<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 1994
REGISTRATION NO. 33-52957
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
GFC FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-0695381
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
86-0695381
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
DIAL TOWER
PHOENIX, ARIZONA 85077
(602) 207-6900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SAMUEL L. EICHENFIELD
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
GFC FINANCIAL CORPORATION
DIAL TOWER
PHOENIX, ARIZONA 85077
(602) 207-6900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
WILLIAM J. HALLINAN PAUL C. PRINGLE
VICE PRESIDENT AND GENERAL COUNSEL BROWN & WOOD
GFC FINANCIAL CORPORATION 10900 WILSHIRE BOULEVARD
DIAL TOWER SUITE 1100
PHOENIX, ARIZONA 85077 LOS ANGELES, CALIFORNIA 90024
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains a prospectus relating to an offering
in the United States and Canada of an aggregate of 5,600,000 shares (the "U.S.
Offering") of Common Stock, $.01 par value (the "Common Stock"), of GFC
Financial Corporation (the "Company"), together with separate prospectus pages
relating to a concurrent offering outside the United States and Canada of an
aggregate of 1,400,000 shares (the "International Offering") of Common Stock.
The complete prospectus for the U.S. Offering follows immediately. Following
such prospectus are the following alternate pages for the International
Offering: a front cover page, an "Underwriting" section and a back cover page.
All other pages of the prospectus for the U.S. Offering are to be used for both
the U.S. Offering and the International Offering.
Copies of each complete Prospectus in the exact forms in which they are to
be used after effectiveness will be filed with the Securities and Exchange
Commission pursuant to Rule 424(b)of the Securities Act of 1933, as amended.
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 19, 1994
PROSPECTUS
7,000,000 SHARES
_________________________
GFC FINANCIAL CORPORATION
COMMON STOCK
------------------------
Of the 7,000,000 shares of Common Stock offered hereby, 5,600,000 shares
are being offered in the United States and Canada by the U.S. Underwriters (the
"U.S. Offering") and 1,400,000 shares are being offered in a concurrent
international offering outside the United States and Canada by the International
Managers (the "International Offering"). The price to the public and the
underwriting discount per share are identical for both offerings. See
"Underwriting."
The Company's Common Stock is listed on the New York Stock Exchange. On
April 18, 1994, the last reported sale price of the Common Stock on the New York
Stock Exchange was $31.75 per share.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share................................ $ $ $
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Total(3)................................. $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $565,000.
(3) The Company has granted the U.S. Underwriters and the International Managers
options exercisable within 30 days of the date hereof to purchase up to
840,000 and 210,000 additional shares of Common Stock, respectively, solely
to cover over-allotments, if any. If all such additional shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1994.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus is April , 1994.
<PAGE> 4
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at Room 1024 at the public reference facilities maintained
by the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as
the Regional Offices of the Commission at Northwestern Atrium Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661-2511 and 7 World Trade
Center, New York, New York 10048, and copies can be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at the prescribed rates. Reports and other information
concerning the Company can also be inspected at the office of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered by this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement and exhibits
thereto. In addition, certain documents filed by the Company with the Commission
have been incorporated in this Prospectus by reference. See "Incorporation of
Certain Documents by Reference." For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits thereto, and the documents incorporated herein
by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated herein by reference are the Company's Annual Report on Form
10-K and 10-K/A for the fiscal year ended December 31, 1993 and Current Reports
on Forms 8-K dated January 18 and 21, 1994, Forms 8-K, 8-K/A and 8-K/A-1 dated
February 14, 1994 and Form 8-K dated April 14, 1994, filed pursuant to Section
13 of the Exchange Act with the Commission.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the Common Stock offered hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge upon written or oral request by any
person to whom this Prospectus is delivered a copy of any or all of the
documents described above which have been incorporated by reference in this
Prospectus, other than exhibits to such documents. Such request should be
directed to the Company at its principal executive offices, to the attention of
Robert J. Fitzsimmons, Vice President-Treasurer, GFC Financial Corporation, Dial
Tower, 1850 N. Central Avenue, Phoenix, Arizona 85004, telephone number (602)
207-4900.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information appearing elsewhere in, or incorporated by reference into,
this Prospectus. See "Incorporation of Certain Documents by Reference." Unless
the context otherwise requires, references in this Prospectus to the "Offerings"
means the concurrent offerings of the Common Stock by the U.S. Underwriters in
the United States and Canada and by the International Managers outside of the
United States and Canada. Unless indicated otherwise, the information contained
in this Prospectus assumes no exercise of the Underwriters' over-allotment
options and that the acquisition of TriCon Capital Corporation ("TriCon") has
been consummated. Historical financial results of the Company do not include
results for TriCon or Ambassador Factors Corporation (formerly known as Fleet
Factors Corp.) ("Ambassador"), unless expressly stated otherwise.
THE COMPANY
GFC Financial Corporation (the "Company"), through its wholly owned
subsidiaries, provides collateralized financing in focused market niches
primarily in the United States. The Company extends revolving credit facilities,
term loans and equipment and real estate financing to "middle-market" businesses
with financing needs falling generally between $500,000 and $35 million. The
Company also offers financing programs to manufacturers, distributors, vendors
and franchisors which facilitate the sale in the United States of their products
to end-users. The Company currently operates in 15 specific industry or market
niches in which its expertise in evaluating the creditworthiness of prospective
customers and its ability to provide value-added services enables the Company to
differentiate itself from its competitors and to command loan pricing which
provides a satisfactory spread over the Company's borrowing costs.
The Company seeks to maintain a high quality portfolio and to minimize
nonearning assets and write-offs by using clearly defined underwriting criteria
and stringent portfolio management techniques and by diversifying its lending
activities geographically and among a range of industries, customers, and loan
products. Because of the diversity of the Company's portfolio, the Company
believes it is better able to manage competitive changes in its markets and to
withstand the impact of deteriorating economic conditions on a regional or
national basis. The Company practices a matched funding strategy, whereby it
generally finances its fixed rate assets with fixed rate debt and floating rate
assets with floating rate debt. This strategy is designed to minimize the
sensitivity of the Company's earnings to interest rate fluctuations.
The Company is the successor to the former financial services businesses of
The Dial Corp ("Dial"). On March 3, 1992, the shareholders of Dial approved the
spin-off (the "Spin-Off") of the Company into a newly-formed Delaware
corporation. Prior to the Spin-Off, Dial contributed to the Company (i) all of
the common stock of Greyhound Financial Corporation ("GFC"), representing the
Company's core operations, (ii) Greyhound European Financial Group ("GEFG"),
Dial's European commercial and consumer finance businesses not previously
managed by GFC, (iii) Greyhound BID Holding Corp., a portfolio of public sector
loans to Latin American countries and (iv) Verex Corporation and subsidiaries
("Verex"), Dial's discontinued mortgage insurance operations, which had been
operated in a run-off mode by Dial since 1988.
Following the Spin-Off, the Company decided to focus its resources and
capital on its core domestic commercial finance activities. The Company embarked
on a program of selling or winding down those businesses included in the
Spin-Off that were not associated with the Company's core domestic commercial
finance activities. The Company has concentrated on redeploying the capital
previously invested in such businesses to support internal portfolio growth and
to make selected acquisitions which complement the Company's core operations.
This strategy has been implemented as follows:
- Liquidation of GEFG -- The Company generally ceased writing new business
in Europe and subsequently began a managed liquidation of GEFG's
commercial and consumer loan portfolios. Since 1992, the Company has
reduced GEFG's portfolio from approximately $314 million to $124 million
at December 31, 1993. Over the same period, personnel at GEFG's London
offices were reduced from 94 to 31. Capital previously invested in GEFG
has been redeployed in GFC's domestic operations.
3
<PAGE> 6
- Disposition of Latin American Portfolio -- Between 1992 and the first
quarter of 1994, the Company sold substantially all of its public sector
Latin American loan portfolio held by Greyhound BID Holding Corp.
through a series of transactions for cash consideration that exceeded
the book value of such assets.
- Acquisition of U.S. Bancorp Financial -- On January 14, 1993, the
Company signed an agreement to acquire the Asset Based Finance group of
U.S. Bancorp Financial, Inc., a wholly-owned subsidiary of U.S. Bancorp,
for approximately $70 million. The primary focus of the Asset Based
Finance group (the "ABF group") is to offer revolving lines of credit
secured by accounts receivable and inventories on a national basis.
Prior to the acquisition, the Company did not offer such revolving
financing services to its customers. Since the acquisition, which was
consummated on February 1, 1993, the ABF group's portfolio has grown
from approximately $63 million to $176 million at December 31, 1993.
- Sale of Verex Corporation -- On July 16, 1993, the Company sold Verex to
GE Capital Mortgage Corporation for approximately $215 million in cash,
before transaction costs, resulting in a loss of $1.3 million.
Approximately $170 million of the Company's equity capital previously
invested in Verex has since been reinvested in GFC's domestic operations
and in selected acquisitions.
- Acquisition of Ambassador Factors -- On November 29, 1993, the Company
and GFC signed an agreement in principle to acquire Ambassador, Fleet
Financial Group, Inc.'s ("Fleet") factoring and asset based lending
subsidiary. At November 30, 1993, Ambassador had a $336 million loan
portfolio and generated $731 million of factoring volume during the
eleven month period ended November 30, 1993. Its customer base primarily
consists of small to medium-sized textile and apparel manufacturers in
the factoring operations and similar sized manufacturers, distributors
and wholesalers in its asset-based lending business. The acquisition of
Ambassador, which was consummated by GFC on February 14, 1994, further
diversifies the Company's commercial lending activities to include both
factoring services and asset-based loan products offered to a segment of
the commercial finance market not previously served by GFC.
- Acquisition of TriCon Capital Corporation -- On March 4, 1994, the
Company signed a definitive agreement to acquire all of the stock of
TriCon, a wholly owned subsidiary of Bell Atlantic Corporation ("Bell
Atlantic") for $344.3 million, plus the assumption of approximately
$1.45 billion in debt and other liabilities. At December 31, 1993,
TriCon had total assets of approximately $1.8 billion and managed
approximately $1.3 billion of commercial finance assets for third
parties, including a $975 million leveraged lease portfolio owned by
Bell Atlantic. TriCon is a niche oriented provider of commercial lending
and equipment financing products to a segmented group of customers
throughout the United States. Management believes that TriCon's
marketing orientation fits well with the Company's emphasis on value
added products and services in focused niches of the commercial finance
business and further diversifies the Company's revenue sources and loan
portfolio. Management believes the acquisition of TriCon gives the
Company significant critical mass, important economies of scale and
allows the Company to compete over a greater range of services.
- Internally Generated Portfolio Growth -- Excluding the liquidating GEFG
portfolio and the acquisition of the ABF group's portfolio, as well as
the Ambassador and TriCon acquisitions, the Company's total investment
in financing transactions grew (through new business fundings) from $2.0
billion at December 31, 1991, to $2.7 billion at December 31, 1993,
representing an annual compound growth rate of approximately 17%. The
total volume of new business funded by the Company during 1993 exceeded
$1 billion, a 48% improvement over 1992 new business volume, reflecting
strong loan demand in the markets served by the Company and an expansion
of the Company's marketing staff in Phoenix, Los Angeles, Chicago,
Dallas and the metropolitan New York area.
4
<PAGE> 7
The Company's strategy of focusing its efforts on its domestic core lending
activities through internal growth and acquisitions has resulted in increasing
the Company's total assets on a pro forma basis, giving effect to the
acquisitions of Ambassador and TriCon, to approximately $5 billion at December
31, 1993, with pro forma 1993 income from continuing operations on a combined
basis of approximately $72 million, before a $4.9 million adjustment for
deferred taxes applicable to leveraged leases. Management believes the Company
now ranks among the largest independent commercial finance companies in the
United States based on total assets.
RECENT DEVELOPMENTS
On April 14, 1994, the Company reported that income from continuing
operations for the first quarter of 1994 increased to $11.4 million from $8.6
million in the first quarter of 1993, an increase of 33%. Income from continuing
operations per common and equivalent share for the first quarter of 1994
increased to $.56 from $.39 for the comparable period in 1993, an increase of
44%. Income from continuing operations per common and equivalent share for the
first quarter of 1993 was net of preferred dividends equivalent to $.03 per
common share. Operating results in 1994 included income from Ambassador, the
factoring and asset based lending company acquired from Fleet in February 1994,
but did not include results of TriCon, which had not yet been acquired.
Interest earned from financing transactions increased to $72.0 million for
the first quarter of 1994 from $58.3 million in the first quarter of 1993, an
increase of 24%. This rise in revenue was driven by a 29% increase in funds
employed during the twelve months ended March 31, 1994 resulting from $1.1
billion of new business being added by the core finance operations during that
period, and the acquisition of Ambassador.
The improvement in income from continuing operations for the 1994 quarter
primarily was due to the increase in interest margins earned which advanced to
$38.9 million for the first quarter of 1994 from $27.7 million in the first
quarter of 1993, a 40% improvement. The higher interest margins earned were
attributable to the growth of the portfolio, a lower effective cost of debt in
1994 and higher fee income principally generated by Ambassador.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock Offered
U.S. Offering.................................. 5,600,000 shares
International Offering......................... 1,400,000 shares
Total.................................. 7,000,000 shares
Common Stock Outstanding after the Offerings..... 27,093,037* shares
Proceeds of Offerings............................ The net proceeds from the sale of the
shares
of Common Stock offered hereby will be
contributed to the Company's principal
subsidiary, GFC, and used by GFC to repay
commercial paper.
NYSE Symbol...................................... GFC
</TABLE>
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* Excluding shares of Common Stock issuable by the Company pursuant to its
employee benefit plans.
5
<PAGE> 8
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following summary selected consolidated financial data of the Company
has been derived from the audited Consolidated Financial Statements of the
Company for the five years ended December 31, 1993 and the Pro Forma Financial
Data for the Company at and for the year ended December 31, 1993. The following
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company's Consolidated
Financial Statements and the Notes thereto and the Pro Forma Financial Data at
and for the year ended December 31, 1993 and the Notes thereto included
elsewhere in this Prospectus. Per share data for income and dividends has not
been presented in 1991 and prior years, as the Company was not a publicly held
company prior to the Spin-Off from Dial in 1992.
<TABLE>
<CAPTION>
PRO FORMA(1) YEAR ENDED DECEMBER 31,
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1993 1993 1992 1991 1990 1989
------------ ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Interest earned from
financing transactions..... $ 523,068 $ 248,700 $ 240,806 $ 251,472 $ 256,962 $ 237,816
Interest margins earned...... 303,980 124,847 104,699 93,912 85,310 70,566
Provision for possible credit
losses..................... 34,517 5,706 6,740 77,687 (2) 10,529 7,951
Gains on sale of assets...... 5,439 5,439 3,362 6,684 12,678 17,572
Income (loss) from continuing
operations................. 67,284 37,846(3) 36,750 (38,742)(2) 29,558 28,464
Core income (4).............. 69,901 40,463 34,289 31,629 21,697 19,583
Income from continuing
operations per common and
equivalent share........... $ 2.41 $ 1.80(3) $ 1.71
Dividends declared per common
share...................... $ 0.68 $ 0.68 $ 0.42
Average outstanding common
and equivalent shares...... 27,332,000 20,332,000 20,464,000
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1) DECEMBER 31,
------------ ------------------------------------------------------------------
1993 1993 1992 1991 1990 1989
------------ ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Investment in financing
transactions............... $4,927,843 $2,846,571 $2,428,523 $2,281,872 $2,198,441 $1,950,372
Nonaccruing contracts and
repossessed assets......... 180,743(5) 102,607 100,422 111,296 163,519 142,038
Reserve for possible credit
losses..................... 116,678 64,280 69,291 87,600(2) 77,098 72,636
Total assets................. 5,008,135 2,834,322 2,641,668 2,414,484 2,393,309 2,138,413
Deferred income taxes........ 174,380 178,972 172,727 198,366 214,825 208,043
Senior and subordinated
debt....................... 3,835,270 2,078,776 1,882,349 1,706,470 1,510,675 1,337,596
Redeemable preferred stock... 25,000
Stockholders' equity......... 719,740 503,300 488,396 371,576 442,747 423,323
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1) YEAR ENDED DECEMBER 31,
------------ ------------------------------------
1993 1993 1992 1991 1990 1989
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIOS:
Reserve and accrued liabilities for possible credit
losses/ investments in financing transactions and
securitizations................................... 2.5%(6) 2.3 % 2.9 % 3.8 % 3.5 % 3.7 %
Nonearning accounts and repossessed
assets/investment in financing transactions and
securitizations................................... 3.4% 3.6 % 4.1 % 4.9 % 7.4 % 7.3 %
Total debt/stockholders' equity..................... 5.3x 4.1 x 3.9 x 4.8 x 3.8 x 3.5 x
</TABLE>
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(1) Gives effect to (i) the acquisitions of Ambassador and TriCon as if they
occurred on January 1, 1993 for purposes of operations data and on December
31, 1993 for purposes of financial position data, and (ii) the Offerings and
the application of the estimated net proceeds therefrom. See "Pro Forma
Financial Data."
(2) In the fourth quarter of 1991, the Company recorded a special provision for
possible credit losses of $65,000,000 and recorded write-offs of $15,000,000
related to nonearning assets in the GEFG portfolio and a $47,759,000
write-down to reduce Latin American assets to then-current market value.
(3) Income from continuing operations for 1993, before the adjustment of
$4,857,000 to deferred income taxes applicable to leveraged leases, was
$42,703,000 or $2.04 per common and equivalent share.
(4) Core income is defined as domestic income from continuing operations
excluding the charges made to deferred income taxes applicable to leveraged
leases in 1993 and the restructuring and other charges recorded in 1991 in
connection with the Spin-Off.
(5) Pro Forma includes $14,935,000 and $63,201,000 of nonaccruing assets from
Ambassador and TriCon, respectively.
(6) Accrued liabilities for certain limited recourse obligations for credit
losses relating to securitizations were $14,146,000 and assets sold under
securitization arrangements and managed by TriCon were $343,839,000.
6
<PAGE> 9
USE OF PROCEEDS
The net proceeds from the sale of the 7,000,000 shares of Common Stock
offered hereby are estimated to be $216,440,000 ($248,906,000 if the
over-allotment options are exercised in full) before deducting estimated
transaction expenses. All of such proceeds will be contributed to the equity of
the Company's principal subsidiary, GFC. GFC will use such proceeds to repay
outstanding commercial paper.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The principal market on which the Common Stock is traded is the New York
Stock Exchange. The following tables summarize the high and low sales prices as
reported on the New York Stock Exchange Composite Tape and the cash dividends
declared from the Spin-Off through April 18, 1994:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------------------------------------------------------------- ---- ----
<S> <C> <C>
1992:
First Quarter..............................................$ 23 $ 21 3/8
Second Quarter............................................. 23 1/2 17 7/8
Third Quarter.............................................. 21 1/4 18 1/4
Fourth Quarter............................................. 25 3/8 20 7/8
1993:
First Quarter..............................................$ 29 5/8 $ 23 5/8
Second Quarter............................................. 30 1/8 25 1/2
Third Quarter.............................................. 31 7/8 28 1/4
Fourth Quarter............................................. 32 26 1/2
1994:
First Quarter..............................................$ 33 3/4 $ 28 1/4
Second Quarter (through April 18, 1994).................... 32 29 1/4
</TABLE>
As of April 18, 1994, there were approximately 33,000 holders of record of
the Common Stock. The closing sales price of the Common Stock on the New York
Stock Exchange Composite Tape on April 18, 1994 was $31.75.
<TABLE>
<CAPTION>
DIVIDENDS DECLARED
PER SHARE OF
COMMON STOCK
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
February........................................................ $0.18 $0.16
April........................................................... 0.16
May............................................................. $0.14
August.......................................................... 0.18 0.14
November........................................................ 0.18 0.14
---- ----
Total................................................. $0.68 $0.42
---- ----
---- ----
</TABLE>
Following the Spin-Off, the Company has paid quarterly dividends. Since
July 1992, those dividends have been paid on the first business day of each
calendar quarter. It is anticipated that the Company will continue to pay
regular quarterly dividends on the first business day of January, April, July
and October. The declaration of dividends and their amounts will be at the
discretion of the Board of Directors of the Company and will be subject to the
limitations described in the following paragraph. Therefore, there can be no
assurance that additional dividends will be declared.
7
<PAGE> 10
GFC is restricted in its ability to pay dividends to its sole stockholder,
the Company. The agreements pertaining to long-term debt of GFC include various
restrictive covenants and require the maintenance of certain defined financial
ratios. Under one of these covenants, dividend payments are limited to 50
percent of the sum of accumulated earnings after December 31, 1991. As of
December 31, 1993, GFC had $7 million of excess accumulated earnings available
for dividends. On a pro forma basis, assuming that the acquisitions of TriCon
and Ambassador and the Offerings occurred on January 1, 1993, the amount of
excess accumulated earnings available for dividends under this covenant would
have been approximately $17 million. The pro forma calculation uses the dividend
covenant anticipated to be effective under the proposed revolving credit
agreement discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." That
covenant is expected to allow dividends up to the sum of accumulated earnings
after December 31, 1991 plus 50% of the net proceeds of future equity offerings
(excluding the Offerings).
8
<PAGE> 11
CAPITALIZATION
The following table sets forth the unaudited capitalization, including
deferred income taxes, of the Company and its consolidated subsidiaries at
December 31, 1993, and as adjusted for (i) the acquisitions of Ambassador and
TriCon and (ii) such acquisitions and the sale of the 7,000,000 shares of Common
Stock offered hereby at an estimated price of $32.00 per share and the
application of the net proceeds therefrom, before deducting estimated
transaction expenses, to make a capital contribution to GFC, which in turn will
use the net proceeds to reduce debt.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993
-------------------------------------------
AS AS
ACTUAL ADJUSTED(I) ADJUSTED(II)
---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Senior debt:
Notes payable to Bell Atlantic....................... -- $ 1,377,899 $ 1,377,899
Other................................................ $1,991,986 2,587,021 2,370,581
Subordinated debt, net of unamortized discount......... 86,790 86,790 86,790
---------- ----------- ------------
Total senior and subordinated debt........... 2,078,776(1) 4,051,710(2) 3,835,270(2)
---------- ----------- ------------
Deferred income taxes.................................. 178,972 174,380 174,380
---------- ----------- ------------
Stockholders' equity:
Preferred Stock -- $0.01 par value; authorized,
5,000,000 shares; none outstanding................ -- -- --
Common Stock -- $0.01 par value; authorized
100,000,000 shares; 20,371,703 shares issued,
actual and as adjusted (i); 27,371,703 shares, as
adjusted (ii)(3).................................. 204 204 274
Additional capital................................... 464,487 464,487 680,857
Retained income...................................... 54,901 54,901 54,901
Cumulative translation adjustments................... (7,773) (7,773) (7,773)
Common Stock in treasury (292,217 shares)............ (8,519) (8,519) (8,519)
---------- ----------- ------------
Total stockholders' equity................... 503,300 503,300 719,740
---------- ----------- ------------
Total capitalization.................... $2,761,048 $ 4,729,390 $ 4,729,390
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- ---------------
(1) Includes current maturities of $179,392,000.
(2) Includes current maturities of $1,119,870,000. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Acquisition
of Ambassador and TriCon -- Impact on the Company."
(3) Does not include 5,611,000 shares of Common Stock reserved for issuance
under the Company's 1992 Stock Incentive Plan.
9
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company has been
derived from the audited Consolidated Financial Statements of the Company for
the five years ended December 31, 1993 and the Pro Forma Financial Data for the
Company at and for the year ended December 31, 1993. The following data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's Consolidated Financial
Statements and the Notes thereto and the Pro Forma Financial Data at and for the
year ended December 31, 1993 and the Notes thereto included elsewhere in this
Prospectus. Per share data for income and dividends has not been presented for
1991 and prior years, as the Company was not a publicly held company prior to
the Spin-Off from Dial in 1992.
<TABLE>
<CAPTION>
PRO FORMA(1) YEAR ENDED DECEMBER 31,
------------ ---------------------------------------------------------------
1993 1993 1992 1991(2) 1990 1989
------------ ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Interest earned from financing
transactions..................... $ 523,068 $ 248,700 $ 240,806 $ 251,472 $ 256,962 $ 237,816
Interest expense................... 219,088 123,853 136,107 157,560 171,652 167,250
------------ ---------- ---------- ---------- ---------- ----------
Interest margins earned............ 303,980 124,847 104,699 93,912 85,310 70,566
Provision for possible credit
losses........................... 34,517 5,706 6,740 77,687 10,529 7,951
------------ ---------- ---------- ---------- ---------- ----------
Net interest margins earned........ 269,463 119,141 97,959 16,225 74,781 62,615
Gains on sale of assets............ 5,439 5,439 3,362 6,684 12,678 17,572
------------ ---------- ---------- ---------- ---------- ----------
274,902 124,580 101,321 22,909 87,459 80,187
Selling, administrative and other
operating expenses............... 122,131 58,158 50,728 59,923 47,243 42,938
Depreciation....................... 41,582
------------ ---------- ---------- ---------- ---------- ----------
111,189 66,422 50,593 (37,014) 40,216 37,249
Income taxes:
Current and deferred............. 39,048 23,719 13,843 1,728 10,658 8,785
Adjustment to deferred taxes..... 4,857 4,857
------------ ---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations....................... $ 67,284 $ 37,846(3) $ 36,750 $ (38,742) $ 29,558 $ 28,464
------------ ---------- ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ---------- ----------
Core income(4)..................... $ 69,901 $ 40,463 $ 34,289 $ 31,629 $ 21,697 $ 19,583
------------ ---------- ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ---------- ----------
Income per common and
equivalent share:
Income from continuing operations
before preferred dividends..... $ 2.46 $ 1.86 $ 1.80
Preferred dividends.............. 0.05 0.06 0.09
------------ ---------- ----------
Income from continuing
operations..................... $ 2.41 $ 1.80(3) $ 1.71
------------ ---------- ----------
------------ ---------- ----------
Dividends declared per
common share................... $ 0.68 $ 0.68 $ 0.42
------------ ---------- ----------
------------ ---------- ----------
Average outstanding common and
equivalent shares.............. 27,332,000 20,332,000 20,464,000
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
(footnotes follow on next page)
10
<PAGE> 13
<TABLE>
<CAPTION>
PRO FORMA(1) DECEMBER 31,
------------ ------------------------------------------------------------------
1993 1993 1992 1991 1990 1989
------------ ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
ASSETS
Cash and cash equivalents..... $ 12,619 $ 929 $ 18,203 $ 37,903 $ 25,379 $ 29,138
Investment in financing
transactions:
Loans and other financing
contracts................. 3,591,375 2,343,755 1,919,371 1,739,978 1,665,747 1,389,933
Direct finance leases....... 718,867 71,812 138,871 201,327 246,756 291,546
Operating leases............ 333,819 147,222 100,911 75,204 10,303 2,324
Leveraged leases............ 283,782 283,782 269,370 265,363 275,635 266,569
------------ ---------- ---------- ---------- ---------- ----------
4,927,843 2,846,571 2,428,523 2,281,872 2,198,441 1,950,372
Less reserve for possible
credit losses............... (116,678) (64,280) (69,291) (87,600)(2) (77,098) (72,636)
------------ ---------- ---------- ---------- ---------- ----------
4,811,165 2,782,291 2,359,232 2,194,272 2,121,343 1,877,736
Investment in and advances to
Verex Corporation........... 221,312 152,171 152,795 152,795
Other assets and deferred
charges..................... 184,351 51,102 42,921 30,138 70,269 55,305
------------ ---------- ---------- ---------- ---------- ----------
Total Assets.................. $5,008,135 $2,834,322 $2,641,668 $2,414,484 $2,369,786 $2,114,974
------------ ---------- ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued
expenses.................... $ 166,709 $ 72,764 $ 71,836 $ 83,637 $ 201,277 $ 146,017
Due to factored clients....... 111,526
Due to The Dial Corp.......... 10,727 (23,523) (23,439)
Short-term debt............... 510 510 1,360 43,708 23,785 23,434
Senior and subordinated
debt........................ 3,835,270 2,078,776 1,882,349 1,706,470 1,510,675 1,337,596
Deferred income taxes......... 174,380 178,972 172,727 198,366 214,825 208,043
------------ ---------- ---------- ---------- ---------- ----------
4,288,395 2,331,022 2,128,272 2,042,908 1,927,039 1,691,651
Redeemable preferred stock.... 25,000
Stockholders' equity.......... 719,740 503,300 488,396 371,576 442,747 423,323
------------ ---------- ---------- ---------- ---------- ----------
Total Liabilities And
Stockholders' Equity........ $5,008,135 $2,834,322 $2,641,668 $2,414,484 $2,369,786 $2,114,974
------------ ---------- ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ---------- ----------
</TABLE>
- ---------------
(1) Gives effect to (i) the acquisitions of Ambassador and TriCon as if they
occurred on January 1, 1993 for purposes of operations data and on December
31, 1993, for purposes of financial position data, and (ii) the Offerings
and the application of the estimated net proceeds therefrom. See "Pro Forma
Financial Data."
(2) In the fourth quarter of 1991, the Company recorded a special provision for
possible credit losses of $65,000,000 and recorded write-offs of $15,000,000
related to nonearning assets in the GEFG portfolio and a $47,759,000
write-down to reduce Latin American assets to then-current market value.
Selling, administrative and other operating expenses for 1991 include
$13,000,000 of transaction costs of the Spin-Off.
(3) Income from continuing operations for 1993, before the adjustment of
$4,857,000 to deferred taxes applicable to leveraged leases, was $42,703,000
or $2.04 per common and equivalent share.
(4) Core income is defined as domestic income from continuing operations
excluding the charges made to deferred taxes applicable to leveraged leases
in 1993 and the restructuring and other charges recorded in 1991 in
connection with the Spin-Off.
11
<PAGE> 14
PRO FORMA FINANCIAL DATA
AT AND FOR THE YEAR ENDED DECEMBER 31, 1993
The following Pro Forma Consolidated Balance Sheet (unaudited) of the
Company as of December 31, 1993 and Pro Forma Statement of Consolidated Income
From Continuing Operations (unaudited) for the year ended December 31, 1993 have
been prepared to reflect the Company's historical financial position and income
from continuing operations as adjusted to reflect the acquisitions of Ambassador
and TriCon and the Offerings by the Company. The Pro Forma Consolidated Balance
Sheet has been prepared as if such acquisitions occurred on December 31, 1993
and the Pro Forma Statement of Consolidated Income From Continuing Operations
has been prepared as if such acquisitions occurred on January 1, 1993 and give
effect to the Offerings as of such dates. The pro forma financial information is
unaudited and should be read in conjunction with the accompanying notes thereto
and with the historical consolidated financial statements of the Company and
TriCon, included elsewhere herein, and Ambassador, incorporated by reference
herein. The pro forma financial information is not necessarily indicative of
either the financial position or the results of operations that would have been
achieved had the acquisitions and the Offerings been consummated as of the dates
referred to above, nor is it necessarily indicative of the results of future
operations.
GFC FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
----------------------------------------- ------------------------- PRO
COMPANY AMBASSADOR(1) TRICON AMBASSADOR TRICON FORMA
---------- ------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........... $ 929 $ 7,072 $ 4,483 $ $ 135 (9) $ 12,619
---------- ------------- ---------- ---------- --------- ----------
Investment in financing
transactions:
Loans and other financing
contracts....................... 2,343,755 334,656 912,964 3,591,375
Direct finance leases............. 71,812 647,055 718,867
Operating leases.................. 147,222 240,057 (53,460)(10) 333,819
Leveraged leases.................. 283,782 283,782
---------- ------------- ---------- ---------- --------- ----------
2,846,571 334,656 1,800,076 (53,460) 4,927,843
Less reserve for possible credit
losses............................ (64,280) (9,207) (43,191) (116,678)
---------- ------------- ---------- ---------- --------- ----------
2,782,291 325,449 1,756,885 (53,460) 4,811,165
Other assets and deferred charges... 51,102 5,941 27,091 30,400 (2) 69,817 (13) 184,351
---------- ------------- ---------- ---------- --------- ----------
$2,834,322 $ 338,462 $1,788,459 $ 30,400 $ 16,492 $5,008,135
---------- ------------- ---------- ---------- --------- ----------
---------- ------------- ---------- ---------- --------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accruals....... $ 72,764 $ 4,843 $ 75,302 $ 8,800 (2) $ 5,000 (13) $ 166,709
Due to factored clients............. 111,526 111,526
Due to Fleet........................ 172,000 (172,000)(3)
Due to Bell Atlantic................ 611,194 83,900 (11)
(695,094)(12)
Debt................................ 2,079,286 709,508 76,285 (2) (53,460)(10) 3,835,780
172,000 (3) 721,851 (12)
130,310 (13)
Deferred income taxes............... 178,972 (4,592) 81,100 (83,900)(11) 174,380
2,800 (13)
---------- ------------- ---------- ---------- --------- ----------
2,331,022 283,777 1,477,104 85,085 111,407 4,288,395
Stockholders' equity................ 503,300 54,685 311,355 (54,685)(2) 135 (9) 719,740
(26,757)(12)
216,440 (13)
(284,733)(13)
---------- ------------- ---------- ---------- --------- ----------
$2,834,322 $ 338,462 $1,788,459 $ 30,400 $ 16,492 $5,008,135
---------- ------------- ---------- ---------- --------- ----------
---------- ------------- ---------- ---------- --------- ----------
</TABLE>
12
<PAGE> 15
GFC FINANCIAL CORPORATION
PRO FORMA STATEMENT OF CONSOLIDATED INCOME
FROM CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
----------------------------------- -------------------------- PRO
COMPANY AMBASSADOR(1) TRICON AMBASSADOR TRICON FORMA
---------- ------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earned from
financing transactions..... $ 248,700 $35,235 $245,300 $ $ (7,667)(10) $ 523,068
1,500 (14)
Interest expense............. 123,853 5,780 80,211 4,226 (4) 5,018 (15) 219,088
---------- ------------- -------- ---------- -------- ----------
Interest margins earned...... 124,847 29,455 165,089 (4,226) (11,185) 303,980
Provision for possible credit
losses..................... 5,706 7,177 21,634 34,517
---------- ------------- -------- ---------- -------- ----------
Net interest margins
earned..................... 119,141 22,278 143,455 (4,226) (11,185) 269,463
Gains on sale of assets...... 5,439 5,439
---------- ------------- -------- ---------- -------- ----------
124,580 22,278 143,455 (4,226) (11,185) 274,902
Selling, administrative and
other operating expenses... 58,158 8,125 48,128 2,470 (5) 3,491 (16) 122,131
1,000 (6) 759 (14)
Depreciation................. 41,582 41,582
---------- ------------- -------- ---------- -------- ----------
66,422 14,153 53,745 (7,696) (15,435) 111,189
Income taxes:
Current and deferred....... 23,719 6,481 22,164 (3,078)(7) (6,174)(18) 39,048
(820)(8) (3,244)(17)
Adjustment to deferred
taxes.................... 4,857 4,857
---------- ------------- -------- ---------- -------- ----------
Income from continuing
operations................. $ 37,846 $ 7,672 $ 31,581 $ (3,798) $ (6,017) $ 67,284
---------- ------------- -------- ---------- -------- ----------
---------- ------------- -------- ---------- -------- ----------
Income from continuing
operations per common and
equivalent share(20)....... $ 1.80 $ 2.41
---------- ----------
---------- ----------
Average outstanding common
and equivalent
shares(20)................. 20,332,000 27,332,000
---------- ----------
---------- ----------
</TABLE>
13
<PAGE> 16
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) The Pro Forma Consolidated Balance Sheet, as of December 31, 1993
includes the historical balance sheet of Ambassador as of November 30, 1993 and
the Pro Forma Statement of Consolidated Income From Continuing Operations for
the year ended December 31, 1993 includes the historical statement of income of
Ambassador for the eleven months ended November 30, 1993.
