreement may be executed in any number of
counterparts all of which together shall constitute one instrument.
* * * * *
IN WITNESS WHEREOF, this Waiver Agreement has been duly executed as of the
day and year first above written.
MERCURY FINANCE COMPANY,
a Delaware corporation
By:
Name:
Title:
CREDIT SUISSE FIRST BOSTON MANAGEMENT
CORPORATION
By:
Name: ____________________
Title: ____________________
EXHIBIT A
FOURTH AMENDMENT
EXHIBIT 99.6
FOURTH LIMITED WAIVER AGREEMENT
This Fourth Limited Waiver Agreement (this "Agreement") dated as of November 6,
1997 is entered into between Mercury Finance Company, a Delaware corporation
("Mercury") and PaineWebber Inc., successor to Kidder, Peabody & Co.,
Incorporated (the "Dealer") under that certain Commercial Paper Dealer Agreement
dated as of March 25, 1991 (the "Dealer Agreement").
W I T N E S S E T H :
WHEREAS, Dealer is party to the Dealer Agreement under which Mercury has issued
commercial paper to customers of the Dealer (the "Customers"), which commercial
paper is in default;
WHEREAS, Mercury is in default under various provisions of other lending
agreements with various institutions;
WHEREAS, in late January 1997, Mercury began experiencing a severe liquidity
crisis and required immediate emergency financing to continue its operations;
WHEREAS, in February 1997, to meet such emergency financing needs, Mercury and
certain of its subsidiaries (collectively, the "Borrowers") entered into a Loan
and Security Agreement with BankAmerica Business Credit, Inc. ("BABC") dated as
of February 7, 1997 (the "Bridge Loan Agreement") providing the Borrowers with a
secured revolving loan facility in an aggregate principal amount not to exceed
$50 million and having a maturity of March 10, 1997, with an option to extend
(the "Bridge Loan");
WHEREAS, the Borrowers required financing beyond March 10, 1997 to continue
their operations and therefore extended the maturity date of the Bridge Loan to
June 10, 1997 in accordance with the Second Amendment to Loan and Security
Agreement dated March 12, 1997 (the "Second Amendment");
WHEREAS, the Borrowers required financing beyond June 10, 1997 to continue their
operations and therefore BABC agreed to extend the maturity date of Bridge Loan
to January 6, 1998, in accordance with the terms set forth in the Third
Amendment attached hereto as Exhibit A (the "Third Amendment");
WHEREAS, certain provisions of the Dealer Agreement unless waived prohibit the
Borrowers from granting liens on their assets to secure indebtedness for
borrowed money and/or require that the Dealer be granted an equal or ratable
lien on such assets in the event such a lien is granted to another lender;
WHEREAS, in connection with the Bridge Loan, Mercury requested the Dealer, on
behalf of itself but not its Customers, to waive such provisions of the Dealer
Agreement to permit the Borrowers to obtain the financing they needed to
continue their operations through March 10, 1997, and the Dealer, on behalf of
itself but not its Customers, granted such a waiver pursuant to a Limited Waiver
Agreement dated as of February 7, 1997;
WHEREAS, in connection with the extension of the maturity date of the Bridge
Loan from March 10, 1997 to June 10, 1997, Mercury requested the Dealer, on
behalf of itself but not its Customers, to waive such provisions of the Dealer
Agreement to permit the Borrowers to obtain the financing they needed to
continue their operations through June 10, 1997, and the Dealer, on behalf of
itself but not its Customers, granted such a waiver pursuant to a Limited Waiver
Agreement dated as of March 10, 1997;
WHEREAS, in connection with the extension of the maturity date of the Bridge
Loan from June 10, 1997 to January 6, 1998, Mercury requested the Dealer, on
behalf of itself but not its Customers, to waive such provisions of the Dealer
Agreement to permit the Borrowers to obtain the emergency financing they need to
continue their operations, and the Dealer, on behalf of itself but not its
Customers, granted such a waiver only to September 30, 1997 pursuant to a Third
Limited Waiver Agreement dated July 11, 1997.
