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) July 11, 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.
Effective July 11, 1997, the Registrant and its lenders signed a
Forbearance Agreement (the "Forbearance Agreement") and Waivers (the "Waivers"),
both of which expire on September 30, 1997. Under the Forbearance Agreement,
the lenders agreed not to take action against the Registrant for defaults under
the applicable debt agreements prior to October 1, 1997, subject to certain
termination events enumerated in the Forbearance Agreement. The Registrant made
a $70 million payment to reduce principal and brought its interest payments
current. Subsequent interest payments (at the greater of 7 percent per annum or
the stated non-default rate) will be made on the last business day of July,
August, and September, of 1997, with a $6 million escrow established to insure
payment of the September 30 interest payment. The Registrant also agreed to
make additional cash payments to its lenders (i) on July 16, 1997, August 5,
1997, and September 4, 1997, if the Registrant's cash balances exceed certain
threshold amounts, and (ii) at such other times from the proceeds of an asset
sale with a book value in excess of $5 million and tax refunds. The July 16,
1997 payment will be $16.5 million, which will be applied to reduce principal
in addition to the $70 million referred to above. With certain exceptions,
the Registrant also will accrue default interest which will be payable to
lenders on the earlier of (i) receipt of cash proceeds from the sale of an
asset that has a book value in excess of $5 million, or (ii) receipt of a tax
refund, or (iii) October 1, 1997.
The Registrant and all of its subsidiaries also extended its Loan and
Security Agreement (the "Loan Agreement") with certain financial institutions
and BankAmerica Business Credit, Inc. The termination date of the Loan
Agreement has been extended on several occasions and is currently January 6,
1998. In order to permit the Registrant to pledge certain assets to secure the
Loan Agreement, the Registrant has received waivers from certain lenders whose
loan agreements prohibit the Registrant from pledging assets. These waivers
expire on September 30, 1997.
The foregoing description of the Registrant's Forbearance Agreement,
Waivers, and extension of the Loan Agreement is merely a summary of certain
terms and is qualified in its entirety by reference to the Forbearance Agreement
dated as of July 11, 1997, between Mercury Finance Company and the persons
listed on the signature pages thereto, an additional Forbearance Agreement dated
as of July 11, 1997, between Mercury Finance Company and the persons listed on
the signature pages thereto, the Forbearance and Third Limited Waiver Agreement
dated as of July 11, 1997, between Mercury Finance Company and Credit Suisse
First Boston Management Corporation, and the Third Amendment to Loan and
Security Agreement dated as of July 9, 1997, among certain financial
institutions, BankAmerica Business Credit, Inc., Mercury Finance Company, and
certain other borrowers, which are attached hereto as Exhibits 99.1, 99.2, 99.3,
and 99.4 respectively.
On July 15, 1997, the Registrant issued a press release announcing the
release of its 1996 balance sheet and the forbearance agreements with its
lenders. A complete copy of the balance sheet is attached hereto as
Exhibit 99.5. A copy of the press release is attached hereto as Exhibit 99.6.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description of Document
99.1 Forbearance Agreement dated as of July 11, 1997,
between Mercury Finance Company and the persons listed
on the signature pages thereto.
99.2 Forbearance Agreement dated as of July 11, 1997,
between Mercury Finance Company and the persons listed
on the signature pages thereto.
99.3 Forbearance and Third Limited Waiver Agreement dated as
of July 11, 1997, between Mercury Finance Company and
Credit Suisse First Boston Management Corporation.
99.4 Third Amendment to Loan and Security Agreement dated as
of July 9, 1997, among certain financial institutions,
BankAmerica Business Credit, Inc., Mercury Finance
Company, and certain other borrowers
99.5 Mercury Finance Company Consolidated Balance Sheet for
the year ended December 31, 1996.
99.6 Press release dated July 11, 1997, issued by the
registrant.
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: July 16, 1997 By: /s/ Patrick O'Malley
Its: Assistant Secretary
EXHIBIT 99.1
FORBEARANCE AGREEMENT
This Forbearance Agreement, dated as of July 11, 1997 (this
"Agreement"), is between Mercury Finance Company, a Delaware corporation (the
"Company"), and the person(s) listed on the signature pages of this Agreement
(collectively or individually, the "Lender").
PRELIMINARY STATEMENTS:
1. The Lender or its predecessors 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 the Company,
including, without limitation, those listed on Schedule I, under which the
Lender has extended credit to the Company (collectively, the "Existing
Agreements").
2. One or more defaults or events of default presently exist under the
Existing Agreements (collectively, the "Existing Events of Default")
entitling the Lender 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 Existing Agreements during the
Forbearance Period (as defined below).
3. The Company has requested that during the Forbearance Period, the
Lender forbear from exercising any rights or remedies it may have under the
Existing Agreements, applicable law or otherwise with respect to any Existing
Event of Default and any Forbearance Period Default (as defined below).
4. Subject to the terms and conditions of this Agreement, the Lender
is willing to agree to the requested forbearance terms, as more particularly
set forth in this Agreement.
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.
"Bridge Loan Agreement" means the Loan and Security Agreement dated
as of February 7, 1997, among the Company and certain of its
subsidiaries, as borrowers, and BankAmerica Business Credit, Inc., as
lender, as such agreement may be amended or modified from time to time.
"Company" has the meaning set forth in the preamble.
"Default Rate" has the meaning set forth in Section 3.2(A).
"Lender" has the meaning set forth in the preamble.
"Effective Date" means the date on which each of the conditions
precedent set forth in Section 6 have been satisfied by the Company or
waived in writing by the Lender.
"Escrow" means the $6,000,000 placed into escrow by the Company for
the benefit of holders of Funded Debt pursuant to the Escrow Agreement
for the purpose of funding the payments required to be made by the
Company under this Agreement on September 30, 1997.
"Excess Cash" means, as of the date of measurement, the ending book
cash balance of the Company on a fully consolidated basis as shown on
the "budget" by the Company or its advisors on a basis consistent with
the budgets prepared by the Company or its advisors since the week
ending February 7, 1997, which cash balance shall include overnight
investments, cash equivalents, corporate accounts, credit card cash,
cash of the captive insurance unit and branch cash, including cash of
Midland, (but only to the extent such branch cash in the aggregate
exceeds $3,650,000) minus $20,000,000.
"Existing Agreements" has the meaning set forth in the first
preliminary statement.
"Existing Events of Default" has the meaning set forth in the
second 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 an
Existing Agreement that does not give rise to a Termination Event.
"Funded Debt" means the existing indebtedness of the Company for
borrowed money listed on Schedule 2 hereto.
"Funded Debt Pro Rata Share" means a proportionate share, so that
the ratio obtained by dividing (i) the cash distributed to a holder of
Funded Debt by (ii) the accrued and unpaid interest or outstanding
principal, as the case may be, owing by the Company or a Subsidiary to
such holder of Funded Debt is the same as the ratio obtained by dividing
(x) the amount of cash distributed to all holders of Funded Debt by (y)
the aggregate amount of accrued and unpaid interest or outstanding
principal, as the case may be, owing by the Company or a Subsidiary to
all holders of Funded Debt. All calculations of Funded Debt Pro Rata
Share with respect to distributions to be applied to accrued and unpaid
interest shall be calculated by excluding any accrued and unpaid
interest owing to the Lender at a Default Rate of greater than 9.00% per
annum. All calculations of Funded Debt Pro Rata Share shall also
exclude "make whole amounts" or similar payments as described in Section
3.8.
"Lyndon Distribution" means $70,000,000.
"Pay Rate" has the meaning set forth in Section 3.2(B).
"Pro Rata" means a proportionate share, so that at any time the
ratio obtained by dividing (i) the cash applied by a holder of Funded
Debt to accrued and unpaid interest or outstanding principal, as the
case may be, owing to such holder of Funded Debt under a specific
agreement at such time by (ii) the amount of accrued and unpaid interest
or outstanding principal, as the case may be, owing to such holder of
Funded Debt under such specific agreement is the same as the ratio
obtained by dividing (x) the aggregate amount of cash applied by such
holder of Funded Debt to accrued and unpaid interest or outstanding
principal, as the case may be, owing to such holder of Funded Debt under
all agreements by (y) the aggregate amount of accrued and unpaid
interest or outstanding principal, as the case may be, owing to such
holder of Funded Debt under all agreements at such time. All
calculations of Pro Rata with respect to distributions to be applied to
accrued and unpaid interest shall be calculated by excluding any accrued
and unpaid interest owing to the Lender at a Default Rate of greater
than 9.00% per annum. All calculations of Pro Rata shall also exclude
"make whole amounts" or similar payments as described in Section 3.8.
"Steering Committee" means the unofficial steering committee of
holders of Funded Debt as constituted from time to time.
"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 Event" has the meaning set forth in Section 4.1.
"Termination Date" means the earlier to occur of (i) 11:59 (p.m.)
central standard time on September 30, 1997, and (ii) the date the
Forbearance Period is terminated under Section 4.2.
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, the Lender will
forbear from exercising any rights or remedies it may have under the Existing
Agreements, 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 September 30, 1997 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), the Lender may, at its option and
subject to the terms of the Existing Agreements, demand the immediate
repayment of all indebtedness owing to it under the Existing Agreements,
whereupon all such indebtedness shall be immediately due and payable, and may
exercise any rights and remedies that it may have under any of the Existing
Agreements, applicable law or otherwise, all of such rights and remedies
being expressly reserved by the Lender.
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 EXISTING AGREEMENTS WILL BE IN DEFAULT AND
THE LENDER WILL BE FULLY ENTITLED TO EXERCISE ITS RIGHTS AND REMEDIES UNDER
THE EXISTING AGREEMENTS, UNDER APPLICABLE LAW OR OTHERWISE. THE COMPANY
UNDERSTANDS THAT THE LENDER 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, and, if the Lender is a party to
the Third Limited Waiver Agreement dated the date hereof, the Third Limited
Waiver Agreement, 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.
