SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number: 1-10176
MERCURY FINANCE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 36-3627010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Field Drive, Suite 340, Lake Forest, Illinois 60045
(Address of principal executive offices)
Registrant's telephone number, including area code: (847) 295-8600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK ($1.00 PAR VALUE) NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the Registrant (l) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
As of February 9, 1998, 172,497,714 shares of Common Stock were outstanding (net
of Treasury stock).
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates on February 9, 1998 totaled approximately $127,753,319 (based on
the closing price of the Company's common stock on the New York Stock Exchange,
as reported by The Wall Street Journal (Midwest edition for February 10, 1998)).
The following documents are incorporated into this Form 10-K by reference:
None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (section229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
PART I
ITEM 1 - BUSINESS
GENERAL
Mercury Finance Company ("Mercury" or the "Company") is a consumer finance
concern engaged, through its operating subsidiaries, in the business of
acquiring installment sales finance contracts from automobile dealers and retail
vendors, extending short-term installment loans directly to consumers and
selling credit insurance and other related products. Mercury's borrowers
represent a broad cross section of the consumer market. Approximately 6% of
Mercury's borrowers are military personnel. Mercury's loans and acquired retail
installment contracts range for periods from 3 months to 48 months at annual
interest rates ranging, with minor exception, from 18% to 40%. Generally, all
loans and acquired retail installment contracts are repayable in monthly
installments.
Mercury was organized in 1988, as a wholly-owned subsidiary of First Illinois
Corporation (an Evanston, Illinois based bank holding company). On April 24,
1989, First Illinois Corporation distributed to its shareholders one share of
Mercury for each two shares of First Illinois Corporation stock held.
Mercury's operating subsidiaries commenced operations in February 1984 for the
purpose of penetrating the market for small dollar amount consumer loans
(average of $3,000 or less). The initial focus was toward small, short term,
direct installment loans made to U.S. military servicemen. Building from this
direct lending niche, Mercury has also built a substantial, diversified consumer
finance portfolio by purchasing individual installment sales finance contracts
from retail vendors and automobile dealers. Substantially all of Mercury's
borrowers are "non-prime" borrowers. These are borrowers which generally would
not be expected to qualify for traditional financing such as that provided by
commercial banks or automobile manufacturers' captive finance companies.
On October 20, 1995, Mercury acquired all the shares of ITT Lyndon Property and
ITT Lyndon Life Insurance Company for $72.5 million in cash and the assumption
of their net liabilities. ITT Lyndon Property and ITT Lyndon Life Insurance
Company conducted their business through a central office in St. Louis,
Missouri. Following the acquisition, the names of the companies were changed to
Lyndon Property and Lyndon Life Insurance Companies ("Lyndon"). The acquisition
was accounted for under the purchase method of accounting. Accordingly, their
results of operations have been included in the consolidated statements of
income and statements of cash flow since the date of acquisition through the
date of sale. The stock of Lyndon was sold to Frontier Insurance Group, Inc. on
June 3, 1997. See "Recent Developments."
RECENT DEVELOPMENTS
On January 29, 1997, the Company announced the discovery of accounting
irregularities which caused an overstatement of the previously released earnings
for 1995 and 1996. The accounting irregularities were the result of
unauthorized entries being made to the accounting records of the Company.
Immediately following discovery of the accounting irregularities, the Board of
Directors established a Special Committee for the purpose of investigating the
circumstances surrounding these activities. The investigation was undertaken
with the assistance of special legal counsel and auditing experts.
Shortly after the announcement of the accounting irregularities, the Company's
Board of Directors named William A. Brandt, Jr., President and Chief Executive
Officer of the Company. Mr. Brandt is the President and Chief Executive Officer
of Development Specialists, Inc., a firm specializing in providing management,
consulting and turnaround assistance to reorganizing businesses. The Company's
former President and Chief Executive Officer, John Brincat, resigned from both
positions. Mr. Brincat also resigned as a director of the Company as of
December 1, 1997. The Company's Chief Financial Officer before the Company's
announcement of the accounting irregularities, James A. Doyle, was relieved of
his duties in January, 1997.
As a result of the accounting irregularities, the Company was in violation of
certain covenants in its senior note and subordinated debt agreements. In
addition, the Company did not have access to commercial paper markets, which
historically provided a significant portion of the Company's financing.
Consequently, the Company was unable to repay maturing debt and has not repaid
the principal portion of any debt subsequent to announcement of the accounting
irregularities, except as described below. The Company is now current on all
interest payments other than certain portions deferred by agreement, and is not
now obtaining additional financing.
On February 7, 1997, Mercury and all of its subsidiaries, other than its
insurance subsidiaries (the "Subsidiary Borrowers"), entered into a Loan and
Security Agreement (the "Loan Agreement") with certain financial institutions
including BankAmerica Business Credit, Inc. ("BankAmerica") which provided the
Company with a $50 million credit facility. Amounts outstanding under the Loan
Agreement were secured by substantially all of the property and assets of the
Company and its Subsidiary Borrowers other than equipment and real estate. In
addition, the Company pledged to BankAmerica all of the capital stock of each
Subsidiary Borrower. This facility, combined with daily cash flows, provided
the Company with sufficient working capital to operate the business, discharge
significant expenses resulting from the accounting irregularities, and pay
interest on its debt obligations. The termination date of this facility was
January 6, 1998, and it has not been extended.
Effective July 11, 1997, the Company and its lenders signed a Forbearance
Agreement (the "Forbearance Agreement") and Waivers (the "Waivers"), both of
which expired on September 30, 1997. Under the Forbearance Agreement, the
lenders agreed not to take action against the Company for defaults under the
applicable debt agreements prior to October 1, 1997, subject to certain
termination events enumerated in the Forbearance Agreement. The Company 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) were 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,
September 4, 1997, and October 3, 1997, if the Registrant's cash balances
exceeded 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 additional principal payments aggregated $31 million under this
agreement. With certain exceptions, the Registrant also accrued default
interest which was paid on September 30, 1997.
On November 6, 1997, the Forbearance Agreement was amended (the "Amended
Forbearance Agreement") such that the lenders agreed to not take action against
the Company prior to March 2, 1998, unless the Forbearance Agreement is breached
or otherwise is terminated early. As of January 10, 1998, as a result of
certain conditions not being satisfied, the Amended Forbearance Agreement may be
terminated by the creditors. The Amended Forbearance Agreement provides for
principal repayments based on excess cash balances at each month end during the
duration of the agreement, a $7.0 million escrow fund to be used to repay any
due and unpaid interest at the end of the forbearance period, and payment of
principal and interest from cash proceeds arising from the occurrence of certain
significant events. Pursuant to the Amended Forbearance Agreement, the Company
paid additional principal payments aggregating $64.0 million through January 9,
1998.
On February 6, 1997, the Company suspended payment of the dividend previously
announced of $0.075 per share of Mercury common stock. The Company does not
anticipate the payment of any dividends for the foreseeable future. In
addition, on February 27, 1997, the Company adopted a stockholder rights plan
designed to protect the Company's stockholders from abusive takeover tactics and
from attempts to acquire control of Mercury without offering a fair price to all
of the Company's stockholders. The plan does not preclude the board of
directors from considering and accepting an offer if the board believes it is in
the best interest of the Company, its creditors and stockholders.
On February 18, 1997, the Company advised KPMG Peat Marwick LLP ("KPMG"), its
independent accountants, that the Company was discontinuing KPMG's services.
The Company then engaged Arthur Andersen LLP as the Company's new independent
accountants. See Item 9 "Changes In and Disagreements with Accountants on
Accounting and Financial Disclosures."
On March 28, 1997, the Company entered into a Stock Purchase Agreement with
Frontier Insurance Group, Inc. to sell the stock of Lyndon for $92 million in
cash. Lyndon was acquired by the Company in October, 1995, from ITT for $72.5
million. Since then, other smaller insurance operations of the Company had been
combined with Lyndon. The sale resulted in a loss of approximately $30 million
that was recorded in the first quarter of 1997. As the Lyndon subsidiary had
been operated on a stand-alone basis, its divestiture is not expected to have a
significant effect on the Company's ability to operate the Company's core
consumer finance business and to continue to offer insurance products to its
consumer finance customers. The sale of Lyndon was completed on June 3, 1997.
Management has determined that it is in the best interest of the Company to
remain in the insurance business and has formed a new captive insurance
subsidiary during 1997, MFN Insurance Company. As a result, the sale of Lyndon
is not considered the discontinuation of a business.
On June 17, 1997, the Company announced that it had revised and re-established
its stock option program for key employees. As part of the implementation of
that program, 408 employees were given the opportunity to receive new stock
options with an exercise price equal to $3.00 per share covering the same number
of option shares that these employees held under earlier options with a vesting
schedule that vests the options over an 18-month period. In addition, the
Company granted new stock options for a total of approximately 709,000 shares of
common stock, also exercisable at $3.00 per share to a total of 304 employees.
The Company believes that these grants were necessary and appropriate to
motivate and retain key employees.
On January 10, 1997, Mercury entered into a definitive agreement with Bank of
Boston Corporation for the acquisition by Mercury of Bank of Boston's consumer
finance subsidiary, Fidelity Acceptance Corporation. The agreement called for
Mercury to issue approximately 32,708,000 shares of common stock in
consideration for the acquisition. On January 30, 1997, Bank of Boston
terminated the agreement with Mercury as a result of certain alleged breaches in
the agreement on the part of Mercury. Bank of Boston alleged damages as a
result of the termination of the agreement. Such claims were settled for a cash
payment of $1,600,000 in January, 1998, with a charge to earnings in the fourth
quarter of 1997 of $1,600,000.
At September 30, 1997, the Company had 262 operating branches versus 287 at
December 31, 1996. The Company closed 38 branches in the second quarter of 1997
which were considered to be duplicative or under-performing. The costs related
to the closings consisting primarily of lease settlements and write off of
leasehold improvements aggregated $325 thousand. In December, 1997, Mercury
announced the implementation of a business plan that included the closing of
approximately 70 operating branches out of a total of 262 branches. The
branches are being closed because they are either unprofitable or considered
redundant in view of the location of nearby branches. The closings are
estimated to result in a decrease in the outstanding portfolio of approximately
$250 million over the next twelve to eighteen months. The closings will not be
treated as discontinued operations, however, a provision will be recorded in the
fourth quarter of 1997 to cover the costs of the closings which are estimated to
be approximately $4 million.
See Item 3 "Legal Proceedings" for information regarding legal proceedings
related to the accounting irregularities described above.
BRANCH OFFICE NETWORK/OPERATION
Mercury's branch office network consisted of 287 offices in 31 states at
December 31, 1996, located primarily in the southeastern, central and western
United States. An office typically starts with two employees and is expanded
based upon receivables generated. The largest office (other than the Midland
Finance Co. office) has approximately 20 people with a network average of
approximately six people per office. Mercury is divided into 32 geographically
organized districts, with each district headed by a regional director. A
regional director is generally responsible for seven to eleven offices
(depending on size and geographical dispersion). Regional directors report
directly to six Group Vice Presidents of Operations. Mercury's offices are
strategically located in areas of high traffic density for potential customers.
The traffic patterns are periodically reviewed. Management has recently
analyzed the branch locations and, during 1997, has consolidated some branches,
while opening other branches in geographic areas previously not served by
Mercury. It is not anticipated that new branch openings will be significant
during 1998. Management intends to continue to review the branch network and
seek further opportunities to consolidate branches and reduce expenses.
Management has developed its workforce by attempting to train experienced
consumer lending professionals. The training program includes actual training
at branch offices and personal interviews by senior operating management of the
Company. The training program which is called the "Pride Program" is
administered by the branch managers and regional directors and is a requirement
for all branch personnel. In addition, the Company also conducts a Manager's
Qualification Program for prospective managers.
Beginning in 1994, the Company began to experience a significant level of
turnover in its branch staff as a result of increased demand for experienced
personnel by competitors. After the announcement of the accounting
irregularities, the Company experienced further difficulty in retaining and
hiring qualified consumer lending professionals. The rate of turnover in
management positions has declined and, although still a cause for concern,
management believes that the turnover rate is no greater than that experienced
by the Company prior to discovery of the accounting irregularities.
The business mix of Mercury's branch office network between sales finance
receivables (which constitutes 88% of total receivables) and direct consumer
loans (which constitutes 12% of total receivables) is generally consistent
within the 32 supervisory districts of the country. The business mix in any one
branch office is dependent upon the location of the office and the background of
an office's loan personnel.
The geographic distribution of Mercury's offices as of December 31, 1996, were
as follows:
<TABLE>
<CAPTION>
State Office Locations State Office Locations
<S> <C> <C> <C>
Alabama 4 Missouri 4
Arizona 5 Nevada 4
California 5 New Mexico 2
Colorado 2 North Carolina 13
Florida 36 Ohio 12
Georgia 15 Oklahoma 3
Idaho 1 Oregon 1
Illinois 19 Pennsylvania 8
Indiana 9 South Carolina 4
Iowa 2 Tennessee 8
Kansas 1 Texas 37
Kentucky 5 Utah 1
Louisiana 42 Virginia 13
Michigan 6 Washington 2
Mississippi 15 Wisconsin 6
TOTAL 287
</TABLE>
In addition, Midland Finance Co. has one operating office located in Chicago,
Illinois.
See "Recent Developments" for information regarding the elimination and
consolidation of certain of Mercury's offices.
LOAN AND CONTRACT ORIGINATION AND MARKETING
Mercury originates loans and acquires individual sales finance contracts through
its office network based on a decentralized approval process tailored to the
market in which its specific offices operate. All credit extensions are
reviewed and approved at the branch level. Each branch office has specific
credit limit authorization and any extension of credit above the branch limit
must be approved by the regional director. While the ability and intent of the
consumer to repay are essential prerequisites to any loan or contract
acquisition, collateral provides additional security for the lender. All of
Mercury's sales finance contracts are secured with collateral while the majority
of its direct consumer loans are also secured with collateral. The amount of
collateral required depends upon the purpose of the loan, the size of the loan
and the risk factors associated with the loan.
Installment sales finance receivables which originate with local dealers
(household goods, appliance and automobile) are subjected to the same credit
review and credit worthiness policies as direct consumer loans. A specific
installment sales finance contract is acquired only after objective
investigations of the credit worthiness of the borrower and a determination of
the underlying value of the asset through use of industry publications, combined
with the subjective assessment by an office's underwriters. Every sales finance
contract is reviewed individually and extensions of credit are made based upon
the credit worthiness of each contract.
Individual sales finance contracts are acquired pursuant to formal agreements
with local merchants negotiated at the branch office level and subsequently
approved by a supervisor. Mercury acquires sales finance contracts from local
franchised and independent used car dealers with which Mercury has established
ongoing relationships. A relationship with a dealer begins only after analysis
of the soundness of their business is completed.
Mercury acquires a majority of its sales finance contracts from dealers at a
discount. Mercury negotiates the amount of the discounts with the dealers based
upon various criteria, one of which is the credit risk associated with the sales
finance contracts being acquired.
Mercury encourages a decentralized marketing approach which allows each office
to pursue and develop business leads which are unique to individual markets.
Mercury does no national advertising. Branch offices may advertise in local
publications and most branch offices rely on the endorsement of customers to
build a client base. Mercury believes that client service in the form of timely
loan application processing makes customer referrals the most cost effective
primary marketing tool.
INSURANCE OPERATIONS
In conjunction with their lending practices, the consumer finance subsidiaries
offer credit life, accident and health and property insurance to borrowers who
obtain financing directly from the consumer finance subsidiaries, and to
borrowers under sales finance contracts and financing contracts acquired from
merchants and automobile dealers. Notwithstanding the disposition of Lyndon,
Mercury continues to offer a variety of insurance and insurance related products
through third party carriers.
Lyndon was engaged in the business of direct writing of credit life, accident
and health and various other credit related insurance policies for customers of
Mercury and other companies. Prior to disposition, Lyndon Life was licensed in
forty-eight states and Lyndon Property was licensed in forty-seven states.
Lyndon subsidiaries, Mercury Life and Gulfco Life were engaged primarily in the
business of reinsuring and direct writing, respectively, of credit life and
accident and health insurance policies issued to borrowers under finance
receivables and sales finance contracts originated by Mercury. The policies
insure the holder of a sales finance contract or other debt instrument for the
outstanding balance payable in the event of death or disability of the debtor.
Premiums are earned over the life of the contracts principally using pro-rata
and sum-of-the-months digits methods or in relation to anticipated benefits to
the policy holder. As described above, Lyndon (including its subsidiaries) was
disposed of on June 3, 1997. Management has determined that it is in the best
interest of the Company to remain in the insurance business and has formed a new
captive insurance subsidiary during 1997, MFN Insurance Company. As a result,
the sale of Lyndon is not considered the discontinuation of a business.
SOURCE OF FUNDS
Mercury funds its operations primarily through payments of principal and
interest from finance receivables and the sale of debt securities. At
December 31, 1996, Mercury had total debt of $1,036 million. Of this total,
50.7% was in commercial paper and notes, 47.1% was in fixed rate senior term
notes, and 2.2% was in fixed rate subordinated term notes. In addition, Mercury
had unused standby bank lines and revolving credit facilities which totalled
$500 million at December 31, 1996. At December 31, 1996, no amounts were
outstanding under these lines.
As indicated above, as a result of the accounting irregularities, the Company's
credit rating has been downgraded and consequently, the Company does not have
access to the commercial paper markets and is not now obtaining additional
financing.
COMPETITION
The consumer finance business is intensely competitive. Mercury competes with
other consumer finance companies, personal loan departments of commercial banks,
federally insured credit unions, industrial banks, credit card issuers and
companies which finance the sales of their own merchandise or the merchandise of
others.
All lending institutions compete in the area of customer service, response time
and interest rate charges. Although in some instances Mercury's interest rate
charges may be greater than some of its competitors, Mercury believes that its
decentralized approval process provides Mercury with excellent customer service
in the form of quicker response time to potential customers.
EMPLOYEES
As of December 31, 1996, Mercury had approximately 1,742 employees (1,570
employees at January 15, 1998). None of its employees are represented by a
collective bargaining agreement.
GOVERNMENT REGULATION
All consumer finance operations are subject to federal and state regulations.
Personal loan lending laws generally require licensing of the lender limitations
on the amount, duration and charges for various categories of loans, adequate
disclosure of certain contract terms and limitations on certain collection
policies and creditor remedies. Federal consumer credit statutes primarily
require disclosures of credit terms in consumer finance transactions. In
general, the business is conducted under licenses issued by individual states.
Each licensed office is subject to periodic examination by state regulatory
authorities. The state licenses are revocable for cause. Mercury believes that
its current operations comply in all material respects with these regulations.
Mercury is also subject to the provisions of the Federal Consumer Credit
Protection Act and its related regulations.
Credit insurance offered in connection with the direct lending and sales finance
activities of Mercury and the premiums payable by credit customers and
commissions payable by insurers to the originators of such insurance are also
subject to state laws and regulations.
ITEM 2
PROPERTIES
The executive offices of Mercury are located at 100 Field Drive, Lake Forest,
Illinois 60045, telephone number (847) 295-8600. Mercury occupies approximately
11,750 square feet of a modern office building subject to a lease having a term
expiring on March 31, 2002. Mercury also leases space for all its branch
offices. The leases for the branch offices are generally for terms from 3 to 5
years. Total rent expense for the Company approximated $4,392,000, $4,176,000
and $3,169,000 in 1996, 1995 and 1994 respectively.
ITEM 3.
LEGAL PROCEEDINGS
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 its earnings for fiscal year 1996 and certain prior years as a result of
accounting irregularities. To date, forty-four actions against the Company are
pending in the United States District Court for the Northern District of
Illinois, six cases are pending against the Company in Illinois Chancery Court,
and nine cases are pending in Delaware Chancery Court. One case is pending in
Hamilton County, Ohio, Municipal Court. The complaints seek compensatory
damages, attorneys' fees and costs.
Forty of the lawsuits pending in the Northern District of Illinois are class
actions which generally allege claims under Sections 10 and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. These
lawsuits name one or more officers or directors of the Company as additional
defendants. One case pending in the Northern District of Illinois alleges
derivative claims seeking to recover damages on behalf of the Company from
certain of the Company's officers and directors. Thirty-nine of the
non-derivative cases pending in the Northern District of Illinois were
consolidated pursuant to a Stipulation entered on April 30, 1997. In November,
1997, the Minnesota State Board of Investment was appointed lead plaintiff in
the federal class cases. One of the cases pending in the Northern District of
Illinois seeks to represent a class of participants in Mercury's employee
retirement plan and alleges ERISA violations arising out of the plan's
investment in Mercury's allegedly overvalued stock. Participants in the
proposed class may include certain officers and former officers of the Company.
Two cases pending in the Northern District of Illinois allege non-class
securities fraud and common law claims. Three of the Illinois state court
actions are class actions alleging claims under the Illinois Securities Act,
the Illinois Consumer Fraud and Deceptive Business Practices Act and common law
claims of 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 laws 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.
In the normal course of its business, Mercury and its subsidiaries are named as
defendants in legal proceedings. A number of such actions, including fifteen
cases which have been brought as putative class actions, are pending in the
various states in which subsidiaries of Mercury do business. It is the policy
of Mercury and its subsidiaries to vigorously defend litigation, but Mercury and
(or) its subsidiaries have and may in the future enter into settlements of
claims where management deems appropriate. Although management is of the
opinion that the resolution of these proceedings will not have a material effect
on the financial position of Mercury, it is not possible at this time to
estimate the amount of damages or settlement expenses that may be incurred.
No provision has been made in the consolidated financial statements for the cost
or expenses that have been or will be incurred subsequent to December 31, 1996,
for any of the pending matters discussed in this Item.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Mercury Finance Company began trading on the New York Stock
Exchange on April 11, 1989 under the symbol MFN. Mercury common stock is also
traded on the Chicago Stock Exchange. On December 31, 1996, Mercury had
approximately 4,317 holders of record of common stock, exclusive of holders of
shares in "street" or nominee names. The following table sets forth the high
and low closing sale prices as reported on the New York Stock Exchange during
the last two fiscal years. The table also indicates the cash dividends declared
by the Company per share during such periods. On October 31, 1995, the Company
effected a three-for-two stock split of its common stock. All share and per
share data applicable to prior periods have been restated to reflect the split.
<TABLE>
<CAPTION>
1996 1995
Cash Cash
High Low Dividends High Low Dividends
<S> <C> <C> <C> <C> <C> <C>
First Quarter . . . . . . . . . . $15 1/8 $11 $.075 $ 11 1/4 $ 8 1/4 $.05
Second Quarter . . . . . . . . . 14 1/2 11 3/8 .075 12 7/8 9 3/4 .06
Third Quarter . . . . . . . . . . 12 1/8 10 3/4 .075 16 5/8 12 1/8 .06
Fourth Quarter . . . . . . . . . 13 1/8 11 .075 16 3/8 11 3/8 .08
</TABLE>
On January 14, 1997, the Board of Directors declared a dividend of $0.075 per
share of Mercury Common Stock to be payable March 3, 1997, to holders of record
at February 17, 1997. On February 6, 1997, the Company suspended payment of
this dividend.
Based on existing defaults and events of default under the Company's Senior and
Subordinated Note Agreements, no dividends may be paid on the capital stock of
the Company. The Company does not anticipate the payment of any dividends for
the foreseeable future.
ITEM 6
SELECTED FINANCIAL DATA
Introduction
In the first quarter of fiscal 1997, the Company announced the discovery of
certain unauthorized adjustments to the accounting records of the Company which
caused an overstatement of the previously released financial statements for
fiscal years 1995 and 1996. All financial information included herein reflects
the adjustments to correct for the irregularities. See Item 1, "Business -
Recent Developments."
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Years ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT
Interest income . . . . . . . . . . . . . . . . $ 271,889 $ 255,066 $ 211,565 $ 165,054 $ 121,531
Interest expense . . . . . . . . . . . . . . . 64,789 57,303 39,375 32,933 29,525
Net interest income . . . . . . . . . . . . . 207,100 197,763 172,190 132,121 92,006
Provision for finance credit losses . . . . . . 215,171 32,641 7,376 6,392 4,330
Net interest income/(loss) after credit losses (8,071) 165,122 164,814 125,729 87,676
Other income . . . . . . . . . . . . . . . . . 101,985 58,349 40,907 29,342 20,345
Other expenses . . . . . . . . . . . . . . . . 143,297 103,363 64,731 50,204 34,359
Income/(loss) before income taxes and
cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . (49,383) 120,108 140,990 104,867 73,662
Income taxes/(benefit) . . . . . . . . . . . . (20,415) 45,979 54,445 40,174 27,939
Income/(loss) before cumulative effect of change
in accounting principle . . . . . . . . . . . (28,968) 74,129 86,545 64,693 45,723
Cumulative effect
of change in accounting principle . . . . . . - - - 234 -
Net Income/(loss) . . . . . . . . . . . . . . . $ (28,968) $ 74,129 $ 86,545 $ 64,927 $ 45,723
Net income/(loss) per share . . . . . . . . . . $ (.17) $ .43 $ .49 $ .37 $ .26
Dividends per share declared . . . . . . . . . $ .30 $ .25 $ .19 $ .14 $ .10
SELECTED BALANCES AT YEAR END
Total assets . . . . . . . . . . . . . . . . . $ 1,543,360 $1,598,098 $ 1,036,403 $ 797,090 $ 593,703
Gross finance and credit card receivables . . . 1,396,081 1,441,288 1,272,430 1,004,517 747,573
Total finance receivables (Net of unearned
charges) . . . . . . . . . . . . . . . . . . 1,160,423 1,197,776 1,039,867 820,287 618,648
Allowance for finance credit losses . . . . . . 97,762 46,366 22,488 18,344 13,198
Nonrefundable dealer reserves . . . . . . . . . 89,378 61,961 66,477 57,241 38,262
Senior debt, commercial paper and other notes . 525,051 489,990 449,945 260,260 200,000
Senior debt, term notes . . . . . . . . . . . . 488,625 438,750 265,375 266,000 175,500
Subordinated debt . . . . . . . . . . . . . . . 22,500 29,500 35,500 35,000 41,000
Shareholders' equity . . . . . . . . . . . . 168,885 259,487 227,514 193,527 144,920
SELECTED RATIOS
Net income/(loss) to average total assets . . . (1.88%) 6.01% 9.71% 9.12% 8.36%
Net income/(loss) to average shareholders' . .
equity (12.85%) 29.64 40.23 38.95 37.62
Earnings to fixed charges . . . . . . . . . . . 0.25 3.05 4.48 4.10 3.44
Total shareholders' equity to total assets . . 10.94% 16.24 21.95 24.28 24.41
</TABLE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in tables in thousands)
The following discussion is intended to assist readers in their analysis of the
accompanying consolidated financial statements and notes that are presented
elsewhere in this report.
OVERVIEW
1996 was a very difficult year operationally as well as financially
for Mercury. The Company experienced fierce competition in the sub-prime
finance industry both from growing specialty finance companies similar to
Mercury and from traditional financial institutions which reduced credit
standards to obtain higher yields. The desire to maintain a pattern of
growth led Mercury to reduce its credit standards while accepting lower
pricing on sales finance contracts and to introduce new products that
ultimately proved to be unprofitable. At the same time, the Company was
experiencing a high level of turnover at the branch manager and staff
levels. The above factors led to a significant increase in the provision
for finance credit losses in 1996 and when combined with the effect of the
adoption of the "static pooling" method for accounting for loan losses, the
Company recorded a loss for the year.
FINANCIAL CONDITION
ASSETS AND FINANCE RECEIVABLES
Total assets of Mercury decreased 3% to $1.54 billion at December 31, 1996.
This follows an increase of 54% during 1995. The large increase in 1995 related
to the acquisition of Lyndon Finance Company.
Total finance receivables declined 3% in 1996 compared to 1995 after a 15%
increase in 1995 over 1994. Sales finance receivables decreased 8% during 1996
after an increase of 11% during 1995. Sales finance receivables decreased in
1996 as a result of lower originations at existing locations due to increased
competition. The main reason for the increase in finance receivables in 1995
was related to an increase in the number of branches. Number of branches open
at December 31, 1996, 1995 and 1994 were 287, 276 and 247, respectively. The
Company's offices in Florida, Texas and Louisiana accounted for approximately
18%, 17% and 9% of all gross earned finance receivables with the remainder
being originated in the other 28 states where offices are located.
During 1995, the Company introduced a Visa affiliated revolving credit card
program to its traditional customer base. Substantially all of the funds
advanced under this program were on an unsecured basis. Solicitations for new
credit customers were issued in the fourth quarter of both 1996 and 1995.
The following tables summarize the composition of finance receivables at
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Gross finance receivables:
Sales $1,159,848 $1,256,631 $1,136,958
Direct 152,633 152,125 135,472
Total gross finance
receivables 1,312,481 1,408,756 1,272,430
Less: Unearned finance
charges (228,405) (234,792) (222,284)
Unearned commissions,
insurance premiums and
insurance claim reserves (7,253) (8,720) (10,279)
Gross earned finance receivables $1,076,823 $1,165,244 $1,039,867
Credit Card 83,600 32,532 -
Total Finance Receivables $1,160,423 $1,197,776 $1,039,867
</TABLE>
ALLOWANCE AND PROVISION FOR FINANCE CREDIT LOSSES
Mercury originates direct consumer loans, acquires individual sales finance
contracts from third party dealers and provides revolving credit to individuals
through a Visa affiliated program. The Company continues to maintain an
allowance for the direct and credit card receivables to cover finance credit
losses that are expected to be incurred on receivables that have demonstrated a
risk of loss based upon delinquency or bankruptcy status.
The sales finance contracts are generally acquired at a discount from the
principal amount. This discount is normally referred to as a non-refundable
dealer reserve. The amount of the discount is based upon the credit risk of the
borrower, the note rate of the contract and competitive factors. In 1994 and
prior, the non-refundable dealer reserve was considered to be adequate to absorb
the majority of losses on the acquired receivables. However, as the sub-prime
market has evolved and become more competitive, the dealer reserve has proven to
be inadequate to absorb all of the credit losses. In 1995 and prior, the
Company maintained a balance of the combined non-refundable dealer reserves and
allowance for finance credit losses in an amount sufficient to cover losses that
were expected to be incurred on receivables that had demonstrated a risk of loss
based upon delinquency or bankruptcy status.
In 1996, Mercury adopted a loss reserving methodology commonly referred to as
"static pooling." The static pooling methodology provides that the company
stratify the components of its sales finance receivable portfolio (i.e. dealer
reserve, principal loan balances and related chargeoffs) into separately
identified pools based upon the period the loans were acquired. Mercury defines
a pool as loans acquired within a given month.
The dealer reserve is made available to absorb credit losses over the life of
the pool of receivables. The dealer reserve cannot be utilized to offset
provision for finance credit losses immediately, but must be held to offset
future losses. Management believes this method provides for a more appropriate
matching of finance charge income and provision for finance credit losses. The
application of the static pooling methodology as described above increased the
1996 provision for credit losses by $89 million.
Reserve requirements for sales finance, direct and credit card receivables are
calculated based on the estimated losses inherent in each category of
delinquency (i.e. 30, 60, 90 and 120 days past due). These assumed losses are
utilized to determine the projected cash flows from each impaired category. The
projected cash flow is then discounted to estimate the net present value of the
impaired loans. A reserve is established in an amount sufficient to reduce the
book value of the impaired receivable to its net present value. Repossessed
collateral is valued at an estimate of its net realizable value.
A summary of the activity in the allowance for finance credit losses for the
years ended December 31, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $46,366 $22,488 $18,344
Allowance acquired 0 0 1,052
Provision charged to expense 215,171 32,641 7,376
Finance receivables
charged-off, net of recoveries (89,326) (8,763) (4,284)
Transfer to nonrefundable
dealer reserves (74,449) 0 0
Balance at year end $97,762 $46,366 $22,488
Allowance as a percent of total
finance receivables outstanding 8.42% 3.87% 2.16%
</TABLE>
The increase in the provision and allowance for finance credit losses in 1996
and 1995 is attributable to the adoption of the static pool method of accounting
for loss reserves and an increase in delinquencies and charge-offs combined with
a lower level of acquired nonrefundable dealer reserves.
NONREFUNDABLE DEALER RESERVES
Mercury acquires a majority of its sales finance contracts from dealers at a
discount. Mercury negotiates the amount of the discount with the dealers based
upon various criteria, one of which is the credit risk associated with the sales
finance contracts being acquired. The following table sets forth a
reconciliation of the changes in nonrefundable dealer reserves for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $61,961 $66,477 $57,241
Discounts acquired on
new volume 67,442 98,559 84,252
Losses absorbed (114,474) (96,117) (70,419)
Transfer from the Allowance for
Finance Credit Losses 74,449 0 0
Other 0 (6,958) (4,597)
Balance at end of year $89,378 $61,961 $66,477
Reserve as a percent of gross
sales finance receivables 7.71% 4.93% 5.85%
</TABLE>
DEFERRED AND INCOME TAX RECEIVABLES
At December 31, 1996, the Company had recorded an income tax receivable of $53.8
million. This balance is comprised of three primary items: (i) overpayment of
federal 1996 estimated tax payments, (ii) refund claim for the amendment of 1995
and prior income tax returns for the accounting irregularities, and (iii) the
carryback of the net operating loss for 1996 to prior periods. Of the income
tax receivable, $34.4 million related to the overpayment of federal estimated
income tax payments for 1996 was received in the fourth quarter of 1997. The
balance of the refund claims were filed in the fourth quarter of 1997.
At December 31, 1996, the Company had recorded a deferred tax asset balance of
$33.3 million. No valuation allowance against the deferred tax asset balance
has been recorded as of December 31, 1996, as Mercury believes it is more likely
than not that the deferred tax assets will be realized in the future under
existing tax laws at December 31, 1996. This conclusion is based on the
extremely short period in which the existing deductible temporary differences,
primarily related to finance credit losses, will reverse and the existence of
sufficient taxable income within the carryback period of three years that
existed at December 31, 1996.
A provision of the Taxpayer Relief Act of 1997, signed into law in August, 1997,
was to reduce the Net Operating Loss (NOL) carryback period from three years to
two years for tax years beginning after August 5, 1997. For tax reporting
purposes, this new law restricts net operating losses, if any, incurred in 1998
to be carried back to 1996, where the Company did not have taxable income,
versus under the previous legislation, any 1998 net operating losses would carry
back to 1995, where the Company had reported significant taxable income. For
financial reporting purposes, the change in tax law raises a question as to the
future realizability of the deferred tax asset. Any impact on the carrying
value of the deferred tax asset related to the change in the tax law is recorded
in the period that the change occurred and in the third quarter of 1997 the
Company recorded a valuation allowance of $18.5 million.
Also in the fourth quarter of 1997, the Company elected to be treated as a
dealer in securities under Section 475 of the Internal Revenue Code effective
for the year ended December 31, 1996. Pursuant to this election, Mercury must
annually recognize as taxable income or loss the difference between the fair
market value of its securities and the income tax basis of the securities for
the year ended December 31, 1996 and prospectively. This election has no impact
on the recognition of pre-tax income for financial reporting purposes. As a
result of this election, the Company has increased its taxable loss for 1996 and
a portion of the recorded deferred tax balance has been included as currently
refundable in the 1996 tax return.
DEBT
The primary source for funding Mercury's finance receivables comes from debt
issued by Mercury. At December 31, 1996, Mercury had total debt of $1,036.2
million, which compares to $958.2 million and $750.8 million at December 31,
1995 and 1994, respectively. The following table represents Mercury's debt
instruments and the corresponding rates on the debt at the end of the periods
indicated:
<TABLE>
<CAPTION>
Dec. 31, 1996 Dec. 31, 1995 Dec. 31,1994
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Senior Debt:
Commercial
paper $525,051 5.6% $489,990 6.0% $449,945 6.4%
Term notes 488,625 7.0% 438,750 7.2% 265,375 7.1%
Subordinated
debt 22,500 10.3% 29,500 10.2% 35,500 10.2%
Total $1,036,176 6.4% $958,240 6.6% $750,820 6.8%
</TABLE>
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 would result in all of such debt becoming immediately due and
payable.
SHAREHOLDERS' EQUITY
Total shareholders' equity at December 31, 1996 was $168.9 million which
compares with $259.5 million at December 31, 1995. During the year Mercury had
a net loss of $29.0 million, paid dividends of $51.8 million and purchased back
1.5 million shares costing $16.5 million. At December 31, 1996, Mercury's
shareholders' equity as a percent of total assets was 10.94% which compares with
16.24% at December 31, 1995.
Total shareholders' equity at December 31, 1995 was $259.5 million which
compares with $227.5 million at December 31, 1994. During that year Mercury had
net income of $74.1 million, paid dividends of $42.8 million and purchased back
1.1 million shares costing $14.0 million. At December 31, 1995, Mercury's
shareholders' equity as a percent of total assets was 16.24% which compares with
21.95% at December 31, 1994.
RESULTS OF OPERATIONS
NET INCOME (LOSS)
For the year ended December 31, 1996, Mercury had a net loss of $29.0 million.
The 1996 net loss compares to net income in 1995 of $74.1 million and net income
of $86.5 million earned in 1994. The decrease in 1996 net income is primarily
attributable to an increase in the loss provision for finance credit losses
offset by the profitable operations of Lyndon Insurance Companies. The decrease
in 1995 net income versus 1994 is the result of an increase in finance charge
income and other income more than offset by an increase in the provision for
credit losses and an increase in expenses relating to the additional offices
opened during 1994 and 1995.
INTEREST INCOME AND INTEREST EXPENSE
The largest single component of net income is net interest income which is the
difference between interest income and interest expense before provision for
finance credit losses. For the year ended December 31, 1996, net interest
income was $207.1 million, which compares with $197.8 million and $172.2 million
in 1995 and 1994, respectively. Impacting the growth in interest income was the
investment portfolio of the Lyndon Insurance Companies, acquired in October
1995. For the year ended December 31, 1996, Mercury's net interest margin, which
is the ratio of net interest income divided by average interest earning assets,
was 14.73%. This compares with a net interest margin of 16.24% and 18.55% in
1995 and 1994, respectively. The change in the net interest margin is primarily
attributable to lower yielding investment assets associated with the Lyndon
acquisition and interest rate changes on the Company's various debt
instruments. The changes in interest rates are reflective of general
interest rate trends in the U.S. economy.
The investment portfolio of Lyndon (which yields approximately 7% vs.
approximately 23% for the finance receivable portfolio), contributed to the
reduction in the margin percentage in 1996 from 1995 and 1994 covered above.
The following table summarizes net interest income and the net interest margin
for the three years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Average interest earning
assets 1,405,916 $1,217,798 $928,060
Average interest bearing
liabilities 984,904 843,239 612,700
Net $421,012 $ 374,559 $315,360
Interest income $271,889 $ 255,066 $211,565
Interest expense 64,789 57,303 39,375
Net interest income $207,100 $ 197,763 $172,190
Rate earned 19.34% 20.94% 22.80%
Rate paid 6.58% 6.80% 6.43%
Net 12.76% 14.14% 16.37%
Net interest margin 14.73% 16.24% 18.55%
</TABLE>
OTHER INCOME
In addition to finance charges and interest, Mercury derives commission income
from the sale of other credit related products. These products include
insurance relating to the issuance of credit life, accident and health and other
credit insurance policies to borrowers of Mercury. Other credit-related sources
of revenue are derived from the sale of other products and services.
Lyndon earns insurance premiums on business it has underwritten through outside
distributors, business in a run-off mode from subsidiaries of its prior owner,
and going forward, through Mercury's branch offices. Insurance premiums are
also earned by Mercury's other insurance subsidiaries as reinsurers of credit
life and accident and health policies issued through Mercury branch offices. For
the years ended December 31, 1996 and 1995, Mercury experienced increases in its
insurance premiums which were attributable to the acquisition of Lyndon in the
fourth quarter of 1995. Commission income declined during the same periods as a
result of a number of the insurance programs being written by Lyndon since its
acquisition and no commission is earned on a consolidated basis. The following
table summarizes the amounts earned from these products for the three years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Insurance premiums 83,277 29,686 9,056
Fees, commissions and other 18,708 28,663 31,851
Total $101,985 $58,349 $40,907
Other income as a % of
average interest earning
assets 7.25% 4.79% 4.41%
</TABLE>
OTHER EXPENSES
In addition to interest expense and the provision for finance credit losses,
Mercury incurs other operating expenses in the conduct of its business. During
1996 other operating expenses increased 39% over 1995, which in turn had
increased 60% over 1994. The increase in expenses primarily relate to the
acquisition of Lyndon and an increase in the number of branches. The following
table summarizes the components of other expenses for the three years ended
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Salaries and employee
benefits $54,942 $48,590 $36,852
Incurred insurance claims
expense
and other underwriting
expense 47,243 17,703 2,722
Other operating expenses 41,112 37,070 25,157
Total $143,297 $103,363 $64,731
Operating expenses as a % of
average interest earning
assets 10.19% 8.49% 6.97%
</TABLE>
INCOME TAXES
The effective rate of tax benefit applicable to the 1996 net loss is 41.3%. The
effective tax rates on income before income taxes were 38.3% and 38.6% in 1995
and 1994, respectively.
CREDIT LOSSES
Direct finance receivables on which no payment is received within 149 days, on a
recency basis, are charged off. Sales finance receivables which are
contractually delinquent 150 days are charged off monthly before they become 180
days delinquent. Accounts which are deemed uncollectible prior to the maximum
charge-off period are charged off immediately. Management may authorize an
extension if collection appears imminent during the next calendar month.
The following table sets forth information relating to charge-offs, the
allowance for finance credit losses and dealer reserves (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Loss provision charged to income $215,171 $32,641 $7,376
Net charge-offs against allowance 89,326 8,763 4,284
Net charge-offs against
nonrefundable dealer reserves 114,474 96,117 70,419
Allowance for finance credit
losses at end of period 97,762 46,366 22,488
Dealer reserves at end of period 89,378 61,961 66,477
RATIOS
1996 1995 1994
Net charge-offs against allowance
to average total finance receivables 7.54% .76% .47%
Net charge-offs against
nonrefundable dealer reserves to
average total finance receivables 9.66% 8.37% 7.69%
Allowance for finance credit
losses to total gross finance
receivables at end of period 7.45% 3.29% 1.77%
Dealer reserves to gross sales
finance receivables at end of
period 7.71% 4.93% 5.85%
</TABLE>
The increase in the provision and allowance for finance credit losses in 1996
and 1995 is attributable to the adoption of the static pool method of accounting
for loss reserves and an increase in delinquencies and charge-offs combined with
a lower level of acquired nonrefundable dealer reserves.
DELINQUENCIES AND REPOSSESSIONS
The Company generally suspends the accrual of interest when an account becomes
60 days or more contractually delinquent and no full contractual payment is
received in the month the account obtains such status or if the borrower has
filed for bankruptcy protection. The following table sets forth certain
information with respect to the contractually delinquent receivables and
repossessed assets (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
<S> <C> <C>
Delinquent gross receivables 52,008 46,467
Bankrupt accounts 17,499 16,906
Repossessed assets 6,700 10,621
Total 76,207 73,994
Delinquent gross receivables and
bankrupt accounts to gross
finance receivables 5.30% 4.50%
Delinquent gross receivables,
bankrupt accounts and repossessed
assets to gross finance receivables
plus repossessed assets 5.78% 5.21%
</TABLE>
Loan collateral is repossessed when debtors are 120 days late or more on
payments. Automobiles are generally sold within 60 days at auction.
LIQUIDITY AND FINANCIAL RESOURCES
Because the consumer finance business involves the purchase and carrying of
receivables, a relatively high ratio of borrowings to net worth is customary and
is an important element in Mercury's operations. Mercury endeavors to maximize
its liquidity by diversifying its sources of funds which include (a) cash from
operations, (b) the issuance of short-term commercial paper, and (c) direct
borrowings available from commercial banks and insurance companies, consisting
of short-term lines of credit and long-term senior and subordinated notes. Most
of the assets of Mercury are at fixed rates, and have an average initial
maturity of approximately 24 months. Of Mercury's total debt, 49% has an
original maturity of greater than one year at a fixed rate of interest. See
Item 1 "Business--Recent Developments" for information regarding the impact of
the accounting irregularities on the Company's liquidity.
ACCOUNTING CHANGES
In March, 1995, the Financial Accounting Standards Board ("the FASB") issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to
be Disposed of," which is effective for financial statements issued for fiscal
years beginning after December 15, 1995. SFAS 121 requires that long-lived
assets and certain identifiable intangibles that are used in operations be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of assets might not be recoverable. The adoption of
SFAS 121 did not have a material effect on the Company's financial condition or
results of operations.
In October, 1995, the FASB issued SFAS 123, "Accounting for Stock-based
Compensation" which is effective for fiscal years beginning after December 31,
1995. This statement defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting. The Company has elected, as permitted under
SFAS 123, to continue to measure compensation cost for its plan using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25.
In February 1997, the FASB issued SFAS 128, "Earnings per Share" and SFAS 129,
"Disclosure of Information about Capital Structure". SFAS 128 establishes
standards for computing and presenting earnings per share. SFAS 129 establishes
standards for disclosing information about an entity's capital structure. These
statements are effective for financial statements issued for periods ending
after December 15, 1997. Management does not expect the adoption of these
statements to have a significant impact on the financial position and results of
operations of the Company.
In July 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income.
Management does not expect the adoption of this statement to have a significant
impact on the financial position and results of operations of the Company. This
statement is effective for financial statements issued for periods beginning
after December 15, 1997.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
MERCURY FINANCE COMPANY:
We have audited the accompanying consolidated balance sheet of Mercury Finance
Company and subsidiaries as of December 31, 1995, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the years in the two-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of Mercury Finance Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mercury Finance
Company and subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
February 12, 1996, except as to notes 2, 5, 12, 14, and 15,
which are dated as of October 27, 1997.