WHEREAS, the Dealer, on behalf of itself but not its Customers, is now willing
to waive certain limited provisions of the Dealer Agreement through January 6,
1998 to permit BABC to fund the Bridge Loan upon request of Mercury;
WHEREAS, Mercury has entered into Forbearance Agreements dated July 11, 1997 and
is executing a First Amendment to Forbearance Agreements of even date herewith
(collectively, the "Amendment to Forbearance Agreements") with certain holders
of Funded Debt (as such term is defined in the Forbearance Agreements) pursuant
to which an escrow for the benefit of holders of Funded Debt is being
established to fund payment of certain amounts required to be paid to such
holders of Funded Debt under the Amendment to Forbearance Agreements (the
"Forbearance Escrow"); and
WHEREAS, the Dealer, on behalf of itself but not its Customers, desires to waive
certain limited provisions of the Dealer Agreement to permit Mercury to
establish the Forbearance Escrow;
NOW, THEREFORE, in consideration of the premises and mutual agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Mercury and the Dealer agree as follows:
1. Waiver. Solely in connection with the Bridge Loan in accordance with the
terms and conditions of the Third Amendment, on behalf of itself but not its
Customers, the Dealer waives through 11:59(pm) central standard time on January
6, 1998 compliance with any of the provisions of the Dealer Agreement that
(a) prohibit or restrict the granting of security interests, liens or mortgages
by any of the Borrowers to BABC (the "BABC Liens") to secure the Bridge Loan or
(b) result in or require the creation of a security interest, lien or mortgage
in favor of the Dealer or its customers on any assets of the Borrowers as a
result of the granting of the BABC Liens to secure the Bridge Loan; provided,
that the waivers set forth in this Section 1 shall be effective on the
conditions that the (i) aggregate principal amount of loans outstanding to the
Borrowers under the Bridge Loan does not exceed $50 million at any time and
(ii) the BABC Liens secure only the Bridge Loan and do not secure any other
indebtedness for borrowed money outstanding as of the date hereof or hereafter.
The Dealer waives, on behalf of itself but not its Customers, compliance with
any provisions of the Dealer Agreement that (a) prohibit or restrict the
creation or operation of the Forbearance Escrow and/or the entering into the
Forbearance Escrow or (b) result in or require the creation of an escrow,
security interest, lien or mortgage in favor of the Dealer on any assets of the
Borrowers as a result of the creation or operation of the Forbearance Escrow
and/or the entering into the Forbearance Escrow.
2. Entire Agreement. This Agreement constitutes the full and entire
understanding of the parties hereto with respect to the subject matter hereof.
3. Governing Law. This Agreement shall be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with the laws of the
State of New York.
4. Successors and Assigns. This Agreement shall insure to the benefit of, and
be binding upon the successors and assigns of, each of the parties hereto.
5. Counterparts. This Agreement may be executed in any number of counterparts
all of which together shall constitute one instrument.
* * * * *
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
first above written.
MERCURY FINANCE COMPANY,
a Delaware corporation
By:
Name:
Title:
PAINEWEBBER INC.
By:
Name:
Title:
EXHIBIT A
FOURTH AMENDMENT
EXHIBIT 99.7
FORBEARANCE AND FOURTH LIMITED WAIVER AGREEMENT
This Forbearance and Fourth Limited Waiver Agreement, dated as of November 6,
1997 (this "Agreement"), is between Mercury Finance Company, a Delaware
corporation (the "Company"), and Credit Suisse First Boston Management
Corporation ("CS/FB"), holder of $22,500,000 in Mercury Subordinated Notes as
listed on Schedule 1 hereto (the "Subordinated Notes").
PRELIMINARY STATEMENTS:
1. CS/FB is a party to certain note agreements governing the Subordinated
Notes executed by the Company, including, without limitation, those listed on
Schedule 1, under which credit was extended to the Company (the note agreements
and the Subordinated Notes are collectively referred to herein as the
"Subordinated Debt Documents").
2. One or more defaults or events of default presently exist under the
Subordinated Debt Documents (collectively, the "Existing Events of Default")
which, subject to the terms of the Subordinated Debt Documents, entitle CS/FB to
pursue its rights and remedies with respect to such Existing Events of Default
and the Company has acknowledged that certain other events of default may occur
under the Subordinated Debt Documents during the Forbearance Period (as defined
below).
3. The Company has requested that during the Forbearance Period, CS/FB forbear
from exercising certain of its rights and remedies, as more particularly set
forth in this Agreement.
4. Subject to the terms and conditions of this Agreement, CS/FB is willing to
agree to the requested forbearance terms, as more particularly set forth in this
Agreement.