2.5 NATURE OF PAYMENTS; RESERVATION OF RIGHTS. All payments to be made
by the Company hereunder to the Lender 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.
3. AGREEMENTS BY THE COMPANY.
To induce the Lender to enter into this Agreement and to make the
forbearances as contemplated by this Agreement, the Company agrees that:
3.1 LYNDON SALE PROCEEDS. On the Effective Date, the Company will pay
to the Lender its Funded Debt Pro Rata Share of the Lyndon Distribution. The
Lender shall apply its Funded Debt Pro Rata Share to principal owing to it
under the Existing Agreements in accordance with the provisions of Section
3.9 hereof. The Lender (i) solely in connection with the sale by the Company
of the stock of Lyndon Property Insurance Group and its subsidiaries, waives
any negative covenant in the Existing Agreements, if any, that required the
consent of the Lender to such sale; (ii) consents to the sale by the Company
of the stock of Lyndon Property Insurance Group and its subsidiaries; and
(iii) approves and consents to the disbursement of the Lyndon Distribution to
other holders of Funded Debt so that each holder of Funded Debt receives its
Funded Debt Pro Rata Share of the Lyndon Distribution.
3.2 PAYMENT OF INTEREST. The Existing Agreements are hereby amended to
provide that, notwithstanding any contrary provision set forth therein:
(A) Commencing on and including June 11, 1997 through and including the
Termination Date, the Lender will accrue interest on the aggregate principal
balances owing to it under the Existing Agreements (whether or not due by
reason of acceleration or otherwise) at the greater rate (the "Default Rate")
of (i) 9.00% per annum and (ii) the default rate set forth in the appropriate
Existing Agreement.
(B) So long as the Forbearance Period has not been terminated, from and
after June 11, 1997 to but not including October 1, 1997, interest accrued by
the Lender on the aggregate principal balances owing to it under the Existing
Agreements (whether or not due by reason of acceleration or otherwise) will
be paid to the Lender by the Company on the last business day of each month
at the greater rate (the "Pay Rate") of (i) 7.00% per annum and (ii) the
nondefault rate set forth in the appropriate Existing Agreement.
(C) So long as the Forbearance Period has not been terminated, within
three (3) business days of the date the Company or a Subsidiary receives cash
proceeds from the sale from time to time of an asset that has a book value in
excess of $5,000,000 of the Company or a Subsidiary or from a tax refund, the
Company will pay to the Lender its Funded Debt Pro Rata Share of such cash
proceeds to be applied by the Lender in accordance with the provisions of
Section 3.9 hereof, first to accrued and unpaid interest calculated to but
not including the date of payment, and second, to the extent of any remaining
proceeds, to principal owing to Lender under the Existing Agreements (whether
or not due by reason of acceleration or otherwise); provided, however, that
if the asset sold is an asset of Midland Finance Company ("Midland"), no
distributions shall be made pursuant to this Section 3.2(C) until the debts
owing under any existing agreements for Funded Debt with Midland have been
satisfied.
(D) On October 1, 1997, the Company will pay to the Lender all accrued
and unpaid interest calculated to but not including October 1, 1997,
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.
(E) As to all interest payments made prior to the date of this
Agreement and as to all interest payments required to be made under this
Agreement, the Company waives any rights it may have (whether or not
previously reserved) to contend that the Lender should be paid or accrue
interest on the aggregate principal balances owing to it under the Existing
Agreements (whether or not due by reason of acceleration) at a rate that is
less than the Pay Rate; provided, however, subject to the first sentence of
Section 3.3 hereof, the Company does not waive and expressly reserves any
rights it may have to contend that the Default Rate should be an interest
rate not greater than the Pay Rate.
(F) To the extent that the interest payments to the Lender under
Section 3.2(B), (C) or (D) do not pay in full all accrued interest owing to
the Lender under an Existing Agreement because the Default Rate under the
Existing Agreement exceeds 9.00% per annum, the Lender expressly retains and
reserves any and all of its rights against the Company under the Existing
Agreement or applicable law with respect to payment of such amounts.
3.3 ACKNOWLEDGMENT; OTHER AGREEMENTS. Notwithstanding anything in the
Existing Agreements or this Agreement to the contrary, there shall be no
requirement that (a) the debt under the Existing Agreements be accelerated
for such debt to accrue or bear interest at the appropriate default rate or
(b) unanimous consent from all parties to the Existing Agreements is
necessary for the Lender to accrue interest at the rates specified in
Section 3.2. The Company represents that it has not entered into any
agreements with holders of Funded Debt that permit Funded Debt to accrue
interest at a rate higher than the Default Rate. The Company will not make a
distribution to a holder of, or on account of, any Funded Debt, including but
not limited to payments of interest or principal, other than on the payment
terms set forth in this Agreement. Prior to October 1, 1997, 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 (without regard to any amendment, modification or
supplement thereof after such date). In addition, the Company acknowledges
that certain holders of Funded Debt whose Existing Agreements do not contain
a stated interest rate or default rate of interest continue to assert that
they are entitled under applicable law to accrue interest on the unpaid
principal amounts outstanding under such Existing Agreements at a rate of
9.00% per annum and that nothing in this Agreement shall be deemed or
construed to constitute a waiver or release by such holders of Funded Debt of
such rights under applicable law or waiver by the Company to contest such
assertions.
3.4 CASH SWEEP. So long as the Forbearance Period has not been
terminated, on July 16, 1997, August 5, 1997 and September 4, 1997, 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) two business days after the Effective Date, (ii) July 31 and
(iii) August 29 of 1997, respectively. On October 3, 1997, 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 September 30, 1997.
The Lender will apply such payments to principal owing under the Existing
Agreements in accordance with the provisions of Section 3.9 hereof. The
Company agrees that it will not maintain cash at its branch offices except in
the ordinary course of business and in accordance with past practices. The
Company agrees to work in good faith with Policano & Manzo to develop a cash
management system that reduces the amount of cash maintained at branch
offices to an amount reasonably necessary to conduct branch office operations
(the "Reduced Branch Cash Amount"). To the extent that the Company working
with Policano & Manzo determines in good faith that the Reduced Branch Cash
Amount is less than $3,650,000, then such amount will be substituted for the
"$3,650,000" figure used in the definition of Excess Cash.
3.5 CONSUMER FINANCING RECEIVABLES. During the Forbearance Period, the
Company will not sell consumer financing receivables in an amount in excess
of $100,000 in the aggregate without the prior written consent of the Lender.
3.6 CERTAIN INFORMATION. The Company will immediately share with the
Steering Committee all material information regarding any market evaluation
and exploration process and the marketing process that the Company or its
advisors obtains or prepares, including, without limitation, any offering
memoranda or other marketing and solicitation materials prepared by the
Company or its advisors, the names of the entities solicited by, or making
unsolicited inquiries, proposals or offers to the Company or its advisors,
information on all proposals, offers or bids received by the Company or its
advisors, the names of the entities conducting due diligence with respect to
the Company, all due diligence requests, due diligence information shared
with interested parties, drafts and final copies of all potential definitive
agreements; provided, however, that the Company shall not be required to
provide the Steering Committee with any material that is subject to an
attorney-client privilege. The Company shall cause Salomon Brothers or other
financial advisors that the Company retains (i) to meet in person or by
telephone on a weekly basis with Policano & Manzo to share information as to
the status of the market evaluation and exploration process, the marketing
process and the restructuring and (ii) to otherwise keep Policano & Manzo
apprised of all developments relating thereto. The Company will also provide
to the Steering Committee any other material information reasonably requested
by the Steering Committee in connection with the market evaluation and
exploration process, the marketing process and the restructuring process
(excluding privileged materials relating to the fraud investigation or other
materials that are subject to an attorney-client privilege). The Company
shall cause its management to meet with the Steering Committee as reasonably
requested by the Steering Committee.
3.7 RESTRICTED AGREEMENTS. The Company shall not, and shall not permit
its advisors, to enter into confidentiality agreements or other agreements
with parties interested in participating in the market evaluation and
exploration process or the marketing process unless such confidentiality
agreements or other agreements allow such parties or any other persons to
deal with persons other than the Company, its Board of Directors or their
advisors after December 31, 1997 as to any potential transaction involving
the sale of the Company or its assets.
3.8 MAKE WHOLE PAYMENTS. To the extent that during the Forbearance
Period the Lender is entitled under an Existing Agreement to payment of a
"make whole amount" or similar payment as a result of payments made by the
Company to the Lender under Sections 3.1, 3.2(C) or 3.4 of this Agreement or
otherwise, the Lender expressly retains and reserves any and all of its
rights against the Company under the Existing Agreements or applicable law
with respect to payment of such amounts.
3.9 APPLICATION OF CERTAIN PAYMENTS. All payments made to the Lender
under this Agreement to be applied to principal owing to the Lender under the
Existing Agreements shall be applied by the Lender on a Pro Rata basis to the
principal owing to it under each Existing Agreement. Any payment made to the
Lender pursuant to Section 3.2(C) hereof to be applied to accrued and unpaid
interest shall be applied by the Lender on a Pro Rata basis to accrued and
unpaid interest owing to it under each Existing Agreement.
3.10 ESCROW. By no later than July 15, 1997, the Company agrees to
establish the Escrow. The Escrow 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 September 30, 1997 to the Lender under this Agreement
and other holders of Funded Debt as contemplated by this Agreement.
3.11 REVIVAL OF OBLIGATIONS. If all or any part of any payment on
account of the Existing Agreements 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 the Lender.