ACQUISITION OF AMBASSADOR
(2) To record the accrual of various liabilities ($8,800,000) and the
resulting goodwill ($30,400,000) arising from the Ambassador acquisition, the
payment for Ambassador's equity plus a premium ($76,285,000) using a portion of
the proceeds from the sale of Verex and cash generated from operations which
previously had been used to repay debt and the elimination of historical equity
($54,685,000).
(3) To record repayment of Ambassador's intercompany payable to Fleet
($172,000,000), using the proceeds from the sale of Verex and cash generated
from operations which previously had been used to repay debt.
(4) To record the estimated interest expense ($4,226,000) arising from the
debt incurred to fund the acquisition and the repayment of the intercompany
payable due to Fleet.
(5) To record amortization of goodwill ($2,470,000) based on an
amortization period of twenty years and amortization of the covenant not to
compete over one year (see Note (19)).
(6) To record administrative expenses for additional employees and general
overhead ($1,000,000).
(7) To record the income tax effect ($3,078,000) of Notes (4), (5) and (6)
at the Company's effective incremental income tax rate of 40%.
(8) To adjust income taxes for the lower state income tax rate applicable
to the Company ($820,000).
ACQUISITION OF TRICON
(9) To record the original capital contribution by Bell Atlantic as part of
the incorporation of TriCon ($135,000).
(10) To transfer assets and the related debt of TriCon ($53,460,000), not
purchased by the Company, to Bell Atlantic and reduce interest earned from
financing transactions for the income recorded on such assets in 1993
($7,667,000).
(11) To record issuance of notes payable ($83,900,000) to Bell Atlantic by
TriCon to repay TriCon's deferred tax liability.
(12) To record a dividend from TriCon to Bell Atlantic ($26,757,000) and
the conversion of the remaining short-term borrowings from affiliates of TriCon
($695,094,000) to a note payable to Bell Atlantic ($721,851,000).
(13) To record the goodwill created in the acquisition of TriCon
($69,817,000), elimination of the remaining TriCon equity ($284,733,000), the
elimination of deferred tax assets ($2,800,000), the debt incurred to finance
the acquisition ($130,310,000), the issuance of equity at $32.00 per share, net
of the underwriting discount, but before deducting estimated expenses payable by
the Company in connection with the Offerings ($216,440,000) and the accrual of
various liabilities ($5,000,000). The interest expense related to debt to be
replaced with the net proceeds from the Offerings and, therefore, nonrecurring
and excluded from the Pro Forma Statement of Consolidated Income From Continuing
Operations, is approximately $2,000,000.
(14) To reflect base fees ($1,500,000) and incremental costs ($759,000)
related to an agreement to manage leveraged leases for Bell Atlantic by TriCon.
14
<PAGE> 17
(15) To record interest expense ($5,018,000) resulting from the additional
debt issued to purchase TriCon and certain debt to Bell Atlantic incurred to
fund the deferred tax payment and dividend referred to in Notes (11) and (12),
reduced by the interest savings applicable to the debt not transferred in the
TriCon acquisition referred to in Note (10).
(16) To record amortization of goodwill ($3,491,000) based on an
amortization period of twenty years (see Note (19)).
(17) To reduce TriCon's income taxes for the effect of increases in income
tax rates for 1993 (principally the increase in the federal tax rate) due to the
deferred tax payment and the new tax basis in assets at the beginning of the pro
forma period ($3,244,000).
(18) To record the income tax effect ($6,174,000) of Notes (10) and (14)
through (16) at the Company's effective incremental income tax rate of 40%.
(19) Goodwill may be adjusted as the final allocation of the values of the
purchased assets and liabilities is established.
(20) Pro forma income from continuing operations per common and equivalent
share is calculated assuming the 7,000,000 shares of Common Stock are issued.
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GFC FINANCIAL CORPORATION
RESULTS OF OPERATIONS
1993 Compared to 1992
Income from continuing operations for 1993, excluding a $4.9 million
adjustment for deferred taxes applicable to leveraged leases ($0.24 per common
and equivalent share), rose to $42.7 million ($2.04 per common and equivalent
share) from $36.8 million ($1.71 per common and equivalent share) in 1992, a 16%
increase in earnings from continuing operations and a 19% increase in earnings
per common and equivalent share. The $4.9 million adjustment in 1993 represented
the effects of the recent increases in federal and state income tax rates as
they applied to deferred income taxes generated by the Company's leveraged lease
portfolio. Income from continuing operations for 1993, including the adjustment
for deferred taxes, was $37.8 million ($1.80 per common and equivalent share).
Net income for 1993 was $37.3 million ($1.77 per common and equivalent
share). Excluding the $4.9 million deferred tax adjustment, net income for 1993
was $42.2 million ($2.01 per common and equivalent share) compared to $49.0
million ($2.31 per common and equivalent share) in 1992. The primary reason for
the lower earnings in 1993 is the loss of $0.5 million ($0.03 per common and
equivalent share) reported from discontinued operations in 1993 compared to
income of $12.2 million ($0.60 per common and equivalent share) in 1992. The
$0.5 million loss for the year consists of $0.8 million of income from Verex's
operations and a loss of $1.3 million on the sale of Verex.
Interest Margins Earned. Interest margins earned, which represent the
difference between interest earned from financing transactions and interest
expense, increased by 19% in 1993 compared to 1992. These margins were improved
significantly by more favorable debt costs in 1993 when compared to 1992
(approximately a 1% reduction in the aggregate cost of debt). Also contributing
to the improved margins was the growth of the domestic portfolio and higher
prepayment fees, partially offset by the effects of larger foreign exchange
gains reported by GEFG in 1992 and the continued winding down of the GEFG
portfolio.
The $12.3 million reduction in interest expense is attributable to more
favorable debt costs and the interest savings from the repayment of commercial
paper with the proceeds from the Verex sale. The more favorable debt costs, in
comparison to 1992, primarily relate to the Company's ability to consistently
maintain a matched position throughout 1993 relative to financing its
floating-rate assets with floating-rate debt. During the second and third
quarters of 1992, the Company, because of the significant refinancing done in
connection with the Spin-Off, had to finance a major portion of its
floating-rate assets with fixed-rate debt. That fixed-rate debt was subsequently
converted to floating-rate debt through interest rate conversion agreements.
However, the timing between the issuance of fixed-rate debt and the execution of
the interest rate conversion agreements caused interest margins to shrink by
approximately $2.8 million in 1992.
Non-Interest Expense. Although the provision for possible credit losses
was lower in 1993, in the opinion of management, such provision was adequate to
cover the growth and risk in the portfolio. The reserve for possible credit
losses, which is increased by the loss provisions and reduced by write-offs, was
2.3% of funds employed at December 31, 1993. Details of the write-offs by
collateral type can be found in Note D of Notes to Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
Selling, administrative and other operating expenses increased during 1993
due to the addition of the ABF group acquired from U.S. Bancorp Financial, Inc.,
expenses that are no longer allocated to discontinued operations and legal
expenses incurred in connection with certain problem accounts. See Note N of
Notes to Consolidated Financial Statements of the Company included elsewhere in
this Prospectus.
Gains on Sale of Assets. Gains on sale of assets were higher in 1993 than
in 1992 due to the amount and type of assets sold. Gains in 1993 primarily were
derived from the sale of aircraft and other assets held for sale.
16
<PAGE> 19
Income Taxes. Income taxes, excluding the $4.9 million adjustment
applicable to deferred taxes, were higher in 1993 and more in the range of an
ongoing effective tax rate (approximately 36% of income before income taxes) for
the Company. The higher income taxes were attributable to the effects of a 1%
increase in both federal and state income tax rates, which increased the
provision for taxes by approximately $1 million, and to higher income before
income taxes. Additionally, in 1992, income taxes were reduced by $3.1 million,
representing tax adjustments related to the refinancing of the Company's debt.
See Note I of Notes to Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
Mortgage Insurance Operations. The Company sold all of the issued and
outstanding common stock of Verex in July 1993. The Stock Purchase Agreement
("Agreement") was executed on May 26, 1993, and the sale was consummated on July
16, 1993. The initial cash sale price was approximately $215 million, before
transaction costs. The sale price was generally determined by the book value of
the Verex assets plus a premium of $6 million and an adjustment for the
difference between market value and book value of Verex's investment portfolio,
calculated as prescribed more fully by the Agreement. Adjustments to the sale
were made in the fourth quarter of 1993 to reflect estimated transaction costs
and additional liabilities, resulting in a $1.3 million loss on the sale of
Verex.
The loss from discontinued operations for 1993 was $0.5 million compared to
income of $12.2 million in 1992. The $0.5 million loss for the year consists of
$0.8 million of income from operations and the loss of $1.3 million on the sale
of Verex. The $0.8 million in income from Verex's operations represents income
through the sale date and the accrual of expenses necessary to complete the
disposition of the remaining assets and liabilities of Verex which were retained
by the Company.
1992 Compared to 1991
Income from continuing operations, after taxes, for 1992 was $36.8 million
compared to a loss of $38.7 million in 1991. The 1991 results from continuing
operations included $69 million (after-tax) of restructuring and other charges
as part of the Spin-Off. Excluding the effects of the restructuring and other
charges recorded in 1991, income from continuing operations in 1992 increased by
21% over 1991 ($36.8 million compared to $30.3 million).
Net income for 1992 rose to $49 million from a net loss of $52.5 million in
1991. The results for 1991 (both continuing and discontinued operations)
included restructuring and other charges of $83 million (after-tax).
The following discussion of results of operations excludes the $69 million
(after-tax) of restructuring and other charges recorded in 1991.
Interest Margins Earned. Interest margins earned increased by 11% in 1992
compared to 1991. This increase primarily was attributable to higher margins in
the domestic portfolio ($83.4 million in 1992 compared to $73.6 million in 1991)
which grew by $277.5 million in 1992. GEFG's interest margins earned increased
by $1.0 million in 1992 as a result of $47.2 million of additional capital
infused by Dial in December 1991 as part of the Spin-Off. The effect of this
capital infusion helped to offset the reduction in margins caused by the
continued liquidation of the GEFG portfolio.
During the second and third quarters of 1992, GFC, because of the
significant refinancing done in connection with the Spin-Off, had to finance a
major portion of its floating-rate assets with fixed-rate debt. That fixed-rate
debt was subsequently converted to floating-rate debt through interest rate
conversion agreements. The timing between the issuance of fixed-rate debt and
the execution of interest rate conversion agreements resulted in a decrease in
margins of approximately $2.8 million. GFC was able to liquidate a substantial
portion of its Latin American assets for gains of $3.1 million, which offset the
adverse effect of the temporary imbalance of rate-sensitive assets and
liabilities.
Also contributing to the improved interest margins were the effects of
lower nonaccruals, which averaged $114 million in 1992 compared to $185 million
in 1991, high prepayment fees and interest expense reductions related to the
refinancing of high cost fixed-rate debt during 1991 and 1992. These increases
were partially
17
<PAGE> 20
offset by the effect of recognizing $6.3 million of additional income in 1991,
related to the leveraged lease portfolio, with no comparable amount being
recognized in 1992.
Non-interest Expense. Provisions for possible credit losses were lower in
1992 but, nevertheless, management believes they were adequate to cover the
growth and risk in the portfolio. A breakdown of the write-offs by collateral
type can be found in Note D of Notes to Consolidated Financial Statements of the
Company included elsewhere in this Prospectus.
Selling, administrative and other operating expenses increased during 1992
due to additional costs associated with being a public company, the ongoing
downsizing of GEFG (which included $1.3 million of after-tax employee
termination costs) and normal cost increases. See Note N of Notes to
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
Gains on Sale of Assets. Gains on sale of assets were lower in 1992 than
in 1991 due to reduced quantities and values of assets coming off lease. This
reduction was the result of the gradual runoff of the Company's lease portfolio.
Income Taxes. The effective income tax rate for 1992 was lower than the
statutory rate primarily because of a $3.1 million reduction in taxes for tax
benefits related to the expenses of refinancing the Company's debt. See Note I
of Notes to Consolidated Financial Statements of the Company, included elsewhere
in this Prospectus.
Mortgage Insurance Operations. Income from the discontinued mortgage
insurance operations (before federal income tax settlements) was $3.1 million in
1992 compared to $16.8 million in 1991. The 1992 results included a special
charge of $11.4 million ($7.5 million after-tax) to strengthen loss reserves and
were adversely affected by a decline in investment yields and a decrease in
premium volume resulting from high levels of mortgage loan refinancing. After
income tax credits of $9.1 million in 1992 and charges of $15.4 million in 1991,
income from discontinued operations improved to $12.2 million in 1992 from $1.4
million in 1991.
ACQUISITION OF AMBASSADOR AND TRICON -- IMPACT ON THE COMPANY
The acquisition of Ambassador and TriCon have significantly increased the
Company's assets and pro forma earnings. On a pro forma basis, at December 31,
1993, the Company's total assets would have been approximately $5 billion, with
income from continuing operations for the twelve months ended December 31, 1993
of approximately $72 million, before a one-time $4.9 million adjustment for
deferred taxes applicable to leveraged leases.
Prior to the acquisitions of Ambassador and TriCon, the Company analyzed
the impact of the acquisitions on its core commercial finance business in
several key areas, as described below.
Consistent Business Strategy
TriCon and Ambassador each pursued a niche-oriented business strategy
similar to that followed by the Company.
Ambassador serves factoring clients and asset based borrowers, primarily in
the northeast, which are not actively pursued by larger factoring companies or
other asset based lenders due to (i) the size of the customer, (ii) the
complexity or type of assets serving as loan collateral or (iii) the clients'
need for a level of service which Ambassador's competitors are unwilling or
unable to provide because of their higher operating costs.
TriCon is a niche-oriented provider of commercial lending and equipment
financing products and services to a segmented group of customers throughout the
United States. TriCon emphasizes market or industry niches in which its ability
to offer products and services tailored to the individual needs and objectives
of each customer enables it to differentiate itself from its competitors and to
command pricing which provides a satisfactory spread over TriCon's cost of
funds.
18
<PAGE> 21
As a result of the existing business strategies of Ambassador and TriCon,
management believes the acquisitions of Ambassador and TriCon strengthen the
Company's ability to execute its fundamental business strategy (see
"Business -- Business Strategy").
Management
Prior to being acquired by the Company, Ambassador and TriCon each operated
on an essentially autonomous basis with little reliance on Fleet or Bell
Atlantic, respectively, except in areas such as external financing and employee
welfare and retirement benefits. Prior to entering into the transaction with the
Company, Bell Atlantic intended to sell 100% of the stock of TriCon in an
initial public offering. In connection with that proposed offering, TriCon
received investment grade ratings from Standard & Poor's Corporation, Moody's
Investor Service, Inc. and Duff & Phelps Credit Rating Co. Bell Atlantic would
have held approximately $1.4 billion of TriCon's senior debt upon completion of
that offering and continues to hold such debt. The Company believes these
factors underscore the ability of TriCon's management to operate that company
and to supplement the Company's management team. Upon the acquisition of both
Ambassador and TriCon, the Company entered into employment agreements having
initial terms of three years with certain key management employees of Ambassador
and TriCon. As a result, while there can be no assurance that Ambassador's or
TriCon's management will remain with the Company, the Company believes it will
be able to preserve management continuity at both companies for the foreseeable
future.
Asset Quality
In 1990, TriCon initiated a comprehensive plan for achieving independent
investment grade debt ratings. TriCon's plan, among other things, furthered the
development of its focus on niche market sectors in the commercial and equipment
finance industries. In addition, consistent with a heightened focus on portfolio
credit quality, related strategies were initiated to strengthen TriCon's
operations, underwriting standards and internal controls for the administration
of credit risk. As part of this process, procedures for the early identification
of potential problem accounts, more active management of nonearning accounts and
aggressive recognition of credit losses were adopted.
TriCon operates in business segments which historically have generated a
higher amount of write-offs than those experienced by GFC. This higher level of
write-offs is generally taken into account by the management of TriCon in
pricing its financing products. During the last three years, TriCon's average
interest margins earned (interest from financing transactions less interest
expense) on financing assets were approximately 150 basis points higher than
GFC's average interest margins for the same period. This in part reflects the
additional yield TriCon is able to generate on its financing products, which
helps offset the expected higher levels of write-offs.
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<PAGE> 22
The table below sets forth certain information regarding TriCon's credit
quality statistics:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,(1)(2)
----------------------------------
TRICON 1993 1992 1991
- ----------------------------------------------------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonearning assets.......................................... $ 63,201 $ 78,655 $ 76,645
Reserve and accrued liabilities for possible credit
losses................................................... 57,337 65,639 57,991
Write-offs................................................. 38,884 32,771 24,391
Write-offs as a percentage of average funds employed and
securitizations(3)(4).................................... 1.9% 1.7% 1.3%
Nonearning assets as a percentage of funds employed and
securitizations(3)(4).................................... 3.0% 3.8% 4.0%
Reserve and accrued liabilities for possible credit losses
as a percentage of funds employed and
securitizations(3)(4).................................... 2.7% 3.2% 3.0%
Reserve and accrued liabilities for possible credit losses
as a
multiple of write-offs................................... 1.5x 2.0x 2.4x
Reserve and accrued liabilities for possible credit losses
as a percentage of nonearning assets..................... 90.7% 83.5% 75.7%
</TABLE>
- ---------------
(1) TriCon accounts are generally considered nonearning when delinquent over 120
days.
(2) The table excludes assets not purchased by the Company.
(3) Funds employed represent investments in financing transactions before the
reserve for possible credit losses.
(4) Securitizations are assets sold under securitization agreements and managed
by TriCon.
Ambassador also operates in business segments in which it experiences
higher amounts of nonearning assets and write-offs than those historically
experienced by GFC. At November 30, 1993, approximately 4.5% of Ambassador's
$336 million loan portfolio was nonearning and write-offs for the eleven months
ended November 30, 1993 were approximately $7.3 million. These higher levels of
nonearning assets and write-offs have historically been offset by the higher
interest margins Ambassador generates on its financing assets. In 1993,
Ambassador's net interest margins including factoring fees were 500 basis points
higher than GFC's interest margins.
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<PAGE> 23
The tables below set forth certain information regarding Ambassador's
credit quality statistics and the Company's credit quality statistics on a pro
forma basis, including Ambassador and TriCon:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------
AMBASSADOR 1993(1) 1992 1991
- ----------------------------------------------------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonearning assets.......................................... $ 14,935 $ 15,833 $ 14,231
Reserve for possible credit losses......................... 9,207 7,993 9,818
Write-offs................................................. 7,349 13,929 5,868
Write-offs as a percentage of average funds employed....... 2.2% 4.4% 2.0%
Nonearning assets as a percentage of funds employed........ 4.5% 4.9% 4.6%
Reserve for possible credit losses as a percentage of funds
employed................................................. 2.8% 2.5% 3.2%
Reserve for possible credit losses as a multiple of
write-offs............................................... 1.3x 0.6x 1.7x
Reserve for possible credit losses as a percentage of
nonearning assets........................................ 61.6% 50.5% 69.0%
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,(2)(3)
----------------------------------
THE COMPANY, PRO FORMA 1993(1) 1992 1991
- ----------------------------------------------------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonearning assets(4)....................................... $180,743 $194,910 $202,172
Reserve and accrued liabilities for possible credit
losses................................................... 130,824 142,923 155,409
Write-offs................................................. 58,808 70,361 98,605(5)
Write-offs as a percentage of average funds employed and
securitizations.......................................... 1.2% 1.5% 2.2%
Nonearning assets as a percentage of funds employed and
securitizations.......................................... 3.4% 4.1% 4.5%
Reserve and accrued liabilities for possible credit losses
as a percentage of funds employed and securitizations.... 2.5% 3.0% 3.5%
Reserve and accrued liabilities for possible credit losses
as a multiple of write-offs.............................. 2.2x 2.0x 1.6x
Reserve and accrued liabilities for possible credit losses
as a percentage of nonearning assets..................... 72.4% 73.3% 76.9%
</TABLE>
- ---------------
(1) The Ambassador historical and the pro forma combined information for 1993
includes information for Ambassador at or for the eleven months ended
November 30, 1993.
(2) Excludes assets not purchased by the Company.
(3) Accounts are generally considered delinquent after 90 days except for TriCon
accounts, which are generally considered delinquent after 120 days.
(4) Nonearning assets for the Company consist of nonaccruing contracts and
nonearning repossessed assets. See Note D of Notes to Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
(5) In the fourth quarter of 1991, the Company recorded a special provision for
possible credit losses of $65,000,000 and recorded write-offs of $15,000,000
related to nonearning assets in the GEFG portfolio and a $47,759,000
write-down to reduce Latin American assets to current market value.
For more information on the Company's credit quality statistics on a
stand-alone basis see "Selected Consolidated Financial Data" and Note D of Notes
to Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
TriCon Portfolio Composition.
The total assets under the management of TriCon consist of TriCon's
portfolio of owned lease and loan assets plus certain assets that are owned by
others but managed by TriCon and are not reflected on TriCon's balance sheet. At
December 31, 1993, the portfolio assets were approximately $1.8 billion. At that
date, the assets of others managed by TriCon were approximately $1.3 billion,
consisting of approximately $343.8 million of assets originated by TriCon but
sold to others in securitizations and approximately $975.7 million of net lease
receivables relating to the leveraged lease and project finance portfolio
retained by Bell Atlantic.
21
<PAGE> 24
TriCon's primary financing products are finance leases, operating leases,
collateralized loans and inventory and receivable financing. The portfolio
assets are diversified across types of financed equipment with the largest
equipment concentrations being personal computers and individual workstation
data processing equipment, health care equipment, communications equipment,
furniture and fixtures, office machines and diversified commercial use
equipment. The portfolio assets also include real estate-related assets,
collateralized primarily by real estate and equipment held as collateral in
conjunction with its health care and franchise-based food service equipment
financings, and, to a lesser extent, a portfolio of general commercial real
estate mortgages currently being managed for liquidation.
As of December 31, 1993, excluding assets not purchased by the Company,
TriCon's customer base included approximately 70,000 customer accounts; its
largest exposure to any single customer was approximately $33.0 million or
approximately 1.5% of the portfolio assets and securitizations.
Pro Forma Portfolio Diversification
At December 31, 1993, the Company's pro forma carrying amount of the
investment in financing transactions and securitizations, including the
estimated residual value of leased assets upon lease termination (before reserve
for possible credit losses) consisted of the following types of loans and
collateral:
PRO FORMA PORTFOLIO DIVERSIFICATION
BY TYPE OF LOAN AND COLLATERAL
AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA
GFC FINANCIAL CORPORATION PERCENT OF TOTAL
AND AMBASSADOR TRICON(1) PRO FORMA(1) CARRYING AMOUNT(1)
------------------------- ---------- ------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Asset Based Finance............. $ 373,528 $ 203,506 $ 577,034 11.0%
Aircraft & Related Equipment.... 556,856 14,279 571,135 10.8
Timeshare Resort Receivables.... 563,214 563,214 10.7
Communications Finance.......... 507,723 507,723 9.6
Commercial Real Estate.......... 354,318 140,970 495,288 9.4
Diversified Commercial
Equipment..................... 306,245 306,245 5.8
Data Processing Equipment....... 295,469 295,469 5.6
Health Care Equipment........... 278,851 278,851 5.3
Real Estate Leveraged Leases.... 196,915 196,915 3.7
Health Care Real Estate......... 195,300 195,300 3.7
Telecommunications.............. 179,766 179,766 3.4
Diversified Commercial Real
Estate........................ 168,900 168,900 3.2
Furniture and Fixtures.......... 155,244 155,244 2.9
Office Machines................. 151,925 151,925 2.9
Factoring Finance............... 137,196 137,196 2.6
Production & Processing
Equipment..................... 134,816 134,816 2.6
Land Receivables................ 74,053 74,053 1.4
Railroad Equipment.............. 73,762 73,762 1.4
Other(2)........................ 208,846 208,846 4.0
------------- ---------- ------------ ------
Total Funds Employed....... $ 3,181,227 $2,090,455 $5,271,682 100.0%
------------- ---------- ------------ ------
------------- ---------- ------------ ------
</TABLE>
- ---------------
(1) Excludes assets not purchased by the Company.
(2) Other includes different classes of commercial and industrial contract
receivables, none of which accounted for more than 1% of the aggregate
carrying amount of the net investment in financing transactions.
22
<PAGE> 25
The carrying amount of the investment in financing transactions and
securitizations, including the estimated residual value of leased assets upon
lease termination (before reserve for possible credit losses) on a pro forma
basis by state at December 31, 1993 is as follows:
PRO FORMA PORTFOLIO DIVERSIFICATION
BY STATE
AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
GFC FINANCIAL PRO FORMA
CORPORATION PRO FORMA PERCENT OF TOTAL
STATE AND AMBASSADOR TRICON(1) TOTAL(1) CARRYING AMOUNT(1)
- ---------------------------------- -------------- ---------- ---------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
California........................ $ 419,887 $ 338,840 $ 758,727 14.4%
New York.......................... 392,031 108,178 500,209 9.5
Texas............................. 222,151 224,706 446,857 8.5
Florida........................... 159,185 117,960 277,145 5.3
New Jersey........................ 106,263 121,321 227,584 4.3
Pennsylvania...................... 79,021 112,773 191,794 3.6
Michigan.......................... 104,712 63,967 168,679 3.2
Arizona........................... 119,218 30,916 150,134 2.8
Illinois.......................... 87,076 59,506 146,582 2.8
Maryland.......................... 53,886 71,633 125,519 2.4
Nevada............................ 111,242 7,989 119,231 2.3
Washington........................ 70,127 42,743 112,870 2.1
Georgia........................... 54,995 53,872 108,867 2.1
Other(2).......................... 1,201,433 736,051 1,937,484 36.7
-------------- ---------- ---------- ------
Total Funds Employed......... $3,181,227 $2,090,455 $5,271,682 100.0%
-------------- ---------- ---------- ------
-------------- ---------- ---------- ------
</TABLE>
- ---------------
(1) Excludes assets not purchased by the Company.
(2) Other includes all other states which, on an individual basis, represent
less than 2% of the total, and international, which represents approximately
5% of the total.
Capital Structure and Leverage
After giving effect to the Offerings, contribution of the estimated net
proceeds therefrom to GFC, and application of such funds by GFC to the repayment
of indebtedness, GFC (including TriCon and Ambassador) will have a leverage
ratio as measured by total debt to shareholder's equity (which on a pro forma
basis amounted to $3.8 billion and $720 million, respectively, at December 31,
1993) equal to approximately 5.3 to 1. GFC's revolving credit agreements
currently permit GFC to operate at a leverage ratio of up to 7.0 to 1. That
revolving credit agreement leverage ratio is expected to change initially to 6.5
to 1, using a somewhat different test, upon effectiveness of the proposed
expanded revolving credit facility, and will increase subsequently to 7.0 to 1
under that new test. See "Liquidity and Capital Resources." Management believes
GFC will continue to be able to fund expected future asset growth through the
issuance of additional indebtedness and retention of future earnings while
operating within GFC's leverage constraints, although there can be no assurance
of its ability to do so.
Growth Rate
In 1990, Bell Atlantic imposed capital constraints on TriCon as a result of
a strategic redirection of Bell Atlantic's business, which curtailed TriCon's
capacity for asset growth. The Company intends to remove such constraints and
believes that TriCon, as part of the Company, is capable of producing growth in
quality assets. The Company seeks to capitalize on the complementary nature of
the financial products and services offered by GFC, TriCon and Ambassador and to
build on the strengths of each of its lines of business. Management
23
<PAGE> 26
believes that TriCon's marketing orientation fits well with the Company's
emphasis on value added products and services in focused niches of the
commercial finance business and further diversifies the Company's revenue
sources and loan portfolio. In addition, management believes the acquisition of
TriCon gives the Company significant critical mass, important economies of scale
and allows the Company to compete over a greater range of services.
Certain of TriCon's business segments are cyclical and tend to experience a
greater demand for their financing products and services at a time when the U.S.
economy is expanding and lower demand during recessionary periods. In addition,
certain of TriCon's equipment financing products are dependent on the Company's
ability to utilize on a current basis the federal and state tax benefits
associated with those products. On a combined basis, management believes that
the Company will have a federal and state income tax position which will permit
TriCon to market its tax-oriented equipment financing products. As a result of
these factors, management believes that the acquisition of TriCon will not
adversely affect the Company's ability to achieve internal portfolio growth at a
satisfactory rate, although there can be no assurance of such continued growth.
Securitizations
TriCon has diversified its funding sources over the past several years to
include securitizations. This practice allowed TriCon to reduce its dependency
on medium-term debt supported by Bell Atlantic while operating under capital
constraints imposed by Bell Atlantic. Securitizations are used as an alternative
to medium-term financing to obtain funds for redeployment in the business. These
transactions also provide for near perfect match funding as the repayment of
proceeds raised by the securitization are matched with the future expected cash
flow of the assets being securitized. At December 31, 1993 total assets
securitized by TriCon were approximately $344 million and the accrued liability
for estimated losses under TriCon's securitization programs was approximately
$14.1 million. Securitization transactions reduce TriCon's investment in finance
leases, except to the extent that the proceeds are reinvested in new finance
leases. The future revenue stream of the securitized assets, in excess of the
income allocated to the purchasers, is recharacterized into two components, (i)
servicing fee income which is recognized as received over time, and (ii) gain on
sale. During 1994, the Company expects to utilize securitizations of selected
TriCon assets consistent with TriCon's historical experience. However, in the
future the Company may reduce the utilization of asset securitizations. Reduced
utilization of securitizations would have the result of reducing net income in
the near term since no gain on the sale of assets would be recorded. However,
earnings from assets retained and not securitized would continue to be
recognized over the life of the assets. The Company estimates that if TriCon had
not engaged in any securitizations, but had instead retained the earning assets,
income before cumulative effect of changes in accounting principles from TriCon
would have changed in 1991 from $23.4 million to $20.5 million, in 1992 from
$27.4 million to $27.7 million, and in 1993 from $31.6 million to $35.0 million.
TriCon did not engage in any securitizations prior to 1990.
Seasonality of TriCon Income
TriCon usually experiences increases in its volume of new lease
originations during the fourth quarter of each year for various reasons,
including the tax attributes of the assets being financed. TriCon has the option
to securitize its assets at any time during the year, but it has historically
used securitizations to fund the increased volume of lease transactions or to
reduce the debt incurred to fund such additions during the fourth quarter. As a
result, TriCon has experienced higher net income during such fourth quarters.
Liquidity and Capital Resources
The Company's sources of liquidity are funds from operations, proceeds from
the Offerings, external debt or equity financings and securitizations. GFC
recently filed a shelf-registration statement with the Commission that would
provide for the issuance of up to $1.0 billion of senior debt securities.
Additionally, GFC currently maintains a three-year revolving credit facility
with numerous lenders, in the aggregate principal amount of $700 million.
Separately, GFC also has a 364-day revolving credit facility in the aggregate
principal amount of $200 million. GFC is currently in negotiation with its banks
to expand the aggregate principal amount of the three-year revolving credit
facility from $700 million up to approximately $1.2 to $1.5 billion
24
<PAGE> 27
through a bank syndicate. The new revolving credit agreement would be subject to
the completion of the Offerings and the investment by the Company of a
substantial portion of the net proceeds from the Offerings in GFC, as well as
negotiation and execution of definitive documentation and other terms and
conditions usual and customary for transactions of that nature. While the
Company believes it will be successful in obtaining an expansion of such
facilities, there can be no assurance of that result. If an expansion of the
revolving facility is not successfully negotiated, the Company and GFC believe
they have other alternatives available to them, including the sale of additional
debt or equity securities, although the ability to do so will depend on various
factors including then-current market conditions and the Company's financial
condition.
Debt repayments due in 1994 will be approximately $1.12 billion, consisting
of approximately $722 million payable to Bell Atlantic, approximately $219
million payable through Bell Atlantic to other third party creditors of TriCon
and approximately $179 million payable to creditors of GFC. The Company believes
that its current financial resources and anticipated future cash flows, together
with the proceeds of the Offerings and sale of commercial paper, supported by
the anticipated debt facilities referred to above, will be adequate to fund the
Company's 1994 debt repayments and operating requirements.
25
<PAGE> 28
BUSINESS
GENERAL
The Company, through its wholly owned subsidiaries, is in the business of
providing collateralized financing in focused market niches primarily in the
United States. The Company extends revolving credit facilities, term loans and
equipment and real estate financing to "middle-market" businesses with financing
needs falling generally between $500,000 and $35 million. The Company also
offers financing programs to manufacturers, distributors, vendors and
franchisors which facilitate the sale in the United States of their products to
end-users. The Company currently operates in 15 specific industry or market
niches in which its expertise in evaluating the creditworthiness of prospective
customers and its ability to provide value-added services enables the Company to
differentiate itself from its competitors and to command loan pricing which
provides a satisfactory spread over the Company's borrowing costs.
The Company seeks to maintain a high quality portfolio and to minimize
nonearning assets and write-offs by using clearly defined underwriting criteria,
stringent portfolio management techniques and by diversifying its lending
activities geographically and among a range of industries, customers and loan
products. Because of the diversity of the Company's portfolio, the Company
believes it is better able to manage competitive changes in its markets and to
withstand the impact of deteriorating economic conditions on a regional or
national basis.
The Company's activities include:
GFC BUSINESS SEGMENTS
- Corporate Finance. The Corporate Finance group provides financing,
generally in the range of $2 million to $25 million, focusing on
middle-market businesses nationally, including distribution, wholesale,
retail, manufacturing and service industries. The group's lending is
primarily in the form of term loans secured by the assets of the
borrower, with significant emphasis on cash flow as the source of
repayment of the secured loan.
- Transportation Finance. The Transportation Finance group structures
secured financings for specialized areas of the transportation industry,
principally involving domestic and foreign used aircraft, as well as
domestic short-line railroads and used rail equipment. Typical
transactions involve financing up to 80% of the fair market value of used
equipment in the $3 million to $30 million range. Traditionally focused
on the domestic marketplace, Transportation Finance established a London,
England office in 1992, broadening its product line to include
international aircraft loans.
- Communications Finance. The Communications Finance group specializes in
radio and television. Other markets include cable television, print and
outdoor media services in the United States. GFC extends secured loans to
communications businesses requiring funds for recapitalization,
refinancing or acquisition. Loan sizes generally are from $3 million to
$35 million.
- Commercial Real Estate Finance. The Commercial Real Estate group
provides cash-flow-based financing primarily for acquisitions and
refinancings to experienced real estate developers and owner tenants of
income-producing properties in the United States. GFC concentrates on
secured financing opportunities, generally between $3 million and $30
million, involving senior mortgage term loans on owner-occupied
commercial real estate. GFC's portfolio of real estate leveraged leases
is also managed as part of the commercial real estate portfolio.