5. In February 1997, to meet emergency financing needs, the Company and
certain of its subsidiaries (collectively, the "Borrowers") entered into a Loan
and Security Agreement with BankAmerica Business Credit, Inc. ("BABC") dated as
of February 7, 1997 (the "Bridge Loan Agreement") providing the Borrowers with a
secured revolving loan facility in an aggregate principal amount not to exceed
$50 million and having a maturity of March 10, 1997, with an option to extend
(the "Bridge Loan").
6. The Borrowers required financing beyond March 10, 1997 to continue their
operations and therefore extended the maturity date of the Bridge Loan to
June 10, 1997 in accordance with the Second Amendment to Loan and Security
Agreement dated March 12, 1997 (the "Second Amendment").
7. The Borrowers required financing beyond June 10, 1997 to continue their
operations and therefore BABC agreed to extend the maturity date of Bridge Loan
to January 6, 1998, in accordance with the terms set forth in the Third
Amendment attached hereto as Exhibit A (the "Third Amendment").
8. Certain provisions of the Subordinated Debt Documents unless waived
prohibit the Borrowers from granting liens on their assets to secure
indebtedness for borrowed money and/or require that CS/FB be granted an equal or
ratable lien on such assets in the event such a lien is granted to another
lender.
9. In connection with the Bridge Loan, the Company requested CS/FB, or its
assignor, to waive such provisions of the Subordinated Debt Documents to permit
the Borrowers to obtain the financing they needed to continue their operations
through March 10, 1997, and CS/FB, or its predecessor in interest, granted such
a waiver pursuant to a Limited Waiver Agreement dated as of February 7, 1997;
10. In connection with the extension of the maturity date of the Bridge Loan
from March 10, 1997 to June 10, 1997, the Company requested CS/FB to waive such
provisions of the Subordinated Debt Documents to permit the Borrowers to obtain
the financing they needed to continue their operations through June 10, 1997,
and CS/FB granted such a waiver pursuant to a Limited Waiver Agreement dated as
of March 10, 1997.
11. In connection with the extension of the maturity date of the Bridge Loan
from June 10, 1997 to January 6, 1998, the Company requested CS/FB to waive such
provisions of the Subordinated Debt Documents to permit the Borrowers to obtain
the financing they need to continue their operations, and CS/FB granted such a
waiver pursuant to a Forbearance and Third Limited Waiver Agreement dated as of
July 11, 1997.
12. CS/FB is now willing to waive certain limited provisions of the
Subordinated Debt Documents through January 6, 1998 to permit BABC to fund the
Bridge Loan upon request of Mercury.
13. The Company has entered into Forbearance Agreements dated July 11, 1997 and
is executing a First Amendment to Forbearance Agreements of even date herewith
(collectively, the "Amendment to Forbearance Agreements") with certain holders
of Funded Debt (as such term is defined in the Forbearance Agreements) pursuant
to which an escrow for the benefit of holders of Funded Debt is being
established to fund payment of certain amounts required to be paid to such
holders of Funded Debt under the Forbearance Agreements (the "Forbearance
Escrow").
14. CS/FB desires to waive certain limited provisions of the Subordinated Debt
Documents to permit the Company to establish the Forbearance Escrow.
AGREEMENT:
In consideration of the premises and mutual agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties to this agreement agree as
follows:
1. DEFINED TERMS; INTERPRETATION.
1.1 DEFINITIONS. When used in this Agreement, the following terms have the
following meanings:
"Agreement" has the meaning set forth in the preamble.
"BABC" has the meaning set forth in the fifth preliminary statement.
"Borrowers" has the meaning set forth in the fifth preliminary statement.
"Bridge Loan" has the meaning set forth in the fifth preliminary statement.
"Bridge Loan Agreement" has the meaning set forth in the fifth preliminary
statement.
"Company" has the meaning set forth in the preamble.
"Effective Date" means the date of this Agreement.
"Existing Events of Default" has the meaning set forth in the second preliminary
statement.
"Forbearance Agreements" has the meaning set forth in the thirteenth preliminary
statement.
"Forbearance Escrow" has the meaning set forth in the thirteenth preliminary
statement.
"Forbearance Period" means the period between the Effective Date and the
Termination Date, inclusive.
"Forbearance Period Default" means any event of default under a Subordinated
Debt Document that does not give rise to a Termination Event.
"Second Amendment" has the meaning set forth in the sixth preliminary statement.