3.12 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 the Lender 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 November 1,
1997. The Company waives any defense it may have against the Lender 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 the Lender
takes the action required by any applicable Forbearance Period Statute of
Limitation by no later than November 1, 1997.
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, the
Lender 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) the occurrence of a default or event of default under, and as
defined in, the Bridge Loan Agreement that has not been waived
(unless the lender thereunder receives money or money's worth from
the Company in connection with such waiver);
(C) any creditor having a minimum of $2,500,000 in indebtedness owed to
it from the Company accelerates the Company's indebtedness owing to
it or takes any enforcement action against the Company or any
Subsidiary or their property or assets;
(D) failure of the Company to deliver to the Steering Committee within
5 business days of the following delivery dates (a) unaudited
financial statements for the first quarter of 1997 as soon as
available but in no event later than July 14, 1997 and
(b) unaudited monthly financial statements as soon as available but
in no event later than (i) July 25, 1997 for the April 1997
statements, (ii) August 9, 1997 for the May, 1997 statements,
(iii) August 30, 1997 for the June, 1997 statements, and
(iv) September 12, 1997 for the July, 1997 statements;
(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 on a cumulative basis for 1997 is less
than (i) ($20,000,000) for the first quarter of 1997,
(ii) ($27,500,000) as of April 30, 1997, (iv) ($35,000,000) as of
May 31, 1997, (v) ($42,500,000) as of June 30, 1997, (vi)
($50,000,000) as of July 31, 1997;
(F) failure by the Company to comply with any provision of this
Agreement, except for Section 5.1(A) with respect to "good
standing" and Article 6 of this Agreement solely to the extent that
such Article incorporates Section 5.1(A) with respect to "good
standing";
(G) the Company fails to comply with any negative covenant (excluding
financial covenants or any covenant relating to the sale of the
stock of Lyndon Property Insurance Group and its subsidiaries) in
any of the Existing Agreements, except as expressly permitted by
this Agreement;
(H) final judgment or judgments for the payment of money aggregating in
excess of $1,000,000 is or are outstanding against one or more of
the Company or any Subsidiary and any one or more of such judgments
aggregating in excess of $1,000,000 have been outstanding for more
than 30 days from their respective dates of entry and have not been
discharged in full or stayed;
(I) 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; and
(J) the Company voluntarily or involuntarily dissolves or is dissolved.
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, the Lender is entitled to terminate the
Forbearance Period with immediate effect, (i) upon giving three (3) business
days' written notice in advance to the Company in the case of any Termination
Event described under Section 4.1(B), (D) or (F) or (ii) upon giving one (1)
business day's written notice in advance to the Company in the case of any
other Termination Event described under Section 4.1 unless such Termination
Event is of the type described in Section 4.1(I) or (J), 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 the Lender 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 the Lender is fully entitled to exercise any rights and remedies it
may have under the Existing Agreements, 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. REPRESENTATIONS AND WARRANTIES.
5.1 COMPANY. The Company represents and warrants that as of the
Effective Date and continuing so long as this Agreement remains in effect:
(A) CORPORATE EXISTENCE; GOOD STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is duly qualified as a foreign corporation and is in
good standing in all states where the nature and extent of the business
transacted by it or the ownership of its assets makes such qualification
necessary, except for those jurisdictions in which the failure so to qualify
or to be in good standing would not have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company.
(B) CORPORATE AUTHORITY; NO CONFLICTS. The execution and delivery by
the Company of this Agreement and the performance of the Company's
obligations under this Agreement (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 Effective Date, 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.
(C) BINDING EFFECT; ENFORCEABILITY. This Agreement is the legal, valid
and binding obligations of the Company and is enforceable against the Company
in accordance with its terms.
5.2 LENDER. The Lender represents and warrants that as of the
Effective Date and continuing so long as this Agreement remains in effect,
the execution and delivery by the Lender of this Agreement and the
performance of the Lender's obligations under this Agreement are within its
powers and are duly authorized and this Agreement is the legal, valid and
binding obligation of the Lender and is enforceable against the Lender in
accordance with its terms.
5.3 SIGNATURE PAGE REPRESENTATIONS OF COMMERCIAL PAPER HOLDERS. Each
and every Schedule 1 attached to the signature pages of this Agreement are
true and correct.
6. CONDITIONS PRECEDENT.
The obligation of the Lender to make the forbearances contemplated by
this Agreement and the effectiveness of such forbearances are subject to the
following:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement are true and correct as of the
Effective Date.
6.2 DOCUMENTS. The Lender has received all of the following, each duly
executed and dated as of the Effective Date (or such other date as is
satisfactory to the Lender) in form and substance satisfactory to the Lender:
(A) fully executed counterparts to this Agreement;
(B) executed Forbearance Agreements on the same terms as this Agreement
from other holders of Funded Debt satisfactory to the Lender, but
excluding the Forbearance and Third 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 Agreement;
(D) fully executed copies of the Third Amendment (as defined below);
and
(E) the Forbearance and Third Limited Waiver Agreement dated as of
the date hereof between the Company and Credit Suisse First
Boston Corporation.
6.3 EXTENSION OF BRIDGE LOAN AGREEMENT. The maturity of the Bridge
Loan Agreement shall have been extended to at least September 30, 1997
pursuant to the Third Amendment to Loan and Security Agreement dated as of
July 9, 1997 (the "Third Amendment").
7. MISCELLANEOUS.
7.1 SECTION TITLES. The preliminary statements to this Amendment
(except for definitions) and the section titles used in this Amendment are
for convenience only and do not affect the construction of this Amendment.
7.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together constitute one instrument.
7.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding of the Company and the Lender with respect to the subject
matter of this Agreement.
7.4 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 (5) business 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 for
next day delivery 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 7.4.
7.5 SUCCESSORS AND ASSIGNS. This Agreement inures to the benefit of,
and is binding upon the successors and assigns of, each of the Company and
the Lender. In addition, the Lender hereby agrees that, so long as this
Agreement has not been terminated, it shall not sell, transfer or assign any
of its claims under any of the Existing Agreements, 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
Lender provides the Company with a copy of such writing, in which event the
Company shall be deemed to have acknowledged that its obligations to the
Lender hereunder shall be deemed to constitute obligations in favor of such
transferee, and the Company shall confirm that acknowledgment in writing if
requested.
7.6 GOVERNING LAW. This Agreement 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.
7.7 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
THIRD LIMITED WAIVER AGREEMENT
This Third Limited Waiver Agreement (this "Agreement") dated as of
July 3, 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").
WITNESSETH
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 desire 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 require financing beyond June 10, 1997 to
continue their operations and have therefore requested BABC 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 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 has again 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;
WHEREAS, the Lender is willing to waive certain limited provisions of
the Existing Agreements through September 30, 1997 to permit the maturity date
of the Bridge Loan to be extended;
WHEREAS, the Lender and certain other holders of Funded Debt (as
defined below) are entering into Forbearance Agreements of even date herewith
(collectively, 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"); 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 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 extension of the maturity
of 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
September 30, 1997 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) Mercury certifies to BABC that it has paid to the Lender
through the date hereof in immediately available funds any and all accrued and
unpaid nondefault interest on the aggregate principal balances owing to the
Lender under the Existing Agreements (whether or not due by reason of
acceleration or otherwise) calculated at the greater rate of (a) 7.00% per annum
and (b) the nondefault rate set forth in the Existing Agreements, (ii) the
aggregate principal amount of loans outstanding to the Borrowers under the
Bridge Loan does not exceed $50 million at any time and (iii) 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 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 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 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 Forbearance Agreement).
4. Representations. The Lender represents that it has snot 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 99.2
FORBEARANCE AGREEMENT
This Forbearance Agreement, dated as of July 11, 1997 (this "Agreement"),
is between Mercury Finance Company, a Delaware corporation (the "Company"), and
the person(s) listed on the signature pages of this Agreement (collectively or
individually, the "Lender").
PRELIMINARY STATEMENTS:
1. The Lender or its predecessors 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 the Company,
including, without limitation, those listed on Schedule I, under which the
Lender has extended credit to the Company (collectively, the "Existing
Agreements").
2. One or more defaults or events of default presently exist under the
Existing Agreements (collectively, the "Existing Events of Default") entitling
the Lender 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 Existing Agreements during the Forbearance Period
(as defined below).
3. The Company has requested that during the Forbearance Period, the
Lender forbear from exercising any rights or remedies it may have under the
Existing Agreements, applicable law or otherwise with respect to any Existing
Event of Default and any Forbearance Period Default (as defined below).
4. Subject to the terms and conditions of this Agreement, the Lender is
willing to agree to the requested forbearance terms, as more particularly set
forth in this Agreement.
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.
"Bridge Loan Agreement" means the Loan and Security Agreement dated as
of February 7, 1997, among the Company and certain of its subsidiaries, as
borrowers, and BankAmerica Business Credit, Inc., as lender, as such
agreement may be amended or modified from time to time.
"Company" has the meaning set forth in the preamble.
"Default Rate" has the meaning set forth in Section 3.2(A).
"Lender" has the meaning set forth in the preamble.
"Effective Date" means the date on which each of the conditions
precedent set forth in Section 6 have been satisfied by the Company or
waived in writing by the Lender.
"Escrow" means the $6,000,000 placed into escrow by the Company for
the benefit of holders of Funded Debt pursuant to the Escrow Agreement for
the purpose of funding the payments required to be made by the Company
under this Agreement on September 30, 1997.
"Excess Cash" means, as of the date of measurement, the ending book
cash balance of the Company on a fully consolidated basis as shown on the
"budget" by the Company or its advisors on a basis consistent with the
budgets prepared by the Company or its advisors since the week ending
February 7, 1997, which cash balance shall include overnight investments,
cash equivalents, corporate accounts, credit card cash, cash of the captive
insurance unit and branch cash, including cash of Midland, (but only to the
extent such branch cash in the aggregate exceeds $3,650,000) minus
$20,000,000.