- Resort Finance. The Resort Finance group focuses on successful,
experienced resort developers, primarily of timeshare resorts, second
home resort communities, golf resorts and resort hotels. Extending funds
through a variety of lending options, the Resort Finance group provides
loans and lines of credit ranging from $3 million to $30 million for
construction, acquisitions, receivables financing and purchases and other
uses. Through GFC's subsidiary, GFC Portfolio Services, Inc., the Resort
Finance group offers expanded convenience and service to its customers.
Professional receivables collections and cash management gives developers
the ability of having loan-related administrative functions performed for
them by GFC.
26
<PAGE> 29
- Asset Based Finance. Acquired in early 1993, the ABF group offers a full
range of nationwide collateral-oriented lending programs to middle-market
businesses including manufacturers, wholesalers and distributors. GFC's
ABF group mainly provides revolving lines of credit ranging between $2
million and $25 million, often partnering with the Corporate Finance
group to offer convenient "one-stop" financing to businesses.
- Consumer Rediscount Finance. The Consumer Rediscount Group provides $2
million to $25 million revolving credit lines to regional consumer
finance companies which in turn extend credit to consumers. GFC's
customers provide credit to consumers to finance home improvements,
automobile purchases, insurance premiums and for a variety of other
financial needs.
- Ambassador Factors. Ambassador provides accounts receivable factoring
and asset-based lending in amounts generally ranging from $500,000 to $3
million principally to small and medium-sized textile and apparel
manufacturers and importers.
In conjunction with the liquidation of the GEFG portfolio, GEFG surrendered
the banking license of its United Kingdom bank, Greyhound Bank PLC. GEFG
operates a finance group that was primarily involved in lending to individuals
in the United Kingdom secured by second mortgages on residential real estate.
GEFG ceased writing new consumer finance business in the first quarter of 1991,
but continues to administer and collect loans previously made.
TRICON BUSINESS SEGMENTS
TriCon is a niche oriented provider of commercial finance and equipment
leasing services to a segmented group of borrowers and lessees throughout the
United States. TriCon conducts its operations through seven specialized business
groups which provide financial products and services to three specific market
sectors of the commercial finance industry: the End-User Sector, the Program
Finance Sector and the Capital Services Sector.
END-USER SECTOR. The customers in the End-User Sector use the assets which
TriCon finances or leases for the ongoing operation of their businesses. The
equipment which TriCon leases to its customers is typically purchased from an
equipment manufacturer, vendor or dealer selected by the customer. The three
specialized business groups associated with this market sector and the services
provided by TriCon to customers of each business group include:
- Medical Finance. Equipment and real estate financing and asset
management services targeting the top 2,400 health care providers in the
United States.
- Commercial Equipment Finance. Direct finance leasing of, and lending
for, general business equipment to quality commercial business
enterprises which lack ready access to the public finance markets.
- Government Finance. Primarily tax-exempt financing to state and local
governments. Due to tax benefit limitations, TriCon sells a substantial
portion of the tax-exempt assets generated by the Government Finance
group through syndications or securitizations to third parties. In
addition, TriCon has generated fee income by arranging for the sale of
originations of such assets through public offerings.
PROGRAM FINANCE SECTOR. TriCon's business groups in the Program Finance
Sector provide financing programs to help manufacturers, distributors, vendors
and franchisors facilitate the sale of their products or services. The three
specialized business groups associated with this market sector and the services
provided by TriCon to customers of each business group include:
- Vendor Services. Point-of-sale financing programs and support services
for regional and national manufacturers, distributors and vendors of
equipment classified as "small ticket" in transaction size (generally
transactions with an equipment cost of less than $250,000). The equipment
which TriCon leases to the ultimate end-user is typically sold to TriCon
by the vendor participating in the financing program.
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<PAGE> 30
- Franchise Finance. Equipment and total facility financing programs for
the franchise-based food service industry. The equipment which TriCon
leases to the ultimate end-user is typically purchased by TriCon from an
equipment manufacturer, vendor or dealer selected by the end-user.
- Commercial Credit Services. Accounts receivable and inventory lending
for manufacturers and major distributors, manufacturer-sponsored
inventory financing for office equipment dealers and telecommunications
receivables financing for regional providers of long distance operator
services.
CAPITAL SERVICES SECTOR. The Capital Services Sector has one business
group which focuses on the management and origination of highly structured
financing of "large ticket" commercial equipment (generally transactions
involving the sale or lease of equipment with a cost in excess of $15 million),
primarily leveraged leases for major corporations. The equipment which TriCon
leases to its customers is typically purchased from an equipment manufacturer,
vendor or dealer selected by the customer.
BUSINESS STRATEGY
Following the Spin-Off in March 1992, the Company decided to focus its
resources and capital on its core domestic commercial finance activities. The
Company embarked on a program of selling or winding down those businesses
included in the Spin-Off that were not associated with the Company's core
domestic commercial finance activities. The Company has concentrated on
redeploying the capital previously invested in such businesses to support
internal portfolio growth and to make selected acquisitions which complement the
Company's core operations. This strategy has resulted in (i) the managed
liquidation and sale of the GEFG and Latin American loan portfolios, (ii) an
increase (excluding acquisitions) in GFC's domestic loan portfolio from December
31, 1991 to December 31, 1993 of $700 million or 36%, (iii) the acquisition of
the ABF group from U.S. Bancorp, (iv) the sale of Verex, (v) the acquisition of
Ambassador, and (vi) the acquisition of TriCon. As a result of management's
execution of its business strategy, management believes that the Company now
ranks among the largest independent commercial finance companies, based on
assets, in the United States, and can direct its energies primarily on its core
business operations in the United States, rather than on terminating
discontinued operations.
Through GFC, the Company has been engaged in collateralized lending and
equipment leasing and financing for over 40 years. Since 1987, GFC's focus has
been on niche-oriented "middle-market" lending involving the extension of
revolving credit facilities, term loans and equipment financing to businesses
with financing needs generally falling between $500,000 and $35 million.
The Company seeks to achieve superior financial performance on a consistent
basis by adhering to certain fundamental principles in managing its commercial
finance business:
- Niche Focus. The Company seeks to compete in industry or market niches
in which its expertise in evaluating the creditworthiness of prospective
customers and its ability to provide value-added services enables the
Company to differentiate itself from its competitors and command loan
pricing which provides a satisfactory spread over the Company's
borrowing costs. The Company currently operates in 15 specific market or
industry niches (see "GFC Business Segments" and "TriCon Business
Segments"). The Company generally avoids competing solely on the basis
of the interest rate or fees charged to the customer for the Company's
loan products and services. The Company makes a determination of return
on equity for each new financing transaction which it funds. The
determination of the expected return on equity on any one transaction
takes into account loan origination and administration costs, historical
write-off experience in each of the Company's business segments,
overhead allocations and the size and expected term of the financing.
- Maintenance of Asset Quality. The Company seeks to maintain a high
quality loan portfolio and to minimize nonearning assets and write-offs
by using clearly defined underwriting criteria for each of the Company's
15 business segments, a stringent underwriting process and limited
delegation of credit authority. In addition, the Company actively
manages its portfolio by diversifying its financing activities
geographically and among a range of industries, customers and loan
products. Because of the diversity of the Company's portfolio, the
Company believes it is better able to manage competitive
28
<PAGE> 31
changes in its markets and to withstand the impact of deteriorating
economic conditions on a regional or national basis.
- Asset/Liability Management. The Company seeks to maintain a
match-funded position in its financing transactions and borrowings so as
to minimize exposure to changing interest rates. The Company generally
follows a policy of funding floating rate assets with floating rate
borrowings and funding fixed rate assets with fixed rate debt, deferred
tax liabilities or with its equity capital. Substantially all of the
Company's floating rate assets are priced using the prime rate, which is
set by major U.S. banks, while its floating rate debt is generally
priced using the London Interbank Offered Rate ("LIBOR"), which is
dictated by market conditions. From time to time, the Company hedges
against a contraction in favorable spreads between prime and LIBOR. At
December 31, 1993, the Company had entered into interest rate hedge
agreements to fix the spread between the prime rate and LIBOR, at 2.3%
on a notional principal amount of $750 million. Management believes that
the Company's results of operations should not be materially affected by
changing interest rates because of its asset/liability management
policies, although there can be no assurance of such a result.
- Cost Controls. The Company actively attempts to maximize employee
productivity and to manage selling, administrative and other operating
expenses actively so as to optimize earnings and to enhance its
competitive position. Management believes its operating costs are lower
than many of its competitors when viewed either as a percentage of total
assets or as a percentage of net interest margins earned. As a result,
while certain of the Company's larger competitors may enjoy a lower cost
of funds, management believes that advantage is often offset, at least
in part, by the Company's lower operating costs.
- Acquisitions. Management considers selective acquisitions which
complement the Company's core commercial finance business to be an
element in its overall business strategy. Acquisitions permit the
Company to secure a presence in a particular industry or market niche
quickly while simultaneously giving the Company a seasoned loan
portfolio, experienced management and an existing loan origination,
underwriting and administrative infrastructure. The Company is neither
currently evaluating any prospective acquisition opportunities nor is
management contemplating making any significant acquisitions during the
balance of 1994. However, management will consider appropriate
opportunities as they arise, and acquisitions are expected to continue
to represent one component of the Company's longer-term growth strategy.
EMPLOYEES
At December 31, 1993, after giving effect to the Ambassador and TriCon
acquisitions, the Company had 872 employees, consisting of 14 (the Company), 230
(GFC), 31 (GEFG), 525 (TriCon) and 72 (Ambassador). None of such employees is
covered by collective bargaining agreements. The Company believes its employee
relations are satisfactory.
PROPERTIES
The principal executive offices of the Company and GFC are located in
premises leased from Dial in Phoenix, Arizona. GFC operates six additional
offices in the United States, and GEFG operates one office in Europe. All such
properties are leased.
TriCon's principal office and headquarters is located in Paramus, New
Jersey. TriCon also operates 14 additional offices in the United States and has
a marketing or administrative staff in 16 additional locations. All such
properties are leased.
The Company believes alternative office space could be obtained without
difficulty in the event leases are not renewed.
29
<PAGE> 32
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following discussion summarizes certain Federal income tax consequences
generally applicable to the ownership and disposition of the Common Stock by a
holder who is not a United States Person ("Non-U.S. Holder"). The term "United
States Person" means a citizen or resident of the Untied States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any state thereof or an estate or trust, the income of which is
subject to Federal income taxation regardless of its source. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), and
judicial and administrative interpretations now in effect, all of which are
subject to change. The discussion, which is for general information only and
does not constitute tax advice, does not purport to deal with all aspects of
United States Federal income taxation that may be relevant to a Non-U.S. Holder
and does not describe any tax consequences arising out of the laws of any state,
locality or foreign jurisdiction. NON-U.S. HOLDERS ARE ADVISED TO CONSULT THEIR
TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THEIR PARTICIPATION IN THE OFFERINGS.
Dividends. A dividend paid by the Company to a Non-U.S. Holder generally
will be subject to withholding of United States Federal income tax at the rate
of 30% unless the dividend is effectively connected with the conduct of a trade
or business within the Untied States by the Non-U.S. Holder, in which case the
dividend will be subject to the United States Federal income tax on net income
that applies to United States persons generally (and, with respect to corporate
holders and under certain circumstances, the branch profits tax). Non-U.S.
Holders should consult any applicable income tax treaties, which may provide for
a lower rate of withholding or other rules different from those described above.
A Non-U.S. Holder may be required to satisfy certain certification requirements
to claim treaty benefits or otherwise claim a reduction of or exemption from
withholding under the foregoing rules.
Gain on Disposition. A Non-U.S. Holder generally will not be subject to
United States Federal income tax (subject to the discussion of FIRPTA and backup
withholding below) on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-U.S. Holder, or (ii) in the case
of a Non-U.S. Holder who is a nonresident alien individual and holds the Common
Stock as a capital asset, such holder is present in the U.S. for 183 or more
days in the taxable year of the sale or disposition and either has a "tax home"
(as defined for United States Federal income tax purposes) in the United States
or an office or other fixed place of business in the United States to which the
sale or disposition is attributable.
FIRPTA. A Non-U.S. Holder of Common Stock may be subject to Federal income
tax under certain rules added to the Code by the Foreign Investment in Real
Property Tax Act ("FIRPTA tax") on a sale or other disposition of such Common
Stock if, in accordance with certain rules, the Company is or has been a United
States real property holding corporation ("USRPHC") within the preceding five
years or the period of such holder's ownership of such Common Stock, if shorter
(the "FIRPTA period"). A required withholding in respect of FIRPTA tax ("FIRPTA
withholding") is imposed at a rate of 10% of the amount realized on certain
sales or other dispositions of stock in USRPHCs.
FIRPTA does not apply to persons who beneficially own less than 5 percent
of the total fair market value of stock in a company at all times during the
five-year period ending on the date of disposition if such stock is regularly
traded on an established securities market located in the United States. The
Company's Common Stock qualifies for this exception and therefore Non-U.S.
Holders meeting the less than 5% test will not be subject to FIRPTA tax even if
the company otherwise is a USRPHC.
A Non-U.S. Holder of Common Stock also could generally avoid FIRPTA tax and
withholding if he obtains a statement from the Company to the effect that the
Company is not and has not been a USRPHC within the FIRPTA period and the
Company provides certain information to the IRS, including the name, address and
identification number (if any) of the Non-U.S. Holder requesting the statement.
Treasury Regulations require that the Company provide upon request of any person
a statement as to whether or not it
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<PAGE> 33
is or has been a USRPHC within the FIRPTA period. Management believes that the
Company is not currently a USRPHC.
Federal Estate Taxes. Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as specially defined for United
States Federal estate tax purposes) of the United States at the date of death
will be included in such individual's estate for United States Federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS the total amount of Federal income taxes withheld from
dividends paid to Non-U.S. Holders. In addition, the Company must report
annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to
and the tax withheld with respect to such holder. These information reporting
requirements apply regardless of whether withholding was reduced by an
applicable treaty.
The 31% backup withholding tax will not generally apply to dividends paid
to a Non-U.S. Holder outside the United States that are subject to the 30%
withholding discussed above or that are not so subject because a tax treaty
applies that reduces or eliminates such withholding. In that regard, under
temporary regulations, dividends payable at an address located outside of the
United States to a Non-U.S. Holder are not subject to the backup withholding
rules.
Under temporary Treasury regulations, information reporting and backup
withholding requirements will apply to the gross proceeds paid to a foreign
person upon the disposition of Common Stock by or through a United States office
of a United States or foreign broker, unless the holder certifies to the broker
under penalties of perjury as to its name, address and status as a foreign
person or the holder otherwise establishes an exemption. Information reporting
requirements (but not backup withholding) will also apply to a payment of the
proceeds of a disposition of Common Stock by or through a foreign office of (i)
a United States broker, (ii) a foreign broker 50% or more of whose gross income
for certain periods is effectively connected with the conduct of a trade or
business in the United States, or (iii) a foreign broker that is a "controlled
foreign corporation," unless the broker has documentary evidence in its records
that the holder is a non-United States holder and certain other conditions are
met, or the holder otherwise establishes an exemption. Neither information
reporting nor backup withholding will generally apply to a payment of the
proceeds of a disposition of Common Stock by or through a foreign office of a
foreign broker not subject to the preceding sentence.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such holder's
Federal income tax, provided that the required information is furnished to the
IRS.
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<PAGE> 34
DESCRIPTION OF CAPITAL STOCK
The following summary description is qualified in its entirety by reference
to the Company's Certificate of Incorporation and the Rights Agreement between
the Company and The Valley National Bank of Arizona (now Bank One, Arizona,
N.A.), as Rights Agent, dated as of February 15, 1992 (the "Rights Agreement"),
which are incorporated herein by reference as Exhibits to the Registration
Statement of which this Prospectus is a part. The Company is authorized by its
Certificate of Incorporation to issue an aggregate of 105,000,000 shares of
stock, consisting of 5,000,000 shares of Preferred Stock, par value $.01 per
share, and 100,000,000 shares of Common Stock, par value $.01 per share.
As of April 18, 1994, there were 20,093,037 shares of Common Stock
outstanding. The Company's Board of Directors authorized and reserved for
issuance 600,000 shares of Junior Participating Preferred Stock in connection
with the Rights which were issued by the Company in connection with the
Spin-Off.
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and, except
as otherwise required by law or provided by the Certificate of Incorporation or
in any resolution adopted by the Company's Board of Directors with respect to
any series of Preferred Stock, the holders of such shares exclusively possess
all voting power. The Certificate of Incorporation provides for a classified
Board of Directors consisting of three classes, as nearly equal in size as
practicable. Each class will hold office until the third annual meeting for
election of directors following the election of such class. The Certificate of
Incorporation does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such dividends as
may be declared from time to time by the Company's Board of Directors from funds
available therefor, and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders. The holders of
shares of Common Stock do not have preemptive rights.
The Company's Board of Directors is authorized to provide for the issuance
of shares of Preferred Stock, in one or more series, to establish the number of
shares in each series and to fix the designation, powers, preferences and rights
of each such series and the qualifications, limitations or restrictions thereof.
Except in connection with the Rights, the Board of Directors has not authorized
the issuance of any shares of Preferred Stock.
Immediately following the Spin-Off, a dividend of one preferred share
purchase right (a "Right") was paid in respect of each share of Common Stock to
the holder of record thereof as of the Spin-Off. Each Right entitles the
registered holder to purchase from the Company one-one-hundredth of a share of
junior participating preferred stock, par value $.01 per share (the "Junior
Participating Preferred Stock"), of the Company at a price of $45 per
one-one-hundredth of a share (the "Purchase Price"), subject to adjustment. The
Rights will also be issued in respect of each share of Common Stock, including
the shares of Common Stock offered hereby, issued by the Company until the
earliest of (i) the Rights Spin-Off Date (as defined below), (ii) the time the
Rights are redeemed or exchanged by the Company as provided in the Rights
Agreement, or (iii) the Final Expiration Date (as defined below). The terms of
the Rights are set forth in a Rights Agreement.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 20% or more of the then
outstanding shares of the Common Stock or (ii) 10 business days (or such later
date as may be determined by action of the Company's Board of Directors prior to
such time as any person or group becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding shares of the
Common Stock (the earlier of such dates being called the "Rights Spin-Off
Date"), the Rights will be evidenced by the certificates representing shares of
Common Stock. The Rights Agreement provides that until the Rights Spin-Off Date
(or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the shares of Common Stock.
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<PAGE> 35
The Rights will not be exercisable until the Rights Spin-Off Date. The
Rights will expire on the tenth anniversary of the Spin-Off (the "Final
Expiration Date"), unless the Final Expiration Date is extended or unless the
Rights are earlier redeemed or exchanged by the Company, in each case, as
described below.
Because of the nature of the dividend, liquidation and voting rights of
Junior Preferred Stock, the value of the one one-hundredth interest in a share
of Junior Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise thereof at the then current exercise price that number of shares of
Common Stock having a market value of two times the exercise price of the Right
(such right being referred to as a "Flip-in Right"). In the event that, at any
time on or after the date that any person has become an Acquiring Person, the
Company is acquired in a merger or other business combination transaction or 50%
or more of its consolidated assets or earning power are sold, proper provision
will be made so that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of Common Stock, the Board of Directors
of the Company may exchange the Rights (other than Rights owned by such person
or group which will have become void), in whole or in part, at an exchange ratio
of one share of Common Stock, or one one-hundredth of a share of Junior
Preferred Stock, per Right (subject to adjustment).
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
shares of Common Stock, the Board of Directors may redeem the Rights in whole,
but not in part, at a price of $.01 per Right (the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
and thereby effect a change in the composition of the Company's Board of
Directors on terms not approved by the Company's Board of Directors, including
by means of a tender offer at a premium to the market price, other than an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or the business combination approved by the
Company's Board of Directors since the Rights may be redeemed by the Company at
the Redemption Price prior to the time that a person or group has become an
Acquiring Person.
In the event that the Rights become exercisable, the Company intends to
register the shares of Junior Preferred Stock for which the Rights may be
exercised, in accordance with applicable law.
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<PAGE> 36
UNDERWRITING
Subject to the terms and conditions set forth in the U.S. purchase
agreement (the "U.S. Purchase Agreement"), the Company has agreed to sell to
each of the underwriters named below (the "U.S. Underwriters"), and each of the
U.S. Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
is acting as representative (the "U.S. Representative"), severally has agreed to
purchase, the number of shares of Common Stock set forth opposite its name
below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
---------
Total........................................................ 5,600,000
---------
---------
</TABLE>
The Company has also entered into a purchase agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Purchase Agreements") with Merrill Lynch International Limited acting as lead
manager (the "Lead Manager") and certain other underwriters outside the United
States and Canada (collectively, the "International Managers" and, together with
the U.S. Underwriters, the "Underwriters"). Subject to the terms and conditions
set forth in the International Purchase Agreement, the Company has agreed to
sell to the International Managers, and the International Managers severally
have agreed to purchase, an aggregate of 1,400,000 shares of Common Stock.
In each Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth in such Purchase Agreement, to
purchase all of the shares of Common Stock being sold pursuant to such Purchase
Agreement if any of the shares of Common Stock being sold pursuant to such
Purchase Agreement are purchased. Under certain circumstances, under the
Purchase Agreements, the commitments of non-defaulting Underwriters may be
increased. Each Purchase Agreement provides that the Company is not obligated to
sell, and the Underwriters named therein are not obligated to purchase, the
shares of Common Stock under the terms of the Purchase Agreement unless all of
the shares of Common Stock to be sold pursuant to the Purchase Agreements are
contemporaneously sold.
The U.S. Representative has advised the Company that the U.S. Underwriters
propose to offer the shares of Common Stock offered hereby to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The initial public offering price per share of Common Stock and the
underwriting discount per share of Common Stock will be identical for both
Offerings.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an aggregate of 840,000 and 210,000 shares of
Common Stock, respectively, at the initial public offering price, less the
underwriting discount. Such options, which will expire 30 days after the date of
this Prospectus, may be exercised solely to cover over-allotments. To the extent
that the Underwriters exercise such options, each of the Underwriters will have
a firm commitment, subject to certain conditions, to purchase approximately the
same percentage of the option shares that the number of shares to be purchased
initially by that Underwriter is of the 7,000,000 shares of Common Stock
initially purchased by the Underwriters.
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<PAGE> 37
The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the U.S.
Underwriters and the International Managers are permitted to sell shares of
Common Stock to each other.
The Company has been informed that, under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
Common Stock will not offer to sell or resell shares of Common Stock to persons
who are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, and the
International Managers and any bank, broker or dealer to whom they sell shares
of Common Stock will not offer to sell or resell shares of Common Stock to U.S.
persons or to Canadian persons or to persons they believe intend to resell to
U.S. persons or to Canadian persons, except in the case of transactions pursuant
to the Intersyndicate Agreement which, among other things, permits the
Underwriters to purchase from each other and offer for resale such number of
shares of Common Stock as the selling Underwriter or Underwriters and the
purchasing Underwriter or Underwriters may agree.
The Company and Samuel L. Eichenfield, Chairman, President, Chief Executive
Officer and a director of the Company, have agreed not to sell or otherwise
dispose of any shares of Common Stock or securities convertible into or
exchangeable into or exercisable for Common Stock, without the prior written
consent of the U.S. Representative and the Lead Manager, for a period of 90 days
after the date of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
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<PAGE> 38
mately the same percentage of the option shares that the number of shares to be
purchased initially by that Underwriter is of the 7,000,000 shares of Common
Stock initially purchased by the Underwriters.
The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the U.S.
Underwriters and the International Managers are permitted to sell shares of
Common Stock to each other.
The Company has been informed that, under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
Common Stock will not offer to sell or resell shares of Common Stock to persons
who are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, and the
International Managers and any bank, broker or dealer to whom they sell shares
of Common Stock will not offer to sell or resell shares of Common Stock to U.S.
persons or to Canadian persons or to persons they believe intend to resell to
U.S. persons or to Canadian persons, except in the case of transactions pursuant
to the Intersyndicate Agreement which, among other things, permits the
Underwriters to purchase from each other and offer for resale such number of
shares of Common Stock as the selling Underwriter or Underwriters and the
purchasing Underwriter or Underwriters may agree.
The Company and Samuel L. Eichenfield, Chairman, President, Chief Executive
Officer and a director of the Company, have agreed not to sell or otherwise
dispose of any shares of Common Stock or securities convertible into or
exchangeable into or exercisable for Common Stock, without the prior written
consent of the U.S. Representative and the Lead Manager, for a period of 90 days
after the date of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the Common Stock being offered hereby will be passed upon
for the Company by Gibson, Dunn & Crutcher. Brown & Wood will act as counsel for
the Underwriters.
EXPERTS
The financial statements of GFC Financial Corporation included in this
Prospectus and incorporated in this Prospectus by reference from GFC Financial
Corporation's Annual Report on Form 10-K and 10-K/A for the year ended December
31, 1993 have been audited by Deloitte & Touche, independent auditors, as stated
in their reports appearing herein and incorporated herein by reference, and are
included herein and incorporated herein in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The consolidated balance sheets as of December 31, 1993 and 1992 and the
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1993 of TriCon Capital Corporation-Predecessor
Business included in and incorporated by reference in this Prospectus, have been
included and incorporated herein in reliance on the report, which includes an
explanatory paragraph for certain accounting changes, of Coopers & Lybrand,
independent certified public accountants given on the authority of that firm as
experts in accounting and auditing.
The financial statements of Fleet Factors Corporation (a wholly-owned
subsidiary of Fleet Financial Group, Inc. at the time of the report referred to
herein) appearing in the Company's Current Report on Form 8-K dated February 14,
1994 have been audited by KPMG Peat Marwick, independent auditors, as of the
dates and for the periods indicated in their report thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein in reliance on such report of KPMG Peat Marwick, independent auditors,
given upon the authority of said firm as experts in accounting and auditing.
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<PAGE> 39
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GFC FINANCIAL CORPORATION
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheet at December 31, 1993 and 1992.............................. F-3
Statement of Consolidated Operations for the Years Ended
December 31, 1993, 1992 and 1991.................................................... F-5
Statement of Consolidated Stockholders' Equity for the Years Ended
December 31, 1993, 1992 and 1991.................................................... F-6
Statement of Consolidated Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991.................................................... F-7
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1993, 1992 and 1991.................................................... F-8
Pro Forma Consolidated Balance Sheet at December 31, 1993............................. F-28
Pro Forma Statement of Consolidated Income from Continuing Operations for the Year
Ended December 31, 1993............................................................. F-29
Notes to Pro Forma Consolidated Financial Statements.................................. F-30
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
Report of Independent Accountants..................................................... F-33
Consolidated Balance Sheets at December 31, 1993 and 1992............................. F-34
Consolidated Statements of Income for the Years Ended December 31, 1993, 1992 and
1991................................................................................ F-35
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991.................................................... F-36
Notes to Consolidated Financial Statements............................................ F-37
</TABLE>
F-1
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
GFC Financial Corporation
We have audited the accompanying consolidated balance sheet of GFC
Financial Corporation and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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, such consolidated financial statements present fairly, in
all material respects, the financial position of GFC Financial Corporation and
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Phoenix, Arizona
March 4, 1994
F-2
<PAGE> 41
GFC FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1992
---------- ----------
<S> <C> <C>
Cash and cash equivalents......................................... $ 929 $ 18,203
Investment in financing transactions:
Loans and other financing contracts, less unearned
income of $72,747 and $122,381, respectively................. 2,343,755 1,919,371
Leveraged leases................................................ 283,782 269,370
Operating and direct financing leases........................... 219,034 239,782
---------- ----------
2,846,571 2,428,523
Less reserve for possible credit losses......................... (64,280) (69,291)
---------- ----------
Investment in financing transactions -- net.................. 2,782,291 2,359,232
Investment in and advances to Verex Corporation................... 221,312
Other assets and deferred charges................................. 51,102 42,921
---------- ----------
$2,834,322 $2,641,668
---------- ----------
---------- ----------
</TABLE>
(continued)
See notes to consolidated financial statements.
F-3
<PAGE> 42
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1992
---------- ----------
<S> <C> <C>
Liabilities:
Accounts payable and accrued expenses........................... $ 46,067 $ 27,710
Customer deposits............................................... 3,064 15,064
Interest payable................................................ 23,633 29,062
Short-term debt................................................. 510 1,360
Senior debt..................................................... 1,991,986 1,806,433
Subordinated debt............................................... 86,790 75,916
Deferred income taxes........................................... 178,972 172,727
---------- ----------
2,331,022 2,128,272
---------- ----------
Redeemable preferred stock........................................ 25,000
----------
Stockholders' equity:
Common stock, $0.01 par value, 100,000,000 shares authorized,
20,372,000 shares issued..................................... 204 204
Additional capital.............................................. 464,487 465,955
Net unrealized investment losses................................ (387)
Retained income................................................. 54,901 32,524
Cumulative translation adjustments.............................. (7,773) (6,685)
Common stock in treasury, 292,000 and 136,000 shares,
respectively................................................. (8,519) (3,215)
---------- ----------
503,300 488,396
---------- ----------
$2,834,322 $2,641,668
---------- ----------
---------- ----------
</TABLE>
(concluded)
See notes to consolidated financial statements.
F-4
<PAGE> 43
GFC FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991
----------- ----------- --------
<S> <C> <C> <C>
Interest and other income....................... $ 218,171 $ 210,873 $212,706
Lease income.................................... 30,529 29,933 38,766
----------- ----------- --------
Interest earned from financing transactions..... 248,700 240,806 251,472
Interest expense................................ 123,853 136,107 157,560
----------- ----------- --------
Interest margins earned......................... 124,847 104,699 93,912
----------- ----------- --------
Provision for possible credit losses............ 5,706 6,740 12,687
Restructuring and other charges................. 65,000
----------- ----------- --------
5,706 6,740 77,687
----------- ----------- --------
Net interest margins earned..................... 119,141 97,959 16,225
Gains on sale of assets......................... 5,439 3,362 6,684
----------- ----------- --------
124,580 101,321 22,909
----------- ----------- --------
Selling, administrative and other operating
expenses...................................... 58,158 50,728 46,923
Transaction costs of the Spin-Off............... 13,000
----------- ----------- --------
58,158 50,728 59,923
----------- ----------- --------
Income (loss) before income taxes............... 66,422 50,593 (37,014)
Income taxes:
Current and deferred.......................... 23,719 13,843 1,728
Adjustment to deferred taxes.................. 4,857
----------- ----------- --------
28,576 13,843 1,728
----------- ----------- --------
Income (loss) from continuing operations........ 37,846 36,750 (38,742)
(Loss) income from discontinued operations...... (499) 12,207 (13,729)
----------- ----------- --------
NET INCOME (LOSS)............................... $ 37,347 $ 48,957 $(52,471)
----------- ----------- --------
----------- ----------- --------
Income per common and equivalent share:
Income from continuing operations before
preferred dividends........................ $ 1.86 $ 1.80
Preferred dividends........................... 0.06 0.09
----------- -----------
Income from continuing operations............. 1.80 1.71
Discontinued operations....................... (0.03) 0.60
----------- -----------
Net income.................................... $ 1.77 $ 2.31
----------- -----------
----------- -----------
Dividends declared per common share............. $ 0.68 $ 0.42
----------- -----------
----------- -----------
Average outstanding common and equivalent
shares........................................ 20,332,000 20,464,000
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 44
GFC FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year............................... $ 204 $ 203 $ 203
Issuance of common stock................................. 1
-------- -------- --------
Balance, end of year..................................... 204 204 203
-------- -------- --------
ADDITIONAL CAPITAL:
Balance, beginning of year............................... 465,955 376,136 377,811
Contributions from (distributions to) The Dial Corp...... 89,195 (1,675)
Net change in unamortized amount of restricted stock..... (223) (1,506)
Issuance of common stock................................. 2,148
Common stock in treasury issued in connection with
employee benefit plans................................ (1,245) (18)
-------- -------- --------
Balance, end of year..................................... 464,487 465,955 376,136
-------- -------- --------
NET UNREALIZED INVESTMENT LOSSES:
Balance, beginning of year............................... (387) --
Change in net unrealized investment losses............... 387 (387)
-------- -------- --------
Balance, end of year..................................... -- (387) --
-------- -------- --------
RETAINED INCOME (DEFICIT):
Balance, beginning of year............................... 32,524 (3,124) 64,382
Net income (loss)........................................ 37,347 48,957 (52,471)
Dividends................................................ (14,970) (13,309) (15,035)
-------- -------- --------
Balance, end of year..................................... 54,901 32,524 (3,124)
-------- -------- --------
CUMULATIVE TRANSLATION ADJUSTMENTS:
Balance, beginning of year............................... (6,685) (1,639) 351
Unrealized translation loss.............................. (1,088) (5,046) (1,990)
-------- -------- --------
Balance, end of year..................................... (7,773) (6,685) (1,639)
-------- -------- --------
COMMON STOCK IN TREASURY:
Balance, beginning of year............................... (3,215) --
Purchase of shares....................................... (10,162) (3,249)
Shares used in connection with employee benefit plans.... 4,858 34
-------- -------- --------
Balance, end of year..................................... (8,519) (3,215) --
-------- -------- --------
STOCKHOLDERS' EQUITY....................................... $503,300 $488,396 $371,576
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 45
GFC FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1993 1992 1991
----------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................... $ 37,347 $ 48,957 $ (52,471)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Provision for possible credit losses.............. 5,706 6,740 77,687
Loss (income) from discontinued operations........ 499 (12,207) 13,729
Gains on sale of assets........................... (5,439) (3,362) (6,684)
Deferred income taxes............................. 17,947 (4,837) (17,760)
(Decrease) increase in accounts payable and
accrued expenses................................ (1,959) 4,515 19,275
Decrease in customer deposits..................... (12,287) (577) (126,979)
(Decrease) increase in interest payable........... (5,429) 3,576 (4,906)
Other............................................. (4,799) (9,553) 29,035
----------- --------- ---------
Net cash provided (used) by operating
activities................................. 31,586 33,252 (69,074)
----------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from sale of assets......................... 5,681 22,657 35,141
Principal collections on financing transactions...... 644,939 454,390 338,451
Expenditures for financing transactions.............. (1,007,794) (682,369) (525,659)
Purchase of subsidiary............................... (69,808)
Sale of Verex Corporation............................ 171,500
Decrease (increase) in advances to discontinued
insurance subsidiary.............................. 57,321 (57,321)
Other................................................ 221 392 (5,213)
----------- --------- ---------
Net cash used by investing activities........ (197,940) (262,251) (157,280)
----------- --------- ---------
FINANCING ACTIVITIES:
Borrowings........................................... 646,701 974,232 760,947
Repayment of borrowings.............................. (451,102) (829,212) (539,609)
(Redemption)issuance of preferred stock.............. (25,000) 25,000
Proceeds from exercise of stock options.............. 3,613 562
Common stock purchased for treasury.................. (10,162) (3,249)
Advances and contributions from The Dial Corp........ 55,275 32,575
Dividends............................................ (14,970) (13,309) (15,035)
----------- --------- ---------
Net cash provided by financing activities.... 149,080 209,299 238,878
----------- --------- ---------
(Decrease) increase in cash and cash equivalents..... (17,274) (19,700) 12,524
Cash and cash equivalents, beginning of year......... 18,203 37,903 25,379
----------- --------- ---------
Cash and cash equivalents, end of year............... $ 929 $ 18,203 $ 37,903
----------- --------- ---------
----------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 46
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS IN TABLES)
NOTE A SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION -- On March 3, 1992,
The Dial Corp's ("Dial") shareholders approved the spin-off to its shareholders
of GFC Financial Corporation ("GFC Financial", "GFCFC" or the "Company"), a
newly-formed Delaware corporation, which comprised Dial's former commercial
lending and mortgage insurance subsidiaries. In connection with the spin-off,
the holders of common stock of Dial received a distribution of one share of
common stock of GFC Financial for every two shares of Dial common stock (the
"Spin-Off").