"Senior Default Notice" means a Senior Default Notice as referred to in Section
11.4 of the Company's Senior Subordinated Note Agreements dated as of December
1, 1989 and May 15, 1990, respectively.
"Subordinated Debt Documents" has the meaning set forth in the first preliminary
statement.
"Subsidiary" means a corporation of which the Company owns, directly or
indirectly, more than 50% of any class of securities of which the holders are
entitled to vote.
"Termination Date" means the earlier to occur of (i) 11:59(pm) central standard
time on March 2, 1998, (ii) the date the Forbearance Period is terminated under
Section 4.2 or (iii) the date a Senior Default Notice is received by the
Company.
"Termination Event" has the meaning set forth in Section 4.1.
"Third Amendment" has the meaning set forth in the seventh preliminary
statement.
1.2 REFERENCE TO AGREEMENTS. All references in this Agreement to other
agreements refer to such agreements as amended, restated, supplemented or
otherwise modified from time to time, unless such reference specifically states
otherwise.
1.3 INTERPRETATION.
(A) The words "hereof", "herein", "hereunder" and "hereto" and words of similar
import when used in this Agreement refer to this Agreement as a whole and not
any particular provision of this Agreement and section, subsection, clause,
exhibit and schedule references are to this Agreement, unless otherwise
specified.
(B) All terms defined in this Agreement in the singular have comparable
meanings when used in the plural and vice versa, unless otherwise specified.
2. FORBEARANCE PROVISIONS.
2.1 FORBEARANCE. During the Forbearance Period, CS/FB will forbear from
exercising any rights or remedies it may have under the Subordinated Debt
Documents, applicable law or otherwise against the Company, any Subsidiary or
their assets with respect to any Existing Event of Default and any Forbearance
Period Default.
2.2 EFFECT OF TERMINATION DATE. The Termination Date shall occur automatically
at 11:59(pm) central standard time on March 2, 1998 or pursuant to Section 4.2
hereof. The Existing Events of Default and any Forbearance Period Default will
be deemed to exist on the Termination Date and, unless all of such Existing
Events of Default and Forbearance Period Defaults have been cured (if curable),
CS/FB may, at its option and subject to the terms of the Subordinated Debt
Documents, exercise any rights and remedies that it may have under any of the
Subordinated Debt Documents, applicable law or otherwise, all of such rights and
remedies being expressly reserved by CS/FB.
2.3 ACKNOWLEDGEMENT. THE COMPANY EXPRESSLY ACKNOWLEDGES AND AGREES THAT THE
FORBEARANCE PROVISION SET FORTH IN SECTION 2.1 IS EFFECTIVE ONLY DURING THE
FORBEARANCE PERIOD AND THAT, ON AND AFTER THE TERMINATION DATE, UNLESS ALL
EXISTING EVENTS OF DEFAULT AND ANY FORBEARANCE PERIOD DEFAULTS HAVE BEEN CURED
(IF CURABLE), THE SUBORDINATED DEBT DOCUMENTS WILL BE IN DEFAULT AND, SUBJECT TO
THE TERMS OF THE SUBORDINATED DEBT DOCUMENTS, CS/FB WILL BE FULLY ENTITLED TO
EXERCISE ANY OF ITS RIGHTS AND REMEDIES UNDER THE SUBORDINATED DEBT DOCUMENTS,
UNDER APPLICABLE LAW OR OTHERWISE. THE COMPANY UNDERSTANDS THAT CS/FB IS
EXPRESSLY RELYING ON THE TERMS OF THIS SECTION 2.3 AND WOULD NOT HAVE ENTERED
INTO THIS AGREEMENT BUT FOR THE COMPANY'S ACKNOWLEDGEMENT AND AGREEMENT IN THIS
SECTION 2.3.
2.4 NO OTHER WAIVERS OR AGREEMENTS. Except for the forbearance agreed to
herein as specifically set forth herein, CS/FB has not agreed to any waiver,
modification or amendment of the Subordinated Debt Documents, or its rights in
respect thereof and the Subordinated Debt Documents remain in full force and
effect and are the valid and binding obligations of the Company, enforceable in
accordance with their respective terms except as limited by bankruptcy,
insolvency or similar laws generally affecting the enforcement of creditors'
rights generally.