"Existing Agreements" has the meaning set forth in the first
preliminary statement.
"Existing Events of Default" has the meaning set forth in the second
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 an
Existing Agreement that does not give rise to a Termination Event.
"Funded Debt" means the existing indebtedness of the Company for
borrowed money listed on Schedule 2 hereto.
"Funded Debt Pro Rata Share" means a proportionate share, so that the
ratio obtained by dividing (i) the cash distributed to a holder of Funded
Debt by (ii) the accrued and unpaid interest or outstanding principal, as
the case may be, owing by the Company or a Subsidiary to such holder of
Funded Debt is the same as the ratio obtained by dividing (x) the amount of
cash distributed to all holders of Funded Debt by (y) the aggregate amount
of accrued and unpaid interest or outstanding principal, as the case may
be, owing by the Company or a Subsidiary to all holders of Funded Debt.
All calculations of Funded Debt Pro Rata Share with respect to
distributions to be applied to accrued and unpaid interest shall be
calculated by excluding any accrued and unpaid interest owing to the Lender
at a Default Rate of greater than 9.00% per annum. All calculations of
Funded Debt Pro Rata Share shall also exclude "make whole amounts" or
similar payments as described in Section 3.8.
"Lyndon Distribution" means $70,000,000.
"Pay Rate" has the meaning set forth in Section 3.2(B).
"Pro Rata" means a proportionate share, so that at any time the ratio
obtained by dividing (i) the cash applied by a holder of Funded Debt to
accrued and unpaid interest or outstanding principal, as the case may be,
owing to such holder of Funded Debt under a specific agreement at such time
by (ii) the amount of accrued and unpaid interest or outstanding principal,
as the case may be, owing to such holder of Funded Debt under such specific
agreement is the same as the ratio obtained by dividing (x) the aggregate
amount of cash applied by such holder of Funded Debt to accrued and unpaid
interest or outstanding principal, as the case may be, owing to such holder
of Funded Debt under all agreements by (y) the aggregate amount of accrued
and unpaid interest or outstanding principal, as the case may be, owing to
such holder of Funded Debt under all agreements at such time. All
calculations of Pro Rata with respect to distributions to be applied to
accrued and unpaid interest shall be calculated by excluding any accrued
and unpaid interest owing to the Lender at a Default Rate of greater than
9.00% per annum. All calculations of Pro Rata shall also exclude "make
whole amounts" or similar payments as described in Section 3.8.
"Steering Committee" means the unofficial steering committee of
holders of Funded Debt as constituted from time to time.
"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 Event" has the meaning set forth in Section 4.1.
"Termination Date" means the earlier to occur of (i) 11:59 (p.m.)
central standard time on September 30, 1997, and (ii) the date the
Forbearance Period is terminated under Section 4.2.
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, the Lender will forbear
from exercising any rights or remedies it may have under the Existing
Agreements, 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 September 30, 1997 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), the Lender may, at its option and subject to the
terms of the Existing Agreements, demand the immediate repayment of all
indebtedness owing to it under the Existing Agreements, whereupon all such
indebtedness shall be immediately due and payable, and may exercise any rights
and remedies that it may have under any of the Existing Agreements, applicable
law or otherwise, all of such rights and remedies being expressly reserved by
the Lender.
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 EXISTING AGREEMENTS WILL BE IN DEFAULT AND THE LENDER WILL BE
FULLY ENTITLED TO EXERCISE ITS RIGHTS AND REMEDIES UNDER THE EXISTING
AGREEMENTS, UNDER APPLICABLE LAW OR OTHERWISE. THE COMPANY UNDERSTANDS THAT THE
LENDER 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, and, if the Lender is a party to the
Third Limited Waiver Agreement dated the date hereof, the Third Limited Waiver
Agreement, 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.
2.5 NATURE OF PAYMENTS; RESERVATION OF RIGHTS. All payments to be made by
the Company hereunder to the Lender 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.
3. AGREEMENTS BY THE COMPANY.
To induce the Lender to enter into this Agreement and to make the
forbearances as contemplated by this Agreement, the Company agrees that:
3.1 LYNDON SALE PROCEEDS. On the Effective Date, the Company will pay to
the Lender its Funded Debt Pro Rata Share of the Lyndon Distribution. The
Lender shall apply its Funded Debt Pro Rata Share to principal owing to it under
the Existing Agreements in accordance with the provisions of Section 3.9
hereof. The Lender (i) solely in connection with the sale by the Company of
the stock of Lyndon Property Insurance Group and its subsidiaries, waives
any negative covenant in the Existing Agreements, if any, that required the
consent of the Lender to such sale; (ii) consents to the sale by the Company
of the stock of Lyndon Property Insurance Group and its subsidiaries; and
(iii) approves and consents to the disbursement of the Lyndon Distribution
to other holders of Funded Debt so that each holder of Funded Debt receives
its Funded Debt Pro Rata Share of the Lyndon Distribution.
3.2 PAYMENT OF INTEREST. The Existing Agreements are hereby amended to
provide that, notwithstanding any contrary provision set forth therein:
(A) Commencing on and including June 11, 1997 through and including the
Termination Date, the Lender will accrue interest on the aggregate principal
balances owing to it under the Existing Agreements (whether or not due by reason
of acceleration or otherwise) at the greater rate (the "Default Rate") of (i)
9.00% per annum and (ii) the default rate set forth in the appropriate Existing
Agreement.
(B) So long as the Forbearance Period has not been terminated, from and
after June 11, 1997 to but not including October 1, 1997, interest accrued by
the Lender on the aggregate principal balances owing to it under the Existing
Agreements (whether or not due by reason of acceleration or otherwise) will be
paid to the Lender by the Company on the last business day of each month at the
greater rate (the "Pay Rate") of (i) 7.00% per annum and (ii) the nondefault
rate set forth in the appropriate Existing Agreement.
(C) So long as the Forbearance Period has not been terminated, within
three (3) business days of the date the Company or a Subsidiary receives cash
proceeds from the sale from time to time of an asset that has a book value in
excess of $5,000,000 of the Company or a Subsidiary or from a tax refund, the
Company will pay to the Lender its Funded Debt Pro Rata Share of such cash
proceeds to be applied by the Lender in accordance with the provisions of
Section 3.9 hereof, first to accrued and unpaid interest calculated to but not
including the date of payment, and second, to the extent of any remaining
proceeds, to principal owing to Lender under the Existing Agreements (whether or
not due by reason of acceleration or otherwise); provided, however, that if the
asset sold is an asset of Midland Finance Company ("Midland"), no distributions
shall be made pursuant to this Section 3.2(C) until the debts owing under any
existing agreements for Funded Debt with Midland have been satisfied.
(D) On October 1, 1997, the Company will pay to the Lender all accrued and
unpaid interest calculated to but not including October 1, 1997, 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.
(E) As to all interest payments made prior to the date of this Agreement
and as to all interest payments required to be made under this Agreement, the
Company waives any rights it may have (whether or not previously reserved) to
contend that the Lender should be paid or accrue interest on the aggregate
principal balances owing to it under the Existing Agreements (whether or not due
by reason of acceleration) at a rate that is less than the Pay Rate; provided,
however, subject to the first sentence of Section 3.3 hereof, the Company does
not waive and expressly reserves any rights it may have to contend that the
Default Rate should be an interest rate not greater than the Pay Rate.
(F) To the extent that the interest payments to the Lender under Section
3.2(B), (C) or (D) do not pay in full all accrued interest owing to the Lender
under an Existing Agreement because the Default Rate under the Existing
Agreement exceeds 9.00% per annum, the Lender expressly retains and reserves any
and all of its rights against the Company under the Existing Agreement or
applicable law with respect to payment of such amounts.
3.3 ACKNOWLEDGMENT; OTHER AGREEMENTS. Notwithstanding anything in the
Existing Agreements or this Agreement to the contrary, there shall be no
requirement that (a) the debt under the Existing Agreements be accelerated for
such debt to accrue or bear interest at the appropriate default rate or
(b) unanimous consent from all parties to the Existing Agreements is necessary
for the Lender to accrue interest at the rates specified in Section 3.2. The
Company represents that it has not entered into any agreements with holders of
Funded Debt that permit Funded Debt to accrue interest at a rate higher than the
Default Rate. The Company will not make a distribution to a holder of, or on
account of, any Funded Debt, including but not limited to payments of interest
or principal, other than on the payment terms set forth in this Agreement.
Prior to October 1, 1997, 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 (without regard to
any amendment, modification or supplement thereof after such date). In
addition, the Company acknowledges that certain holders of Funded Debt whose
Existing Agreements do not contain a stated interest rate or default rate of
interest continue to assert that they are entitled under applicable law to
accrue interest on the unpaid principal amounts outstanding under such Existing
Agreements at a rate of 9.00% per annum and that nothing in this Agreement shall
be deemed or construed to constitute a waiver or release by such holders of
Funded Debt of such rights under applicable law or waiver by the Company to
contest such assertions.
3.4 CASH SWEEP. So long as the Forbearance Period has not been
terminated, on July 16, 1997, August 5, 1997 and September 4, 1997, 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) two
business days after the Effective Date, (ii) July 31 and (iii) August 29 of
1997, respectively. On October 3, 1997, 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 September 30, 1997. The Lender will apply such
payments to principal owing under the Existing Agreements in accordance with the
provisions of Section 3.9 hereof. The Company agrees that it will not maintain
cash at its branch offices except in the ordinary course of business and in
accordance with past practices. The Company agrees to work in good faith with
Policano & Manzo to develop a cash management system that reduces the amount of
cash maintained at branch offices to an amount reasonably necessary to conduct
branch office operations (the "Reduced Branch Cash Amount"). To the extent that
the Company working with Policano & Manzo determines in good faith that the
Reduced Branch Cash Amount is less than $3,650,000, then such amount will be
substituted for the "$3,650,000" figure used in the definition of Excess Cash.