Chicago, Illinois
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Mercury Finance Company:
We have audited the accompanying consolidated balance sheet of Mercury Finance
Company and subsidiaries as of December 31, 1996, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mercury Finance Company and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
As further discussed in Notes 1 and 5 to the financial statements, effective in
1996, the Company changed its methodology for evaluating the adequacy of the
allowance for finance credit losses by adopting a static pooling methodology.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, on January 29, 1997, the Company announced accounting
irregularities, discovered subsequent to December 31, 1996, causing it to
violate its debt covenants which curtailed the availability of credit and caused
the Company to miss scheduled debt payments. Also, as discussed in Note 16, the
Company incurred significant losses in 1996 and is continuing to incur losses in
1997. In addition, as further described in Note 10, the Company has been named
as a defendant in litigation generally arising from the restatement of earnings
for 1995 and interim earnings for 1996 as a result of the accounting
irregularities. The Securities and Exchange Commission and the United States
Attorney for the Northern District of Illinois have also commenced
investigations. Management's plans in regard to these matters are described in
Notes 10 and 16. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Chicago, Illinois
October 10, 1997
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(dollars in thousands) December 31,
1996 1995
(as restated)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 20,957 $ 22,967
Short-term investments (at amortized cost which
approximates fair value) 43,411 48,114
Investments available-for-sale, at fair value 161,781 181,304
Investments held-to-maturity, at cost (fair value of $8,025
and $12,909) 7,765 12,625
Finance Receivables 1,160,423 1,197,776
Less allowance for finance credit losses (97,762) (46,366)
Less nonrefundable dealer reserves (89,378) (61,961)
FINANCE RECEIVABLES, NET 973,283 1,089,449
Deferred income taxes, net 33,356 21,353
Income taxes receivable 53,764
Premises and equipment (at cost, less accumulated
depreciation of $9,157 and $7,247) 7,266 7,022
Goodwill 14,463 15,274
Reinsurance receivable 93,458 89,962
Deferred acquisition costs and present value of future
profits 62,809 23,242
Other assets (including repossessions) 71,047 86,786
TOTAL ASSETS $ 1,543,360 $ 1,598,098
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Senior debt, commercial paper and notes $ 525,051 $ 489,990
Senior debt, term notes 488,625 438,750
Subordinated notes 22,500 29,500
Accounts payable and other liabilities 81,282 70,268
Unearned premium and claim reserves 239,573 195,761
Reinsurance payable 17,444 105,081
Income taxes payable 9,261
TOTAL LIABILITIES 1,374,475 1,338,611
CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY
Common stock - $1.00 par value per share:
300,000,000 shares authorized
1996 - 177,719,447 shares outstanding
1995 - 176,477,520 shares outstanding 177,719 176,478
Paid in capital 6,539 39
Retained earnings 37,349 118,138
Unrealized appreciation on available-for-sale securities,
net of tax 942 1,969
Treasury stock - 5,402,957 and 3,896,557 shares, at cost (53,664) (37,137)
TOTAL SHAREHOLDERS' EQUITY 168,885 259,487
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,543,360 $ 1,598,098
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(dollars in thousands, except per share amounts) Years ended December 31,
1996 1995 1994
(as restated)
<S> <C> <C> <C>
INTEREST INCOME
Finance charges and loan fees $ 258,602 $ 249,913 $ 210,891
Investment income 13,287 5,153 674
Total finance charges, fees and investment income 271,889 255,066 211,565
Interest expense 64,789 57,303 39,375
Interest income before provision for finance
credit losses 207,100 197,763 172,190
Provision for finance credit losses 215,171 32,641 7,376
NET INTEREST INCOME (LOSS) (8,071) 165,122 164,814
OTHER INCOME
Insurance commissions 3,929 21,365 20,507
Insurance premiums 83,277 29,686 9,056
Fees and other 14,779 7,298 11,344
TOTAL OTHER INCOME 101,985 58,349 40,907
OTHER EXPENSES
Salaries and employee benefits 54,942 48,590 36,852
Occupancy expense 5,923 4,880 3,730
Equipment expense 3,158 2,041 1,665
Data processing expense 2,366 3,071 2,551
Incurred insurance claims and other underwriting
expense 47,243 17,703 2,722
Other operating expenses 29,665 27,078 17,211
TOTAL OTHER EXPENSES 143,297 103,363 64,731
Income (loss) before income taxes (49,383) 120,108 140,990
Provision (benefit) for income taxes (20,415) 45,979 54,445
NET INCOME (LOSS) $ (28,968) $ 74,129 $ 86,545
NET INCOME (LOSS) PER COMMON SHARE $ (0.17) $ 0.43 $ 0.49
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands, except per share amounts)
Common Paid in Retained Unrealized Treasury
Stock Capital Earnings Appreciation Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $115,649 $ 2,856 $ 75,193 $ $ (171) $ 193,527
1994 net income 86,545 86,545
Stock options exercised 431 3,528 3,959
Cash dividends ($.19 per share) (33,581) (33,581)
Treasury stock acquired (22,936) (22,936)
Balance at December 31, 1994 116,080 6,384 128,157 (23,107) 227,514
1995 net income (as restated) 74,129 74,129
Stock options exercised 1,573 11,181 12,754
Cash dividends ($.25 per share) (42,849) (42,849)
Transfer to Paid in Capital 41,299 (41,299)
Three for two stock split 58,825 (58,825)
Unrealized appreciation on
available-for-sale securities,
net of tax 1,969 1,969
Treasury stock acquired (14,030) (14,030)
Balance at December 31, 1995
(as restated) 176,478 39 118,138 1,969 (37,137) 259,487
1996 net loss (28,968) (28,968)
Stock options exercised 1,241 6,500 7,741
Cash dividends ($.30 per share) (51,821) (51,821)
Unrealized depreciation on
available-for-sale securities,
net of tax (1,027) (1,027)
Treasury stock acquired (16,527) (16,527)
Balance at December 31, 1996 $177,719 $ 6,539 $ 37,349 $ 942 $(53,664) $ 168,885
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) Years ended December 31,
1996 1995 1994
(as restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (28,968) $ 74,129 $ 86,545
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for finance credit losses 215,171 32,641 7,376
Credit for deferred income taxes (11,432) (10,595) (1,779)
Depreciation and amortization 5,207 4,361 1,498
Gain on sale of investment securities (769) (19) (24)
Net increase in reinsurance receivable (3,496) (37,476)
Net increase in deferred acquisition costs and
present value of future profits (39,567) (2,176) (220)
Net increase in taxes receivable (53,764)
Net (increase) decrease in other assets 15,739 (14,044) (13,008)
Net decrease in reinsurance payable (87,637) (14,116)
Net increase in unearned premium and claim reserves 43,812 10,970 10
Net increase (decrease) in taxes payable (9,261) 4,593 1,441
Net increase (decrease) in other liabilities (1,920) 3,120 13,478
Net increase (decrease) in nonrefundable dealer reserves (47,032) (4,516) 5,727
Net cash provided by (used in) operating activities (3,917) 46,872 101,044
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on finance receivables 860,190 825,779 690,508
Principal originated or acquired on finance receivables (912,163) (992,450) (887,902)
Purchases of investment securities (24,010) (7,896)
Purchases of short term and available for sale investment
securities (83,816)
Purchases of held to maturity investment securities (8,480)
Proceeds from sales and maturities of short term and
available for sale investment securities 104,774 55,694 3,938
Proceeds from maturities of held to maturity investment
securities 13,393 3,413 331
Net purchase of premises and equipment (2,254) (4,683) (1,456)
Assets acquired (393,318) (26,014)
Liabilities assumed 310,519 16,866
Net assets acquired 0 (82,799) (9,148)
Purchase price less than (in excess of) fair value of net
assets acquired 10,299 (5,905)
Net cash used in investing activities (28,356) (208,757) (217,530)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings of senior debt, commercial paper and
notes 35,061 40,045 184,485
Borrowings of senior debt, term notes 90,000 200,000 30,000
Repayments of senior debt, term notes (40,125) (26,625) (35,125)
Repayments of subordinated notes (7,000) (6,000) (2,320)
Stock options exercised 7,741 12,754 3,959
Cash dividends paid (38,887) (42,849) (33,581)
Treasury stock acquired (16,527) (14,030) (22,936)
Net cash provided by financing activities 30,263 163,295 124,482
Net increase (decrease) in cash and cash equivalents (2,010) 1,410 7,996
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 22,967 19,980 11,621
CASH ACQUIRED 1,577 363
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,957 $ 22,967 $ 19,980
Supplemental Disclosures
Income taxes paid to federal and state governments $ 40,092 $ 51,967 $ 53,262
Interest paid to creditors $ 62,079 $ 57,797 $ 39,502
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 (as restated) and 1994
(dollars in thousands except per share amounts)
1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mercury Finance Company ("Mercury" or the "Company") is a consumer finance
company doing business in 31 states under its own name and through its
subsidiaries MFC Finance Company, MERC Finance Company, Gulfco Investment Inc.
and subsidiary and Midland Finance Co. (the "consumer finance subsidiaries").
The Company also offers certain insurance services through its subsidiary,
Lyndon Property Insurance Company and subsidiaries ("Lyndon"). The Company's
borrowers generally would not be expected to qualify for traditional financing,
such as that provided by commercial banks or automobile manufacturers' captive
finance companies.
BASIS OF PRESENTATION
The accounting and reporting policies of Mercury conform to generally accepted
accounting principles for the finance and insurance industries. The
consolidated financial statements include the accounts of the Company, the
consumer finance subsidiaries and Lyndon. All significant intercompany accounts
and transactions have been eliminated. In addition, certain amounts from prior
years have been reclassified to conform to the 1996 presentation.
REVENUE RECOGNITION - CONSUMER FINANCE SUBSIDIARIES
Finance charges on precomputed loans and sales finance contracts (collectively
referred to as "precompute accounts") are credited to unearned finance charges
at the time the loans and sales finance contracts are made or acquired.
Interest income is calculated using the interest (actuarial) method to produce
constant rates of interest (yields). If a precompute account becomes greater
than 60 days contractually delinquent and no full contractual payment is
received in the month the account attains such delinquency status, the accrual
of income is suspended until one or more full contractual monthly payments are
received. Interest on interest bearing loans and sales finance contracts is
calculated on a 360-day year basis and recorded on the accrual basis; accrual is
suspended when an account is 60 or more days contractually delinquent. Late
charges and deferment charges on all contracts are taken into income as
collected. Fees and other income are derived from the sale of other products
and services.
INSURANCE OPERATIONS
In conjunction with their lending practices, the consumer finance subsidiaries,
as agents for Lyndon and unaffiliated insurers, offer credit life, accident and
health and property insurance to borrowers who obtain finance receivables
directly from the consumer finance subsidiaries, and to borrowers under sales
finance contracts and financing contracts acquired from merchants and automobile
dealers. Commissions on credit life, accident and health and property insurance
from unaffiliated insurers are earned by Mercury over the average terms of the
related policies on the sum-of-the-months digits method. See Note 3 for a
discussion of the disposition of Lyndon.
Lyndon is engaged in the business of reinsuring and direct writing of credit
life, accident and health and various other property and casualty insurance
policies issued to borrowers under direct consumer loan and sales finance
contracts originated by Mercury and other companies. The policies insure the
holder of a sales finance contract or other debt instrument for the outstanding
balance payable in the event of death or disability of the debtor. Insurance
premiums are earned over the life of the contracts principally using pro-rata
and sum-of-the-months digits methods or in relation to anticipated benefits to
the policy holders.
Lyndon has established policy liabilities and claim reserves. The claim
reserves are based upon accumulated estimates of claims reported, plus estimates
of incurred but unreported claims.
FINANCE RECEIVABLES, ALLOWANCE FOR FINANCE CREDIT LOSSES AND NONREFUNDABLE
DEALER RESERVES
Mercury originates direct consumer loans and acquires individual sales finance
contracts from third party dealers. Finance receivables consist of
contractually scheduled payments from sales finance contracts net of unearned
finance charges, direct finance receivables and credit card receivables. The
Company's borrowers typically have limited access to traditional sources of
consumer credit due to past credit history or insufficient cash to make the
required down payment on an automobile. As a result, receivables originated or
acquired by the Company are generally considered to have a higher risk of
default and loss than those of other consumer financings.
Statement of Financial Accounting Standards ("SFAS") 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases," requires that loan origination and commitment
fees and certain direct loan origination costs be deferred and amortized as an
adjustment to the related loan's yield. Mercury has not adopted the provisions
of this statement because adoption would not have a material effect on the
Company's reported results of operations or financial condition.
Unearned finance charges represent the balance of finance income (interest)
remaining from the capitalization of the total interest to be earned over the
original term of the related precompute account.
Mercury acquires a majority of its sales finance contracts from dealers at a
discount. The level of discount is based on, among other things, the credit
risk of the borrower. The discount, which is the difference between the amount
financed and the acquisition cost, represents nonrefundable dealer reserves
which are available to absorb future credit losses over the life of the acquired
loan. Historical loss experience on the Company's sales finance receivables has
shown that the acquisition discount recorded as nonrefundable dealer reserves is
not adequate to cover potential losses over the life of the loans. In 1996,
Mercury adopted a reserving methodology commonly referred to as "static
pooling". The method previously used by the Company analyzed reserve adequacy
on a total portfolio basis. The static pooling reserving methodology allows
Mercury to stratify components of its sales finance receivables portfolio (i.e.,
non refundable dealer reserves, principal loan balances, and related loan
charge-offs) into separately identified and chronologically ordered monthly
pools. A portion of the dealer reserve is made available to cover estimated
credit losses for each identified monthly pool based on a pro rata calculation
over the weighted average term of each specific pool.
The allowance for finance credit losses is maintained by direct charges to
operations in amounts that are intended to provide adequate reserves on the
Company's finance receivables portfolio to absorb possible credit losses
incurred on loans that are considered to be impaired in excess of the available
nonrefundable dealer reserves. Management evaluates the allowance requirements
by examining current delinquencies, the characteristics of the accounts, the
value of the underlying collateral, the availability of the nonrefundable dealer
reserves to absorb credit losses on impaired loans and general economic
conditions and trends.
The Company applies SFAS 114 and 118, which address the accounting by creditors
for impairment of a loan and related income recognition and disclosures. In
accordance with SFAS 114, the Company's approach for estimating losses results
in a measure of impairment based on discounting expected future cash flows
(including the anticipated proceeds from repossessed collateral) at the loan's
original yield. If the measure of the impaired receivable is less than the net
recorded investment in the receivable, the Company recognizes an impairment by
creating an additional allowance for finance credit losses in excess of the
nonrefundable dealer reserves available to absorb losses, with a corresponding
charge to provision for finance credit losses. Generally, the Company considers
receivables more than 60 days contractually delinquent to be impaired.
Direct installment loans on which no payment is received within 149 days, on a
recency basis, are charged off. Sales finance accounts (net of unearned finance
charges) which are contractually delinquent 150 days are charged off monthly
before they become 180 days delinquent. Accounts which are deemed uncollectible
prior to the maximum charge-off period are charged off immediately. Management
may authorize a temporary extension if collection appears imminent during the
next calendar month.
INVESTMENTS
The Company classifies its investments as held-to-maturity securities and
available-for-sale securities. Held-to-maturity securities are reported at
cost, adjusted for amortization of premium or discount, and available-for-sale
securities are reported at fair value with unrealized gains and losses excluded
from earnings and reported in a separate component of stockholder's equity, net
of applicable income taxes.
Fair values for held-to-maturity and available-for-sale fixed maturity
securities are based on quoted market prices, where available. For securities
not actively traded, fair values are estimated using values obtained from
independent pricing services. Short-term investments are carried at cost, which
approximates their fair value. Realized gains and losses from sales or
liquidation of investments are determined using the specific identification
basis.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated depreciation, and
are depreciated on a straight-line basis over their estimated useful lives.
REINSURANCE ACTIVITIES
In the normal course of business, Lyndon assumes and cedes reinsurance on both a
pro rata and excess basis. Reinsurance provides greater diversification of
business and limits the maximum net loss potential arising from large claims.
Although the ceding of reinsurance does not discharge an insurer from its
primary legal liability to a policy holder, the reinsuring company assumes the
related insurance risk. Lyndon monitors the financial condition of its
reinsurers on a periodic basis.
DEFERRED ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS
Policy acquisition costs, representing commissions, premium taxes and certain
other underwriting expenses, are deferred and amortized over policy terms.
Estimates of future revenues, including investment income and tax benefits, are
compared to estimates of future costs, including amortization of policy
acquisition costs, to determine if business currently in force is expected to
result in a net loss. No revenue deficiencies have been determined in the
periods presented. The present value of future profits represents the portion
of the purchase price of Lyndon allocated to the future profits attributable to
the insurance in force at the date of acquisition. The present value of future
profits is amortized in relationship to the expected emergence of such future
profits.
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return
and individual state tax returns in most states.
Mercury recognizes deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company evaluates reserves for deferred tax assets to determine whether they
are deemed to be likely of realization. In making its determination, management
considers the possible recovery of taxes already paid but does not assume the
generation of additional taxable income in the future. No reserves against
deferred tax assets were considered necessary in 1996 and 1995.
IMPAIRMENT OF LONG-LIVED ASSETS
In March, 1995, the Financial Accounting Standards Board ("the FASB") issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to
be Disposed of," which is effective for financial statements issued for fiscal
years beginning after December 15, 1995. SFAS 121 requires that long-lived
assets and certain identifiable intangibles that are used in operations be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of assets might not be recoverable. The adoption of
SFAS 121 did not have a material effect on the Company's financial condition or
results of operations.
At each balance sheet date, the Company evaluates the realizability of goodwill
(and other intangibles) based on expectations of non-discounted cash flows and
operating income for each subsidiary having a material goodwill balance. The
Company believes that no material impairment of goodwill exists at December 31,
1996.
STOCK-BASED COMPENSATION
In October, 1995, the FASB issued SFAS 123, "Accounting for Stock-based
Compensation" which is effective for fiscal years beginning after December 31,
1995. This statement defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting. The Company has elected, as permitted under
SFAS 123, to continue to measure compensation cost for its plan using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS 128, "Earnings per Share" and SFAS 129,
"Disclosure of Information about Capital Structure". SFAS 128 establishes
standards for computing and presenting earnings per share. SFAS 129 establishes
standards for disclosing information about an entity's capital structure. These
statements are effective for financial statements issued for periods ending
after December 15, 1997. Management does not expect the adoption of these
statements to have a significant impact on the financial position and results of
operations of the Company.
In July 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income.
Management does not expect the adoption of this statement to have a significant
impact on the financial position and results of operations of the Company. This
statement is effective for financial statements issued for periods beginning
after December 15, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. The accounts which are subject to such estimation
techniques include the allowance for finance credit losses as more fully
discussed in Note 5. Actual results could differ from these estimates.
2) RESTATEMENT OF 1995 FINANCIAL STATEMENTS
In January, 1997, Mercury discovered that certain improper adjustments had been
made to overstate earnings in previously issued financial statements. As a
result, a Special Committee of the Board of Directors commenced an investigation
of the misstatements of previously issued financial statements. As a result of
this investigation, Mercury has restated the previously reported financial
statements for 1995 as follows:
<TABLE>
<CAPTION>
<S> <C>
Decrease in finance charges
and loan fees $ 15,350
Increase in provision for
finance credit losses 1,800
Decrease in other income 19,562
Increase in other expenses 2,130
Decrease in income before
income taxes 38,842
Decrease in provision for
income taxes 14,064
Decrease in net income
for 1995 and decrease
in retained earnings as
of December 31, 1995 $ 24,778
Decrease in net income per
common share $0.14
</TABLE>
3) ACQUISITIONS AND DISPOSITIONS
On September 30, 1994, Mercury acquired all the shares of Midland Finance Co.
for $15.1 million in cash and the assumption of its net liabilities. Midland
Finance Co. conducted its consumer finance business through a central office in
Chicago, Illinois. This acquisition was accounted for under the purchase method
of accounting. Accordingly, Midland's results of operations have been included
in the consolidated statements of income and statements of cash flow since the
date of acquisition. The excess of cost over fair value of net assets acquired
(goodwill), relating to the acquisition, is being amortized over twenty years on
the straight line method.
On October 20, 1995, Mercury acquired all the shares of ITT Lyndon Property
Insurance Company and ITT Lyndon Life Insurance Company for $72.5 million in
cash and a note payable of $8.6 million due in connection with the run-off of
certain reinsurance business. ITT Lyndon Property Insurance Company and ITT
Lyndon Life Insurance Company conducted their business through a central office
in St. Louis, Missouri. Following the acquisition, the names of the companies
were changed to Lyndon Property Insurance Company and Lyndon Life Insurance
Company and Mercury contributed its investment in Twin Mercury Life Insurance
Company and Gulfco Life Insurance Company to Lyndon. The acquisition was
accounted for under the purchase method of accounting. Accordingly, their
results of operations have been included in the consolidated statements of
income and statements of cash flows since the date of acquisition.
As a result of the matters described in Note 2, subsequent to December 31, 1996,
Lyndon's claims paying ability was downgraded by A.M. Best to a rating of B with
negative implications. This action, together with regulatory concerns and the
liquidity needs of Mercury, caused Mercury to decide to dispose of Lyndon. On
March 28, 1997, Mercury executed a Stock Purchase Agreement between Mercury
Finance Company and Frontier Insurance Group, Inc. ("Frontier") for the sale of
Lyndon to Frontier for $92 million. The sale, which closed on June 3, 1997,
resulted in a loss to Mercury of approximately $25 million net of earnings
through the date of sale. This loss was reflected in Mercury's 1997 first
quarter consolidated statement of income. Management has determined that it is
in the best interest of the Company to remain in the insurance business and
formed a new captive insurance subsidiary during 1997, MFN Insurance Company.
As a result, the sale of Lyndon is not considered the discontinuation of a
business. The loss associated with the sale of Lyndon will not be tax
deductible to the Company as a loss on the sale of a consolidated subsidiary is,
under certain circumstances, not deductible for tax purposes.
4) INVESTMENTS
All investment securities are held by Lyndon, other than short-term
investments. See Note 3 for discussion of disposition of Lyndon. The
amortized cost, gross unrealized gains and losses and approximate fair
values for available-for-sale and held-to-maturity securities by major
security type at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1996
AVAILABLE-FOR-SALE:
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 9,490 $ 13 $ (78) $ 9,425
Obligations of states and
political subdivisions 68,397 1,378 (391) 69,384
Corporate securities 63,629 882 (443) 64,068
Mortgage backed
securities 18,816 166 (78) 18,904
Total available-for-sale $160,332 $ 2,439 $(990) $161,781
HELD-TO-MATURITY:
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $2,833 $ 17 $(31) $2,819
Obligations of states and
political subdivisions 3,787 75 (1) 3,861
Corporate securities 850 33 0 883
Other securities 295 174 (7) 462
Total held-to-maturity $7,765 $299 $(39) $8,025
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
December 31, 1995
AVAILABLE-FOR-SALE:
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 10,802 $ 75 $ (3) $ 10,874
Obligations of states and
political subdivisions 50,864 853 (142) 51,575
Corporate securities 91,672 2,246 (1) 93,917
Mortgage backed
securities 14,238 37 (18) 14,257
Other securities 10,681 0 0 10,681
Total available-for-sale $178,257 $3,211 $(164) $181,304
HELD-TO-MATURITY:
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 1,950 $ 27 $ (3) $ 1,974
Obligations of states and
political subdivisions 2,994 77 (1) 3,070
Corporate securities 1,046 70 0 1,116
Other securities 6,320 0 0 6,320
Equity securities 315 121 (7) 429
Total held-to-maturity $ 12,625 $ 295 $ (11) $ 12,909
</TABLE>
At December 31, 1996 the amortized cost and estimated market value of
available-for-sale and held-to-maturity securities are shown below. Actual
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
December 31, 1996
AVAILABLE-FOR-SALE
Due in one year or less $ 13,747 $ 13,291
Due after one year through five years 54,042 54,377
Due after five years through ten years 29,012 29,568
Due after ten years 44,715 45,641
Mortgage-backed securities 18,816 18,904
Total available-for-sale 160,332 161,781
HELD-TO-MATURITY
Due in one year or less 681 685
Due after one year through five years 3,022 3,036
Due after five years through ten years 2,460 2,504
Due after ten years 1,602 1,800
Total held-to-maturity 7,765 8,025
Total debt investment securities $168,097 $169,806
</TABLE>
5) FINANCE RECEIVABLES
Direct loans generally have terms of 12 to 24 months with maximum terms of 36
months; secured loans are generally collateralized by real or personal
property. Sales finance contracts are generally accounted for on a discount
basis and generally have terms of 18 to 36 months with maximum terms of 48
months. Mercury Card receivables are mainly unsecured balances. The
Company's finance receivables are primarily with individuals located in the
southeastern, central and western United States. As of December 31, 1996,
approximately 19.9%, 18.9% and 9.6% of finance receivables were from
branches located in Florida, Texas and Louisiana, respectively. Loans
outstanding at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
DIRECT FINANCE RECEIVABLES
Interest bearing $ 25,117 $ 39,862
Precompute 127,516 112,263
Total direct finance receivables 152,633 152,125
SALES FINANCE RECEIVABLES
Total sales finance receivables 1,159,848 1,256,631
Total gross finance receivables 1,312,481 1,408,756
Less: Unearned finance charges (228,405) (234,792)
Unearned commissions,
insurance premiums and
insurance claim reserves (7,253) (8,720)
Total net finance receivables 1,076,823 1,165,244
UNSECURED CREDIT CARD
Total unsecured credit card 83,600 32,532
Total finance receivables $1,160,423 $1,197,776
</TABLE>
Included in finance receivables at December 31, 1996 and 1995 were $69,507 and
$41,249, respectively, of receivables for which interest accrual had been
suspended. Contractual maturities of the finance receivables by year are not
readily available at December 31, 1996 and 1995, but experience has shown that
such information is not an accurate forecast of the timing of future cash
collections due to the amount of renewals, conversions, repossessions, or
payoffs prior to actual maturity.
Repossessed assets, classified as other assets, primarily consists of vehicles
held for resale and vehicles which have been sold for which payment has not been
received. Repossessed assets are carried at estimated fair value. At December
31, 1996 and 1995, repossessed assets totaled approximately $6,700 and $10,621,
respectively.
Principal cash collections (excluding finance charges earned) for the years
ended December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
DIRECT FINANCE RECEIVABLES
Principal cash collections $125,494 $105,901
Percent of average net balances 97% 98%
SALES FINANCE RECEIVABLES
Principal cash collections $646,481 $728,641
Percent of average net balances 65% 72%
</TABLE>
At the direction of new management in 1997, a thorough review of the finance
receivable portfolio was performed which resulted in substantial additional
provisions for finance credit losses in 1996. Effective January, 1996, Mercury
converted to a more sophisticated portfolio manager software system, which
enables the Company to perform a more comprehensive loan analysis. As further
discussed in Note 1, effective in 1996 the Company adopted static pooling. In
management's view, static pooling provides a more sophisticated and
comprehensive analysis of the adequacy of the reserves and is preferable to the
method previously used. If management had not adopted static pooling, the 1996
provision for finance credit losses would have been decreased by approximately
$89 million.
As a part of its adoption of the static pooling reserving methodology, the
Company adjusted its newly identified nonrefundable dealer reserve pools to
eliminate any negative pools, (i.e., those where related loan charge-offs
exceeded available nonrefundable dealer reserve pool balances), and to reflect
certain previous sales finance charge-offs as reductions in dealer reserves as
opposed to reductions in the allowance for finance credit losses. The net
effect of these adjustments was to increase nonrefundable dealer reserves by $74
million and decrease the allowance for finance credit losses by a corresponding
amount. A summary of the activity in the allowance for finance credit losses
for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 46,366 $22,488 $18,344
Allowance acquired - - 1,052
Provision for finance credit losses 215,171 32,641 7,376
Finance receivables charged off,
net of recoveries (89,326) (8,763) (4,284)
Transfer to non-refundable dealer
reserves (74,449) - -
Balance at end of year $ 97,762 $46,366 $22,488
</TABLE>
A summary of the activity in nonrefundable dealer reserves for the years ended
December 31, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 61,961 $ 66,477 $ 57,241
Discounts acquired on new volume 67,442 98,559 84,252
Transfer from the allowance for
finance credit losses 74,449 - -
Losses absorbed, net of recoveries (114,474) (96,117) (70,419)
Other - (6,958) (4,597)
Balance at end of year $ 89,378 $ 61,961 $ 66,477
</TABLE>
6) SENIOR AND SUBORDINATED DEBT AND LINES OF CREDIT
As a result of the 1996 net loss, accounting irregularities, and related
matters, Mercury violated its debt and financial covenants permitting the
holders of its Senior Term Notes and Subordinated Debt to accelerate all such
debt which, if accelerated, would result in all of such debt being currently due
and payable. In addition, the Company is no longer permitted by the terms of
certain debt instruments to pay dividends. Senior and subordinated debt at
December 31, 1996 and 1995, consisted of the following (assuming that the
Company remained in compliance with its debt covenants):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
SENIOR DEBT, COMMERCIAL PAPER AND NOTES $525,051 $489,990
SENIOR DEBT, TERM NOTES
Due 1996 - interest rate 9.00% $ 0 $ 25,000
Due 1996 - interest rate 6.41% 0 15,000
Due 1996 - interest rate 7.13% 0 125
Due 1997 - interest rate 7.67% 15,000 15,000
Due 1997 - interest rate 8.15% 17,500 17,500
Due 1997 - interest rate 6.29% 24,000 24,000
Due 1997 - interest rate 7.13% 125 125
Due 1997 - interest rate 6.41% 40,000 40,000
Due 1998 - interest rate 6.70% 35,000 35,000
Due 1998 - interest rate 6.16% 76,000 76,000
Due 1998 - interest rate 8.62% 20,000 20,000
Due 1998 - interest rate 8.50% 10,000 10,000
Due 1998 - interest rate 7.13% 1,000 1,000
Due 1998 - interest rate 7.16% 25,000 25,000
Due 1999 - interest rate 6.56% 20,000 0
Due 1999 - interest rate 6.76% 31,000 0
Due 1999 - interest rate 7.33% 30,000 30,000
Due 2000 - interest rate 6.66% 10,000 0
Due 2000 - interest rate 6.94% 15,000 0
Due 2000 - interest rate 7.42% 58,000 58,000
Due 2001 - interest rate 7.02% 10,000 0
Due 2001 - interest rate 7.50% 30,000 30,000
Due 2002 - interest rate 7.14% 4,000 0
Due 2002 - interest rate 7.59% 17,000 17,000
TOTAL SENIOR DEBT, TERM NOTES $488,625 $438,750
SUBORDINATED DEBT
Due 1996 - interest rate 9.76% $ 0 $ 4,000
Due 1996 - interest rate 10.86% 0 3,000
Due 1997 - interest rate 9.76% 12,000 12,000
Due 1997 - interest rate 10.86% 3,000 3,000
Due 1998 - interest rate 10.86% 7,500 7,500
TOTAL SUBORDINATED DEBT $ 22,500 $ 29,500
</TABLE>
The following table sets forth information with respect to future maturities of
senior and subordinated debt at December 31, 1996 (assuming that the Company
remained in compliance with its debt covenants):
<TABLE>
<CAPTION>
Senior Debt
Commercial Senior Debt Subordinated
Paper & Notes Term Notes Debt Total
<S> <C> <C> <C> <C>
1997 $ 525,051 $ 96,625 $ 15,000 $ 636,676
1998 - 167,000 7,500 174,500
1999 - 81,000 - 81,000
2000 - 83,000 - 83,000
2001 - 40,000 - 40,000
2002 - 21,000 - 21,000
TOTAL $ 525,051 $488,625 $ 22,500 $1,036,176
</TABLE>
As noted above, the Company is in default of its credit agreements. The Company
continues to negotiate with all of its lenders in an attempt to reach a
consensual agreement. See Note 16 for additional information.
The Company had a forbearance agreement with its creditors which, including
extensions, expired October 1, 1997. Under the terms of the forbearance
agreement, the Company made interest payments on senior debt through September
30, 1997 at default rates of interest, subject to a maximum rate of nine percent
(9.0%) and subordinated note holders received interest at a rate of five and
one-half percent (5.5%). In addition, the agreement required the periodic
payment of excess cash to be applied as reduction of outstanding principal.
Approximately $101 million of principal has been paid to creditors under the
forbearance agreement. The Company is currently negotiating the terms of an
additional extension of this forbearance agreement.
7) DIVIDEND RESTRICTIONS
Management does not expect that dividends will be paid in the foreseeable
future.
8) COMMON STOCK
Earnings per share is computed by dividing net income by the total of weighted
average common shares and common stock equivalents outstanding during the
periods, adjusted for all stock splits. The calculated averages were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Weighted Average:
Common Shares 177,129,351 175,631,175 173,864,469
Treasury Shares (4,361,499) (3,182,283) (522,158)
Common Equivalents - 1,660,524 1,808,034
Total 172,767,852 174,109,416 175,150,345
</TABLE>
As the Company incurred a net loss for the year ended December 31, 1996, common
share equivalents totaling 923,236 would be anti-dilutive to earnings per share
and have not been included in the weighted average shares calculation.
The Company has determined that the implementation of SFAS 128 "Earnings Per
Share", would have had no effect on the calculated earnings per share for the
period ended December 31, 1996. This standard prescribes that when computing
the dilution of options, the Company is to use its average stock price for the
period, rather than the more dilutive greater of the average share price or
end-of-period share price required by APB Opinion 15. As the options are
excluded from the calculation due to the anti-dilutive characteristics indicated
above, there is no effect on the earnings per share calculation.
9) STOCK OPTIONS
Under the terms of Mercury's 1989 Stock Option and Incentive Compensation Plan
("the Plan"), 24,837,036 common shares were reserved for the future granting of
options to officers, non-employee directors and other key employees. Options
become exercisable in whole or in part up to two years after the date of grant
at the closing price of Mercury's common stock on the date of grant. Options
are forfeited upon termination of employment. Shares available for future
grants totaled 134,055 and 891,055 at December 31, 1996 and 1995, respectively.
Activity with respect to stock options is as follows (as adjusted for all stock
splits):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Outstanding January 1 8,714,492 10,183,320 6,252,314
Options granted (average price of
$11.10 in 1996, $11.38 in 1995
and $11.17 in 1994) 1,300,250 1,582,375 4,622,625
Forfeited (543,250) (428,750) (45,000)
Options exercised (average price of
$4.48 in 1996, $3.12 in 1995
and $3.74 in 1994) (1,503,573) (2,622,453) (646,619)
Outstanding December 31 7,967,919 8,714,492 10,183,320
</TABLE>
The average option price under the plan was $10.53, $9.45 and $7.53 at December
31, 1996, 1995 and 1994, respectively.
Under the provisions of SFAS 123, the Company has elected to continue to account
for the Plan under the provisions of APB Opinion No. 25 and make the necessary
pro forma net income and earnings per share disclosures required by SFAS 123.
Subsequent to December 31, 1996, upon the announcement of the discovery of the
accounting irregularities and financial statement restatement described in Notes
2 and 16, the market value of the Company's common stock declined dramatically.
Management thus believes that the market value of the Company's common stock
during 1996 and 1995 was overstated. Because a key component of the fair value
calculation (and the related pro forma net income and earnings per share
disclosures) is the market value of the Company's stock, the fair value and
other disclosures required under SFAS 123 for 1996 and 1995 are not considered
meaningful.
On June 13, 1997, a number of the above options were canceled. Most employees
were re-granted their existing options at a new price of $3 per share. New
options were also granted to certain employees on this date. Management is
currently performing the calculation for the potential impact on the Company's
financial statements.
10) CONTINGENCIES AND LEGAL MATTERS
The Company has been named as a defendant in a variety of lawsuits generally
arising from the Company's announcement on January 29, 1997 that it would
restate previously reported financial information for prior years and interim
earnings for 1996 as a result of the discovery of accounting irregularities. To
date, forty-four actions against the Company are pending in United States
District Court for the Northern District of Illinois, six cases are pending
against the Company in Illinois Chancery Court, and nine cases are pending in
the Delaware Chancery Court. One case is pending in Hamilton County, Ohio,
Municipal Court. The complaints seek compensatory damages, attorneys' fees and
costs.
Forty of the lawsuits pending in the Northern District of Illinois are class
actions which allege claims under Section 10 of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. These lawsuits name one or more
officers or directors of the Company as additional defendants. One case pending
in the Northern District of Illinois alleges derivative claims seeking to
recover damages on behalf of the Company from certain of the Company's officers
and directors. Thirty-nine of the non-derivative cases pending in the Northern
District of Illinois were consolidated pursuant to a Stipulation entered on
April 30, 1997. Certain plaintiffs have filed motions for appointment of one or
more lead plaintiffs, each of which is pending. One of the cases pending in the
Northern District of Illinois seeks to represent a class of participants in
Mercury's employee retirement plan and alleges ERISA violations arising out of
the plan's investment in Mercury's allegedly overvalued stock. Two cases
pending in the Northern District of Illinois allege non-class securities fraud
and common law claims. Three of the Illinois state court actions are class
actions alleging claims under the Illinois Securities Act, the Illinois Consumer
Fraud and Deceptive Business Practices Act and common law claims of negligence,
fraud and negligent misrepresentation. The other Illinois state court actions
are derivative actions which seek to recover damages on behalf of the Company
from certain of the Company's officers and directors. Each of the Delaware
state court actions is a derivative action which seeks to recover damages on
behalf of the Company from certain of the Company's officers and directors. The
case pending in Municipal Court in Hamilton, Ohio, alleges violations of Ohio
State securities law and common law. The Company is unable to predict the
potential financial impact of the litigation.
The Securities and Exchange Commission is investigating the events giving rise
to the accounting irregularities. Those events are also under investigation by
the United States Attorney for the Northern District of Illinois and the Federal
Bureau of Investigation, which executed a search warrant on the Company's
premises on February 3, 1997. The Company is cooperating fully in these
investigations.
On January 10, 1997, the Company entered into an agreement (the "Agreement")
with BankBoston Corporation ("BankBoston") pursuant to which the Company was to
acquire all of the outstanding stock of Fidelity Acceptance Corporation, a
subsidiary of BankBoston, in return for the issuance of approximately 32.7
million shares of the Company's common stock. On January 30, 1997, BankBoston
notified the Company that it was terminating the Agreement as a result of
breaches of the Agreement resulting from the accounting irregularities described
above. On July 10, 1997, BankBoston notified Mercury that BankBoston intended
to seek appropriate compensation for its damages resulting from such breaches.
The Company is unable to predict the potential financial impact of the
litigation.
In the normal course of its business, Mercury and its subsidiaries are named as
defendants in legal proceedings. A number of such actions, including fifteen
cases which have been brought as putative class actions, are pending in the
various states in which subsidiaries of Mercury do business. It is the policy
of Mercury and its subsidiaries to vigorously defend litigation, but Mercury and
(or) its subsidiaries have and may in the future enter into settlements of
claims where management deems appropriate. Although management is of the
opinion that the resolution of these proceedings will not have a material effect
on the financial position of Mercury, it is not possible at this time to
estimate the amount of damages or settlement expenses that may be incurred.
No provision has been made in the consolidated financial statements for the
costs or expenses that have been or will be incurred subsequent to December 31,
1996 with respect to any of the above matters.
11) PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Substantially all employees of Mercury are covered by non-contributory defined
benefit pension plans. Total pension expense aggregated $770, $317, and $654 in
1996, 1995 and 1994 respectively.
The following table sets forth the funded status of Mercury's qualified plans
amounts recognized in the 1996, 1995 and 1994 consolidated financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Actuarial present value of
benefit obligation:
Accumulated benefit obligations,
including vested benefits of
$6,231, $5,631 and $4,407 $ 7,024 $ 6,430 $ 4,973
Projected benefit obligation
for service rendered to date $(10,686) $(9,763) $(7,596)
Plan assets at fair value 13,638 11,542 9,303
Plan assets in excess of
projected benefit obligation 2,952 1,779 1,707
Unrecognized net asset
as of December 31, being
recognized over 15-22 years (391) (442) (830)
Unrecognized net gain (3,272) (1,397) (437)
Unrecognized prior service cost 100 106 67
Prepaid (accrued) pension expense $ (611) $ 46 $ 507
Components of net pension expense:
Service cost-benefits earned
during the period $ 1,060 $ 884 $ 964
Interest cost on projected
benefit obligation 727 601 567
Actual return on plan assets (2,085) (1,743) 321
Net amortization and deferral 1,068 575 (1,198)
Net periodic pension expense $ 770 $ 317 $ 654
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.5% at December 31, 1996 and
1995, and 8.25% at December 31, 1994. The rates of increase in future
compensation were 5.5% - 7.0% at December 31, 1996, 1995 and 1994. The expected
long-term rate of return on plan assets in 1996, 1995 and 1994 was 9%.
Mercury also maintains a nonqualified, unfunded pension benefit plan for certain
employees whose calculated benefit payments under the qualified plan are
expected to exceed the limits imposed by Federal tax law. The projected benefit
obligations of the plan, and the expenses related to this plan, are not
material.
Mercury has an employee stock purchase plan and a tax deferred Retirement
Savings Trust ("401(k) Plan"). Employees are eligible to participate in these
plans after having attained specified terms of service. Both plans cover
substantially all full time employees of Mercury and provide for employee
contributions and partial matching contributions by Mercury. The expenses
related to these plans are not material.
Subsequent to December 31, 1996, as discussed in Note 9, the market value of the
Company's common stock declined dramatically. At December 31, 1996, the
employee stock purchase plan, 401(k) Plan and Mercury Finance Company Retirement
Plan ("Retirement Plan") held significant shares of Mercury stock. All Mercury
stock held by the 401(k) Plan and Retirement Plan was sold during 1997.
12) INCOME TAXES
The components of the 1996, 1995 and 1994 provisions (benefits) were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CURRENT INCOME TAX EXPENSE (BENEFIT)
Federal $ (8,274) $47,858 $48,365
State (709) 8,716 7,859
Total (8,983) 56,574 56,224
Deferred income tax benefit (11,432) (10,595) (1,779)
Total income tax provision (benefit) $(20,415) $45,979 $54,445
</TABLE>
The differences between the U.S. federal statutory income tax rate and the
Company's effective rate are:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory federal income tax (35.0)% 35.0% 35.0%
State income taxes, net of
federal tax benefit (3.0) 3.3 3.6
Other, net (3.3) - -
Total (41.3)% 38.3% 38.6%
</TABLE>
The total income tax benefit reflected in shareholders' equity for stock options
exercised was $4,400, $7,363 and $1,535 in 1996, 1995 and 1994 respectively.
Temporary differences between the amounts reported in the financial statements
and the tax basis of assets and liabilities result in deferred taxes. Deferred
tax assets and liabilities at December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for finance credit losses
and prepaid pension expense $37,382 $17,885
Unearned premiums and ceding fees 13,632 -
Purchase accounting adjustments - 4,830
Other 2,919 -
Deferred tax assets 53,933 22,715
DEFERRED TAX LIABILITIES:
Unrealized appreciation on
available-for-sale securities 507 1,362
Policy acquisition costs 18,011 -
Other 2,059 -
Deferred tax liabilities 20,577 1,362
Net deferred tax assets $33,356 $21,353
</TABLE>
No valuation allowance for deferred tax assets has been recorded at December 31,
1996 and 1995, as Mercury believes it is more likely than not that the deferred
tax assets will be realized in the future under the existing tax laws at
December 31, 1996. This conclusion is based on the extremely short period in
which the existing deductible temporary differences, primarily related to
finance credit losses, will reverse and the existence of sufficient taxable
income within the carryback period of three years available under the existing
tax law at December 31, 1996. However, under new tax laws enacted in August
1997, the carryback period has been shortened thereby limiting the source of
taxable income available to realize the Company's tax benefits for deductible
temporary differences.
The Taxpayer Relief Act of 1997 ("the Act") was signed into law in August 1997.
A provision of the Act is to reduce the Net Operating Loss carryback period from
three years to two years beginning after August 5, 1997. For tax reporting
purposes, this new law restricts net operating losses, if any, incurred in 1998
to be carried back to 1996, where the Company did not have taxable income versus
under the previous legislation, any 1998 net operating losses would carry back
to 1995, where the Company has reported significant taxable income. For
financial reporting purposes, the change in the tax law raises a question as to
the realizability of the deferred tax asset that is recorded in the financial
statements because as of January 1, 1998, the reversal of the temporary
differences that give rise to the deferred taxes, primarily the allowance for
credit losses, can no longer be carried back to periods of taxable income.
Accordingly, it is likely that the Company will record a full valuation
allowance on all deferred tax assets for temporary differences originated
beginning in the third quarter of 1997 and it is expected that any deferred tax
assets on the books at December 31, 1997 will require substantial, if not
complete, valuation allowances. In accordance with SFAS 109, "Accounting for
Income Taxes," the effect of tax law changes are accounted for in the period in
which the law was enacted.
13) LEASES
Mercury and its subsidiaries lease office space generally under cancelable
operating leases expiring in various years through 2003. Most of these leases
are renewable for periods ranging from three to five years. Future minimum
payments, by year and in the aggregate, under operating leases with initial or
remaining terms of one year or more consisted of the following at December 31,
1996:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1997 $ 4,085
1998 3,231
1999 2,123
2000 1,107
2001 and after 668
Total $11,214
</TABLE>
It is expected that in the normal course of business, office leases that expire
will be renewed or replaced by leases on other properties. Total rent expense
approximated $4,392, $4,176 and $3,169 in 1996, 1995 and 1994, respectively.
14) DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value. Fair value estimates are made at a specific point in time for Mercury's
financial instruments; they are subjective in nature and involve uncertainties,
and matters of significant judgment and, therefore, cannot be determined with
precision. Fair value estimates assume the continuation of Mercury as a going
concern.
CASH AND CASH EQUIVALENTS
Due to the short term nature of these items, management believes that the
carrying amount is a reasonable estimate of fair value.
INVESTMENTS
For bonds, the estimated fair value is based on quoted market price. For other
investments, which consist primarily of short-term money market instruments, the
carrying amount is a reasonable estimate of fair value.
FINANCE RECEIVABLES
The Company's financing program allows for the establishment of interest rates
on contracts which typically is the maximum rate allowable by the state in which
the branch is doing business. The Company's financing revenues are not
materially impacted by changes in interest rates given that the stated rates on
existing contracts are the highest allowed by law. As such, the finance
receivable balances recorded on a historical basis in the financial statements
approximate fair value. For 1995, the fair value of the finance receivables was
computed using estimated market rates of return desired by bulk purchasers.
SENIOR DEBT, COMMERCIAL PAPER
The debt consists principally of short term commercial paper for which the
carrying amount is a reasonable estimate of fair value.
SENIOR AND SUBORDINATED DEBT, TERM NOTES
Rates currently available to Mercury for debt with similar terms and remaining
maturities are used to discount the future cash flows related to existing debt
and arrive at an estimate of fair value.
The estimated fair values of Mercury's financial instruments at December 31,
have not been adjusted for the events disclosed in Notes 10 and 16 which have a
substantial negative impact on these estimates, were as follows:
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash $ 20,957 $ 20,957 $ 22,967 $ 22,967
Investments 212,957 213,217 242,043 242,327
Finance Receivables 973,283 973,283 1,089,449 1,143,095
Total $1,207,197 $1,207,457 $1,354,459 $1,408,389
FINANCIAL LIABILITIES:
Senior Debt, Commercial Paper and
Notes $ 525,051 $ 525,051 $489,990 $489,990
Senior Debt, Term Notes 488,625 476,469 438,750 443,437
Subordinated Debt 22,500 22,711 29,500 30,715
Total $1,036,176 $1,024,231 $958,240 $964,142
</TABLE>
15) BUSINESS SEGMENT DATA
The Finance Segment consists of the noninsurance segment of Mercury. The
Insurance Segment consists of Lyndon. Included in revenues are interest income
before provision for finance credit losses and total other income. Operating
profit represents income before income taxes and includes interest expense, as
financing costs are integral to the Company's operations. Income by segment
assumes each business services its own debt (including acquisition debt). The
segments generally provide for income taxes as if separate returns were filed
subject to certain consolidated return limitations and benefits. The following
table presents the business segment data of Mercury (dollars in millions):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES
Finance $203.2 $218.3 $203.5
Insurance 105.9 37.8 9.6
Total $309.1 $256.1 $213.1
OPERATING PROFITS (LOSSES)
Finance $(89.4) $107.7 $137.9
Insurance 40.0 12.4 3.1
Total $ (49.4) $120.1 $141.0
NET INCOME (LOSS)
Finance $(56.0) $66.3 $84.4
Insurance 27.0 7.8 2.1
Total $(29.0) $74.1 $86.5
IDENTIFIABLE ASSETS
Finance $1,123.4 $1,168.1 $1,025.1
Insurance 420.0 430.0 11.3
Total $1,543.4 $1,598.1 $1,036.4
</TABLE>
16) GOING CONCERN
The Company incurred losses in the twelve months ended December 31, 1996.
Substantially all of its outstanding debt is subject to acceleration or has
matured by its terms as a result of the Company's defaults of its various
lending agreements. In addition, the Company is under investigation by the U.S.
Attorney for the Northern District of Illinois and has been named as a defendant
in various lawsuits generally arising from the restatement of previously
reported financial information for 1995 and interim periods in 1996 as described
in Note 10. The Company is also incurring significant costs in relation to the
investigations discussed in Notes 2 and 10 and the resolution of its debt
restructuring. In addition, the Company is continuing to experience losses in
1997.