Prior to the Spin-Off, Dial contributed its 100% ownership interest in
companies constituting the Greyhound European Financial Group ("GEFG") and
Greyhound BID Holding Corp. ("BID") to Greyhound Financial Corporation ("GFC")
and contributed all of the common stock of GFC to GFC Financial (the
"Contribution"). In addition, Dial contributed its 100% ownership interest in
Verex Corporation and subsidiaries ("Verex"), a discontinued insurance
subsidiary, to GFC Financial.
The historical consolidated financial statements of GFC Financial and
subsidiaries have been retroactively restated to include the accounts and
results of operations of GFC, GEFG and BID and the investment in Verex for all
periods presented as if a pooling of interests of companies under common control
occurred. All intercompany accounts and transactions have been eliminated from
the consolidated financial statements.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles. Described below are those accounting
policies particularly significant to GFC Financial, including those selected
from acceptable alternatives.
FINANCING TRANSACTIONS -- For loans and other financing contracts earned
income is recognized over the life of the contract, using the interest method.
Leases that are financed by nonrecourse borrowings and meet certain other
criteria are classified as leveraged leases. For leveraged leases, aggregate
rentals receivable are reduced by the related nonrecourse debt service
obligation including interest ("net rentals receivable"). The difference between
(a) the net rentals receivable and (b) the cost of the asset less estimated
residual value at the end of the lease term is recorded as unearned income.
Earned income is recognized over the life of the lease at a constant rate of
return on the positive net investment, which includes the effects of deferred
income taxes.
For operating leases, earned income is recognized on a straight-line basis
over the lease term and depreciation is taken on a straight-line basis over the
estimated useful life. Operating lease income is net of depreciation and related
expenses.
For leases classified as direct financing leases, the difference between
(a) aggregate lease rentals and (b) the cost of the related assets less
estimated residual value at the end of the lease term is recorded as unearned
income. Earned income is recognized over the life of the contracts using the
interest method.
Income recognition is generally suspended for leases, loans and other
financing contracts at the earlier of the date at which payments become 90 days
past due (other than consumer finance accounts of GEFG, which are considered
nonaccruing when 180 days past due) or when, in the opinion of management, a
full recovery of income and principal becomes doubtful. Income recognition is
generally resumed when the loan becomes contractually current and performance is
demonstrated to be resumed.
The reserve for possible credit losses is available to absorb credit
losses. The provision for possible credit losses is the charge to income to
increase the reserve for possible credit losses to the level that management
estimates to be adequate considering delinquencies, loss experience and
collateral. Other factors include changes in geographic and product
diversification, size of the portfolio and current economic conditions.
F-8
<PAGE> 47
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts are either written-off or written-down when the probability of loss has
been established in amounts determined to cover such losses after giving
consideration to the customer's financial condition, the value of the underlying
collateral and any guarantees. Any deficiency between the carrying amount of an
asset and the ultimate sales price of repossessed collateral is charged to the
reserve for possible credit losses. Recoveries of amounts previously written-off
as uncollectible are credited to the reserve for possible credit losses.
Repossessed assets are carried at the lower of cost or fair value. Loans
classified as in-substance foreclosures are included in repossessed assets.
Loans are classified as in-substance foreclosed assets, even though legal
foreclosure has not occurred, when (i) the borrower has little or no equity in
the collateral at its current fair value, (ii) proceeds for repayment are
expected to come only from the operation or sale of the collateral and (iii) it
is doubtful that the borrower will rebuild equity in the collateral or otherwise
repay the loan in the foreseeable future.
The FASB has issued a new accounting standard, SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114"). This standard requires that
impaired loans that are within the scope of this statement generally be measured
based on the present value of expected cash flows discounted at the loan's
effective interest rate or the fair value of the collateral, if the loan is
collateral dependent. Under SFAS 114, a loan is considered impaired when, based
on current information and events, it is probable that a creditor will be unable
to collect all amounts due. Presently, the reserve for possible credit losses
represents management's estimate of the amount necessary to cover potential
losses in the portfolio considering delinquencies, loss experience and
collateral. The impact of the new standard, which is effective for fiscal years
beginning after December 15, 1994, has not yet been determined.
PENSION AND OTHER BENEFITS -- Trusteed, noncontributory pension plans cover
substantially all employees. Benefits are based primarily on final average
salary and years of service. Net periodic pension cost for GFC Financial is
based on the provisions of SFAS No. 87, "Employers' Accounting for Pensions".
Funding policies provide that payments to pension trusts shall be at least equal
to the minimum funding required by applicable regulations.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", which requires
accrual of such benefits during the years the employees provide services. Prior
to 1993, the costs of such benefits were expensed as incurred. See Note J of
Notes to Consolidated Financial Statements for further information.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits". Analogous to SFAS No. 106 for postretirement benefits,
this standard requires companies to accrue for estimated future postemployment
benefits during the periods when employees are working. Postemployment benefits
are any benefits other than retirement benefits that are provided after
employment is discontinued. This standard must be adopted for fiscal years
beginning after December 15, 1993, which for the Company would be 1994. Based on
management's review, the adoption of the new standard will not have a material
impact on the Company's financial position or results of operations.
INCOME TAXES -- Income taxes are provided based upon the provisions of SFAS
No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred
tax assets and liabilities are recognized for the estimated future tax effects
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 law.
CASH EQUIVALENTS -- For purposes of the Statement of Consolidated Cash
Flows, the Company has classified highly liquid investments with original
maturities of three months or less from date of purchase as cash equivalents.
F-9
<PAGE> 48
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME PER COMMON AND EQUIVALENT SHARE -- Income per common and equivalent
share is based on net income after preferred stock dividend requirements and the
weighted average number of common shares outstanding during the year giving
effect to stock options considered to be dilutive common stock equivalents.
Fully diluted income per share is not materially different from primary income
per share. Income per common and equivalent share is not presented for 1991
because the Company operated as a wholly owned subsidiary of Dial.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1992
financial statements to conform to the 1993 presentation.
NOTE B DISCONTINUED OPERATIONS
Verex, which conducted GFC Financial's mortgage insurance operations,
ceased writing new business as of January 1, 1988 but continued to write
renewals and settle valid claims in accordance with insurance contracts in
force. Accordingly, Verex was treated as a discontinued operation. On July 16,
1993, GFC Financial consummated the sale of Verex. Proceeds from the sale of
Verex were approximately $215 million. The sale price was generally determined
by the book value of the Verex assets plus a premium of $6 million and an
adjustment for the difference between the market value and book value of Verex's
investment portfolio, calculated as prescribed more fully by the sale agreement.
The loss from discontinued operations for the year ended December 31, 1993
includes all transaction costs and the costs anticipated to complete the
disposition of the remaining assets and liabilities of Verex retained by GFC
Financial. The net liabilities of Verex retained by the Company totaled $0.7
million at December 31, 1993.
The revenues and (loss) income of Verex for the years ended December 31,
was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Revenues................................................. $31,336 $70,097 $ 88,334
------- ------- --------
------- ------- --------
(Loss) income before income tax benefit (provision)...... $(3,393) $(2,216) $ 18,308
Income tax benefit (provision)........................... 4,243 5,323 (1,469)
------- ------- --------
Income from operations before income tax settlement...... 850 3,107 16,839
Reversal of (provision for) federal income tax
settlement............................................. 9,100 (15,425)
------- ------- --------
Income from operations................................... 850 12,207 1,414
Loss on disposal......................................... (1,349)
Addition to previously provided reserve for loss......... (2,043)
Write-off of nonrecoverable deferred tax asset........... (13,100)
------- ------- --------
(Loss) income from discontinued operations............... $ (499) $12,207 $(13,729)
------- ------- --------
------- ------- --------
</TABLE>
NOTE C INVESTMENT IN FINANCING TRANSACTIONS
The Company provides secured financing to commercial and real estate
enterprises principally under financing contracts (such as loans and other
financing contracts, leveraged leases, operating leases and direct financing
leases). At December 31, 1993 and 1992, the carrying amount of the investment in
financing transactions, including the estimated residual value of leased assets
upon lease termination, was
F-10
<PAGE> 49
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,846,571,000 and $2,428,523,000 (before reserve for possible credit losses),
respectively, and consisted of the following types of loans and collateral:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
CARRYING AMOUNT
---------------
1993 1992
----- -----
<S> <C> <C>
Resort receivables................................................... 19.8% 18.8%
Aircraft and related equipment....................................... 19.6 19.5
Communications finance............................................... 17.8 16.6
Commercial real estate............................................... 12.4 18.5
Real estate leveraged leases......................................... 6.9 7.5
Asset based finance.................................................. 6.2
Production and processing equipment.................................. 4.7 5.9
Land receivables..................................................... 2.6 3.8
Railroad equipment................................................... 2.6 2.6
Consumer finance (GEFG).............................................. 1.6 2.4
Commercial vehicles.................................................. 0.4 1.4
Other(1)............................................................. 5.4 3.0
----- -----
100.0% 100.0%
----- -----
----- -----
</TABLE>
- ---------------
(1) The category "Other" includes different classes of commercial and industrial
contract receivables, none of which accounted for more than 1% of the
aggregate carrying amount of the net investment in financing transactions.
The Company's investment in financing transactions outside of the United
States at December 31 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Europe, primarily United Kingdom............................... $ 196,499 $ 206,893
Mexico......................................................... 30,952 33,827
Other countries................................................ 17,740 38,168
--------- ---------
$ 245,191 $ 278,888
--------- ---------
--------- ---------
</TABLE>
The Company's investment in financing transactions is primarily settled in
U.S. dollars, except for approximately $100,000,000 and $128,000,000 at December
31, 1993 and 1992, respectively, which is primarily due in British pounds. The
exchange rate of dollars to British pounds at December 31, 1993 and 1992 was
1.48:1 and 1.52:1, respectively.
F-11
<PAGE> 50
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate installments on loans and other financing contracts, leveraged
leases, operating leases and direct financing leases at December 31, 1993
(excluding repossessed assets of $77,024,000 and estimated residual values) are
due during each of the years ending December 31, 1994 to 1998 and thereafter as
follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 THEREAFTER
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Loans and other
financing contracts:
Commercial:
Fixed interest
rate........... $ 80,796 $ 77,294 $ 72,707 $ 45,984 $ 31,600 $ 81,838
Floating interest
rate........... 179,164 211,921 218,987 141,294 126,221 75,418
Real Estate:
Fixed interest
rate........... 61,416 43,634 39,777 27,935 18,702 46,941
Floating interest
rate........... 147,101 167,375 147,507 92,831 53,461 39,204
Leveraged leases....... 4,834 5,385 7,282 13,862 8,395 171,883
Operating and direct
financing leases,
primarily at fixed
interest rates...... 21,120 20,389 29,295 17,907 16,873 115,737
-------- -------- -------- -------- -------- ----------
494,431 525,998 515,555 339,813 255,252 531,021
-------- -------- -------- -------- -------- ----------
Foreign, primarily at
floating interest
rates:
Loans and other
financing
contracts........... 10,078 6,429 8,915 16,007 23,700
Consumer Finance....... 14,122 7,858 7,212 9,617 5,255 1,200
Operating and direct
financing leases.... 4,284 3,038 4,343 2,496 2,870
-------- -------- -------- -------- -------- ----------
28,484 17,325 20,470 28,120 31,825 1,200
-------- -------- -------- -------- -------- ----------
$522,915 $543,323 $536,025 $367,933 $287,077 $ 532,221
-------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- ----------
</TABLE>
The net investment in leveraged leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Rentals receivable................................................ $ 1,377,107 $ 1,451,925
Less principal and interest payable on nonrecourse debt........... (1,165,466) (1,237,776)
----------- -----------
Net rentals receivable............................................ 211,641 214,149
Estimated residual values......................................... 306,894 306,691
Less unearned income.............................................. (234,753) (251,470)
----------- -----------
Investment in leveraged leases.................................... 283,782 269,370
Less deferred taxes arising from leveraged leases................. (223,006) (206,342)
----------- -----------
Net investment in leveraged leases................................ $ 60,776 $ 63,028
----------- -----------
----------- -----------
</TABLE>
F-12
<PAGE> 51
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income from leveraged leases, before the effects of
interest on nonrecourse debt and other related expenses, for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Lease and other income............................................ $11,376 $ 9,172 $16,421
Income tax expense................................................ 8,363 2,757 4,903
</TABLE>
The investment in operating and direct financing leases at December 31
consisted of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Operating leases....................................................... $147,222 $100,911
Direct financing leases:
Rentals receivable................................................... 91,153 154,463
Estimated residual values............................................ 23,121 42,158
Unearned income...................................................... (42,462) (57,750)
-------- --------
71,812 138,871
-------- --------
Investment in operating and direct financing leases.................... $219,034 $239,782
-------- --------
-------- --------
</TABLE>
The investment in operating leases is net of accumulated depreciation of
$10,601,000 and $4,110,000 as of December 31, 1993 and 1992, respectively.
Depreciation expense relating to equipment held under operating leases was
$6,491,000, $2,531,000 and $1,685,000 in 1993, 1992 and 1991, respectively.
The Company has a substantial number of loans and leases with payments that
fluctuate with changes in index rates, primarily Prime interest rates and the
London Interbank Offered Rate ("LIBOR"). The investment in loans and leases with
floating interest rates (excluding nonaccruing contracts and repossessed assets)
at December 31 was as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Receivables due on financing transactions........................... $1,661,602 $1,368,412
Estimated residual values........................................... 8,162
Less unearned income................................................ (25,928) (34,899)
---------- ----------
Investment in loans and leases...................................... $1,635,674 $1,341,675
---------- ----------
---------- ----------
</TABLE>
Interest earned from financing transactions with floating interest rates
was approximately $154,000,000 in 1993, $127,000,000 in 1992 and $128,000,000 in
1991. The adjustments, which arise from changes in index rates, can have a
significant effect on interest earned from financing transactions; however, the
effects on interest margins earned and net income are substantially offset by
related interest expense changes on debt obligations with floating interest
rates.
At December 31, 1993, the Company had a committed backlog of new business
of approximately $420,000,000 compared to $317,000,000 at December 31, 1992.
F-13
<PAGE> 52
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D RESERVE FOR POSSIBLE CREDIT LOSSES
The following is an analysis of the reserve for possible credit losses for
the years ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year................................. $ 69,291 $ 87,600 $ 77,098
Provision for possible credit losses(1).................... 5,706 6,740 77,687
Write-offs(1).............................................. (12,575) (23,661) (68,346)
Recoveries................................................. 717 749 663
Other...................................................... 1,141 (2,137) 498
-------- -------- --------
Balance, end of year....................................... $ 64,280 $ 69,291 $ 87,600
-------- -------- --------
-------- -------- --------
</TABLE>
- ---------------
(1) In the fourth quarter of 1991, the Company recorded a special provision for
possible credit losses of $65,000,000 and recorded write-offs of $15,000,000
related to nonearning assets in the GEFG portfolio and a $47,759,000
write-down to reduce Latin American assets to current market value.
Write-offs by major loan and collateral types experienced by the Company
during the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Consumer finance (GEFG).................................... $ 4,071 $ 10,176 $ 13,687
Commercial real estate..................................... 3,082 8,904 2,894
Manufacturing and processing equipment..................... 2,242 1,908 604
Commercial vehicles........................................ 1,579 67
Communications finance..................................... 1,488 1,500 1,200
Maritime................................................... 906
Latin America.............................................. 47,759
Other...................................................... 113 267 2,135
-------- -------- --------
$ 12,575 $ 23,661 $ 68,346
-------- -------- --------
-------- -------- --------
Write-offs as a percentage of investment in financing
transactions............................................. 0.44% 0.97% 3.00%
-------- -------- --------
-------- -------- --------
</TABLE>
An analysis of nonaccruing contracts and repossessed assets at December 31
is as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Nonaccruing contracts:
Domestic............................................................. $ 13,263 $ 24,031
Foreign.............................................................. 12,320 22,400
-------- --------
Total nonaccruing contracts............................................ 25,583 46,431
-------- --------
Repossessed assets:
Domestic............................................................. 77,001 53,931
Foreign.............................................................. 23 60
-------- --------
Total repossessed assets............................................... 77,024 53,991
-------- --------
Total nonaccruing contracts and repossessed assets..................... $102,607 $100,422
-------- --------
-------- --------
Nonaccruing contracts and repossessed assets as a
percentage of investment in financing transactions................... 3.6% 4.1%
-------- --------
-------- --------
</TABLE>
F-14
<PAGE> 53
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the repossessed assets included in the above table, the
Company had repossessed assets, with a total carrying amount of $48,956,000 and
$21,509,000 at December 31, 1993 and 1992 which earned income of $2,700,000 and
$1,900,000 during 1993 and 1992, respectively.
In the normal course of business, the Company has renegotiated and modified
certain contracts with respect to rates and other terms. At December 31, 1993
and 1992, the Company had approximately $47,000,000 and $68,000,000,
respectively, of these rewritten contracts requiring disclosure under the
provisions of SFAS No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings". These contracts are yielding, on a weighted average basis,
a return of approximately 9.3%.
Had all contracts placed in a nonaccrual status outstanding at December 31,
1993, 1992 and 1991, respectively, remained accruing, interest earned would have
been increased by approximately $6,000,000, $7,500,000 and $11,300,000,
respectively, for domestic contracts and $5,000,000, $5,100,000 and $9,100,000,
respectively, for foreign contracts. Income recognized on these accounts was
approximately $1,732,000, $589,000 and $1,100,000 for domestic contracts during
the years 1993, 1992 and 1991, respectively.
NOTE E DEBT
The Company satisfies its short-term financing requirements from bank lines
of credit, other bank loans, public medium-term notes and the issuance of
commercial paper. In conjunction with the winding down of the GEFG portfolio,
GEFG, in December 1993, surrendered the banking license of the United Kingdom
bank and, therefore, will not be taking in any more customer deposits. At
December 31, 1993, short-term bank loans and commercial paper of $515,876,000
(net of unamortized discount) are considered to be long-term debt because they
are supported by an unused long-term revolving bank credit agreement of
$700,000,000.
The following information pertains to all short-term financing, including
bank loans and commercial paper (considered to be long-term debt), for the years
ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Maximum amount of short-term debt outstanding during
year..................................................... $516,386 $504,829 $533,446
Average short-term debt outstanding during year............ 336,672 322,176 448,174
Weighted average short-term interest rates at end of year:
Short-term borrowings.................................... 3.5% 4.1% 8.1%
Commercial paper*........................................ 3.6% 4.2% 5.6%
Weighted average interest rate on short-term debt
outstanding
during year*............................................. 3.5% 4.3% 6.9%
</TABLE>
- ---------------
* Exclusive of the cost of maintaining bank lines in support of outstanding
commercial paper and the effects of interest rate conversion agreements.
F-15
<PAGE> 54
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior and subordinated debt at December 31 was as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Senior debt:
Commercial paper and short-term bank loans supported by unused
long-term bank revolving credit agreements, less unamortized
discount....................................................... $ 515,876 $ 330,141
Medium-term notes due to 2003, 4.6% to 12.5%...................... 751,500 591,433
Term loans payable to banks due to 1996, 4.2%..................... 150,000 310,000
Senior notes due to 2002, 8.3% to 16.0%, less unamortized
discount....................................................... 555,666 555,147
Nonrecourse installment notes due to 2002, 10.6% (assets of
$25,613 and $25,579, respectively, pledged as collateral)...... 18,944 19,712
---------- ----------
Total senior debt................................................... 1,991,986 1,806,433
---------- ----------
Subordinated debt:
Senior subordinated loans, due 1994, 14.1%........................ 92,270 92,270
Less unamortized discount......................................... (5,480) (16,354)
---------- ----------
Total subordinated debt............................................. 86,790 75,916
---------- ----------
TOTAL............................................................... $2,078,776 $1,882,349
---------- ----------
---------- ----------
</TABLE>
Aggregate commitments under the Company's domestic revolving credit
agreement were $700,000,000 at December 31, 1993, none of which has been drawn.
Under the terms of this agreement, the Company has the option to periodically
select either domestic dollars or Eurodollars as the basis of borrowings.
Interest is based on the banks' Prime rate for domestic dollar advances or LIBOR
for Eurodollar advances. The agreements also provide for a commitment fee on the
unused credit. The Company, in the event it becomes advisable, intends to
exercise its right under this agreement to borrow for the purpose of refinancing
commercial paper and short-term bank loans.
The credit agreement for $700,000,000, described in the preceding
paragraph, will be subject to renewal in May 1996. If the credit facility with
any or all of the participating banks is not renewed, the Company may, at its
option, repay the non-renewing banks' outstanding participation, if any,
immediately or in equal quarterly installments over a four year period.
As of December 31, 1993, the Company had outstanding 31 interest rate
conversion agreements with notional principal amounts totaling $1,320,000,000.
Six agreements with notional principal amounts of $180,000,000 were arranged to
effectively convert certain floating interest rate obligations into fixed
interest rate obligations and require interest payments on the stated principal
amount at rates ranging from 8.3% to 9.8% (remaining terms of three months to
five years) in return for receipts calculated on the same notional amounts at
floating interest rates. In addition, 25 agreements with notional principal
amounts of $1,140,000,000 were arranged to effectively convert certain fixed
interest rate obligations into floating interest rate obligations and require
interest payments on the stated principal amount at the three month or six month
LIBOR (remaining terms of five months to nine years) in return for receipts
calculated on the same notional amounts at fixed interest rates of 4.9% to 7.6%.
In the third quarter of 1993, GFC entered into four three-year interest rate
hedge agreements on $750 million of floating-rate borrowings to effectively
guarantee a spread of approximately 2.3% between its borrowing rate (LIBOR) and
the Prime interest rate. The agreements have been entered into with major
financial institutions, which are expected to fully perform under the terms of
the agreements, thereby mitigating the credit risk from the transactions.
Annual maturities of long-term debt outstanding at December 31, 1993 due
through June 2003 (excluding the amount supported by the revolving credit
agreements expected to be renewed) will approximate $179,392,000 (1994),
$192,135,000 (1995), $163,030,000 (1996), $198,747,000 (1997), $204,072,000
(1998) and $625,524,000 (thereafter).
F-16
<PAGE> 55
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The agreements pertaining to long-term debt of GFC include various
restrictive covenants and require the maintenance of certain defined financial
ratios with which GFC has complied. Under one of these covenants, dividend
payments are limited to 50 percent of the sum of accumulated earnings and the
proceeds from equity issued after December 31, 1991.
Total interest paid is not significantly different from interest expense.
NOTE F REDEEMABLE PREFERRED STOCK
On July 30, 1993, GFC Financial acquired 2,500 shares of GFC's Series A
Redeemable Preferred Stock ("GFC Preferred Stock") from a subsidiary of Dial.
The GFC Preferred Stock was issued in connection with the Spin-Off and entitled
the holder to receive cash dividends at an annual rate of 9%.
NOTE G STOCKHOLDERS' EQUITY
At December 31, 1993 and 1992, there were 20,371,703 shares of common stock
issued with 20,079,486 and 20,235,791 shares of common stock outstanding,
respectively. Approximately 5,611,000 common shares were reserved for issuance
under the 1992 Stock Incentive Plan at December 31, 1993.
GFC Financial has 5,000,000 shares of preferred stock authorized, none of
which was issued at December 31, 1993. The Board of Directors is authorized to
provide for the issuance of shares of preferred stock in series, to establish
the number of shares to be included in each series and to fix the designation,
powers, preferences and rights of the shares of each series. In connection with
the Company's stock incentive plan, 250,000 shares of preferred stock are
reserved for issuance of stock options.
NOTE H STOCK OPTIONS
During 1992, the Board of Directors of the Company adopted the GFC
Financial Corporation 1992 Stock Incentive Plan (the "Plan") for the grant of
options and restricted stock to officers, directors and certain key employees.
In connection with the Spin-Off, shares of common stock were made available to
provide new options and restricted shares of common stock to employees of the
Company or its subsidiaries in exchange for awards outstanding under certain
stock option and incentive plans of Dial. Each option was adjusted so that the
aggregate exercise price and the aggregate spread before the Spin-Off was
preserved at the time of the Spin-Off. For each share of Dial restricted stock
held by an employee, such employee received replacement shares of GFC Financial
restricted stock with a market value intended to compensate for the Spin-Off.
The Plan provides for the following types of awards: (a) stock options
(both incentive stock options and non-qualified stock options); (b) Stock
Appreciation Rights; and (c) restricted stock. The Plan authorizes the issuance
of awards for up to 2 1/2 percent of the total number of shares of common stock
outstanding as of the first day of each year. In addition, 250,000 shares of
preferred stock are reserved for awards under the Plan.
The stock options outstanding at December 31, 1993 are granted for terms of
ten years and generally become exercisable over two to three years from the date
of grant. Stock options are exercisable based on the market value at the date of
grant.
F-17
<PAGE> 56
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with respect to options granted and exercised from the date of
Spin-Off to December 31, 1993 is as follows:
<TABLE>
<CAPTION>
AVERAGE OPTION
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Granted(1).............................................. 892,908 $ 17.01
Exercised............................................... (41,235) 14.00
Canceled................................................ (23,590) 18.34
--------- -------
Options outstanding at December 31, 1992................ 828,083 17.12
Granted................................................. 454,450 31.17
Exercised............................................... (166,839) 16.10
Canceled................................................ (103,580) 22.61
--------- -------
Options outstanding at December 31, 1993................ 1,012,114 $ 23.04
--------- -------
--------- -------
</TABLE>
- ---------------
(1) Includes 526,658 shares granted in exchange for awards outstanding under
certain stock option and incentive plans of Dial at an average exercise
price of $14.35.
At December 31, 1993, stock options with respect to 1,012,114 common shares
are outstanding at exercise prices ranging from $10.06 to $41.65 per share, of
which options to 422,667 common shares are exercisable at an average price of
$15.75 per share.
Restricted stock awards (38,629 shares in 1993 and 146,136 in 1992,
including 64,586 shares converted in the Spin-Off) vest generally over periods
not exceeding five years from the date of grant. The holder of the restricted
stock has the right to receive dividends and vote the shares but may not sell,
assign, transfer, pledge or otherwise encumber the restricted stock. All
restricted stock grants since the Spin-Off are based on Company share
performance and may result in greater or lesser numbers of shares being finally
delivered to holder, depending on such performance.
NOTE I INCOME TAXES
Prior to the Spin-Off, Dial credited or charged the Company an amount equal
to the tax reductions realized or tax payments made by Dial as a result of
including the Company's tax results and credits in Dial's consolidated federal
and other applicable income tax returns. In all other respects, the Company's
tax provisions have been computed on a separate return basis.
F-18
<PAGE> 57
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated provision (benefit) for income taxes consist of the
following for the years ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Current:
United States:
Federal......................................... $ 9,783 $16,265 $ 20,087
State........................................... 1,002 2,069 1,364
Foreign............................................ (156) 346 (1,963)
------- ------- --------
10,629 18,680 19,488
------- ------- --------
Deferred:
United States...................................... 17,947 (2,377) (17,760)
Foreign............................................ (2,460)
------- ------- --------
17,947 (4,837) (17,760)
------- ------- --------
Provision for income taxes........................... $28,576 $13,843 $ 1,728
------- ------- --------
------- ------- --------
</TABLE>
Deferred income taxes relate to the following principal temporary
differences:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Lease and other contract income and related
depreciation....................................... $14,973 $ 3,882 $ 6,244
Gains on sale of assets.............................. (1,377) 1,726 (16,732)
Provision for possible credit losses................. (277) 1,551 (8,175)
Recognition of deferred intercompany gain............ (7,531)
Adjustment to deferred taxes related to the increase
in the
U.S. federal statutory income tax rate............. 4,857
Operating expense deferrals.......................... 3,834
Recognition of tax benefit on refinancing charges
accrued in 1991.................................... (3,153)
Minimum tax credit carryforward...................... (4,799)
Other................................................ 736 1,148 903
------- ------- --------
Provision (benefit) for deferred income taxes........ $17,947 $(2,377) $(17,760)
------- ------- --------
------- ------- --------
</TABLE>
The benefit for foreign deferred income taxes for the year ended December
31, 1992 relates to operating losses of GEFG. Income taxes paid in 1993, 1992
and 1991 amounted to $10,511,000, $19,096,000 and $16,769,000, respectively.
F-19
<PAGE> 58
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The federal statutory income tax rate is reconciled to the effective income
tax rate as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Federal statutory income tax rate......................... 35.0% 34.0% (34.0%)
State income tax.......................................... 3.4% 2.7% 2.3%
Foreign tax effects....................................... (2.0%) (2.4%) 11.7%
Tax provision on intercompany gains resulting from the
Spin-Off................................................ 21.6%
Recognition of tax benefit on refinancing charges accrued
in 1991................................................. (6.2%)
Permanent differences on transaction costs................ 12.0%
Other..................................................... (0.7%) (0.7%) (8.9%)
------ ------ ------
Current provision for income tax.......................... 35.7% 27.4% 4.7%
Adjustments to deferred taxes............................. 7.3%
------ ------ ------
Provision for income taxes................................ 43.0% 27.4% 4.7%
------ ------ ------
------ ------ ------
</TABLE>
NOTE J PENSION AND OTHER BENEFITS
PENSION BENEFITS
Net periodic pension (income) cost for the years ended December 31,
included the following components:
<TABLE>
<CAPTION>
UNITED STATES FOREIGN
------------------- ---------------
1993 1992 1993 1992
------- ------- ----- -----
<S> <C> <C> <C> <C>
Service cost benefits earned during period..... $ 813 $ 738 $ 215 $ 341
Interest cost on projected benefit
obligation................................... 1,063 878 293 345
Actual return on plan assets................... (2,306) (1,781) (736) (382)
Net amortization and deferral.................. 967 553 459 79
------- ------- ----- -----
Periodic pension cost.......................... 537 388 231 383
Curtailment gain............................... (777)
------- ------- ----- -----
Net periodic pension (income) cost............. $ (240) $ 388 $ 231 $ 383
------- ------- ----- -----
------- ------- ----- -----
</TABLE>
Assumptions regarding the determination of net periodic pension (income)
costs were:
<TABLE>
<CAPTION>
UNITED STATES FOREIGN
------------- -------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate for obligation.......................... 8.5% 9.0% 9.0% 9.0%
Rate of increase in compensation levels............... 5.5% 6.0% 8.0% 8.0%
Long-term rate of return on assets.................... 9.5% 9.5% 9.0% 9.0%
</TABLE>
GFC Financial participated in a Dial pension plan and was allocated pension
credits of $128,700 for 1991.
F-20
<PAGE> 59
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table indicates the plans' funded status and amounts
recognized in the Company's consolidated balance sheet at December 31, 1993 and
1992:
<TABLE>
<CAPTION>
UNITED STATES FOREIGN
------------------- -----------------
1993 1992 1993 1992
------- ------- ------ ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations.......................... $12,000 $ 7,587 $3,440 $3,088
------- ------- ------ ------
------- ------- ------ ------
Accumulated benefit obligations..................... $12,600 $ 8,489 $3,440 $3,088
------- ------- ------ ------
------- ------- ------ ------
Projected benefit obligation.......................... $14,400 $12,676 $3,755 $3,548
Market value of plan assets, primarily equity and
fixed income securities............................. 17,606 15,500 3,781 3,319
------- ------- ------ ------
Plan assets over (under) projected benefit
obligation.......................................... 3,206 2,824 26 (229)
Unrecognized transition asset......................... (451) (513) (109) (123)
Unrecognized prior service cost reduction............. 404 1,429 72 96
Unrecognized net loss................................. 1,804 983 101 254
Additional liability.................................. (150)
------- ------- ------ ------
Prepaid (accrued) pension costs....................... $ 4,963 $ 4,573 $ 90 $ (2)
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
Assumptions regarding the funded status of pension plans are:
<TABLE>
<CAPTION>
UNITED STATES FOREIGN
--------------- ---------------
1993 1992 1993 1992
----- ----- ----- -----
<S> <C> <C> <C> <C>
Discount rate for obligation.............................. 7.75% 8.50% 8.00% 9.00%
Rate of increase in compensation levels................... 4.25% 5.50% 6.00% 8.00%
Long-term rate of return on assets........................ 9.50% 9.50% 9.00% 9.00%
</TABLE>
There are restrictions on the use of excess pension plan assets in the
event of a defined change in control of the Company.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
("OPEB"), which requires the accrual of retiree benefits during the years the
employees provide services. OPEB requires the recognition of a transition
obligation that represents the aggregate amount that would have accrued in the
years prior to adoption of OPEB had the standard been in effect for those years.
The Company elected to accrue the transition obligation over 20 years. The
adoption of SFAS No. 106 has no cash impact because the plans are not funded and
the pattern of benefit payments did not change.
Net periodic postretirement benefit cost for the year ended December 31,
1993 included the following components:
<TABLE>
<S> <C>
Service cost benefits earned during period............................ $ 55
Interest cost on accumulated postretirement benefit obligation........ 143
Net amortization and deferral......................................... 85
----
Net periodic postretirement benefit cost.............................. $283
----
----
</TABLE>
F-21
<PAGE> 60
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assumptions regarding the determination of net periodic postretirement
benefit costs were:
<TABLE>
<S> <C>
Discount rate for obligation......................................... 8.5%
Rate of increase in compensation levels.............................. 5.5%
Rate of increase in health care costs(1)............................. 14.0%
</TABLE>
- ---------------
(1) Rate of increase in health care costs was 14.0% in 1993, graded to 7.0% in
2000 and thereafter.
OPEB benefit costs for 1993 are $223,000 higher than postretirement
benefits paid and expensed in 1992 due to the adoption of SFAS No. 106. Amounts
paid for postretirement benefits in 1992 and 1991 were approximately $60,000 and
$38,000, respectively.
The following table indicates the amounts recognized in the Company's
consolidated balance sheet at December 31, 1993:
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................................... $1,680
Actives eligible for full benefits................................ 230
Other actives..................................................... 370
------
Total accumulated postretirement benefit obligation................. 2,280
Unrecognized transition obligation.................................. 1,607
Unrecognized net loss............................................... 437
------
Accrued postretirement benefit cost................................. $ 236
------
------
</TABLE>
Assumptions regarding the accrued postretirement benefit cost at December
31, 1993 were:
<TABLE>
<S> <C>
Discount rate for obligation........................................ 7.75%
Rate of increase in compensation levels............................. 4.25%
Rate of increase in health care costs(1)............................ 13.25%
</TABLE>
- ---------------
(1) Rate of increase in health care costs was 13.25% in 1993, graded to 6.25% in
2000 and thereafter.