3.5 CONSUMER FINANCING RECEIVABLES. During the Forbearance Period, the
Company will not sell consumer financing receivables in an amount in excess of
$100,000 in the aggregate without the prior written consent of the Lender.
3.6 CERTAIN INFORMATION. The Company will immediately share with the
Steering Committee all material information regarding any market evaluation and
exploration process and the marketing process that the Company or its advisors
obtains or prepares, including, without limitation, any offering memoranda or
other marketing and solicitation materials prepared by the Company or its
advisors, the names of the entities solicited by, or making unsolicited
inquiries, proposals or offers to the Company or its advisors, information on
all proposals, offers or bids received by the Company or its advisors, the names
of the entities conducting due diligence with respect to the Company, all due
diligence requests, due diligence information shared with interested parties,
drafts and final copies of all potential definitive agreements; provided,
however, that the Company shall not be required to provide the Steering
Committee with any material that is subject to an attorney-client privilege.
The Company shall cause Salomon Brothers or other financial advisors that the
Company retains (i) to meet in person or by telephone on a weekly basis with
Policano & Manzo to share information as to the status of the market evaluation
and exploration process, the marketing process and the restructuring and (ii) to
otherwise keep Policano & Manzo apprised of all developments relating thereto.
The Company will also provide to the Steering Committee any other material
information reasonably requested by the Steering Committee in connection with
the market evaluation and exploration process, the marketing process and the
restructuring process (excluding privileged materials relating to the fraud
investigation or other materials that are subject to an attorney-client
privilege). The Company shall cause its management to meet with the Steering
Committee as reasonably requested by the Steering Committee.
3.7 RESTRICTED AGREEMENTS. The Company shall not, and shall not permit
its advisors, to enter into confidentiality agreements or other agreements with
parties interested in participating in the market evaluation and exploration
process or the marketing process unless such confidentiality agreements or other
agreements allow such parties or any other persons to deal with persons other
than the Company, its Board of Directors or their advisors after December 31,
1997 as to any potential transaction involving the sale of the Company or its
assets.
3.8 MAKE WHOLE PAYMENTS. To the extent that during the Forbearance Period
the Lender is entitled under an Existing Agreement to payment of a "make whole
amount" or similar payment as a result of payments made by the Company to the
Lender under Sections 3.1, 3.2(C) or 3.4 of this Agreement or otherwise, the
Lender expressly retains and reserves any and all of its rights against the
Company under the Existing Agreements or applicable law with respect to payment
of such amounts.
3.9 APPLICATION OF CERTAIN PAYMENTS. All payments made to the Lender
under this Agreement to be applied to principal owing to the Lender under the
Existing Agreements shall be applied by the Lender on a Pro Rata basis to the
principal owing to it under each Existing Agreement. Any payment made to the
Lender pursuant to Section 3.2(C) hereof to be applied to accrued and unpaid
interest shall be applied by the Lender on a Pro Rata basis to accrued and
unpaid interest owing to it under each Existing Agreement.
3.10 ESCROW. By no later than July 15, 1997, the Company agrees to
establish the Escrow. The Escrow 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 September 30, 1997 to the Lender under this Agreement and other
holders of Funded Debt as contemplated by this Agreement.
3.11 REVIVAL OF OBLIGATIONS. If all or any part of any payment on account
of the Existing Agreements 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 the Lender.
3.12 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 the Lender 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 November 1, 1997. The Company waives any defense it may have
against the Lender 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 the Lender takes the action required by any applicable Forbearance
Period Statute of Limitation by no later than November 1, 1997.
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, the
Lender 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) the occurrence of a default or event of default under, and as defined
in, the Bridge Loan Agreement that has not been waived (unless the
lender thereunder receives money or money's worth from the Company in
connection with such waiver);
(C) any creditor having a minimum of $2,500,000 in indebtedness owed to it
from the Company accelerates the Company's indebtedness owing to it or
takes any enforcement action against the Company or any Subsidiary or
their property or assets;
(D) failure of the Company to deliver to the Steering Committee within 5
business days of the following delivery dates (a) unaudited financial
statements for the first quarter of 1997 as soon as available but in
no event later than July 14, 1997 and (b) unaudited monthly financial
statements as soon as available but in no event later than (i) July
25, 1997 for the April 1997 statements, (ii) August 9, 1997 for the
May, 1997 statements, (iii) August 30, 1997 for the June, 1997
statements, and (iv) September 12, 1997 for the July, 1997 statements;
(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 on a cumulative basis for 1997 is less than (i)
($20,000,000) for the first quarter of 1997, (ii) ($27,500,000) as of
April 30, 1997, (iv) ($35,000,000) as of May 31, 1997,
(v) ($42,500,000) as of June 30, 1997, (vi) ($50,000,000) as of July
31, 1997;
(F) failure by the Company to comply with any provision of this Agreement,
except for Section 5.1(A) with respect to "good standing" and Article
6 of this Agreement solely to the extent that such Article
incorporates Section 5.1(A) with respect to "good standing";
(G) the Company fails to comply with any negative covenant (excluding
financial covenants or any covenant relating to the sale of the stock
of Lyndon Property Insurance Group and its subsidiaries) in any of the
Existing Agreements, except as expressly permitted by this Agreement;
(H) final judgment or judgments for the payment of money aggregating in
excess of $1,000,000 is or are outstanding against one or more of the
Company or any Subsidiary and any one or more of such judgments
aggregating in excess of $1,000,000 have been outstanding for more
than 30 days from their respective dates of entry and have not been
discharged in full or stayed;
(I) 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; and
(J) the Company voluntarily or involuntarily dissolves or is dissolved.
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, the Lender is entitled to terminate the
Forbearance Period with immediate effect, (i) upon giving three (3) business
days' written notice in advance to the Company in the case of any Termination
Event described under Section 4.1(B), (D) or (F) or (ii) upon giving one (1)
business day's written notice in advance to the Company in the case of any other
Termination Event described under Section 4.1 unless such Termination Event is
of the type described in Section 4.1(I) or (J), 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 the Lender 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 the Lender is fully entitled to exercise any rights and remedies it
may have under the Existing Agreements, 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. REPRESENTATIONS AND WARRANTIES.
5.1 COMPANY. The Company represents and warrants that as of the Effective
Date and continuing so long as this Agreement remains in effect:
(A) CORPORATE EXISTENCE; GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified as a foreign corporation and is in good standing
in all states where the nature and extent of the business transacted by it or
the ownership of its assets makes such qualification necessary, except for those
jurisdictions in which the failure so to qualify or to be in good standing would
not have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company.
(B) CORPORATE AUTHORITY; NO CONFLICTS. The execution and delivery by the
Company of this Agreement and the performance of the Company's obligations under
this Agreement (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 Effective
Date, 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.
(C) BINDING EFFECT; ENFORCEABILITY. This Agreement is the legal, valid
and binding obligations of the Company and is enforceable against the Company in
accordance with its terms.
5.2 LENDER. The Lender represents and warrants that as of the Effective
Date and continuing so long as this Agreement remains in effect, the execution
and delivery by the Lender of this Agreement and the performance of the Lender's
obligations under this Agreement are within its powers and are duly authorized
and this Agreement is the legal, valid and binding obligation of the Lender and
is enforceable against the Lender in accordance with its terms.
6. CONDITIONS PRECEDENT.
The obligation of the Lender to make the forbearances contemplated by this
Agreement and the effectiveness of such forbearances are subject to the
following:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in this Agreement are true and correct as of the Effective
Date.
6.2 DOCUMENTS. The Lender has received all of the following, each duly
executed and dated as of the Effective Date (or such other date as is
satisfactory to the Lender) in form and substance satisfactory to the Lender:
(A) fully executed counterparts to this Agreement;
(B) executed Forbearance Agreements on the same terms as this Agreement
from other holders of Funded Debt satisfactory to the Lender, but
excluding the Forbearance and Third 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 Agreement;
(D) fully executed copies of the Third Amendment (as defined below); and
(E) the Forbearance and Third Limited Waiver Agreement dated as of
the date hereof between the Company and Credit Suisse First
Boston Corporation.
6.3 EXTENSION OF BRIDGE LOAN AGREEMENT. The maturity of the Bridge Loan
Agreement shall have been extended to at least September 30, 1997 pursuant to
the Third Amendment to Loan and Security Agreement dated as of July 9, 1997 (the
"Third Amendment").
7. MISCELLANEOUS.
7.1 SECTION TITLES. The preliminary statements to this Amendment (except
for definitions) and the section titles used in this Amendment are for
convenience only and do not affect the construction of this Amendment.
7.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together constitute one instrument.
7.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding of the Company and the Lender with respect to the subject matter
of this Agreement.
7.4 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 (5) business 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 for next day delivery 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 7.4.
7.5 SUCCESSORS AND ASSIGNS. This Agreement inures to the benefit of, and
is binding upon the successors and assigns of, each of the Company and the
Lender. In addition, the Lender hereby agrees that, so long as this Agreement
has not been terminated, it shall not sell, transfer or assign any of its claims
under any of the Existing Agreements, 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 Lender provides the Company with
a copy of such writing, in which event the Company shall be deemed to have
acknowledged that its obligations to the Lender hereunder shall be deemed to
constitute obligations in favor of such transferee, and the Company shall
confirm that acknowledgment in writing if requested.