As a result of the above matters, the Board has hired the services of a crisis
manager to assist in the turnaround of the business operations. In addition, an
investment banker was retained to assist in the refinancing of existing debt
and/or explore strategy alternatives. There can be no assurances that the
Company will be successful in its attempt to consummate a refinancing or
restructuring. Thus, there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements have been
prepared on the basis that the Company is a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
BALANCE SHEET AVERAGE FOR THE QUARTER 1996
<CAPTION>
4th Qrtr 3rd Qrtr 2nd Qrtr 1st Qrtr
(Restated) (Restated) (Restated)
<S> <C> <C> <C> <C>
Cash 17,089 9,056 4,970 14,009
Investments 214,651 214,059 216,985 232,120
Finance Receivables 1,162,478 1,179,475 1,200,767 1,202,447
Allowance for Credit
Losses (105,125) (93,073) (61,419) (47,772)
Nonrefundable Dealer
Reserves (96,445) (78,581) (55,906) (60,061)
Other Assets 335,112 292,036 228,879 224,163
Total Assets 1,527,760 1,522,972 1,534,276 1,564,906
LIABILITIES AND
SHAREHOLDERS' EQUITY
Senior Debt, Short
Term 484,179 429,113 439,523 477,059
Senior Debt, Long
Term 503,688 526,250 503,750 456,250
Subordinated Debt 24,250 26,000 27,750 29,500
Other Liabilities 339,252 322,865 305,944 341,840
Total Shareholders'
Equity 176,392 218,744 257,309 260,257
Liabilities and
Shareholders'
Equity 1,527,760 1,522,972 1,534,276 1,564,906
INCOME STATEMENT
Interest Income 69,032 66,641 68,167 68,049
Interest Expense 16,615 16,154 15,983 16,037
Net Interest Income 52,417 50,487 52,184 52,012
Provision for Credit
Losses 31,842 124,220 40,498 18,611
Net Interest Income
after Credit Losses 20,575 (73,733) 11,686 33,401
Other Income 29,383 27,022 25,569 20,011
Other Expenses 42,029 38,029 35,412 27,827
Income Before Income
Taxes 7,929 (84,740) 1,843 25,585
Applicable Income
Taxes 2,448 (32,115) 175 9,077
Net Income/(loss) 5,481 (52,625) 1,668 16,508
Average Common &
Equivalent
Shares Outstanding 172,768 173,566 173,937 174,058
Per Common Share
(adjusted for
stock splits) 0.03 (0.30) 0.01 0.09
Net Income/(loss) 5,481 (52,625) 1,668 16,508
Cash Dividend 0.075 0.075 0.075 0.075
Market Price:
High 13 1/8 12 1/8 14 1/2 15 1/8
Low 11 10 3/4 11 3/8 11
Close at End of
Period 12 1/4 12 1/8 12 3/4 14 1/8
Ratios
Net Interest Margin 15.14% 14.41% 14.80% 14.58%
Net Income/(loss) to
Average Total Assets 1.43% (13.75%) 0.44% 4.24%
Net Income/(loss) to
Average
Shareholders'
Equity 12.36% (95.71%) 2.61% 25.51%
</TABLE>
<TABLE>
BALANCE SHEET AVERAGE FOR THE QUARTER 1995 (Restated)
<CAPTION>
4th Qrtr 3rd Qrtr 2nd Qrtr 1st Qrtr
<S> <C> <C> <C> <C>
Cash $22,266 $13,913 $15,252 $17,786
Investments 260,312 11,885 14,048 13,240
Finance Receivables 1,174,398 1,162,846 1,126,064 1,064,352
Allowance for Credit
Losses (28,459) (25,123) (24,313) (22,955)
Nonrefundable Dealer
Reserves (64,270) (73,160) (70,573) (67,931)
Other Assets 184,875 50,931 45,667 48,839
Total Assets $1,549,122 $1,141,292 $1,106,145 $1,053,331
LIABILITIES AND
SHAREHOLDERS' EQUITY
Senior Debt, Short
Term $432,291 $363,360 $493,654 $453,593
Senior Debt, Long
Term 432,104 419,708 267,641 265,375
Subordinated Debt 32,167 33,833 35,500 35,500
Other Liabilities 378,836 59,976 65,377 71,527
Total Shareholders'
Equity 273,724 264,415 243,973 227,336
Liabilities and
Shareholders'
Equity $1,549,122 $1,141,292 $1,106,145 $1,053,331
INCOME STATEMENT
Interest Income $68,803 $65,000 $61,993 $59,270
Interest Expense 15,797 14,499 13,897 13,110
Net Interest Income 53,006 50,501 48,096 46,160
Provision for Credit
Losses 23,879 3,312 3,026 2,424
Net Interest Income
after Credit Losses 29,127 47,189 45,070 43,736
Other Income 31,765 8,135 8,068 10,382
Other Expenses 39,716 20,376 24,241 19,030
Income Before Income
Taxes 21,176 34,948 28,897 35,088
Applicable Income
Taxes 8,861 13,093 10,578 13,448
Net Income 12,315 21,855 18,319 21,640
Average Common &
Equivalent
Shares Outstanding 174,518 175,137 173,764 173,018
Per Common Share
(adjusted for
stock splits)
Net Income $.07 $.12 $.11 $.13
Cash Dividend .08 .06 .06 .05
Market Price:
High 16 3/8 16 5/8 12 7/8 11 1/4
Low 11 3/8 12 1/8 9 3/4 8 1/4
Close at End of
Period 13 1/4 16 1/4 12 7/8 10 5/8
Ratios
Net Interest Margin 14.81% 17.24% 16.86% 17.07%
Net Income to
Average Assets 3.18% 7.66% 6.62% 8.22%
Net Income to
Average
Shareholders'
Equity 18.00% 33.06% 30.03% 38.08%
</TABLE>
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
On February 18, 1997, the Company advised KPMG Peat Marwick LLP ("KPMG") that
the Company was discontinuing KPMG's services as the Company's independent
accountants and was engaging Arthur Andersen LLP ("Arthur Andersen") as the
Company's independent accountants. The decision to discontinue KPMG and to
engage Arthur Andersen was approved by the Audit Committee of the Board of
Directors as well as by the Board of Directors as a whole.
On January 29, 1997, the Company announced the discovery of accounting
irregularities with respect to previously reported results for fiscal years 1993
through 1996. Results for 1996 had recently been announced by the Company, but
KPMG had not completed its audit of the 1996 financial statements. In
connection with KPMG's incomplete audit, KPMG advised the Company that
information had come to its attention that the Company's previously announced
unaudited results for 1996 were materially misstated. In addition, KPMG advised
the Company that information had come to its attention that materially impacted
the fairness and reliability of the Company's previously issued 1995 financial
statements and the related audit report. KPMG further informed the Company that
information had come to its attention that, subject to further investigation,
may have caused KPMG to have been unwilling to rely on representations of
management employed at the time of discovery of the accounting irregularities.
As a result of its dismissal, KPMG did not complete such further investigation.
KPMG's reports on the financial statements of the Company for the fiscal years
ended December 31, 1994 and 1995 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
To the knowledge of the present executive management and the Board of Directors
of the Company, in connection with the audits of the Company's financial
statements for each of the two fiscal years ended December 31, 1994 and 1995,
and in the subsequent interim period, there were no disagreements with KPMG on
any matters of accounting principles or practices, financial statement
disclosure or auditing scope and procedure which, if not resolved to the
satisfaction of KPMG, would have caused KPMG to make reference to the matter in
its reports.
Arthur Andersen has been and continues to be engaged by legal counsel to the
Special Committee of the Board of Directors in connection with the investigation
of the previously announced accounting irregularities at the Company.
Subsequent to the discontinuation of KPMG's services described above, KPMG
reissued their opinion on the Company's restated 1995 financial statements.
KPMG's report on these restated financial statements appears in Item 8 of this
Report.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information Concerning Directors at December 31, 1996
<TABLE>
<CAPTION>
Principal Occupation for Last Five
Name of Position With Years and
Director Age the Company Directorships
<S> <C> <C> <C>
John N. Brincat* 60 Director since 1989 Formerly President and Chief Executive
Officer of the Company since 1989.
Also a Director of Bank One, Chicago,
N.A.
Dennis H. Chookaszian 53 Director since 1993 Chairman and Chief Executive Officer of
CNA Insurance Companies since 1992.
President and Chief Operating Officer
of CNA from 1990 to 1992. Vice
President and Chief Financial Officer
of CNA prior to 1990. Also a director
of Loews Corporation.
William C. Croft 78 Director since 1989. Chairman of the Board, Clements
National Company (manufacturer of
electrical products). Also a director
of Methode Electronics, Inc.
Clifford R. Johnson 73 Director since 1989 Consultant since 1986, after retirement
as Executive Vice President, Jewel
Companies, Inc. and American Stores
Properties, Inc. (retail food and drug
stores).
Andrew McNally IV 57 Director since 1989 Chairman, Chief Executive Officer and
Director, Rand McNally & Co. (printer
and publisher). Also a director of
Hubbell, Inc., Zenith Electronics
Corporation, Morgan Stanley Funds and
Borg Warner Security.
Bruce I. McPhee 52 Director since 1993 Vice Chairman of Kimball Homes, Inc.
since 1993. President and Chief
Executive Officer of Illinois Banc One
Corporation from 1992 to 1993.
President and Chief Executive Officer
of First Illinois Corporation from 1989
to 1992. Also a Director of Bank One,
Chicago, N.A. and A.T. Gerrard & Co.
Fred G. Steingraber 58 Director since 1993 Chief Executive Officer and Director,
A.T. Kearney, Inc. Also a Director of
Maytag Corporation, the Southeastern
Thrift and Bank Fund and Lawter
International.
Philip J. Wicklander 58 Director since 1989 President and Chief Executive Officer
of Wicklander Printing Corporation.
* Mr. Brincat resigned as Director of the Company effective December 1, 1997.
</TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Position with the Company;
Principal Occupation
Name Age for Last Five Years
<S> <C> <C>
John N. Brincat1/ 60 President and Chief Executive Officer of the Company
since 1989.
Bradley S. Vallem2/ 43 Assistant Vice President and Treasurer since July, 1995.
Formerly, Vice President - Finance, Bank One, Chicago,
from 1992-1995.
James A. Doyle3/ 49 Senior Vice President, Controller and Secretary of the
Company since 1991.
Michael W. Stremlau4/ 34 Vice President - Insurance since February, 1996.
Assistant Vice President of Insurance from 1993.
Formerly Vice President of Insurance of American Bankers
Insurance Group.
Edward G. Stautzenbach 58 Vice President, Marketing since 1991. Formerly Assistant
Vice President from 1988.
Steven G. Gould 39 Vice President - Operations of the Company since July
1994. Formerly Assistant Vice President/Regional
Director of Company and First Illinois Finance Company
(the Company's predecessor) from 1986.
George R. Carey 56 Vice President - Operations of the Company since June
1995. Formerly Assistant Vice President/Regional
Director of Company from September 1992.
Sheila M. Tilson 45 Vice President - Operations and Assistant Secretary
since April 1995. Assistant Vice President Operations
from January 1987.
John N. Brincat, Jr. 36 Vice President - Operations of the Company since July
1994. Formerly Assistant Vice President/Regional
Director of Company from 1991.
Jeffrey R. Brincat5/ 35 Vice President, Administration 1994 to date. Formerly
Assistant Vice President from 1993 to November 1994.
Charles H. Lam 45 Vice President - Operations of the Company since
February, 1996. Formerly Assistant Vice President/
Regional Director of Company from October 1990. Branch
Manager prior thereto.
Richard P. Bosson6/ 54 Vice President - Operations of the Company since October
1991.
John J. Pratt7/ 57 Vice President - Operations of the Company since
September 1992.
Gerald M. Mizel 63 Vice President - Operations since October 1994. Formerly
Executive Vice President Midland Finance.
1/ Mr. Brincat ceased serving in these capacities in February, 1997.
2/ Mr. Vallem ceased serving in this capacity in July, 1997.
3/ Mr. Doyle ceased serving in this capacity in January, 1997.
4/ Mr. Stremlau ceased serving in this capacity in April, 1997.
5/ Mr. Jeffrey R. Brincat ceased serving in this capacity in July, 1997.
6/ Mr. Bosson ceased serving in this capacity in May, 1997.
7/ Mr. Pratt retired in March, 1996.
</TABLE>
John N. Brincat, Jr., Vice President - Operations of the Company, and Jeffrey R.
Brincat, Vice President - Administration of the Company, are sons of John N.
Brincat, a former Director of the Company and formerly the President and Chief
Executive Officer of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As a result of administrative problems discovered in connection with the
accounting irregularities discussed in Item 1 "Business - Recent Developments",
Forms 3, 4 and 5 were not timely filed for certain of the directors and
executive officers of the Company.
Based solely upon a review of Forms 3, 4 and 5, amendments thereto and related
information furnished to the Registrant, at December 31, 1996, the following
executive officers were delinquent in their Section 16(a) reporting obligations:
Mr. Edward G. Stautzenbach failed to file 3 Form 4's regarding 5 transactions;
Mr. John N. Brincat, Jr. had failed to file a Form 3 and a Form 5 regarding 3
transactions;
Mr. Gerald M. Mizel had failed to file a Form 3 and 3 Form 5's regarding 3
transactions;
Mr. Steven G. Gould had failed to file a Form 3 and 2 Form 5's regarding 3
transactions;
Mr. George R. Carey had failed to file a Form 3 and 1 Form 5 regarding 2
transactions; and
Mr. Charles H. Lam had failed to file a Form 3 and 1 Form 5 regarding 1
transaction.
Based solely upon a review of Forms 3, 4 and 5, amendments thereto and
related information furnished to the Registrant, at December 31, 1996, the
following directors were delinquent in their Section 16(a) reporting
obligations:
Mr. Philip J. Wicklander failed to file a Form 5 regarding 1 transaction;
Mr. Fred G. Steingraber failed to file a Form 3, a Form 4 regarding 1
transaction, and a Form 5 regarding 1 transaction;
Mr. Dennis H. Chookaszian failed to file a Form 3 and a Form 5 regarding 1
transaction;
Mr. Bruce I. McPhee failed to file a Form 3 and a Form 5 for 1 transaction;
Mr. William C. Croft failed to file a Form 5 for 1 transaction;
Mr. Clifford R. Johnson failed to file 3 Form 4's regarding 3 transactions and 4
Form 5's regarding 6 transactions; and
Mr. Andrew McNally IV failed to file 3 Form 5's regarding 4 transactions.
The Company believes that all such filings have now been completed. The Company
is establishing a system to expedite the filing of such forms on a timely basis.
ITEM 11
EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table sets forth information regarding compensation paid by the
Company for services rendered in all capacities to the Company and its
subsidiaries by the Company's Chief Executive Officer and the other four most
highly compensated executive officers (the "Named Executive Officers") for the
1996, 1995 and 1994 fiscal years.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Annual Compensation Compensation
Securities
Name and Principal Underlying All Other
Position Year Base Salary Bonus Options (#) Compensation(1)
<S> <C> <C> <C> <C> <C>
John N. Brincat 1996 $ 430,000 $ 244,760(2) 0 $ 9,000
President and Chief 1995 360,000 1,718,121(2) 0 9,240
Executive Officer 1994 300,000 1,513,670 0 9,240
Gerald Mizel 1996 166,000 30,000 10,000 9,000
Vice President- 1995 156,000 30,000 7,500 9,034
Operations 1994 1,500 0 37,500 0
Charles H. Lam 1996 132,000 40,000 15,000 6,923
Vice President- 1995 71,000 24,000 5,250 3,843
Operations 1994 67,500 18,000 5,250 3,684
Jeffrey R. Brincat 1996 134,676 50,000 20,000 6,868
Vice President- 1995 96,000 65,000 15,000 5,368
Administration 1994 76,000 55,000 5,250 3,838
Steven G. Gould 1996 134,000 30,000 20,000 7,396
Vice President- 1995 96,000 50,000 15,000 5,392
Operations 1994 91,000 55,000 25,500 4,555
(1) Represents the Company matching contribution to the 401K Plan.
(2) A total of $1,000,000 of Mr. Brincat's 1995 and 1996 bonus was repaid by Mr. Brincat to the Company in the first quarter of
1998. See "Employment Agreements."
</TABLE>
<TABLE>
OPTIONS GRANTED IN THE LAST FISCAL YEAR
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Appreciation
% of Total for Option Term (2)
Options Granted Exercise
Options to Employees in Price per Expiration 10%
Granted Fiscal Year Share(1)(3) Date 5%
<S> <C> <C> <C> <C> <C> <C>
John N. Brincat . . . . . . . . . 0 0.00% $ - $ - $ -
Gerald Mizel . . . . . . . . . . 10,000 0.77% $ 10.38 7/31/06 $ 164,925 $ 256,578
Charles H. Lam . . . . . . . . . 5,000 0.38% $ 11.00 1/17/06 $ 89,589 $ 142,656
10,000 0.77% $ 10.38 4/31/06 $ 164,925 $ 256,578
Jeffrey Brincat . . . . . . . . . 10,000 0.77% $ 11.00 1/17/06 $ 179,178 $ 285,312
10,000 0.77% $ 10.38 7/31/06 $ 164,925 $ 256,578
Steven G. Gould . . . . . . . . . 10,000 0.77% $ 11.00 1/17/06 $ 179,178 $ 285,312
10,000 0.77% $ 10.38 7/31/06 4 164,925 $ 256,578
(1) Options were granted at the market price of the stock at the date of grant.
(2) The dollar amounts under these columns are the result of calculations at the 5% and 10% rates required by the SEC and,
therefore are not intended to forecast future appreciation of the stock price.
(3) Options vest 2 years from the date of grant and are not transferable.
</TABLE>
As a result of the accounting irregularities discussed under Item 1 "Business -
Recent Developments", the price of the Company's common stock fell
significantly. On May 30, 1997, the Closing price of the Company's common stock
on the New York Stock Exchange was $2 5/8 per share. The Board of Directors and
the Compensation Committee determined that the outstanding options were not
providing the incentive required to motivate and retain the officers and other
key employees during a critical period for the Company. Consequently, the Board
of Directors offered most option holders the ability to cancel their existing
options with exercise prices above $3.00 per share in return for new options at
an exercise price of $3.00 per share. 408 holders of options were given the
opportunity to enter into this arrangement. In addition, options for
approximately 709,000 additional shares were granted at an exercise price of
$3.00 per share to 304 employees on June 17, 1997.
<TABLE>
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
<CAPTION>
Value of
Number of Unexercised Unexercised In-the-Money
Options at Year End Options at Year End
Shares
Acquired
on Value
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
John N. Brincat 800,000 $7,416,000 3,075,000 1,500,000 $ 5,722,500 $ 1,005,000
Gerald Mizel - $ - 37,500 17,500 $ 96,750 $ 30,600
Charles H. Lam 5,200 $ 13,234 50 20,250 $ 146 $ 43,795
Jeffrey Brincat - $ - 30,413 35,000 $ 110,263 $ 84,950
Steven G. Gould 36,750 $ 78,529 - - $ - $ -
</TABLE>
RETIREMENT PLAN
The Company has a defined benefit Retirement Plan (The "Plan") covering eligible
employees who are at least 21 years of age and have completed at least 1 year of
service. The amount of the Company's annual contribution to the Plan is
determined for the total of all participants covered by such Plan, and the
amount of payment in respect of a specified person is not and cannot readily be
separated or individually calculated by the regular actuaries for the Plan. The
remuneration covered by the Plan ("pension based pay") is the highest average
monthly total compensation for any 5 consecutive years out of the employee's
last 10 years of employment. The normal retirement benefit at age 65 equals 70%
of pension base pay minus 50% of the participant's primary Social Security
benefit. This amount is reduced by 1/35th for each year by which the
participant has fewer than 35 years of participation in the Plan. Benefits are
also available to participants who terminate employment before age 65 after
completing 5 or more years of service or due to total and permanent disability.
The following table sets forth estimated annual benefits upon retirement,
payable on a straight life annuity basis, for employees in the specified pension
base pay (shown on an annual basis) and years of participation classifications,
and is based upon the assumption that the Plan will be continued and that the
employee will continue with the Company until his normal retirement age of 65:
<TABLE>
<CAPTION>
Number of Years of Participation
Remuneration** 5 10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 8,930 $ 17,860 $ 26,790 $ 35,720 $ 44,650 $ 53,580 $ 62,510
$ 110,000 $ 9,930 $ 19,860 $ 29,790 $ 39,720 $ 49,650 $ 59,580 $ 69,510
$ 120,000 $ 10,930 $ 21,860 $ 32,790 $ 43,720 $ 54,650 $ 65,580 $ 76,510
$ 130,000 $ 11,930 $ 23,860 $ 35,790 $ 47,720 $ 59,650 $ 71,580 $ 83,510
$ 140,000 $ 12,930 $ 25,860 $ 38,790 $ 51,720 $ 64,650 $ 77,580 $ 90,510
$ 150,000 $ 13,930 $ 27,860 $ 41,790 $ 55,720 $ 69,650 $ 83,580 $ 97,510
$ 160,000 $ 14,930 $ 29,860 $ 44,790 $ 59,720 $ 74,650 $ 89,580 $104,510
$ 170,000 $ 15,930 $ 31,860 $ 47,790 $ 63,720 $ 79,650 $ 95,580 $111,510
$ 180,000 $ 16,930 $ 33,860 $ 50,790 $ 67,720 $ 84,650 $101,580 $118,510
$ 190,000 $ 17,930 $ 35,860 $ 53,790 $ 71,720 $ 89,650 $107,580 $125,510*
$ 200,000 $ 18,930 $ 37,860 $ 56,790 $ 75,720 $ 94,650 $113,580 $132,510*
* The annual retirement benefits are subject to maximum limitations ($120,000 at December 31, 1996) under the Internal Revenue
Code.
** The annual limit on remuneration for purposes of pension plan benefit calculation was $150,000 at December 31, 1996 under the
Internal Revenue Code.
</TABLE>
The credited years of participation for the individuals named in the above
compensation table are as follows: John N. Brincat, 14 years; Gerald Mizel, 1
year; Charles H. Lam, 9 years; Jeffrey R. Brincat, 5 years; and Steven G. Gould,
13 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At December 31, 1996, John N. Brincat was a member of the Compensation Committee
as well as President and Chief Executive Officer of the Company. John N.
Brincat, Jr., Vice President-Operations of the Company and Jeffrey R. Brincat,
Vice President-Administration of the Company at December 31, 1996, are sons of
John N. Brincat.
DIRECTOR COMPENSATION
The compensation of Directors is based upon standard fee arrangements for the
Company which provide for non-management directors' fees consisting of an annual
retainer of $3,000 payable quarterly, plus an attendance fee of $200 for each
board and committee meeting of the Company attended.
The Company has a Deferred Compensation Plan for Directors ("Deferred
Compensation Plan"). Pursuant to the provisions of the Deferred Compensation
Plan, any director of the Company may elect to defer all or any portion of the
compensation due him as a director. Interest shall be computed on and credited
to any deferred compensation at the prevailing market rate for 6 month
Individual Retirement Account Certificates of Deposit. The rate is adjusted on
January 1 and July 1 each year. Payments of the amount of deferred compensation
and interest earned thereon shall commence as of the first day in May after a
director ceases to be a director of the Company. Payment may be made in a lump
sum or in any number of installments (maximum of 5 annually), equal or
otherwise, as the Executive Committee shall determine. Directors Croft,
McNally, Wicklander and Johnson have elected to defer their compensation.
EMPLOYMENT AGREEMENTS
On January 1, 1994 upon the expiration of Mr. Brincat's previous employment
contract, Mr. Brincat entered into a five year employment contract with a term
expiring on December 31, 1998. The following are the material terms of Mr.
Brincat's employment contract. Mr. Brincat's employment agreement provides a
guaranteed annual base salary as follows:
o 1994 $300,000 o 1996 $430,000 o 1998 $600,000
o 1995 $360,000 o 1997 $520,000
In addition, Mr. Brincat is eligible for an annual incentive bonus equal to 1%
of net after tax earnings (subject to certain adjustments) ("Net Earnings") of
the Company and is eligible for an additional bonus based upon annual increases
in Net Earnings per share only after earnings exceed 20% over the prior year.
The additional bonus is determined as follows:
o Net Earnings per share increases of 0 to 19.99%, no additional bonus is paid.
o Net Earnings per share increase of 20% to 29.99%, additional bonus will be
equal to 2.5% of the amount of increase from the prior year.
o Net Earnings per share increase of 30% to 39.99%, additional bonus will be
equal to 3.0% of the amount of increase from the prior year.
o Net Earnings per share increase of 40% or more, additional bonus will be
equal to 3.5% of the amount of increase from the prior year.
In addition, at the time the employment contract was entered into Mr. Brincat
was issued a stock option grant under the 1989 Stock Option and Incentive
Compensation Plan of 3,750,000 shares at a price of $11.58 per share, the fair
market value on the date of the grant. The agreement provides that the option
shall vest equally during the five year term of the contract and is exercisable
in increments of 750,000 shares annually only if Net Earnings per share each
year exceeds the prior year's Net Earnings per share by 20%. If Net Earnings
per share do not increase by 20%, the agreement provides that Mr. Brincat is to
forfeit that year's options and have no further right or claim to that year's
options. In the event of a sale or merger of the Company, all options granted
to Mr. Brincat are to become immediately vested and exercisable.
The agreement contains confidentiality and noncompetition provisions. In the
event of the death of Mr. Brincat during the term of the employment agreement,
the Company shall make, until the end of the term of employment hereunder,
payments at a rate equal to the annual rate of guaranteed base salary in effect
on the date of death. In addition, the Company shall also pay pro rata bonus
earned, if any. The payments to be made shall not be reduced by reason of any
insurance proceeds payable directly to the Employee's beneficiaries or estate
pursuant to insurance carried or provided by the Company, and shall be made to
such beneficiary as the Employee may designate for that purpose in written
notice given prior to his death, or if the Employee has not so designated, then
to the personal representative of his Estate.
According to the employment contract, the Company may terminate the active
employment of Mr. Brincat if, in the reasonable judgment of the Board of
Directors of the Company, he becomes unable to satisfactorily perform his duties
and responsibilities hereunder during the term of his employment because of
mental or physical disability. Upon such termination, Mr. Brincat shall be
relieved of all further obligations. In the event of such termination, the
Company shall continue to pay to Mr. Brincat, until the end of the term of his
employment hereunder, a salary at a rate equal to the annual rate of the
guaranteed base salary in effect on the date of such termination.
Notwithstanding the foregoing, the amounts so payable shall be reduced by any
amounts payable to Mr. Brincat during the term of his employment hereunder
pursuant to any disability benefit or wage continuation plan of the Company in
effect.
The Company may also terminate the agreement in the event of fraud, defalcation,
or other similar dishonesty of Mr. Brincat involving the operations, funds or
other assets of the Company, or if Mr. Brincat is convicted of a crime involving
moral turpitude or Mr. Brincat breaches the terms of this agreement in any
material respect. In such event, Mr. Brincat is not entitled to any further
compensation or benefits under the agreement.
Mr. Brincat resigned as Chief Executive Officer and President of the Company in
February, 1997. Mr. Brincat also resigned as an employee and director of
Mercury effective as of December 1, 1997. Pursuant to a separation agreement
which was consummated in the first quarter of 1998, Mr. Brincat returned
$1 million of bonus compensation which he previously received and waived rights
to certain other benefits.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, with respect to the Company's Common Stock, the
only persons or entities known by the Company to be the beneficial owner of
more than five percent of the Company's voting securities as of December 31,
1996, based on information within the Company's possession including Schedules
13D and 13G filed with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
Unexercised
Options Exercisable Percent
Name and Address Beneficial Shares Owned(1) within 60 days Total of Class
<S> <C> <C> <C> <C>
James D. Terra(2)
845 North Deep Woods Court
Grayslake, Illinois 60030 16,822,559 0 16,822,559 9.8%
FMR Corp.(3)
82 Devonshire Street
Boston, Massachusetts 02109 13,950,400 0 13,950,400 8.1%
(1) Nature of beneficial ownership of securities is direct unless otherwise indicated by footnote. Beneficial ownership as
shown in the table arises from sole voting power and sole investment power unless otherwise indicated by footnote.
(2) James D. Terra became beneficial owner of 16,794,559 shares when he was named executor of the Estate of Daniel J.
Terra, his father, by an Illinois court on July 8, 1996. Mr. Terra acquired 28,000 shares held in his own name on
April 24, 1989. Mr. Terra disclaims beneficial ownership of any shares of Common Stock held by the Terra Foundation
for the Arts which owned 7,825,488 shares of Common Stock as of July 26, 1996.
(3) Various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from
the sale of, the Common Stock of the Company. No one person's interest in the Common Stock of the Company is more
than five percent of the total outstanding Common Stock.
</TABLE>
The following table sets forth, with respect to the Company's Common Stock,
shares believed by the Company to be beneficially owned as of December 31,
1996 by (i) all directors, (ii) the executive officers named in the Summary
Compensation Table, and (iii) the directors and all of such executive officers
as a group. The information is based on data within the Company's possession.
<TABLE>
<CAPTION>
Beneficial Shares Owned Unexercised
Before Exercisable Options Exercisable Percent
Stock Options (1) within 60 days Total of Class
<S> <C> <C> <C> <C>
DIRECTORS
John N. Brincat(2) . . . 2,694,307 0 2,694,307 1.6%
Dennis H. Chookaszian . . 1,500 20,000 21,500 *
William C. Croft . . . . 730,363 20,000 750,363 *
Clifford R. Johnson(3) . 573,037 31,602 604,639 *
Andrew McNally IV . . . . 377,162 20,000 397,162 *
Bruce I. McPhee . . . . . 303,259 20,000 323,259 *
Fred G. Steingraber . . . 6,000 20,000 26,000 *
Philip J. Wicklander . . 147,190 20,000 167,190 *
OTHER EXECUTIVE OFFICERS:
Gerald Mizel . . . . . . 900 0 900 *
Charles H. Lam . . . . . 0 5,250 5,250 *
Jeffrey Brincat . . . . . 0 15,000 15,000 *
Steven G. Gould . . . . . 0 15,000 15,000 *
Directors and Executive
Officers as a Group . . . 5,634,475 299,352 5,933,827 3.4%
*Less than one percent.
(1) Nature of beneficial ownership of securities is direct unless otherwise indicated by footnote. Beneficial ownership as
shown in the table arises from sole voting power and sole investment power unless otherwise indicated by footnote.
(2) Includes 36,026 shares held jointly with Mr. Brincat's wife.
(3) Includes 216,984 shares held by Mr. Johnson's wife, as to which Mr. Johnson disclaims beneficial interest.
</TABLE>
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1996:
None.
At December 31, 1997:
See "Item 11 - Employment Agreements."
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements Filed in this Annual Report on Form 10-K
Report of Arthur Andersen LLP
Report of KPMG Peat Marwick LLP
Consolidated Balance Sheets as of December 31, 1996, and December 31, 1995.
Consolidated Statements of Income for the years ended December 31, 1996, 1995,
and 1994.
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1996, 1995, and 1994.
Consolidated Statement of Cash Flows for the years ended December 31, 1996,
1995, and 1994.
Notes to Consolidated Financial Statements for the years ended December 31,
1996, 1995, and 1994.
Quarterly Financial Data (unaudited)
(a)(2) Financial Statement Schedules
None
(a)(3) Exhibits
3A Certificate of Incorporation, as amended.
3B Bylaws, incorporated herein by reference to Exhibit Number 3B to the
Company's Form 10 filed February 1, 1989.
10A 1989 Mercury Finance Company Stock Option Plan, incorporated herein by
reference to Exhibit Number 10A to the Company's Form 10 filed February 1,
1989.
10B Mercury Finance Company Employee Stock Purchase Plan, incorporated herein
by reference to Exhibit Number 10B to the Company's Form 10 filed February
1, 1989.
10C Mercury Finance Company Retirement Plan and Retirement Trust, incorporated
herein by reference to Exhibit Number 10C to the Company's Form 10 filed
February 1, 1989.
10D Mercury Finance Company Deferred Compensation Plan for Directors,
incorporated herein by reference to Exhibit Number 10D to the Company's
Form 10 filed February 1, 1989.
10E Mercury Finance Company Dividend Reinvestment Plan, incorporated herein by
reference to Exhibit Number 10E to the Company's Form 10 filed February 1,
1989.
10F Form of Mercury Finance Company Commercial Paper Note, incorporated herein
by reference to Exhibit Number 10T to the Company's Form 10 filed February
1, 1989.
10G Senior Subordinated Note Agreement Series C Dated as of December 1, 1989
Between Mercury Finance Company and:
- Cigna Property and Casualty Insurance Company
- Connecticut General Life Insurance Company
- Life Insurance Company of North America
- Phoenix Mutual Life Insurance Company,
incorporated herein by reference to Exhibit Number AM to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
10H Senior Subordinated Note Agreement Series D Dated as of May 15, 1990
Between Mercury Finance Company and:
- Cigna Property and Casualty Company
- Connecticut General Life Insurance Company,
incorporated herein by reference to Exhibit Number AF to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1990.
10I Issuing and Paying Agent Agreement between Security Pacific National Trust
Company (New York) and Mercury Finance Company dated August 1, 1990.
10J Commercial Paper Dealer Agreement dated as of March 25, 1991, between
Mercury Finance Company and Paine Webber Inc., as successor to Kidder,
Peabody & Co.
10K Loan Agreement Dated October 30, 1991 Between Mercury Finance Company and
Allomon Funding Corporation (Uncommitted Credit Facility), incorporated
herein by reference to Exhibit Number AJ to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.
10L Senior Note Agreement Dated March 1, 1992 Between Mercury Finance Company
and Principal Mutual Life Insurance Company, incorporated herein by
reference to Exhibit Number 10AK to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1992.
10M Senior Note Agreement Dated May 1, 1992 Between Mercury Finance Company
and:
- Allstate Life Insurance Company
- State Mutual Life Assurance Company of America,
incorporated herein by reference to Exhibit Number 10AL to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
10N Senior Note Agreement Dated March 1, 1993 Between Mercury Finance Company
and Principal Mutual Life Insurance Company, incorporated herein by
reference to Exhibit Number 10AS to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993.
10O Purchase Agreement Dated April 1, 1993 Between Mercury Finance Company and
Independent Life Insurance Company, incorporated herein by reference to
Exhibit Number 10AR to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
10P Senior Note Agreement Dated July 1, 1993 Between Mercury Finance Company
and Pacific Mutual Life Insurance Company, incorporated herein by reference
to Exhibit Number 10AT to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
10Q Senior Note Agreement Dated December 1, 1993 Between Mercury Finance
Company and:
- American United Life Insurance Company
- MONY Capital Management
- Pacific Mutual Life Insurance Company
- Principal Mutual Life Insurance Company,
incorporated herein by reference to Exhibit Number 10AU to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
10R Employment Agreement Dated January 1, 1994 Between Mercury Finance Company
and John N. Brincat, incorporated herein by reference to Exhibit Number
10AY to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
10S Letter Agreement dated March 23, 1994, between NationsBanc Capital Markets,
Inc. and Mercury Finance Company.
10T Purchase Agreement Dated September 30, 1994 Between Mercury Finance Company
and Midland Finance Co., incorporated herein by reference to Exhibit Number
10AX to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
10U Dealer Agreement dated as of October 24, 1994 between BA Securities, Inc.
and Mercury Finance Company.
10V Senior Note Agreement Dated December 15, 1994 Between Mercury Finance
Company and Norddeutsche Landesbank Girozentrale, incorporated herein by
reference to Exhibit Number 10AZ to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1994.
10W Senior Note Agreement Dated December 15, 1994 Between Mercury Finance
Company and The Long-Term Credit Bank of Japan, Ltd., incorporated herein
by reference to Exhibit Number 10BA to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
10X Senior Note Agreement Dated June 29, 1995 Between Mercury Finance Company
and:
- Allstate Life Insurance Company
- Allstate Insurance Company
- Metropolitan Life Insurance Company
- Principal Mutual Life Insurance Company
- Pacific Mutual Life Insurance Company
- PM Group Life Insurance Company
- TMG Life Insurance Company
- Lincoln-Security Life Insurance Company
- Security-Connecticut Life Insurance Company
- Oxford Life Insurance Company
- London Life International Reinsurance Corporation
- American States Life Insurance Company
- Phoenix Home Life Mutual Insurance Company
- Phoenix American Life Insurance Company
- American Guardian Life Assurance Company,
incorporated herein by reference to Exhibit Number 10BB to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
10Y Senior Note Agreement Date October 3, 1995 Between Mercury Finance Company
and Bank of America Illinois, incorporated herein by reference to Exhibit
Number 10BC to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
10Z Purchase Agreement Dated October 20, 1995 Between Mercury Finance Company
and ITT Corporation, incorporated herein by reference to Exhibit Number
10BE to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
10AA Senior Note Agreement, dated as of April 5, 1996, as amended, among
Mercury Finance Company and the noteholders party thereto.
10AB Demand Promissory Note dated January 29, 1997, made by Mercury Finance
Company in favor of Bank of America Illinois.
10AC Employment Agreement between Mercury Finance Company and William A. Brandt,
Jr. dated February 1, 1997.
10AD Form of Limited Waiver Agreement entered into between Mercury Finance
Company and senior noteholders on or about February 7, 1997, incorporated
herein by reference to Exhibit 99.2 to the Company's Current Report on Form
8-K dated March 13, 1997.
10AE Limited Waiver Agreement entered into between Mercury Finance Company and
Paine Webber Inc. dated February 7, 1997 under Commercial Paper Dealer
Agreement, incorporated herein by reference to Exhibit 99.4 to the
Company's Current Report on Form 8-K dated March 13, 1997.
10AF Loan and Security Agreement (the "Loan Agreement"), dated as of February 7,
1997 between Mercury Finance Company and all of its subsidiaries, other
than its insurance company subsidiaries and BankAmerica Business Credit,
Inc., incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated February 13, 1997.
10AG First Amendment to Loan Agreement dated February 14, 1997, between Mercury
Finance Company and BankAmerica Business Credit, Inc., incorporated herein
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
dated March 11, 1997.
10AH Rights Agreement dated as of February 27, 1997 between Mercury Finance
Company and Harris Trust and Savings Bank as Rights Agent, which includes
as Exhibit A the Forms of Rights Certificates, and as Exhibit B the Form of
Rights Summary, incorporated herein by reference to Exhibit 1 to the
Company's Form 8-A dated March 18, 1997.
10AI Form of Second Limited Waiver Agreement entered into between Mercury
Finance Company and senior noteholders on or about March 10, 1997,
incorporated herein by reference to Exhibit 99.3 to the Company's Current
Report on Form 8-K dated March 13, 1997.
10AJ Limited Waiver Agreement entered into between Mercury Finance Company and
Paine Webber Inc. dated March 10, 1997 under Commercial Paper Dealer
Agreement, incorporated herein by reference to Exhibit 99.5 to the
Company's Current Report on Form 8-K dated March 13, 1997.
10AK Second Amendment to Loan Agreement dated March 12, 1997, between Mercury
Finance Company and BankAmerica Business Credit, Inc., incorporated herein
by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K
dated March 13, 1997.
10AL Form of Limited Waiver Agreement entered into between Mercury Finance
Company and Credit Suisse First Boston Corporation, holder of Mercury
commercial paper dated on or about February 7, 1997, incorporated herein by
reference to Exhibit 99.6 to the Company's Current Report on Form 8-K dated
March 13, 1997.
10AM Limited Waiver Agreement entered into between Mercury Finance Company and
Credit Suisse First Boston Corporation, holder of Mercury commercial paper
dated as of March 10, 1997, incorporated herein by reference to Exhibit
99.7 to the Company's Current Report on Form 8-K dated March 13, 1997.
10AN Limited Waiver Agreement entered into between Mercury Finance Company and
Credit Suisse First Boston Corporation, holder of Mercury Subordinated
Notes dated as of March 10, 1997, incorporated herein by reference to
Exhibit 99.8 to the Company's Current Report on Form 8-K dated March 13,
1997.
10AO Letter Agreement of Mercury Finance Company to the Paying Agent and Holders
of Commercial Paper of Mercury Finance Company dated March 12, 1997,
incorporated herein by reference to Exhibit 99.9 to the Company's Current
Report on Form 8-K dated March 13, 1997.
10AP Stock Purchase Agreement between Mercury Finance Company and Frontier
Insurance Group, Inc. dated March 28, 1997, incorporated herein by
reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated
March 28, 1997.
10AQ Forbearance Agreement dated as of July 11, 1997, between Mercury Finance
Company and the persons listed on the signature pages thereto, incorporated
herein by reference to Exhibit 99.1 to the Company's Current Report on Form
8-K dated July 16, 1997.
10AR Forbearance Agreement dated as of July 11, 1997, between Mercury Finance
Company and the persons listed on the signature pages thereto, incorporated
herein by reference to Exhibit 99.2 to the Company's Current Report on Form
8-K dated July 16, 1997.
10AS Forbearance and Third Limited Waiver Agreement dated as of July 11, 1997,
between Mercury Finance Company and Credit Suisse First Boston Management
Corporation, incorporated herein by reference to Exhibit 99.3 to the
Company's Current Report on Form 8-K dated July 16, 1997.
10AT 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, incorporated herein
by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K
dated July 16, 1997.
10AU First Amendment to Forbearance Agreement dated as of November 6, 1997
between the Company and certain lenders, incorporated herein by reference
to Exhibit 99.3 to the Company's Current Report on Form 8-K dated November
6, 1997.
10AV Fourth Limited Waiver Agreement dated as of November 6, 1997 between the
Company and certain lenders, incorporated herein by reference to Exhibit
99.4 to the Company's Current Report on Form 8-K dated November 6, 1997.
10AW Fourth Limited Waiver Agreement dated as of November 6, 1997 between the
Company and Credit Suisse First Boston Management, incorporated herein by
reference to Exhibit 99.5 to the Company's Current Report on Form 8-K dated
November 6, 1997.
10AX Fourth Limited Waiver Agreement dated as of November 6, 1997 between the
Company and Painewebber, Inc., incorporated herein by reference to Exhibit
99.6 to the Company's Current Report on Form 8-K dated November 6, 1997.
10AY Forbearance and Fourth Limited Waiver Agreement dated as of November 6,
1997 between the Company and Credit Suisse First Boston Management
Corporation, incorporated herein by reference to Exhibit 99.7 to the
Company's Current Report on Form 8-K dated November 6, 1997.
10AZ Separation Agreement between the Company and John N. Brincat dated
December 30, 1997.
11 Computation of Net Income Per Share
12 Ratio of Earnings to Fixed Charges
16 Letter dated February 25, 1997, from KPMG Peat Marwick LLP to the
Securities and Exchange Commission, incorporated herein by reference to
Exhibit 16 to the Company's Current Report on Form 8-K dated February 25,
1997.
18 Letter of Arthur Andersen LLP regarding change in accounting principles.
21 Subsidiaries of Mercury Finance Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the fourth quarter of the fiscal year
covered by this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Mercury Finance Company
(Registrant)
Date: February 19, 1998
By: /s/ William A. Brandt, Jr.
William A. Brandt, Jr.,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ William A. Brandt, Jr. February 19, 1998
William A. Brandt, Jr.
President and
Chief Executive Officer
/s/ Patrick J. O'Malley February 19, 1998
Patrick J. O'Malley
Principal Financial and
Accounting Officer
/s/ Dennis H. Chookaszian Director February 19, 1998
Dennis H. Chookaszian
/s/ William C. Croft Director February 19, 1998
William C. Croft
/s/ Clifford R. Johnson Director February 19, 1998
Clifford R. Johnson
/s/ Andrew McNally IV Director February 19, 1998
Andrew McNally IV
/s/ Bruce I. McPhee Director February 19, 1998
Bruce I. McPhee
/s/ Fred G. Steingraber Director February 19, 1998
Fred G. Steingraber
/s/ Philip J. Wicklander Director February 19, 1998
Philip J. Wicklander
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
3A Certificate of Incorporation, as amended.
3B Bylaws, incorporated herein by reference to Exhibit Number 3B to the
Company's Form 10 filed February 1, 1989.
10A 1989 Mercury Finance Company Stock Option Plan, incorporated herein by
reference to Exhibit Number 10A to the Company's Form 10 filed February 1,
1989.
10B Mercury Finance Company Employee Stock Purchase Plan, incorporated herein
by reference to Exhibit Number 10B to the Company's Form 10 filed February
1, 1989.
10C Mercury Finance Company Retirement Plan and Retirement Trust, incorporated
herein by reference to Exhibit Number 10C to the Company's Form 10 filed
February 1, 1989.
10D Mercury Finance Company Deferred Compensation Plan for Directors,
incorporated herein by reference to Exhibit Number 10D to the Company's
Form 10 filed February 1, 1989.
10E Mercury Finance Company Dividend Reinvestment Plan, incorporated herein by
reference to Exhibit Number 10E to the Company's Form 10 filed February 1,
1989.
10F Form of Mercury Finance Company Commercial Paper Note, incorporated herein
by reference to Exhibit Number 10T to the Company's Form 10 filed February
1, 1989.
10G Senior Subordinated Note Agreement Series C Dated as of December 1, 1989
Between Mercury Finance Company and:
- Cigna Property and Casualty Insurance Company
- Connecticut General Life Insurance Company
- Life Insurance Company of North America
- Phoenix Mutual Life Insurance Company,
incorporated herein by reference to Exhibit Number AM to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
10H Senior Subordinated Note Agreement Series D Dated as of May 15, 1990
Between Mercury Finance Company and:
- Cigna Property and Casualty Company
- Connecticut General Life Insurance Company,
incorporated herein by reference to Exhibit Number AF to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1990.
10I Issuing and Paying Agent Agreement between Security Pacific National Trust
Company (New York) and Mercury Finance Company dated August 1, 1990.
10J Commercial Paper Dealer Agreement dated as of March 25, 1991, between
Mercury Finance Company and Paine Webber Inc., as successor to Kidder,
Peabody & Co.
10K Loan Agreement Dated October 30, 1991 Between Mercury Finance Company and
Allomon Funding Corporation (Uncommitted Credit Facility), incorporated
herein by reference to Exhibit Number AJ to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.
10L Senior Note Agreement Dated March 1, 1992 Between Mercury Finance Company
and Principal Mutual Life Insurance Company, incorporated herein by
reference to Exhibit Number 10AK to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1992.
10M Senior Note Agreement Dated May 1, 1992 Between Mercury Finance Company
and:
- Allstate Life Insurance Company
- State Mutual Life Assurance Company of America,
incorporated herein by reference to Exhibit Number 10AL to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
10N Senior Note Agreement Dated March 1, 1993 Between Mercury Finance Company
and Principal Mutual Life Insurance Company, incorporated herein by
reference to Exhibit Number 10AS to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993.
10O Purchase Agreement Dated April 1, 1993 Between Mercury Finance Company and
Independent Life Insurance Company, incorporated herein by reference to
Exhibit Number 10AR to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
10P Senior Note Agreement Dated July 1, 1993 Between Mercury Finance Company
and Pacific Mutual Life Insurance Company, incorporated herein by reference
to Exhibit Number 10AT to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
10Q Senior Note Agreement Dated December 1, 1993 Between Mercury Finance
Company and:
- American United Life Insurance Company
- MONY Capital Management
- Pacific Mutual Life Insurance Company
- Principal Mutual Life Insurance Company,
incorporated herein by reference to Exhibit Number 10AU to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
10R Employment Agreement Dated January 1, 1994 Between Mercury Finance Company
and John N. Brincat, incorporated herein by reference to Exhibit Number
10AY to the Company's Annual Report o Form 10-K for the fiscal year ended
December 31, 1994.
10S Letter Agreement dated March 23, 1994, between NationsBanc Capital Markets,
Inc. and Mercury Finance Company.
10T Purchase Agreement Dated September 30, 1994 Between Mercury Finance Company
and Midland Finance Co., incorporated herein by reference to Exhibit Number
10AX to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
10U Dealer Agreement dated as of October 24, 1994 between BA Securities, Inc.
and Mercury Finance Company.
10V Senior Note Agreement Dated December 15, 1994 Between Mercury Finance
Company and Norddeutsche Landesbank Girozentrale, incorporated herein by
reference to Exhibit Number 10AZ to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1994.
10W Senior Note Agreement Dated December 15, 1994 Between Mercury Finance
Company and The Long-Term Credit Bank of Japan, Ltd., incorporated herein
by reference to Exhibit Number 10BA to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
10X Senior Note Agreement Dated June 29, 1995 Between Mercury Finance Company
and:
- Allstate Life Insurance Company
- Allstate Insurance Company
- Metropolitan Life Insurance Company
- Principal Mutual Life Insurance Company
- Pacific Mutual Life Insurance Company
- PM Group Life Insurance Company
- TMG Life Insurance Company
- Lincoln-Security Life Insurance Company
- Security-Connecticut Life Insurance Company
- Oxford Life Insurance Company
- London Life International Reinsurance Corporation
- American States Life Insurance Company
- Phoenix Home Life Mutual Insurance Company
- Phoenix American Life Insurance Company
- American Guardian Life Assurance Company,
incorporated herein by reference to Exhibit Number 10BB to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
10Y Senior Note Agreement Date October 3, 1995 Between Mercury Finance Company
and Bank of America Illinois, incorporated herein by reference to Exhibit
Number 10BC to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
10Z Purchase Agreement Dated October 20, 1995 Between Mercury Finance Company
and ITT Corporation, incorporated herein by reference to Exhibit Number
10BE to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
10AA Senior Note Agreement, dated as of April 5, 1996, as amended, among
Mercury Finance Company and the noteholders party thereto.
10AB Demand Promissory Note dated January 29, 1997, made by Mercury Finance
Company in favor of Bank of America Illinois.
10AC Employment Agreement between Mercury Finance Company and William A. Brandt,
Jr. dated February 1, 1997.
10AD Form of Limited Waiver Agreement entered into between Mercury Finance
Company and senior noteholders on or about February 7, 1997, incorporated
herein by reference to Exhibit 99.2 to the Company's Current Report on Form
8-K dated March 13, 1997.
10AE Limited Waiver Agreement entered into between Mercury Finance Company and
Paine Webber Inc. dated February 7, 1997 under Commercial Paper Dealer
Agreement, incorporated herein by reference to Exhibit 99.4 to the
Company's Current Report on Form 8-K dated March 13, 1997.
10AF Loan and Security Agreement (the "Loan Agreement"), dated as of February 7,
1997 between Mercury Finance Company and all of its subsidiaries, other
than its insurance company subsidiaries and BankAmerica Business Credit,
Inc., incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated February 13, 1997.