A one percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
as of December 31, 1993 by approximately 7% and the ongoing annual expense by
approximately 5%.
NOTE K TRANSACTIONS WITH DIAL
Pursuant to the Spin-Off, the Company and Dial entered into several
agreements, including the Spin-Off Agreement, Tax Sharing Agreement, Sublease
Agreement, Interim Services Agreement and Trademark Assignment and Agreement.
These agreements do not result in significant additional expenses.
The Company leases its corporate office facilities from Dial under an
agreement which expires March 31, 2001. Annual rentals under the lease are
approximately $1,616,000 to 1996 and $1,806,000 thereafter.
NOTE L LITIGATION AND CLAIMS
The Company and certain of its subsidiaries are parties either as
plaintiffs or defendants to various actions, proceedings and pending claims,
including legal actions, certain of which involve claims for compensatory,
punitive or other damages in material amounts. Litigation is subject to many
uncertainties and it is possible that some of the legal actions, proceedings or
claims referred to above could be decided against the Company. Although the
ultimate amount for which the Company or its subsidiaries may be held liable is
F-22
<PAGE> 61
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not ascertainable, the Company believes that any resulting liability should not
materially affect the Company's financial position or results of operations.
NOTE M SFAS NO. 107 -- "DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS"
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by the Company using available market
information and valuation methodologies described below. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein may not be indicative of
the amounts that the Company could realize in a current market exchange. The use
of different market assumptions or valuation methodologies may have a material
effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1993 1992
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance Sheet -- Financial Instruments:
Assets:
Loans and other financing contracts..... $2,192,192 $2,172,154 $1,797,440 $1,755,543
Investment in and advances to Verex
Corporation.......................... -- -- 221,312 222,331
Liabilities:
Senior debt............................. 1,991,986 2,149,387 1,806,433 1,847,875
Subordinated debt....................... 86,790 88,390 75,916 83,915
Off-Balance Sheet -- Financial
Instruments:
Interest rate conversion agreements..... -- 36,361 -- 4,536
</TABLE>
The carrying values of cash and cash equivalents, accounts payable and
accrued expenses, customer deposits, interest payable and short-term debt
approximate fair values due to the short-term maturities of these instruments.
The methods and assumptions used to estimate the fair values of other
financial instruments are summarized as follows:
LOANS AND OTHER FINANCING CONTRACTS:
The fair value of loans and other financing contracts was estimated by
discounting expected cash flows using the current rates at which loans of
similar credit quality, size and remaining maturity would be made as of
December 31, 1993 and 1992. Management believes that the risk factor
embedded in the entry-value interest rates applicable to performing loans
for which there are no known credit concerns results in a fair valuation of
such loans on an entry value basis. As of December 31, 1993 and 1992, the
fair value of nonaccruing contracts with a carrying amount of $25,583,000
and $46,431,000, respectively, was not estimated because it is not
practicable to reasonably assess the credit adjustment that would be
applied in the market place for such loans. As of December 31, 1993 and
1992, the carrying amount of loans and other financing contracts excludes
repossessed assets with a total carrying amount of $125,980,000 and
$75,500,000, respectively.
F-23
<PAGE> 62
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT IN AND ADVANCES TO DISCONTINUED INSURANCE SUBSIDIARY:
The fair value of the investment in and advances to Verex for December
31, 1992 was based on the fair value of the net assets of Verex. These net
assets were primarily represented by cash and investments which were valued
using quoted market prices.
SENIOR AND SUBORDINATED DEBT:
The fair value of senior and subordinated debt was estimated by
discounting future cash flows using rates currently available for debt of
similar terms and remaining maturities. The carrying values of commercial
paper and borrowings under revolving credit facilities were assumed to
approximate fair values due to their short maturities.
INTEREST RATE CONVERSION AGREEMENTS:
The fair values of interest conversion agreements is based on quoted
market prices obtained from participating banks and dealers.
The fair value estimates presented herein were based on information
available as of December 31, 1993 and 1992. Although management is not
aware of any factors that would significantly affect the estimated fair
values, such values have not been updated since December 31, 1993 and 1992;
therefore, current estimates of fair value may differ significantly from
the amounts presented herein.
NOTE N SELLING, ADMINISTRATIVE AND OTHER OPERATING EXPENSES
The following represents a summary of the major components of selling,
administrative and other operating expenses for the three years ended December
31:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Salaries and employee benefits................................ $ 29,502 $ 27,247 $ 24,362
Problem account costs......................................... 11,822 7,642 5,790
Occupancy expense............................................. 4,160 4,494 3,444
Depreciation and amortization................................. 2,803 1,970 1,502
Other......................................................... 9,871 9,375 11,825
-------- -------- --------
$ 58,158 $ 50,728 $ 46,923
-------- -------- --------
-------- -------- --------
</TABLE>
F-24
<PAGE> 63
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O GEOGRAPHIC INFORMATION
The Company operates primarily in the United States and Europe. Geographic
information for the three years ended December 31, 1993 is shown below:
<TABLE>
<CAPTION>
DOMESTIC EUROPE CONSOLIDATED
---------- ---------- ----------
<S> <C> <C> <C>
Assets at year end:
1993..................................................... $2,698,455 $ 135,867 $2,834,322
1992..................................................... 2,433,378 208,290 2,641,668
1991..................................................... 2,072,612 341,872 2,414,484
Interest earned from financing transactions:
1993..................................................... 225,688 23,012 248,700
1992..................................................... 202,472 38,334 240,806
1991..................................................... 197,080 54,392 251,472
Interest margins earned:
1993..................................................... 108,950 15,897 124,847
1992..................................................... 83,390 21,309 104,699
1991..................................................... 73,647 20,265 93,912
Income (loss) before income taxes:
1993..................................................... 65,121 1,301 66,422
1992..................................................... 54,937 (4,344) 50,593
1991..................................................... (19,076) (17,938) (37,014)
</TABLE>
F-25
<PAGE> 64
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P CONDENSED QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest earned from financing transactions:
1993................................................. $58,262 $62,356 $63,450 $64,632
1992................................................. 57,842 60,219 63,100 59,645
Interest expense:
1993................................................. 30,568 31,423 30,788 31,074
1992................................................. 35,263 33,896 34,580 32,368
Gains on sale of assets:
1993................................................. 2,061 179 -- 3,199
1992................................................. -- 1,617 196 1,549
Non-interest expenses (includes provision for possible
credit losses):
1993................................................. 16,339 15,022 14,389 18,114
1992................................................. 11,860 14,934 12,760 17,914
Income from continuing operations:
1993................................................. 8,545 10,323 6,750 (1) 12,228
1992................................................. 7,185 8,969 10,087 10,509
Income (loss) from discontinued operations:
1993................................................. 1,338 2,870 -- (4,707 )
1992................................................. 613 4,176 3,311 4,107
Net income:
1993................................................. 9,883 13,193 6,750 (1) 7,521
1992................................................. 7,798 13,145 13,398 14,616
</TABLE>
- ---------------
(1) Income from continuing operations and net income for the third quarter of
1993 include an adjustment of $4,857,000 representing the effect of recent
federal and state income tax increases applicable to deferred income taxes
generated by the Company's leveraged lease portfolio.
NOTE Q SUBSEQUENT EVENTS (UNAUDITED) -- PURCHASE OF AMBASSADOR FACTORS AND
TRICON CAPITAL CORPORATION
On February 14, 1994, GFC acquired Fleet Financial Group, Inc.'s ("Fleet")
factoring and asset based lending subsidiary, Fleet Factors Corporation, which
operates under the trade name Ambassador Factors ("Ambassador"). The cash
purchase price of the acquisition was $248,285,000 and represented Ambassador's
stockholder's equity, including a premium ($76,285,000), and repayment of the
intercompany balance due from Ambassador to Fleet ($172,000,000). In addition,
GFC assumed $111,526,000 due to factored clients, $4,843,000 of accrued
liabilities and $8,800,000 of additional liabilities and transaction costs. The
acquisition will be accounted for as a purchase and will create approximately
$30,400,000 of goodwill, which will be amortized on a straight line basis over
20 years.
The acquisition was financed with proceeds received from the sale of GFC
Financial's discontinued mortgage insurance subsidiary and cash generated from
operations. GFC Financial, simultaneous with the acquisition, increased its
investment in GFC by contributing $40,000,000 of intercompany loans as
additional paid in capital of GFC.
F-26
<PAGE> 65
GFC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 4, 1994, GFC signed a definitive purchase agreement under which it
will acquire all of the stock of TriCon Capital Corporation ("TriCon") from Bell
Atlantic Corporation ("Bell Atlantic"), in an all-cash transaction. This
transaction is subject to regulatory approvals and certain other conditions.
Accordingly, there can be no assurance that the acquisition will be consummated.
The cash purchase price of the acquisition is $344,250,000. In addition, GFC
will assume outstanding indebtedness and liabilities of TriCon totaling
$1,453,201,000 and incur additional liabilities and acquisition costs of
$7,500,000. The acquisition is expected to be accounted for as a purchase and
will create approximately $69,817,000 of goodwill, which will be amortized on a
straight line basis over 20 years.
The cash purchase price is expected to be financed initially with the
proceeds from the issuance of $300 million of debt securities of GFC and the
remainder with internally generated funds. A portion of the interim debt is
expected to be replaced with the net proceeds of the Offerings. It is not
expected that the Offerings will be completed prior to the consummation of the
acquisition of TriCon by GFC.
The following Pro Forma Consolidated Balance Sheet (unaudited) of GFC
Financial as of December 31, 1993 and Pro Forma Statement of Consolidated Income
From Continuing Operations (unaudited) for the year ended December 31, 1993 have
been prepared to reflect the historical financial position and income from
continuing operations as adjusted to reflect the acquisitions of Ambassador and
TriCon and the Offerings by the Company. The Pro Forma Consolidated Balance
Sheet has been prepared as if such acquisitions occurred on December 31, 1993
and the Pro Forma Statement of Consolidated Income From Continuing Operations
has been prepared as if such acquisitions occurred on January 1, 1993 and give
effect to the Offerings as of such dates. The pro forma consolidated financial
information is unaudited and is not necessarily indicative of the results that
would have occurred if the acquisitions had been consummated as of December 31,
1993 or January 1, 1993.
Total assets on a pro forma basis increased to $5,008,135,000 at December
31, 1993. Pro forma income from continuing operations would have been
$67,284,000 ($2.41 per common and equivalent share) after a $4,857,000 ($0.18
per common and equivalent share) adjustment for deferred taxes applicable to
leveraged leases. Excluding the $4,857,000 charge, pro forma income from
continuing operations would be approximately $72 million ($2.59 per common and
equivalent share). Pro forma income per share assumes a 7,000,000 increase in
the number of common shares outstanding.
F-27
<PAGE> 66
GFC FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
--------------------------------------- ------------------------
GFCFC AMBASSADOR(1) TRICON AMBASSADOR TRICON PRO FORMA
---------- ------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 929 $ 7,072 $ 4,483 $ $ 135 (9) $ 12,619
Investment in financing
transactions:
Loans and other
financing
contracts............ 2,343,755 334,656 912,964 3,591,375
Direct finance
leases............... 71,812 647,055 718,867
Operating leases....... 147,222 240,057 (53,460)(10) 333,819
Leveraged leases....... 283,782 283,782
---------- ------------- ---------- ---------- --------- ----------
2,846,571 334,656 1,800,076 (53,460) 4,927,843
Less reserve for possible
credit losses.......... (64,280) (9,207) (43,191) (116,678)
---------- ------------- ---------- ---------- --------- ----------
2,782,291 325,449 1,756,885 (53,460) 4,811,165
Other assets and deferred
charges................ 51,102 5,941 27,091 30,400 (2) 69,817 (13) 184,351
---------- ------------- ---------- ---------- --------- ----------
$2,834,322 $ 338,462 $1,788,459 $ 30,400 $ 16,492 $5,008,135
---------- ------------- ---------- ---------- --------- ----------
---------- ------------- ---------- ---------- --------- ----------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accounts payable and
accruals............... $ 72,764 $ 4,843 $ 75,302 $ 8,800 (2) $ 5,000 (13) $ 166,709
Due to factored
clients................ 111,526 111,526
Due to Fleet............. 172,000 (172,000 )(3)
Due to Bell Atlantic..... 611,194 83,900 (11)
(695,094)(12)
Debt..................... 2,079,286 709,508 76,285 (2) (53,460)(10) 3,835,780
172,000 (3) 721,851 (12)
130,310 (13)
Deferred income taxes.... 178,972 (4,592) 81,100 (83,900)(11) 174,380
2,800 (13)
---------- ------------- ---------- ---------- --------- ----------
2,331,022 283,777 1,477,104 85,085 111,407 4,288,395
Stockholders' equity..... 503,300 54,685 311,355 (54,685 )(2) 135 (9) 719,740
(26,757)(12)
216,440 (13)
(284,733)(13)
---------- ------------- ---------- ---------- --------- ----------
$2,834,322 $ 338,462 $1,788,459 $ 30,400 $ 16,492 $5,008,135
---------- ------------- ---------- ---------- --------- ----------
---------- ------------- ---------- ---------- --------- ----------
</TABLE>
F-28
<PAGE> 67
GFC FINANCIAL CORPORATION
PRO FORMA STATEMENT OF CONSOLIDATED INCOME FROM CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------------------ ------------------------
GFCFC AMBASSADOR(1) TRICON AMBASSADOR TRICON PRO FORMA
----------- ------------- -------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest earned from
financing
transactions............ $ 248,700 $35,235 $245,300 $ $ (7,667)(10) $ 523,068
1,500 (14)
Interest expense.......... 123,853 5,780 80,211 4,226 (4) 5,018 (15) 219,088
----------- ------------- -------- ------------- -------- -----------
Interest margins earned... 124,847 29,455 165,089 (4,226) (11,185) 303,980
Provision for possible
credit
losses.................. 5,706 7,177 21,634 34,517
----------- ------------- -------- ------------- -------- -----------
Net interest margins
earned.................. 119,141 22,278 143,455 (4,226) (11,185) 269,463
Gains on sale of assets... 5,439 5,439
----------- ------------- -------- ------------- -------- -----------
124,580 22,278 143,455 (4,226) (11,185) 274,902
Selling, administrative
and other operating
expenses................ 58,158 8,125 48,128 2,470 (5) 3,491 (16) 122,131
1,000 (6) 759 (14)
Depreciation.............. 41,582 41,582
----------- ------------- -------- ------------- -------- -----------
66,422 14,153 53,745 (7,696) (15,435) 111,189
Income taxes:
Current and deferred.... 23,719 6,481 22,164 (3,078)(7) (6,174)(18) 39,048
(820)(8) (3,244)(17)
Adjustment to deferred
taxes................. 4,857 4,857
----------- ------------- -------- ------------- -------- -----------
Income from continuing
operations.............. $ 37,846 $ 7,672 $ 31,581 $(3,798) $ (6,017) $ 67,284
----------- ------------- -------- ------------- -------- -----------
----------- ------------- -------- ------------- -------- -----------
Income from continuing
operations per common
and equivalent
share(20)............... $ 1.80 $ 2.41
----------- -----------
----------- -----------
Average outstanding common
and equivalent
shares(20).............. 20,332,000 27,332,000
----------- -----------
----------- -----------
</TABLE>
F-29
<PAGE> 68
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) The Pro Forma Consolidated Balance Sheet, as of December 31, 1993,
includes the historical balance sheet of Ambassador as of November 30, 1993 and
the Pro Forma Statement of Consolidated Income From Continuing Operations for
the year ended December 31, 1993 includes the historical statement of income of
Ambassador for the eleven months ended November 30, 1993.
ACQUISITION OF AMBASSADOR
(2) To record the accrual of various liabilities ($8,800,000) and the
resulting goodwill ($30,400,000) arising from the Ambassador acquisition, the
payment for Ambassador's equity plus a premium ($76,285,000) using a portion of
the proceeds from the sale of Verex and cash generated from operations which
previously had been used to repay debt and the elimination of historical equity
($54,685,000).
(3) To record repayment of Ambassador's intercompany payable to Fleet
($172,000,000), using the proceeds from the sale of Verex and cash generated
from operations which previously had been used to repay debt.
(4) To record the estimated interest expense ($4,226,000) arising from the
debt incurred to fund the acquisition and the repayment of the intercompany
payable due to Fleet.
(5) To record amortization of goodwill ($2,470,000) based on an
amortization period of twenty years and amortization of the covenant not to
compete over one year (see Note (19)).
(6) To record administrative expenses for additional employees and general
overhead ($1,000,000).
(7) To record the income tax effect ($3,078,000) of Notes (4), (5) and (6)
at the Company's effective incremental income tax rate of 40%.
(8) To adjust income taxes for the lower state income tax rate applicable
to the Company ($820,000).
ACQUISITION OF TRICON
(9) To record the original capital contribution by Bell Atlantic as part of
the incorporation of TriCon ($135,000).
(10) To transfer assets and the related debt of TriCon ($53,460,000), not
purchased by the Company, to Bell Atlantic and reduce interest earned from
financing transactions for the income recorded on such assets in 1993
($7,667,000).
(11) To record issuance of notes payable ($83,900,000) to Bell Atlantic by
TriCon to repay TriCon's deferred tax liability.
(12) To record a dividend from TriCon to Bell Atlantic ($26,757,000) and
the conversion of the remaining short-term borrowings from affiliates of TriCon
($695,094,000) to a note payable to Bell Atlantic ($721,851,000).
(13) To record the goodwill created in the acquisition of TriCon
($69,817,000), elimination of the remaining TriCon equity ($284,733,000), the
elimination of deferred tax assets ($2,800,000), the debt incurred to finance
the acquisition ($130,310,000), the issuance of equity at $32.00 per share, net
of the underwriting discount, but before deducting estimated expenses payable by
the Company in connection with the Offerings ($216,440,000) and the accrual of
various liabilities ($5,000,000). The interest expense related to debt to be
replaced with the net proceeds from the Offerings and, therefore, nonrecurring
and excluded from the Pro Forma Statement of Consolidated Income From Continuing
Operations, is approximately $2,000,000.
(14) To reflect base fees ($1,500,000) and incremental costs ($759,000)
related to an agreement to manage leveraged leases for Bell Atlantic by TriCon.
F-30
<PAGE> 69
(15) To record interest expense ($5,018,000) resulting from the additional
debt issued to purchase TriCon and certain debt to Bell Atlantic incurred to
fund the deferred tax payment and dividend referred to in Notes (11) and (12),
reduced by the interest savings applicable to the debt not transferred in the
TriCon acquisition referred to in Note (10).
(16) To record amortization of goodwill ($3,491,000) based on an
amortization period of twenty years (see Note (19)).
(17) To reduce TriCon's income taxes for the effect of increases in income
tax rates for 1993 (principally the increase in the federal tax rate) due to the
deferred tax payment and the new tax basis in assets at the beginning of the pro
forma period ($3,244,000).
(18) To record the income tax effect ($6,174,000) of Notes (10) and (14)
through (16) at the Company's effective incremental income tax rate of 40%.
(19) Goodwill may be adjusted as the final allocation of the values of the
purchased assets and liabilities is established.
(20) Pro forma income from continuing operations per common and equivalent
share is calculated assuming the 7,000,000 shares of Common Stock are issued.
F-31
<PAGE> 70
The following financial statements contain references to a proposed public
offering of stock of TriCon and certain restructuring of the business. The
acquisition by GFC supersedes that public offering and the purchase agreement
makes certain changes to the proposed restructuring.
F-32
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of
Bell Atlantic TriCon Leasing Corporation:
We have audited the consolidated balance sheets of TriCon Capital
Corporation -- Predecessor Business (see Note 1 to the Consolidated Financial
Statements) at December 31, 1993 and 1992, and the related consolidated
statements of income and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TriCon Capital
Corporation -- Predecessor Business at December 31, 1993 and 1992, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Notes 2 and 9 to the Consolidated Financial Statements, in
1993 the Company adopted the method of accounting for income taxes prescribed by
Statement of Financial Accounting Standards No. 109 and the method of accounting
for postemployment benefits prescribed by Statement of Financial Accounting
Standards No. 112, and in 1991 adopted the method of accounting for
postretirement benefits other than pensions prescribed by Statement of Financial
Accounting Standards No. 106.
COOPERS & LYBRAND
New York, New York
February 7, 1994
F-33
<PAGE> 72
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Cash................................................................ $ 4,483 $ 4,503
Notes receivable and finance leases:
Investment in notes receivable...................................... 912,964 833,487
Investment in finance leases........................................ 647,055 639,592
---------- ----------
Total notes receivable and finance leases................. 1,560,019 1,473,079
Less:
Allowance for credit losses......................................... 43,191 48,279
---------- ----------
Net investment in notes receivable and finance leases............... 1,516,828 1,424,800
Investment in operating leases, net of accumulated depreciation..... 240,057 230,721
Other assets........................................................ 27,091 32,222
---------- ----------
Total Assets.............................................. $1,788,459 $1,692,246
---------- ----------
---------- ----------
LIABILITIES AND EQUITY
Liabilities:
Notes payable....................................................... $ 709,508 $ 919,642
Accounts payable and accrued expenses............................... 75,302 71,951
Due to affiliates................................................... 611,194 349,842
Deferred income taxes............................................... 81,100 93,908
---------- ----------
Total Liabilities................................................... 1,477,104 1,435,343
---------- ----------
Total Equity........................................................ 311,355 256,903
---------- ----------
Total Liabilities and Equity.............................. $1,788,459 $1,692,246
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-34
<PAGE> 73
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Interest income............................................ $ 80,477 $ 77,170 $ 90,788
Finance lease revenue...................................... 65,835 77,009 94,503
Operating lease revenue.................................... 63,806 46,337 34,679
Other...................................................... 35,182 41,751 33,879
-------- -------- --------
Total Revenue.................................... 245,300 242,267 253,849
-------- -------- --------
EXPENSES
Interest................................................... 80,211 90,298 115,190
Selling, general and administrative........................ 48,128 49,638 46,533
Provision for credit losses................................ 21,634 28,057 29,876
Depreciation............................................... 41,582 31,496 23,881
-------- -------- --------
Total Expenses................................... 191,555 199,489 215,480
-------- -------- --------
Income before provision for income taxes and cumulative
effect of changes in accounting principles............... 53,745 42,778 38,369
Provision for income taxes................................. 22,164 15,414 15,014
-------- -------- --------
Income before cumulative effect of changes in accounting
principles............................................. 31,581 27,364 23,355
Cumulative effect of changes in accounting principles...... 5,530 -- (1,471)
-------- -------- --------
NET INCOME....................................... $ 37,111 $ 27,364 $ 21,884
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-35
<PAGE> 74
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 37,111 $ 27,364 $ 21,884
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 43,538 33,436 25,329
Provision for credit losses.................... 21,634 28,057 29,876
Amortization of initial direct costs........... 8,946 10,417 12,081
Foreign currency transaction gain.............. -- -- (2,857)
Valuation adjustment........................... -- (6,000) --
Cumulative effect of changes in accounting
principles................................... (5,530) -- 1,471
Gain on sale of equipment and real estate held
under operating leases....................... (2,548) (72) (29)
Gain on transfer of receivables................ (11,290) (13,065) (11,745)
Deferred income taxes.......................... (6,893) 593 (41)
Changes in certain assets and liabilities:
(Increase) decrease in other assets............ (628) 2,491 28,404
Increase (decrease) in accounts payable and
accrued expenses............................. 7,461 (8,320) (4,171)
----------- ----------- -----------
Net cash provided by operating activities........... 91,801 74,901 100,202
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to notes receivable and finance
leases....................................... (1,844,466) (1,355,261) (1,198,591)
Principal payments received on notes receivable
and finance leases........................... 1,553,092 1,053,913 969,786
Additions to equipment and real estate held
under operating leases....................... (60,270) (57,686) (63,420)
Proceeds from sale of equipment and real estate
under operating leases....................... 8,236 4,166 461
Proceeds from transfer of receivables.......... 183,242 275,049 291,053
----------- ----------- -----------
Net cash used in investing activities............... (160,166) (79,819) (711)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings....................... 128,529 204,223 283,067
Principal repayments of borrowings............. (338,663) (254,155) (458,595)
Increase in amounts due to affiliates.......... 261,352 32,703 73,579
Capital contributions.......................... 21,438 40,416 6,073
Capital distributions.......................... (3,932) (17,932) (3,677)
Other.......................................... (395) -- (42)
----------- ----------- -----------
Net cash provided by (used in) financing
activities........................................ 68,329 5,255 (99,595)
----------- ----------- -----------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH............ 16 (31) (164)
----------- ----------- -----------
(DECREASE) INCREASE IN CASH......................... (20) 306 (268)
CASH, BEGINNING OF YEAR............................. 4,503 4,197 4,465
----------- ----------- -----------
CASH, END OF YEAR................................... $ 4,483 $ 4,503 $ 4,197
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-36
<PAGE> 75
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
TriCon Capital Corporation, a wholly-owned subsidiary of Bell Atlantic
Investments, Inc. and, ultimately, Bell Atlantic Corporation ("Bell Atlantic"),
was incorporated on December 3, 1993 and will be the successor entity to certain
businesses of Bell Atlantic TriCon Leasing Corporation ("Old TriCon") which is
wholly owned by Bell Atlantic Capital Corporation.
Prior to a planned restructuring (the "Restructuring") in contemplation of
a public offering of the Company's common stock, the Company will be capitalized
with amounts sufficient to acquire from Old TriCon certain assets which comprise
the Predecessor Business (described below).
Pursuant to the Restructuring, the Company will acquire substantially all
of the assets and assume certain liabilities of Old TriCon, other than its
leveraged lease portfolio, project finance portfolio and certain other assets to
be retained by Old TriCon (the "Transferred Assets" and "Excluded Assets,"
respectively). The purchase price will be equivalent to the net book value of
the Transferred Assets, subject to certain adjustments, and will be paid in part
by the issuance of notes payable to Old TriCon.
Pursuant to the Restructuring, the Company will also, among other things,
assume the rights and obligations of Old TriCon under its securitization
agreements and enter into a five-year agreement to manage, for a fee, the
leveraged lease and project finance portfolios retained by Old TriCon.
BASIS OF PRESENTATION
The consolidated financial statements reflect the financial position,
results of operations and cash flows of TriCon Capital
Corporation -- Predecessor Business, which consists of the assets and
liabilities to be acquired or assumed by the Company in the contemplated
Restructuring described above. Use of "the Company" in these financial
statements refers to the Predecessor Business, unless the context indicates
reference to TriCon Capital Corporation. The consolidated financial statements
include the accounts of a Canadian division and all wholly owned subsidiaries
which are included in the Predecessor Business. All significant intercompany
balances are eliminated.
The consolidated financial statements include allocations of certain
liabilities and expenses relating to the Predecessor Business to be transferred
to the Company in the Restructuring. Debt and related interest expense were
allocated between the Transferred Assets and the Excluded Assets based upon the
internal "match funding" and debt-to-equity ratio policies of Old TriCon in
place during such periods. Common expenses were allocated on a proportional
basis between the Transferred Assets and the Excluded Assets. Management
believes that these allocation methods are reasonable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN FINANCE LEASES
Investment in finance leases consists of the minimum lease payments
receivable, estimated residual value of the equipment and initial direct costs
less unearned income and security deposits. The unearned income represents the
excess of the gross lease payments receivable plus the estimated residual value
over the cost of the equipment leased. Unearned income is amortized to income so
as to provide an approximate level rate of return on the net outstanding
investment. The original lease terms of the direct finance leases are generally
from 36 to 84 months.
F-37
<PAGE> 76
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT IN OPERATING LEASES
Investment in operating leases consist predominantly of medical equipment
and health care facilities. The Company recognizes operating lease revenue on a
straight-line basis over the term of the lease. The cost of equipment and
facilities held under operating leases is depreciated to the estimated residual
value, on a straight-line basis, over the shorter of the estimated economic life
or the period specified under the lease term. Initial direct costs are deferred
and amortized over the lease term on a straight-line basis.
RESIDUAL VALUES
Residual values are reviewed by the Company at least annually. Declines in
residual values for finance leases are recognized as charges to income. Declines
in residual values for operating leases are recognized as adjustments to
depreciation on operating leases over the shorter of the useful life of the
asset or the remaining term of the lease.
ALLOWANCE FOR CREDIT LOSSES
In connection with the financing of leases and other receivables, the
Company records an allowance for credit losses to provide for estimated losses
in the portfolio. The allowance for credit losses is based on a detailed
analysis of delinquencies, an assessment of overall risks, management's review
of historical loss experience and evaluation of probable losses in the portfolio
as a whole given its diversification. An account is fully reserved for or
written off when analysis indicates that the probability of collection of the
account is remote.
INCOME TAXES
For federal income tax purposes, the results of the Company's operations
are included in Bell Atlantic's consolidated tax return. In accordance with the
Bell Atlantic Consolidated Federal Income Tax Allocation Policy, the Company is
allocated federal income tax, or benefit, to the extent it contributes taxable
income or loss, and credits, which are utilized in consolidation. The Company
and each of its subsidiaries file separate state tax returns in the
jurisdictions in which they conduct business.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which
the Company adopted effective January 1, 1993. SFAS 109 requires the
determination of deferred taxes using the liability method. Under the liability
method, deferred taxes must be provided on all book and tax basis differences
and deferred tax balances must be adjusted to reflect enacted changes in income
tax rates. The cumulative impact of adopting SFAS 109 on the earnings of the
Company is a tax benefit of $5,763.
Prior to January 1, 1993, deferred taxes were provided for differences in
the measurement of revenue and expenses for financial accounting and income tax
purposes using the deferral method under Accounting Principles Board Opinion No.
11 (APB 11), "Accounting for Income Taxes."
INTEREST RATE SWAPS
Interest rate swaps are contracts between two parties to exchange interest
payments without the exchange of the underlying notional principal amounts. The
Company enters into interest rate swap agreements primarily to hedge interest
rate risks. The Company records a net receivable or payable related to the
interest to be paid or received as an adjustment to interest expense. In the
event of an early termination of an interest rate swap contract, the gain or
loss would be amortized over the remaining life of the swap.
F-38
<PAGE> 77
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
The financial statements of foreign operations are translated in accordance
with the provisions of Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Under the provisions of the statement, assets
and liabilities are translated at year-end exchange rates, and revenues and
expenses are translated at average exchange rates prevailing during the year.
The related translation adjustments are recorded as a separate component of
Total Equity. Transactions denominated in foreign currencies are translated at
rates in effect at the time of the transaction. Gains or losses resulting from
foreign currency transactions are included in results of operations.
3. INVESTMENT IN NOTES RECEIVABLE AND FINANCE LEASES
Investment in notes receivable consists primarily of amounts due the
Company relating to commercial inventory and accounts receivable financing and
first mortgage notes which are collateralized by the underlying commercial real
estate. The notes bear interest at rates ranging from 5.1% to 15.4% and mature
between the years 1994 and 2015. The components of investment in notes
receivable as of December 31 are as follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Notes receivable............................................... $ 883,122 $ 803,009
Initial direct costs........................................... 5,002 4,272
Non-accrual accounts........................................... 24,840 26,206
--------- ---------
Investment in notes receivable................................. $ 912,964 $ 833,487
--------- ---------
--------- ---------
</TABLE>
Investment in finance leases consists of various types of equipment
including diversified commercial use equipment, health care equipment and data
processing equipment. The original lease terms are generally from 36 to 84
months. The components of investment in finance leases as of December 31 are as
follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Minimum lease payments......................................... $ 685,578 $ 659,097
Estimated residual value....................................... 64,004 75,834
Less:
Unearned income................................................ 133,991 134,364
Security deposits.............................................. 20,737 20,171
Plus:
Initial direct costs........................................... 15,259 13,426
Net investment in non-accrual accounts......................... 36,942 45,770
--------- ---------
Investment in finance leases................................... $ 647,055 $ 639,592
--------- ---------
--------- ---------
</TABLE>
F-39
<PAGE> 78
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1993, estimated minimum annual receipts from notes
receivable and finance leases based upon contractual terms are as follows:
<TABLE>
<CAPTION>
NOTES FINANCE
YEAR ENDING DECEMBER 31 RECEIVABLE LEASES
- --------------------------------------------------------------------- ---------- --------
<S> <C> <C>
1994................................................................. $338,390 $223,413
1995................................................................. 113,977 177,670
1996................................................................. 95,010 130,487
1997................................................................. 81,733 82,128
1998................................................................. 51,897 38,629
Thereafter........................................................... 202,115 33,251
---------- --------
$883,122 $685,578
---------- --------
---------- --------
</TABLE>
4. INVESTMENT IN OPERATING LEASES
Operating leases have original terms from 12 to 120 months. Investment in
operating leases consists of the following at December 31:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Medical equipment, at cost............................................... $215,951 $193,828
Commercial real estate, at cost.......................................... 99,943 95,926
Other, at cost........................................................... 6,466 6,466
-------- --------
Total cost............................................................... 322,360 296,220
Less accumulated depreciation............................................ (82,303) (65,499)
-------- --------
Net investment in operating leases....................................... $240,057 $230,721
-------- --------
-------- --------
</TABLE>
Depreciation expense relating to equipment and real estate held under
operating leases was $39,012, $28,645 and $21,191 in 1993, 1992 and 1991,
respectively.
Estimated minimum annual lease receipts from noncancelable operating leases
as of December 31, 1993 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
--------------------------------------------------------------------------
<S> <C>
1994...................................................................... $ 58,934
1995...................................................................... 50,000
1996...................................................................... 36,454
1997...................................................................... 27,273
1998...................................................................... 15,989
Thereafter................................................................ 61,893
--------
$250,543
--------
--------
</TABLE>
F-40
<PAGE> 79
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE
Notes payable at December 31 consist of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Recourse notes payable with interest rates from 3.31% to 11.0%
and
maturity dates through 2005.................................. $709,508 $918,617
Nonrecourse notes payable with fixed interest rates from 8.5%
to 9.3%
and retired in 1993.......................................... -- 1,025
-------- --------
Total notes payable.................................. $709,508 $919,642
-------- --------
-------- --------
</TABLE>
At December 31, 1992, all nonrecourse notes were collateralized by specific
lease receivables and the underlying equipment. During 1993, 1992 and 1991, the
Company paid $82,656, $91,434 and $113,925, respectively, in interest.
The above recourse note amounts are allocated from aggregate recourse notes
of Old TriCon of $847,917 and $1,066,193 at December 31, 1993 and 1992,
respectively (see Note 1).
Under the terms of various recourse notes and receivable transfer
agreements, Old TriCon was subject to certain restrictive covenants. The most
restrictive of these covenants require Old TriCon to maintain a minimum net
worth of $150,000; an interest coverage ratio of at least 1.2:1; and a ratio of
indebtedness (as defined in the various agreements) to net worth not to exceed
8:1. Old TriCon was in compliance with all covenants as of the balance sheet
dates. In addition, certain affiliates have agreed to maintain Old TriCon's
compliance with certain financial covenants pursuant to agreements covering the
majority of recourse borrowings at December 31, 1993. During 1993 and 1992, Old
TriCon participated with an affiliate in the issuance of medium-term notes. Old
TriCon's share of the issuance was $184,567 and $60,750 in 1993 and 1992,
respectively, which is included in recourse notes payable above. The notes bear
interest at varying rates from 4.33% to 6.625% and have maturity dates through
December 1999. The Company recognized interest expense on these medium-term
notes of $8,054 and $217 in 1993 and 1992, respectively.