7.6 GOVERNING LAW. This Agreement 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.
7.7 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
THIRD LIMITED WAIVER AGREEMENT
This Third Limited Waiver Agreement (this "Agreement") dated as of
July 3, 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").
WITNESSETH
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 desire 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 require financing beyond June 10, 1997 to
continue their operations and have therefore requested BABC 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 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 has again 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;
WHEREAS, the Lender is willing to waive certain limited provisions of
the Existing Agreements through September 30, 1997 to permit the maturity date
of the Bridge Loan to be extended;
WHEREAS, the Lender and certain other holders of Funded Debt (as
defined below) are entering into Forbearance Agreements of even date herewith
(collectively, 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"); 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 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 extension of the maturity
of 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
September 30, 1997 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) Mercury certifies to BABC that it has paid to the Lender
through the date hereof in immediately available funds any and all accrued and
unpaid nondefault interest on the aggregate principal balances owing to the
Lender under the Existing Agreements (whether or not due by reason of
acceleration or otherwise) calculated at the greater rate of (a) 7.00% per annum
and (b) the nondefault rate set forth in the Existing Agreements, (ii) the
aggregate principal amount of loans outstanding to the Borrowers under the
Bridge Loan does not exceed $50 million at any time and (iii) 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 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 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 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 Forbearance Agreement).
4. Representations. The Lender represents that it has snot 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 99.3
FORBEARANCE AND THIRD LIMITED WAIVER AGREEMENT
This Forbearance and Third Limited Waiver Agreement, dated as of July 11,
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 require financing beyond June 10, 1997 to continue their
operations and have therefore requested BABC 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 has again 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.
12. CS/FB is willing to waive certain limited provisions of the
Subordinated Debt Documents through September 30, 1997 to permit the maturity
date of the Bridge Loan to be extended to January 6, 1998.
13. The Company is entering into Forbearance Agreements of even date
herewith (collectively, the "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 September 30, 1997, (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 September 30, 1997 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) On the Effective Date of this Agreement, the Company will pay to CS/FB
in immediately available funds accrued and unpaid interest owing to it under the
Subordinated Debt Documents through but not including the Effective Date
calculated at a rate of 5.50% per annum.
(B) 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.
(C) 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 November 1, 1997. 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 November 1, 1997.
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. THIRD LIMITED WAIVER.
5.1 WAIVER. Solely in connection with the extension of the maturity date
of the Bridge Loan to January 6, 1998 in accordance with the terms and
conditions of the Third Amendment, CS/FB waives through 11:59(pm) central
standard time on September 30, 1997 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, so long as this Agreement has not been
terminated, 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
EXHIBIT 99.4
THIRD AMENDMENT
TO LOAN AND SECURITY AGREEMENT
Dated as of July 9, 1997
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT dated as of
July 9, 1997 amends the Loan and Security Agreement dated as of February 7, 1997
(as previously amended, the "Loan Agreement") among certain financial
institutions, BANKAMERICA BUSINESS CREDIT, INC., as Agent (the "Agent"), MERCURY
FINANCE COMPANY and certain other borrowers. Terms defined in the Loan
Agreement are, unless otherwise defined herein or the context otherwise
requires, used herein as defined therein.
WHEREAS, the Borrowers, the Agent and the Lenders have entered into
the Loan Agreement which provides for the Lenders to make Loans to the Borrowers
from time to time; and
WHEREAS, the parties hereto desire to amend the Loan Agreement in
certain respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective on (and subject to the occurrence
of) the Third Amendment Effective Date (as defined below), the Loan Agreement
shall be amended in accordance with Sections 1.1 through 1.7 below:
SECTION 1.1 Stated Termination Date. The definition of "Stated
Termination Date" in Section 1.1 of the Loan Agreement is hereby amended to
state in its entirety as follows:
"Stated Termination Date" means January 6, 1998, as such date may be
extended pursuant to Section 4.2(b)."
SECTION 1.2 Third Amendment Effective Date. Section 1.1 of the Loan
Agreement is hereby amended by adding the following new definition which will be
added to Section 1 in appropriate alphabetical order:
"Third Amendment Effective Date" means the date on which the
Third Amendment dated as of July 9, 1997 to this Agreement becomes
effective.
SECTION 1.3 Section 4.2(b). Section 4.2(b) of the Loan Agreement is
hereby amended in its entirety to read as follows:
(b) [Intentionally omitted.]
SECTION 1.4 Section 8.3. Section 8.3 of the Loan Agreement is hereby
amended in its entirety to read as follows:
8.3 Organization and Qualification. Except as set forth on
Schedule 8.3 hereto, each Borrower (a) is duly incorporated and
organized and validly existing in good standing under the laws of the
state of its incorporation, (b) is qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in
which qualification is necessary in order for it to own or lease its
property and conduct its business and (c) has all requisite power and
authority to conduct its business and to own its property.
SECTION 1.5 Section 10. Section 10 of the Loan Agreement is hereby
amended by adding a new Section 10.3 immediately following Section 10.2 thereof
to read as follows:
10.3 Conditions Precedent to Initial Loan After Third Amendment
Effective Date. The obligation of the Lenders to make the initial
Loans following the Third Amendment Effective Date shall be subject to
the further conditions precedent that the Agent shall have received
waivers and consents in the form of Exhibit A hereto from all
creditors necessary, in accordance with the terms of the applicable
agreements, to prevent such extension of credit from conflicting with
other agreements, together with a certificate signed by a Responsible
Officer of MFC listing all of such waivers and consents and certifying
that all of such waivers and consents have been obtained.
SECTION 1.6 Schedule 8.3. The Loan Agreement is amended by adding a
new Schedule 8.3 in the form of Schedule 8.3 attached hereto.
SECTION 1.7 Schedule 8.5. The Loan Agreement is amended by deleting
Schedule 8.5 thereto and substituting therefor Schedule 8.5 attached hereto.
SECTION 2 REPRESENTATIONS AND WARRANTIES. Each Borrower represents
and warrants to the Agent and the Lenders that (a) each warranty set forth in
Section 8 of the Loan Agreement as amended by this Third Amendment (as so
amended, the "Amended Loan Agreement") is, or upon the effectiveness hereof will
be, true and correct in all material respects on and as of the Third Amendment
Effective Date as though made on and as of such date, other than any such
representation or warranty which relates to a specified prior date and no event
has occurred or is continuing, or would result from the execution and delivery
of this Third Amendment, which constitutes a Default or an Event of Default, (b)
the execution and delivery by the Borrowers of this Third Amendment and the
performance by the Borrowers of their respective obligations under the Amended
Loan Agreement (i) are within the corporate powers of the Borrowers, (ii) have
been duly authorized by all necessary corporate action, (iii) have received all
necessary approvals, or authorization of, or declaration or filing with, any
Governmental Authority, (iv) do not require any consent of any other Person
(other than the waivers and consents required to be delivered pursuant to
Section 10.3 of the Amended Loan Agreement), and (v) do not and will not
contravene or conflict with any provision of law or of the articles of
incorporation or by-laws of any Borrower or of any indenture, loan agreement or
other contract, order or decree which is binding upon any Borrower, and (c) the
Amended Loan Agreement is the legal, valid and binding obligation of the
Borrowers, enforceable against the Borrowers in accordance with its terms.
SECTION 3 EFFECTIVENESS. The amendments set forth in Section 1 above
shall become effective, as of the day and year first above written, on such date
(herein called the "Third Amendment Effective Date") when the Agent shall have
received (i) for the account of the Lenders, a facility fee in the amount of
$400,000, and (ii) counterparts of this Third Amendment executed by all of the
parties hereto.
SECTION 4 MISCELLANEOUS.
4.1 Waiver. This agreement shall be limited to its terms and shall
not constitute a waiver of any other rights that the Agent and the Lenders may
have from time to time.
4.2 Continuing Effectiveness, etc. As herein amended, the Loan
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. After the Third Amendment Effective Date, all
references in the Loan Agreement to "Loan Agreement", "Agreement" or similar
terms shall refer to the Amended Loan Agreement.
4.3 Counterparts. This Third Amendment may be executed in any number
of counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Third Amendment.
4.4 Governing Law. This Third Amendment shall be a contract made
under and governed by the internal laws of the State of Illinois.
4.5 Successors and Assigns. This Third Amendment shall be binding
upon the Borrowers, the Lenders and the Agent and their respective successors
and assigns, and shall inure to the benefit of the Borrowers, the Lenders and
the Agent and the respective successors and assigns of the Agent and the
Lenders.
Delivered at Chicago, Illinois, as of the day and year first above
written.
MERCURY FINANCE COMPANY
By
Name:
Title:
MERCURY FINANCE CORPORATION OF ALABAMA
MERCURY FINANCE COMPANY OF ARIZONA
MERC FINANCE COMPANY OF CALIFORNIA
MERCURY FINANCE COMPANY OF COLORADO
MERCURY FINANCE COMPANY OF DELAWARE
MERCURY FINANCE COMPANY OF FLORIDA
MERCURY FINANCE COMPANY OF GEORGIA
MERCURY FINANCE COMPANY OF IDAHO
MERCURY FINANCE COMPANY OF ILLINOIS
MERCURY FINANCE COMPANY OF INDIANA
MERCURY FINANCE COMPANY OF IOWA
MERCURY FINANCE COMPANY OF KANSAS
MERCURY FINANCE COMPANY OF KENTUCKY
MERCURY FINANCE COMPANY OF LOUISIANA
MERCURY FINANCE COMPANY OF MICHIGAN
MERCURY FINANCE COMPANY OF MISSISSIPPI
MERCURY FINANCE COMPANY OF MISSOURI
MERCURY FINANCE COMPANY OF NEVADA
MERCURY FINANCE COMPANY OF NEW MEXICO
MERCURY FINANCE COMPANY OF NEW YORK
MERCURY FINANCE COMPANY OF NORTH CAROLINA
MERCURY FINANCE COMPANY OF OHIO
MFC FINANCE COMPANY OF OKLAHOMA
MERCURY FINANCE COMPANY OF OREGON
MERCURY FINANCE COMPANY OF PENNSYLVANIA
MERCURY FINANCE COMPANY OF SOUTH CAROLINA
MERCURY FINANCE COMPANY OF TENNESSEE
MFC FINANCE COMPANY OF TEXAS
MERCURY FINANCE COMPANY OF UTAH
MERCURY FINANCE COMPANY OF VIRGINIA
MERCURY FINANCE COMPANY OF WASHINGTON
MERCURY FINANCE COMPANY OF WISCONSIN
FILCO MARKETING COMPANY
MFC FINANCIAL SERVICES, INC.