10AG First Amendment to Loan Agreement dated February 14, 1997, between Mercury
Finance Company and BankAmerica Business Credit, Inc., incorporated herein
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
dated March 11, 1997.
10AH Rights Agreement dated as of February 27, 1997 between Mercury Finance
Company and Harris Trust and Savings Bank as Rights Agent, which includes
as Exhibit A the Forms of Rights Certificates, and as Exhibit B the Form of
Rights Summary, incorporated herein by reference to Exhibit 1 to the
Company's Form 8-A dated March 18, 1997.
10AI Form of Second Limited Waiver Agreement entered into between Mercury
Finance Company and senior noteholders on or about March 10, 1997,
incorporated herein by reference to Exhibit 99.3 to the Company's Current
Report on Form 8-K dated March 13, 1997.
10AJ Limited Waiver Agreement entered into between Mercury Finance Company and
Paine Webber Inc. dated March 10, 1997 under Commercial Paper Dealer
Agreement, incorporated herein by reference to Exhibit 99.5 to the
Company's Current Report on Form 8-K dated March 13, 1997.
10AK Second Amendment to Loan Agreement dated March 12, 1997, between Mercury
Finance Company and BankAmerica Business Credit, Inc., incorporated herein
by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K
dated March 13, 1997.
10AL Form of Limited Waiver Agreement entered into between Mercury Finance
Company and Credit Suisse First Boston Corporation, holder of Mercury
commercial paper dated on or about February 7, 1997, incorporated herein by
reference to Exhibit 99.6 to the Company's Current Report on Form 8-K dated
March 13, 1997.
10AM Limited Waiver Agreement entered into between Mercury Finance Company and
Credit Suisse First Boston Corporation, holder of Mercury commercial paper
dated as of March 10, 1997, incorporated herein by reference to Exhibit
99.7 to the Company's Current Report on Form 8-K dated March 13, 1997.
10AN Limited Waiver Agreement entered into between Mercury Finance Company and
Credit Suisse First Boston Corporation, holder of Mercury Subordinated
Notes dated as of March 10, 1997, incorporated herein by reference to
Exhibit 99.8 to the Company's Current Report on Form 8-K dated March 13,
1997.
10AO Letter Agreement of Mercury Finance Company to the Paying Agent and Holders
of Commercial Paper of Mercury Finance Company dated March 12, 1997,
incorporated herein by reference to Exhibit 99.9 to the Company's Current
Report on Form 8-K dated March 13, 1997.
10AP Stock Purchase Agreement between Mercury Finance Company and Frontier
Insurance Group, Inc. dated March 28, 1997, incorporated herein by
reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated
March 28, 1997.
10AQ Forbearance Agreement dated as of July 11, 1997, between Mercury Finance
Company and the persons listed on the signature pages thereto, incorporated
herein by reference to Exhibit 99.1 to the Company's Current Report on Form
8-K dated July 16, 1997.
10AR Forbearance Agreement dated as of July 11, 1997, between Mercury Finance
Company and the persons listed on the signature pages thereto, incorporated
herein by reference to Exhibit 99.2 to the Company's Current Report on Form
8-K dated July 16, 1997.
10AS Forbearance and Third Limited Waiver Agreement dated as of July 11, 1997,
between Mercury Finance Company and Credit Suisse First Boston Management
Corporation, incorporated herein by reference to Exhibit 99.3 to the
Company's Current Report on Form 8-K dated July 16, 1997.
10AT 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, incorporated herein
by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K
dated July 16, 1997.
10AU First Amendment to Forbearance Agreement dated as of November 6, 1997
between the Company and certain lenders, incorporated herein by reference
to Exhibit 99.3 to the Company's Current Report on Form 8-K dated November
6, 1997.
10AV Fourth Limited Waiver Agreement dated as of November 6, 1997 between the
Company and certain lenders, incorporated herein by reference to Exhibit
99.4 to the Company's Current Report on Form 8-K dated November 6, 1997.
10AW Fourth Limited Waiver Agreement dated as of November 6, 1997 between the
Company and Credit Suisse First Boston Management, incorporated herein by
reference to Exhibit 99.5 to the Company's Current Report on Form 8-K dated
November 6, 1997.
10AX Fourth Limited Waiver Agreement dated as of November 6, 1997 between the
Company and Painewebber, Inc., incorporated herein by reference to Exhibit
99.6 to the Company's Current Report on Form 8-K dated November 6, 1997.
10AY Forbearance and Fourth Limited Waiver Agreement dated as of November 6,
1997 between the Company and Credit Suisse First Boston Management
Corporation, incorporated herein by reference to Exhibit 99.7 to the
Company's Current Report on Form 8-K dated November 6, 1997.
10AZ Separation Agreement between the Company and John N. Brincat dated
December 30, 1997.
11 Computation of Net Income Per Share
12 Ratio of Earnings to Fixed Charges
16 Letter dated February 25, 1997, from KPMG Peat Marwick LLP to the
Securities and Exchange Commission, incorporated herein by reference to
Exhibit 16 to the Company's Current Report on Form 8-K dated February 25,
1997.
18 Letter of Arthur Andersen LLP regarding change in accounting principles.
21 Subsidiaries of Mercury Finance Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule
CERTIFICATE OF INCORPORATION
OF
MERCURY FINANCE COMPANY
FIRST: The name of the Corporation is
MERCURY FINANCE COMPANY
SECOND: The address of its registered office in the State of Delaware
is No. 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Twenty-Five Million (25,000,000)
all of which shall be Common Stock of the par value of $1.00 per share ("Common
Stock").
The designations, voting powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of the above class of stock and other general provisions
relating thereto shall be as follows:
(a) Except as provided by law or this Certificate of
Incorporation, each holder of Common Stock shall have one vote in
respect of each share of stock held by him of record on the books of
the Corporation on all matters voted upon by the stockholders.
(b) Subject to the provisions relating to all classes of stock
having prior rights as to dividends at the time outstanding, the
holders of Common Stock shall be entitled to receive, to the extent
permitted by law, such dividends as may be declared from time to time
by the Board of Directors out of the assets of the Corporation legally
available therefor.
(c) In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the Corporation,
after the payment in full of all preferential amounts to which the
holders of outstanding shares of all classes of stock having prior
rights at the time shall be entitled, holders of Common Stock shall be
entitled to receive all of the remaining assets of the Corporation of
whatever kind available for distribution to such stockholders ratably
in proportion to the number of shares of Common Stock held by them
respectively. The Board of Directors may distribute in kind to the
holders of Common Stock such remaining assets of the Corporation or
may sell, transfer or otherwise dispose of all or any part of such
remaining assets to any other corporation, trust or other entity and
receive payment therefor in cash, stock or obligations of such other
corporation, trust or entity, or any combination thereof, and may sell
all or any part of the consideration so received and distribute any
balance thereof in kind to holders of Common Stock. The merger or
consolidation of the Corporation into or with any other corporation,
or the merger of any other corporation into it, or any purchase or
redemption of shares of stock of the Corporation of any class, shall
not be deemed to be a dissolution, liquidation or winding up of the
Corporation for the purposes of this paragraph.
(d) No holder of shares of the Common Stock of the Corporation
shall have preemptive rights or otherwise be entitled as a matter of
right to purchase or subscribe for any part of any unissued stock of
any class, or of any additional stock of any class of capital stock of
the Corporation, or of any bonds, certificates of indebtedness,
debentures, or other securities convertible into stock of the
Corporation, nor or hereafter authorized, but any such stock or other
securities convertible into stock may be issued and disposed of
pursuant to resolution by the Board of Directors to such persons,
firms, corporations or associations and upon such terms and for such
consideration (not less than the par value or stated value thereof) as
the Board of Directors in the exercise of its discretion may determine
and as may be permitted by law without action by the stockholders.
The Board of Directors may provide for payment therefor to be received
by the Corporation in cash, personal property, real property (or
leases thereof) or services. Any and all shares of stock so issued
for which the consideration so fixed has been paid or delivered, shall
be deemed fully paid and not liable to any further call or assessment.
FIFTH: The name and mailing address of the incorporator are:
Name Mailing Address
Michael D. Stronberg 800 David Street
Evanston, Illinois 60204
SIXTH: Elections of directors need not be by written ballot unless
the By-Laws of the Corporation shall so provide.
SEVENTH: The number of directors constituting the Board of Directors
shall be that number as shall be fixed by the By-Laws of the Corporation.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
Wherever the term "Board of Directors" is used in this Certificate of
Incorporation, such term shall mean the Board of Directors of the Corporation;
provided, however, that, to the extent any committee of directors of the
Corporation is lawfully entitled to exercise the powers of the Board of
Directors, such committee may exercise any right or authority of the Board of
Directors under this Certificate of Incorporation.
EIGHTH: No contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(a) The material facts as to his interest and as to the contract
or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the
contract or transaction by a vote sufficient for such purpose without
counting the vote of the interested director or directors;
(b) The material facts as to his interest and as to the contract
or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
Interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
NINTH:
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, advisory
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
officer, advisory director, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery
or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a person who is or was a director,
officer, employee or agent of the Corporation, or a director, advisory
director, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise with which he is
or was serving at the request of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or
proceeding referred to in subparagraphs (a) and (b) of this Article,
or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subparagraphs (a) or (b) of this
Article (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, advisory director, officer, employee
or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in said subparagraphs (a) or
(b). Such determination shall be made (1) by the Board by a majority
vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable,
or, even if obtainable a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding as authorized by
the Board in the specific case upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such
amount unless it shall ultimately be determined that he is entitled to
be indemnified by the Corporation pursuant to this Article Ninth.
(f) The indemnification provided by this Article Ninth shall not
be deemed exclusive of any other rights to which any person may be
entitled under any by-law, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(g) The Corporation may purchase and maintain insurance (and pay the
entire premium therefor) on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, advisory director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against such
liability under the provisions of this Article or of Section 145 of the
General Corporation Law of the State of Delaware.
(h) For the purposes of this Article Ninth references to "the
Corporation" include all constituent corporations absorbed in a
consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director, officer,
employee or agent of such a constituent corporation or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise shall stand in the same position
under the provisions of this subparagraph with respect to the
resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
(i) The invalidity or unenforceability of any provision of this
Article Ninth shall not affect the validity or enforceability of the
remaining provisions of this Article Ninth.
TENTH: No director or advisory director of the Corporation or any of
its subsidiaries shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
ELEVENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by the laws of Delaware, and all rights
conferred herein upon stockholders and directors are granted subject to this
reservation.
TWELFTH: The Corporation elects not be governed by Section 203 of the
General Corporation Law of the State of Delaware.
/s/ Michael D. Stronberg
Michael D. Stronberg
STATE OF ILLINOIS )
)
COUNTY OF COOK )
I, Theresa A. Davies, a notary public in and for the county and state
aforesaid, DO HEREBY CERTIFY that Michael D. Stronberg appeared before me this
day in person and acknowledged that he signed the foregoing instrument as his
free and voluntary act and as the free and voluntary act of said Corporation,
for the uses and purposes therein set forth.
/s/ Theresa A. Davies
Notary Public
[NOTARY PUBLIC SEAL]
CERTIFICATE OF OWNERSHIP
MERGING
FIRST ILLINOIS FINANCE COMPANY
INTO
MERCURY FINANCE COMPANY
(PURSUANT TO SECTION 253 OF THE
GENERAL CORPORATION LAW OF DELAWARE)
Mercury Finance Company, a corporation incorporated on the twenty-
second day of November, 1988 pursuant to the provisions of the General
Corporation Law of the State of Delaware does hereby certify that this
corporation owns all of the capital stock of First Illinois Finance Company, a
corporation incorporated under the laws of the State of Illinois, and that this
corporation, by resolution of its board of directors duly adopted at a meeting
held on the twelfth day of May, determined to and did merge into itself said
First Illinois Finance Company which resolution is in the following words to
wit:
WHEREAS, this corporation lawfully owns all the outstanding stock of
First Illinois Finance Company, a corporation organized and existing under the
laws of Illinois, and
WHEREAS, this corporation desires to merge into itself the said First
Illinois Finance Company and to be possessed of all the estate, property,
rights, privileges and franchises of said corporation.
NOW, THEREFORE, BE IT RESOLVED, that this corporation merge into
itself, and it does hereby merge into itself said First Illinois Finance Company
and assumes all of its liabilities and obligations, and
FURTHER RESOLVED, that the president or a vice-president, and the
secretary or treasurer of this corporation be and they hereby are directed to
make and execute, under the corporate seal of this corporation, a certificate of
ownership setting forth a copy of the resolution, to merge said First Illinois
Finance Company and assume its liabilities and obligations, and the date of
adoption thereof, and to file the same in the office of the Secretary of State
of Delaware, and a certified copy thereof in the office of the Recorder of Deeds
of New Castle County; and
FURTHER RESOLVED, that the officers of this corporation be and they
hereby are authorized and directed to do all acts and things whatsoever, whether
within or without the State of Delaware; which may be in anywise necessary or
proper to effect said merger.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by its president and attested by its secretary, and its corporate seal to
be hereto affixed, the twelfth day of May, 1989.
By: /s/ John N. Brincat
John N. Brincat, President
ATTEST:
/s/ James A. Doyle
James A. Doyle, Secretary
(Seal)
MERCURY FINANCE COMPANY
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
Mercury Finance Company, a corporation organized and existing under
and by virtue of the General Corporation Law of the state of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
on January 11, 1991 resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of the Corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of the
Corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that Article Fourth of the Certificate of Incorporation of
Mercury Finance Company be amended so that, as amended, said Article shall be
and read in its entirety as follows:
FOURTH: The total number of shares of all class of stock which
the Corporation shall have authority to issue is Ninety Million
(90,000,000) all of which shall be Common Stock of the par value of
$1.00 per share ("Common Stock").
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, at a meeting of the stockholders of the Corporation on April 8, 1991
called and held upon proper notice, a majority of the stockholders of the
Corporation affirmatively voted in favor of said amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Mercury Finance Company has caused this
certificate to be signed by John N. Brincat, its President and James A. Doyle,
its Secretary, this third day of May, 1991.
By: /s/ John N. Brincat
President
Attest: /s/ James A. Doyle
Secretary
MERCURY FINANCE COMPANY
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
Mercury Finance Company, a corporation organized and existing under
and by virtue of the General Corporation Law of the state of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
on January 10, 1993 resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of the Corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of the
Corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that Article Fourth of the Certificate of Incorporation of
Mercury Finance Company be amended so that, as amended, said Article shall be
and read in its entirety as follows:
FOURTH: The total number of shares of all class of stock which
the Corporation shall have authority to issue is Three Hundred Million
(300,000,000) all of which shall be Common Stock of the par value of
$1.00 per share ("Common Stock").
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, at a meeting of the stockholders of the Corporation on April 5, 1993
called and held upon proper notice, a majority of the stockholders of the
Corporation affirmatively voted in favor of said amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Mercury Finance Company has caused this
certificate to be signed by James A. Doyle, its Senior Vice President, and
Sheila M. Tilson, its Assistant Secretary, this 28th day of April, 1993.
By: /s/ James A. Doyle
Senior Vice President
Attest: /s/ Sheila M. Tilson
Assistant Secretary
MERCURY FINANCE COMPANY
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
Mercury Finance Company, a corporation organized and existing under
and by virtue of the General Corporation Law of the state of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
on January 5, 1996 resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of the Corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of the
Corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that Article Fourth of the Certificate of Incorporation of
Mercury Finance Company be amended so that, as amended, said Article shall be
and read in its entirety as follows:
FOURTH: The total number of shares of all class of stock which
the Corporation shall have authority to issue is Five Hundred Million
(500,000,000) all of which shall be Common Stock of the par value of
$1.00 per share ("Common Stock").
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, at a meeting of the stockholders of the Corporation on April 15, 1996
called and held upon proper notice, a majority of the stockholders of the
Corporation affirmatively voted in favor of said amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Mercury Finance Company has caused this
certificate to be signed by James A. Doyle, its Senior Vice President, and
Sheila M. Tilson, its Assistant Secretary, this 25th day of April, 1996.
By: /s/ James A. Doyle
Senior Vice President
Attest: /s/ Sheila M. Tilson
Assistant Secretary
Issuing and Paying Agent Agreement
Security Pacific National
Trust Company (New York)
2 Rector Street
New York, New York 10006
Attention: Corporate Trust Division
Re: Mercury Finance Company
Commercial Paper Program
Gentlemen and Ladies:
This letter will set forth the understandings made among you and the
undersigned, Mercury Finance Company, a Delaware corporation ("Mercury
Finance"), whereby you have agreed to act as depositary for the safekeeping of
certain notes of Mercury Finance, which may be issued and sold in the commercial
paper market ("Commercial Paper Notes"), as issuing agent on behalf of Mercury
Finance in connection with the issuance of the Commercial Paper Notes and as
paying agent to undertake certain obligations as described below on behalf of
the holders of the Commercial Paper Notes.
1. Appointment of Agent. Mercury Finance hereby requests that you act, on
the terms and conditions specified herein, as Issuing and Paying Agent for the
Commercial Paper Notes which Mercury Finance shall from time to time deliver or
cause to be delivered to you. The Commercial Paper Notes will be substantially
in the form attached hereto as Exhibit A and will be placed through the Chicago
Corp and Continental Bank, (the "Dealers"). If the Commercial Paper Notes will
bear interest, Exhibit A will be modified accordingly. At no time will the
aggregate amount of such Notes outstanding exceed $300,000,000.00.
2. Supply of Commercial Paper Notes. Mercury Finance will from time to
time furnish you with an adequate supply of Commercial Paper Notes, which will
be serially numbered and will have been executed by manual or facsimile
signature of an Authorized Representative (as hereafter defined), with the
principal amount, payee, date of issue, maturity date, amount of interest (if an
interest-bearing Commercial Paper Note) and maturity value left blank. Pending
receipt of instructions pursuant to this Agreement, you will hold the Commercial
Paper Notes in safekeeping for the account of Mercury Finance in accordance with
your customary practice. The Commercial Paper Notes shall be printed on a
manifold that will produce one original and three non-negotiable copies.
3. Authorized Mercury Finance Representatives. From time to time Mercury
Finance will furnish you with a certificate certifying the incumbency and
specimen signatures of officers or agents of Mercury Finance authorized to
execute Commercial Paper Notes on behalf of Mercury Finance by manual or
facsimile signature and/or to take other action hereunder on behalf of Mercury
Finance (each an "Authorized Mercury Finance Representative"). Until you
receive a subsequent incumbency certificate (of Mercury Finance), you are
entitled to rely on the last such certificate delivered to you for purposes of
determining the Authorized Mercury Finance Representatives. You shall not have
any responsibility to Mercury Finance to determine by whom or by what means a
facsimile signature may have been affixed on the Commercial Paper Notes, or to
determine whether any facsimile or manual signature resembles the specimen
signature(s) filed with you by a duly authorized officer of Mercury Finance.
Any Commercial Paper Note bearing the manual or facsimile signature of a person
who is an Authorized Mercury Finance Representative on the date such signature
is affixed shall bind Mercury Finance after the completion thereof by you
notwithstanding that such person shall have died or shall have otherwise ceased
to hold his or her office on the date such Commercial Paper Note is
countersigned or delivered to you.
4. Completion, Authentication and Delivery of Commercial Paper Notes. (a)
Instructions for the issuance of Commercial Paper Notes will be given via a
timesharing terminal, if available, or by telephone, promptly confirmed in
writing (facsimile) either by an Authorized Mercury Finance Representative, or
by any officer or employee of the Dealers ("Chicago Corp, Continental Bank") who
has been designated by an Authorized Mercury Finance Representative in writing
to you as a person authorized to give such instructions hereunder, provided that
instructions may be given by telephone (or by facsimile) or in writing if the
system is unavailable or is inoperative. Upon receipt of instructions as
described in the preceding sentence, you will withdraw the necessary Commercial
Paper Note(s) from safekeeping and, in accordance with such instructions, shall:
(1) complete each Commercial Paper Note as to principal amount (which
shall not be less than $100,000.00), payee, date of issue, maturity date, (which
shall not be more than 270 days from the date of issue), amount of interest (if
any) and maturity value; and
(2) manually countersign each commercial Paper Note by any one of your
officers or employees duly authorized and designated for this purpose; and
(3) deliver the Commercial Paper Note(s) to the Dealer or its agent within
(Financial District, south of Chambers Street, in) the Borough of Manhattan,
City and State of New York, which delivery shall be against receipt for payment
as herein provided or as otherwise provided in such instructions. (If such
instructions do not provide for such receipt, the Dealer shall nevertheless pay
the purchase price for the Commercial Paper Note(s) in accordance with Paragraph
5). Of the three non-negotiable copies of each Commercial Paper Note, two shall
be retained by you and one shall be sent promptly to Mercury Finance.
(b) Instructions given via the time-sharing terminal must be entered by
12:30 p.m. New York time, and instructions delivered by telephone or in writing
must be received by you by 12:30 p.m. New York time, if the Commercial Paper
Note(s) are to be delivered the same day. Telephone instructions shall be
confirmed in writing the same day.
(c) Mercury Finance understands that although you have been instructed to
deliver Commercial Paper Notes against payment, delivery of Commercial Paper
Notes will, in accordance with the custom prevailing in the commercial paper
market, be made before receipt of payment in immediately available funds.
Therefore, once you have delivered a Commercial Paper Note to the Dealer(s) or
its agent as provided in Paragraph 4(a)(3), Mercury Finance shall bear the risk
that the Dealer(s) or its agent fails to remit payment for the Commercial Paper
Note to you. It is understood that each delivery of Commercial Paper Notes
hereunder shall be subject to the rules of the New York Clearing House in effect
at the time of such delivery.
5. Proceeds of Sale of the Commercial Paper Notes. Contem-poraneously
with the execution and delivery of this Agreement, and for the purposes of this
Agreement, you will establish an account designated the Mercury Finance Note
Account. On each day on which the Dealer(s) or its agent takes delivery of
Commercial Paper Notes, it shall pay the purchase price for such Commercial
Paper Notes in immediately available funds for credit to the Note Account. From
time to time upon telephonic or written instructions received by you from an
Authorized Mercury Finance Representative, you agree to transfer immediately
available funds from the Note Account to any bank or trust company for our
account.
6. Payment of Matured Commercial Paper Notes. By 1:00 P.M. New York time
on the date that any Commercial Paper Notes are scheduled to mature, there shall
have been transferred to you for deposit in the Note Account immediately
available funds at least equal to the amount of Commercial Paper Notes maturing
on such date. When any matured Commercial Paper Note is presented to you for
payment by the holder thereof, payment shall be made from and charged to the
Note Account to the extent funds sufficient to effect such payment are available
in said account.
7. Reliance on Instructions. You shall incur no liability to Mercury
Finance in acting hereunder upon telephonic or other instructions contemplated
hereby which the recipient thereof believed in good faith to have been given by
an Authorized Mercury Finance Representative or Dealer(s), as the case may be.
In the event a discrepancy exists between the telephonic instructions and the
written confirmation, the telephonic instructions as recorded and understood by
you will be deemed the controlling and proper instructions. It is understood
that all telephonic instructions will be recorded by you and Mercury Finance
hereby consents to such recording.
8. Cancellation of Commercial Paper Notes. You will in due course cancel
Commercial Paper Notes presented for payment and return them to Mercury
Finance. Promptly upon the written request of Mercury Finance, you agree to
cancel and return to Mercury Finance all unissued Commercial Paper Notes in
your possession at the time of such request.
9. Representations and Warranties of Mercury Finance. Each instruction
given to you in accordance with Paragraph 4 shall constitute a representation
and warranty to you by Mercury Finance that the representations and warranties
set out in Exhibit B hereto are true and correct on the date of the instruction
as if made on such date.
10. Notice; Addresses. (a) All communications by or on behalf of Mercury
Finance or the Dealer(s), by telephone or otherwise, relating to the completion,
delivery or payment of the Commercial Paper Notes are to be directed to your
Commercial Paper Issuance Unit of the Corporate Trust Division (or such other
department or division which you shall specify in writing to Mercury Finance or
the Dealer(s)). Mercury Finance will send all Commercial Paper Notes to be
completed and delivered by you to your Commercial Paper Issuance Unit of the
Corporate Trust Division (or such other department or division as you shall
specify in writing to Mercury Finance). You will advise Mercury Finance or the
Dealer(s) from time to time of the individuals generally responsible for the
administration of this Agreement and will from time to time certify incumbency
and specimen signatures of officers or employees authorized to countersign
Commercial Paper Notes and will supply a list of employees authorized to receive
telephone instructions.
(b) Notices and other communications hereunder shall (except to the extent
otherwise expressly provided) be in writing and shall be addressed as follows,
or to such other address as the party receiving such notice shall have
previously specified to the party sending such notice:
if to Mercury Finance, at:
(a) concerning the daily issuance of Commercial Paper Notes:
Mercury Finance Company
40 Skokie Boulevard, Suite 200
Northbrook, Illinois 60062
Attn: Mr. Charley Pond
Vice President, Treasurer
Chief Financial Officer
Telephone No.: 708-564-3720
if to you at:
(a) concerning the daily issuance of
Commercial Paper Notes:
Security Pacific National Trust
Company (New York)
2 Rector Street
New York, New York 10006
Corporate Trust Division
Attn: Walter Butler, Mgr.
Telephone No.: 212/978-5140
Telecopy No.: 212/978-2617
(b) concerning all other matters;
Security Pacific National Trust
Company (New York)
2 Rector Street
New York, New York 10006
Attn: John A. Curcio, A.V.P.
Telephone No.: 212/978-5050
Telecopy No.: 212/978-5060
Notices shall be deemed delivered when received at the address specified above.
For purposes of this paragraph, "when received" shall mean actual receipt (i) of
an electronic communication by a telex machine, telecopier or time-sharing
terminal specified in or pursuant to this Agreement; (ii) of an oral
communication by any person answering the telephone at your office specified in
subparagraph 10(a) hereof and otherwise at the office of the individual or
department specified in or pursuant to this Agreement; or (iii) of a written
communication hand-delivered at the office specified in or pursuant to this
Agreement.
11. Additional Information. Upon the reasonable request of Mercury
Finance given at any time and from time to time, you shall promptly provide
Mercury Finance with information with respect to the Commercial Paper Notes
issued and paid hereunder. You shall also prepare and promptly deliver to
Mercury Finance advices with respect to the Commercial Paper Notes
authenticated, issued and delivered by you in accordance with this Agreement.
The information set forth in such advices shall include the date of issue,
serial number, face amount, amount of discount from the face amount, or
principal amount and rate of interest, and maturity date of each such Commercial
Paper Note. You and Mercury Finance shall discuss from time to time the extent
to which such information is reasonably available and the times at which you can
reasonably furnish such information.
12. Liability. Neither you nor your officers, employees or agents shall
be liable for any act or omission hereunder, except in the case of gross
negligence or willful misconduct. Your duties and obligations and those of your
officers and employees shall be determined by the express provisions of this
Agreement, and they shall not be liable except for the performance of such
duties and obligations as are specifically set forth herein, and no implied
covenants shall be read into this Agreement against them. Neither you nor your
officers or employees shall be required to ascertain whether any issuance or
sale of Commercial Paper Notes (or any amendment or termination of this
Agreement) has been duly authorized or is in compliance with any other agreement
to which Mercury Finance is a party (whether or not you are a party to such
other agreement).
13. Indemnification. Mercury Finance agrees to indemnify and hold you and
your officers, employees and agents harmless from and against all liabilities,
claims, damages, costs and expenses (including legal fees and expenses) relating
to or arising out of their actions or inactions in connection with this
Agreement, except to the extent they are caused by your gross negligence or
willful misconduct. This indemnity shall survive termination of this Agreement.
14. Benefit of Agreement. This Agreement is solely for the benefit of the
parties hereto, and no other person shall acquire or have any right under or by
virtue hereof.
15. Termination. This Agreement may be terminated at any time by either
you or by Mercury Finance 30 days prior written notice by Mercury Finance and 90
days written notice by Security Pacific, but such termination shall not affect
the respective liabilities of the parties hereunder arising prior to such
termination.
16. Governing Law. This Agreement is to be delivered and performed in,
and shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the law of the State of New York.
17. Fees. You shall receive fees from Mercury Finance for acting as
depositary, issuing and paying agent hereunder in such amounts as you and
Mercury Finance shall agree from time to time in writing in accordance with
Exhibit C.
Please indicate your agreement with and acceptance of the foregoing terms
and provisions by signing the counterpart of this letter enclosed herewith and
returning it to Mercury Finance.
(Mercury Finance Company)
By
Its
Agreed to and accepted this 1st of day of August, 1990.
SECURITY PACIFIC NATIONAL
TRUST COMPANY (NEW YORK)
as Issuing and Paying Agent
By
Its
Exhibit B
Mercury Finance, a Delaware corporation hereby represents and
warrants to you that:
1. Due Incorporation. Mercury Finance has been duly incorporated and
is validly existing in good standing as a corporation under laws of the United
States and has all requisite corporate power and authority under its certificate
of incorporation and the laws of The State of Delaware to conduct its business
as proposed to be conducted.
2. Authorization of Agreements; No Conflict. The execution, delivery and
performance by Mercury Finance of the Issuing and Paying Agency Agreement (the
"Agreement"), the appointment of you to act for the Issuer under the Agreement
and the issuance and delivery of the Commercial Paper Notes (as defined in the
Agreement) are within Mercury Finance's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (i) the
certificate of incorporation or bylaws or (ii) any statute, order, rule,
regulation, judgment or contractual restriction binding on or purporting to bind
or affect.
3. No Governmental Consent Required. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
Mercury Finance of the Agreement or for the issuance and delivery of the
Commercial Paper Notes by or the consummation of other transactions by Mercury
Finance contemplated by the Agreement.
4. Valid and Binding. The Agreement is, and, when executed,
authenticated, delivered and paid for as required by the Agreement, the
Commercial Paper Notes will be, legal, valid and binding obligations of Mercury
Finance enforceable against Mercury Finance accordance with its or their terms,
except that (a) such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, (b) such enforceability may be
limited by general principles of equity, including, without limitation, concepts
of materiality, reasonableness, good faith and fair dealing (regardless of
whether such enforceability is considered in a proceeding in equity or at law),
and (c) rights to indemnity hereunder may be limited by applicable federal or
state securities laws.
COMMERCIAL PAPER DEALER AGREEMENT
AGREEMENT dated as of March 25, 1991 between MERCURY FINANCE COMPANY,
a Delaware corporation (the "Company"), and KIDDER, PEABODY & CO. INCORPORATED,
a Delaware corporation ("Kidder").
The Company may desire to issue Notes (as hereinafter defined) from
time to time and to have Kidder purchase Notes for its own account, as
principal, or arrange for the sale thereof for the account of the Company, as
agent, without recourse, and Kidder is prepared to do so upon and subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements,
representations, warranties and covenants hereinafter contained, the parties
hereto agree as follows.
SECTION 1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
"Information Documents" means (i) the Offering Memorandum/Credit
Report, if any, delivered by Kidder, pursuant to the Company's authorization, to
prospective purchasers of the Notes, to be prepared by and to contain the
information agreed upon by the Company and Kidder, and any amendment or
supplement thereto and (ii) any other materials which the Company may deliver to
Kidder with instructions to furnish the same to prospective purchasers of the
Notes.
"Issuing Agent" means Security Pacific National Trust Company (New
York), acting as issuing and paying or fiscal agent for the Company, or any
successor thereto which is a party to an Issuing and Paying Agreement.
"Issuing and Paying Agreement" means the agreement between the Company
and the Issuing Agent providing for the issuance and payment of the Notes, as
from time to time amended or modified, or any similar agreement with a successor
Issuing Agent.
"Note" means each promissory note of the Company issued pursuant to
and in substantially the form contemplated by the Issuing and Paying Agreement,
in a denomination of at least $100,000 and maturing not later than nine months
from the date of issue (exclusive of days of grace).
SECTION 2. ISSUANCE AND PURCHASE OF NOTES.
(a) The Company hereby appoints Kidder to act as a dealer in
connection with the sale of the Notes in accordance with the terms hereof and
Kidder hereby accepts such appointment. While (i) the Company has and shall
have no obligation to permit Kidder to purchase any Notes for its own account or
to arrange for the sale of Notes for the account of the Company and (ii) Kidder
has and shall have no obligation to purchase any Notes for its own account or to
arrange for the sale of Notes for the account of the Company, the parties agree
that, as to any and all Notes which Kidder purchases or the sale of which Kidder
arranges pursuant to this Agreement, such Notes will be purchased or sold by
Kidder in reliance on, among other things, the agreements, representations,
warranties and covenants of the Company contained herein and on the terms and
conditions and in the manner provided for herein. Kidder is authorized to sell
the Notes to or arrange the sale of the Notes with investors without recourse to
Kidder.
(b) If the Company and Kidder shall agree on the terms of the
purchase of any Note by Kidder or the sale of any Note arranged by Kidder
(including agreement with respect to the date of issue, purchase price,
principal amount, maturity, interest rate (in the case of interest-bearing
Notes) and discount rate thereof (in the case of Notes issued on a discount
basis), which shall include appropriate compensation for Kidder's services
hereunder) pursuant to this Agreement, the Company shall cause such Note to be
issued and delivered in accordance with the terms of the Issuing and Paying
Agreement. The authentication and delivery of such Note by the Issuing Agent
shall constitute the issuance of such Note by the Company. The Company shall
deliver Notes signed by the Company to the Issuing Agent and instructions shall
be delivered to the Issuing Agent to complete, authenticate and deliver such
Notes in the manner prescribed in the Issuing and Paying Agreement. Kidder
shall be entitled to compensation at such rates and paid in such manner as the
Company and Kidder shall from time to time agree and to reimbursement for its
out-of-pocket costs and expenses (including reasonable legal fees and
disbursements) in connection with the preparation of this Agreement, the
Information Documents and the other transactions contemplated hereby.
(c) Neither Kidder nor the Company has or will have any agreement,
understanding or other arrangement for extension or automatic rollover of any
Notes issued by the Company and purchased or sold by Kidder pursuant to this
Agreement.
(d) In connection with the issuance and placement of any Notes, the
Company hereby authorizes Kidder to deliver the Information Documents to
prospective purchasers of such Notes. The Company shall promptly furnish to
Kidder copies of all filings made by the Company with the Securities and
Exchange Commission and any United States securities exchange on which the
Company's securities are listed and copies of all proxy statements and other
information sent by the Company to its shareholders, in such quantities as
Kidder may reasonably request from time to time for distribution to prospective
purchasers of the Notes. The Company shall also furnish to Kidder copies of all
reports filed from time to time with rating agencies regarding it commercial
bank credit facilities and its outstanding commercial paper, copies of all
compliance certificates required to be delivered by the Company to lenders under
its credit facilities, and information generally supplied by the Company in
writing to securities analysts. In addition, the Company shall furnish to
Kidder within thirty (30) days of the end of each calendar quarter a statement
showing in reasonable detail the origination activity and delinquency rates of
the Company's receivables as of the end of the preceding month.
(e) The Company shall promptly inform Kidder by telephone, confirmed
in writing, if any event occurs or any circumstances exist as a result of which
the Information Documents (or any document delivered to Kidder for delivery to
prospective purchasers of the Notes pursuant to paragraph (d) above) would
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company shall
respond fully and promptly to all reasonable requests for information concerning
the Company made from time to time by Kidder.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Kidder that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
all requisite power, authority and legal right to make and perform the Notes,
this Agreement and the Issuing and Paying Agreement.
(b) The making and performance by the Company of this Agreement, the
Issuing and Paying Agreement and the Notes have been duly authorized by all
necessary corporate action of the Company and this Agreement and the Issuing and
Paying Agreement constitute, and the Notes when duly issued, authenticated and
delivered as provided in the Issuing and Paying Agreement will constitute,
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as enforceability may
be limited by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) or by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors rights generally.
(c) No consent of any person, corporation or other entity, and no
consent or action of, or filing or registration with, any governmental or public
regulatory body or authority is required to authorize, or is otherwise required
in connection with, the making or performance or the validity or enforceability
of this Agreement, the Issuing and Paying Agreement or the Notes, except as may
be required by state securities laws.
(d) Except as set forth in the Information Documents, there are no
legal or governmental proceedings or investigations pending, or to the best
knowledge of the Company threatened, against the Company or any of its
subsidiaries which might have a material adverse effect on business, condition
(financial or otherwise) or operations of the Company and its subsidiaries taken
as a whole or on the ability of the Company to perform its obligations under
this Agreement, the Issuing and Paying Agreement or the Notes or in any manner
affect the validity or enforceability thereof.
(e) The making and performance by the Company of this Agreement, the
Notes and the Issuing and Paying Agreement do not and will not conflict with or
result in a breach of or constitute a default under (i) the certificate of
incorporation or by-laws of the Company, (ii) any law or regulation applicable
to the Company or (iii) any contract, indenture, mortgage, deed of trust or
other agreement or instrument or any order, judgment, writ, injunction or decree
to which the Company is a party or by which the Company or any of its material
properties is bound.
(f) The Notes will constitute direct, unconditional, unsecured
obligations of the Company ranking pari passu among themselves and with all
other unsecured, unsubordinated indebtedness of the Company.
(g) The information relating to the Company and its subsidiaries and
the Notes which has been provided by the Company to Kidder, including without
limitation that which is contained in the Information Documents, does not and
will not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(h) The Notes are and will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "1933 Act"), by
reason of Section 3(a)(3) thereof, and neither registration of the Notes nor
qualification of an indenture with respect to the Notes under the Trust
Indenture Act of 1939, as amended, will be required in connection with the
offer, issuance, placement, sale or delivery of the Notes in accordance with the
terms of this Agreement and the Issuing and Paying Agreement.
(i) The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
Each delivery of a Note to Kidder or to a person whose purchase of the
Note was arranged by Kidder shall constitute a representation and warranty by
the Company on the date of such delivery that (i) the representations and
warranties of the Company in this Section 3 are true and correct on and as of
such date with the same effect as if made on and as of such date, (ii) the Notes
issued on such date have been duly and validly issued and delivered in
accordance with the Issuing and Paying Agreement, and (iii) the Company has
complied or will comply, as the case may be, with all covenants contained in
this Agreement. The Company shall not issue or cause to be issued any Note
unless such representations and warranties are true and correct.
SECTION 4. CONDITIONS PRECEDENT TO THE SALE OF THE NOTES.
Prior to the first purchase or sale of Notes hereunder, Kidder shall have
received the following documents:
(a) a favorable written opinion of counsel to the Company, addressed
to Kidder and satisfactory in the form set forth in Exhibit A hereto;
(b) evidence (including certified copies of the Company's charter and
by-laws and of appropriate corporate resolutions and incumbency certificates)
satisfactory to Kidder as to the due authorization of this Agreement, the
Issuing and Paying Agreement and the Notes:
(c) an executed copy of the Company's committed credit bank facility
which serves as the backup liquidity facility for the Notes;
(d) an original executed copy of the Issuing and Paying Agreement;
(e) the Company's written approval of the Information Documents and
authorization of Kidder to deliver the same to prospective purchasers of the
Notes, with a copy thereof attached thereto;
(f) evidence as to the rating (such rating to be satisfactory to
Kidder in its sole discretion) of the Notes by Fitch Investors, Inc. and Duff &
Phelps Credit Rating Co.; and
(g) such other documents relating to the transactions contemplated
hereby as Kidder may request.
SECTION 5. COVENANTS OF THE COMPANY.
The Company covenants with Kidder that:
(a) The Company will use the proceeds of the Notes as required by
Section 3(a)(3) of the 1933 Act.
(b) The Company will endeavor, in cooperation with Kidder, to qualify
the Notes for offer and sale under the applicable securities laws of such states
and other jurisdictions of the United States as Kidder may reasonably designate,
and will maintain such qualifications in effect for as long as may reasonably be
required for the distribution of the Notes. The Company will file such
statements and reports as may be required by the laws of each jurisdiction in
which the Notes have been qualified as above provided.
(c) The Company will not permit to become effective any amendment,
supplement, waiver or consent to or under the Issuing and Paying Agreement which
might adversely affect the interests of the holder of any Note then
outstanding. The Company shall give Kidder notice of any proposed amendment,
supplement, waiver or consent to or under the Issuing and Paying Agreement at
least 15 days prior to the effective date thereof.
(d) The Company shall cause Kidder to receive on any date specified
by Kidder in a notice to the Company delivered at least 15 days prior thereto
(which notice will not be given more than once in any six-month period) an
opinion of counsel to the Company, addressed to Kidder and satisfactory in form
and substance to Kidder, with respect to the matters set forth in the opinion to
be delivered pursuant to Section 4(a) hereof or such other matters as Kidder may
request.
(e) The Company will at all times maintain unused, unsecured and
committed credit facilities with banks or other lending institutions reasonably
satisfactory to Kidder in an amount (net of compensating balances, cash
collateral accounts and other similar arrangements restricting the availability
of funds thereunder) equal to at least 100% of the aggregate amount to be paid
upon maturity of the Notes then outstanding. The Company hereby agrees that
Kidder may furnish a copy of such credit facilities to prospective purchasers of
the Notes. The Company will promptly furnish to Kidder copies of all notices,
information and other documents given or delivered to or by the banks or other
lending institutions party to such credit facilities. The Company also will
give Kidder prompt notice of (i) the occurrence of any default or termination or
reduction of the commitments under such credit facilities and (ii) any
discussions with the Company's banks or other lending institutions party to such
credit facilities regarding any proposed amendment, supplement or waiver of the
terms thereof at least ten business days prior to its agreeing to an amendment,
supplement or waiver of any of the terms of such credit facilities. The Company
will not create, incur or permit to exist any mortgage, pledge, lien, security
interest or encumbrance of any nature on any of its assets or the assets of any
of its subsidiaries to secure any indebtedness under the Company's credit
facilities unless the Notes are equally and ratably secured thereby in a manner
satisfactory to Kidder.
SECTION 6. INDEMNIFICATION.
(a) The Company hereby indemnifies Kidder and holds Kidder harmless
from and against any and all losses, claims, liabilities, damages and expenses
as incurred (including without limitation reasonable legal fees and
disbursements) (collectively, "Losses") imposed upon, incurred by or asserted
against Kidder, which directly or indirectly arise out of, are based upon or
relate to (i) any untrue representation, warranty or certification or any breach
of agreement of the Company made hereunder or in connection with this Agreement,
or (ii) any allegation that any Information Document includes an untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, including without limitation Losses arising out
of or relating to any investigation or litigation or other proceedings (whether
or not Kidder is a party thereto), provided, that the foregoing indemnity shall
not apply to the extent any such Losses arise out of, are based upon or relate
to (x) Kidder's use of any Information Document in a form not approved by the
Company as herein contemplated or (y) information contained in any Information
Document concerning Kidder.
(b) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 6 is for
any reason held unavailable other than as expressly provided above, the Company
and Kidder shall, to the fullest extent permitted by law, contribute to the
aggregate costs of satisfying such Losses (i) in the proportion of their
respective economic interests in the transactions giving rise thereto or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the respective economic
interests referred to in clause (i) but also the relative fault of the Company
on the one hand and Kidder on the other in connection with the events which
resulted in such Losses, as well as any other relevant equitable considerations.
(c) The indemnification provisions and related agreements contained
herein shall survive any termination of this Agreement and the delivery of and
payment of any Notes. The obligations of the Company under this Section 6 shall
extend to each employee, agent, officer and director of Kidder and to each
corporation, entity or other person who controls Kidder within the meaning of
the 1933 Act.
SECTION 7. MISCELLANEOUS.
(a) Unless otherwise specifically provided for herein, all notices or
communications under this Agreement shall be in writing and shall be personally
delivered or sent by certified mail, postage prepaid, and return receipt
requested, or by telex, telecopier or telegram (such telex, telecopy or telegram
to be tested, authenticated or otherwise promptly confirmed by letter), and
shall be deemed to have been duly given and effective when received by the
intended party at its address specified below or at such other address as such
recipient may designate from time to time by notice to the other party:
Kidder: Kidder, Peabody & Co. Incorporated
10 Hanover Square
New York, New York 10005
Attention: Richard T. Millard
Senior Vice President
Telephone No.: (212) 510-4437
Telecopier.:(212) 797-8942
The Company: Mercury Finance Company
40 Skokie Boulevard
Suite 200
Northbrook, Illinois 60062
Attention: Charley A. Pond
Chief Financial Officer
Telephone No.: (709) 564-3720
Telecopier No.: (709) 564-3758
(b) This Agreement shall be governed by, and construed in accordance
with, the laws of the state of New York.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided that
the Company shall not assign its rights or obligations hereunder. This
Agreement shall not be amended, supplemented, waived, modified or altered in any
manner whatsoever except by written instrument signed by each of the parties
hereto.
(d) This Agreement may be terminated by the Company or Kidder without
assigning a reason therefor by written notice to the other part hereto, such
notice to take effect immediately or on such later date as shall be specified in
such notice; provided, however, that such termination shall not affect (i) any
obligation of the Company with respect to any Note outstanding or contracted to
be placed, purchased or sold at the time of such termination or with respect to
any action or event occurring prior to such termination, (ii) any obligation of
the Company under Section 6 and the last sentence of Section 2(b) hereof or
(iii) any obligation of Kidder with respect to any prior agreement to purchase
or place any Note.
(e) This Agreement may be executed in two counterparts, each of which
shall constitute an original but both of which, when taken together, shall
constitute one and the same instrument.
(f) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions hereof or affecting the validity or enforceability of
such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers on
the day and year first above written.
MERCURY FINANCE COMPANY
By
Title:
KIDDER, PEABODY & CO. INCORPORATED
By:
Title:
Mercury Finance Company
40 Skokie Boulevard, Suite 200
Northbrook, IL 60062
(708) 584-3720
March 23, 1994
NationsBanc Capital Markets, Inc.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
Gentlemen:
This letter agreement (the "Agreement") sets forth our understanding of the
basis on which NationsBanc Capital Markets, Inc. ("NCMI") proposes to work with
Mercury Finance Company ("Company"), in connection with the issuance and sale by
the Company of its short-term promissory notes, generally known as commercial
paper (the "Notes"). While (i) the Company shall have no obligation to sell the
Notes to, or to or arrange sales of Notes through, NCMI, and (ii) NCMI shall
have no obligation to purchase the Notes from, or arranges sales of Notes for,
the Company, the Company has requested NCMI to act as commercial paper dealer
therefor and NCMI has indicated its willingness to do so on the terms and
conditions contained herein.
The proceeds from the sale of the Notes will be used by the Company for current
transactions as contemplated by Section 3(a)(3) of the Securities Act of 1933,
as amended.
It is contemplated that the maximum amount of Notes to be outstanding at any one
time will not exceed Five hundred million dollars ($500,000,000). The Notes
will be in such principal amounts (but not less than $100,000 each or any
integral multiple of $1,000 in excess thereof), will have such maturities (not
in excess of 270 days from the date of issuance exclusive of days of grace),
will not contain any provision for automatic extension, renewal or "rollover",
and will bear such interest rates (if interest bearing), or will be sold at such
discounts, if any, from their principal amounts, as shall be mutually agreed to
by the Company and NCMI at the time of each purchase or placement.
On the date of a proposed issuance of any Notes, NCMI shall confer with the
Company as to the principal amounts, maturities and denominations thereof, the
interest rate thereon, if any, or the discount, if any, from the principal
amount, at which the Notes are to be purchased from the Company. When agreement
is reached on the foregoing, the Company will instruct Bank America National
Trust Co. or another issuing agency designated by the Company in a written
notice to NCMI, to deliver executed and countersigned Notes to Bankers Trust
Company ("Bankers Trust"), 16 Wall Street, 4th Floor, Window 43, (a/c NCMI
Clearing, further credit a/c #90659, prior to 2:15 p.m. New York City time, on
the date of purchase, or to such other address as NCMI shall notify the
Company. If Notes are to be issued in book-entry form through Depository
Trust Company ("DTC"), deliveries shall be made to DTC account number 2902.
Upon receipt of duly and properly completed Notes by NCMI, NCMI or its agent
will instruct Bankers Trust or another bank chosen by NCMI to transfer by the
close of business on such day in immediately available funds, an amount equal
to the net proceeds of the Notes, to BANK AMERICA NATIONAL TRUST CO., or
another bank designated by the Company in a written notice to NCMI, for the
account of the Company. NCMI will mail written confirmations of each such
purchase or placement to the Company, which confirmations shall set forth
principal amounts, maturities and denominations of the Notes purchased or
placed and the applicable interest rates or discounts.