Maturities of notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------
<S> <C>
1994.............................................. $218,627
1995.............................................. 220,072
1996.............................................. 135,824
1997.............................................. 60,011
1998.............................................. 18,045
Thereafter........................................ 56,929
--------
$709,508
--------
--------
</TABLE>
F-41
<PAGE> 80
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. TOTAL EQUITY
The following are transactions affecting total equity:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year....................... $256,903 $206,674 $185,069
Capital contributions.............................. 21,438 40,416 6,073
Net income......................................... 37,111 27,364 21,884
Capital distributions.............................. (3,932) (17,932) (3,677)
Foreign currency translation adjustments........... 230 381 (2,633)
Other.............................................. (395) -- (42)
-------- -------- --------
Total Equity at end of year.............. $311,355 $256,903 $206,674
-------- -------- --------
-------- -------- --------
</TABLE>
7. INCOME TAXES
In 1990, Bell Atlantic was subject to the alternative minimum tax (AMT)
provisions of the 1986 Tax Reform Act on a tax return basis. The Company has
provided for its share of Bell Atlantic's consolidated current AMT liability and
for the deferred benefit relating to the corresponding AMT credit carryforward.
Bell Atlantic was able to utilize all AMT carryforwards in 1991 and 1992. The
Company's income tax expense for the years 1993, 1992 and 1991 would not have
differed materially from that reported had the Company filed tax returns on a
stand alone basis.
The provision for income taxes (exclusive of the tax effect of the
cumulative effect of changes in accounting principles in 1993 and 1991) for the
years ended December 31 consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $28,912 $14,065 $15,045
State and local..................................... 145 756 10
------- ------- -------
29,057 14,821 15,055
------- ------- -------
Deferred:
Federal............................................. (11,365) (3,071) (4,012)
State and local..................................... 4,472 3,664 3,971
------- ------- -------
(6,893) 593 (41)
------- ------- -------
Provision for income taxes.................. $22,164 $15,414 $15,014
------- ------- -------
------- ------- -------
</TABLE>
F-42
<PAGE> 81
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Gross deferred tax liabilities:
Lease related differences.............................................. $ 75,263
Other.................................................................. 57,704
--------
Gross deferred tax liabilities........................................... 132,967
--------
Gross deferred tax assets:
Allowance for credit losses and accrued liabilities for
securitizations..................................................... (23,031)
Other.................................................................. (28,836)
--------
Gross deferred tax assets................................................ (51,867)
--------
Net deferred taxes............................................. $ 81,100
--------
--------
</TABLE>
Under APB 11, deferred taxes resulted from timing differences in the
recognition of revenue and expenses for federal and state tax and for financial
statement purposes. The tax effects of the timing differences that resulted in
the provision for deferred income taxes are summarized as follows:
<TABLE>
<CAPTION>
1992 1991
-------- --------
<S> <C> <C>
Accelerated depreciation..................................... $ (407) $ 3,151
Direct finance and operating leases.......................... (23,681) (10,653)
State taxes.................................................. 2,418 2,621
Deferred AMT credits......................................... 7,937 6,597
Asset backed securitizations................................. 7,834 103
Provision for credit losses.................................. 3,227 (9,195)
Other, net................................................... 3,265 7,335
-------- --------
Total.............................................. $ 593 $ (41)
-------- --------
-------- --------
</TABLE>
During 1993, 1992 and 1991 the Company paid $24,989, $23,415 and $8,322,
respectively, in income taxes.
The provision for income taxes recorded for financial reporting purposes
differs from the expense computed at the statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Federal income tax provision at the statutory rate............. 35.0% 34.0% 34.0%
State income tax provision, net of federal tax benefit......... 5.6 6.8 6.8
Adjust prior years' tax provision.............................. (.1) (1.1) --
Income tax expense related to acquisition of business.......... .5 1.4 2.1
Income tax benefit related to tax exempt income................ (4.3) (3.8) (3.9)
Impact of 1% rate change....................................... 4.4 -- --
Other.......................................................... .1 (1.3) .1
---- ---- ----
Provision for income taxes..................................... 41.2% 36.0% 39.1%
---- ---- ----
---- ---- ----
</TABLE>
8. TRANSACTIONS WITH AFFILIATES
The Company purchased equipment from affiliates of Bell Atlantic totaling
$4,574, $7,793 and $10,923 in 1993, 1992 and 1991, respectively, which is being
leased to third parties under financing lease arrangements.
F-43
<PAGE> 82
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1990, the Company purchased $11,800 of equipment from an affiliate in return
for a non-interest bearing note payable due in 1991. During 1991, the Company
returned such equipment to the affiliate in full payment of the note. During
1993, 1992 and 1991, the Company leased various equipment to affiliates under
direct finance and operating leases and recognized earned income of $1,540,
$1,143 and $1,481, respectively.
During 1993, 1992 and 1991, the Company earned $100, $1,174 and $234,
respectively, of management fees from an affiliate. The Company has entered into
a short-term borrowing arrangement with an affiliate that bears interest at a
rate which approximates the affiliate's average daily cost of funds (weighted
average effective rates of 3.28%, 3.83% and 6.04% for the years ended December
31, 1993, 1992 and 1991, respectively). The Company recognized interest expense
of $13,844, $13,910 and $19,727 in 1993, 1992 and 1991, respectively, under
these arrangements.
Due to Affiliates consists of the following at December 31:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Advances under short-term borrowing arrangements... $603,501 $347,260 $311,029
Payables to affiliates............................. 4,437 3,855 4,723
Receivables from affiliates........................ (2,148) (2,825) (2,846)
Income tax payable................................. 5,404 1,552 4,235
-------- -------- --------
$611,194 $349,842 $317,141
-------- -------- --------
-------- -------- --------
</TABLE>
9. EMPLOYEE BENEFITS
Pension Plans
Substantially all of the Company's employees are covered under a
noncontributory defined benefit pension plan sponsored by Bell Atlantic Capital
Corporation and its subsidiaries. The pension benefit formula used is based on a
stated percentage of adjusted career average income. The funding objective of
the plan is to accumulate funds at a relatively stable rate over participants'
working lives so that benefits are fully funded at retirement. Amounts
contributed to the plan are determined actuarially, principally under the
aggregate cost method, and are subject to applicable federal income tax
regulations. Plan assets consist principally of investments in domestic and
foreign corporate equity securities, U.S. Government and corporate debt
securities, and real estate. In addition, the Company participates in the
Executive Management Retirement Plan, a non-qualified pension plan, sponsored by
Bell Atlantic and its subsidiaries.
Aggregate pension costs are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Current year cost........................................ $1,306 $1,417 $1,464
Percentage of salaries and wages......................... 3.7% 4.0% 4.6%
</TABLE>
The decrease in pension cost from 1991 to 1993 is the net result of changes
in plan provisions and other actuarial assumptions, and amortization of
actuarial gains and losses relating to demographic and investment experience.
Statement of Financial Accounting Standards No. 87, "Employers Accounting
for Pensions" requires a comparison of the actuarial present value of projected
benefit obligations with the fair value of plan assets, the disclosure of the
components of net periodic pension costs, and a reconciliation of the funded
status of the plan with amounts recorded on the balance sheets. Such disclosures
are not presented for the Company because the structure of the plan does not
allow for the determination of this information on an individual company basis.
F-44
<PAGE> 83
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assumed discount rate used to measure the projected benefit obligation
was 7.25% at December 31, 1993 and 7.75% at December 31, 1992 and 1991. The
assumed rate of future increases in compensation levels was 5.25% at December
31, 1993, 1992 and 1991. The expected long-term rate of return on plan assets
was 8.25% for December 31, 1993 and 1992 and, 7.5% for December 31, 1991.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1991, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (SFAS 106) which requires accrual accounting for all
postretirement benefits other than pensions. Under the prescribed accrual
method, the Company's obligation for these postretirement benefits is to be
fully accrued by the date employees attain full eligibility for such benefits.
Prior to this adoption, the Company charged costs relating to such benefits to
expense as paid.
In conjunction with the 1991 adoption of SFAS 106, the Company elected to
immediately recognize the accumulated postretirement benefit obligation for
current and future retirees, net of the fair value of any plan assets, and
recognized accrued postretirement benefit cost (transition obligation) in the
amount of $1,471, net of a deferred income tax benefit of $758.
Substantially all of the Company's employees are covered under
postretirement health benefit plans sponsored by Bell Atlantic Capital
Corporation and its subsidiaries. The determination of benefit cost for the
postretirement health benefit plan is based on comprehensive hospital, medical
and surgical benefit provisions.
Aggregate postretirement benefit cost for the year ended December 31, 1993,
1992 and 1991 was $571, $394 and $332, respectively. There were no amounts paid
for postretirement health benefits in 1990.
SFAS 106 requires a comparison of the actuarial present value of the
accumulated postretirement benefit obligation with the fair value of the plan
assets, the disclosure of the components of net periodic postretirement benefit
cost, and a reconciliation of the funded status of the plan with the amount
recorded on the balance sheet. Such disclosures are not presented for the
Company because the structure of the Bell Atlantic plan does not allow for the
determination of this information on an individual company basis.
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 7.25% at December 31, 1993 and 7.75% at December 31, 1992
and 1991. The assumed rate of future increases in compensation levels was 5.25%
at December 31, 1993 and 1992. The expected long-term rate of return on plan
assets was 8.25% for 1993 and 1992 and 7.50% for 1991. The medical cost trend
rate in 1993 was approximately 13.0%, grading down to an ultimate rate in year
2003 of approximately 5.0%.
EMPLOYEE STOCK OWNERSHIP PLANS
The Company maintains savings plans which cover substantially all of its
employees. Under these plans, the Company matches a certain percentage of
eligible contributions made by the employees. In 1989, Bell Atlantic established
two leveraged employee stock ownership plans (ESOPs) within two existing
employee savings plans. Under the ESOP provisions, which began January 1, 1990,
a substantial portion of Company matching contributions are allocated to the
employees in the form of Bell Atlantic stock from the ESOP trusts. Bell Atlantic
stock allocated by the ESOP trusts to the participating employees is based on
the proportion that principal and interest paid in a year bears to remaining
principal and interest due over the life of the notes.
Leveraged ESOP expense for the years ended December 31, 1993, 1992 and 1991
is $786, $912 and $803, respectively.
F-45
<PAGE> 84
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS
Effective January 1, 1993 the Company adopted Statement of Financial
Accounting Standard No. 112 "Employers' Accounting for Postemployment Benefits"
(SFAS 112) which requires employers who provide benefits to former or inactive
employees to recognize the obligation relative to such future benefits on an
accrual basis. This change principally affects the Company's accounting for
long-term disability benefits which were previously charged to expenses as
benefits were paid. The cumulative impact at January 1, 1993 of adopting SFAS
112 was a reduction of net income of $232, net of a deferred income tax benefit
of $151.
10. COMMITMENTS
At December 31, 1993, the Company's commitments under noncancelable
operating leases having remaining terms in excess of one year, primarily for
office space are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------------------------------
<S> <C>
1994............................................... $ 2,803
1995............................................... 2,543
1996............................................... 2,488
1997............................................... 2,251
1998............................................... 1,741
Thereafter......................................... 3,739
-------
$15,565
-------
-------
</TABLE>
Such leases generally include escalation and renewal clauses and require
that the Company pay for utilities, taxes, insurance and maintenance. Rent
expense under operating lease agreements was $2,972, $2,985 and $2,952 in 1993,
1992 and 1991, respectively.
At December 31, 1993, the Company has outstanding commitments to finance
notes receivable of $171,985. The anticipated expirations of such commitments
are $167,487 in 1994, $0 in 1995, $0 in 1996, and $4,498 in 1997.
11. FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk exist when changes in economic, industry or
geographic factors similarly affect groups of customers whose aggregate credit
exposure is material in relation to the Company's total credit exposure.
Although the Company's portfolio is broadly diversified along industry,
customer, equipment and geographic lines, there does exist a concentration of
transactions within the health care industry (approximately 22% of total assets
plus transferred receivables at December 31, 1993 and 1992). The Company's
exposure to credit risk in these and other industries is mitigated by the
diversity of customers in the customer base and in many cases by the quality of
the underlying collateral.
RECEIVABLE TRANSFER AGREEMENTS (SECURITIZATIONS)
During 1993, 1992 and 1991, the Company transferred its interests in
approximately $179,206, $248,048 and $246,721, respectively, of its direct
finance lease portfolio for $200,447, $275,049 and $270,621, respectively. These
transfers provide limited recourse for credit losses to the Company and certain
of its assets. As of December 31, 1993, $60,153 of finance lease receivables are
the sole collateral for certain limited recourse provisions. In addition to such
finance lease receivables, the Company has recourse exposure at December 31,
1993 limited to $106,429. At December 31, 1993 and 1992, an outstanding
allowance for estimated losses under these recourse provisions of $14,146 and
$17,360, respectively, is included in Accounts
F-46
<PAGE> 85
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payable and Accrued Expenses. The outstanding gross receivable balance of
transferred receivables was $495,906 and $541,834 at December 31, 1993 and 1992,
respectively. The Company will service these lease contracts for the transferee,
and a portion of the proceeds on the transfer has been deferred representing
service fees to be earned over the term of the agreements.
INTEREST RATE SWAPS
The Company has entered into a number of interest rate swap agreements
which have effectively fixed interest rates on $424,432 of floating rate
instruments including debt and receivable transfer agreements. Under these
interest rate swap agreements, the Company will pay the counterparties interest
at a fixed rate and the counterparties will pay the Company interest at a
variable rate based on the London Interbank Offered Rate (LIBOR), the A1/P1
commercial paper rate or a money market yield. The fixed rates payable under
these agreements range from 4.08% to 7.96% with terms expiring at various dates
from February 1994 to August 1996. Cash flows resulting from the above are
classified with the transactions being hedged. The Company would be exposed to
increased interest costs in the event of non-performance by the counterparties
for the fixed to floating interest rate swap agreements. However, because of the
stature of the counterparties, the Company does not anticipate non-performance.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107), requires the disclosure of the
fair value of financial instruments, both recognized and unrecognized on the
consolidated balance sheet, for which it is practicable to estimate fair value.
Leases are not considered financial instruments under SFAS 107 and are
accordingly excluded from the fair value disclosures. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market exchange
nor can they be substantiated by comparison to independent markets.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, Accounts Payable, Accrued Expenses, Other Amounts Due to Affiliates
and
Recourse Provisions under Receivable Transfer Agreements
The carrying amount approximates fair value.
Notes Receivable
Fair values of notes receivable are based principally on the net present
value of the future expected cash flows using current interest rates.
Notes Payable and Advances under Short-term Borrowing Arrangements with
Affiliates
The fair values of notes payable and advances under short-term borrowing
arrangements with affiliates is estimated based on the quoted market prices for
the same or similar issues, where available or is based on the net present value
of the future expected cash flows using current interest rates.
F-47
<PAGE> 86
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest Rate Swap Agreements
The fair value of interest rate swap agreements is the estimated amount
that the Company would have to pay to terminate the swap agreements at December
31, 1993, taking into account current interest rates and the creditworthiness of
the swap counterparties.
Loan Commitments
The fair value of loan commitments is estimated using the fees currently
charged to enter into similar commitments.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS ON THE BALANCE
SHEETS
Notes Receivable net of Allowance
for Credit Losses................. $ 894,486 $ 896,051 $ 818,216 $ 827,264
Notes Payable....................... (709,508) (740,970) (919,642) (973,021)
Advances under Short-term Borrowing
Arrangements with Affiliates...... (603,501) (603,793) (347,260) (348,897)
FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
Interest Rate Swap Agreements....... -- $ (1,160) -- $ 1,321
Loan Commitments.................... -- 6,516 -- 4,383
</TABLE>
12. SUPPLEMENTAL CASH FLOW ACTIVITIES
During 1992 and 1991 the Company transferred $5,859 and $57,050,
respectively, of investment in notes receivable to other assets. In addition,
during 1992 the Company transferred $41,585 of property foreclosed in 1991 and
included in other assets to investment in operating leases, following the
determination to hold such property for operating purposes. The resultant
valuation adjustment of $6,000 is reflected in other revenues in 1992.
F-48
<PAGE> 87
TRICON CAPITAL CORPORATION -- PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1993
Total revenue........................... $57,258 $58,629 $62,253 $67,160 $245,300
Interest expense........................ 20,795 20,956 19,564 18,896 80,211
Provision for credit losses............. 7,384 7,606 2,966 3,678 21,634
Depreciation............................ 10,416 9,902 10,138 11,126 41,582
Cumulative effect of changes in
accounting principles................. 5,763 -- -- (233) 5,530
Net income.............................. 9,815 5,368 8,111 13,817 37,111
1992
Total revenue........................... $53,980 $54,217 $59,137 $74,933 $242,267
Interest expense........................ 23,736 22,804 22,012 21,746 90,298
Provision for credit losses............. 5,606 6,671 9,355 6,425 28,057
Depreciation............................ 6,960 7,193 8,049 9,294 31,496
Net income.............................. 2,706 4,892 4,859 14,907 27,364
</TABLE>
Net income in the fourth quarter of 1993 and 1992 was increased by certain
securitization transactions (see Note 11).
F-49
<PAGE> 88
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Use of Proceeds....................... 7
Price Range of Common Stock and
Dividends........................... 7
Capitalization........................ 9
Selected Consolidated Financial
Data................................ 10
Pro Forma Financial Data.............. 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 26
Certain United States Tax Consequences
to Non-United States Holders........ 30
Description of Capital Stock.......... 32
Underwriting.......................... 34
Legal Matters......................... 36
Experts............................... 36
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
7,000,000 SHARES
GFC
FINANCIAL
CORPORATION
COMMON STOCK
------------------------
P R O S P E C T U S
------------------------
MERRILL LYNCH & CO.
, 1994
------------------------------------------------------
------------------------------------------------------
<PAGE> 89
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
(ALTERNATE FRONT COVER PAGE FOR INTERNATIONAL PROSPECTUS)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 19, 1994
PROSPECTUS
7,000,000 SHARES
_________________________
GFC FINANCIAL CORPORATION
COMMON STOCK
------------------------
Of the 7,000,000 shares of Common Stock offered hereby, 1,400,000 shares
are being offered outside the United States and Canada by the International
Managers (the "International Offering") and 5,600,000 shares are being offered
in a concurrent offering inside the United States and Canada by the U.S.
Underwriters (the "U.S. Offering"). The price to the public and the underwriting
discount per share are identical for both offerings. See "Underwriting."
The Company's Common Stock is listed on the New York Stock Exchange. On
April 18, 1994, the last reported sale price of the Common Stock on the New York
Stock Exchange was $31.75 per share.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------
Per Share................................ $ $ $
- -----------------------------------------------------------------------------------------------
Total(3)................................. $ $ $
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $565,000.
(3) The Company has granted the International Managers and the U.S. Underwriters
options exercisable within 30 days of the date hereof to purchase up to
210,000 and 840,000 additional shares of Common Stock, respectively, solely
to cover over-allotments, if any. If all such additional shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1994.
------------------------
MERRILL LYNCH INTERNATIONAL LIMITED
------------------------
The date of this Prospectus is April , 1994.
<PAGE> 90
[ALTERNATE SECTION FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions set forth in the International purchase
agreement (the "International Purchase Agreement"), the Company has agreed to
sell to each of the international underwriters named below (the "International
Managers"), and each of the International Managers, for whom Merrill Lynch
International Limited is acting as lead manager (the "Lead Manager"), severally
has agreed to purchase, the number of shares of Common Stock set forth opposite
its name below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGER OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch International Limited.......................................
---------
Total........................................................... 1,400,000
---------
---------
</TABLE>
The Company has also entered into a purchase agreement (the "U.S. Purchase
Agreement" and, together with the International Purchase Agreement, the
"Purchase Agreements") with Merrill Lynch, Pierce, Fenner & Smith Incorporated
as a representative (the "U.S. Representative") and certain other underwriters
within the United States and Canada (collectively, the "U.S. Underwriters" and,
together with the International Managers, the "Underwriters"). Subject to the
terms and conditions set forth in the U.S. Purchase Agreement, the Company has
agreed to sell to the U.S. Underwriters, and the U.S. Underwriters severally
have agreed to purchase, an aggregate of 5,600,000 shares of Common Stock.
In each Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth in such Purchase Agreement, to
purchase all of the shares of Common Stock being sold pursuant to such Purchase
Agreement if any of the shares of Common Stock being sold pursuant to such
Purchase Agreement are purchased. Under certain circumstances, under the
Purchase Agreements, the commitments of non-defaulting Underwriters may be
increased. Each Purchase Agreement provides that the Company is not obligated to
sell, and the Underwriters named therein are not obligated to purchase, the
shares of Common Stock under the terms of the Purchase Agreement unless all of
the shares of Common Stock to be sold pursuant to the Purchase Agreements are
contemporaneously sold.
The Lead Manager has advised the Company that the International Managers
propose to offer the shares of Common Stock offered hereby to the public
initially at the public offering price set forth on the cover page of this
Prospectus. After the initial public offering, the public offering price may be
changed.
The initial public offering price per share of Common Stock and the
underwriting discount per share of Common Stock will be identical for both
Offerings.
The Company has granted to the International Managers and the U.S.
Underwriters options to purchase up to an aggregate of 210,000 and 840,000
shares of Common Stock, respectively, at the initial public offering price, less
the underwriting discount. Such options, which will expire 30 days after the
date of this Prospectus, may be exercised solely to cover over-allotments. To
the extent that the Underwriters exercise such options, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage of the option shares that the number of shares
to be purchased initially by that Underwriter is of the 7,000,000 shares of
Common Stock initially purchased by the Underwriters.
34
<PAGE> 91
[ALTERNATE SECTION FOR INTERNATIONAL PROSPECTUS]
The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the International
Managers and the U.S. Underwriters are permitted to sell shares of Common Stock
to each other.
The Company has been informed that, under the terms of the Intersyndicate
Agreement, the International Managers and any bank, broker or dealer to whom
they sell shares of Common Stock will not offer to sell or resell shares of
Common Stock to persons who are U.S. or Canadian persons or to persons they
believe intend to resell to persons who are U.S. or Canadian persons, and the
U.S. Underwriters and any dealer to whom they sell shares of Common Stock will
not offer to sell or resell shares of Common Stock to non-U.S. persons or to
non-Canadian persons or to persons they believe intend to resell to non-U.S.
persons or to non-Canadian persons, except in the case of transactions pursuant
to the Intersyndicate Agreement which, among other things, permits the
Underwriters to purchase from each other and offer for resale such number of
shares of Common Stock as the selling Underwriter or Underwriters and the
purchasing Underwriter or Underwriters may agree.
The Company and Samuel L. Eichenfield, President, Chairman, Chief Executive
Officer and Director of the Company, agreed not to sell or otherwise dispose of
any shares of Common Stock or securities convertible into or exchangeable into
or exercisable for Common Stock, without the prior written consent of the U.S.
Representative and the Lead Manager, for a period of 90 days after the date of
this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Each International Manager has agreed that it has not offered or sold and
will not offer or sell in the United Kingdom by means of any document, any
shares of Common Stock offered hereby, other than to persons whose ordinary
business it is to buy or sell shares or debentures, whether as principal or
agent, or in circumstances which do not constitute an offer to the public within
the meaning of the Companies Act 1985.
Each International Manager has agreed to comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom.
Each International Manager has agreed that it will only issue or pass on to
any person in the United Kingdom any document received by it in connection with
the issue of the shares of Common Stock if that person is of a kind described in
Article 9(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1988, as amended, or is a person to whom the document may
otherwise lawfully be issued or passed on.
35
<PAGE> 92
[ALTERNATE BACK COVER PAGE FOR INTERNATIONAL PROSPECTUS]
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Use of Proceeds....................... 7
Price Range of Common Stock and
Dividends........................... 7
Capitalization........................ 9
Selected Consolidated Financial
Data................................ 10
Pro Forma Financial Data.............. 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 26
Certain United States Tax Consequences
to Non-United States Holders........ 30
Description of Capital Stock.......... 32
Underwriting.......................... 34
Legal Matters......................... 36
Experts............................... 36
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
7,000,000 SHARES
GFC
FINANCIAL
CORPORATION
COMMON STOCK
------------------------
P R O S P E C T U S
------------------------
MERRILL LYNCH INTERNATIONAL LIMITED
, 1994
------------------------------------------------------
------------------------------------------------------
<PAGE> 93
GFC FINANCIAL CORPORATION
PRIVATE PLACEMENT IN CANADA OF SHARES OF COMMON STOCK
THE OFFERING
The shares of Common Stock being offered in certain provinces of Canada are
part of an offering of 7,000,000 shares of Common Stock of GFC Financial
Corporation (the "Company"), a Delaware corporation (8,050,000 shares of Common
Stock if the Underwriters' over-allotment option is exercised in full).
Attached hereto is the full text of the prospectus filed with the
Securities and Exchange Commission in the United States regarding the offering
being made in the United States. The private placement in Canada is being made
solely in the Provinces of Quebec, Ontario, Manitoba and Saskatchewan.
RESALE RESTRICTIONS
The distribution of shares of Common Stock in Canada is being made on a
private placement basis. Accordingly, any resale of shares of Common Stock must
be made in accordance with an exemption from the registration and prospectus
requirements of applicable securities laws, which vary depending on the
province. Purchasers of shares of Common Stock are advised to seek legal advice
prior to any resale of Common Stock.
REPRESENTATION BY PURCHASERS
Confirmations of the acceptance of offers to purchase any shares of Common
Stock will be sent to purchasers in Canada who have not withdrawn their offers
to purchase prior to the issuance of such confirmations. Each purchaser who
receives a purchase confirmation will, by the purchaser's receipt thereof, be
deemed to represent to the Company and the dealer from whom such purchase
confirmation is received that such purchaser is entitled under applicable
provincial securities laws to purchase such shares of Common Stock without the
benefit of a prospectus qualified under such securities laws.
ENFORCEMENT OF LEGAL RIGHTS
The shares of Common Stock being offered are those of a foreign issuer and
Ontario purchasers will not receive the contractual right of action prescribed
by Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws. Saskatchewan
purchasers have the statutory rights of action set forth in Section 138 of The
Securities Act, 1988 (Saskatchewan) which must be exercised within the time
periods set forth in Section 147 of that Act.
All of the Company's directors and officers as well as the experts named in
the attached prospectus may be located outside of Canada and, as a result, it
may not be possible for Canadian purchasers to effect service of process within
Canada upon the Company or such persons. All or a substantial portion of the
assets of the Company and such persons may be located outside of Canada and, as
a result, it may not be possible to satisfy a judgment against the Company or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against the Company or persons outside of Canada.
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated amounts of the expenses of and related to the offering are as
follows:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission............ $ 88,308
NASD filing fees.................................................. 26,109
Printing and engraving expenses................................... 120,000*
Auditing and accounting fees and expenses......................... 100,000*
Legal fees and expenses........................................... 100,000*
Blue Sky fees and expenses........................................ 20,000*
New York Stock Exchange listing fees and expenses................. 56,795
Transfer agent fees and expenses.................................. 500*
Miscellaneous..................................................... 53,288*
--------
Total................................................... $565,000*
--------
--------
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of the State of Delaware, the state of
incorporation of the Company, the Certificate of Incorporation and the Bylaws of
the Company provide for indemnification of directors and officers. Section 145
of the Delaware General Corporation Law provides generally that a person sued as
a director, officer, employee or agent of a corporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if, in cases
other than actions brought by or in the right of the corporation, he or she has
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation (and in the case of a
criminal proceeding, had no reasonable cause to believe that his or her conduct
was unlawful). Section 145 provides that no indemnification for any claim or
matter may be made, in the case of an action brought by or in the right of the
corporation, if the person has been adjudged to be liable, unless the Court of
Chancery or other court determines that indemnity is fair and reasonable despite
the adjudication of liability. Indemnification is mandatory in the case of a
director, officer, employee or agent who has been successful on the merits, or
otherwise, in defense of a suit against him or her. The determination of whether
a director, officer, employee or agent should be indemnified is made by
independent legal counsel selected by the director, officer, employee or agent,
approved by the Company's Board of Directors and retained by the Board of
Directors on behalf of the Company.
Directors and officers of the Company are covered under policies of
directors' and officers' liability insurance with coverage aggregating
$100,000,000. The directors serving the Company are parties to Indemnification
Agreements with the Company (the "Indemnification Agreements"). The
Indemnification Agreements provide substantially the same scope of coverage
afforded by provisions in the Certificate of Incorporation and the Bylaws and
are designed to provide greater assurance to the directors that indemnification
will be available because as contracts, the Indemnification Agreements may not
be unilaterally modified by the Company's Board of Directors or stockholders.
The Indemnification Agreements are generally intended to provide indemnification
for any amounts a director is legally obligated to pay because of claims arising
out of the director's service to the Company or any other subsidiary of the
Company.
II-1
<PAGE> 95
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of U.S. Purchase Agreement
1.2 Form of International Purchase Agreement
4.1 Certificate of Incorporation of the Company (incorporated by reference from the
Company's Registration Statement on Form S-1, SEC File No. 33-45452, Exhibit 3.2
(the "Company Registration Statement"))
4.2 Bylaws of the Company (incorporated by reference from the Company's Form 10-K for
the fiscal year ending December 31, 1993, Exhibit 3.B)
4.3 Rights Agreement dated as of February 15, 1992 between the Company and The Valley
National Bank of Arizona (now Bank One, Arizona, N.A.), as Rights Agent
(incorporated by reference from the Company Registration Statement, Annex V to
Prospectus and Exhibit 4.1)
5.1 Opinion of Gibson, Dunn & Crutcher
23.1 Consent of Deloitte & Touche
23.2 Consent of KPMG Peat Marwick
23.3 Consent of Coopers & Lybrand
23.2 Consent of Gibson, Dunn & Crutcher (included in its opinion filed as Exhibit 5.1)
24.1 Power of Attorney*
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "Act"), each filing
of the Company's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on April 18, 1994.
GFC Financial Corporation
By: /s/ SAMUEL L. EICHENFIELD
_____________________________
Samuel L. Eichenfield
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY DATE
- --------------------------------------------- -------------------------------- ---------------
<S> <C> <C>
* Director April 18, 1994
_____________________________________________
G. Robert Durham
/s/ SAMUEL L. EICHENFIELD Director, Chairman, President April 18, 1994
_____________________________________________ and Chief Executive Officer
Samuel L. Eichenfield
* Director April 18, 1994
_____________________________________________
James L. Johnson
* Director April 18, 1994
_____________________________________________
L. Gene Lemon
* Director April 18, 1994
_____________________________________________
Kenneth R. Smith
* Director April 18, 1994
_____________________________________________
Robert P. Straetz
* Director April 18, 1994
_____________________________________________
Shoshana B. Tancer
</TABLE>
II-3
<PAGE> 97
<TABLE>
<CAPTION>
SIGNATURES CAPACITY DATE
- --------------------------------------------- -------------------------------- ---------------
<S> <C> <C>
* Director April 18, 1994
_____________________________________________
John W. Teets
/s/ROBERT J. FITZSIMMONS Vice-President-Treasurer April 18, 1994
_____________________________________________
Robert J. Fitzsimmons (Principal Financial
Officer)
/s/ BRUNO A. MARSZOWSKI Vice President-Controller April 18, 1994
____________________________________________
Bruno A. Marszowski (Principal Accounting Officer)
*By /s/ SAMUEL L. EICHENFIELD
_______________________________________
Attorney-in-fact
</TABLE>
II-4
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of U.S. Purchase Agreement
1.2 Form of International Purchase Agreement
4.1 Certificate of Incorporation of the Company (incorporated by
reference from the Company's Registration Statement on Form S-1, SEC
File No. 33-45452, Exhibit 3.2 (the "Company Registration
Statement"))
4.2 Bylaws of the Company (incorporated by reference from the Company's
Form 10-K for the fiscal year ending December 31, 1993, Exhibit 3.B)
4.3 Rights Agreement dated as of February 15, 1992 between the Company
and The Valley National Bank of Arizona (now Bank One, Arizona,
N.A.), as Rights Agent (incorporated by reference from the Company
Registration Statement, Annex V to Prospectus and Exhibit 4.1)
5.1 Opinion of Gibson, Dunn & Crutcher
23.1 Consent of Deloitte & Touche
23.2 Consent of KPMG Peat Marwick
23.3 Consent of Coopers & Lybrand
23.4 Consent of Gibson, Dunn & Crutcher (included in its opinion filed as
Exhibit 5.1)
24.1 Power of Attorney*
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
5,600,000 SHARES
GFC FINANCIAL CORPORATION
(A DELAWARE CORPORATION)
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
U.S. PURCHASE AGREEMENT
April , 1994
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
as Representative of the
several Underwriters
10900 Wilshire Boulevard
Suite 900
Los Angeles, California 90024
Dear Sirs:
GFC Financial Corporation, a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and each of the other underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch is acting as representative (in such capacity, Merrill Lynch shall
hereinafter be referred to as the "Representative"), with respect to the sale by
the Company and the purchase by the Underwriters, acting severally and not
jointly, of the respective numbers of the 5,600,000 shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock") set forth in said
Schedule A, and with respect to the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b) hereof
to purchase all or any part of 840,000 additional shares of Common Stock to
cover over-allotments, in each case except as may otherwise be provided in the
U.S. Pricing Agreement, as hereinafter defined. The aforesaid 5,600,000 shares
of Common Stock (the "Initial U.S. Securities") to be purchased by the
Underwriters and all or any part of the 840,000 shares of Common Stock subject
to the option described in Section 2(b) hereof (the "U.S. Option Securities")
are collectively hereinafter called the "U.S. Securities".
It is understood that the Company is concurrently entering into an
international purchase agreement dated the date hereof (the "International
Purchase Agreement") providing for the offering by the Company of an aggregate
of 1,400,000 shares of Common Stock (the "Initial International Securities")
through arrangements with certain underwriters outside of the United States (the
"Managers") for whom Merrill Lynch International Limited is acting as lead
manager (the "Lead Manager"), and the grant by the Company to the Managers of an
option to purchase all or any part of an additional 210,000 shares of Common
Stock (the "International Option Securities") to cover over-allotments. The
Initial International Securities and the International Option Securities are
collectively hereinafter called the "International Securities," and the U.S.
Securities and the International Securities are hereinafter called the
"Securities."
The Company understands that the Underwriters and the Managers will
concurrently enter into an Intersyndicate Agreement of even date herewith (the
"Intersyndicate Agreement") providing for the coordination of certain
transactions among the Underwriters and the Managers under the direction of
Merrill Lynch. Notwithstanding anything to the contrary contained herein, in the
International Purchase Agreement or in the Intersyndicate Agreement, the
respective closings under this Agreement and the International Purchase
Agreement are hereby expressly made conditional on one another.