GULFCO FINANCE COMPANY
GULFCO INVESTMENT, INC.
MIDLAND FINANCE CO.
By
Name:
Title:
BANKAMERICA BUSINESS CREDIT,
INC., as Lender and as the Agent
By
Name:
Vice President
EXHIBIT 99.5
MERCURY FINANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheet
as of December 31, 1996
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. This financial
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit in
order to obtain reasonable assurance about whether the balance sheet is free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. 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 balance sheet referred to above presents fairly, in all
material respects, the financial position of Mercury Finance Company and
subsidiaries as of December 31, 1996, in conformity with generally accepted
accounting principles.
As further discussed in Notes 1 and 4 to the balance sheet, 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 statement has been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statement, 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 14, the Company incurred significant losses in 1996 and is continuing to
incur losses in 1997. In addition, as further described in Note 8, 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 with regard
to these matters are described in Notes 8 and 14. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statement does not include any adjustments that might result
from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 13, 1997 (except with respect to the matter discussed in Note 8,
paragraph 5, as to which the date is July 11, 1997)
<TABLE>
<CAPTION>
Consolidated Balance Sheet
(dollars in thousands) December 31,
1996
<S> <C>
Assets
Cash and cash equivalents $20,957
Short-term investments (at amortized cost which
approximates fair value) 43,411
Investments available-for-sale, at fair value 161,781
Investments held-to-maturity, at cost (fair value of
$8,025) 7,765
Finance Receivables 1,160,423
Less allowance for finance credit losses (97,762)
Less nonrefundable dealer reserves (89,378)
Finance receivables, net 973,283
Deferred income taxes, net 33,356
Income taxes receivable 53,764
Premises and equipment (at cost, less accumulated depreciation
of $8,090) 7,266
Goodwill 14,463
Reinsurance receivable 93,458
Deferred acquisition costs and present value of future profits 62,809
Other assets (including repossessions) 71,047
Total Assets $1,543,360
Liabilities and Shareholders' Equity
Liabilities
Senior debt, commercial paper and notes $525,051
Senior debt, term notes 488,625
Subordinated notes 22,500
Accounts payable and other liabilities 81,282
Unearned premium and claim reserves 239,573
Reinsurance payable 17,444
Total Liabilities 1,374,475
Contingencies (Note 8)
Shareholders' Equity
Common stock - $1.00 par value per share:
300,000,000 shares authorized
177,719,447 shares outstanding 177,719
Paid in capital 6,539
Retained earnings 37,349
Unrealized appreciation on available-for-sale securities,
net of tax 942
Treasury stock - 5,402,957 shares, at cost (53,664)
Total Shareholders' Equity 168,885
Total Liabilities and Shareholders' Equity $1,543,360
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
December 31, 1996 (as restated)
(dollars in thousands)
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 through 287 offices 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 statement include the accounts of the Company, the
consumer finance subsidiaries and Lyndon. All significant intercompany
accounts and transactions have been eliminated.
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 2 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.
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. Effective January 1, 1996, Mercury adopted a new reserving
methodology commonly referred to as "static pooling". The static pooling
reserving methodology allows Mercury to stratify components of its sales
finance receivables portfolio (i.e., nonrefundable 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 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. The method previously
used by the Company analyzed reserve adequacy on a total portfolio basis.
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.
IMPAIRMENT OF LONG-LIVED ASSETS
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. Based on the most recent analysis, the Company believes that no
material impairment of goodwill exists at December 31, 1996.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under the provisions of
SFAS 123. 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
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" is effective for all transactions occurring
after December 31, 1996. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities based on consistent application of a financial components
approach that focuses on control. As the Company does not sell receivables,
there will be no impact to the financial statements upon the adoption of SFAS
125.
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.
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 4. Actual results could differ from these estimates.
2) DISPOSITIONS
As a result of the matters described in Notes 8 and 14, 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 its investment in 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. The sale is expected to result in a loss to Mercury of
approximately $28 million. This loss will be reflected in Mercury's first
quarter 1997 consolidated statement of income. Management has determined
that it is in the best interest of the Company to remain in the insurance
business and anticipates forming a new captive insurance subsidiary during
1997. As a result, the sale of Lyndon will not be 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 allowed for tax
purposes.
3) INVESTMENTS
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, were as follows (dollars in thousands):
<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
</TABLE>
At December 31, 1996, the amortized cost and estimated market value of
available-for-sale and held-to-maturity securities are shown below (dollars
in thousands). 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>
4) 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, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996
<S> <C>
DIRECT FINANCE RECEIVABLES
Interest bearing $ 25,117
Precompute 127,516
Total direct finance receivables 152,633
SALES FINANCE RECEIVABLES
Total sales finance receivables 1,159,848
Total gross finance receivables 1,312,481
Less: Unearned finance charges (228,405)
Unearned commissions,
insurance premiums and
insurance claim reserves (7,253)
Total net finance receivables 1,076,823
UNSECURED CREDIT CARD
Total unsecured credit card 83,600
Total finance receivables $1,160,423
</TABLE>
Included in finance receivables at December 31, 1996, were $69,507 of
receivables for which interest accrual had been suspended. Repossessed
assets held for resale primarily consists of repossessed vehicles awaiting
liquidation. Repossessed assets are carried at estimated fair value. At
December 31, 1996, repossessed assets of approximately $6,700 were awaiting
liquidation. Included are vehicles held for resale, vehicles which have been
sold for which payment has not been received and unlocated vehicles (skips),
the value of which may be reimbursed from insurance. Contractual maturities
of the finance receivables by year are not readily available at December 31,
1996, 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.
Principal cash collections (excluding finance charges earned) for the year
ended December 31, 1996, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996
<S> <C>
DIRECT FINANCE RECEIVABLES
Principal cash collections $125,494
Percent of average net balances 96.62%
SALES FINANCE RECEIVABLES
Principal cash collections $646,481
Percent of average net balances 64.83%
</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. Due to the thorough review of the finance
receivables portfolio performed by new management, the improved analytical
capability provided by the new loan accounting system and the loss statistics
compiled during 1996 which were not previously available, the Company is
unable to separately quantify the impact of adopting static pooling.
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.
5) 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, consisted of the following (assuming that the
Company remained in compliance with its debt covenants)(dollars in
thousands):
<TABLE>
<CAPTION>
1996
<S> <C>
SENIOR DEBT, COMMERCIAL PAPER AND NOTES $525,051
SENIOR DEBT, TERM NOTES
Due 1996 - interest rate 9.00% $ 0
Due 1996 - interest rate 6.41% 0
Due 1996 - interest rate 7.13% 0
Due 1997 - interest rate 7.67% 15,000
Due 1997 - interest rate 8.15% 17,500
Due 1997 - interest rate 6.29% 24,000
Due 1997 - interest rate 7.13% 125
Due 1997 - interest rate 6.41% 40,000
Due 1998 - interest rate 6.70% 35,000
Due 1998 - interest rate 6.16% 76,000
Due 1998 - interest rate 8.62% 20,000
Due 1998 - interest rate 8.50% 10,000
Due 1998 - interest rate 7.13% 1,000
Due 1998 - interest rate 7.16% 25,000
Due 1999 - interest rate 6.56% 20,000
Due 1999 - interest rate 6.76% 31,000
Due 1999 - interest rate 7.33% 30,000
Due 2000 - interest rate 6.66% 10,000
Due 2000 - interest rate 6.94% 15,000
Due 2000 - interest rate 7.42% 58,000
Due 2001 - interest rate 7.02% 10,000
Due 2001 - interest rate 7.50% 30,000
Due 2002 - interest rate 7.14% 4,000
Due 2002 - interest rate 7.59% 17,000
TOTAL SENIOR DEBT, TERM NOTES $488,625
SUBORDINATED DEBT
Due 1996 - interest rate 9.76% $ 0
Due 1996 - interest rate 10.86% 0
Due 1997 - interest rate 9.76% 12,000
Due 1997 - interest rate 10.86% 3,000
Due 1998 - interest rate 10.86% 7,500
TOTAL SUBORDINATED DEBT $ 22,500
</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) (dollars in
thousands):
<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.
Subsequent to December 31, 1996, the Company made a portion of its interest
payments, but no principal payments, on its outstanding debt. Furthermore,
it obtained a $50 million line of credit from the Bank of America which
matures in June, 1997. The Company continues to negotiate with all of its
lenders in an attempt to reach a consensual agreement. See Notes 8 and 14
for additional information.
6) DIVIDEND RESTRICTIONS
Management does not expect that dividends will be paid in the foreseeable
future.
7) 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 at December 31, 1996.
Activity with respect to stock options was as follows (as adjusted for all
stock splits):
<TABLE>
<CAPTION>
1996
<S> <C>
Outstanding January 1 8,714,492
Options granted (average price of
$11.10 in 1996) 1,300,250
Forfeited (543,250)
Options exercised (average price of
$4.48 in 1996) (1,503,573)
Outstanding December 31 7,967,919
</TABLE>
The average option price under the plan was $10.53 at December 31, 1996.