2.5 NATURE OF PAYMENTS; RESERVATION OF RIGHTS. All payments to be made by the
Company hereunder to CS/FB shall be free from any offset, defense, recoupment or
counterclaim, at law or in equity, of any kind or nature, subject to the
reservation of rights contained herein. The Company does not waive and
expressly reserves any right it may have to contest the applicable interest rate
to CS/FB, if any.
3. AGREEMENTS BY THE COMPANY.
To induce CS/FB to enter into this Agreement and to make the forbearances as
contemplated by this Agreement, the Company agrees that:
3.1 PAYMENT OF INTEREST.
(A) During the Forbearance Period, interest accrued by CS/FB on the aggregate
principal balances owing to it under the Subordinated Debt Documents (whether or
not due by reason of acceleration or otherwise) will be paid to CS/FB by the
Company on the last business day of each month at the rate of 5.50% per annum.
Notwithstanding the foregoing sentence, the payment due on October 31, 1997
shall be made on the date the conditions set forth in Section 3.1 of the
Amendment to Forbearance Agreements have been met.
(B) CS/FB expressly retains and reserves any and all of its rights against the
Company under the Subordinated Debt Documents or applicable law with respect to
interest accrued and not paid pursuant to the terms of this Agreement and/or the
Subordinated Debt Documents.
3.2 REVIVAL OF OBLIGATIONS. If all or any part of any payment on account of
the Subordinated Debt Documents or this Agreement shall be invalidated, set
aside, declared or found to be void or voidable or required to be repaid to the
issuer or to any trustee, custodian, receiver, conservator, master, liquidator
or any other person pursuant to any bankruptcy law or pursuant to any common law
or equitable cause then, to the extent of such invalidation, set aside,
voidness, voidability or required repayment, such payment shall be deemed to not
have been paid, and the obligations of the Company in respect thereof shall be
immediately and automatically revived without the necessity of any action by
CS/FB.
3.3 TOLLING. The Company agrees that any and all statute of limitations,
repose, or similar legal constraints on the time by which a claim must be filed,
a person given notice thereof, or asserted, that expire, run or lapse during the
Forbearance Period on any claims that CS/FB may have against the Company or any
other persons relating to the Company (collectively, the "Forbearance Period
Statutes of Limitation") shall be tolled during the Forbearance Period and not
expire prior to April 1, 1998. The Company waives any defense it may have
against CS/FB under the Forbearance Period Statutes of Limitation, applicable
law or otherwise solely as to the expiration, running or lapsing of the
Forbearance Period Statutes of Limitation during the Forbearance Period, so long
as CS/FB takes the action required by any applicable Forbearance Period Statute
of Limitation by no later than April 1, 1998.
4. TERMINATION EVENTS; REMEDIES.
4.1 TERMINATION EVENTS. If any of the following events ("Termination Events")
has occurred and is continuing during the Forbearance Period, CS/FB has the
rights and remedies available to it in Sections 4.2 and 4.3:
(A) the Company fails to make any payment required by this Agreement on or
before the date such payment is due;
(B) a proceeding under any bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt or receivership law or statute is filed by or
against the Company, the Company makes an assignment for the benefit of
creditors or the Company takes any corporate action to authorize any of the
foregoing;
(C) the Company voluntarily or involuntarily dissolves or is dissolved; and
(D) a Termination Event has occurred and is continuing under the Forbearance
Agreement executed by CS/FB with respect to its commercial paper.
4.2 TERMINATION OF THE FORBEARANCE PERIOD. Upon the occurrence of any
Termination Event and at any time after such occurrence during which a
Termination Event is continuing, CS/FB is entitled by written notice to the
Company to terminate the Forbearance Period with immediate effect unless such
Termination Event is of the type described in Section 4.1(B) or (C), in which
case the Forbearance Period automatically terminates without demand or notice of
any kind; provided, however, that any termination of the Forbearance Period
under this Section 4.2 does not terminate any other provision of this Agreement
that is not by its terms limited in application to the Forbearance Period. The
Company shall provide CS/FB with written notice of a Termination Event
immediately upon learning thereof.
4.3 CONSEQUENCES OF TERMINATION. If the Forbearance Period has been terminated
under Section 4.2, then the provisions of Section 2.2 hereof shall apply and,
subject to the terms of the Subordinated Debt Documents, CS/FB is fully entitled
to exercise any rights and remedies it may have under the Subordinated Debt
Documents, under applicable law or otherwise without regard to any matters
transpiring prior to such date of termination or the financial condition or
prospects of the Company as of such date.