The Company understands that, in connection with the sale of the Notes,
information reports relating to the Company and its affiliates may be prepared
(hereinafter called the "Offering Materials"), which are distributed to NCMI
account executives and sales personnel and/or to purchasers and prospective
purchasers of the Notes. To provide a basis for the preparation of the Offering
Materials and to assist NCMI's normal credit review procedures, the Company
shall provide NCMI with copies of its and its affiliates' publicly available
recent reports, including any filings or reports provided to their respective
shareholders, any national securities exchanges or any rating agency and any
information generally supplied in writing to security analysts. In addition,
the company will provide NCMI any other information that NCMI shall reasonably
request for the purpose of the on-going credit review of the Company.
NCMI agrees to furnish the Company for review and approval the above-mentioned
information reports. No such information or any other written information,
circulars, statements to purchasers or potential purchasers will be so
distributed by NCMI without the prior written approval of either the Company or
its counsel unless such information is otherwise publicly available. The
Company shall indicate its written approval or disapproval of such information
by the close of business of the tenth calendar day after such information is
sent to the Company. Any such approval by the Company shall be deemed to be a
representation by it that the information so approved does not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they are made, not misleading. If, at any time during the term of this
Agreement, any event occurs or circumstances exist as a result of which any then
current offering material would include such an untrue statement or omission,
the Company will promptly notify NCMI and provide to NCMI revised information
that corrects such untrue statement or omission. The Company agrees that NCMI's
acting as a dealer for the Notes is conditioned upon its being able to provide
such information to purchasers or potential purchasers as NCMI deems
appropriate.
The Company agrees that, in connection with this Agreement and the issue and
sale of the Notes by the Company, the Company will not knowingly make any untrue
statement (whether written or oral) of a material fact, or omit to state a
material fact necessary to make any statement, in light of the circumstances
under which it was made, not misleading, and the Company will not employ any
device, scheme of artifice to defraud or engage in any act, practice or course
of conduct which would operate as a fraud or deceit.
The Company represents and warrants that:
(a) the issue and sale of the Notes have been duly authorized and, upon
issuance and payment therefor in accordance with this Agreement and
delivery in accordance with the Depositary Agreement, the Notes will be
duly and validly issued and delivered and will constitute legal, valid and
binding obligations of the Company enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law),
(b) upon issuance, the Notes will be exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section
3(a)(3) thereof,
(c) this Agreement and the Depositary Agreement have been duly authorized,
executed and delivered by the Company and constitute legal, valid and
binding obligations of the Company enforceable against the Company in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and
subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law) and
to limitations on indemnification under applicable law,
(d) there are no consents, authorizations or approvals of, or filings
with, any government authority required in connection with the issuance or
sale by the Company of the Notes or the performance of its obligations
thereunder or under this Agreement, except as may be required by state
securities laws,
(e) the Company is not an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act
of 1940, as amended,
(f) the obligations of the Company under the Notes rank at least pari
passu with all other unsecured obligations of the Company for money
borrowed or advance of credit or represented by guarantees, and
(g) the financial reports prepared by the Company are and will be in
accordance with its books and records, and are and will be complete and
correct and present fairly its financial position as of the dates set forth
therein, all in conformity with generally accepted accounting principles
and practices applied on a consistent basis, it being understood that in
the case of quarterly reports, there may be normal year-end adjustments.
Each sale of Notes by the Company hereunder shall be deemed to be a
representation by it that:
(a) the representations, warranties and covenants of the Company contained
or incorporated in this Agreement are true and correct on and as of the
date of such sale, and
(b) no event has occurred and is continuing, or would result from such
sale, which constitutes or would constitute an event of default under any
of the Company's indebtedness for money borrowed, obligations as lessee
under capital leases or under any guarantees by the Company of such
indebtedness or capital lease obligations or which would cause, or permit
the holder of such indebtedness or obligation to cause, such indebtedness
or obligation to become due prior to its stated maturity.
The Company will indemnify and hold harmless NCMI and any affiliate, director,
officer, employee or agent of NCMI against any and all liabilities, losses,
damages, claims, costs and expenses (including without limitation reasonable
fees and disbursements of counsel):
(a) arising out of or based upon any allegation that any information
report or any information provided to NCMI hereunder includes an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or
(b) arising out of the breach by the Company of any agreement or
representation made or deemed made pursuant to this Agreement or (c)
arising out of or related in any way to the Depositary Agreement or the
transactions contemplated thereby, or
The above indemnification shall not apply to the extent that the liability,
loss, damage, claim, cost or expense arises from (1) the inclusion by NCMI of an
untrue statement of a material fact or omission to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in any Annual
Information Report or Interim Information Report that has not been approved by
the Company pursuant to this Agreement, (2) any device, scheme, or artifice to
defraud or engage in any act, practice or course of conduct on the part of NCMI
which would operate as a fraud or deceit, or (3) NCMI's gross negligence or
willful misconduct in the performance or failure to perform its obligations
under this agreement. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in this paragraph is
for any reason held unenforceable, although applicable in accordance with the
terms of this paragraph, the Company, on the one hand, and NCMI, on the other
hand, shall contribute to the aggregate costs of any such claim in the
proportion of their respective economic interests. The respective economic
interests shall be calculated by reference to the aggregate proceeds to the
Company of the Notes sold hereunder to, or through, NCMI and the aggregate
commissions and fees earned by or through NCMI hereunder.
The Company shall reimburse NCMI for all of its out-of-pocket expenses related
to this Agreement and the transactions contemplated hereby (including but not
limited to the printing and distribution of any Annual Information Report or
Interim Information Report and any advertising expenses) and for the reasonable
fees and out-of-pocket expenses of NCMI's counsel.
The Company agrees to treat all knowledge, information and records, from
whatever source, whether written or otherwise, relating to investors of the
Notes as the confidential and proprietary records of NCMI. No such knowledge,
information or records may be released by the Company to any other person or
party without the express prior written consent of NCMI, unless (i) such
knowledge, information or records have become available to the public other than
as a result of a disclosure by or through the Company, or (ii) the Company is
required in connection with any legal or regulatory proceeding to disclose such
knowledge, information or records; provided, however, that in the event that the
Company is so required, the Company agrees to provide NCMI with prompt oral and
written notice, unless notice is prohibited by law (in which case such notice
shall be provided as soon as legally permissible), of any such requirement so
that NCMI or its affiliates may seek a protective order or other appropriate
remedy. The Company agrees to cooperate with NCMI, at its expense, any efforts
to obtain such remedies, but this provision shall not be construed to require
the Company to undertake litigation or other legal proceedings on its own
behalf. In the event that such protective order or other remedy is not promptly
obtained, such portions of such knowledge, information or records as, pursuant
to the written opinion of counsel addressed to NCMI, are required to be
disclosed, may be disclosed, and the person making such disclosure will exercise
reasonable efforts to obtain reliable assurance that confidential treatment will
be accorded thereto. In addition, the knowledge, information or records may be
disclosed to the extent required in the course of inspections or inquiries by
federal or state regulatory agencies to whose jurisdictions the Company is
subject and that have the legal right to inspect the files that contain the
knowledge, information or records, provided that the Company shall advise NCMI
promptly both telephonically and in writing prior to such disclosure.
All notices required or permitted under the terms and provisions hereof shall be
in writing (which shall include electronic transmission) and shall, unless
otherwise provided herein, be effective when received at the address specified
below or at such other address as shall be specified in a notice furnished
hereunder.
If to the Company:
Charles A. Pond
Mercury Finance Company
40 Skokie Blvd., Ste. 200
Northbrook, IL 60062
Telephone: (708) 564-3720
Facsimile: (708) 564-3758
If to NCMI:
Mr. Steven P. Shorkey
NationsBanc Capital Markets, Inc.
NationsBank Corporate Center
100 N. Tryon Street NC1007-006-07
Charlotte, NC 28255
Telephone: (704) 386-5104
Facsimile: (708) 386-2117
This Agreement may be terminated, at any time, by the Company, upon notice to
such effect to NCMI, or by NCMI, upon notice to such effect to the Company. Any
such termination, however, shall not affect the rights or responsibilities of
the parties arising prior to the termination of this Agreement.
This Agreement is to be delivered and performed, and shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of New York.
If the foregoing is in accordance with your understanding of this Agreement,
please sign and return to us a counterpart hereof, whereupon this Agreement
along with all counterparts will become a binding agreement among the parties
hereto in accordance with its terms.
Very truly yours,
Accepted and agreed to as of the date first written above.
MERCURY FINANCE COMPANY
BY: /s/ Charley Pond
Charley Pond
Vice President, Treasurer and Chief Financial Director
NATIONSBANC CAPITAL MARKETS, INC.
BY: /s/ Steven P. Shorkey
Steven P. Shorkey
Senior Vice President
DEALER AGREEMENT
THIS DEALER AGREEMENT, dated as of October 24, 1994, between BA
Securities, Inc., a Delaware corporation (the "Dealer"), and Mercury Finance
Company, a Delaware corporation (the "Company").
WHEREAS, the Company desires to issue its short-term promissory notes
in the United States commercial paper market,
WHEREAS, the Company has requested the Dealer to act as dealer
therefor and the Dealer has indicated its willingness to do so on the terms and
conditions contained herein,
NOW, THEREFORE, the Dealer and the Company hereby agree as follows:
1. The Notes. The term "Notes" means short-term promissory notes of
the Company, each such note (a) having a maturity at the time of issuance of not
more than 270 days (exclusive of days of grace) and (b) not containing any
provision for automatic "rollover". The proceeds from the sale of the Notes
will be used by the Company for "current transactions" within the meaning of
Section 3(a)(3) of the Securities Act of 1933, as amended (the "1933 Act"). The
Notes will be issued in such face or principal amounts (but not less than
$100,000 each) and will bear such interest (if interest-bearing) or be sold at
such discounts, if any, from their face amounts, as shall be approved by the
Company.
2. Appointment of Dealer. The Company hereby appoints the Dealer to
be the dealer in respect of the Notes and the Dealer accepts such appointment
subject to the terms and conditions set forth herein. Although (a) the Company
has and shall have no obligation to sell Notes to the Dealer or to permit the
Dealer to arrange any sale of Notes for the account of the Company, and (b) the
Dealer has and shall have no obligation to purchase Notes from the Company or to
arrange any sale of Notes for the account of the Company, the parties hereto
agree that any sale of Notes to the Dealer or arranged by the Dealer will be
sold by the Dealer in reliance on, among other things, the representations,
warranties, covenants and agreements of the Company contained herein or made
pursuant hereto and on the terms and conditions and in the manner provided
herein. From time to time, the Company shall give the Dealer prior written
notice of the entity serving as the issuing and paying agent for the Notes (the
"Issuing and Paying Agent").
3. Issuance of Notes. (a) Prior to or on the date of the proposed
issuance of Notes, the Dealer and the Company shall confer as to the face or
principal amounts, maturities and denominations thereof, the applicable interest
rates or the discounts from the face amounts, at which the Notes are to be
issued. When the Company has approved such issuance, the Dealer will instruct
the Issuing and Paying Agent to deliver executed and countersigned Notes to the
persons specified by the Dealer on the date of issuance.
(b) The authentication and delivery of Notes pursuant hereto by the
Issuing and Paying Agent shall constitute the issuance of such Notes by the
Company. The Company agrees that (i) signed Notes in bearer form shall be
delivered to the Issuing and Paying Agent and (ii) instructions to the Issuing
and Paying Agent to complete, authenticate and deliver such Notes shall be made
in the manner prescribed in the agreement between the Company and the Issuing
and Paying Agent (as amended from time to time, the "Issuing and Paying Agency
Agreement").
4. Representations and Warranties. The Company represents and
warrants that: (a) the Company is a duly organized and validly existing
corporation in good standing under the laws of the state of its incorporation
and has the corporate power and authority to own its property and to carry on
its business as presently being conducted, to execute and deliver this
Agreement, the Issuing and Paying Agency Agreement and the Notes, and to perform
and observe the conditions hereof and thereof; (b) the execution and delivery
and performance of this Agreement and the Issuing and Paying Agency Agreement
and the issuance and sale of the Notes have been duly authorized by the Company,
and this Agreement and the Issuing and Paying Agency Agreement constitute, and
when the Notes have been duly executed by the Company and countersigned and
delivered by the Issuing and Paying Agent against payment therefor, such Notes
will constitute legal, valid and binding obligations of the Company, enforceable
in accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws relating to or affecting generally
the enforcement of creditors' rights or by general equitable principles; (c) no
consent or action of, or filing or registration with, any governmental or public
regulatory body or authority is required to authorize, or is otherwise required
in connection with, the execution, delivery or performance of this Agreement,
the Issuing and Paying Agency Agreement or the Notes, except such as have
already been obtained; (d) neither the execution and delivery by the Company of
this Agreement, the Issuing and Paying Agency Agreement or the Notes, nor the
fulfillment of or compliance with the terms and provisions hereof or thereof by
the Company, will (i) result in the creation or imposition of any mortgage,
lien, charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Company; (ii) violate any of the terms of the Company's charter
documents or By-laws, any contract or instrument to which the Company is a party
or to which it or its property is bound, or any law or regulation or any order,
writ, injunction or decree of any court or governmental instrumentality, to
which the Company is subject or by which it or its property is bound; (e) each
Note issued by the Company pursuant to the terms hereof and of the Issuing and
Paying Agency Agreement is exempt from the registration requirements of the 1933
Act by reason of Section 3(a)(3) thereof, and neither registration of the Notes
under the 1933 Act nor qualification of an indenture under the Trust Indenture
Act of 1939, as amended, with respect to the Notes will be required in
connection with the offer, issuance, sale or delivery of the Notes in accordance
with the terms hereof and of the Issuing and Paying Agency Agreement; (f) the
Company is neither an "investment company" nor a "company controlled by an
investment company" within the meaning of the Investment Company Act of 1940, as
amended; and (g) there are no actions, suits, proceedings, or investigations
pending or threatened against the Company or any of its officers, directors or
persons who controls the Company (within the meaning of Section 15 of the 1933
Act or Section 20 of the Securities Exchange Act of 1934, as amended) or to
which any property of the Company is subject, which could in any way materially
prevent or interfere with or materially and adversely affect the Company's
execution, delivery or performance of this Agreement, the Issuing and Paying
Agency Agreement or the Notes.
5. Offering Materials. (a) The Company understands that, in
connection with the sale of the Notes, certain materials relating to the Company
and its affiliates may be prepared (collectively referred to herein as the
"Offering Materials"), which are distributed to purchasers and prospective
purchasers of the Notes. To provide a basis for the preparation of the Offering
Materials and to assist the Dealer's normal credit review procedures, the
Company shall provide the Dealer with copies of (i) its most recent reports of
the Company on Forms 10-Q and 10-K filed with the Securities and Exchange
Commission ("SEC") and each report on Form 8-K filed by the Company with the
SEC, (ii) its most recent annual audited financial statements and each interim
financial statements or report prepared subsequent thereto, and (iii) its and
its affiliates' other publicly available recent reports, including any filings
or reports provided to their respective shareholders, any national securities
exchanges or any rating agency and any information generally supplied in writing
to security analysts. In addition, the Company will provide the Dealer with
such other information as the Dealer may reasonably request for the purpose of
its on-going credit review of the Company.
(b) The Dealer agrees to furnish all Offering Materials to the
Company for its written approval prior to the use thereof in offering the
Notes. No other written information, circulars or statements will be
distributed by the Dealer. If the Company has not indicated its written
approval and has not indicated in writing the reasons why such approval
cannot be given by the fourteenth calendar day after the Offering Materials
are sent to the Company, the Offering Materials shall be deemed approved by
the Company on such fourteenth day. Any such approval by the Company shall
be deemed to be a representation by it that the Offering Material so approved
does not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If, at any time
during the term of this Agreement, any event occurs or circumstances exist as
a result of which any then current Offering Material would include such an
untrue statement or omission, the Company will promptly notify the Dealer and
provide to the Dealer revised information that corrects such untrue statement
of omission.
6. Repetition of Representation and Warranties. Each sale of Notes by the
Company hereunder shall be deemed to be a representation and warranty by it
that: (a) the representations, warranties and covenants of the Company
contained in Sections 4, 5(b), 6(b) and 8(b) of this Agreement are true and
correct on and as of the date of such sale; and (b) there has been no material
adverse change in the financial condition or operations of the Company since the
date of the most recent Offering Materials which has not been disclosed to the
Dealer in writing.
7. Conditions Precedent to Dealer's Obligations. As conditions precedent
to any obligations of the Dealer hereunder, the Company shall furnish to the
Dealer the following documents, in form and substance satisfactory to the
Dealer: (a) a true and complete copy of the Issuing and Paying Agency
Agreement; (b)(i) a certified copy of resolutions, substantially in the form of
Exhibit A, duly adopted by the Board of Directors of the Company and (ii) a
certificate substantially in the form of Exhibit B; and the acceptance by the
Company of proceeds from each sale of Notes hereunder shall be deemed to
constitute a representation and warranty by the Company that such certificates
are accurate and complete and that such resolutions are in full force and
effect, in each case, as of the date of such acceptance of proceeds; and (c) an
opinion of counsel to the Company, substantially in the form of Exhibit C.
8. Covenants of the Company. The Company covenants and agrees that:
(a) For the benefit of the Dealer and the holders from time to time of the
Notes, the Company will not permit to become effective any amendment,
supplement, rider, waiver or consent to or under any Note, the Issuing and
Paying Agency Agreement or any document prepared in connection with any thereof
which might adversely affect the interests of the holder of any Note then
outstanding. The Company will give the Dealer written notice of any such
proposed amendment, supplement, rider, waiver or consent at least ten days prior
to the effective date thereof. (b) The Company agrees to furnish prior notice
to the Dealer of any proposed resignation, termination or replacement of the
Issuing and Paying Agent.
9. Indemnification. The Company will indemnify and hold harmless the
Dealer and any affiliate, director, officer, employee or agent of the Dealer and
any person or entity controlling the Dealer (each, an "Indemnified Party")
against any and all liabilities, losses, damages, claims, costs and expenses
(including, without limitation, reasonable fees and disbursements of counsel)
(a) arising out of or based upon any allegation that any Offering Material or
any information provided to the Dealer hereunder includes an untrue statement of
a material fact or omits to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, (b) arising out of the breach by the Company of any agreement or
representation or warranty made or deemed made pursuant to this Agreement, or
(c) arising out of or based upon the issuance of the Notes or the transactions
contemplated hereby.
The above indemnification shall not apply to the extent that the liability
arises from the inclusion by any Indemnified Party in any Offering Material that
has not been approved or deemed approved by the Company pursuant to Section 5 of
this Agreement, of any untrue statement of a material fact or an omission to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. In order to
provide for just and equitable contribution in circumstances in which the
indemnification provided for in this Section is for any reason held
unenforceable, although applicable in accordance with the terms of this Section,
the Company, on the one hand, and the Dealer, on the other hand, shall
contribute to the aggregate costs of any such claim in the proportion of their
respective economic interests. The respective economic interests shall be
calculated by reference to the aggregate proceeds to the Company of the Notes
sold hereunder and the aggregate commissions and fees earned by the Dealer.
10. Compensation. The Dealer shall be entitled to compensation in
the amounts mutually agreed upon (orally or in writing) between the Company and
the Dealer from time to time.
11. Notices. All notices required or permitted under the terms and
provisions hereof shall be in writing (which shall include facsimile
transmission) and shall, unless otherwise provided herein, be effective when
received at the address specified below or at such other address as shall be
specified in a notice furnished hereunder.
If to the Company:
Mercury Finance Company
40 Skokie Boulevard, Suite 200
Northbrook, IL 60062
Attention: Legal Department
Tel. No.: (708) 564-3720
Telex No.: _____________________
Facsimile No.: (708) 564-3758
If to the Dealer:
BA Securities, Inc.
Money Markets
555 California Street, 12th Floor
San Francisco, CA 94104
Attention: Manager
Tel. No.: (415) 953-1452
Facsimile No.: (415) 622-3429
12. Miscellaneous. This Agreement is to be delivered and performed,
and shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the internal laws of the State of Illinois.
(a) The Company agrees that any suit, action or proceeding
brought by the Company against the Dealer in connection with or
arising out of this Agreement or the offer and sale of Notes shall be
brought solely in federal or state court, located in the City of
Chicago, State of Illinois.
(b) This Agreement may be terminated, at any time, by the Company,
upon notice to such effect to the Dealer, or by the Dealer, upon notice to
such effect to the Company. Any such termination, however, shall not
affect the obligations of the Company under Sections 9 and 10 hereof or the
rights or responsibilities of the parties arising prior to the termination
of this Agreement.
(c) This Agreement may not be assigned by the Company without the
prior consent of the Dealer and any such assignment without such consent
shall be null and void. This Agreement may be assigned or transferred by
the Dealer to any affiliate of the Dealer upon at least 30 days prior
written notice to the Company.
(d) This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument and
any party hereto may execute this Agreement by signing one or more
counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
BA Securities, Inc.
By:
Title:
Mercury Finance Company
By:
Title: Vice President and Treasurer
EXHIBIT A
Mercury Finance Company
Certificate as to Resolutions
I, James A. Doyle, Secretary of Mercury Finance Company, a Delaware corporation
(the "Company"), DO HEREBY CERTIFY, in connection with the issuance and sale of
short-term promissory notes under the Dealer Agreement, dated as of October 24,
1994 between the Company and BA Securities, Inc., as dealer (the "Dealer
Agreement;" the terms defined therein being used herein as therein defined),
that:
1. The resolutions attached hereto were duly adopted by the Board of
Directors of the Company (by unanimous written consent dated October 22, 1993)
(at a meeting thereof duly called and held on October 24, 1994, at which meeting
a quorum was present and acting throughout):
Such resolution has not been amended, modified or revoked and is in
full force and effect on the date hereof.
2. The Dealer Agreement, as executed and delivered on behalf of the
Company, is substantially on the form thereof approved by the Board of Directors
and referred to in the resolutions set out in paragraph 1 hereof.
IN WITNESS WHEREOF, I have signed this certificate this 24th day of
October, 1994.
/s/ James A. Doyle
James A. Doyle
Secretary
EXHIBIT B
Mercury Finance Company
Incumbency and Signature Certificate
I, James A. Doyle, Secretary of Mercury Finance Company, a Delaware corporation
(the "Company"), DO HEREBY CERTIFY, in connection with the issuance and sale of
short-term promissory notes under the Dealer Agreement, dated as of October 24,
1994 between the Company and BA Securities, Inc., as dealer (the "Dealer
Agreement;" the terms defined therein being used herein as therein defined),
that: (i) the below named persons have been duly elected (or appointed) and
have duly qualified as, and on this day are, officers of the Company holding
their respective offices set opposite their names; (ii) each such officer is
duly authorized to act on behalf of the Company in connection with the
authorization of, and the transmission of information and other communications
with the Dealer concerning, the sale from time to time by the Dealer of Notes on
behalf of the Company; and (iii) the signature set opposite the name of each
such officer is the genuine signature of such officer:
John N. Brincat President and Chief
Executive Officer /s/ John N. Brincat
James A. Doyle Senior Vice President, /s/ James A. Doyle
Controller, and Secretary
Charley A. Pond Vice President, Treasurer, /s/ Charley A. Pond
and Chief Financial Officer
/s/ James A. Doyle
James A. Doyle
Secretary
I, Mark E. Dapier, General Counsel of the Company, DO HEREBY CERTIFY
that James A. Doyle (Secretary) has been duly elected (or appointed) and has
duly qualified as, and on this day is, Secretary of the Company, and the
signature above is his genuine signature.
IN WITNESS WHEREOF, I have signed this certificate this 24th day of
October, 1994.
/s/ Mark E. Dapier
Mark E. Dapier
General Counsel
Mercury Finance Company
EXHIBIT C
Opinion of Counsel to the Company
October 24, 1994
Gentlemen:
I have acted as counsel to Mercury Finance Company, a Delaware
corporation (the "Company"), in connection with the proposed offering and sale
by the Company in the United States of commercial paper in the form of short-
term promissory notes (the "Notes").
In my capacity as such counsel, I have examined a special form of
Note, an executed copy of the Dealer Agreement, dated as of October 24, 1994
(the "Dealer Agreement"), between the Company and BA Securities, Inc. as dealer
(the "Dealer"), and the Issuing and Paying Agency Agreement dated August 1, 1990
(the "Issuing and Paying Agency Agreement") as well as originals, or copies
certified or otherwise identified to our satisfaction, of such other records and
documents as I have deemed necessary as a basis for the opinions expressed
below. In such examination, I have assumed the genuineness of all signatures,
the authenticity of all documents submitted to me as originals, and the
conformity to the originals of all documents submitted to me as copies.
In rendering the opinions expressed below, I have assumed that the
Notes will be offered and sold in accordance with the terms and conditions set
forth in the Dealer Agreement.
Based upon the foregoing and having regard for such legal
considerations as I have deemed relevant, it is my opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of Delaware.
2. The execution, delivery and performance by the Company of the
Dealer Agreement, and the Issuing and Paying Agency Agreement and the execution,
issuance and performance by the Company of Notes issued under the Dealer
Agreement and the Issuing and Paying Agency Agreement, (i) have been duly
authorized by all necessary corporate action and (ii) do not contravene the
charter or by-laws of the Company or any law or contractual restriction binding
on or affecting the Company.
3. The Dealer Agreement and the Issuing and Paying Agency Agreement
have been duly executed and delivered by the Company, and each of the Issuing
and Paying Agency Agreement and the Dealer Agreement constitutes, and the Notes
(when duly executed and issued pursuant to the Issuing and Paying Agency
Agreement) against delivery and payment of the purchase price, will constitute
legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally.
4. No consent or action of, or filing or registration with, any
government or public regulatory body or authority is required to authorize, or
is otherwise required in connection with, the execution, delivery or performance
of the Dealer Agreement, the Issuing and Paying Agency Agreement or the Notes
except such as have already been obtained.
5. Neither the execution and delivery by the Company of the Dealer
Agreement, the Issuing and Paying Agency Agreement or the Notes, nor the
fulfillment of or compliance with the terms and provisions hereof or thereof by
the Company, will (i) to the best of my knowledge result in the creation or
imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever
upon any of the properties or assets of the Company; (ii) violate any of the
terms of the Company's charter documents or by-laws; (iii) to the best of my
knowledge violate the terms of any order, writ, injunction or decree of any
court or governmental instrumentality, to which the Company is a party or by
which it or its property is bound; nor (iv) to the best of my knowledge violate
the terms of any mortgage, indenture, agreement or instrument to which the
Company is a party or by which it or its property is bound.
6. Each Note issued by the Company pursuant to the terms of the
Dealer Agreement and of the Issuing and Paying Agency Agreement is exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"1933 Act") by reason of Section 3(a)(3) thereof, and neither registration of
the Notes under the 1933 Act nor qualification of an indenture under the Trust
Indenture Act of 1939, as amended, with respect to the Notes will be required in
connection with the offer, issuance, sale or delivery of the Notes in accordance
with the terms hereof and of the Issuing and Paying Agency Agreement. The
Company is not an "investment company" nor a "company controlled by an
investment company" within the meaning of the Investment Company Act of 1940, as
amended.
7. There are no actions, suits, proceedings, or investigations
pending or threatened against the Company which could in any way materially
prevent or interfere with or materially and adversely affect the Company's
execution, delivery or performance of the Dealer Agreement, the Issuing and
Paying Agency Agreement or the Notes.
This opinion may be delivered to the Issuing and Paying Agent and any
nationally rating service (in connection with the rating of the Notes), each of
which may rely on this opinion to the same extent as if such opinion were
addressed to it.
Very truly yours,
/s/ Mark E. Dapier
Mark E. Dapier
General Counsel
MERCURY FINANCE COMPANY
EXECUTIVE COMMITTEE OF THE
BOARD OF DIRECTORS
RESOLUTIONS 93-4
FURTHER RESOLVED, that the President or the Treasurer or the Secretary
of this Corporation be and any one of them are hereby authorized and empowered,
for and on behalf of the Corporation, to discount, sell or negotiate with
Chicago Corporation or Continental Bank NA or Kidder Peabody or such other
entity or entities as they shall determine, drafts, loans, notes, or other bills
receivable and to borrow money from Chicago Corporation or Continental Bank NA
or Kidder Peabody or such other entity or entities as they shall determine from
time to time for the purpose of current transactions or the proceeds of which
have been or will be used for the current transactions, and to execute notes,
papers and other obligations thereof in negotiable form having maturities at the
time of issuance not exceeding nine (9) months, and in an aggregate principal
amount not to exceed $500 million, and upon such other terms and conditions so
as to qualify such instruments as "commercial paper" within the meaning of
Section 3(a)3 of the Securities Act of 1933 as amended, and at such rate of
interest, as may be agreed upon by said Chicago Corporation or Continental Bank
NA or Kidder Peabody or such other entity or entities duly appointed and
authorized and said officer or officers of the Corporation.
FURTHER RESOLVED, that the proper officers of this Corporation are
authorized to do and perform all such other acts and things, and to execute and
deliver such other documents, as may be necessary or appropriate in connection
with the above approved issuance and sale of the unsecured short term promissory
notes.
RESOLVED, that the President or the Treasurer or the Secretary of this
Corporation, be and any one of them is hereby authorized, for and on behalf of
this Corporation, to apply to banks for their commitments under Revolving Credit
Agreements (the "Agreements"); which Agreements shall provide that each Bank
agrees to make a loan to the Corporation from time to time on a revolving basis
in the amount of each Bank's commitment up to $500,000,000 aggregate principal
amount at any time outstanding, together with such changes, omissions or
additions as the officer executing the same may approve, such approval to be
conclusively evidenced by his execution thereof.
FURTHER RESOLVED, that the President or the Treasurer or the Secretary
to be and any one of them is hereby authorized and directed to execute and
deliver from time to time Revolving Credit Notes of this Corporation, in
accordance with such above approved Agreements, such Notes to be substantially
in the form of the Notes attached as schedules to those Agreement, together with
such changes, omissions or additions as the officers executing the same may
approve, such approval to be conclusively evidenced by their execution thereof.
FURTHER RESOLVED, that the proper officers of this Corporation are
hereby to do and perform all such other acts and things, and to execute and
deliver such other documents, as may be necessary or appropriate in connection
with such approved Agreements or approved Notes, or otherwise in the premises.
MERCURY FINANCE COMPANY
SENIOR NOTE AGREEMENT
Dated as of April 5, 1996
Re: $31,000,000 6.76% Senior Notes, Series A,
due April 5, 1999
$15,000,000 6.94% Senior Notes, Series B,
due April 5, 2000
$10,000,000 7.02% Senior Notes, Series C,
due April 5, 2001
and
$4,000,000 7.14% Senior Notes, Series D,
due April 5, 2002
TABLE OF CONTENTS
SECTION HEADING PAGE
SECTION 1. ISSUANCE AND SALE OF NOTES. . . . . . . . . . . . . . . . . . . 1
Section 1.1. Issue of Notes . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. The Closing . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3. Other Agreements . . . . . . . . . . . . . . . . . . . . 3
Section 1.4. Representations of Purchaser . . . . . . . . . . . . . . 3
Section 1.5. Failure to Deliver . . . . . . . . . . . . . . . . . . . 4
Section 1.6. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2. WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . 5
Section 2.1. Subsidiaries and Affiliates . . . . . . . . . . . . . . 5
Section 2.2. Organization and Authority . . . . . . . . . . . . . . . 5
Section 2.3. Indebtedness . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.4. Financial Statements . . . . . . . . . . . . . . . . . . 6
Section 2.5. Full Disclosure . . . . . . . . . . . . . . . . . . . . 6
Section 2.6. Pending Litigation . . . . . . . . . . . . . . . . . . . 6
Section 2.7. Title to Properties . . . . . . . . . . . . . . . . . . 6
Section 2.8. Sale is Legal and Authorized . . . . . . . . . . . . . . 7
Section 2.9. No Defaults . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.10. Governmental Consent . . . . . . . . . . . . . . . . . 7
Section 2.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.12. Use of Proceeds; Margin Regulations . . . . . . . . . . 8
Section 2.13. Private Offering . . . . . . . . . . . . . . . . . . . 8
Section 2.14. Compliance with Law . . . . . . . . . . . . . . . . . . 8
Section 2.15. Restrictions . . . . . . . . . . . . . . . . . . . . . 9
Section 2.16. Employee Retirement Income Security Act of 1974 . . . . 9
Section 2.17. Certain Laws . . . . . . . . . . . . . . . . . . . . . 9
Section 2.18. Environmental Compliance . . . . . . . . . . . . . . . 10
SECTION 3. CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.1. Opinions of Counsel . . . . . . . . . . . . . . . . . . 10
Section 3.2. Warranties and Representations True as of Closing Date . 10
Section 3.3. Compliance with this Agreement . . . . . . . . . . . . . 11
Section 3.4. Officers' Certificate . . . . . . . . . . . . . . . . . 11
Section 3.5. Legal Fees . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.6. Related Transactions . . . . . . . . . . . . . . . . . . 11
Section 3.7. Proceedings Satisfactory . . . . . . . . . . . . . . . . 11
Section 3.8. Legal Investment . . . . . . . . . . . . . . . . . . . . 11
SECTION 4. PURCHASER'S SPECIAL RIGHTS . . . . . . . . . . . . . . . . . . 11
Section 4.1. Direct Payment . . . . . . . . . . . . . . . . . . . . . 11
Section 4.2. Delivery Expenses . . . . . . . . . . . . . . . . . . . 12
Section 4.3. Issue Taxes . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5. PREPAYMENTS; PURCHASES . . . . . . . . . . . . . . . . . . . . 12
Section 5.1. Optional Prepayments . . . . . . . . . . . . . . . . . . 12
Section 5.2. Notice of Optional Prepayments . . . . . . . . . . . . . 13
Section 5.3. Prepayment upon Change in Control . . . . . . . . . . . 13
Section 5.4. Allocation of Prepayments . . . . . . . . . . . . . . . 14
Section 5.5. Surrender of Notes on Prepayment . . . . . . . . . . . . 14
Section 5.6. Payments Due on Saturdays, Sundays and Holidays . . . . 14
Section 5.7. Purchase Offers . . . . . . . . . . . . . . . . . . . . 14
Section 5.8. No Other Prepayments . . . . . . . . . . . . . . . . . . 15
SECTION 6. REGISTRATION; SUBSTITUTION OF NOTES . . . . . . . . . . . . . . 15
Section 6.1. Registration of Notes . . . . . . . . . . . . . . . . . 15
Section 6.2. Exchange of Notes . . . . . . . . . . . . . . . . . . . 15
Section 6.3. Replacement of Notes . . . . . . . . . . . . . . . . . . 15
SECTION 7. BUSINESS COVENANTS . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.1. Payment of Taxes and Claims . . . . . . . . . . . . . . 16
Section 7.2. Maintenance of Properties and Existence . . . . . . . . 16
Section 7.3. Payment of Notes and Maintenance of Office . . . . . . . 17
Section 7.4. Disposal of Ownership of a Restricted Subsidiary . . . . 17
Section 7.5. Sale of Assets or Merger . . . . . . . . . . . . . . . . 18
Section 7.6. Liens and Encumbrances . . . . . . . . . . . . . . . . . 20
Section 7.7. Permitted Debt . . . . . . . . . . . . . . . . . . . . . 22
Section 7.8. Limitations on Debt . . . . . . . . . . . . . . . . . . 22
Section 7.9. Limitations on Commercial Paper . . . . . . . . . . . . 23
Section 7.10. Consolidated Adjusted Net Worth and Consolidated
Subordinated
Debt . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.11. Earnings Available for Fixed Charges . . . . . . . . . 23
Section 7.12. Restricted Payments . . . . . . . . . . . . . . . . . . 23
Section 7.13. ERISA Compliance . . . . . . . . . . . . . . . . . . . 24
Section 7.14. Transactions with Affiliates . . . . . . . . . . . . . 25
Section 7.15. Tax Consolidation . . . . . . . . . . . . . . . . . . . 25
Section 7.16. Amendment of Subordination and Payment Provisions . . . 26
Section 7.17. Permitted Business . . . . . . . . . . . . . . . . . . 26
Section 7.18. Obligations of Restricted Subsidiaries . . . . . . . . 26
Section 7.19. Benefit of More Restrictive Covenants or Agreements . . 26
SECTION 8. INFORMATION AS TO COMPANY . . . . . . . . . . . . . . . . . . . 26
Section 8.1. Financial and Business Information . . . . . . . . . . . 26
Section 8.2. Officers' Certificates . . . . . . . . . . . . . . . . . 29
Section 8.3. Accountants' Certificate . . . . . . . . . . . . . . . . 29
Section 8.4. Inspection . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.1. Nature of Events . . . . . . . . . . . . . . . . . . . . 30
Section 9.2. Default Remedies. . . . . . . . . . . . . . . . . . . . 31
Section 9.3. Annulment of Acceleration of Notes . . . . . . . . . . . 32
SECTION 10. INTERPRETATION OF THIS AGREEMENT . . . . . . . . . . . . . . . 33
Section 10.1. Terms Defined . . . . . . . . . . . . . . . . . . . . . 33
Section 10.2. Accounting Principles . . . . . . . . . . . . . . . . . 42
Section 10.3. Directly or Indirectly . . . . . . . . . . . . . . . . 42
Section 10.4. Governing Law . . . . . . . . . . . . . . . . . . . . . 42
SECTION 11. PRIORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.2. Survival . . . . . . . . . . . . . . . . . . . . . . . 43
Section 12.3. Successors and Assigns . . . . . . . . . . . . . . . . 43
Section 12.4. Amendment and Waiver . . . . . . . . . . . . . . . . . 43
Section 12.5. Reproduction of Documents . . . . . . . . . . . . . . . 44
Section 12.6. Severability . . . . . . . . . . . . . . . . . . . . . 44
Section 12.7. Duplicate Originals . . . . . . . . . . . . . . . . . . 44
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ATTACHMENTS TO SENIOR NOTE AGREEMENT:
Schedule I - Note Purchasers and Amounts of Commitments
Schedule II - List of Subsidiaries and Affiliates
Schedule III - Debt and Guaranties to be Outstanding as of Closing Date
Exhibit A-1 - Form of Series A Note
Exhibit A-2 - Form of Series B Note
Exhibit A-3 - Form of Series C Note
Exhibit A-4 - Form of Series D Note
Exhibit B - Description of Company Counsel's Closing Opinion
Exhibit C - Description of Special Counsel's Closing Opinion
MERCURY FINANCE COMPANY
40 Skokie Boulevard
Northbrook, Illinois 60062
SENIOR NOTE AGREEMENT
Re: $31,000,000 6.76% Senior Notes, Series A,
due April 5, 1999
$15,000,000 6.94% Senior Notes, Series B,
due April 5, 2000
$10,000,000 7.02% Senior Notes, Series C,
due April 5, 2001
and
$4,000,000 7.14% Senior Notes, Series D,
due April 5, 2002
Dated as of April 5, 1996
To the Purchaser named in Schedule I
hereto which is a signatory of this Agreement
Dear Ladies and Gentlemen:
MERCURY FINANCE COMPANY, a Delaware corporation (the "Company"), hereby
agrees with you as follows:
SECTION 1. ISSUANCE AND SALE OF NOTES.
Section 1.1. Issue of Notes. The Company will authorize the issuance and
sale of:
(a) $31,000,000 aggregate principal amount of its 6.76% Senior
Notes, Series A, to be dated the date of issue, to bear interest from
such date of issue at the rate of 6.76% per annum, to be expressed to
mature on April 5, 1999, and to be substantially in the form attached
hereto as Exhibit A-1 (the "Series A Notes");
(b) $15,000,000 aggregate principal amount of its 6.94% Senior
Notes, Series B, to be dated the date of issue, to bear interest from
such date of issue at the rate of 6.94% per annum, to be expressed to
mature on April 5, 2000, and to be substantially in the form attached
hereto as Exhibit A-2 (the "Series B Notes");
(c) $10,000,000 aggregate principal amount of its 7.02% Senior
Notes, Series C, to be dated the date of issue, to bear interest from
such date of issue at the rate of 7.02% per annum, to be expressed to
mature on April 5, 2001, and to be substantially in the form attached
hereto as Exhibit A-3 (the "Series C Notes"); and
(d) $4,000,000 aggregate principal amount of its 7.14% Senior
Notes, Series D, to be dated the date of issue, to bear interest from
such date of issue at the rate of 7.14% per annum, to be expressed to
mature on April 5, 2002, and to be substantially in the form attached
hereto as Exhibit A-4 (the "Series D Notes").
The Series A Notes, the Series B Notes, the Series C Notes and the Series D
Notes are herein collectively referred to as the "Notes." The Series A Notes,
the Series B Notes, the Series C Notes and the Series D Notes are each herein
referred to as Notes of a "Series". The interest on the Notes of each Series
shall be payable semiannually on the fifth day of April and October in each year
(commencing October 5, 1996) and at maturity and shall bear interest on overdue
principal (including any overdue required or optional prepayment of principal)
and premium, if any, and on any overdue installment of interest at the Overdue
Rate applicable to such Series after the date due, whether by acceleration or
otherwise, until paid. Interest on the Notes shall be computed on the basis of
a 360-day year of twelve 30-day months. The term "Notes" as used herein shall
include each Note delivered pursuant to this Agreement and the separate
agreements with the other purchasers named in Schedule I. You and the other
purchasers named in Schedule I are hereinafter sometimes referred to as the
"Purchasers."
Section 1.2. The Closing. Subject to the terms and conditions and on the
basis of the representations and warranties hereinafter set forth, the Company
agrees to issue and sell to you and you agree to purchase from the Company,
Notes of the Series and in the principal amount set forth opposite your name on
Schedule I hereto at a price equal to 100% of the principal amount thereof.
Delivery of the Notes to be purchased by each Purchaser will be made at the
principal office of Chapman and Cutler, 111 West Monroe Street, Chicago,
Illinois 60603 at 10:00 am. Chicago Time on April 5, 1996 (the "Closing Date"),
against payment of the purchase price therefor, by bank wire transfer of Federal
or other funds immediately available to Bank One, Chicago, National Association
(ABA No. 071901141) for credit to the account of the Company, Account No. 10-
007-478-1.
The Notes to be delivered to you on the Closing Date will be delivered in
the form of a single registered Note for the full amount of your purchase
(unless different denominations are specified by you), registered in your name
or the name of such nominee or nominees as you may specify at least three days
prior to the date fixed for delivery.
Section 1.3. Other Agreements. Simultaneously with the execution and
delivery of this Agreement, the Company is entering into similar agreements with
the other Purchasers under which such other Purchasers agree to purchase from
the Company the principal amount of the Series of Notes set opposite such
Purchasers' names in Schedule I, and your obligation and the obligations of the
Company hereunder are subject to the execution and delivery of the similar
agreements by the other Purchasers. This Agreement and said similar agreements
with the other Purchasers are herein collectively referred to as the
"Agreements." The obligations of each Purchaser shall be several and not joint
and no Purchaser shall be liable or responsible for the acts or defaults of any
other Purchaser.
Section 1.4. Representations of Purchaser.
(a) Purchase for Investment. You represent to the Company that you are
purchasing the Notes to be purchased by you hereunder for your own account
and/or one or more separate accounts maintained by you for investment and with
no present intention of distributing or reselling the Notes or any part thereof,
but without prejudice, however, to your right at all times to sell or otherwise
dispose of all or any part of the Notes under a registration under the
Securities Act of 1933, as amended, or under an exemption from such registration
available under such Act, and subject nevertheless to any requirement of law
that the disposition of your property shall at all times be within your control
(provided, that any sale or other disposition of the Notes shall be made in
compliance with applicable Federal and state securities laws). It is understood
that, in making the representations set out in Sections 2.10 and 2.13, the
Company is relying, insofar as the same relate to compliance with Federal and
state securities laws in the offering and sale of the Notes, upon your
representation as aforesaid.
(b) Source of Funds; ERISA. You further represent and warrant, with
respect to the Notes being purchased by you, that either: (i) the source of
funds to be used by you to pay the purchase price of the Notes is an "insurance
company general account" within the meaning of Department of Labor Prohibited
Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no
"employee benefit plan" (within the meaning of Section 3(3) of ERISA or Section
4975(e)(1) of the Code and treating as a single plan all plans maintained by the
same employer or employee organization) with respect to which the amount of the
general account reserves and liabilities for all contracts held by or on behalf
of such plan, exceed ten percent (10%) of the total reserves and liabilities of
such general account (exclusive of separate account liabilities) plus surplus,
as set forth in the NAIC Annual Statement filed with your state of domicile; or
(ii) no part of the funds to be used by you to purchase such Notes will
constitute assets allocated to any separate account maintained by you such that
the application of such funds will constitute a prohibited transaction under
Section 406 of ERISA; or (iii) all or a part of such funds used by you to
purchase such Notes will constitute assets of one or more separate accounts
maintained by you, and you have disclosed to the Company the names of such
employee benefit plans whose assets in such separate account or accounts exceed
10% of the total assets or are expected to exceed 10% of the total assets of
such account or accounts as of the date of such purchase and the Company has
advised you in writing that the Company is not a party-in-interest nor are the
Notes employer securities with respect to the particular employee benefit plans
disclosed to the Company by you as aforesaid (for the purpose of this clause
(iii), all employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan). As used in this Section 1.4(b),
the terms "separate account," "party-in-interest," "employer securities," and
"employee benefit plan" shall have the respective meanings assigned to them in
ERISA.
Section 1.5. Failure to Deliver. If on the Closing Date the Company fails
to tender to you the Notes to be purchased by you or if the conditions specified
in Section 3 have not been fulfilled, you may thereupon elect to be relieved of
all further obligations to purchase Notes under this Agreement. Nothing in this
Section shall operate to relieve the Company from any of its obligations under
Section 1.6 hereof or to waive any of your rights against the Company with
respect to any such failure.
Section 1.6. Expenses. Whether or not the Notes are sold, the Company
will pay all expenses relating to the proposed issuance and sale of the Notes,
including but not limited to:
(a) the cost of the preparation of the Agreements and the Notes;
(b) the reasonable fees and disbursements of your special counsel;
(c) your reasonable out-of-pocket expenses;
(d) the fees of any investment banker, financial advisor or broker
for the placement of the Notes;
(e) the cost of delivering to you at your home office or custodian
bank, insured to your satisfaction, the Notes purchased by you on the
Closing Date; and
(f) the costs, including the charges of Standard & Poor's Corporation
CUSIP Service Bureau, for issuing a Private Placement Number for each
Series of Notes in accordance with the requirements of the National
Association of Insurance Commissioners.
The Company will also pay all reasonable expenses relating to any
amendments, waivers or consents requested by the Company pursuant to the
provisions hereof and any amendments, waivers or consents resulting from any
work-out, renegotiation or restructuring (including, without limitation, fees
and expenses of any investment banker and/or financial advisor to the Holders)
relating to the performance by the Company of its obligations under the
Agreements and the Notes, whether or not the same is actually executed,
including all reasonable expenses incurred by your counsel in connection
therewith.
The Company also agrees that it will pay and save you harmless against any
and all liability with respect to stamp and other documentary taxes, if any,
which may be payable or which may be determined to be payable in connection with
the execution and delivery of the Agreements or the Notes (but not in connection
with a transfer of any Notes), whether or not any Notes are then outstanding.
The obligations of the Company under this Section 1.6 shall survive the
payment or prepayment of the Notes and the termination of the Agreements.
SECTION 2. WARRANTIES AND REPRESENTATIONS.
The Company hereby warrants and represents to you that:
Section 2.1. Subsidiaries and Affiliates. Schedule II to this Agreement
correctly states the name of each Subsidiary of the Company (indicating which
Subsidiaries are Restricted Subsidiaries and Material Restricted Subsidiaries),
its jurisdiction of incorporation and the percentage of its Voting Stock owned
by the Company and the name of each of the principal, corporate or joint venture
Affiliates of the Company. The Company has good and marketable title to all of
the shares it purports to own of the stock of each Restricted Subsidiary, free
and clear in each case of any Lien except as described in said Schedule II. All
such shares have been duly authorized and issued and are fully paid and non-
assessable. Not less than 77% of the consolidated assets of the Company and its
Subsidiaries as of December 31, 1995 were owned by the Company, its Material
Restricted Subsidiaries and the Lyndon Subsidiaries and not less than 65% of the
consolidated revenues of the Company and its Subsidiaries for the twelve-month
period ended December 31, 1995 were attributed to the Company, its Material
Restricted Subsidiaries and the Lyndon Subsidiaries.
Section 2.2. Organization and Authority. The Company and each of its
Restricted
Subsidiaries
(a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation,
(b) has all requisite power and authority and all necessary licenses
and permits to own and operate its Properties and to carry on its business
as now conducted, and
(c) is duly authorized and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the
character of its Properties or the nature of its activities makes such
qualification necessary and wherein the failure to be so qualified would
materially and adversely affect its business or Properties.