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 8 and 14, 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 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 are not considered meaningful.
8) 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 actions against the Company are pending in
United States District Court for the Northern District of Illinois, five
cases are pending against the Company in Illinois Chancery Court, 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.
Thirty-nine 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. The
other 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. The thirty-nine 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.
Two 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 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.
A Special Committee of the Board of Directors has substantially completed its
ongoing investigation of the matters discussed above. In the opinion of
management, the accompanying financial statements reflect all material
information learned to date.
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.
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 statement for the
costs or expenses that have been or will be incurred subsequent to 1996 with
respect to any of the above matters.
9) 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 in
1996.
The following table sets forth the funded status of Mercury's qualified plans
amounts recognized in the 1996 consolidated financial statements (dollars in
thousands):
<TABLE>
<CAPTION>
1996
<S> <C>
Actuarial present value of
benefit obligation:
Accumulated benefit obligations,
including vested benefits of
$6,231 $ 7,024
Projected benefit obligation
for service rendered to date $(10,686)
Plan assets at fair value 13,638
Plan assets in excess of
projected benefit obligation 2,952
Unrecognized net asset
as of December 31, being
recognized over 15-22 years (391)
Unrecognized net gain (3,272)
Unrecognized prior service cost 100
Prepaid (accrued) pension expense $ (611)
Components of net pension expense:
Service cost-benefits earned
during the period $ 1,060
Interest cost on projected
benefit obligation 727
Actual return on plan assets (2,085)
Net amortization and deferral 1,068
Net periodic pension expense $ 770
</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. The
rates of increase in future compensation were 5.5% - 7% at December 31, 1996.
The expected long-term rate of return on plan assets in 1996 was 9%.
Mercury also maintains a nonqualified, unfunded pension benefit plan for
certain employees whose calculated benefit payments under the qualified plan
are expected to exceed the limits imposed by Federal tax law. The projected
benefit obligations of the plan, and the expenses related to this plan, are
not material.
Mercury has an employee stock purchase plan and a tax deferred Retirement
Savings Trust (401(k)) plan. Employees are eligible to participate in the
plans after having attained specified terms of service. Both plans cover
substantially all full time employees of Mercury and provide for employee
contributions and partial matching contributions by Mercury. The expenses
related to these plans are not material.
Subsequent to December 31, 1996, as discussed in Note 7, the market value of
the Company's common stock declined dramatically. Both the employee stock
purchase plan and Retirement Savings Trust (401(k)) plan hold significant
shares of Mercury's stock.
10) INCOME TAXES
The total income tax benefit reflected in shareholders' equity for stock
options exercised was $4,400 in 1996. 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, 1996, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996
<S> <C>
DEFERRED TAX ASSETS:
Allowance for finance credit losses
and prepaid pension expense $37,382
Unearned premiums and ceding fees 13,632
Purchase accounting adjustments -
Other 2,919
Deferred tax assets 53,933
DEFERRED TAX LIABILITIES:
Unrealized appreciation on
available-for-sale securities 507
Policy acquisition costs 18,011
Other 2,059
Deferred tax liabilities 20,577
Net deferred tax assets $33,356
</TABLE>
No valuation allowance for deferred tax assets has been recorded at
December 31, 1996, as Mercury believes it is more likely than not that the
deferred tax assets will be realized in the future. 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 available under the tax law.
11) 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 (dollars in thousands):
<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 in 1996.
12) 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.
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, 1996, prior to the events disclosed in Notes 8 and 14 which
have a substantial negative impact on these estimates, were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996
Carrying Fair
Amount Value
<S> <C> <C>
FINANCIAL ASSETS:
Cash $ 20,957 $ 20,957
Investments 212,957 213,217
Finance Receivables 973,283 973,283
Total $1,207,197 $1,207,457
FINANCIAL LIABILITIES:
Senior Debt, Commercial Paper and
Notes $ 525,051 $ 525,051
Senior Debt, Term Notes 488,625 476,469
Subordinated Debt 22,500 22,711
Total $1,036,176 $1,024,231
</TABLE>
13) BUSINESS SEGMENT DATA
The Finance Segment consists of the noninsurance segment of Mercury. The
Insurance Segment consists of Lyndon. The following table presents the
business segment data of Mercury (in millions):
<TABLE>
<CAPTION>
1996
<S> <C>
IDENTIFIABLE ASSETS
Finance $1,123.4
Insurance 420.0
Total $1,543.4
</TABLE>
14) GOING CONCERN
The Company incurred a significant loss in 1996 and 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. As described in Note 5, the Company has obtained interim
financing through June, 1997. 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 8. The Company is also
incurring significant costs in relation to the special investigation
discussed in Note 8 and the resolution of its debt restructuring. The
Company is continuing to incur losses in the first quarter of 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 statement has been prepared on the basis that the
Company is a going concern. The financial statement does not include any
adjustments that might result from the outcome of this uncertainty.
EXHIBIT 99.6
Mercury Finance Releases Audited 1996 Balance Sheet;
$70 Million Payment Made on Debt Principal; Agreement Reached with Creditors
CHICAGO, July 15 /PRNewswire/ -- Mercury Finance Company (NYSE: MFN) today
released its 1996 balance sheet, reflecting year-end shareholders' equity of
$168.9 million. The company also announced that it made a $70 million payment
on the principal of its outstanding debt and brought its interest payments
current as part of a comprehensive forbearance and waiver agreement reached with
its creditors.
"There are no major surprises in the 1996 balance sheet," said William A.
Brandt, Jr., president and chief executive officer. "After timing adjustments
related to the sale of the Lyndon Insurance Group, the shareholders' equity
figure is consistent with the estimate that we released to the public and
financial community on April 23."
Separately, Mercury and its creditors signed an agreement under which
Mercury made a $70 million payment to reduce the principal of its outstanding
debt and brought its interest payments current. The company has also agreed,
depending on cash flow, to make additional periodic payments to reduce
principal. The creditors pledged not to take action against the company under
their debt agreements prior to October 1, 1997, at which time the forbearance
agreement may be renewed. Subsequent to the payment Mercury has $933.6 million
of debt outstanding.
The creditors also granted Mercury an extension to September 30 of
previously granted waivers, which will permit the company to continue to pledge
assets as collateral on its credit facility with the Bank of America. No funds
are currently outstanding to the bank under the facility and have not been since
the line was repaid in May.
Company officials reported that the only significant difference between
today's balance sheet numbers and the April 23 estimate comes from a decision to
book the loss from the Lyndon Insurance sale in the 1997 financial statements
rather than 1996. The balance sheet was audited by its independent public
accountant, Arthur Andersen LLP. In line with the company's disclosure on
April 23, the auditor's opinion contains language questioning Mercury's ability
to continue as a going concern.
Even though the company has issued a 1996 balance sheet, the release of the
income statement for the year has been delayed pending the resolution of a
variety of timing issues related to the allocation of the recognition of
revenues and expenses between the years 1995 and 1996. The company has been
engaged in informal discussions with the Securities and Exchange Commission
(SEC) and continues to work with Arthur Andersen LLP and KPMG Peat Marwick, its
auditor for the years prior to 1996, to resolve period allocation issues and
expedite the release of income statements for 1996 and 1995. The company
believes that the work is complicated by the fact that accounting standards for
the industry as a whole are in a state of flux and uncertainty. No date for the
release of the income statements has been given.
"These events are all signposts of progress," stated Brandt. "We have a
distance to go, but we have come a long way since February. The audited balance
sheet gives us a much-needed solid platform from which to address long-term
financial solutions," he added. "We are working closely with our creditors and
our investment banker to explore various avenues aimed at reestablishing the
company's financial footing."
The company expects to issue results from the first quarter of 1997 in
approximately one week.
Further information on the balance sheet and the forbearance agreement is
contained in the company's 8-K filing with the SEC.
Source: Mercury Finance Company
Contact: Joe Kopec or Jim Fitzpatrick of the Dilenschneider Group, 312-553-0700.
<TABLE>
MERCURY FINANCE COMPANY
Consolidated Balance Sheet
(dollars in thousands)
<CAPTION>
December 31,
1996
<S> <C>
Assets
Cash and cash equivalents $ 20,957
Short-term investments (at amortized cost which approximate
fair value) 43,411
Investments available-for-sale, at fair value 161,781
Investments held-to-maturity, at cost (fair value of $8,025) 7,765
Finance Receivables 1,160,423
Less allowance for finance credit losses (97,762)
Less non refundable dealer reserves (89,378)
Finance receivables, net 973,283
Deferred income taxes, net 33,356
Income taxes receivable 53,764
Premises and equipment (at cost, less accumulated depreciation
of $8,090) 7,266
Goodwill 14,463
Reinsurance receivable 93,458
Deferred acquisition costs and present value of future profits 62,809
Other assets (including repossessions) 71,047
Total assets $ 1,543,360
Liabilities and Shareholders' Equity
Liabilities
Senior debt, commercial paper and notes $ 525,051
Senior debt, term notes 488,625
Subordinated notes 22,500
Accounts payable and other liabilities 81,282
Unearned premium and claim reserves 239,573
Reinsurance payable 17,444
Total Liabilities 1,374,475
Contingencies
Shareholders' Equity
Common stock -- $1.00 par value per share:
300,000,000 shares authorized,
177,719,447 shares outstanding 177,719
Paid in capital 6,539
Retained earnings 37,349
Unrealized appreciation on available-for-sale securities, net of tax 942
Treasury stock -- 5,402,957 shares, at cost (53,664)
Total Shareholders' Equity 168,885
Total Liabilities and Shareholders' Equity $ 1,543,360
</TABLE>