<PAGE> 2
Prior to the purchase and public offering of the U.S. Securities by the
several Underwriters, the Company and the Representative, acting on behalf of
the several Underwriters, shall enter into an agreement substantially in the
form of Exhibit A hereto (the "U.S. Pricing Agreement"). The U.S. Pricing
Agreement may take the form of an exchange of any standard form of written
telecommunication between the Company and the Representative and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering of
the U.S. Securities will be governed by this Agreement, as supplemented by the
U.S. Pricing Agreement. From and after the date of the execution and delivery of
the U.S. Pricing Agreement, this Agreement shall be deemed to incorporate the
U.S. Pricing Agreement. The initial public offering price and the purchase price
with respect to the International Securities shall be set forth in an agreement
substantially in the form of Exhibit A to the International Purchase Agreement
(the "International Pricing Agreement"). The purchase price per share to be paid
by the several Managers for the International Securities shall be identical to
the purchase price per share to be paid by the several Underwriters for the U.S.
Securities.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 33-52957) and related
preliminary prospectuses for the registration of the Securities under the
Securities Act of 1933, as amended (the "1933 Act"), has filed such amendments
thereto, if any, and such amended preliminary prospectuses as may have been
required to the date hereof, and will file such additional amendments thereto
and such amended prospectuses as may hereafter be required. Such registration
statement (as amended, if applicable) and the prospectuses constituting a part
thereof (including in each case all documents incorporated or deemed to be
incorporated by reference therein and the information, if any, deemed to be part
thereof pursuant to Rule 430A(b) of the rules and regulations of the Commission
under the 1933 Act (the "1933 Act Regulations")), as from time to time amended
or supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934,
as amended (the "1934 Act") or otherwise, and the U.S. Prospectus1 and the
International Prospectus1 dated the date of the U.S. Pricing Agreement (the
"Representation Date") (including in each case all documents, if any,
incorporated or deemed to be incorporated by reference therein), as from time to
time amended or supplemented pursuant to the 1933 Act, the 1934 Act, or
otherwise, are hereinafter referred to as the "Registration Statement," the
"U.S. Prospectus" and the "International Prospectus," respectively, and the U.S.
Prospectus and the International Prospectus are hereafter referred to as,
individually, a "Prospectus" and, collectively, the "Prospectuses," except that
if any revised prospectus shall be provided to the Underwriters or the Managers
by the Company for use in connection with the offering of the Securities which
differs from the corresponding Prospectus dated the Representation Date (whether
or not such revised prospectus is required to be filed by the Company pursuant
to Rule 424(b) of the 1933 Act Regulations), the terms "U.S. Prospectus" or
"International Prospectus," as the case may be, and "Prospectus" and
"Prospectuses" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters or the Managers, as the case may be, for
such use. All references in this Agreement to financial statements and schedules
and other information which is "contained," "included," "stated," "described in"
or "referred to" in the Registration Statement or the Prospectuses (and all
other references of like import) shall be deemed to mean and include all such
documents, financial statements and schedules and other information which is or
is deemed to be incorporated by reference in the Registration Statement or the
Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement or the Prospectuses
shall be deemed to mean and include the filing of any document under the 1934
Act which is or is deemed to be incorporated by reference in the Registration
Statement or the Prospectuses, as the case may be.
The Company understands that the Underwriters propose to make a public
offering of the U.S. Securities as soon as the Representative deems advisable
after the Registration Statement becomes effective and the U.S. Pricing
Agreement has been executed and delivered.
- ---------------
1Two forms of prospectus are to be used in connection with the offering and
sale of the Securities: one relating to the U.S. Securities (the "U.S.
Prospectus") and one relating to the International Securities (the
"International Prospectus"). The International Prospectus is identical to the
U.S. Prospectus, except for the front cover page, the section captioned
"Underwriting" and the back cover page.
2
<PAGE> 3
Section 1. Representations and Warranties.
(a) The Company represents and warrants to each Underwriter as of the date
hereof, and as of the Representation Date, as of the Closing Time (as defined in
Section 2) and as of each Date of Delivery (as defined in Section 2), if any, as
follows:
(i) At the time the Registration Statement became effective and at the
Representation Date, the Registration Statement did comply and will comply
in all material respects with the requirements of the 1933 Act and the 1933
Act Regulations and did not and does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectuses, at the Representation Date (unless the term "Prospectuses"
refers to a prospectus provided to the Underwriters or the Managers, as the
case may be, by the Company for use in connection with the offering of the
Securities differing from the Prospectuses on file at the Commission at the
time the Registration Statement becomes effective, in which case at the
time it is first provided to the Underwriters or the Managers, as the case
may be, for such use) and at Closing Time and each Date of Delivery
referred to in Section 2 hereof, will not include 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
were made, not misleading; provided, however, that the representations and
warranties in this subsection (i) shall not apply to statements in or
omissions from the Registration Statement or Prospectuses made in reliance
upon and in conformity with information furnished to the Company in writing
by or on behalf of any Underwriter or Manager through the Representative
expressly for use in the Registration Statement or Prospectuses.
(ii) The documents of the Company incorporated by reference in the
Prospectuses, at the time they were or hereafter are filed with the
Commission, complied with and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations thereunder (the
"1934 Act Regulations"), and, when read together and with the other
information in the Prospectuses, at the time the Registration Statement
became, and any amendments thereto become, effective and at Closing Time
and each Date of Delivery, did not and will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were or are made, not misleading.
(iii) The accountants who certified the financial statements included
or incorporated by reference in the Prospectuses are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iv) The financial statements included or incorporated by reference in
the Prospectuses present fairly the respective financial position of the
Company and its consolidated subsidiaries, Fleet Factors Corp. ("Fleet
Factors") and TriCon Capital Corporation ("TriCon") as of the dates
indicated and the results of each of their respective operations for the
periods specified; and except as stated therein, said financial statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis; the unaudited pro forma
consolidated financial statements, together with the related notes included
or incorporated by reference in the Prospectuses have been prepared on a
basis substantially consistent with the audited financial statements of the
Company set forth therein, the assumptions on which such unaudited pro
forma consolidated financial statements have been prepared are reasonable
and are set forth in the notes thereto, and such unaudited pro forma
consolidated financial statements have been prepared, and the pro forma
adjustments set forth therein have been applied, in accordance with the
applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations (including, without limitation, Regulation S-X promulgated by
the Commission), and such pro forma adjustments have been properly applied
to the historical amounts in the compilation of such statements.
(v) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein or contemplated thereby, (A) there has been no material adverse
change in the condition, financial or otherwise, of the Company and its
subsidiaries (which, for the purposes of this Agreement, shall include
TriCon), considered as one enterprise or in the earnings, affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise,
3
<PAGE> 4
whether or not arising in the ordinary course of business, (B) there have
been no material transactions entered into by the Company or any of its
subsidiaries other than those in the ordinary course of business, (C)
except for regular quarterly dividends on Common Stock in amounts per share
that are consistent with past practice, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(vi) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement; and the
Company is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification is
required or appropriate, except where the failure of the Company to so
qualify, in the aggregate, will not have a material adverse effect on the
consolidated financial condition or combined operations of the Company and
its subsidiaries.
(vii) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and conduct its business as described
in the Registration Statement and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required or appropriate, except
where the failure of the subsidiaries to so qualify, in the aggregate, will
not have a material adverse effect on the consolidated financial condition
or combined operations of the Company and its subsidiaries; all of the
issued and outstanding capital stock of each such subsidiary has been duly
authorized and validly issued and is fully paid and non-assessable; and all
the capital stock of each such subsidiary (except TriCon, the stock of
which is owned by Bell Atlantic Corporation) is owned by the Company or its
affiliates, directly or through subsidiaries, free and clear of any
mortgage, pledge, lien, encumbrance, claim or equity.
(viii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectuses under the caption
"Capitalization," (except for subsequent issuances, if any, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses) and the shares of issued and outstanding Common Stock set
forth thereunder have been duly authorized and validly issued and are fully
paid and non-assessable; the Securities have been duly authorized for
issuance and sale to the Underwriters and the Managers pursuant to this
Agreement and the International Purchase Agreement, respectively, and, when
issued and delivered by the Company pursuant to this Agreement and the
International Purchase Agreement against payment of the consideration set
forth in the U.S. Pricing Agreement and the International Pricing
Agreement, respectively, will be validly issued and fully paid and
non-assessable; the Common Stock conforms in all material respects to the
statements relating thereto contained in the Prospectuses; and the issuance
of the Securities is not subject to preemptive or other similar rights.
(ix) The rights (the "Rights") to be issued pursuant to the Rights
Agreement dated as of February 15, 1992 between the Company and The Valley
National Bank of Arizona, as Rights Agent, have been duly authorized by the
Company, and when the Securities have been issued and delivered by the
Company pursuant to this Agreement and the International Purchase
Agreement, the Rights will be validly issued.
(x) Neither the Company nor any of its subsidiaries is in violation of
its charter or in default in the performance or observance of any
obligations, agreements, covenants or conditions, which alone or in the
aggregate are material, contained in any contracts, indentures, mortgages,
loan agreements, notes, leases or other instruments, which alone or in the
aggregate are material, to which it is a party or by which it or any of
them or their properties may be bound; and the execution, delivery and
performance of this Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the International Pricing Agreement
and the consummation of the transactions contemplated herein and therein
have been duly authorized by all necessary corporate action and will not
conflict with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to any
material contract, indenture,
4
<PAGE> 5
mortgage, loan agreement, note, lease or other instrument to which the
Company or any of its subsidiaries is a party or by which it or any of them
may be bound or to which any of the property or assets of the Company or
any of its subsidiaries is subject, nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or, to
the best of its knowledge, any law, administrative regulation or
administrative or court order or decree; and no consent, approval,
authorization, order or decree of any court or governmental agency or body
is required for the consummation by the Company of the transactions
contemplated by this Agreement, except such as may be required under the
1933 Act, the 1933 Act Regulations or state securities or Blue Sky laws in
connection with the purchase and distribution of the Securities.
(xi) The Company and its subsidiaries own or possess or have obtained,
can obtain on reasonable terms or are in the process of obtaining, all
material governmental licenses, permits, consents, orders, approvals and
other authorizations necessary to lease or own, as the case may be, and to
operate their respective properties and to carry on their respective
businesses as presently conducted, except such as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Securities.
(xii) The Company and its subsidiaries own or possess adequate
trademarks, service marks and trade names necessary to conduct the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted rights
of others with respect to any trademarks, servicemarks or trade names
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would reasonably be expected to materially
adversely affect the conduct of the business, operations, financial
condition or income of the Company and its subsidiaries considered as one
enterprise.
(xiii) There is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to
the actual knowledge of the Company, threatened against or affecting, the
Company or any of its subsidiaries, which would reasonably be expected to
result in any material adverse change in the condition, financial or
otherwise, of the Company and its subsidiaries considered as one
enterprise, or in the business prospects of the Company and its
subsidiaries considered as one enterprise or might materially and adversely
affect the consummation of this Agreement or the International Purchase
Agreement; and there are no material contracts or documents of the Company
or any of its subsidiaries which are required to be filed as exhibits to
the Registration Statement by the 1933 Act or by the 1933 Act Regulations
which have not been so filed.
(xiv) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, manufacturers or
contractors which would be expected to result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise.
(xv) The Company and its subsidiaries have made all necessary filings
and taken all other necessary action so that, with respect to all of the
equipment and other property reflected in the consolidated balance sheets
of the Company and its consolidated subsidiaries and of TriCon, in each
case as of December 31, 1993, and in the consolidated balance sheet of
Fleet Factors as of November 30, 1993; and with respect to all equipment
and other property acquired by the Company or a subsidiary since then, the
interest of the Company or of the appropriate subsidiary in such equipment
or other property is free and clear, in all material respects, of any
claims, liens, encumbrances or liabilities not also reflected in such
consolidated balance sheets and that the interest of the Company or of the
appropriate subsidiary has, in all material respects, been perfected so as
not to be subordinate to the claim of a purchaser in due course or any
other bona fide purchaser.
(xvi) The financing contracts reflected in the consolidated balance
sheets of the Company and its consolidated subsidiaries and of TriCon, in
each case as of December 31, 1993, and in the consolidated balance sheet of
Fleet Factors as of November 30, 1993, and the financing contracts entered
into by the
5
<PAGE> 6
Company or a subsidiary since then, are, in all material respects, legal,
valid and binding obligations of the obligors enforceable in accordance
with their respective terms, except as enforcement thereof may be limited
by bankruptcy, insolvency, or other laws relating to or affecting
creditors' rights generally or by general equity principles; the obligors
thereunder are, in all material respects, in the good faith business
judgment of the Company and except to the extent reflected or stated in the
Prospectuses, financially capable of performing their respective
obligations thereunder, and any defaults in the payments under all such
contracts in the aggregate, at the date hereof, are not of such amount
that, were no more payments to be received under the financing contracts in
respect of which such defaults exist, and after considering estimated
collateral values to be recovered, the consolidated financial condition or
operations of the Company and its consolidated subsidiaries would be
materially adversely affected thereby, excluding impairment of related
reserves.
(xvii) This Agreement and the International Purchase Agreement have
been duly executed and delivered by the Company.
(xviii) There are no persons with registration or other similar rights
to have any securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act.
(xix) Neither the Company nor its wholly-owned subsidiary Greyhound
Financial Corporation, is an "investment company," nor is the Company
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(xx) Neither the Company nor any affiliate thereof (as defined in
Section 517.021(1), Florida Statutes) does business with the government of
Cuba or with any person or affiliate located in Cuba.
(b) Any certificate signed by any officer of the Company and delivered to
the Representative or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
Section 2. Sale and Delivery to Underwriters; Closing.
(a) On the basis of the representations and warranties herein contained and
subject to the terms and conditions herein set forth, the Company agrees to sell
to each Underwriter, severally and not jointly, and each Underwriter, severally
and not jointly, agrees to purchase from the Company, at the price per share set
forth in the U.S. Pricing Agreement, the number of U.S. Securities set forth in
Schedule A opposite the name of such Underwriter, (except as otherwise provided
in the U.S. Pricing Agreement), plus any additional number of U.S. Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(1) If the Company has elected not to rely upon Rule 430A under the
1933 Act Regulations, the initial public offering price and the purchase
price per share to be paid by the several Underwriters for the U.S.
Securities have each been determined and set forth in the U.S. Pricing
Agreement, dated the date hereof, and an amendment to the Registration
Statement and the Prospectuses will be filed before the Registration
Statement becomes effective.
(2) If the Company has elected to rely upon Rule 430A under the 1933
Act Regulations, the purchase price per share to be paid by the several
Underwriters for the U.S. Securities shall be an amount equal to the
initial public offering price, less an amount per share to be determined by
agreement between the Representative and the Company. The initial public
offering price per share of the U.S. Securities shall be a fixed price to
be determined by agreement between the Representative and the Company. The
initial public offering price and the purchase price, when so determined,
shall be set forth in the U.S. Pricing Agreement. In the event that such
prices have not been agreed upon and the U.S. Pricing Agreement has not
been executed and delivered by all parties thereto by the close of business
on the fourth business day following the date of this Agreement, this
Agreement shall terminate forthwith, without liability of any party to any
other party, unless otherwise agreed to by the Company and the
Representative.
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<PAGE> 7
(b) Payment of the purchase price for, and delivery of the certificates
for, the Securities shall be made at the offices of the Company, Dial Tower,
1850 N. Central Avenue, Phoenix, Arizona, 85004 or at such other place as shall
be agreed upon by the Representative and the Company, at 10:00 a.m., New York
City time, on the fifth business day after execution of the U.S. Pricing
Agreement, or such other time not later than ten business days after such date
as shall be agreed upon by the Representative and the Company (such time and
date of payment and delivery being herein called "Closing Time"). In addition,
in the event that any or all of the U.S. Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such U.S. Option Securities shall be made at the above-mentioned offices of
the Company or at such other place as shall be agreed upon by the Representative
and the Company, on each Date of Delivery as specified in the notice from the
Representative to the Company. Payment for the U.S. Securities shall be made to
the Company by certified or official bank check or checks drawn in New York
Clearing House funds or similar next day funds payable to the order of the
Company, against delivery to the Representative for the respective accounts of
the Underwriters of certificates for the U.S. Securities to be purchased by
them. Certificates for the Initial U.S. Securities and the U.S. Option
Securities, if any, shall be in such denominations and registered in such names
as the Representative may request in writing at least two business days before
the Closing Time or the relevant Date of Delivery, as the case may be. It is
understood that each Underwriter has authorized the Representative, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial U.S. Securities and the U.S. Option Securities, if any,
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Initial U.S. Securities or the U.S. Option
Securities, if any, to be purchased by any Underwriter whose check has not been
received by the Closing Time or the relevant Date of Delivery, as the case may
be, but such payment shall not relieve such Underwriter from its obligations
hereunder. The certificates for the Initial U.S. Securities and the U.S. Option
Securities, if any, will be made available for examination and packaging by the
Representative not later than 10:00 a.m. on the last business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
(c) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the Underwriters, severally and not jointly, to
purchase up to an additional 840,000 shares of Common Stock at the price per
share set forth in the U.S. Pricing Agreement. The option hereby granted will
expire 30 days after (i) the date the Registration Statement becomes effective,
if the Company has elected not to rely on Rule 430A under the 1933 Act
Regulations, or (ii) the Representation Date, if the Company has elected to rely
on Rule 430A under the 1933 Act Regulations, and may be exercised in whole or in
part from time to time only for the purpose of covering over-allotments which
may be made in connection with the offering and distribution of the Initial U.S.
Securities upon notice by the Representative to the Company setting forth the
number of U.S. Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for such
U.S. Option Securities. Any such time and date of delivery (a "Date of
Delivery") shall be determined by the Representative, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, as hereinafter defined, unless otherwise agreed
by the Representative and the Company. If the option is exercised as to all or
any portion of the U.S. Option Securities, each of the Underwriters, acting
severally and not jointly, will purchase that proportion of the total number of
U.S. Option Securities then being purchased which the number of Initial U.S.
Securities set forth in Schedule A opposite the name of such Underwriter bears
to the total number of Initial U.S. Securities (except as otherwise provided in
the U.S. Pricing Agreement), subject in each case to such adjustments as the
Representative in its discretion shall make to eliminate any sales or purchases
of fractional shares.
Section 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) The Company will notify the Representative immediately, and
confirm the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective
amendment), (ii) of the receipt of any comments from the Commission, (iii)
of any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to
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either Prospectus or for additional information, and (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose. The Company will make every reasonable effort to prevent the
issuance of any such stop order and, if any stop order is issued, to obtain
the lifting thereof at the earliest possible moment.
(b) The Company will give the Representative notice of its intention
to file or prepare any amendment to the Registration Statement (including
any post-effective amendment) or any amendment or supplement to either
Prospectus (including any revised prospectus which the Company proposes for
use by the Underwriters or Managers in connection with the offering of the
Securities which differs from the prospectus dated the Representation Date,
whether or not such revised prospectus is required to be filed pursuant to
Rule 424(b) of the 1933 Act Regulations), whether pursuant to the 1933 Act,
the 1934 Act or otherwise, will furnish the Representative with copies of
any such amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such
amendment or supplement or use any such prospectus to which the
Representative or counsel for the Underwriters shall object.
(c) The Company has delivered to your counsel one signed copy and will
deliver to the Representative as many conformed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein and documents
incorporated or deemed to be incorporated by reference therein) as the
Representative may reasonably request.
(d) The Company will furnish to each Underwriter, from time to time
during the period when the U.S. Prospectus is required to be delivered
under the 1933 Act or the 1934 Act, such number of copies of the U.S.
Prospectus (as amended or supplemented) as each Underwriter may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act or
the respective applicable rules and regulations of the Commission
thereunder.
(e) If any event shall occur as a result of which it is necessary, in
the opinion of counsel for the Underwriters, to amend or supplement the
U.S. Prospectus in order to make the U.S. Prospectus not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, the Company will forthwith amend or supplement the U.S.
Prospectus (in form and substance reasonably satisfactory to counsel for
the Underwriters) so that, as so amended or supplemented, the U.S.
Prospectus will not include 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 existing at the time it is required to be
delivered to a purchaser, not misleading, and the Company will furnish to
the Underwriters a reasonable number of copies of such amendment or
supplement.
(f) The Company will endeavor, in cooperation with the Underwriters,
to qualify the Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United States
as the Representative may designate; provided, however, that the Company
shall not be obligated to file any general consent to service of process or
to qualify as a foreign corporation in any jurisdiction in which it is not
so qualified. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualifications
in effect for a period of not less than one year from the effective date of
this Agreement. The Company will promptly advise the Representative of the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Securities for sale in any state or
jurisdiction or the initiating or threatening of any proceeding for such
purpose.
(g) The Company will make generally available to its security holders
as soon as practicable, but not later than 60 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning not later than the first day of the Company's fiscal
quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.
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(h) The Company will use the net proceeds received by it from the sale
of the Securities in the manner specified in the Prospectuses under the
caption "Use of Proceeds."
(i) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule
430A of the 1933 Act Regulations, then immediately following the execution
of the U.S. Pricing Agreement, the Company will prepare, and file or
transmit for filing with the Commission in accordance with such Rule 430A
and Rule 424(b) of the 1933 Act Regulations, copies of amended
Prospectuses, or, if required by such Rule 430A, a post-effective amendment
to the Registration Statement (including amended Prospectuses), containing
all information so omitted.
(j) During a period of ninety (90) days from the date of the U.S.
Pricing Agreement, the Company will not, without the prior written consent
of the Representative, directly or indirectly, sell, offer to sell, grant
any option for the sale of, or otherwise dispose of, any Common Stock or
any security convertible into or exchangeable into or exercisable for
Common Stock except for Common Stock issued pursuant to reservations,
agreements or employee benefit plans existing on the date hereof and
disclosed in the Prospectuses; and the Company shall cause Samuel L.
Eichenfield, Chairman, President, Chief Executive Officer and a director of
the Company to agree that during a period of ninety (90) days from the date
of the U.S. Pricing Agreement, he will not, without the prior written
consent of the Representative, directly or indirectly, sell, offer to sell,
grant any option for the sale of, or otherwise dispose of, any Common Stock
or any security convertible into or exchangeable into or exercisable for
Common Stock .
(k) The Company, during the period when any Prospectus is required to
be delivered under the 1933 Act or the 1934 Act, will file promptly all
documents required to be filed with the Commission pursuant to Sections 13,
14 or 15 of the 1934 Act subsequent to the time the Registration Statement
becomes effective.
(l) The Company will cause the Securities to be listed on the New York
Stock Exchange.
Section 4. Payment of Expenses. The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(a) the printing and filing of the Registration Statement as originally filed
and of each amendment thereto, (b) the printing or reproducing of this
Agreement, the U.S. Pricing Agreement and the Intersyndicate Agreement, (c) the
preparation, issuance and delivery of the certificates for the U.S. Securities
to the Underwriters including the payment of all stock transfer taxes, stamp
duties and other similar taxes, if any, payable upon the sale, issuance or
delivery of the U.S. Securities to be sold by the Company to the Underwriters,
the transfer of such U.S. Securities between the Underwriters and the Managers
and to the Managers pursuant to the Intersyndicate Agreement, (d) the fees and
disbursements of the Company's counsel and accountants, (e) the qualification of
the Securities under securities laws in accordance with the provisions of
Section 3(f) hereof, including filing fees and the fee and disbursements of
counsel for the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Survey, (f) the printing and delivery to the
Underwriters of copies of the Registration Statement as originally filed and of
each amendment thereto, of each preliminary U.S. prospectus, and of the U.S.
Prospectus and any amendments or supplements thereto, (g) the printing and
delivery to the Underwriters of copies of the Blue Sky Survey, (h) the fees of
the NASD, if any, (i) the fees and expenses incurred in connection with the
listing of the Securities on the New York Stock Exchange and (j) the fees and
expenses of the transfer agent and custodian for the Securities.
If this Agreement is terminated by the Representative in accordance with
the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall
reimburse the Underwriters for all of their out-of-pocket expenses, including
the reasonable fees and disbursements of counsel for the Underwriters.
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<PAGE> 10
Section 5. Conditions of Underwriters' Obligations. The obligations of
the Underwriters hereunder are subject to the accuracy of the representations
and warranties of the Company herein contained, to the performance by the
Company of its obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m. on the date hereof, or with the consent of the
Representative, at a later time and date, not later, however, than 5:30
p.m. on the first business day following the date hereof, or at such later
time and date as may be approved by a majority in interest of the
Underwriters; and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the 1933 Act or proceedings therefor initiated or threatened by the
Commission. If the Company has elected to rely upon Rule 430A of the 1933
Act Regulations, the price of the Securities and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission
for filing pursuant to Rule 424(b) of the 1933 Act Regulations within the
prescribed time period and prior to Closing Time the Company shall have
provided evidence satisfactory to the Representative of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements
of Rule 430A of the 1933 Act Regulations.
(b) At Closing Time the Representative shall have received:
(1) The opinion, dated as of Closing Time, of Gibson, Dunn &
Crutcher, counsel for the Company, in form and scope reasonably
satisfactory to counsel for the Underwriters, to the effect that:
(i) This Agreement and the International Purchase Agreement have
each been duly authorized, executed and delivered by the Company.
(ii) The Securities have been duly authorized for issuance and
sale to the Underwriters and the Managers pursuant to this Agreement
and the International Purchase Agreement, respectively, and, when
issued and delivered by the Company pursuant to this Agreement and
the International Purchase Agreement against payment of the
consideration set forth in the U.S. Pricing Agreement and the
International Pricing Agreement, respectively, will be validly issued
and fully paid and non-assessable.
(iii) The issuance of the Securities is not subject to
preemptive or other similar rights arising by operation of law, under
the charter or by-laws of the Company or, to the best of such
counsel's knowledge and information, otherwise.
(iv) The statements in the Prospectuses under the captions
"Description of Capital Stock" and "Certain United States Tax
Consequences to Non-United States Holders," to the extent that they
constitute matters of law, summaries of legal matters, documents or
proceedings, or legal conclusions, have been reviewed by such counsel
and are correct in all material respects.
(v) The Registration Statement is effective under the 1933 Act
and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued under the 1933 Act or proceedings therefor have been initiated
or threatened by the Commission.
(vi) At the time the Registration Statement became effective and
at the Representation Date, the Registration Statement (other than
the financial statements, schedules and other financial and
statistical data included therein, as to which no opinion need be
rendered) complied as to form in all material respects with the
requirements of the 1933 Act and its regulations.
(vii) The Rights have been duly authorized by the Company, and
when the Securities have been issued and delivered by the Company
pursuant to this Agreement and the International Purchase Agreement,
the Rights will be validly issued.
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<PAGE> 11
(viii) Each document, if any, filed pursuant to the 1934 Act
(other than the financial statements, schedules and other financial
and statistical data included therein, as to which no opinion need be
rendered) and incorporated by reference in the Prospectuses, complied
when filed as to form in all material respects with the 1934 Act and
the 1934 Act Regulations thereunder.
(ix) Neither the Company nor its wholly-owned subsidiary
Greyhound Financial Corporation, is an "investment company" nor is
the Company "controlled" by an "investment company" as such terms are
defined in the Investment Company Act.
(2) The opinion, dated as of Closing Time, of William J. Hallinan,
Esq., Vice President and General Counsel to the Company, in form and
scope satisfactory to counsel for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware.
(ii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectuses under the caption
"Capitalization," (except for subsequent issuances, if any, pursuant
to reservations, agreements or employee benefit plans referred to in
the Prospectuses); and the shares of issued and outstanding Common
Stock set forth thereunder have been duly authorized and validly
issued and are fully paid and non-assessable.
(iii) The Company has corporate power and corporate authority to
own, lease and operate its properties and conduct its business as
described in the Registration Statement.
(iv) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in
which such qualification is required, except where the failure of the
Company to so qualify, in the aggregate, will not have a material
adverse effect on the consolidated financial condition or combined
operations of the Company and its subsidiaries.
(v) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate power
and corporate authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement, and
is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification
is required, except where the failure to so qualify, in the
aggregate, will not have a material adverse effect on the
consolidated financial condition or combined operations of the
Company and its subsidiaries; and all of the issued and outstanding
capital stock of each such subsidiary has been duly authorized and
validly issued and is fully paid and nonassessable, and all of such
capital stock is owned by the Company or its affiliates (except
TriCon, the stock of which is owned by Bell Atlantic Corporation),
free and clear of any mortgage, pledge, lien, encumbrance or claim.
(vi) There are no legal or governmental proceedings pending or
to the best of such counsel's knowledge, threatened which are
required to be disclosed in the Registration Statement, other than
those disclosed therein, and all pending legal or governmental
proceedings to which the Company or any subsidiary is a party or of
which any of their property is the subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, are reasonably expected to be, alone or
in the aggregate, not material.
(vii) To the best of such counsel's knowledge, there are no
contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to, or
incorporated by reference in, the Registration Statement or to be
filed as exhibits thereto other than those described or referred to
therein or filed or incorporated by reference as
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<PAGE> 12
exhibits thereto, the descriptions thereof or references thereto are
correct, and no default exists by the Company in the due performance
or observance of obligations, agreements, covenants or conditions,
which alone or in the aggregate are material, contained in any
contracts, indentures, loan agreements, notes, leases or other
instruments, which alone or in the aggregate are material, so
described, referred to, filed or incorporated by reference; and the
execution and delivery of this Agreement and the International
Purchase Agreement and the consummation of the transactions
contemplated herein and therein did not and will not conflict with or
constitute a breach of, or default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to, any contract,
indenture, mortgage, loan agreement, note, lease or other instrument
known to such counsel and to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound or
to which any of the property or assets of the Company or any of its
subsidiaries is subject, or any law, administrative regulation or
administrative or court decree known to such counsel to be applicable
to the Company of any court or governmental agency, authority or body
or any arbitrator having jurisdiction over the Company; nor will such
action result in any violation of the provisions of the charter or
by-laws of the Company.
(viii) To the best of such counsel's knowledge, the Company and
its subsidiaries own or possess or have obtained adequate trademarks,
servicemarks and trade names necessary to conduct the business now
operated by them, and neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted
rights of others with respect to any trademarks, service marks or
trade names which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected
to materially adversely affect the conduct of the business,
operations, financial condition or income of the Company and its
subsidiaries considered as one enterprise.
(ix) No consent, approval, authorization, or order of any court
or governmental authority or agency is required in connection with
the sale of the Securities by the Company, except such as may be
required under the 1933 Act or the 1933 Act Regulations or state
securities laws.
In giving his opinion, as required by this Section 5(b)(2) such
counsel may rely as to all matters of state law other than the laws of
the United States of America, the laws of the State of Arizona, and the
corporate laws of the State of Delaware, and as to all matters of
foreign law, upon opinions of counsel satisfactory to counsel to the
Underwriters, in which case, the opinion shall state that although such
counsel has not made an independent investigation of the laws other than
the General Corporations Law of the State of Delaware, or the laws of
Arizona or the United States, such counsel believes the Underwriters and
he are entitled so to rely. In giving the opinions referred to in the
foregoing clause (iv), such counsel may omit reference to a foreign
subsidiary so long as (A) he shall have delivered to the Representative
a signed opinion of other counsel for such foreign subsidiary,
satisfactory to counsel to the Underwriters which other opinion shall
give substantially the same opinions with respect to such foreign
subsidiary as required by the foregoing clause (iv), and (B) he states
that such other opinion is satisfactory to him and that although he has
not made an independent investigation of the foreign laws applicable to
such foreign subsidiary, he believes the Underwriters are entitled to
rely on such other opinion.
(3) The opinion, dated as of Closing Time, of Brown & Wood, counsel
for the Underwriters, with respect to the matters set forth in clauses
(ii) through (vii), inclusive, and clause (i) of Section 5(b)(1) and
5(b)(2), respectively.
(4) In giving their opinions required by subsections (b)(l), (b)(2)
and (b)(3), respectively, of this Section, Gibson, Dunn & Crutcher, Mr.
Hallinan and Brown & Wood shall each additionally state that nothing has
come to their attention that would lead such counsel to believe that the
Registration Statement (other than the financial statements, schedules
and other financial and statistical data included or incorporated
therein), at the time it became effective or at the Representation Date,
contained an untrue statement of a material fact or omitted to state a
material
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fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectuses (other than the
financial statements, schedules and other financial and statistical data
included or incorporated therein, as to which no statement need be
made), at the Representation Date (unless the term "Prospectuses" refers
to a prospectus which has been provided to the Underwriters or the
Managers, as the case may be, by the Company for use in connection with
the offering of the Securities that differs from the corresponding
Prospectus on file at the Commission at the time the Registration
Statement became effective, in which case at the time it is first
provided to the Underwriters or the Managers, as the case may be, for
such use) or at Closing Time, included an untrue statement of a material
fact or omitted 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.
(c) At Closing Time there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Prospectuses, any material adverse change in the condition, financial or
otherwise of the Company and its subsidiaries considered as one enterprise,
or in the earnings, business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise, whether or not arising
in the ordinary course of business, and the Representative shall have
received a certificate of the President or a Vice President of the Company
and of the chief financial officer or chief accounting officer of the
Company, dated as of Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been initiated or threatened by
the Commission. As used in this Section 5(c), the term "Prospectuses" means
the Prospectuses in the form first used to confirm sales of the Securities.
(d) At the time of execution of this Agreement, the Representative
shall have received from each of (i) Deloitte & Touche, (ii) KPMG Peat
Marwick and (iii) Coopers & Lybrand, a letter dated such date, in form and
substance satisfactory to the Representative, and substantially in the same
form as the draft letter previously delivered to and approved by the
Representative.
(e) At Closing Time the Representative shall have received from
Deloitte & Touche a letter, dated as of Closing Time, to the effect that
they reaffirm the statements made in the letter furnished pursuant to
subsection (d) of this Section, except that the "specified date" referred
to in such letter shall be a date not more than five days prior to Closing
Time.
(f) At Closing Time counsel for the Underwriters shall have been
furnished with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the U.S.
Securities as herein contemplated and related proceedings, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained, all proceedings
taken by the Company in connection with the issuance and sale of the
Securities as herein contemplated shall be reasonably satisfactory in form
and scope to the Representative and counsel for the Underwriters.
(g) At Closing Time, the Securities shall have been approved for
listing on the New York Stock Exchange.
(h) In the event that the Underwriters exercise their option provided
in Section 2(b) hereof to purchase all or any portion of the U.S. Option
Securities, the representations and warranties of the Company contained
herein and the statements in any certificates furnished by the Company
hereunder shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Representative shall have received:
(1) A certificate, dated such Date of Delivery, of the President or
a Vice President of the Company and of the chief financial officer or
chief accounting officer of the Company confirming
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that the certificate delivered at the Closing Time pursuant to Section
5(c) hereof remains true and correct as of such Date of Delivery.
(2) The favorable opinion of Gibson, Dunn & Crutcher, counsel for
the Company, in form and scope satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Sections 5(b)(1) and 5(b)(4)
hereof.
(3) The favorable opinion of William J. Hallinan, Esq., General
Counsel of the Company, in form and scope satisfactory to counsel for
the Underwriters, dated such Date of Delivery, relating to the U.S.