Section 2.3. Indebtedness. Schedule III hereto correctly describes all
Debt of the Company and its Restricted Subsidiaries outstanding on the Closing
Date.
Section 2.4. Financial Statements. (a) The consolidated balance sheets
of the Company and its Subsidiaries as of December 31 in the years 1991, 1992,
1993, 1994 and 1995 and the related statements of income and changes in
stockholder's equity (or statements of income and surplus and cash flows) for
the fiscal years ended on such dates, in each case accompanied by reports
thereon containing opinions without qualification, except as therein noted, by
KPMG Peat Marwick (formerly named Peat Marwick, Mitchell & Co.), independent
certified public accountants, copies of which have been delivered to you and the
other Purchasers, have been prepared in accordance with GAAP, and present fairly
the financial position of the Company and its Subsidiaries as of such dates and
the results of their operations for such periods.
(b) Since December 31, 1995, there has been no change in the business,
profits, Properties or condition (financial or otherwise) of the Company and its
Subsidiaries except (i) changes, if any, specifically described in this Section
2 and (ii) changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse.
Section 2.5. Full Disclosure. The financial statements and reports
referred to in Section 2.4 do not, nor does any other written statement
furnished by or on behalf of the Company to you or any other Purchaser in
connection with the negotiation and the sale of the Notes, contain any untrue
statement of a material fact or omit a material fact (other than matters of a
general economic nature and applying generally to the industries in which the
Company and its Subsidiaries are engaged) necessary to make the statements
contained therein or herein not misleading. There is no fact (other than
matters of a general economic nature of the type referred to above) which the
Company has not disclosed to you or any other Purchaser in writing which
materially adversely affects nor so far as the Company can now reasonably
foresee, will materially adversely affect the Properties, business, profits or
condition (financial or otherwise) of the Company or the Company and its
Restricted Subsidiaries on a consolidated basis, respectively. There is no fact
which the Company has not disclosed to you or any other Purchaser in writing
which materially adversely affects nor, so far as the Company can now reasonably
foresee, will materially adversely affect the ability of the Company to perform
its obligations and undertakings under the Agreements or the Notes.
Section 2.6. Pending Litigation. There are no actions, suits or
proceedings pending, or to the knowledge of the Company threatened, against or
affecting the Company or any of its Restricted Subsidiaries in any court or
before any governmental authority or arbitration board or tribunal which involve
the possibility of materially and adversely affecting the Properties, business,
prospects, profits or condition (financial or otherwise) of the Company or of
the Company and its Restricted Subsidiaries on a consolidated basis,
respectively, or the ability of the Company to perform its obligations and
undertakings under the Agreements or the Notes. Neither the Company nor any
Restricted Subsidiary is in default with respect to any material order of any
court, governmental authority or arbitration board or tribunal.
Section 2.7. Title to Properties. The Company and its Restricted
Subsidiaries each has good and marketable title in fee simple (or its equivalent
under applicable law) to all the real property, and has good title to all the
other Property it purports to own, including that reflected in the most recent
balance sheet of the Company referred to in Section 2.4(a) (except as sold or
otherwise disposed of in the ordinary course of business), free from Liens not
permitted by Section 7.6 hereof.
Section 2.8. Sale is Legal and Authorized. The issuance and sale of the
Notes and compliance by the Company with all of the provisions of the Agreements
and the Notes:
(a) are within the corporate powers of the Company and have been duly
authorized by proper corporate action on the part of the Company; and
(b) are legal and will not conflict with nor result in any breach of
any of the provisions of, or constitute a default under, or result in the
creation of any Lien upon any Property of the Company or any of its
Restricted Subsidiaries under, any agreement (including, without
limitation, agreements or instruments evidencing or relating to Debt
described in Schedule III hereto), charter instrument, by-law or other
instrument to which the Company or any of its Restricted Subsidiaries is a
party or by which they may be bound.
Section 2.9. No Defaults. No event has occurred and no condition exists
which, after giving effect to the issue of the Notes, would constitute a Default
or an Event of Default. Neither the Company nor any Restricted Subsidiary is in
violation in any material respect of any term of its charter instrument or by-
laws, or any other agreement or instrument to which the Company or any
Restricted Subsidiary is a party or by which it may be bound.
Section 2.10. Governmental Consent. Neither the nature of the Company or
of any of its Subsidiaries, nor any of its businesses or Properties, nor any
relationship between any of such Persons and any other Person, nor any
circumstance in connection with the offer, issue, sale or delivery of the Notes
is such as to require a consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on the part of
the Company or of any of its Subsidiaries as a condition to the execution and
delivery by the Company of the Agreements or the offer, issue, sale or delivery
of the Notes.
Section 2.11. Taxes. (a) All tax returns required to be filed by the
Company and its Subsidiaries in any jurisdiction have in fact been filed, and
all taxes, assessments, fees and other governmental charges upon or in respect
of such Persons, or upon or in respect of any of its Properties, income or
franchises, which are due and payable have been paid, or a liability therefor
has been duly recorded on the books of the Company. For all taxable years
ending on or before December 31, 1992, the federal income tax liability of the
Company and its Subsidiaries has been satisfied and either the period of
limitations on assessment of additional Federal income tax has expired or the
Company and its Subsidiaries have entered into an agreement with the Internal
Revenue Service closing conclusively the total tax liability for the taxable
year. The Company has no knowledge of any proposed material additional tax
assessments against the Company or any of its Subsidiaries.
(b) The provisions for taxes on the books of the Company and its
Subsidiaries are adequate for all open years, and for its current fiscal
periods. The amount of the reserve for Federal income taxes reflected in the
consolidated balance sheet of the Company and its Subsidiaries as of December
31, 1995 is an adequate provision for such Federal income taxes, if any, as may
be payable by the Company and its Subsidiaries for all fiscal years ended prior
to January 1, 1996.
Section 2.12. Use of Proceeds; Margin Regulations. The Company will apply
the proceeds from the sale of the Notes to the payment of outstanding commercial
paper issued by the Company.
None of the transactions contemplated in the Agreements (including, without
limitation thereof, the use of the proceeds from the sale of the Notes) will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulations issued pursuant thereto, including, without
limitation, Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II. The Company does not own or intend to
carry or purchase any "margin stock" within the meaning of said Regulation G or
U. None of the proceeds from the sale of the Notes will be used to purchase or
carry (or refinance any borrowing the proceeds of which were used to purchase or
carry) any such "margin stock."
Section 2.13. Private Offering. Neither the Company nor any Person
authorized or employed by the Company as agent, broker, dealer, financial
adviser or otherwise in connection with the offering or sale of the Notes or any
similar Security of the Company, has offered any of the Notes or any similar
Security of the Company for sale to, or solicited offers to buy any thereof
from, or otherwise approached or negotiated with respect thereto with, any
Persons other than the Purchasers and not more than 10 other institutional
investors, each of whom was offered a portion of the Notes or similar Securities
at private sale for investment. The Company agrees that neither the Company nor
anyone acting on its behalf will offer the Notes or any part thereof or any
similar Securities for issue or sale to, or solicit any offer to acquire any of
the same from, anyone so as to bring the issuance and sale of the Notes within
the provisions of Section 5 of the Securities Act of 1933, as amended.
Section 2.14. Compliance with Law. Neither the Company nor any of its
Subsidiaries:
(a) is in violation of any laws, ordinances, governmental rules or
regulations to which it is subject; or
(b) has failed to obtain any licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its Property or
to the conduct of its business,
which violation or failure to obtain might materially adversely affect the
business, profits, Properties or condition (financial or otherwise) of the
Company or of the Company and its Restricted Subsidiaries on a consolidated
basis, respectively.
Section 2.15. Restrictions. Neither the Company nor any of its Restricted
Subsidiaries is a party to any contract or agreement, or subject to any charter
or other corporate restriction, which materially and adversely affects its
business. No consent of or waiver by any holder of any Debt of the Company or
any Subsidiary is required in connection with the issuance of the Notes
hereunder.
Section 2.16. Employee Retirement Income Security Act of 1974. (a) The
execution and delivery of the Agreements and the issue, sale and delivery of the
Notes hereunder will not involve any prohibited transaction within the meaning
of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended. The
representation in the preceding sentence is made in reliance upon and subject to
the accuracy of your representation in Section 1.4(b) of this Agreement as to
the source of funds used to pay the purchase price of the Notes.
(b) (i) The present value of all vested benefits under all "employee
pension benefit plans," as such term is defined in Section 3 of ERISA,
maintained by the Company and its Subsidiaries, as from time to time in effect
(herein called "Pension Plans"), did not, as of January 1, 1995, the last annual
valuation date, exceed the value of the assets of such Pension Plans allocable
to such vested benefits.
(ii) Neither any of the Pension Plans nor any trusts created thereunder,
nor any trustee or administrator thereof, has engaged in a "prohibited
transaction," as such term is defined in Section 4975 of the Internal Revenue
Code of 1986, as amended, and there has been no "reportable event," as such term
is defined in Section 4043 of ERISA, which has resulted or might result in the
imposition of a Lien or charge upon any Property of the Company or any of its
Subsidiaries or in any other liability which does or, so far as the Company can
now foresee, will materially affect adversely the Properties, business,
prospects or condition (financial or otherwise) of the Company and its
Subsidiaries or the ability of the Company to perform its obligations and
undertakings under the Agreements or the Notes.
Section 2.17. Certain Laws.
(a) Investment Company Act. Neither the Company nor any of its
Subsidiaries is, and neither of them is directly or indirectly controlled by, or
acting on behalf of any Person which is, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(b) Absence of Foreign or Enemy Status. Neither the Company nor any of
its Subsidiaries, nor any Affiliate of the Company, is, by reason of being a
"national" of a "designated foreign country" or a "specially designated
national" within the meaning of the Regulations of the Office of Foreign Assets
Control, United States Treasury Department (31 C.F.R., Subtitle B, Chapter V),
or for any other reason, subject to any restriction or prohibition under, or is
in violation of, any Federal statute or Presidential Executive Order, or any
rules or regulations of any department, agency or administrative body
promulgated under any such statute or Order, concerning trade or other relations
with any foreign country or any citizen or national thereof or the ownership or
operation of any Property.
(c) Absence of Holding Company Status. The Company is not a "holding
company" or a subsidiary of a "holding company," or a subsidiary company of a
"holding company," or a "public utility," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 2.18. Environmental Compliance. Neither the Company nor any
Subsidiary is in violation of any applicable federal, state, or local laws,
statutes, rules, regulations or ordinances relating to public health, safety or
the environment, including, without limitation, relating to releases,
discharges, emissions or disposals to air, water, land or ground water, to the
withdrawal or use of ground water, to the use, handling or disposal of
polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous substances (including,
without limitation, petroleum, crude oil or any fraction thereof, or other
hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances, which violation could have
a material adverse effect on the business, prospects, profits, Properties or
condition (financial or otherwise) of the Company or the Company and its
Restricted Subsidiaries, taken as a whole. The Company does not know of any
liability or class of liability of the Company or any Subsidiary under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Section 9601 et seq.), or the Resource Conservation and
Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.).
SECTION 3. CLOSING CONDITIONS.
Your obligation to purchase and pay for the Notes to be delivered to you on
the Closing Date shall be subject to the following conditions precedent:
Section 3.1. Opinions of Counsel. You shall have received from Mark E.
Dapier, General Counsel of the Company, and Chapman and Cutler, your special
counsel, the closing opinions described in Exhibits B and C to this Agreement.
Section 3.2. Warranties and Representations True as of Closing Date. (a)
The warranties and representations contained in Section 2 shall be true on the
Closing Date with the same effect as though made on, and as of, that date.
(b) The Company shall not have taken any action or permitted any condition
to exist which would have been prohibited by Section 7 hereof if such Section
had been binding and effective at all times during the period from December 31,
1995, to and including the Closing Date.
Section 3.3. Compliance with this Agreement. The Company shall have
performed and complied with all agreements and conditions contained herein which
are required to be performed or complied with by the Company before or on the
Closing Date.
Section 3.4. Officers' Certificate. You shall have received a certificate
dated the Closing Date and signed by the President or a Vice President of the
Company, certifying that the conditions specified in Sections 3.2 and 3.3 have
been fulfilled.
Section 3.5. Legal Fees. The Company shall pay, as set forth in an
invoice rendered by Chapman and Cutler on the Closing Date, the reasonable fees
and disbursements of such counsel.
Section 3.6. Related Transactions. The Company shall have consummated the
sale of the entire principal amount of the Notes scheduled to be sold on the
Closing Date pursuant to this Agreement and the other agreements referred to in
Section 1.3.
Section 3.7. Proceedings Satisfactory. All proceedings taken in
connection with the creation, issuance and sale of the Notes and all documents
and papers relating thereto shall be satisfactory to you. You shall have
received copies of such documents and papers as you may reasonably request in
connection therewith all in form and substance satisfactory to you.
Section 3.8. Legal Investment. On the Closing Date your purchase of the
Notes shall be permitted by the laws and regulations of all jurisdictions to
which you are subject, without recourse to any "basket" or "leeway" provision
which permits the making of an investment without restriction as to the
character of the particular investment being made; and such purchase shall not
subject you to any tax, penalty, liability or other onerous condition under or
pursuant to any such laws or regulations; and the Company shall have delivered
to you such certificates and other evidence as you may request to establish
compliance with this condition.
SECTION 4. PURCHASER'S SPECIAL RIGHTS.
Section 4.1. Direct Payment. Notwithstanding anything to the contrary in
the Agreements or the Notes, in the case of any Note owned by any Holder that is
a Purchaser or any other Institutional Holder which has given written notice to
the Company requesting that the provisions of this Section shall apply, the
Company will promptly and punctually pay when due the principal thereof and
premium and Make Whole Amount, if any, and interest thereon, without any
presentment thereof, directly to such Holder at its address for payments set
forth herein or such other address as such Holder may from time to time
designate in writing to the Company or, if a bank account is so designated for
such Holder, the Company will make such payments in immediately available funds
by federal wire transfer to such bank account before 10:00 A.M. Chicago time,
marked for attention as indicated, or in such other manner or to such other
account of such Holder in any bank in the United States as such Holder may from
time to time direct in writing. The Holder of any Notes to which this Section
applies agrees that in the event it shall sell or transfer any such Notes it
will, prior to the delivery of such Notes, make a notation thereon of the date
to which interest has been paid thereon and of the amount of any prepayments
made on account of the principal thereof.
Section 4.2. Delivery Expenses. If any Purchaser surrenders any Note or
Notes to the Company pursuant to the Agreements, the Company will pay the
reasonable cost of delivering to or from such Purchaser's home office or
custodian bank from or to the Company, reasonably insured to such Purchaser's
satisfaction, the surrendered Note or Notes and any Note or Notes issued in
substitution or replacement for the surrendered Note.
Section 4.3. Issue Taxes. The Company will pay all taxes in connection
with the issuance and sale of the Notes by the Company to each Purchaser and in
connection with any modification of the Notes and will save each Purchaser
harmless without limitation as to time against any and all liabilities with
respect to all such taxes. The obligations of the Company under this Section
4.3 shall survive the payment or prepayment of the Notes and the termination of
the Agreements.
SECTION 5. PREPAYMENTS; PURCHASES.
Section 5.1. Optional Prepayments. The Company shall have the privilege
of prepaying the Notes at any time on any interest payment date, in whole or in
part (but if in part, then in units of $100,000 or integral multiples of $50,000
in excess thereof), by payment of the principal amount so to be prepaid plus any
accrued interest thereon to the date of prepayment, together with the Make Whole
Amount; provided, however, that all prepayments under this Section 5.1 shall be
applied to all outstanding Series of Notes ratably in accordance with the unpaid
principal amounts of each such Series.
The term "Make Whole Amount" with respect to any Series of Notes means, at
any time with respect to all or any portion of the Notes of such Series being
paid as a result of optional prepayment under this Section 5.1 or as a result of
acceleration due to the existence of an Event of Default under Section 9.1
hereof, the greater of zero (0) or that amount which is equal to (a) the present
value of the remaining principal and interest payments (exclusive of interest
accrued to the date of prepayment) thereafter to become due on all or such
portion of such Notes of such Series being paid, disregarding any such
prepayment or acceleration, discounted at the Discount Rate for such Series at
the time of such payment, less (b) the remaining principal thereafter to become
due on all or such portion of such Notes of such Series being paid, but for such
prepayment or acceleration, at par.
For purposes of this Section 5.1, "Discount Rate" with respect to any
Series of Notes shall mean, at any time with respect to any Note of such Series
being prepaid, the lesser of (i) the Coupon Rate for such Series and (ii) the
Adjusted Treasury Rate at such time. The term "Adjusted Treasury Rate" means,
at any time with respect to any Note, the sum of (a) the yield for the actively
traded, marketable United States Treasury fixed interest rate obligations of
substantially the same maturity as such Note as reported "On the Run" on the
Bloomberg Financial Markets Service screen (Page USD, bid side) or if such
Service is not available, as reported by any other nationally recognized trading
screen reporting "On the Run" trading in United States government securities, at
11:00 am., Chicago time on (x) in the event of optional prepayment, the third
Business Day preceding the date fixed for such prepayment or (y) in the event of
payment as a result of acceleration due to the existence of an Event of Default,
the date of such acceleration plus (b) 0.50% per annum in the case of a
prepayment under this Section 5.1 or a payment upon acceleration of maturity
under Section 9.2 hereof and, in the case of a prepayment under Section 5.3
hereof, 0.75% per annum. If no maturity exactly corresponds to the maturity of
such Note, yields for the two reported maturities most closely corresponding to
the maturity of such Note shall be determined in accordance with the immediately
preceding sentence and the Discount Rate shall be interpolated or extrapolated
from such yields on a straight-line basis, rounding in each of such relevant
periods to the nearest month.
Section 5.2. Notice of Optional Prepayments. The Company will give notice
of any prepayment of the Notes pursuant to the provisions of Section 5.1 hereof
to each Holder thereof not less than 30 days nor more than 60 days before the
date fixed for such optional prepayment specifying (a) such date, (b) the
principal amount of such Holder's Notes to be prepaid on such date, (c) an
estimate of the Make Whole Amount, if any, and the data used in computing the
same and (d) the amount of accrued interest applicable to such prepayment. Such
notice of prepayment shall also certify all facts which are conditions precedent
to any such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes specified in such notice, together with
the Make Whole Amount, if any, and accrued interest thereon shall become due and
payable on the prepayment date specified in such notice. Three Business Days
prior to the date fixed for such prepayment the Company shall notify each Holder
of Notes to be prepaid on such date of the amount of the Make Whole Amount, if
any, payable in connection with such prepayment and the data used in computing
the same, for purposes of permitting each Holder to determine if the Company's
calculation of the Make Whole Amount has been made in accordance with this
Agreement.
Section 5.3. Prepayment upon Change in Control. If after the Closing Date
(a) any Person or group of Persons (as such terms are defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended), shall acquire or
gain control of the voting rights with respect to, directly or indirectly, in a
single transaction or in a series of related transactions (including as the
result of any merger or consolidation permitted under Section 7.5(b) hereof),
50% or more (by number of votes) of the outstanding Voting Stock of the Company
or (b) all or substantially all of the assets of the Company are sold or
otherwise transferred to any other Person (any such acquisition or sale or
transfer of assets being hereinafter referred to as an "Event"), then each
Holder of outstanding Notes may demand, by written notice given to the Company,
that, within 60 days after receipt by the Company of such notice, the Company
will prepay all, but not less than all, of the Notes then held by such Holder.
Any such prepayment of the Notes shall be made at a prepayment price equal to
the principal amount thereof, plus accrued interest thereon to the date of
prepayment and together with the applicable Make Whole Amount, if any. The date
of such prepayment (which shall be within the 60 day period referred to above)
shall be selected by the Company, shall be a Business Day, and shall be set
forth in a notice of prepayment given to the Holder of the Notes demanding the
same at least five Business Days before the date fixed for prepayment; and on
such prepayment date all such Notes shall become due and payable. Written
notice of the occurrence of any Event shall be given by the Company to each of
the Holders of the Notes within three days after the date of the occurrence
thereof; provided, however, that the failure of the Company to give such notice
shall not affect the rights of the holders of the Notes under this Section 5.3.
The rights of any Holder of the Notes under this Section 5.3 shall expire 90
days following the date of receipt by such Holder of the notice described in the
immediately preceding sentence. If and whenever the Company enters into an
agreement or other commitment providing for the merger or consolidation of the
Company with or into any other Person or the sale or other transfer of all or
substantially all of the assets of the Company to any other Person, or if any
proposed purchase or other acquisition or gain in control by any Person of
Voting Stock which would result in the occurrence of an Event is the subject of
(i) a public announcement or (ii) a filing on Schedule 13(d) required under the
Securities Exchange Act of 1934, as amended, or (iii) negotiations in which any
officers of the Company are involved, the Company will immediately notify each
Noteholder thereof.
Section 5.4. Allocation of Prepayments. All partial prepayments of any
Series of Notes under Section 5.1 shall be applied on all outstanding Notes of
such Series ratably in accordance with the unpaid principal amounts thereof but
only in units of $1,000, and to the extent that such ratable application shall
not result in an even multiple of $1,000, adjustment may be made by the Company
to the end that successive applications shall result in substantially ratable
payments.
Section 5.5. Surrender of Notes on Prepayment. Subject to Section 4.1
hereof, upon any partial prepayment of a Note such Note may, at the option of
the Holder thereof, be (a) surrendered to the Company pursuant to Section 6.2
hereof in exchange for a new Note of the same issue and in a principal amount
equal to the principal amount remaining unpaid on the surrendered Note, or (b)
made available to the Company for notation thereon of the portion of the
principal so prepaid, or (c) be marked by such Holder to note the amount of the
principal thereof so prepaid. In case the entire principal amount of any Note
is prepaid, such Note shall be promptly surrendered to the Company for
cancellation and shall not be reissued and no Note shall be issued in lieu of
the prepaid principal amount of any Note.
Section 5.6. Payments Due on Saturdays, Sundays and Holidays. In any case
where the date of any interest payment date on the Notes or the date fixed for
any other payment of any Note (the "due date") shall not be on a Business Day,
then such payment need not be made on the due date but may be made on the next
succeeding Business Day, with the same force and effect as if made on the due
date and no interest shall accrue with respect to such payment for the period
from the due date to such later date.
Section 5.7. Purchase Offers. Neither the Company nor any of its
Affiliates or Subsidiaries will purchase or offer to purchase, directly or
indirectly, any of the Notes except pursuant to an offer made to all Holders of
the Notes, pro rata in accordance with the principal amount of Notes held by
each of them, at the same price and on the same terms and conditions. Any Notes
so purchased shall not be reissued but shall be cancelled and retired.
Section 5.8. No Other Prepayments. Except as expressly set forth in this
Section 5, the Notes shall not be subject to prepayment by the Company.
SECTION 6. REGISTRATION; SUBSTITUTION OF NOTES.
Section 6.1. Registration of Notes. All Notes issuable under this
Agreement shall be registered Notes. The Company shall cause to be kept at its
office, maintained pursuant to Section 7.3, a register for the registration and
transfer of Notes. The names and addresses of the Holders of Notes, the
transfer thereof and the names and addresses of the transferees of Notes shall
be registered in the register. The Person in whose name any Note shall be
registered shall be deemed and treated as the owner and Holder thereof for all
purposes of this Agreement, and the Company shall not be affected by any notice
or knowledge to the contrary.
Section 6.2. Exchange of Notes. Upon surrender of any Note at the office
of the Company maintained pursuant to Section 7.3, the Company, at the request
of the Holder thereof, will execute and deliver, at the Company's expense
(except as provided below), new Notes of the same issue in exchange, in
denominations of at least $500,000 (except as may be necessary to reflect any
principal amount not evenly divisible by $500,000), in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such Holder may request and shall be
substantially in the form of the Note so surrendered for exchange. Each such
new Note shall bear interest at the same rate as the surrendered Note and shall
be dated and bear interest from the date to which interest has been paid on the
surrendered Note, or dated the date of the surrendered Note if no interest has
been paid thereon. The Company may require payment of a sum sufficient to cover
any stamp tax or governmental charge imposed in respect of any transfer. Each
Holder agrees that any transfer of any Note by it shall be made in compliance
with all applicable Federal and state securities laws.
Section 6.3. Replacement of Notes. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of, and the loss, theft,
destruction or mutilation of, any Note and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided, if the Holder of the Note is an
Institutional Holder, its own agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its expense will execute and deliver in lieu thereof, a new Note,
of like tenor, of the same issue, dated and bearing interest from the date to
which interest has been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest has been paid thereon.
SECTION 7. BUSINESS COVENANTS.
The Company hereby covenants and agrees that on and after the Closing Date,
so long as any of the Notes are outstanding:
Section 7.1. Payment of Taxes and Claims. The Company will, and will
cause each of its Restricted Subsidiaries to pay, before they become delinquent,
(a) all taxes, assessments and governmental charges or levies imposed
upon it or its Property, and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons which, if unpaid, might
result in the creation of a Lien upon its Property,
provided that items of the foregoing description need not be paid while being
contested in good faith and by appropriate proceedings so long as (i) adequate
book reserves have been established with respect thereto and (ii) the owning
company's title to, and its right to use, its Property is not materially
adversely affected thereby. In the case of any item of the type described in
this Section 7.1 involving an amount in excess of $250,000, the appropriateness
of the proceedings will be supported by a written opinion of the counsel
responsible for such proceedings and the adequacy of such reserves shall be
supported by the certificate of the chief financial officer of the Company.
Section 7.2. Maintenance of Properties and Existence. The Company will,
and will cause each of its Restricted Subsidiaries to:
(a) Property - maintain, or cause to be maintained, its Property in
good condition and will make, or cause to be made, all necessary renewals,
replacements, additions, betterments and improvements thereto;
(b) Insurance - maintain, or cause to be maintained, with insurers
rated A+ or better by A.M. Best Company, Inc., insurance with respect to
its Properties and business against such casualties and contingencies, of
such types and in such amounts as is customary in the case of corporations
of established reputations engaged in the same or a similar business and
similarly situated; provided, however, that nothing contained in this
Section 7.2(b) shall prevent the Company or any Restricted Subsidiary from
maintaining in lieu, in whole or in part, of such insurance coverage a
self-insurance program if and to the extent that the same is consistent
with sound and prudent business practices and is determined to be
appropriate or in the best interests of the Company or such Restricted
Subsidiary by its Board of Directors;
(c) Financial Records - keep books of records and accounts in which
full and correct entries will be made of all its business transactions, and
will reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with GAAP;
(d) Existence and Rights - do or cause to be done all things
necessary to preserve and keep in full force and effect its existence,
rights and franchises, except as otherwise permitted by Sections 7.4 and
7.5; and
(e) Compliance with Law - not be in violation of any laws,
ordinances, governmental rules or regulations to which it is subject and
will not fail to obtain any licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its Properties or
to the conduct of its business, which violation or failure to obtain would
materially adversely affect its business, profits, Properties or condition
(financial or otherwise).
Section 7.3. Payment of Notes and Maintenance of Office. The Company will
punctually pay the principal and interest and Make Whole Amount, if any, to
become due in respect of the Notes according to the terms thereof and will
maintain an office within the continental United States where notices,
presentations and demands in respect of this Agreement or the Notes may be made
upon them. Such office shall be maintained at the address set forth at the head
of this Agreement until such time as the Company shall notify the Holders of the
Notes of any change of location of such office.
Section 7.4. Disposal of Ownership of a Restricted Subsidiary. The
Company will not, nor will it permit any Restricted Subsidiary to, sell or
otherwise dispose of any shares of the stock (or any options or warrants to
purchase stock or other Securities exchangeable for or convertible into stock)
of a Restricted Subsidiary (said stock, options, warrants and other Securities
herein called "Subsidiary Stock"), nor will any Restricted Subsidiary issue,
sell or otherwise dispose of any shares of its own Subsidiary Stock, if the
effect of the transaction would be to reduce the proportionate interest of the
Company and its other Restricted Subsidiaries in the outstanding Subsidiary
Stock of the Restricted Subsidiary whose shares are the subject of the
transaction, provided that the foregoing restrictions do not apply to:
(a) the issue of directors' qualifying shares; and
(b) the sale for a fair and reasonable consideration at one time to a
Person (other than directly or indirectly to an Affiliate) of the entire
Investment (whether represented by stock, debt, claims or otherwise) of the
Company and its other Restricted Subsidiaries in any Restricted Subsidiary,
if all of the following conditions are met:
(1) such sale is permitted under the limitations of Section 7.5
hereof;
(2) in the opinion of the Company's Board of Directors, the sale
is for fair value and is in the best interests of the Company;
(3) the Restricted Subsidiary being disposed of has no
continuing investment in any other Restricted Subsidiary not being
simultaneously disposed of or in the Company; and
(4) at the time of and immediately after the consummation of the
transaction and after giving effect thereto, (i) no Default or Event
of Default would exist and (ii) the Company would be permitted to
incur at least $1.00 of additional Senior Debt under the limitations
of Section 7.8(a) hereof.
Section 7.5. Sale of Assets or Merger.
(a) Sale of Assets - The Company will not and will not permit any
Restricted Subsidiary to sell, lease, transfer or otherwise dispose of assets,
other than sales of Finance Receivables which shall be governed by Section
7.5(c); provided, that the foregoing restrictions do not apply to the sale of
such assets for a fair and reasonable consideration to any Person other than an
Affiliate if all of the following conditions are met:
(1) the aggregate book or fair market value (whichever is greater) of
such assets and all other assets of the Company and its Restricted
Subsidiaries disposed of during the immediately preceding 12 month period
(other than sales of Finance Receivables as aforesaid), do not constitute
either a Substantial Part of Consolidated Total Assets determined as of the
end of the immediately preceding fiscal quarter or a Substantial Part of
Consolidated Adjusted Net Income for the immediately preceding four quarter
period;
(2) in the opinion of the Company's Board of Directors, the sale is
for fair value and is in the best interests of the Company; and
(3) at the time of and immediately after the consummation of the
transaction, after giving effect thereto, (i) no Default or Event of
Default would exist and (ii) the Company would be permitted to incur at
least $1.00 of additional Senior Debt under the limitations of Section
7.8(a) hereof.
(b) Merger, Consolidation and Sale of All or Substantially All Assets -
Neither the Company nor any Restricted Subsidiary will (i) consolidate with or
merge into any other Person or permit any other Person to consolidate with or
merge into it (except that a Restricted Subsidiary may consolidate with or merge
into the Company or a Wholly-Owned Restricted Subsidiary provided, that in the
case of a consolidation or merger with the Company or a Wholly-Owned Restricted
Subsidiary, the Company or such Wholly-Owned Restricted Subsidiary is the
resulting or surviving corporation) or (ii) sell all or substantially all of the
assets of the Company or such Restricted Subsidiary to any other Person,
provided that the foregoing restrictions do not apply to the merger or
consolidation of the Company with or into or the sale of all or substantially
all of its assets to any other Person (the Company or such other Person being
herein referred to as the "successor corporation") if:
(1) the due and punctual payment of the principal of and Make Whole
Amount, if any, and interest on all of the Notes, according to their tenor,
and the due and punctual performance and observance of all the covenants in
the Notes and the Agreements to be performed or observed by the Company,
are expressly and unconditionally assumed in writing by the successor
corporation;
(2) the successor corporation shall have delivered to each Holder an
opinion of counsel not objected to for reasonable cause by the Holder or
Holders of 33-1/3% or more in aggregate principal amount of any Series of
the Notes at the time outstanding,
(x) to the effect that the successor corporation is a duly
incorporated and validly existing corporation in good standing under
the laws of one of the United States or a jurisdiction thereof and has
all requisite power and authority to assume the obligations under the
Notes and the Agreements;
(y) to the effect that the assumption by the successor
corporation of the obligations of the Company under the Notes and the
Agreements has been duly authorized by all necessary corporate action
on the part of the successor corporation (including any action by its
stockholders required by law or by its charter documents or by-laws or
otherwise), has been duly executed and delivered by the successor
corporation, and is a legal, valid, binding and enforceable obligation
of the successor corporation; and
(z) covering such other matters relating to such assumption as
the Holder of any Note may reasonably require;
(3) after giving effect to the proposed merger, consolidation or sale
the successor corporation will be engaged primarily in the Finance
Business; and
(4) at the time of and immediately after the consummation of the
transaction, and after giving effect thereto, (i) no Default or Event of
Default including, without limitation, any Event of Default resulting from
the Company's failure to comply with the provisions of Section 5.3, if
applicable, would exist and (ii) the successor corporation would be
permitted to incur at least $ 1.00 of additional Senior Debt under the
limitations of Section 7.8(a) hereof.
(c) Sale or Discount of Finance Receivables - The Company will not and
will not permit any Restricted Subsidiary to, sell or discount any Finance
Receivable at any time owned by it or any Restricted Subsidiary other than (i)
in the ordinary course of the Finance Business and in accordance with the
prevailing industry standards, (ii) without recourse, other than contingent
liabilities generally incurred by an endorser without recourse in the ordinary
course of business, and (iii) for a cash consideration of not less than its
investment in the obligation, or portion thereof, sold or discounted plus
accrued interest but less any unearned income; it being understood and agreed
that the sale or other disposition by the Company or any Restricted Subsidiary
of Finance Receivables under an arrangement requiring the maintenance of a so-
called "reserve account" or the incurring of any contingent liability with
respect thereof (including any liability or obligation with respect to the
collectibility therein or to repurchase such Finance Receivables or otherwise),
other than contingent liabilities generally incurred by an endorser without
recourse in the ordinary course of business, shall constitute a sale "with
recourse." The provisions of foregoing clause (iii) shall not apply to the sale
or other realization on Delinquent Receivables. Finance Receivables sold or
disposed of pursuant to the provisions of this Section 7.5(c) shall be selected
at random from all Finance Receivables of the class or type so being sold or
disposed of.
Section 7.6. Liens and Encumbrances.
(a) Negative Pledge. The Company will not and will not permit any
Restricted Subsidiary to (i) cause or permit or (ii) agree or consent to cause
or permit in the future (upon the happening of a contingency or otherwise), (x)
any of its Property, whether now owned or hereafter acquired, to be subject to a
Lien (whether or not provision is made for the equal and ratable securing of the
Notes in accordance with the last sentence of Section 7.6(b) hereof) or (y)
except in connection with transactions in the ordinary course of its Finance
Business, any claim or right of the Company or any Restricted Subsidiary to be
subordinate or junior to any claim or right of any other Person, except:
(1) Liens securing taxes, assessments or governmental charges or
levies or the claims or demands, arising in the ordinary course of
business, of materialmen, mechanics, carriers, warehousemen, or of
landlords, lessees or lessors under leases (other than Capitalized Leases)
and other like Persons, provided the payment thereof is not at the time
required by Section 7.1;
(2) Liens incurred or deposits made in the ordinary course of
business (i) in connection with workers' compensation, unemployment
insurance, social security and other like laws, or (ii) to secure the
performance of bids, tenders, letters of credit, sales contracts, leases
(other than Capitalized Leases), statutory obligations, surety, appeal and
performance bonds and other similar obligations not incurred in connection
with the borrowing of money, the obtaining of advances or the payment of
the deferred purchase price of Property;
(3) attachment, judgment and other similar Liens arising in
connection with court proceedings, provided that within 30 days of the
effective date of any such Lien (i) the claim secured thereby is paid and
satisfied or (ii) the execution or other enforcement of any such Lien is
effectively stayed and the claim secured thereby is being actively
contested in good faith and by appropriate proceedings and provided
further, that the aggregate amount of all such claims at any time
outstanding shall not exceed $1,000,000;
(4) Liens on Property of a Restricted Subsidiary, provided such Liens
secure only obligations owing to the Company or a Wholly-Owned Restricted
Subsidiary;
(5) reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases and other similar title
exceptions or encumbrances affecting real Property, provided they do not in
the aggregate materially detract from the value of said Properties or
materially interfere with their use in the ordinary conduct of the business
of the owner thereof;
(6) Liens existing at the date of acquisition thereof on Property
acquired in bona fide liquidation, collection or other realization upon or
settlement of, collateral held to secure Finance Receivables;
(7) the Lien of mortgages, conditional sale contracts, security
interests or other arrangements for the retention of title (including
Capitalized Leases) existing as of the Closing Date securing Senior Debt of
the Company or any Restricted Subsidiary outstanding on such date, and
which Liens and Senior Debt are specifically described in Schedule III
hereto; and
(8) the Lien of mortgages, conditional sale contracts, security
interests or other arrangements for the retention of title (including
Capitalized Leases) on or in respect of Property acquired after the Closing
Date given to secure the payment of the purchase price of such Property,
including (x) Liens existing on such Property at the time of acquisition
thereof by any such Person, and (y) Liens existing on Property at the time
of acquisition by the Company or a Restricted Subsidiary of any business
entity then owning such Property, whether or not such existing Liens were
given to secure the payment of the purchase price of the Property to which
they attach so long as they were not incurred, extended or renewed in
contemplation of such acquisition (and any renewal, extension or
replacement of any Lien permitted by this paragraph (8) but without
increase in the principal amount of the Debt secured thereby), provided
that:
(i) the Lien shall attach solely to the Property acquired,
(ii) at the time of such acquisition of such Property, the
aggregate amount remaining unpaid on all Debt secured by Liens on such
Property, whether or not assumed by the Company or a Restricted
Subsidiary, shall not exceed an amount equal to 80% of the lesser of
the total purchase price or fair market value at the time of such
acquisition, of such Property, and
(iii) all such Debt of the Company and its Restricted
Subsidiaries shall constitute Senior Debt and shall have been incurred
within the applicable limitations of Sections 7.7 and 7.8.
(b) Equal and Ratable Lien; Equitable Lien. In the event any Property is
subjected to a Lien not otherwise permitted by this Section 7.6, the Company
will make or cause to be made provision whereby the Notes will be secured, to
the full extent permitted under applicable law, equally and ratably with all
other obligations secured thereby, and in any case the Notes shall (but only in
such event) have the benefit, to the full extent that the holders may be
entitled thereto under applicable law, of an equitable Lien equally and ratably
securing the Notes. Compliance with the provisions of this Section 7.6(b) shall
not be deemed to constitute a waiver of, or consent to, any violation of the
provisions of Section 7.6(a).
Section 7.7. Permitted Debt. The Company will not and will not permit any
Restricted Subsidiary to incur, create, issue, assume or permit to exist any
Debt other than:
(i) Senior Debt of the Company;
(ii) Subordinated Debt of the Company;
(iii) liabilities (other than for or in connection with borrowed
money) incurred in the regular operation of the Finance Business of the
Company or a Restricted Subsidiary and not more than six months overdue,
unless contested in good faith by appropriate proceedings;
(iv) Senior Debt of a Restricted Subsidiary secured by Liens of the
type described in Section 7.6(a)(8) hereof; and
(v) Debt of a Restricted Subsidiary to the Company or to a Wholly-
Owned Restricted Subsidiary.
Section 7.8. Limitations on Debt. (a) The Company will not permit the
aggregate principal amount at any time outstanding of:
(i) Total Consolidated Debt to exceed the lesser of (x) 900% of
Consolidated Adjusted Net Worth or (y) the amount specified in any
provision of any loan agreement or note agreement under which any other
Senior Debt of the Company is then outstanding pertaining to any similar
limitation on the ability of the Company to incur Debt;
(ii) Consolidated Senior Debt to exceed 450% of the sum of (x) the
aggregate principal amount of all Consolidated Subordinated Debt then
outstanding, plus (y) Consolidated Adjusted Net Worth;
(iii) Consolidated Senior Debt to exceed 91% of the aggregate amount
of Finance Receivables owned by the Company and its Restricted
Subsidiaries;
(iv) Consolidated Senior Debt secured by Liens of the type described
in Section 7.6(a)(8) to exceed 10% of Consolidated Adjusted Net Worth;
provided, however, that the aggregate principal amount at any one time
outstanding of Consolidated Senior Debt secured by any such Liens which
cover office and data processing equipment (including computers), motor
vehicles or other equipment to be used in the operations of the Company or
a Restricted Subsidiary shall not exceed 5% of Consolidated Adjusted Net
Worth; and
(v) Consolidated Subordinated Debt to exceed 150% of Consolidated
Adjusted Net Worth;
subject, however, to the provisions of Section 7.19 hereof.
(b) The Company will not extend the maturity date of or renew any
Subordinated Debt.
(c) The Company will not make any payments of principal (other than
payments at final maturity, sinking fund payments, installment payments or other
mandatory prepayments) on any Subordinated Debt except to the extent permitted
under Section 7.12.
Section 7.9. Limitations on Commercial Paper. The Company will not permit
the aggregate principal amount at any one time outstanding of commercial paper
issued and sold by the Company or any Restricted Subsidiary, directly or by or
through commercial paper dealers, to exceed the then outstanding amount of
unused credit available to the Company and its Restricted Subsidiaries under
established and confirmed lines of credit from banks and trust companies.
Section 7.10. Consolidated Adjusted Net Worth and Consolidated
Subordinated Debt. (a) The Company will at all times keep and maintain
Consolidated Adjusted Net Worth in an amount not less than the greater of (i)
the sum of (x) $105,000,000 plus $10,000,000 for each fiscal year ending after
December 31, 1993, or (ii) such amount as may be required by applicable laws or
regulations of any Federal or state regulatory agency having jurisdiction in the
premises subject, however, to the provisions of Section 7.19 hereof.
(b) The Company will at all times keep and maintain the sum of
Consolidated Adjusted Net Worth plus Consolidated Subordinated Debt then
outstanding in an amount not less than the sum of (x) $140,000,000 plus (y)
$10,000,000 for each fiscal year ending after December 31, 1993 subject,
however, to the provisions of Section 7.19 hereof.
Section 7.11. Earnings Available for Fixed Charges. The Company will,
with respect to and as of the end of each fiscal quarter of the Company, have
had Earnings Available for Fixed Charges in an amount not less than 125% of
Fixed Charges for each such fiscal quarter.
Section 7.12. Restricted Payments. The Company will not and will not
permit any Restricted Subsidiary to:
(a) declare or pay any dividends, either in cash or property, on any
shares of capital stock of any class (except dividends or other
distributions payable solely in shares of common stock of the Company and
dividends paid by any Restricted Subsidiary to the Company or to a Wholly-
Owned Restricted Subsidiary);
(b) directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its
capital stock (other than shares of capital stock of the Company acquired
by it in exchange for other shares of common stock of the Company);
(c) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock
(other than to the Company or a Wholly-Owned Restricted Subsidiary);
(d) make any payment of or purchase or otherwise acquire any of the
principal of or make any payment of interest or premium on any Subordinated
Debt other than regularly scheduled required payments of principal and
interest and, in the case of the Company's 9.76% Senior Subordinated Notes
due December 15, 1997, payments due under Section 5.4 of the Senior
Subordinated Note Agreements pursuant to which such Notes were issued as
such Section was in effect on December 20, 1989; or
(e) make any Restricted Investment;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options, and all such other
distributions and Restricted Investments being herein collectively called
"Restricted Payments"), unless after giving effect thereto:
(i) the aggregate amount of all Restricted Payments made during the
period after December 31, 1991, and to and including the date of the making
of such Restricted Payment, would not exceed the sum of (w) $28,494,000
plus (x) 50% (or, in the case of a deficit, minus 100%) of Consolidated
Adjusted Net Income for such period (computed on a cumulative basis for
such entire period), plus (y) the aggregate net cash proceeds received by
the Company from the issuance and sale, subsequent to December 31, 1991 of
shares of its common stock during such period, and
(ii) no Default or Event of Default would then exist;
subject, however, to the provisions of Section 7.19 hereof.
For the purposes of this Section 7.12, the amount of any Restricted Payment
which is payable or distributable in Property other than cash or shares of
capital stock of the Company shall be deemed to be the greater of the book value
or fair market value (as determined in good faith by the Board of Directors of
the Company) of such Property as of the date of the declaration of such
Restricted Payment.
Section 7.13. ERISA Compliance. (a) The Company will not permit the
present value of all employee benefits vested under all "employee pension
benefit plans," as such term is defined in Section 3 of ERISA, maintained by the
Company and its Subsidiaries as from time to time in effect (herein called
"Pension Plans") to exceed the present value of the assets allocable to such
vested benefits by an amount exceeding 10% of Consolidated Adjusted Net Worth.
(b) All assumptions and methods used to determine the actuarial valuation
of vested employee benefits under Pension Plans and the present value of assets
of Pension Plans shall be reasonable in the good faith judgment of the Company
and shall comply with all requirements of law.
(c) Neither the Company nor any of its Subsidiaries will cause any Pension
Plan maintained or participated in by any of them to:
(i) engage in any "prohibited transaction," as such term is defined
in Section 4975 of the Internal Revenue Code of 1986, as amended;
(ii) incur any "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA, whether or not waived; or
(iii) terminate in a manner which could result in the imposition of a
Lien on the Property of the Company or any of its Subsidiaries pursuant to
Section 4068 of ERISA.
Section 7.14. Transactions with Affiliates. Neither the Company nor any
Restricted Subsidiary will enter into any transaction, including, without
limitation, the purchase, sale, exchange or leasing of Property or the rendering
of any service, with any Affiliate of any such Person, except in the ordinary
course of and pursuant to the reasonable requirements of their respective
businesses and upon fair and reasonable terms not materially less favorable to
the Company or such Restricted Subsidiary than the terms which would be
applicable in a comparable arm's-length transaction with a Person not an
Affiliate.
Any Person which becomes a Restricted Subsidiary subsequent to the date
hereof shall be deemed to have entered into, at the date it becomes a Restricted
Subsidiary, all transactions with Affiliates with respect to which such Person
will be obligated immediately after it becomes a Restricted Subsidiary.
Section 7.15. Tax Consolidation. The Company will not and will not permit
any Restricted Subsidiary to be a party to a consolidated Federal income tax
return with any other Person other than the Company and its Restricted
Subsidiaries if as a result thereof, as of any date, the aggregate amount of
Federal income taxes which the Company and its Restricted Subsidiaries have then
or theretofore paid or become obligated to pay (determined on a cumulative
basis, taking into account net benefits received by the Company and its
Restricted Subsidiaries) exceeds the amount which they would have been required
to pay pursuant to a consolidated tax return solely of the Company and its
Restricted Subsidiaries.
Section 7.16. Amendment of Subordination and Payment Provisions. The
Company will not amend or in any way modify the subordination provisions or the
payment or prepayment provisions or the default provisions applicable to
Subordinated Debt at any time outstanding.
Section 7.17. Permitted Business. The Company will, and will cause each
Restricted Subsidiary to, remain solely in the Finance Business.
Section 7.18. Obligations of Restricted Subsidiaries. The Company
acknowledges and agrees that whenever after the Closing Date (a) any Person
becomes a Restricted Subsidiary all Debt, leases and other obligations and all
Investments of such Person existing as of the date such Person becomes a
Restricted Subsidiary shall be deemed, for all purposes of this Agreement, to
have been incurred, entered into, made or created at the same time such Person
so becomes a Restricted Subsidiary and (b) any Restricted Subsidiary is
designated as an Unrestricted Subsidiary, such Restricted Subsidiary shall be
deemed to have sold or otherwise disposed of all of its Properties as of the
date of and immediately prior to such designation and the Company shall be
deemed to have made, as a result of and concurrently with such designation, a
Restricted Investment equal to the amount of the Investment of the Company (or
its other Restricted Subsidiaries) in such Subsidiary immediately after giving
effect to such designation and all Debt of the Company or any other Restricted
Subsidiary issued to such former Restricted Subsidiary shall be deemed to have
been incurred as of the date of such designation.
Section 7.19. Benefit of More Restrictive Covenants or Agreements. In the
event that any holder of Debt of the Company is or becomes entitled to the
benefit of any covenant or agreement which is substantially similar to any
covenant or agreement of the Company contained in Section 7.8(a), Section 7.10
or Section 7.12 and which is more restrictive on the Company than the covenant
or agreement contained in said Sections 7.8(a), 7.10 and 7.12, then such more
restrictive covenant or agreement shall be deemed to be incorporated into this
Agreement by reference at the time such holder of Debt becomes so entitled and
the Holders shall be entitled to the benefits thereof with respect to this
Agreement in addition to the existing covenants and agreements contained in said
Sections 7.8(a), 7.10 and 7.12 so long as any of the Notes remain outstanding.
SECTION 8. INFORMATION AS TO COMPANY.