5. FOURTH LIMITED WAIVER.
5.1 WAIVER. Solely in connection with the Bridge Loan in accordance with the
terms and conditions of the Third Amendment, CS/FB waives through 11:59(pm)
central standard time on January 6, 1998 compliance with any of the provisions
of the Subordinated Debt Documents that (a) prohibit or restrict the granting of
security interests, liens or mortgages by any of the Borrowers to BABC (the
"BABC Liens") to secure the Bridge Loan or (b) result in or require the creation
of a security interest, lien or mortgage in favor of CS/FB on any assets of the
Borrowers as a result of the granting of the BABC Liens to secure the Bridge
Loan; provided, that the waivers set forth in this Section 5.1 shall be
effective on the conditions that the (i) the aggregate principal amount of loans
outstanding to the Borrowers under the Bridge Loan does not exceed $50 million
at any time and (ii) the BABC Liens secure only the Bridge Loan and do not
secure any other indebtedness for borrowed money outstanding as of the date
hereof or hereafter. CS/FB waives compliance with any provisions of the
Subordinated Debt Documents that (a) prohibit or restrict the creation or
operation of the Forbearance Escrow and/or the entering into the Forbearance
Escrow or (b) result in or require the creation of an escrow, security interest,
lien or mortgage in favor of CS/FB on any assets of the Borrowers as a result of
the creation or operation of the Forbearance Escrow and/or the entering into the
Forbearance Escrow. The terms of this Section 5.1 shall not be affected by the
termination of the Forbearance Period.
6. MISCELLANEOUS.
6.1 SECTION TITLES. The preliminary statements to this Agreement (except for
definitions) and the section titles used in this Agreement are for convenience
only and do not affect the construction of this Agreement.
6.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together constitute one instrument.
6.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding of the Company and CS/FB with respect to the subject matter of
this Agreement.
6.4 NOTICES. Any notice required or desired to be given or delivered under
this Agreement must be in writing and is deemed to have been validly given or
delivered (i) five days after deposit in the United States mails, with proper
postage prepaid, (ii) when sent after receipt of confirmation if sent by
telecopy or other similar facsimile transmission, (iii) one business day after
deposit with a reputable overnight courier with all charges prepaid or (iv) when
delivered, if hand delivered by messenger, all of which must be properly
addressed to the party to be notified and sent to the address or number for such
party as indicated on the signature page(s) to this Agreement or to such other
address or number as each party designates to the other in the manner prescribed
in this Section 6.4.
6.5 SUCCESSORS AND ASSIGNS. This Agreement inures to the benefit of, and is
binding upon the successors and assigns of, each of the Company and CS/FB. In
addition, CS/FB hereby agrees that, prior to the Termination Date, it shall not
sell, transfer or assign any of its claims under any of the Subordinated Debt
Documents, or any voting interest therein, unless the transferee thereof agrees
in writing to be bound by all the terms of this Agreement (which writing may
include a trade confirmation issued by a broker or dealer, acting as principal
or as agent for the transferee, stating that such agreement is a term of such
transfer), and the CS/FB provides the Company with a copy of such writing, in
which event the Company shall be deemed to have acknowledged that its
obligations to CS/FB hereunder shall be deemed to constitute obligations in
favor of such transferee, and the Company shall confirm that acknowledgment in
writing.
6.6 GOVERNING LAW. This Agreement will be interpreted, and the rights and
liabilities of the Company and CS/FB determined, in accordance with the internal
laws of the State of Illinois.
6.7 SEVERABILITY. Wherever possible, each provision of this Agreement will be
interpreted in a manner as to be effective and valid under applicable law. If
any provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision is ineffective only to the extent of such
prohibition or invalidity and the remaining provisions of this Agreement remain
unaffected and in full force and effect.
* * *
Delivered at Chicago, Illinois as of the date and year above first mentioned.
MERCURY FINANCE COMPANY
By:__________________________
Name:
Title:
100 Field Drive, Suite 340
Lake Forest, Illinois 60045
Attention:
Telephone: (847) 564-3720
Facsimile: (847) ___-____
CREDIT SUISSE FIRST BOSTON MANAGEMENT
CORPORATION
By:__________________________
Name: ___________________
Title: __________________
11 Madison Street, 4th Floor
New York, New York 10010
Attention: __________________
Telephone: (212) 325-2223
Facsimile: (212) 325-8290