Section 8.1. Financial and Business Information. The Company will deliver
to you so long as you are a Holder and to each other Institutional Holder:
(a) Quarterly Statements of the Company - as soon as practicable
after the end of each quarterly fiscal period, except the last, in each
fiscal year of the Company and in any event within 60 days thereafter, a
copy of:
(1) a consolidated balance sheet of the Company and its
Restricted Subsidiaries as at the end of such quarter, and
(2) consolidated statements of income and surplus and cash flows
of the Company and its Restricted Subsidiaries, for such quarter and
for the portion of the fiscal year ending with such quarter,
setting forth, in the case of such consolidated statements, in comparative
form the figures for the corresponding periods in the previous fiscal year,
all in reasonable detail and certified as materially complete and correct
and prepared in accordance with GAAP, subject to changes resulting from
year-end adjustments, by a principal financial officer of the Company;
(b) Annual Statements of the Company - as soon as practicable, in the
case of such consolidated statements, after the end of each fiscal year of
the Company, and in any event within 120 days thereafter, a copy of:
(1) a consolidated balance sheet of the Company and its
Restricted Subsidiaries at the end of such year, and
(2) consolidated statements of income and surplus and cash flows
of the Company and its Restricted Subsidiaries for such year,
all in reasonable detail and accompanied by an opinion thereon of the
accountants named in Section 2.4 or other independent certified public
accountants of recognized national standing selected by the Company, which
opinion shall state that such financial statements fairly present the
financial condition of the Persons being reported upon, have been prepared
in accordance with GAAP (except for noted changes in application in which
such accountants concur) and that the examination of such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards and, accordingly, included such tests
of the accounting records and such other auditing procedures as were
considered necessary in the circumstances (the Company hereby agrees to
deliver, by mail, within the period specified above, duplicate copies of
such financial statements to the Securities Valuation Office, National
Association of Insurance Commissioners, 195 Broadway, New York, New York
10007, identified as being filed with respect to the "6.76% Senior Notes,
Series A, due 1999; 6.94% Senior Notes, Series B, due 2000; 7.02% Senior
Notes, Series C, due 2001; and 7.14% Senior Notes, Series D, due 2002");
(c) Robert Morris Associates Questionnaire -- promptly upon
preparation thereof (and at least semi-annually), one copy of each Robert
Morris Associates lending questionnaire (or its equivalent) prepared by the
Company or, if such questionnaire was not so prepared, a Certificate of a
principal financial officer of the Company, setting forth substantially the
same information (and in substantially the same form and detail as the
Semi-Annual Supplement dated June 30, 1990 to the Company's Annual Report
for the year ended December 31, 1989) as would be contained in such
questionnaire;
(d) Opinions of Financial Officers and Counsel -- as soon as
practicable after the end of each fiscal year of the Company, and in any
event within 120 days thereafter, duplicate copies of any opinions of the
Company's chief financial officer and counsel required pursuant to Section
7.1;
(e) Audit Reports -- promptly upon receipt thereof, one copy of each
other report (including, without limitation any "management report," or
portion thereof, relating to (i) material accounting inadequacies that
would or could result in a qualified opinion in the future or (ii) material
inadequacies in internal accounting controls) submitted to the Company by
independent accountants in connection with any annual, interim or special
audit made by them of the books of any of such Persons;
(f) SEC and Other Reports -- promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement
sent by the Company to stockholders generally and of each regular, periodic
or other report and any registration statement or prospectus in respect
thereof filed by any of such Persons with the Securities and Exchange
Commission or any successor agency;
(g) ERISA -- promptly upon becoming aware of the occurrence of any
(1) "reportable event," as such term is defined in Section 4043
of ERISA, or
(2) "prohibited transaction," as such term is defined in Section
4975 of the Internal Revenue Code of 1986, as amended,
in connection with any Pension Plan or any trust, created thereunder, a
written notice specifying the nature thereof, what action is being taken or
is proposed to be taken with respect thereto and, when known, any action
taken by the Internal Revenue Service with respect thereto;
(h) Notice of Event of Default -- promptly upon becoming aware of the
existence of any condition or event which constitutes a Default or an Event
of Default, a written notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with
respect thereto;
(i) Notice of Claimed Default -- promptly upon becoming aware that
the Holder of any Note or of any other evidence of indebtedness or other
Security of the Company or any of its Subsidiaries has given notice or
taken any other action with respect to a claimed default or a Default or
Event of Default, a written notice specifying the notice given or action
taken by such Holder and the nature of the claimed default or Default or
Event of Default and what action the Company or such Subsidiary is taking
or proposes to take with respect thereto;
(j) Additional Restrictive Covenants or Agreements -- promptly upon
the execution thereof by the Company, one copy of any document or agreement
to which the Company is or becomes a party containing a covenant or
agreement of the type referred to in Section 7.19 hereof accompanied by a
written explanation of such covenant or agreement; and
(k) Requested Information -- with reasonable promptness, such other
data and information with respect to the Company and its Subsidiaries as
from time to time may be reasonably requested.
Section 8.2. Officers' Certificates. Each set of financial statements
delivered to any Institutional Holder pursuant to Section 8.1(a) or 8.1(b) will
be accompanied by a certificate of the President or a Vice President of the
Company setting forth:
(a) Covenant Compliance -- the information (including calculations)
required in order to establish whether the Company was in compliance with
the requirements of Sections 7.4 through 7.18 during the period covered by
the income statement then being furnished; and
(b) Event of Default -- that the signers have reviewed the relevant
terms of this Agreement and have made, or caused to be made, under their
supervision, a review of the transactions and conditions of the Company and
its Subsidiaries from the beginning of the accounting period covered by the
income statements being delivered therewith to the date of the certificate
and that such review has not disclosed the existence during such period of
any condition or event which constitutes a Default or an Event of Default
or, if any such condition or event existed or exists, specifying the nature
and period of existence thereof and what action the Company has taken or
proposes to take with respect thereto.
Section 8.3. Accountants' Certificate. Each set of annual financial
statements delivered pursuant to Section 8.1(b) will be accompanied by a
certificate of the accountants who certify such financial statements, stating
that they have reviewed this Agreement and stating further, whether, in making
their audit, such accountants have become aware of any condition or event which
then constitutes a Default or an Event of Default under any provisions of this
Agreement (including without limitation, Sections 7.1 through 7.18), and, if any
such condition or event then exists, specifying the nature and period of
existence thereof.
Section 8.4. Inspection. The Company will permit you, so long as you are
a Holder, and each Institutional Holder (or such Person as either you or such
Institutional Holder may designate), to visit and inspect any of the Properties
of the Company or any of its Subsidiaries to examine all of their books of
account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants (and by
this provision the Company authorizes said accountants to discuss the finances
and affairs of the Company and its Subsidiaries) all at such reasonable times
and as often as may be reasonably requested. Any visitation or inspection shall
be at the expense of you or such Institutional Holder unless a Default or Event
of Default shall have occurred and be continuing, in which case, any such
visitation or inspection shall be at the expense of the Company.
SECTION 9. EVENTS OF DEFAULT.
Section 9.1. Nature of Events. An "Event of Default" shall exist if any
of the following occurs and is continuing:
(a) Principal or Interest Payments -- the Company fails to make any
payment of principal or Make Whole Amount on any Note on or before the date
such payment is due, whether at any date fixed for prepayment, at final
maturity, by acceleration or otherwise; or the Company fails to make any
payment of interest on any Note on or before the date such payment of
interest is due and such failure shall continue for five days;
(b) Particular Covenant Defaults -- the Company fails to perform or
observe any covenant contained in Sections 7 or 8 including any covenant or
agreement incorporated by reference herein pursuant to Section 7.19 of this
Agreement;
(c) Other Defaults -- the Company fails to comply with any other
provision of this Agreement and such failure continues for more than 30
days after such failure shall first become known to any officer of the
Company;
(d) Warranties or Representations -- any material warranty,
representation or other statement by or on behalf of the Company contained
in this Agreement or in any instrument or document furnished by or on
behalf of the Company in compliance with or in reference to this Agreement
shall be incorrect in any material respect as of the date of the making
thereof,
(e) Default on Indebtedness or Other Security -- the Company or any
Restricted Subsidiary fails to make any payment due on any indebtedness or
other Security aggregating $1,000,000 or more or any event shall occur or
any condition shall exist in respect of any such indebtedness or other
Security of any of such Persons aggregating $1,000,000 or more, or under
any agreement securing or relating to such indebtedness or other Security
(and such failure, event or condition shall not have been duly cured,
waived or consented to by the holders or trustee in question), the effect
of which is (i) to cause or permit the holders of such indebtedness or
other security, or a portion thereof, to cause the same to become due prior
to its or their stated maturity or prior to its or their regularly
scheduled dates of payment, or (ii) to permit a trustee or the holder of
any Security (other than Voting Stock of any of such Persons) to elect a
majority of the directors on the Board of Directors of the Company or such
Restricted Subsidiary;
(f) Involuntary Bankruptcy Proceedings -- a custodian, receiver,
liquidator or trustee of the Company or any Restricted Subsidiary, or of
any of the Property of any of such Persons, is appointed by court order and
such order remains in effect for more than 30 days; or any of such Persons
is adjudicated bankrupt or insolvent or suffers an order for relief under
applicable Federal bankruptcy law to be entered with respect to it; or any
material Property of any of such Persons is sequestered by court order and
such order remains in effect for more than 30 days; or a petition is filed
against any of such Persons under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
law of any jurisdiction, whether now or hereafter in effect, and is not
dismissed within 30 days after such filing;
(g) Voluntary Petitions -- the Company or any Restricted Subsidiary
files a petition in voluntary bankruptcy or seeking relief under any
provision of any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect, or consents to the filing of any
petition against it under such law;
(h) Assignments for Benefit of Creditors, Etc. -- the Company or any
Restricted Subsidiary makes an assignment for the benefit of its creditors
generally, is generally not paying its debts as they become due, or admits
in writing its inability to pay its debts generally as they become due, or
consents to the appointment of a custodian, receiver, trustee or liquidator
of any of such Persons, or of all or any part of the Property of any of
such Persons; or
(i) Undischarged Final Judgments -- final judgment or judgments for
the payment of money aggregating in excess of $500,000 is or are
outstanding against one or more of the Company or any Restricted
Subsidiaries and any one or more of such judgments aggregating in excess of
$500,000 have been outstanding for more than 30 days from their respective
dates of entry and have not been discharged in full or stayed.
Section 9.2. Default Remedies.
(a) Acceleration -- If an Event of Default exists, any Holder or Holders
holding more than 25% in principal amount of the Notes of any Series then
outstanding (exclusive of Notes then owned by the Company or any Restricted
Subsidiaries and any Affiliates of any such Persons) may exercise any right,
power or remedy permitted to such Holder or Holders by law, and shall have, in
particular, without limiting the generality of the foregoing, the right, by
notice in writing to the Company, to declare the entire principal and all
interest accrued on all the Notes of such Series then outstanding to be, and
such Notes shall thereupon become, forthwith due and payable (the date upon
which such amounts so become due and payable being hereinafter referred to as
the "Acceleration Date"), together with (to the extent not prohibited by
applicable law) an amount equal to the Make Whole Amount without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived; the Company will forthwith pay to the Holders the
entire principal of and interest accrued on such Notes together with the Make
Whole Amount specified above. The foregoing provisions of this Section 9.2(a)
to the contrary notwithstanding, (i) during the existence of an Event of Default
described in Section 9.1(a) and irrespective of whether any Holder or Holders
holding more than 25% in principal amount of Notes of any Series then
outstanding have declared all the Notes of such Series to be due and payable
pursuant to this Section 9.2(a), any Holder of Notes who or which has not
consented to any waiver with respect to such Event of Default may, at his or its
option, by notice in writing to the Company, declare the Notes then held by such
Holder to be, and such Notes shall thereupon become, forthwith due and payable
together with all interest accrued thereon (and, to the extent not prohibited by
applicable law, the Make Whole Amount provided for above) without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, and (ii) when any Event of Default described in Section
9.1(f), 9.1(g) or 9.1(h) has occurred, all Notes then outstanding shall
thereupon become forthwith due and payable together with all interest accrued
thereon (and the Make Whole Amount provided for above) without presentment,
demand or notice of any kind, all of which are hereby expressly waived, and the
Company shall forthwith pay to the Holders thereof the entire principal of,
interest accrued on, and Make Whole Amount in respect of the Notes.
(b) Non-waiver and Expenses -- No course of dealing on the part of any
Holder of the Notes nor any delay or failure on the part of any Holder of the
Notes to exercise any right shall operate as a waiver of such right or otherwise
prejudice such Holder's rights, powers and remedies.
If the Company fails to pay when due the principal or interest on any Note,
or fails to comply with any other provision of this Agreement, the Company will
pay to the Holders of the Notes, to the extent permitted by law, such further
amounts as shall be sufficient to cover the cost and expenses, including but not
limited to reasonable attorney's fees, incurred by such Holders in collecting
any sums due on the Notes or in otherwise enforcing any of their rights. The
obligations of the Company under this paragraph shall survive the payment or
prepayment of the Notes and the termination of this Agreement.
Section 9.3. Annulment of Acceleration of Notes. If a declaration is made
pursuant to Section 9.2(a) by any Holder or Holders of the Notes of any Series,
then and in every such case, the Holders holding more than 75% in aggregate
principal amount of the Notes of such Series then outstanding (exclusive of
Notes then owned by the Company or any Restricted Subsidiaries and any
Affiliates of any such Person) may, by written instrument filed with the
Company, rescind and annul such declaration, and the consequences thereof,
provided that at the time such declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes of such Series or this Agreement;
(b) all arrears of interest upon all the Notes of such Series and all
other sums payable under the Notes of such Series and under this Agreement
(except any principal or interest on the Notes of such Series which has
become due and payable by reason of such declaration under Section 9.2(a))
shall have been duly paid; and
(c) each and every other Default and Event of Default shall have been
waived pursuant to Section 12.4(a) or otherwise made good or cured,
and, provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
SECTION 10. INTERPRETATION OF THIS AGREEMENT.
Section 10.1. Terms Defined. As used in this Agreement, the following
terms have (unless otherwise limited by the context) the following respective
meanings, and the following definitions shall be equally applicable to both the
singular and plural forms of any of the terms herein defined:
Acceleration Date -- Section 9.2(a).
Affiliate -- of any Person means any other Person (other than, in the case
of the Company, a Wholly-Owned Restricted Subsidiary) (1) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, such first Person, (2) which beneficially owns or
holds 5% or more of any class of the Voting Stock of such first Person, (3) 5%
or more of the Voting Stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of which is beneficially owned
or held by such first Person or its Subsidiaries, or (4) which is an officer or
director of such first Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
Business Day -- shall mean any day other than a Saturday, Sunday or a legal
holiday or a day upon which banking institutions are authorized by law to be
closed in the city of Chicago, Illinois or New York, New York.
Capitalized Lease -- any lease of real or personal property, the obligation
for rentals with respect to which is required to be capitalized on a
consolidated balance sheet of the Company and its Restricted Subsidiaries for
financial reporting purposes in accordance with GAAP.
Closing Date -- Section 1.2.
Consolidated Adjusted Net Income -- net earnings or net losses of the
Company and its Restricted Subsidiaries after income taxes, determined in
accordance with GAAP, but excluding from the determination of such earnings the
following items (together with the income tax effect, if any, applicable
thereto):
(a) any gain arising from the sale of capital assets (the sale or
other disposition of Finance Receivables, in the ordinary course of the
Finance Business and within the limitations of this Agreement, shall not
constitute a sale of capital assets); and any non-recurring or
extraordinary gains or losses;
(b) any gain arising from any write-up of assets;
(c) earnings of any Restricted Subsidiary accrued prior to the date
it became a Restricted Subsidiary;
(d) earnings of any Person, substantially all the assets of which
have been acquired in any manner by the Company or any Restricted
Subsidiary, realized by such other Person prior to the date of such
acquisition;
(e) net earnings of any Person (other than a Restricted Subsidiary)
in which the Company or any Restricted Subsidiary has an ownership interest
unless such net earnings shall have actually been received by the Company
or such Restricted Subsidiary in the form of cash distributions;
(f) any portion of the net earnings of any Restricted Subsidiary
which for any reason is unavailable for distribution to the Company or any
other Restricted Subsidiary;
(g) the earnings of any Person to which assets of the Company shall
have been sold, transferred or disposed of, or into which the Company shall
have merged, prior to the date of such transaction; and
(h) any gain arising from the acquisition of Securities of the
Company or any Restricted Subsidiary.
Consolidated Adjusted Net Worth -- at any date means:
(a) the amount of capital stock liability plus (or minus in the case
of a deficit) the capital surplus and earned surplus of the Company and its
Restricted Subsidiaries, on a consolidated basis, less (without
duplication) the sum of
(b) the net book value, after deducting any reserves applicable
thereto, of all items of the following character which are included in the
assets of the Company and its Restricted Subsidiaries, to wit:
(i) all real property, fixed assets, unamortized leasehold
improvements and furniture, fixtures and equipment other than Property
held for immediate sale, lease or other liquidation and which has been
held by the Company or a Restricted Subsidiary for less than 90 days;
(ii) all deferred charges (other than deferred Federal income
taxes and deferred investment tax credits) and prepaid expenses other
than prepaid interest, prepaid taxes and prepaid insurance premiums;
(iii) treasury stock;
(iv) unamortized debt discount and expense and unamortized stock
discount and expense;
(v) good will, organizational or experimental expense, patents,
trademarks, copyrights, trade names and other intangibles;
(vi) all Restricted Investments;
(vii) the excess, if any, of (A) the sum of (i) Delinquent
Receivables, (ii) accrued and unpaid income thereon and (iii) the net
book value of repossessed Property held for immediate sale, lease or
other disposition which has been held by the Company or a Restricted
Subsidiary for 90 days or more over (B) the sum of (i) reserves for
credit losses and (ii) amounts due to sellers of Finance Receivables
and available for credit losses as shown on the books of the Company
and its Restricted Subsidiaries; and
(viii) any surplus resulting from any write-up in the book value
of assets of the Company or any Restricted Subsidiary subsequent to
March 31, 1991.
Consolidated Senior Debt and Consolidated Subordinated Debt -- all Senior
Debt and Subordinated Debt, respectively, of the Company and its Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
Consolidated Total Assets -- shall mean as of the date of any determination
thereof, the total amount of all assets of the Company and its Restricted
Subsidiaries (less depreciation, depletion and other properly deductible
valuation reserves) determined on a consolidated basis in accordance with GAAP.
"Coupon Rate" shall mean with respect to the (a) Series A Notes, 6.76% per
annum, (b)Series B Notes, 6.94% per annum, (c) Series C Notes, 7.02% per annum,
or (d) Series D Notes, 7.14% per annum.
Debt -- with respect to any Person shall include all obligations of such
Person which in accordance with GAAP shall be classified upon a balance sheet of
such Person as liabilities of such Person, and in any event shall include, but
without limitation and without duplication, all (a) direct debt and other
similar monetary obligations of such Person, (b) obligations secured by any Lien
upon Property owned by such Person, even though such Person has not assumed or
become liable for the payment of such obligations, (c) obligations created or
arising under any conditional sale, Capitalized Lease, financing lease (whether
or not classified as a Capitalized Lease on a balance sheet of such Person), or
other title retention agreement with respect to Property acquired by such
Person, notwithstanding the fact that the rights and remedies of the seller,
lender or lessor under such agreement in the event of default are limited to
repossession or sale of Property, and (d) all Guarantees of such Person.
Default -- an event or condition the occurrence of which would, with the
lapse of time or the giving of notice or both, become an Event of Default.
Delinquent Receivables -- at any date shall mean the sum of the following
items (a) and (b) to the extent then reflected as assets on the books of the
Company and its Restricted Subsidiaries:
(a) the full unpaid amount of receivables, other than receivables
acquired in making direct cash personal loans, on which the payment of any
installment of interest or principal, in whole or in part, is more than 60
days overdue according to its original terms; and
(b) in the case of receivables acquired in making such direct cash
personal loans, the full unpaid amount of receivables classified as "90-
Day" Accounts, that is, receivables as to which scheduled payments of
principal and interest were not received during the preceding 90 days.
Earnings Available for Fixed Charges -- for any period shall mean the sum
of
(i) Consolidated Adjusted Net Income during such period; plus
(ii) to the extent deducted in determining Consolidated Adjusted Net
Income,
(a) all provisions for any Federal, state or other income taxes,
and
(b) Fixed Charges.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended
from time to time.
Event of Default -- Section 9.1.
Finance Business -- the business of acquiring and/or making loans (a
majority of which shall be secured) and/or servicing Finance Receivables and the
transaction of such other business as may be reasonably incidental thereto
including, without limitation, the leasing business and the direct lending
business including the sale of insurance as agent or broker.
Finance Receivables -- notes and other obligations evidencing installment
loans made to consumers for the purchase of real and personal property. All
Finance Receivables shall be valued in accordance with GAAP.
Fixed Charges -- for any period shall mean, on a consolidated basis for the
Company and its Restricted Subsidiaries, the sum of
(i) all interest and all amortization of debt discount and expense on
all Debt of the Company and its Restricted Subsidiaries, plus
(ii) all Rentals payable during such period by the Company and its
Restricted Subsidiaries under all leases of real or personal Property
(other than Capitalized Leases), other than any such lease under which the
Company or a Wholly-Owned Restricted Subsidiary is the lessor.
GAAP -- generally accepted accounting principles as in effect from time to
time in the United States, which shall include the official interpretations
thereof by the Financial Accounting Standards Board, consistently applied.
Guarantees -- all obligations of any Person guaranteeing or in effect
guaranteeing any indebtedness or obligation or dividend of any other Person (the
"primary obligor") in any manner whether directly or indirectly, including,
without limitation, (A) all obligations incurred through an agreement,
contingent or otherwise, by such Person (i) to purchase any indebtedness or
obligation or any Property constituting security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any indebtedness or obligation
or (y) to maintain working capital, equity capital or other balance sheet
condition or fixed charge coverage or other income statement condition or
otherwise to advance or make available funds for the purchase or payment of any
indebtedness or obligation, (iii) to purchase Property, Securities or services
primarily for the purpose of assuring the owner of any indebtedness or
obligation of the ability of the primary obligor to make payment of the
indebtedness or obligation or (iv) otherwise to assure the owner of the
indebtedness or obligation of the primary obligor against loss in respect
thereof, and (B) all fixed or contingent liabilities incurred by such Person as
the result of its participation in any partnership, joint venture or other
similar arrangement. Liabilities on endorsements in the ordinary course of
business of checks and other negotiable instruments for deposit or collection
shall not be deemed a "Guarantee" of the indebtedness of the primary obligor.
Holder -- shall mean any Person which is, at the time of reference, the
registered holder of any Note.
Institutional Holder -- any Holder which is a Purchaser or an insurance
company, closed-end investment company, bank, trust company, pension fund,
mutual fund, foundation or similar institutional investor and for purposes of
the Direct Payment provisions of Section 4.1 of this Agreement, shall include
any nominee of any such Holder.
Investment -- all investments in any Person, computed in accordance with
GAAP, made by stock purchase, capital contribution, loan, advance, extension of
credit, or creation or assumption of any other contingent liability or guaranty
in respect of any obligation of such Person, or otherwise; provided, however,
that in computing any investment in any Person (i) all expenditures for such
investment shall be taken into account at the actual amounts thereof in the case
of expenditures of cash and at the fair value thereof (as determined in good
faith by the Board of Directors of the Company) or depreciated cost thereof (in
accordance with GAAP), whichever is greater, in the case of expenditures of
Property, (ii) there shall not be included any account or note receivable
(including Finance Receivables) from such Person arising from transactions in
the ordinary course of business, and (iii) a Guaranty or other contingent
liability of any kind in respect of any Debt or other obligation of such Person
shall be deemed an Investment equal to the amount of such Debt or obligation.
Lien -- any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and including but not limited to
the security interest lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting the title to
Property. For the purposes of this Agreement, the Company or a Restricted
Subsidiary shall be deemed to be the owner of any Property which it has acquired
or holds subject to a conditional sale agreement, financing or Capitalized Lease
or other arrangement pursuant to which title to the Property has been retained
by or vested in some other Person for security purposes.
"Lyndon Subsidiaries" shall mean Lyndon Property Insurance Company, a
Missouri corporation, and Lyndon Life Insurance Company, a Missouri corporation.
Make Whole Amount -- Section 5.l.
Material Restricted Subsidiary -- any Restricted Subsidiary (i) the assets
of which constituted 5% or more of the total consolidated assets of the Company
and all of its Restricted Subsidiaries as of December 31, 1995, or (ii) the
revenues of which for the twelve months ended December 31, 1995, constituted 5%
or more of the total consolidated revenues of the Company and all of its
Restricted Subsidiaries for such period.
Notes -- Section 1.1.
"Overdue Rate" with respect to any Series of Notes shall mean a rate per
annum equal to the lesser of (a) the maximum interest rate permitted by law and
(b) the greater of (x) the prime rate of interest charged by the Chase Manhattan
Bank, N.A. or (y) the sum of (i) 2%, plus (ii) the Coupon Rate applicable to
such Series.
Pension Plans -- Section 2.16.
Person -- an individual, partnership, corporation, trust or unincorporated
organization, and a government or agency or political subdivision thereof.
Property -- any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
Rentals -- all fixed payments which the lessee is required to make by the
terms of any lease but shall not include amounts required to be paid in respect
of maintenance, repairs, income taxes, property taxes, insurance, interest,
assessments, amortization or other similar charges or additional rentals (in
excess of fixed minimums) based upon a percentage of gross receipts.
Restricted Investments -- all Investments other than:
(a) Investments in direct obligations of the United States of America
and obligations of agencies of the United States of America which are
backed by the full faith and credit of the United States of America and
obligations unconditionally guaranteed by the United States of America,
maturing within 12 months from the date of acquisition thereof;
(b) Investments in certificates of deposit or bankers acceptances
maturing within 12 months of the date of issue and issued by any bank
having a combined capital, surplus and undivided profits of at least
$50,000,000 (or, for purposes only of paragraph (e) hereof, which has total
assets of not less than $1,000,000,000) and which is organized and doing
business under the laws of the United States of America or which is
organized and doing business under the laws of any state of the United
States of America and is a member of the Federal Reserve System and the
short term debt obligations of which (or of the bank holding company of
which such bank is a subsidiary, if such bank does not have any such
obligations so rated) are rated P1 or better by Moody's Investors Services,
Inc. or Al or better by Standard & Poor's Corporation;
(c) Investments in readily marketable commercial paper maturing
within 270 days of the date of the original issuance thereof, rated A-2 or
better by Standard & Poor's Corporation or P-2 or better by Moody's
Investors Service, Inc., and issued by corporations which are organized and
existing under the laws of the United States of America or any state
thereof;
(d) Investments of the Company and any Restricted Subsidiary in
Restricted Subsidiaries and Investments in any Person which will as a
result of such Investment become a Restricted Subsidiary;
(e) Investments by the Company or any Restricted Subsidiary in the
publicly traded shares of any established mutual fund the investments of
which are limited to securities of the types described in foregoing
paragraphs (a), (b), (c) and (f) hereof;
(f) Investments in municipal obligations maturing within 12 months
from the date of acquisition thereof and rated AA or better by Standard &
Poor's Corporation or MIG-2 or better by Moody's Investors Services, Inc.;
and
(g) Investments in addition to those described in the foregoing
paragraphs (a) through (f) hereof, provided, that the aggregate amount of
all Investments made pursuant to the provisions of this paragraph (g) at
any one time outstanding shall not exceed an amount equal to 10% of
Consolidated Adjusted Net Worth (determined before the inclusion therein of
any Restricted Investment).
Restricted Payment -- Section 7.12.
Restricted Subsidiary -- a corporation engaged in the Finance Business:
(a) which is organized under the laws of the United States or a
jurisdiction thereof;
(b) which conducts substantially all of its business and has
substantially all of its Property within the United States, or territories
and possessions of the United States;
(c) at least 80% of the capital stock and equity Securities of which
are legally and beneficially owned by the Company and its Restricted
Subsidiaries; and
(d) which has been designated in Schedule II hereto or by a
resolution of the board of directors of the Company as a Restricted
Subsidiary for all purposes of this Agreement.
The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary and may designate any Restricted
Subsidiary as an Unrestricted Subsidiary, provided that (i) at the time of and
after giving effect thereto (x) the Company would be permitted to incur at least
$1.00 of additional Senior Debt under the limitations of Section 7.8(a) hereof
and (y) no Default or Event of Default will then exist and (ii) a Restricted
Subsidiary which has been designated as an Unrestricted Subsidiary may not
thereafter be again designated as a Restricted Subsidiary. The Company shall,
within 10 days after the designation of any Subsidiary as Restricted or
Unrestricted, give written notice of such action to each holder of the Notes.
Security -- shall have the same meaning as in Section 2(l) of the
Securities Act of 1933, as amended.
Senior Debt -- of any Person means the Notes (in the case of the Company)
and all other Debt of such Person of the types described in clauses (a) through
(d) of the definition of Debt herein, which is not expressed to be subordinate
or junior in right of payment to any other Debt.
Senior Subordinated Note Agreements -- shall mean the Senior Subordinated
Note Agreements described in clauses (a) and (b) of the definition of
Subordinated Debt contained herein.
Subordinated Debt -- shall mean and include
(a) the 10.86% Senior Subordinated Notes, Series D, due May 15, 1998
of the Company issued in the original principal amount of $15,000,000, and
from time to time remaining outstanding, under those certain Senior
Subordinated Note Agreements, each dated as of May 15, 1990, between the
Company and the Purchasers therein named, as amended or modified from time
to time (subject however, to the limitations of Section 7.16 hereof);
(b) the 9.76% Senior Subordinated Notes, due December 15, 1997 of the
Company issued in the original principal amount of $20,000,000, and from
time to time remaining outstanding, under those certain Senior Subordinated
Note Agreements, each dated as of December 1, 1989, between the Company and
the Purchasers therein named, as amended or modified from time to time
(subject however, to the limitations of Section 7.16 hereof); and
(c) any other indebtedness of the Company ranking in right of payment
on a parity with or junior to the Senior Subordinated Notes described in
the preceding clause (a) hereof, and which at all times is evidenced by, or
issued under and subject to, a written instrument containing subordination
provisions which are substantially identical to the subordination
provisions appearing in Section 11 of the Senior Subordinated Note
Agreements pursuant to which the Senior Subordinated Notes described in
clause (a) hereof were issued, providing for the subordination of such
indebtedness to (among other Debt) the Notes and all other Senior Debt of
the Company.
Subsidiary -- of any Person means a corporation of which such Person owns,
directly or indirectly, more than 50% of the Voting Stock.
Subsidiary Stock -- Section 7.4.
Substantial Part -- as used in Section 7.5 means, when used with respect to
Consolidated Total Assets, more than 10% thereof, and when used with respect to
Consolidated Adjusted Net Income for any period, more than 10% thereof for such
period. Computations pursuant to Section 7.5 shall include dispositions made
pursuant to Section 7.4 and computations pursuant to Section 7.4 shall include
dispositions made pursuant to Section 7.5.
Total Consolidated Debt -- means all Debt of the Company and its Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
Unrestricted Subsidiary -- any Subsidiary which is not a Restricted
Subsidiary.
Voting Stock -- Securities of any class or classes of a corporation the
holders of which are entitled to vote.
Wholly-Owned -- when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all Debt for borrowed money
shall be owned by the Company and/or one or more of its Wholly-Owned Restricted
Subsidiaries.
Section 10.2. Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP, to the
extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
Section 10.3. Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person including actions taken by or on
behalf of any partnership in which such Person is a general partner.
Section 10.4. Governing Law. This Agreement and the Notes shall be
governed by and construed in accordance with Illinois law.
SECTION 11. PRIORITY.
The Debt evidenced by the Notes shall rank on a parity with all other
Senior Debt of the Company and the Company will at all times maintain all
Subordinated Debt from time to time outstanding as subordinate and junior to the
Debt evidenced by the Notes and all other Debt to which the same purports to be
subordinate and junior as set forth in the instrument or instruments evidencing
such Subordinated Debt or pursuant to which the same is issued.
SECTION 12. MISCELLANEOUS.
Section 12.1. Notices. (a) All communications under this Agreement or
under the Notes shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or delivered by overnight courier,
(1) if to you, at your address appearing on Schedule I to this
Agreement, or such other address as you or any subsequent holder of any
Note originally issued to you may designate to the Company in writing, or
(2) if to the Company, at its address referred to in Section 7.3 of
this Agreement, marked for Attention: Vice President - Finance, or at such
other address as the Company may have furnished in writing to you.
(b) Any notice so addressed and mailed by registered or certified mail or
delivered by overnight courier shall be deemed to be given when received.
(c) The obligations of the Company to give notice hereunder shall be
satisfied if such notice is mailed in the manner hereinabove provided to you at
the address most recently furnished to the Company as hereinabove contemplated
whether or not the recipients of such notice continue to hold Notes.
Substantially concurrently with the mailing by you of a notice to the Company
under Section 9.2 hereof, you shall use your best efforts to convey the
substance of such notice to the officer of the Company to whom such notice was
so mailed, by telephone or telex, but you shall not be liable to anyone for
failure so to do and such failure shall not affect the validity of the notice so
mailed.
Section 12.2. Survival. All warranties, representations, and covenants
made by the Company herein or in any certificate or other instrument delivered
by the Company or on its behalf under this Agreement shall be considered to have
been relied upon by you and shall survive the delivery to you of the Notes
regardless of any investigation made by you or on your behalf. All statements
in any such certificate or other instrument shall constitute warranties and
representations by the Company hereunder.
Section 12.3. 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. The provisions of this Agreement are intended to be for the
benefit of all Holders, from time to time, of the Notes, and shall be
enforceable by any such Holder, whether or not an express assignment to such
Holder of rights under this Agreement has been made by any Purchaser or such
Purchaser's successor or assign.
Section 12.4. Amendment and Waiver.
(a) Requirements. This Agreement may be amended, and the observance of
any term of this Agreement may be waived, in each case with respect to any
Series of Notes, with (and only with) the written consent of the Company and the
Holders of at least 66-2/3% in principal amount of the Notes of such Series at
the time outstanding (exclusive of Notes then owned by the Company or any of its
Subsidiaries and Affiliates); provided, that no such amendment or waiver shall,
without the written consent of all of the Holders of such Series, (i) change the
rate or the time of payment of interest on the Notes of such Series, or (ii)
amend or waive any of the provisions of Section 4.1. 7.16, 9 or 11 hereof;
provided further that no such amendment or waiver shall, without the consent of
all of the Holders of the Notes, (y) amend or waive any of the provisions of
Section 5.1, 5.3, 5.4, 5.7 or 5.8 hereof or of this Section 12.4 or (z) change
the amount or time of any prepayment or payment of principal on the Notes.
(b) Solicitation of Noteholders. The Company will not, directly or
indirectly, solicit, request or negotiate for or with respect to any proposed
waiver or amendment with respect to any Series of Notes of any of the provisions
of this Agreement or the Notes of such Series unless (i) each Holder of such
Series (irrespective of the amount of Notes then owned by it) shall be equally
informed thereof by the Company and shall be afforded an equal opportunity of
considering the same and shall be supplied by the Company with sufficient
information to enable it to make an informed decision with respect thereto and
(ii) each Holder of Notes of every other Series which is not being requested by
the Company to consent to a similar waiver or amendment shall receive from the
Company written information with respect to the requested waiver or amendment,
as the case may be. Executed or true and correct copies of any waiver or
consent effected pursuant to the provisions of this Section 12.4 shall be
delivered by the Company to each such Holder forthwith following the date on
which the same shall have been executed and delivered by the Holder or Holders
of the requisite percentage of outstanding Notes of such Series. The Company
will not, directly or indirectly, pay or cause to be paid any remuneration,
whether by way of supplemental or additional interest, fee or otherwise, to any
such Holder as consideration for or as an inducement to the entering into by
such Person of any waiver or amendment of any of the terms and provisions of
this Agreement unless remuneration is concurrently paid, on the same terms,
ratably to all Holders of such Series.
(c) Binding Effect. Any such amendment or waiver shall apply equally to
all the Holders of the Notes of such Series and shall be binding upon them and
upon each future Holder of any Note of such Series and upon the Company whether
or not such Note shall have been marked to indicate such amendment or waiver.
No such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
Section 12.5. Reproduction of Documents. This Agreement and all documents
relating thereto, including without limitation, (a) consents, waivers and
modifications which may hereafter be executed, (b) documents received by each
Purchaser at the closing of such Purchaser's purchase of the Notes (except the
Notes themselves), and (c) financial statements, certificates and other
information previously or hereafter furnished to such Purchaser, may be
reproduced by such Purchaser by any photographic, photostatic, microfilm, micro-
card, miniature photographic or other similar process and such Purchaser may
destroy any original document so reproduced. The Company agrees and stipulates
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the original
is in existence and whether or not such reproduction was made by such Purchaser
in the regular course of business) and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
Section 12.6. Severability. In case any provision of this Agreement or
the Notes shall be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 12.7. Duplicate Originals. Two or more duplicate originals of
this Agreement may be signed by the parties, each of which shall be an original
but all of which together shall constitute one and the same instrument.
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement.
MERCURY FINANCE COMPANY
By
Bradley S. Vallem
Assistant Vice President and Treasurer
Accepted as of April 5, 1996:
METROPOLITAN LIFE INSURANCE COMPANY
By
Its Assistant Vice President
PRINCIPAL AMOUNT
NAMES AND ADDRESSES OF NOTES TO BE
OF PURCHASERS PURCHASED
METROPOLITAN LIFE INSURANCE COMPANY Series A $20,000,00
0
One Madison Avenue Series B $10,000,00
0
New York, New York 10010 Series C $9,500,000
Attention: Treasurer Series D --
Telecopier Number: (212) 578-3910
Payments
All payments on or in respect of each Series of the Notes to be by separate bank
wire transfers of Federal or other immediately available funds (identifying each
payment as (i) "Mercury Finance Company, 6.76% Senior Notes, Series A, due April
5, 1999, PPN 589395 G# 3, principal or interest," or (ii) "Mercury Finance
Company, 6.94% Senior Notes, Series B, due April 5, 2000, PPN 589395 H* 6,
principal or interest," or (iii) "Mercury Finance Company, 7.02% Senior Notes,
Series C, due April 5, 2001, PPN 589395 H@ 4, principal or interest," as the
case may be) to:
The Chase Manhattan Bank, N.A. (ABA #021000021)
Metropolitan Branch
33 East 23rd Street
New York, New York 10010
for credit to: Metropolitan Life Insurance Company--Corporate Investments
Account Number 002-2-410591
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above with duplicate notice to:
Metropolitan Life Insurance Company
Corporate Investments-Capital Markets Group
One Lincoln Centre
Suite 800
Oakbrook Terrace, IL 60181
Attention: Vice President
Telecopier Number: (708) 916-2575
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-5581829
PRINCIPAL AMOUNT
NAMES AND ADDRESSES OF NOTES TO BE
OF PURCHASERS PURCHASED
TEXAS LIFE INSURANCE COMPANY Series A --
Texas Center Series B --
900 Washington Avenue Series C $500,000
Waco, Texas 76701 Series D --
Attention: Treasurer
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Mercury Finance Company, 7.02% Senior Notes, Series C, due April 5, 2001, PPN
589395 H@ 4, principal, premium or interest") to:
Texas National Bank/Waco (ABA #111-900-523)
Attention: Trust Department F/A/0
Texas Life Insurance Company
Account Number 80022
Attention: Trust
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above with duplicate notice to:
Metropolitan Life Insurance Company
Corporate Investments - Capital Markets Group
One Lincoln Centre
Suite 800
Oakbrook Terrace, IL 60181
Attention: Vice President
Telecopier Number: (708) 916-2575
Name of Nominee in which Notes are to be issued: TNB Stock Company for the
account of
Texas Life Insurance Company
Taxpayer I.D. Number: 74-0940890
PRINCIPAL AMOUNT
NAMES AND ADDRESSES OF NOTES TO BE
OF PURCHASERS PURCHASED
PRINCIPAL MUTUAL LIFE INSURANCE $11,000,00
COMPANY Series A 0
711 High Street Series B --
Des Moines, Iowa 50392-0800 Series C --
Attention: Investment Department-- Series D --
Securities Division
Regarding Bond Number 1-B-60724
Telefacsimile: (515) 248-2490
Confirmation: (515) 248-3495
Payments
All payments on or in respect of each Series of Notes to be by separate bank
wire transfers of Federal or other immediately available funds (identifying each
payment as "Mercury Finance Company, 6.76% Senior Notes, Series A, due April 5,
1999, PPN 589395 G# 3, Bond Number 1-B-60724, principal, premium or interest"
to:
Norwest Bank Iowa, N.A. (ABA #0730 0022 8)
7th and Walnut Streets
Des Moines, Iowa 50309
for credit to: Principal Mutual Life Insurance Company
General Account Number 014752
Reference: OBI: PFGSE(s) I-B-60724
Notices
All notices concerning payment on or in respect of the Notes, to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0960
Attention: Investment Department--Accounting & Treasury
Telefacsimile: (515) 248-2643
All notices and communications other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 42-012-7290
PRINCIPAL AMOUNT
NAMES AND ADDRESSES OF NOTES TO BE
OF PURCHASERS PURCHASED
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY Series A --
711 High Street Series B --
Des Moines, Iowa 50392-0800 Series C --
Attention: Investment Department-- Series D $4,000,000
Securities Division
Regarding Bond Number 16-B-60725
Telefacsimile: (515) 248-2490
Confirmation: (515) 248-3495
Payments
All payments on or in respect of each Series of Notes to be by separate bank
wire transfers of Federal or other immediately available funds (identifying each
payment as "Mercury Finance Company, 7.14% Senior Notes, Series D, due April 5,
2002, PPN 589395 H# 2, Bond Number 16-B-60725, principal, premium or interest"
to:
Norwest Bank Iowa, N.A. (ABA #0730 0022 8)
7th and Walnut Streets
Des Moines, Iowa 50309
for credit to: Principal Mutual Life Insurance Company
Separate Account Number 032395
Reference: OBI: PFGSE(s) 16-B-60725
Notices
All notices concerning payment on or in respect of the Notes, to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0960
Attention: Investment Department--Accounting & Treasury
Telefacsimile: (515) 248-2643
All notices and communications other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 42-012-7290
PRINCIPAL AMOUNT
NAMES AND ADDRESSES OF NOTES TO BE
OF PURCHASERS PURCHASED
PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY Series A --
c/o Phoenix Duff & Phelps, Inc. Series B $5,000,000
56 Prospect Street Series C --
P.O. Box 150480 Series D --
Hartford, CT 06105-0480
Attention: Private Placements
Division
Telecopy Number: (860) 403-
5451
Payments
All payments on or in respect of each Series of Notes to be by separate bank
wire transfers of Federal or other immediately available funds (identifying each
payment as "Mercury Finance Company, 6.94% Senior Notes, Series B, due April 5,
2000, PPN 589395 H* 6 principal, premium or interest") to:
Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10005
FED ABA 021000021
CHASE NYC/CTR/
BNF = SSG PRIVATE INCOME PROCESSING/AC-9009000200
FOR CREDIT TO PHOENIX HOME LIFE
ACCT. # G05134
OBI = MERCURY FINANCE COMPANY, PPN = 589395 H* 6, RATE = 6.94%,
DUE April 5, 2000
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None.
Taxpayer I.D. No.: 06-0493340
<TABLE>
LIST OF SUBSIDIARIES AND CORPORATE
OR JOINT VENTURE AFFILIATES
<CAPTION>
PERCENTAGE
A. OPERATING JURISDICTION OF OF
SUBSIDIARIES INCORPORATION OWNERSHIP IN NAME OF OWNERSHIP
<S> <C> <C> <C>
Mercury Finance Alabama Mercury Finance Company 100%
Corporation of Alabama*
Mercury Finance Company Arizona Mercury Finance Company 100%
of Arizona*
Mercury Finance Company California Mercury Finance Company 100%
of California*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Delaware*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Florida**
Mercury Finance Company Delaware Mercury Finance Company 100%
of Georgia**
Mercury Finance Company Delaware Mercury Finance Company 100%
of Idaho*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Illinois**
Mercury Finance Company Delaware Mercury Finance Company 100%
of Indiana*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Iowa*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Kansas*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Kentucky*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Louisiana**
Mercury Finance Company Delaware Mercury Finance Company 100%
of Michigan*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Mississippi*
Mercury Finance Company Missouri Mercury Finance Company 100%
of Missouri*
Mercury Finance Company Nevada Mercury Finance Company 100%
of Nevada*
Mercury Finance Company Delaware Mercury Finance Company 100%
of New Mexico*
Mercury Finance Company Delaware Mercury Finance Company 100%
of New York*
Mercury Finance Company Delaware Mercury Finance Company 100%
of North Carolina**
Mercury Finance Company Delaware Mercury Finance Company 100%
of Ohio*
MFC Finance Company of Delaware Mercury Finance Company 100%
Oklahoma*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Pennsylvania*
Mercury Finance Company Delaware Mercury Finance Company 100%
of South Carolina*
Mercury Finance Company Tennessee Mercury Finance Company 100%
of Tennessee*
MFC Finance Company of Delaware Mercury Finance Company 100%
Texas **
Mercury Finance Company Delaware Mercury Finance Company 100%
of Utah*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Virginia**
Mercury Finance Company Delaware Mercury Finance Company 100%
of Washington*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Wisconsin*
MFC Financial Services, Florida Mercury Finance Company 100%
Inc.*
Mercury Finance Company Delaware Mercury Finance Company 100%
of Colorado*
Midland Finance Company* Illinois Mercury Finance Company 100%
Gulfco Investment Inc.* Louisiana Mercury Finance Company 100%
Gulfco Finance Company* Louisiana Gulfco Investment Inc. 100%
INSURANCE JURISDICTION OF OWNERSHIP PERCENTAGE
SUBSIDIARIES INCORPORATION IN NAME OF OF
OWNERSHIP
Lyndon Property Insurance Missouri Mercury Finance Company 100%
Company
Lyndon Life Insurance Missouri Lyndon Property Insurance 100%
Company Company
B. AFFILIATES
None
* Restricted Subsidiary
** Material Restricted Subsidiary
</TABLE>
SCHEDULE III
<TABLE>
MERCURY FINANCE COMPANY
Long Term Debt & Swaps
April 5, 1996
(MIDLAND FINANCE DEBT LISTED SEPARATELY)
SORTED IN MATURITY DATE ORDER (with Issue/Maturity Date Subtotals)
<CAPTION>
Next
Principal Interest Issue Maturity Payment Notation Payment
Debt Holder Amount Rate Date Date Due Date Amount # Days Basis
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Debt (Senior)
Equitable 13,000,000 6.41% 09/29/92 09/15/96 09/15/96 416,650.00 180 (3,9,/15th)
Provident Mutual 2,000,000 6.41% 09/29/92 09/15/96 09/15/96 64,100.00 180 (3,9,/15th)
Total 9/15/96 Maturity 15,000,000
Principal Mutual 15,000,000 7.67% 03/06/92 03/06/97 09/06/96 575,250.00 180 (3,9,/6th)
All State 10,000,000 8.15% 05/22/92 05/22/97 05/22/96 407,500.00 180 (5,11,/22nd)
State Mutual 7,500,000 8.15% 05/22/92 05/22/97 05/22/96 306,625.00 180 (5/11,/22nd)
Total 5/22/97 Maturity 17,500,000
Bank of America 40,000,000 6.41% 10/20/95 10/20/97 06/15/96 666,244.44 92 (3,6,9,12,/
15th)
Pacific Mutual 24,000,000 6.29% 07/16/93 12/16/97 06/16/96 754,800.00 180 (6,12,/16th)
Principal Mutual 35,000,000 6.70% 03/26/93 03/26/96 09/26/96 1,172,500.00 180 (3,9/26th)
TMG Life Ins Co. 5,000,000 7.16% 06/29/95 06/29/96 06/29/96 179,000.00 180 (6,12,/29th)
Metropolitan Life Ins Co 20,000,000 7.16% 06/29/95 06/29/96 06/29/96 716,000.00 180 (6,12,/29th)
Total 6/29/98 Maturity 25,000,000
Long-Term Credit--Japan 20,000,000 8.62% 12/15/94 12/14/96 06/15/96 876,366.67 183*** (6,12,/15th)
Nord LB 10,000,000 8.50% 12/15/94 12/14/96 06/15/96 432,083.33 183*** (6,12,/15th)
American United Life 10,000,000 6.16% 12/15/93 12/15/96 06/15/96 308,000.00 180 (6,12,/15th)
Pacific Mutual 16,000,000 6.16% 12/15/93 12/15/96 06/15/96 492,800.00 180 (6,12,/15th)
MONY Capital Management 15,000,000 6.16% 12/15/93 12/15/96 06/15/96 462,000.00 180 (6,12,/15th)
Provident Mutual Life 5,000,000 6.16 12,15/93 12/15/96 06/15/96 154,000.00 180 (6,12,/15th)
Allstate Life Insurance 10,000,000 6.16% 12/15/93 12/15/96 06/15/96 306,000.00 180 (6,12,/15th)
Principal Mutual 20,000,000 6.16% 12/15/93 12/15/96 06/15/96 616,000.00 180 (6,12,/15th)
Total 12/15/96 Maturity 76,000,000
Industrial Bank of Japan 20,000,00 6.56% 03/22/96 03/22/99 09/22/96 670,577.78 184**** (3,9,/22nd)
Metropolitan Life Ins Co 20,000,000 7.33% 06/29/96 06/29/99 06/29/96 733,000.00 180 (6,12,/29th)
Lincoln-Security Life Ins Co 1,000,000 7.33% 06/29/96 06/29/99 06/29/96 36,650.00 180 (6,12,/29th)
The Lincoln Ntl Life Ins Co 7,500,000 7.33% 06/29/96 06/29/99 06/29/96 274,875.00 180 (6,12,/29th)
Security-Conn Life Ins. Co. 1,500,000 7.33% 06/29/96 06/29/99 06/29/96 54,975.00 180 (6,12,/29th)
Total 6/29/99 Maturity 30,000,000
Nord/LB 10,000,000 6.66% 03/22/96 03/21/00 09/22/96 340,400.00 184**** (3,9,/22nd)
Pacific Mutual Life Ins. Co. 8,000,000 7.42% 06/29/96 06/29/00 06/29/96 296,800.00 180 (6,12,/29th)
American Guardian Life Ins. 3,000,000 7.42% 06/29/96 06/29/00 06/29/96 111,300.00 180 (6,12,/29th)
PM Group Life Ins. Co. 2,000,000 7.42% 06/29/96 06/29/00 06/29/96 74,200.00 180 (6,12,/29th)
Allstate Life 20,000,000 7.42% 06/29/96 06/29/00 06/29/96 742,000.00 180 (6,12,/29th)
The Lincoln Ntl Life Ins Co 10,000,000 7.42% 06/29/96 06/29/00 06/29/96 371,000.00 180 (6,12,/29th)
Principal Mutual Life Ins Co 15,000,000 7.42 06/29/96 06/29/00 06/29/96 556,500.00 180 (6,12,/29th)
Total 6/29/00 Maturity 58,000,000
Principal Mutual Life Ins Co 10,000,000 7.50% 06/29/96 06/29/01 06/29/96 375,000.00 180 (6,12,/29th)
Lincoln Ntl Reins.(Barbados) 750,000 7.50% 06/29/96 06/29/01 06/29/96 28,125.00 180 (6,12,/29th)
London Life Intl Reins Corp 500,000 7.50% 06/29/96 06/29/01 06/29/96 18,750.00 180 (6,12,/29th)
American States Life Ins Co 1,000,000 7.50% 06/29/96 06/29/01 06/29/96 37,500.00 180 (6,12,/29th)
The Lincoln Ntl Life Ins Co 5,250,000 7.50% 06/29/96 06/29/01 06/29/96 196,875.00 180 (6,12,/29th)
Lincoln Ntl Life Reinsurance 1,000,000 7.50% 06/29/96 06/29/01 06/29/96 37,500.00 180 (6,12,/29th)
Allstate Insurance Co. 10,000,000 7.50% 06/29/96 06/29/01 06/29/96 375,000.00 180 (6,12,/29th)
Oxford Life Ins Co 1,500,000 7.50% 06/29/96 06/29/01 06/29/96 56,250.00 180 (6,12,/29th)
Total 6/29/01 Maturity 30,000,000
Phoenix Amer. Life Ins. Co. 5,000,000 7.59% 06/29/96 06/29/02 06/29/96 189,750.00 180 (6,12,/29th)
Allstate Insurance Co. 10,000,000 7.59% 06/29/96 06/29/02 06/29/96 379,500.00 180 (6,12,/29th)
Phoenix Home Life Mutual 2,000,000 7.59% 06/29/96 06/29/02 06/29/96 75,900.00 180 (6,12,/29th)
Total 6/29/02 Maturity 17,000,000
Total Senior 442,500,000
7.01%
Long Term Debt (Subordinated)
CIGNA-orig $15mm 12,000,000 # 9.76% 01/11/90 12/15/9706/15/96 # 585,600.00 180 (6,12,/15th)
Phoenix Mtl Lf-orig $5mm 4,000,000 # 9.76% 12/20/89 12/15/9706/15/96 # 195,200.00 180 (6,12,/15th)
Total 12/15/97 Maturity 16,000,000
CIGNA-orig $1.7mm 1,530,000 * 10.86% 05/25/90 05/15/9605/15/96 * 83,079.00 180 (5,11/15th)
Cnnctct Gnrl-orig $13.3mm 11,970,000 * 10.86% 05/25/90 05/15/9605/15/96 * 649,971.00 180 (5,11/15th)
Total 5/15/96 Maturity 13,500,000
Total Subordinated 29,500,000
10.26%
Mercury Sr & Sub Debt 472,000,000
Overall Sr & Sub Rate 7.21%
MIDLAND DEBT
Senior Debt
Bank One, Chicago 125,000 7.125% 10/30/89 10/31/96 05/31/96 4,489.73 184 ## (4/30,10/31)
Bank One, Chicago 125,000 7.125% 10/30/89 10/31/97 05/31/96 4,489.73 184 ## (4/30,10/31)
Bank One, Chicago 1,000,000 7.125%
Total Midland Senior Debt 1,250,000 7.125%
Subordinated Debt
Bank One, Chicago 0 7.375% 10/30/89 10/31/96 11/7/95 0.00 184 ## (4/30,10/31)
Total Midland Debt 1,250,000 7.125% Prepaid
Sub. Debt Include Midland 29,500,000 10.263%
Sur. Debt Include Midland 443,750,000 7.011%
473,250,000 7.214%
Swaps
Next
Issue Expiry Payment
Debt Holder Amount Rate Pd Date Date Due Date Amount
Total 0
Effective Rate (Swap) ERR
Total LT. & Swaps $473,250,000
Eff. Rate (Swap & LT) 7.21%
# Required prepayments of $2,000,000 on 6/15/95, 12/15/95, 6/15/96, 12/15/96, 6/15/97, optional prepayments based on discounted
PV of Prin & Int payments at lesser of equiv treas + 50 bp or 9.76%
* Required prepayments of $1,500,000 on 11/15/95, 05/15/96,11/15/96, 05/15/97 and 11/15/97; optional prepayment based on
discounted PV of lesser of comparable treas + 50 bp or 10.86%
** Cap @ 9.5% (any funds over 9.5% are to be paid to Continental Bank)
*** Actual/360 Basis
## Actual/365 Day Basis
Notes:
(1) In connection with the Gulfco acquisition, interest payments are made for a $25,000,000 private placement loan. Payments are
made on 1/31 and 7/31 from 1993 through 2001.
(2) Commitment fees associated with the Revolving Credit Facility are paid on the 5th day at the beginning of each quarter.
(3) Harris Line of Credit Commitment Fee is paid on 5th day at the beginning of each quarter.
</TABLE>
MERCURY FINANCE COMPANY
6.76% Senior Note, Series A, due April 5, 1999
RA-___ PPN 589395 G# 3 __________, 1996
$__________
MERCURY FINANCE COMPANY, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to
or registered assigns
the principal sum of
on April 5, 1999 and to pay interest on the unpaid principal balance hereof
(computed on the basis of a 360-day year of twelve 30-day months) from the date
of this Note at the rate of 6.76% per annum, semiannually on April 5 and October
5 in each year, commencing October 5, 1996, and to pay on demand interest on any
overdue principal and Make Whole Amount (as defined in the Senior Note
Agreements), and (to the extent permitted by applicable law) on any overdue
installment of interest, at the Overdue Rate (as defined in the Senior Note
Agreements). Payments of principal, Make Whole Amount, if any, and interest
hereon are payable at the principal office of the Company in Northbrook,
Illinois in such coin or currency of the United States of America as at the time
of payment is legal tender for the payment of public and private debts.
This Note is one of the 6.76% Senior Notes, Series A, due April 5, 1999
(the "Series A Notes") of the Company in the aggregate principal amount of
$31,000,000 issued or to be issued together with the $29,000,000 aggregate
principal amount of the Company's Notes of other Series (such Notes of other
Series, together with the Series A Notes, are herein collectively referred to as
the "Notes") all under and pursuant to the separate Senior Note Agreements each
dated as of April 5, 1996 (the "Senior Note Agreements") between the Company and
the respective Purchasers named in Schedule I thereto, and is entitled to the
benefits thereof.
This Note is a registered Note and is transferable only by surrender
thereof at the principal office of the Company duly endorsed or accompanied by a
written instrument of transfer, in form reasonably satisfactory to the Company,
duly executed by the registered holder of this Note or its attorney duly
authorized in writing.
This Note and the other Notes outstanding under said Senior Note Agreements
may be declared due prior to their expressed maturity dates all in the events,
on the terms and in the manner and amounts as provided in the Senior Note
Agreements.
Except as expressly set forth in Section 5 of the Senior Note Agreements,
this Note is not subject to prepayment by the Company prior to its expressed
maturity date. This Note and the Senior Note Agreements are governed by and
construed in accordance with Illinois law.
MERCURY FINANCE COMPANY
By
Its
__________________________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
BE RE-OFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
THIS NOTE MAY BE SUBJECT TO A DIRECT PAYMENT ARRANGEMENT AND, ACCORDINGLY,
ANY PROSPECTIVE PURCHASER HEREOF SHOULD FIRST VERIFY THE UNPAID PRINCIPAL AMOUNT
HEREOF WITH THE COMPANY.
MERCURY FINANCE COMPANY
6.94% Senior Note, Series B, due April 5, 2000
RB-___ PPN 589395 H* 6 __________, 1996
$__________
MERCURY FINANCE COMPANY, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to
or registered assigns
the principal sum of
on April 5, 2000 and to pay interest on the unpaid principal balance hereof
(computed on the basis of a 360-day year of twelve 30-day months) from the date
of this Note at the rate of 6.94% per annum, semiannually on April 5 and October
5 in each year, commencing October 5, 1996, and to pay on demand interest on any
overdue principal and Make Whole Amount (as defined in the Senior Note
Agreements), and (to the extent permitted by applicable law) on any overdue
installment of interest, at the Overdue Rate (as defined in the Senior Note
Agreements). Payments of principal, Make Whole Amount, if any, and interest
hereon are payable at the principal office of the Company in Northbrook,
Illinois in such coin or currency of the United States of America as at the time
of payment is legal tender for the payment of public and private debts.
This Note is one of the 6.94% Senior Notes, Series B, due April 5, 2000
(the "Series B Notes") of the Company in the aggregate principal amount of
$15,000,000 issued or to be issued together with the $45,000,000 aggregate
principal amount of the Company's Notes of other Series (such Notes of other
Series, together with the Series B Notes, are herein collectively referred to as
the "Notes") all under and pursuant to the separate Senior Note Agreements each
dated as of April 5, 1996 (the "Senior Note Agreements") between the Company and
the respective Purchasers named in Schedule I thereto, and is entitled to the
benefits thereof.
This Note is a registered Note and is transferable only by surrender
thereof at the principal office of the Company duly endorsed or accompanied by a
written instrument of transfer, in form reasonably satisfactory to the Company,
duly executed by the registered holder of this Note or its attorney duly
authorized in writing.
This Note and the other Notes outstanding under said Senior Note Agreements
may be declared due prior to their expressed maturity dates all in the events,
on the terms and in the manner and amounts as provided in the Senior Note
Agreements.
Except as expressly set forth in Section 5 of the Senior Note Agreements,
this Note is not subject to prepayment by the Company prior to its expressed
maturity date. This Note and the Senior Note Agreements are governed by and
construed in accordance with Illinois law.
MERCURY FINANCE COMPANY
By
Its
__________________________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
BE RE-OFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
THIS NOTE MAY BE SUBJECT TO A DIRECT PAYMENT ARRANGEMENT AND, ACCORDINGLY,
ANY PROSPECTIVE PURCHASER HEREOF SHOULD FIRST VERIFY THE UNPAID PRINCIPAL AMOUNT
HEREOF WITH THE COMPANY.
MERCURY FINANCE COMPANY
7.02% Senior Note, Series C, due April 5, 2001
RC-___ PPN 589395 H@ 4 __________, 1996
$__________
MERCURY FINANCE COMPANY, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to
or registered assigns
the principal sum of
on April 5, 2001 and to pay interest on the unpaid principal balance hereof
(computed on the basis of a 360-day year of twelve 30-day months) from the date
of this Note at the rate of 7.02% per annum, semiannually on April 5 and October
5 in each year, commencing October 5, 1996, and to pay on demand interest on any
overdue principal and Make Whole Amount (as defined in the Senior Note
Agreements), and (to the extent permitted by applicable law) on any overdue
installment of interest, at the Overdue Rate (as defined in the Senior Note
Agreements). Payments of principal, Make Whole Amount, if any, and interest
hereon are payable at the principal office of the Company in Northbrook,
Illinois in such coin or currency of the United States of America as at the time
of payment is legal tender for the payment of public and private debts.
This Note is one of the 7.02% Senior Notes, Series C, due April 5, 2001
(the "Series C Notes") of the Company in the aggregate principal amount of
$10,000,000 issued or to be issued together with the $50,000,000 aggregate
principal amount of the Company's Notes of other Series (such Notes of other
Series, together with the Series C Notes, are herein collectively referred to as
the "Notes") all under and pursuant to the separate Senior Note Agreements each
dated as of April 5, 1996 (the "Senior Note Agreements") between the Company and
the respective Purchasers named in Schedule I thereto, and is entitled to the
benefits thereof.
This Note is a registered Note and is transferable only by surrender
thereof at the principal office of the Company duly endorsed or accompanied by a
written instrument of transfer, in form reasonably satisfactory to the Company,
duly executed by the registered holder of this Note or its attorney duly
authorized in writing.
This Note and the other Notes outstanding under said Senior Note Agreements
may be declared due prior to their expressed maturity dates all in the events,
on the terms and in the manner and amounts as provided in the Senior Note
Agreements.
Except as expressly set forth in Section 5 of the Senior Note Agreements,
this Note is not subject to prepayment by the Company prior to its expressed
maturity date. This Note and the Senior Note Agreements are governed by and
construed in accordance with Illinois law.
MERCURY FINANCE COMPANY
By
Its
__________________________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
BE RE-OFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
THIS NOTE MAY BE SUBJECT TO A DIRECT PAYMENT ARRANGEMENT AND, ACCORDINGLY,
ANY PROSPECTIVE PURCHASER HEREOF SHOULD FIRST VERIFY THE UNPAID PRINCIPAL AMOUNT
HEREOF WITH THE COMPANY.
MERCURY FINANCE COMPANY
7.14% Senior Note, Series D, due April 5, 2002
RD-___ PPN 589395 H# 2 __________, 1996
$__________
MERCURY FINANCE COMPANY, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to
or registered assigns the principal sum of
on April 5, 2002 and to pay interest on the unpaid principal balance hereof
(computed on the basis of a 360-day year of twelve 30-day months) from the date
of this Note at the rate of 7.14% per annum, semiannually on April 5 and October
5 in each year, commencing October 5, 1996, and to pay on demand interest on any
overdue principal and Make Whole Amount (as defined in the Senior Note
Agreements), and (to the extent permitted by applicable law) on any overdue
installment of interest, at the Overdue Rate (as defined in the Senior Note
Agreements). Payments of principal, Make Whole Amount, if any, and interest
hereon are payable at the principal office of the Company in Northbrook,
Illinois in such coin or currency of the United States of America as at the time
of payment is legal tender for the payment of public and private debts.
This Note is one of the 7.14% Senior Notes, Series D, due April 5, 2002
(the "Series D Notes") of the Company in the aggregate principal amount of
$4,000,000 issued or to be issued together with the $56,000,000 aggregate
principal amount of the Company's Notes of other Series (such Notes of other
Series, together with the Series D Notes, are herein collectively referred to
as, the "Notes") all under and pursuant to the separate Senior Note Agreements
each dated as of April 5, 1996 (the "Senior Note Agreements") between the
Company and the respective Purchasers named in Schedule I thereto, and is
entitled to the benefits thereof.
This Note is a registered Note and is transferable only by surrender
thereof at the principal office of the Company duly endorsed or accompanied by a
written instrument of transfer, in form reasonably satisfactory to the Company,
duly executed by the registered holder of this Note or its attorney duly
authorized in writing.
This Note and the other Notes outstanding under said Senior Note Agreements
may be declared due prior to their expressed maturity dates all in the events,
on the terms and in the manner and amounts as provided in the Senior Note
Agreements.
Except as expressly set forth in Section 5 of the Senior Note Agreements,
this Note is not subject to prepayment by the Company prior to its expressed
maturity date. This Note and the Senior Note Agreements are governed by and
construed in accordance with Illinois law.
MERCURY FINANCE COMPANY
By
Its
__________________________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
BE RE-OFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
THIS NOTE MAY BE SUBJECT TO A DIRECT PAYMENT ARRANGEMENT AND, ACCORDINGLY,
ANY PROSPECTIVE PURCHASER HEREOF SHOULD FIRST VERIFY THE UNPAID PRINCIPAL AMOUNT
HEREOF WITH THE COMPANY.
DESCRIPTION OF COMPANY COUNSEL'S CLOSING OPINION
The closing opinion of Mark E. Dapier, General Counsel of the Company,
which is called for by Section 3.1 of the Agreements, shall be dated the
Closing Date and addressed to the Purchasers, shall be satisfactory in form and
substance to the Purchasers, and shall be to the effect that:
(1) Organization and Power of the Company -- each of the Company,
each of its Material Restricted Subsidiaries and each of the Lyndon
Subsidiaries is a duly incorporated and validly existing corporation in
good standing under the laws of its state of incorporation and has all
requisite corporate power and authority to carry on its business and own
its Property and, in the case of the Company, to execute, deliver and
perform the Agreements and to issue, sell and deliver the Notes; all of the
outstanding shares of capital stock of each such Material Restricted
Subsidiary and each of the Lyndon Subsidiaries are duly authorized, validly
issued and fully paid and the Company has good and marketable title to all
such shares and all evidences of indebtedness of such Material Restricted
Subsidiaries or such Lyndon Subsidiaries, as the case may be, held by the
Company or by any Material Restricted Subsidiary are legal, valid and
binding obligations enforceable in accordance with their terms, subject to
bankruptcy, insolvency or other laws, and legal and equitable principles,
limiting or affecting the enforcement of creditor's rights generally;
(2) Qualification as Foreign Corporations -- each of the Company,
each of its Material Restricted Subsidiaries and each of the Lyndon
Subsidiaries is duly authorized and has duly qualified to do business under
the corporation laws of and is in good standing as a foreign corporation
in, each jurisdiction where the character of its Properties or the nature
of its activities makes such qualification necessary and wherein the
failure to be so qualified would have a material adverse effect on its
businesses or Properties;
(3) Note Agreements, Notes -- the Agreements and the Notes being
delivered to the Purchasers on the Closing Date have been duly authorized
by all necessary corporate action on the part of the Company (no action by
the stockholders of the Company being required by law, by the Certificate
of Incorporation or By-laws of the Company or otherwise), have been duly
executed and delivered by the Company, and are legal, valid and binding
obligations of the Company enforceable in accordance with their terms,
subject to bankruptcy, insolvency or other laws and legal and equitable
principles limiting or affecting the enforcement of creditors' rights
generally;
(4) No Conflict with Certificate of Incorporation, By-Laws or Other
Agreements -- the issue and sale of the Notes and the execution and
delivery of the Agreements will not conflict with, or result in any breach
of any of the provisions of, or constitute a default under, or result in
the creation or imposition of any Lien upon any of the Property of the
Company or any of its Material Restricted Subsidiaries pursuant to the
provisions of, the respective Certificates of Incorporation or By-Laws of
such corporations or, to the best of such counsel's knowledge and belief,
(i) any agreement or other instrument evidencing or under which any
indebtedness of the Company or any of its Material Restricted Subsidiaries
was issued or (ii) of any order, writ, injunction or decree of any court or
governmental instrumentality binding upon the Company or any Material
Restricted Subsidiary;
(5) Governmental Consent, Etc. -- no consent, approval or
authorization of any governmental authority is required on the part of the
Company in connection with the execution and delivery of the Agreements or
the offer, issue, sale or delivery of the Notes pursuant thereto;
(6) Pending Litigation -- to the best knowledge of such counsel after
due inquiry, them are no proceedings pending, or threatened, against or
affecting the Company or any of its Restricted Subsidiaries in any court or
before any governmental authority or arbitration board or tribunal which
involve the possibility of materially and adversely affecting the
Properties, business, profits or condition (financial or otherwise) of the
Company or any of its Restricted Subsidiaries, or the ability of the
Company to perform its obligations under the Agreements;
(7) Exempted Offering -- the issuance, sale and delivery of the Notes
under the circumstances contemplated by the Agreements are exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended,
and do not, under existing law, require the registration of the Notes under
the Securities Act of 1933, as amended, or compliance with any requirement
of the Trust Indenture Act of 1939;
(8) Margin Regulations -- neither the issuance of the Notes nor the
use of the proceeds from the sale thereof will violate or result in a
violation of Section 7 of the Securities Exchange Act of 1934, as amended,
or any regulations issued pursuant thereto, including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II;
(9) No Designation, Etc. -- no designation, declaration, filing,
registration and/or qualification with any governmental authority is
required in connection with the offer, issue, sale or delivery of the
Notes;
(10) Investment Company -- the Company is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended; and
(11) Holding Company -- the Company is not a "holding company" or a
"subsidiary company" of a "holding company," or an "affiliate" of either a
"holding company" or a "subsidiary company" of a "holding company," as such
terms are defined in the Public Utility Holding Company Act of 1935.
Such opinion shall also cover such other matters incident to the
transactions contemplated hereby as special counsel to the Purchasers may
reasonably request. In rendering the opinions set forth in foregoing paragraphs
(5) and (11), such counsel may state that insofar as laws or regulations of any
state or jurisdiction relating to the licensing of Restricted Subsidiaries to
engage in the business of lending money are concerned, such opinions are given
to the best of such counsel's knowledge and belief without independent
investigation.
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, which is called for by Section 3.1 of the Agreements, shall be dated
the Closing Date and addressed to the Purchasers, shall be satisfactory in form
and substance to the Purchasers, and shall cover the matters referred to in
paragraphs 3 and 4 (but only as to the actions by the Company and the effect
thereof on its Certificate of Incorporation and By-laws), 5 and 7 of Exhibit B
and shall be further to the effect that the Company is duly incorporated and a
validly existing corporation in good standing under the laws of its state of
incorporation and that the Company has all requisite power and authority to
execute and deliver the Agreements and issue, sell and deliver the Notes
thereunder. Such opinion shall also state that the closing opinion of Mark E.
Dapier, General Counsel of the Company delivered pursuant to said Section 3.1 is
satisfactory in scope and form to special counsel and that in their opinion the
Purchasers are justified in relying thereon, and shall cover such other matters
relating to the issuance and sale of the Notes as the Purchasers may reasonably
request.
[LOGO] Bank of America Illinois Demand Promissory Note
231 South LaSalle Street
Chicago, Illinois 60697
$10,000,000 Chicago, Illinois: January 29, 1997
On the earlier of April 28, 1997 (the "Termination Date") or demand, for value
received, MERCURY FINANCE COMPANY (the "Borrower") hereby promises to pay to the
order of BANK OF AMERICA ILLINOIS (the "Bank"), the principal sum of TEN MILLION
AND NO/100 DOLLARS ($10,000,000) or, if less, the aggregate unpaid principal
amount of all advances made by the Bank to the undersigned hereunder. The
initial advance, all subsequent advances and all payments made on account of
principal will be recorded by the holder in its records.
The Borrower further promises to pay to the order of the Bank interest on the
aggregate unpaid principal amount of this Note outstanding from time to time,
from the date of the initial advance under this Note until paid in full, at the
Reference Rate. "Reference Rate" means the rate of interest publicly announced
from time to time by the Bank in Chicago, Illinois, as its Reference Rate. The
Bank may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate will take effect at the opening of business on
the day specified in the public announcement of a change in the Reference Rate.
Interest will be computed on the basis of a 360-day year and the actual number
of days elapsed. Interest accruing prior to demand will be payable monthly on
the first day of each month and at the time of demand, beginning with the first
such date to occur after the initial advance. Interest accruing after demand
will be payable on demand.
If demand for payment is not sooner made, the Borrower will repay in full all
principal and any unpaid interest or other charges outstanding hereunder no
later than the Termination Date. Each payment by the Borrower will be made in
lawful money of the United States of America without set-off or counterclaim in
immediately available funds not later than 2:00 p.m., Chicago time, at the
Bank's office at 231 South LaSalle Street, Chicago, Illinois 60697. Funds
received on any day after such time will be deemed to have been received on the
next banking day.
This Note is binding on the Borrower's successors and assigns and inures to the
benefit of the Bank's successors and assigns. All parties hereto, whether as
makers, endorsers or otherwise, severally waive presentment, demand, protest and
notice of dishonor in connection with this Note.
This Note is governed by the internal laws of the State of Illinois.
The Borrower irrevocably agrees that subject to the Bank's sole and absolute
election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF, FROM OR RELATED
TO THIS NOTE WILL BE LITIGATED IN COURTS HAVING SITUS WITHIN CHICAGO, ILLINOIS.
THE BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY COURT
LOCATED WITHIN CHICAGO, ILLINOIS, WAIVES PERSONAL SERVICE OF PROCESS AND AGREES
THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO THE
BORROWER AT THE ADDRESS STATED BELOW AND SERVICE SO MADE WILL BE DEEMED TO BE
COMPLETED UPON ACTUAL RECEIPT.
THE BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR ARISING FROM ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE, AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
MERCURY FINANCE COMPANY
/s/ William A. Brandt, Jr.
Title: President
100 Field Drive
Suite 940
Lake Forest, Illinois 60045
CERTIFICATE OF ASSISTANT SECRETARY
The undersigned, being the duly elected Assistant Secretary of Mercury
Finance Company, does hereby certify as follows:
(1) The current members of the Board of Directors are:
John N. Brincat
Dennis H. Chookaszian
William C. Croft
Clifford R. Johnson
Andrew McNally, IV
Bruce I. McPhee
Fred G. Steingraber
Philip J. Wicklander
(2) The following individuals are the duly elected officers of
Mercury Finance Company:
William Brandt - President
Jeffrey Brincat - Vice President - Administration
John N. Brincat, Jr. - Vice President - Operations
Richard P. Bosson - Vice President - Operations
George R. Carey - Vice President - Operations
Steven G. Gould - Vice President - Operations
Charles H. Lam - Vice President - Operations
Sheila M. Tilson - Vice President - Operations
Michael W. Stremlau - Vice President - Insurance
McDermott, Will & Emery shall be entitled to rely on this Certificate until I
provide, or another authorized officer of the Company provides, a subsequent
Certificate with additional information.
February 4, 1997
/s/ Sheila M. Tilson
Assistant Secretary
February 6, 1997
CERTIFICATE
The undersigned, Assistant Secretary of Mercury Finance Company (the
"Company"), does hereby certify that attached hereto as "Exhibit A" is a true
and correct copy of a resolution of the Board of the Company adopted by said
Board at a meeting thereof duly held and constituted in accordance with the by-
laws on January 30, 1997.
Said resolution remains in full force and effect as of the date
hereof.
/s/ Sheila M. Tilson
Sheila Tilson
Assistant Secretary
February 6, 1997
"EXHIBIT A"
RESOLUTION
WHEREAS the Bank of America has offered to provide emergency financing
to the Company by means of a $10,000,000 Demand Note (the "Note") dated
January 29, 1997 and due April 28, 1997 and
WHEREAS it is in the best interest of the Company to execute said
Note.
NOW THEREFORE, the President or Treasurer of the Company is authorized
to execute the Note effective January 29, 1997 and the Board does hereby ratify
such execution to be effective the date of the Note.
January 30, 1997
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of February, 1997, by and
between Mercury Finance Company, a Delaware corporation ("Employer") and William
A. Brandt, Jr. ("Employee").
WITNESSETH:
WHEREAS, the parties hereto desire to provide for the employment of
Employee with Employer on the terms and conditions stated below; and
WHEREAS, Employee is presently an employee and shareholder of
Development Specialists, Inc. ("DSI") and the Employee acknowledges that he
intends to remain an employee and shareholder of DSI;
NOW, THEREFORE, in consideration of the mutual undertakings of the
parties hereto, it is agreed as follows:
1. Employment
(a) Employer hereby employs Employee in the capacity of
President and Chief Executive Officer with such obligations as are
assigned to him from time to time by the Board of Directors and with
all rights which accompany such offices. All personnel of Employer
shall report to Employee.
(b) The term of employment shall continue until the earlier of
(i) Employer providing notice to Employee that Employee's employment is
terminated, or (ii) thirty days following notice of Employee of his intent
to terminate employment.
(c) Employee hereby accepts employment with Employer in the
capacity and subject to the provisions of paragraphs 1(a) and 1(b)
above and, while so employed, agrees to devote such portion of his
working time and attention to the affairs and business of Employer as
are necessary to fulfill his obligations hereunder, provided, however,
that Employee shall not be prevented from continuing his employment
with DSI and Employee shall be entitled to retain DSI to assist him in
his duties.
2. Direct Compensation
(a) Salary. In consideration of the services to be
rendered by Employee under this Agreement, Employer shall pay Employee
or his designee compensation at an annual rate of $750,000 ("Salary").
Salary shall be payable on a bi-weekly basis, or at such other
intervals as are customary for the Employer's salaried employees.
(b) Expenses. Employer shall reimburse Employee for
reasonable business expenses incurred by Employee in the performance
of his duties under this Agreement, including expenses for
entertainment, travel and similar items, upon submission to the
Employer of reasonable documentation thereof, all in accordance with
standards established from time to time by the Employer.
3. Employee Benefits
Employee shall not be entitled to any employee benefits and
waives all rights thereto.
4. Termination of Employment
In the event of the termination of Employee's employment
pursuant to Paragraph 1(b)(i) hereof, at the election of Employer,
Employee shall receive (i) 90 days notice of termination or (ii)
continuation of compensation for 90 days.
5. Restrictions
Employee agrees that he shall be bound by the terms of the
Confidentiality Agreement of DSI entered into with Employer on or
prior to the date hereof.
6. Indemnification
Employer shall indemnify Employee from and against any and all
claims, liability, loss, cost, damage or expense (including reasonable
attorney's fees) asserted against him or incurred by him, by reason of or
arising out of this Agreement or performance under this Agreement, except
where primarily caused by the willful misconduct, dishonesty, fraudulent
act or omission, or gross negligence of Employee.
7. Miscellaneous
(a) Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by certified mail
(i) to Employee at the address of DSI; and (ii) to Employer at its
principal place of business.
(b) The captions set forth in this Agreement are for
convenience only and shall not be considered as part of this Agreement
or as binding or amplifying the terms and provisions hereof.
(c) This Agreement and all rights and benefits hereunder
are personal to Employee, and neither this Agreement nor any right or
interest of Employee herein, or arising hereunder, shall be subject to
voluntary or involuntary sale, transfer or assignment.
(d) This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of Illinois.
8. Entire Agreement
This Agreement expresses the entire Agreement of the
parties, and all promises, representations, understandings,
arrangements and prior agreements are merged herein and superseded
hereby. No person, other than pursuant to a resolution of the Board
of Directors of Employer, shall have any authority on behalf of
Employer to agree to modify or change this Agreement or anything in
reference thereto.
IN WITNESS WHEREOF, Employer and Employee have executed or caused this
Agreement to be duly executed, as of the day and year first above written.
MERCURY FINANCE COMPANY
By /s/ Patrick J. O'Malley William A. Brandt, Jr.
Employee
Title Assistant Secretary
SEPARATION AGREEMENT
This Separation Agreement ("Agreement"), dated December 30, 1997 is
made and entered into by and between Mercury Finance Company ("Mercury Finance"
or the "Company"), a Delaware corporation, and John N. Brincat ("Brincat"), an
individual residing in Lake Forest, Illinois.
Mercury Finance and Brincat desire to terminate the employment
relationship between them and all employment agreements that may have existed
between them. Therefore, in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
sufficiency of which is hereby acknowledged, Mercury Finance and Brincat agree
as follows:
1. Resignation. Brincat hereby resigns effective December 1, 1997
(the "Separation Date") from employment and all offices, directorships and
positions with Mercury Finance, its divisions, parents, subsidiaries,
affiliates, partners, and limited partners (collectively, the "Related
Entities"). As of the Separation Date, Brincat shall have no duties and no
authority to, and shall not, make any representations or commitments on behalf
of Mercury Finance or the Related Entities.
2. Entire Agreement. Brincat and Mercury Finance each represent and
warrant that no promise or inducement has been offered or made except as set
forth herein and that the consideration stated herein is the sole consideration
for this Agreement. This Agreement is a complete agreement and supersedes all
agreements, understandings, promises, and commitments as to the separation of
Brincat from his employment relationship with Mercury Finance.
3. Payments to Company. Pursuant to his separation, Brincat agrees
to pay Mercury Finance the following amounts:
(a) Bonus Repayment. Brincat agrees to pay Mercury Finance the
amount of $1,000,000, in order to resolve Mercury Finance's claim that
Brincat received excess bonus compensation during the period of his
employment.
(b) Repayment for Use of Company Plane. Brincat agrees to pay
Mercury Finance the amount of $25,116, in order to resolve Mercury
Finance's claim that Brincat used the Company plane for non-business
purposes during the period of his employment.
(c) Method of Payment. Payment of one-half of the amounts
indicated in Paragraphs 3(a) and (b) shall be made by Brincat by
January 5, 1998 by delivering to Mercury Finance a cashier's check
payable to Mercury Finance. Payment of the remainder of the amounts
indicated in Paragraphs 3(a) and (b) shall be made by January 9, 1998
by Brincat by delivering to Mercury Finance a cashier's check payable
to Mercury Finance.
(d) Non-Admission. Neither the execution of this Agreement nor
the payment of any of the amounts set forth in Paragraphs 3(a) through
(c) shall constitute an admission by Brincat of any fact or conclusion
of law. Specifically, without limiting the foregoing, Brincat does
not admit by executing this Agreement or by taking any action pursuant
to its provisions that any amounts were paid to him improperly or
incorrectly or that he was under any obligation to make any repayments
or reimbursements to Mercury Finance.
4. Stock Options. Brincat agrees that all of the stock options
received by him during the course of his employment with Mercury Finance will be
canceled and returned to the Company. Brincat will execute all documents
prepared and provided by Mercury Finance that are necessary to effectuate the
cancellation and return of such stock options.
5. Benefits.
(a) Health Insurance Coverage and COBRA Election. Mercury
Finance agrees to continue Brincat's existing health insurance
coverage through January 31, 1998. Effective as of January 31, 1998,
Brincat shall be extended the opportunity to elect to continue
receiving health insurance coverage in accordance with the provisions
of Section 4980B of the Internal Revenue Code of 1986, as amended
("COBRA"). Brincat shall also be entitled to the continuation of any
other benefits to the extent required under applicable law.
(b) Retirement Benefits. By executing this Agreement, Brincat
does not waive his right to receive retirement benefits under the
Company's qualified retirement plan and 401(k) plan as of the
Separation Date. Mercury Finance will provide Brincat with an
accounting of Brincat's retirement benefits under the Company's
qualified retirement plan and 401(k) plan by January 15, 1998. All
other retirement benefits, including any SERP or TEFRA shortfall
benefits, are terminated.
(c) Except as provided in this paragraph, Brincat shall not be
entitled to any other benefits provided by Mercury Finance. Further,
Brincat agrees that he is not owed any salary for employment up to his
Separation Date.
6. Mutual Release of Claims.
(a) By the Company. Except as provided herein, Mercury Finance
agrees to release Brincat and all of his heirs and assigns from any and all
claims, charges, demands, suits, rights or causes of action, at law or
equity or otherwise and any and all rights to or claims for damages or
equitable relief, which Mercury Finance or any of the Related Entities ever
had or now has, whether known or unknown, with respect to the computation
of his alleged excess compensation and all other compensation and benefit
matters.
(b) By Brincat. Except as provided herein, Brincat agrees to
release Mercury Finance and all of the Related Entities from any and
all claims, charges, demands, suits, rights or causes of action, at
law or equity or otherwise and any and all rights to or claims for
damages or equitable relief, which Brincat or any of his heirs or
assigns ever had or now has, whether known or unknown, with respect to
the computation of his alleged excess compensation and all other
compensation and benefit matters. Brincat and Mercury Finance
expressly agree that this Separation Agreement is binding on any of
Brincat's heirs or assigns.
7. Indemnification and D&O Insurance. Brincat expressly reserves his
right to seek indemnification from Mercury Finance under the Company's charter,
Delaware law, or otherwise, for expenses already incurred or to be incurred by
him in connection with his defense of government investigations or civil or
criminal litigation. Brincat expressly reserves his right to make claims
against the Company's D&O insurance for such expenses. Brincat expressly
reserves any and all other rights to indemnification to which he may be
entitled.
8. Public Statement. Neither Mercury Finance nor Brincat shall issue
any press release or other statement to the media or general public concerning
the circumstances of Brincat's separation from the Company unless the terms of
such release are expressly approved by the other party to this Separation
Agreement.
9. Intra-Company Statement. Mercury Finance shall not issue any
intra-Company memorandum concerning the circumstances of Brincat's separation
from the Company unless the terms of such memorandum are expressly approved by
Brincat.
10. Non-Competition and Use of Confidential Information.
(a) Brincat agrees that he will not, except with the written
consent of the Company or as set forth herein, for a continuous period
of twelve (12) months from his Separation Date, directly or indirectly
engage or become interested in, as a partner, director, officer,
principal agent or employee, any business which competes with services
performed, marketed or in development by Mercury Finance during his
employment with Mercury Finance. Notwithstanding any of the preceding
restrictions, Brincat may confer privately with Jeff Brincat regarding
Jeff Brincat's business and is free to invest in any way in such
business, provided that Brincat will not have any contact with any
other person regarding Jeff Brincat's business and will not be held
out as having any connection with Jeff Brincat's business, for a
continuous period of twelve (12) months from the Separation Date.
Brincat agrees that he will not solicit directly or indirectly the
hiring of any of the Company's employees for a continuous period of
fifteen (15) months from the Separation Date. Brincat and Mercury
Finance understand and intend that Mercury Finance will enter into a
separate agreement with Jeff Brincat wherein he will agree, on behalf
of his business, not to solicit the hiring of any of the Company's
employees for a continuous period of fifteen (15) months, beginning on
the Separation Date.
(b) Brincat acknowledges that during his employment he made use
of and acquired confidential information of Mercury Finance, and
became familiar with the Company's business, activities, employees,
customers and suppliers. Therefore, in order to protect such
confidential information and to protect other employees who depend
upon Mercury Finance for regular employment, Brincat agrees that,
except with the consent of the company, he will not in any way utilize
any of said confidential information and he will not copy, reproduce,
or take with him the original or any copies of said confidential
information.
11. No Transfer. The parties represent and warrant to each other
that they have not sold, assigned, transferred, conveyed or otherwise disposed
of to any third-party, by operation of law or otherwise, any action, cause of
action, suit, debt, obligation, account, contract, agreement, covenant,
guarantee, controversy, judgment, damage, claim, counterclaim, liability or
demand of any nature whatsoever relating to any matter covered by this
Agreement.
12. Severability. If any provision of this Agreement shall be found
by a court of competent jurisdiction to be invalid or unenforceable, in whole or
in part, that such provision shall be deemed to be modified or restricted to the
extent and in the manner necessary to render the same valid and enforceable, or
shall be deemed excised from this Agreement, as the case may require, and this
Agreement shall be construed and enforced to the maximum extent permitted by
law, as if such provision had been originally incorporated herein as so modified
or restricted, or as if such provision had not been originally incorporated
herein as the case may be.
13. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois applicable to contracts
made and to be performed there.
14. Amendment. Any amendment to this Agreement shall only be made in
writing and signed by the parties hereto.
15. Waiver. No claim or right arising out of a breach or default
under this Agreement can be discharged by a waiver of that claim or right unless
the waiver is in writing signed by the party hereto to be bound by such waiver.
A waiver by any party hereto of a breach or default by the other party of any
provision of this Agreement shall not be deemed a waiver of fixture compliance
therewith and such provision shall remain in full force and effect.
16. Notice. All notices, requests, demands and other communications
under the Agreement shall be in writing and delivered in person or sent by
certified mail, postage prepaid, and properly addressed as follows:
To Brincat:
Mr. John N. Brincat
33 Stonegate Lane
Lake Forest, Illinois 60045
With a copy to:
Winston & Strawn
35 W. Wacker Drive
Chicago, Illinois 60601
To Mercury Finance:
Mercury Finance Company
100 Field Drive
Lake Forest, Illinois 60045
Attn: Mark Dapier, General Counsel
The parties agree to notify each other of any change in mailing address.
17. Execution. This Separation Agreement may be executed in
counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement consisting of seven pages.
MERCURY FINANCE COMPANY JOHN N. BRINCAT
By: /s/ John N. Brincat
Title:
Date: Date: 12/31/97
EXHIBIT 11
MERCURY FINANCE COMPANY
COMPUTATION OF NET INCOME/(LOSS) PER SHARE
Year Ended December 31 (dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income Data:
1. Net Income/(loss) $(28,968) $74,129 $86,545
2. Weighted average common
shares outstanding, adjusted
for stock splits 177,129 175,631 173,864
3. Weighted average shares of
treasury stock outstanding,
adjusted for stock splits 4,361 3,182 522
4. Weighted average shares reserved
for stock options (utilizing the
treasury stock method) 0 1,660 1,808
NET INCOME PER COMMON SHARE
5. Common Shares Outstanding 172,768 174,109 175,150
(Line 2-3+4)
6. Net income/(loss) per common shares ($0.17) $.43 $.49
(Line 1 / 5)
DIVIDEND DATA
1. Dividends Declared $51,821 $42,849 $33,581
2. Average common shares
outstanding on dividend
record date 172,737 172,548 173,694
3. Dividends per common share $.30 $.25 $.19
</TABLE>
Note 1.
As the Company incurred a net loss for the year ended December 31, 1996, common
share equivalents totaling 923,236 would be anti-dilutive to earnings per share
and have not been included in the weighted average shares calculation.
The Company has determined that the implementation of SFAS 128 "Earnings Per
Share", would have had no effect on the calculated earnings per share for the
period ended December 31, 1996. This standard prescribes that when computing
the dilution of options, the Company is to use its average stock price for the
period, rather than the more dilutive greater of the average share price or end-
of-period share price required by APB Opinion 15. As the options are excluded
from the calculation due to the anti-dilutive characteristics indicated above,
there is no effect on the earnings per share calculation.
EXHIBIT 12
MERCURY FINANCE COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31 (dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net income/(loss) (28,968) $74,129 $86,545 $64,927 $45,723
Added fixed charges:
Cost of Borrowing 64,789 57,303 39,375 32,993 29,525
One-third of rentals 1,464 1,370 1,056 873 635
Total fixed charges: $66,253 $58,673 $40,431 $33,806 $30,160
Provisions/(credits) for
income taxes:
Federal (18,604) 38,895 46,797 34,634 23,914
State (1,811) 7,084 7,648 5,306 4,025
Total income taxes ($20,415) $45,979 $54,445 $39,940 $27,939
Total "earnings"
(net income/(loss),
fixed charges and
income taxes) $16,870 $178,781 $181,421 $138,673 $103,822
Ratio of "earnings" to fixed
charges 0.25 3.05 4.49 4.10 3.44
</TABLE>
Exhibit 18
February 16, 1998
Mercury Finance Company
100 Field Drive
Suite 340
Lake Forest, Illinois 60045
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
As of September 30, 1996, Mercury Finance Company (the "Company") changed to a
methodology of reserving for finance credit losses commonly referred to as
"static pooling." Under the static pooling methodology, the Company stratifies
the components of its sales finance receivable portfolio into separately
identified pools based upon the month in which the loans were acquired. A
portion of the dealer reserve is made available to cover estimated credit losses
for each identified monthly pool based on the relationship between dealer
reserves and total anticipated credit losses over the life of each specific
pool. The method previously used by the Company analyzed reserve adequacy on
a total portfolio basis. According to the management of the Company, this
change was made for more appropriate matching of finance charge income and
provision for finance credit losses over the life of the receivable pools.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in the accounting
described in the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to financial
reporting, in this particular case on a subjective basis, and our opinion stated
below is based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
Very truly yours,
/s/ Arthur Andersen LLP
EXHIBIT 21
MERCURY FINANCE COMPANY
SUBSIDIARIES
Mercury Finance Corporation of Alabama (Ala)
Mercury Finance Company of Arizona (Ariz)
Merc Finance Company of California (Cal)
Mercury Finance Company of Colorado (Del)
Mercury Finance Company of Delaware (Del)
Mercury Finance Company of Florida (Del)
Mercury Finance Company of Georgia (Del)
Mercury Finance Company of Illinois (Del)
Mercury Finance Company of Idaho (Del)
Mercury Finance Company of Iowa (Del)
Mercury Finance Company of Indiana (Del)
Mercury Finance Company of Kansas (Del)
Mercury Finance Company of Kentucky (Del)
Mercury Finance Company of Louisiana (Del)
Mercury Finance Company of Michigan (Del)
Mercury Finance Company of Mississippi (Del)
Mercury Finance Company of Missouri (MO)
Mercury Finance Company of Nevada (Nev)
Mercury Finance Company of New Mexico (Del)
Mercury Finance Company of New York (Del)
Mercury Finance Company of North Carolina (Del)
Mercury Finance Company of Ohio (Del)
MFC Finance Company of Oklahoma (Del)
Mercury Finance Company of Oregon (Del)
Mercury Finance Company of Pennsylvania (Del)
Mercury Finance Company of South Carolina (Del)
Mercury Finance Company of Tennessee (Tenn)
MFC Finance Company of Texas (Del)
Mercury Finance Company of Utah (Del)
Mercury Finance Company of Virginia (Del)
Mercury Finance Company of Washington (Del)
Mercury Finance Company of Wisconsin (Del)
MFC Financial Services, Inc. (Fla)
Filco Marketing Company (Del)
Gulfco Investment Inc. (La)
Gulfco Finance Company (La)
Gulfco Life Insurance Company (La)*
Midland Finance Co. (IL)
Lyndon Life Insurance Company (MO)*
Lyndon Property Insurance Company (MO)*
Twin Mercury Life Insurance Company (AZ)*
Lyndon-DFS Warranty Services, Inc. (MO)*
Lyndon General Agency of Texas (TX)*
Lyndon Southern Insurance Company (La)*
MFN Insurance Company (Turks and Caicos)
* Lyndon Property Insurance Company and its subsidiaries were sold on June 3,
1997.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Mercury Finance Company:
RE: REGISTRATION STATEMENTS ON FORM S-8
o Employee Stock Purchase Plan
o 1989 Stock Option and Incentive Compensation Plan
o 401(k) Plan
We consent to incorporation by reference in the subject Registration Statements
(filed with the Securities and Exchange Commission on May 3, 1989, May 11, 1989
and June 26, 1989) of Mercury Finance Company of our report dated February 12,
1996 except as to notes 2, 5, 12, 14, and 15 which are dated as of October 27,
1997, relating to the consolidated balance sheet of Mercury Finance Company and
subsidiaries as of December 31, 1995, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for each of the years in
the two-year period ended December 31, 1995, which report appears in the
December 31, 1996 annual report on Form 10-K of Mercury Finance Company.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
February 13, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated October 10, 1997, included in this Form 10-K, into Mercury Finance
Company's previously filed Form S-8 Registration Statement File Nos. 33-28513
and 33-28693 and Form S-8 Registration Statement dated June 26, 1989 and Form S-
8A dated July 6, 1989.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,957
<SECURITIES> 51,176
<RECEIVABLES> 1,160,423
<ALLOWANCES> (187,140)
<INVENTORY> 0
<CURRENT-ASSETS> 1,263,685
<PP&E> 16,400
<DEPRECIATION> (9,134)
<TOTAL-ASSETS> 1,543,360
<CURRENT-LIABILITIES> 1,374,475
<BONDS> 0
0
0
<COMMON> 177,719
<OTHER-SE> (8,834)
<TOTAL-LIABILITY-AND-EQUITY> 1,543,360
<SALES> 271,889
<TOTAL-REVENUES> 373,874
<CGS> 0
<TOTAL-COSTS> 143,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 215,171
<INTEREST-EXPENSE> 64,789
<INCOME-PRETAX> (49,383)
<INCOME-TAX> (20,415)
<INCOME-CONTINUING> (28,968)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,968)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