Option Securities to be purchased on such Date of Delivery and otherwise
to the same effect as the opinion required by Sections 5(b)(2) and
5(b)(4) hereof.
(4) The favorable opinion of Brown & Wood, counsel for the
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Sections 5(b)(3) and 5(b)(4)
hereof.
(5) A letter from Deloitte & Touche, in form and substance
satisfactory to the Representative and dated such Date of Delivery,
substantially the same in form and substance as the letter furnished to
the Representative pursuant to Section 5(e) hereof, except that the
"specified date" in the letter furnished pursuant to this Section
5(h)(5) shall be a date not more than five days prior to such Date of
Delivery.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Representative by notice to the Company at any time at or prior to Closing Time
and such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the information deemed to be part of
the Registration Statement pursuant to Rule 430A(b) of the 1933 Act
Regulations, if applicable, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or any Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including,
subject to Section 6(c) hereof, the fees and disbursements of counsel
chosen by Merrill Lynch), incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under (i) or (ii) above;
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provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representative expressly for use in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or Prospectus
(or any amendment or supplement thereto). The foregoing indemnity with respect
to any untrue statement contained in or omission from a preliminary prospectus
shall not inure to the benefit of any Underwriter (or any person controlling any
such Underwriter) from whom the person asserting any such loss, liability,
claim, damage or expense purchased any of the U.S. Securities which are the
subject thereof if the Company shall sustain the burden of proving that such
person was not sent or given a copy of the U.S. Prospectus (or the U.S.
Prospectus as amended or supplemented) (in each case exclusive of the documents
from which information is incorporated by reference) at or prior to the written
confirmation of the sale of such U.S. Securities to such person and the untrue
statement contained in or omission from such preliminary prospectus was
corrected in the U.S. Prospectus (or the U.S. Prospectus as amended or
supplemented).
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representative expressly for use in the Registration Statement (or
any amendment thereto) or any such preliminary prospectus or Prospectus (or any
amendment or supplement thereto).
(c) Each indemnified party shall give as promptly as reasonably practicable
notice to each indemnifying party of any action commenced against it in respect
of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement, except
to the extent of any prejudice to such indemnifying party arising from such
failure to provide such notice. An indemnifying party may participate at its own
expense in the defense of such action. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
one local counsel per jurisdiction) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances.
(d) Any payment made by the Company pursuant to Section 6(a), or by any
Underwriter pursuant to Section 6(b), arising with respect to any loss,
liability, claim, damage or expense incurred in a currency other than U.S.
dollars shall be made by the Company, or such Underwriter, as the case may be,
in such amount of U.S. dollars as shall be necessary to enable the indemnified
party to purchase the amount of such other currency needed to satisfy such loss,
liability, claim, damage or expense, including any premiums and costs of
exchange payable in connection with conversion of U.S. dollars into the relevant
currency.
Section 7. Contribution. To provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in Section 6
hereof is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Company or one or more of the Underwriters, as incurred, in such
proportions that the Underwriters are responsible for that portion represented
by the percentage that the underwriting discount appearing on the cover page of
the U.S. Prospectus bears to the initial public offering price appearing thereon
and the Company is responsible for the balance; provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Furthermore, in no event shall
the Underwriters be required to contribute an amount in excess of the total
underwriting discounts received by the Underwriters in connection with the
transactions contemplated by this Agreement. For
15
<PAGE> 16
purposes of this Section, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as the Company.
Section 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement and the U.S. Pricing Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter or controlling person, or by or on behalf of the Company, and
shall survive delivery of the Securities to the Underwriters and the Managers.
Section 9. Termination of Agreement.
(a) The Representative may terminate this Agreement, immediately upon
notice to the Company, at any time at or prior to Closing Time (i) if there has
been, since the date of this Agreement or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or elsewhere or any outbreak or escalation of hostilities or
other calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the reasonable judgment of the
Representative, impracticable to market the Securities or enforce contracts for
the sale of the Securities, or (iii) if trading in the Common Stock has been
suspended by the Commission or the New York Stock Exchange, or if trading
generally on any of the American Stock Exchange, the New York Stock Exchange,
the NASDAQ/NMS or the International Stock Exchange of the United Kingdom and the
Republic of Ireland Limited has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, by any of said Exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by federal
or New York authorities. As used in this Section 9(a), the term "Prospectuses"
means the Prospectuses in the form first used to confirm sales of the
Securities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof.
Section 10. Default by One or More of the Underwriters. If one or more of
the Underwriters shall fail at Closing Time to purchase the U.S. Securities
which it or they are obligated to purchase under this Agreement and the U.S.
Pricing Agreement (the "Defaulted Securities"), the Representative shall have
the right, within 24 hours thereafter, to make arrangements for one or more of
the non-defaulting Underwriters, or any other underwriters, to purchase all, but
not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the terms herein set forth; if, however, the Representative shall
not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of U.S. Securities, each of the non-defaulting Underwriters shall be
obligated, severally and not jointly, to purchase the full amount thereof
in the proportions that their respective underwriting obligations hereunder
bear to the underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
U.S. Securities, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either the Representative or the Company shall have the right to
postpone Closing Time for a period not exceeding seven days in order to effect
any required changes in the Registration Statement or Prospectuses or in any
other documents or arrangements.
16
<PAGE> 17
Section 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representative, Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, 10900 Wilshire Boulevard,
Suite 900, Los Angeles, California 90024, attention of Scott A. Ryles, Managing
Director; notices to the Company shall be directed to it at Dial Tower, 1850 N.
Central Avenue, Phoenix, Arizona 85004-9857, Attention: Robert J. Fitzsimmons,
Vice President-Treasurer, facsimile: (602) 207-5543.
Section 12. Parties. This Agreement and the U.S. Pricing Agreement shall
each inure to the benefit of and be binding upon the Underwriters and the
Company and their respective successors. Nothing expressed or mentioned in this
Agreement or the U.S. Pricing Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Underwriters and the
Company and their respective successors and the controlling persons and officers
and directors referred to in Sections 6 and 7 hereof and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or the U.S. Pricing Agreement or any provision herein
or therein contained. This Agreement and the U.S. Pricing Agreement and all
conditions and provisions hereof and thereof are intended to be for the sole and
exclusive benefit of the Underwriters and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.
Section 13. Governing Law and Time. This Agreement and the U.S. Pricing
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and to be performed in said
State. Except as otherwise provided, specified times of day refer to New York
City time.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Underwriters and the Company in accordance with its terms.
Very truly yours,
GFC FINANCIAL CORPORATION
By
------------------------------------
Samuel L. Eichenfield
Chairman and Chief
Executive Officer
Confirmed and Accepted,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------
Name:
For itself and as Representative
of the other Underwriters named
in Schedule A hereto.
17
<PAGE> 18
SCHEDULE A
<TABLE>
<CAPTION>
NAME OF NUMBER OF INITIAL
UNDERWRITER U.S. SECURITIES
- ------------------------------------------------------------------------------ -----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................
-----------------
Total.................................................................... 5,600,000
-----------------
-----------------
</TABLE>
18
<PAGE> 19
EXHIBIT A
5,600,000 SHARES
GFC FINANCIAL CORPORATION
(A DELAWARE CORPORATION)
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
U.S. PRICING AGREEMENT
April , 1994
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
as Representative of the several Underwriters
named in the within-mentioned Purchase Agreement
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
10900 Wilshire Boulevard
Suite 900
Los Angeles, California 90024
Dear Sirs:
Reference is made to the U.S. Purchase Agreement, dated April , 1994 (the
"U.S. Purchase Agreement"), relating to the purchase by the several Underwriters
named in Schedule A thereto, for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated is acting as representative (the "Representative"), of the above
shares of Common Stock (the "Initial U.S. Securities"), of GFC Financial
Corporation (the "Company") and relating to the option granted to such
Underwriters to purchase up to an additional 840,000 shares of Common Stock of
the Company to cover over-allotments in connection with the sale of the Initial
U.S. Securities (the "U.S. Option Securities"). The Initial U.S. Securities and
all or any part of the U.S. Option Securities are collectively referred to
herein as the U.S. Securities.
Pursuant to Section 2 of the U.S. Purchase Agreement, the Company agrees
with each Underwriter as follows:
1. The initial public offering price per share for the U.S.
Securities, determined as provided in said Section 2, shall be $ .
2. The purchase price per share for the U.S. Securities to be paid by
the several Underwriters shall be $ , being an amount equal to the
initial public offering price set forth above less $ per share.
A-1
<PAGE> 20
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
Very truly yours,
GFC FINANCIAL CORPORATION
By
Samuel L. Eichenfield
Chairman and Chief
Executive Officer
Confirmed and Accepted,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
Name:
For itself and as Representative
of the other Underwriters named
in the U.S. Purchase Agreement.
A-2
<PAGE> 1
EXHIBIT 1.2
1,400,000 SHARES
GFC FINANCIAL CORPORATION
(A DELAWARE CORPORATION)
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
INTERNATIONAL PURCHASE AGREEMENT
April , 1994
MERRILL LYNCH INTERNATIONAL LIMITED
as Lead Manager of the
several Managers
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Dear Sirs:
GFC Financial Corporation, a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch International Limited ("MLIL") and each of the
other underwriters named in Schedule A hereto (collectively, the "Managers,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 10 hereof), for whom MLIL is acting as lead manager (in such
capacity, MLIL shall hereinafter be referred to as the "Lead Manager"), with
respect to the sale by the Company and the purchase by the Managers acting
severally and not jointly, of the respective numbers of the 1,400,000 shares of
Common Stock, par value $.01 per share, of the Company (the "Common Stock") set
forth in said Schedule A, and with respect to the grant by the Company to the
Managers, acting severally and not jointly, of the option described in Section
2(b) hereof to purchase all or any part of 210,000 additional shares of Common
Stock to cover over-allotments, in each case except as may otherwise be provided
in the International Pricing Agreement, as hereinafter defined. The aforesaid
1,400,000 shares of Common Stock (the "Initial International Securities") to be
purchased by the Managers and all or any part of the 210,000 shares of Common
Stock subject to the option described in Section 2(b) hereof (the "International
Option Securities") are collectively hereinafter called the "International
Securities."
It is understood that the Company is concurrently entering into a U.S.
purchase agreement dated the date hereof (the "U.S. Purchase Agreement")
providing for the offering by the Company of an aggregate of 5,600,000 shares of
Common Stock (the "Initial U.S. Securities") through arrangements with certain
underwriters in the United States and Canada (the "Underwriters") for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as Representative
(the "Representative"), and the grant by the Company to the Underwriters of an
option to purchase all or any part of an additional 840,000 shares of Common
Stock (the "U.S. Option Securities") to cover over-allotments. The Initial U.S.
Securities and the U.S. Option Securities are collectively hereinafter called
the "U.S. Securities," and the International Securities and the U.S. Securities
are hereinafter called the "Securities."
The Company understands that the Managers and the Underwriters will
concurrently enter into an Intersyndicate Agreement of even date herewith (the
"Intersyndicate Agreement") providing for the coordination of certain
transactions among the Managers and the Underwriters under the direction of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. Notwithstanding anything to
the contrary contained herein, in the U.S. Purchase Agreement or in the
Intersyndicate Agreement, the respective closings under this Agreement and the
U.S. Purchase Agreement are hereby expressly made conditional on one another.
Prior to the purchase and public offering of the International Securities
by the several Managers, the Company and the Lead Manager, acting on behalf of
the several Managers, shall enter into an agreement
<PAGE> 2
substantially in the form of Exhibit A hereto (the "International Pricing
Agreement"). The International Pricing Agreement may take the form of an
exchange of any standard form of written telecommunication between the Company
and the Lead Manager and shall specify such applicable information as is
indicated in Exhibit A hereto. The offering of the International Securities will
be governed by this Agreement, as supplemented by the International Pricing
Agreement. From and after the date of the execution and delivery of the
International Pricing Agreement, this Agreement shall be deemed to incorporate
the International Pricing Agreement. The initial public offering price and the
purchase price with respect to the U.S. Securities shall be set forth in an
agreement substantially in the form of Exhibit A to the U.S. Purchase Agreement
(the "U.S. Pricing Agreement"). The purchase price per share to be paid by the
several Managers for the International Securities shall be identical to the
purchase price per share to be paid by the several Underwriters for the U.S.
Securities.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 33-52957) and related
preliminary prospectuses for the registration of the Securities under the
Securities Act of 1933, as amended (the "1933 Act"), has filed such amendments
thereto, if any, and such amended preliminary prospectuses as may have been
required to the date hereof, and will file such additional amendments thereto
and such amended prospectuses as may hereafter be required. Such registration
statement (as amended, if applicable) and the prospectuses constituting a part
thereof (including in each case all documents incorporated or deemed to be
incorporated by reference therein and the information, if any, deemed to be part
thereof pursuant to Rule 430A(b) of the rules and regulations of the Commission
under the 1933 Act (the "1933 Act Regulations")), as from time to time amended
or supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934,
as amended (the "1934 Act") or otherwise, and the International Prospectus1 and
the U.S. Prospectus dated the date of the International Pricing Agreement (the
"Representation Date") (including in each case all documents, if any,
incorporated or deemed to be incorporated by reference therein), as from time to
time amended or supplemented pursuant to the 1933 Act, the 1934 Act, or
otherwise, are hereinafter referred to as the "Registration Statement," the
"International Prospectus" and the "U.S. Prospectus," respectively, and the
International Prospectus and the U.S. Prospectus are hereafter referred to as,
individually, a "Prospectus" and, collectively, the "Prospectuses," except that
if any revised prospectus shall be provided to the Managers or the Underwriters
by the Company for use in connection with the offering of the Securities which
differs from the corresponding Prospectus dated the Representation Date (whether
or not such revised prospectus is required to be filed by the Company pursuant
to Rule 424(b) of the 1933 Act Regulations), the terms "International
Prospectus" or "U.S. Prospectus," as the case may be, and "Prospectus" and
"Prospectuses" shall refer to such revised prospectus from and after the time it
is first provided to the Managers or the Underwriters, as the case may be, for
such use. All references in this Agreement to financial statements and schedules
and other information which is "contained," "included," "stated," "described in"
or "referred to" in the Registration Statement or the Prospectuses (and all
other references of like import) shall be deemed to mean and include all such
documents, financial statements and schedules and other information which is or
is deemed to be incorporated by reference in the Registration Statement or the
Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement or the Prospectuses
shall be deemed to mean and include the filing of any document under the 1934
Act which is or is deemed to be incorporated by reference in the Registration
Statement or the Prospectuses, as the case may be.
The Company understands that the Managers propose to make a public offering
of the International Securities as soon as the Lead Manager deems advisable
after the Registration Statement becomes effective and the International Pricing
Agreement has been executed and delivered.
- ---------------
1Two forms of prospectus are to be used in connection with the offering and
sale of the Securities: one relating to the U.S. Securities (the "U.S.
Prospectus") and one relating to the International Securities (the
"International Prospectus"). The International Prospectus is identical to the
U.S. Prospectus, except for the front cover page, the section captioned
"Underwriting" and the back cover page.
-2-
<PAGE> 3
Section 1. Representations and Warranties.
(a) The Company represents and warrants to each Manager as of the date
hereof, and as of the Representation Date, as of the Closing Time (as defined in
Section 2) and as of each Date of Delivery (as defined in Section 2), if any, as
follows:
(i) At the time the Registration Statement became effective and at the
Representation Date, the Registration Statement did comply and will comply
in all material respects with the requirements of the 1933 Act and the 1933
Act Regulations and did not and does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectuses, at the Representation Date (unless the term "Prospectuses"
refers to a prospectus provided to the Managers or the Underwriters, as the
case may be, by the Company for use in connection with the offering of the
Securities differing from the Prospectuses on file at the Commission at the
time the Registration Statement becomes effective, in which case at the
time it is first provided to the Managers or the Underwriters, as the case
may be, for such use) and at Closing Time and each Date of Delivery
referred to in Section 2 hereof, will not include 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
were made, not misleading; provided, however, that the representations and
warranties in this subsection (i) shall not apply to statements in or
omissions from the Registration Statement or Prospectuses made in reliance
upon and in conformity with information furnished to the Company in writing
by or on behalf of any Manager or Underwriter through the Lead Manager
expressly for use in the Registration Statement or Prospectuses.
(ii) The documents of the Company incorporated by reference in the
Prospectuses, at the time they were or hereafter are filed with the
Commission, complied with and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations thereunder (the
"1934 Act Regulations"), and, when read together and with the other
information in the Prospectuses, at the time the Registration Statement
became, and any amendments thereto become, effective and at Closing Time
and each Date of Delivery, did not and will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were or are made, not misleading.
(iii) The accountants who certified the financial statements included
or incorporated by reference in the Prospectuses are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iv) The financial statements included or incorporated by reference in
the Prospectuses present fairly the respective financial position of the
Company and its consolidated subsidiaries, Fleet Factors Corp. ("Fleet
Factors") and TriCon Capital Corporation ("TriCon") as of the dates
indicated and the results of each of their respective operations for the
periods specified; and except as stated therein, said financial statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis; the unaudited pro forma
consolidated financial statements, together with the related notes included
or incorporated by reference in the Prospectuses have been prepared on a
basis substantially consistent with the audited financial statements of the
Company set forth therein, the assumptions on which such unaudited pro
forma consolidated financial statements have been prepared are reasonable
and are set forth in the notes thereto, and such unaudited pro forma
consolidated financial statements have been prepared, and the pro forma
adjustments set forth therein have been applied, in accordance with the
applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations (including, without limitation, Regulation S-X promulgated by
the Commission), and such pro forma adjustments have been properly applied
to the historical amounts in the compilation of such statements.
(v) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein or contemplated thereby, (A) there has been no material adverse
change in the condition, financial or otherwise, of the Company and its
subsidiaries (which, for the purposes of this Agreement, shall include
TriCon), considered as one enterprise or in the earnings, affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise,
-3-
<PAGE> 4
whether or not arising in the ordinary course of business, (B) there have
been no material transactions entered into by the Company or any of its
subsidiaries other than those in the ordinary course of business, (C)
except for regular quarterly dividends on Common Stock in amounts per share
that are consistent with past practice, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(vi) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement; and the
Company is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification is
required or appropriate, except where the failure of the Company to so
qualify, in the aggregate, will not have a material adverse effect on the
consolidated financial condition or combined operations of the Company and
its subsidiaries.
(vii) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and conduct its business as described
in the Registration Statement and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required or appropriate, except
where the failure of the subsidiaries to so qualify, in the aggregate, will
not have a material adverse effect on the consolidated financial condition
or combined operations of the Company and its subsidiaries; all of the
issued and outstanding capital stock of each such subsidiary has been duly
authorized and validly issued and is fully paid and non-assessable; and all
the capital stock of each such subsidiary (except TriCon, the stock of
which is owned by Bell Atlantic Corporation) is owned by the Company or its
affiliates, directly or through subsidiaries, free and clear of any
mortgage, pledge, lien, encumbrance, claim or equity.
(viii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectuses under the caption
"Capitalization," (except for subsequent issuances, if any, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses) and the shares of issued and outstanding Common Stock set
forth thereunder have been duly authorized and validly issued and are fully
paid and non-assessable; the Securities have been duly authorized for
issuance and sale to the Managers and the Underwriters pursuant to this
Agreement and the U.S. Purchase Agreement, respectively, and, when issued
and delivered by the Company pursuant to this Agreement and the U.S.
Purchase Agreement against payment of the consideration set forth in the
International Pricing Agreement and the U.S. Pricing Agreement,
respectively, will be validly issued and fully paid and non-assessable; the
Common Stock conforms in all material respects to the statements relating
thereto contained in the Prospectuses; and the issuance of the Securities
is not subject to preemptive or other similar rights.
(ix) The rights (the "Rights") to be issued pursuant to the Rights
Agreement dated as of February 15, 1992 between the Company and The Valley
National Bank of Arizona, as Rights Agent, have been duly authorized by the
Company, and when the Securities have been issued and delivered by the
Company pursuant to this Agreement and the U.S. Purchase Agreement, the
Rights will be validly issued.
(x) Neither the Company nor any of its subsidiaries is in violation of
its charter or in default in the performance or observance of any
obligations, agreements, covenants or conditions, which alone or in the
aggregate are material, contained in any contracts, indentures, mortgages,
loan agreements, notes, leases or other instruments, which alone or in the
aggregate are material, to which it is a party or by which it or any of
them or their properties may be bound; and the execution, delivery and
performance of this Agreement, the International Pricing Agreement, the
U.S. Purchase Agreement and the U.S. Pricing Agreement and the consummation
of the transactions contemplated herein and therein have been duly
authorized by all necessary corporate action and will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of its subsidiaries pursuant to any material
contract, indenture, mortgage,
-4-
<PAGE> 5
loan agreement, note, lease or other instrument to which the Company or any
of its subsidiaries is a party or by which it or any of them may be bound
or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or, to the best of
its knowledge, any law, administrative regulation or administrative or
court order or decree; and no consent, approval, authorization, order or
decree of any court or governmental agency or body is required for the
consummation by the Company of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act, the 1933 Act
Regulations or state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities.
(xi) The Company and its subsidiaries own or possess or have obtained,
can obtain on reasonable terms or are in the process of obtaining, all
material governmental licenses, permits, consents, orders, approvals and
other authorizations necessary to lease or own, as the case may be, and to
operate their respective properties and to carry on their respective
businesses as presently conducted, except such as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Securities.
(xii) The Company and its subsidiaries own or possess adequate
trademarks, service marks and trade names necessary to conduct the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted rights
of others with respect to any trademarks, servicemarks or trade names
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would reasonably be expected to materially
adversely affect the conduct of the business, operations, financial
condition or income of the Company and its subsidiaries considered as one
enterprise.
(xiii) There is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to
the actual knowledge of the Company, threatened against or affecting, the
Company or any of its subsidiaries, which would reasonably be expected to
result in any material adverse change in the condition, financial or
otherwise, of the Company and its subsidiaries considered as one
enterprise, or in the business prospects of the Company and its
subsidiaries considered as one enterprise or might materially and adversely
affect the consummation of this Agreement or the U.S. Purchase Agreement;
and there are no material contracts or documents of the Company or any of
its subsidiaries which are required to be filed as exhibits to the
Registration Statement by the 1933 Act or by the 1933 Act Regulations which
have not been so filed.
(xiv) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, manufacturers or
contractors which would be expected to result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise.
(xv) The Company and its subsidiaries have made all necessary filings
and taken all other necessary action so that, with respect to all of the
equipment and other property reflected in the consolidated balance sheets
of the Company and its consolidated subsidiaries and of TriCon, in each
case as of December 31, 1993, and in the consolidated balance sheet of
Fleet Factors as of November 30, 1993; and with respect to all equipment
and other property acquired by the Company or a subsidiary since then, the
interest of the Company or of the appropriate subsidiary in such equipment
or other property is free and clear, in all material respects, of any
claims, liens, encumbrances or liabilities not also reflected in such
consolidated balance sheets and that the interest of the Company or of the
appropriate subsidiary has, in all material respects, been perfected so as
not to be subordinate to the claim of a purchaser in due course or any
other bona fide purchaser.
(xvi) The financing contracts reflected in the consolidated balance
sheets of the Company and its consolidated subsidiaries and of TriCon, in
each case as of December 31, 1993, and in the consolidated balance sheets
of Fleet Factors as of November 30, 1993, and the financing contracts
entered into by the
-5-
<PAGE> 6
Company or a subsidiary since then, are, in all material respects, legal,
valid and binding obligations of the obligors enforceable in accordance
with their respective terms, except as enforcement thereof may be limited
by bankruptcy, insolvency, or other laws relating to or affecting
creditors' rights generally or by general equity principles; the obligors
thereunder are, in all material respects, in the good faith business
judgment of the Company and except to the extent reflected or stated in the
Prospectuses, financially capable of performing their respective
obligations thereunder, and any defaults in the payments under all such
contracts in the aggregate, at the date hereof, are not of such amount
that, were no more payments to be received under the financing contracts in
respect of which such defaults exist, and after considering estimated
collateral values to be recovered, the consolidated financial condition or
operations of the Company and its consolidated subsidiaries would be
materially adversely affected thereby, excluding impairment of related
reserves.
(xvii) This Agreement and the U.S. Purchase Agreement have been duly
executed and delivered by the Company.
(xviii) There are no persons with registration or other similar rights
to have any securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act.
(xix) Neither the Company nor its wholly-owned subsidiary Greyhound
Financial Corporation, is an "investment company," nor is the Company
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(xx) Neither the Company nor any affiliate thereof (as defined in
Section 517.021(1), Florida Statutes) does business with the government of
Cuba or with any person or affiliate located in Cuba.
(b) Any certificate signed by any officer of the Company and delivered to
the Lead Manager or to counsel for the Managers shall be deemed a representation
and warranty by the Company to each Manager as to the matters covered thereby.
Section 2. Sale and Delivery to Managers; Closing.
(a) On the basis of the representations and warranties herein contained and
subject to the terms and conditions herein set forth, the Company agrees to sell
to each Manager, severally and not jointly, and each Manager, severally and not
jointly, agrees to purchase from the Company, at the price per share set forth
in the International Pricing Agreement, the number of International Securities
set forth in Schedule A opposite the name of such Manager, (except as otherwise
provided in the International Pricing Agreement), plus any additional number of
International Securities which such Manager may become obligated to purchase
pursuant to the provisions of Section 10 hereof.
(1) If the Company has elected not to rely upon Rule 430A under the
1933 Act Regulations, the initial public offering price and the purchase
price per share to be paid by the several Managers for the International
Securities have each been determined and set forth in the International
Pricing Agreement, dated the date hereof, and an amendment to the
Registration Statement and the Prospectuses will be filed before the
Registration Statement becomes effective.
(2) If the Company has elected to rely upon Rule 430A under the 1933
Act Regulations, the purchase price per share to be paid by the several
Managers for the International Securities shall be an amount equal to the
initial public offering price, less an amount per share to be determined by
agreement between the Lead Manager and the Company. The initial public
offering price per share of the International Securities shall be a fixed
price to be determined by agreement between the Lead Manager and the
Company. The initial public offering price and the purchase price, when so
determined, shall be set forth in the International Pricing Agreement. In
the event that such prices have not been agreed upon and the International
Pricing Agreement has not been executed and delivered by all parties
thereto by the close of business on the fourth business day following the
date of this Agreement, this Agreement shall terminate forthwith, without
liability of any party to any other party, unless otherwise agreed to by
the Company and the Lead Manager.
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<PAGE> 7
(b) Payment of the purchase price for, and delivery of the certificates
for, the Securities shall be made at the offices of the Company, Dial Tower,
1850 N. Central Avenue, Phoenix, Arizona, 85004 or at such other place as shall
be agreed upon by the Lead Manager and the Company, at 10:00 a.m., New York City
time, on the fifth business day after execution of the International Pricing
Agreement, or such other time not later than ten business days after such date
as shall be agreed upon by the Lead Manager and the Company (such time and date
of payment and delivery being herein called "Closing Time"). In addition, in the
event that any or all of the International Option Securities are purchased by
the Managers, payment of the purchase price for, and delivery of certificates
for, such International Option Securities shall be made at the above-mentioned
offices of the Company or at such other place as shall be agreed upon by the
Lead Manager and the Company, on each Date of Delivery as specified in the
notice from the Lead Manager to the Company. Payment for the International
Securities shall be made to the Company by certified or official bank check or
checks drawn in New York Clearing House funds or similar next day funds payable
to the order of the Company, against delivery to the Lead Manager for the
respective accounts of the Managers of certificates for the International
Securities to be purchased by them. Certificates for the Initial International
Securities and the International Option Securities, if any, shall be in such
denominations and registered in such names as the Lead Manager may request in
writing at least two business days before the Closing Time or the relevant Date
of Delivery, as the case may be. It is understood that each Manager has
authorized the Lead Manager, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Initial International
Securities and the International Option Securities, if any, which it has agreed
to purchase. MLIL, individually and not as lead manager of the Managers, may
(but shall not be obligated to) make payment of the purchase price for the
Initial International Securities or the International Option Securities, if any,
to be purchased by any Manager whose check has not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Manager from its obligations hereunder. The certificates
for the Initial International Securities and the International Option
Securities, if any, will be made available for examination and packaging by the
Lead Manager not later than 10:00 a.m. on the last business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
(c) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the Managers, severally and not jointly, to purchase
up to an additional 210,000 shares of Common Stock at the price per share set
forth in the International Pricing Agreement. The option hereby granted will
expire 30 days after (i) the date the Registration Statement becomes effective,
if the Company has elected not to rely on Rule 430A under the 1933 Act
Regulations, or (ii) the Representation Date, if the Company has elected to rely
on Rule 430A under the 1933 Act Regulations, and may be exercised in whole or in
part from time to time only for the purpose of covering over-allotments which
may be made in connection with the offering and distribution of the Initial
International Securities upon notice by the Lead Manager to the Company setting
forth the number of International Option Securities as to which the several
Managers are then exercising the option and the time and date of payment and
delivery for such International Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Lead Manager, but
shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined,
unless otherwise agreed by the Lead Manager and the Company. If the option is
exercised as to all or any portion of the International Option Securities, each
of the Managers, acting severally and not jointly, will purchase that proportion
of the total number of International Option Securities then being purchased
which the number of Initial International Securities set forth in Schedule A
opposite the name of such Manager bears to the total number of Initial
International Securities (except as otherwise provided in the International
Pricing Agreement), subject in each case to such adjustments as the Lead Manager
in its discretion shall make to eliminate any sales or purchases of fractional
shares.
Section 3. Covenants of the Company. The Company covenants with each
Manager as follows:
(a) The Company will notify the Lead Manager immediately, and confirm
the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective
amendment), (ii) of the receipt of any comments from the Commission, (iii)
of any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to
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<PAGE> 8
either Prospectus or for additional information, and (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose. The Company will make every reasonable effort to prevent the
issuance of any such stop order and, if any stop order is issued, to obtain
the lifting thereof at the earliest possible moment.
(b) The Company will give the Lead Manager notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to either
Prospectus (including any revised prospectus which the Company proposes for
use by the Managers or Underwriters in connection with the offering of the
Securities which differs from the prospectus dated the Representation Date,
whether or not such revised prospectus is required to be filed pursuant to
Rule 424(b) of the 1933 Act Regulations), whether pursuant to the 1933 Act,
the 1934 Act or otherwise, will furnish the Lead Manager with copies of any
such amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such
amendment or supplement or use any such prospectus to which the Lead
Manager or counsel for the Managers shall object.
(c) The Company has delivered to your counsel one signed copy and will
deliver to the Lead Manager as many conformed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein and documents
incorporated or deemed to be incorporated by reference therein) as the Lead
Manager may reasonably request.
(d) The Company will furnish to each Manager, from time to time during
the period when the International Prospectus is required to be delivered
under the 1933 Act or the 1934 Act, such number of copies of the
International Prospectus (as amended or supplemented) as each Manager may
reasonably request for the purposes contemplated by the 1933 Act or the
1934 Act or the respective applicable rules and regulations of the
Commission thereunder.
(e) If any event shall occur as a result of which it is necessary, in
the opinion of counsel for the Managers, to amend or supplement the
International Prospectus in order to make the International Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, the Company will forthwith amend or supplement
the International Prospectus (in form and substance reasonably satisfactory
to counsel for the Managers) so that, as so amended or supplemented, the
International Prospectus will not include 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 existing at the time
it is required to be delivered to a purchaser, not misleading, and the
Company will furnish to the Managers a reasonable number of copies of such
amendment or supplement.
(f) The Company will endeavor, in cooperation with the Managers, to
qualify the Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United States
as the Lead Manager may designate; provided, however, that the Company
shall not be obligated to file any general consent to service of process or
to qualify as a foreign corporation in any jurisdiction in which it is not
so qualified. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualifications
in effect for a period of not less than one year from the effective date of
this Agreement. The Company will promptly advise the Lead Manager of the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Securities for sale in any state or
jurisdiction or the initiating or threatening of any proceeding for such
purpose.
(g) The Company will make generally available to its security holders
as soon as practicable, but not later than 60 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning not later than the first day of the Company's fiscal
quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.
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<PAGE> 9
(h) The Company will use the net proceeds received by it from the sale
of the Securities in the manner specified in the Prospectuses under the
caption "Use of Proceeds."
(i) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule
430A of the 1933 Act Regulations, then immediately following the execution
of the International Pricing Agreement, the Company will prepare, and file
or transmit for filing with the Commission in accordance with such Rule
430A and Rule 424(b) of the 1933 Act Regulations, copies of amended
Prospectuses, or, if required by such Rule 430A, a post-effective amendment
to the Registration Statement (including amended Prospectuses), containing
all information so omitted.
(j) During a period of ninety (90) days from the date of the
International Pricing Agreement, the Company will not, without the prior
written consent of the Lead Manager, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Common
Stock or any security convertible into or exchangeable into or exercisable
for Common Stock except for Common Stock issued pursuant to reservations,
agreements or employee benefit plans existing on the date hereof and
disclosed in the Prospectuses; and the Company shall cause Samuel L.
Eichenfield, Chairman, President, Chief Executive Officer and a director of
the Company to agree that during a period of ninety (90) days from the date
of the International Pricing Agreement, he will not, without the prior
written consent of the Lead Manager, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Common
Stock or any security convertible into or exchangeable into or exercisable
for Common Stock.
(k) The Company, during the period when any Prospectus is required to
be delivered under the 1933 Act or the 1934 Act, will file promptly all
documents required to be filed with the Commission pursuant to Sections 13,
14 or 15 of the 1934 Act subsequent to the time the Registration Statement
becomes effective.
(l) The Company will cause the Securities to be listed on the New York
Stock Exchange.
Section 4. Payment of Expenses. The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(a) the printing and filing of the Registration Statement as originally filed
and of each amendment thereto, (b) the printing or reproducing of this
Agreement, the International Pricing Agreement and the Intersyndicate Agreement,
(c) the preparation, issuance and delivery of the certificates for the
International Securities to the Managers including the payment of all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale, issuance or delivery of the International Securities to be sold by the
Company to the Managers, the transfer of such International Securities between
the Managers and the Underwriters and to the Underwriters pursuant to the
Intersyndicate Agreement, (d) the fees and disbursements of the Company's
counsel and accountants, (e) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the fee and disbursements of counsel for the Managers
in connection therewith and in connection with the preparation of the Blue Sky
Survey, (f) the printing and delivery to the Managers of copies of the
Registration Statement as originally filed and of each amendment thereto, of
each preliminary International prospectus, and of the International Prospectus
and any amendments or supplements thereto, (g) the printing and delivery to the
Managers of copies of the Blue Sky Survey, (h) the fees of the NASD, if any, (i)
the fees and expenses incurred in connection with the listing of the Securities
on the New York Stock Exchange and (j) the fees and expenses of the transfer
agent and custodian for the Securities.
If this Agreement is terminated by the Lead Manager in accordance with the
provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse
the Managers for all of their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Managers.
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<PAGE> 10
Section 5. Conditions of Managers' Obligations. The obligations of the
Managers hereunder are subject to the accuracy of the representations and
warranties of the Company herein contained, to the performance by the Company of
its obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m. on the date hereof, or with the consent of the Lead Manager,
at a later time and date, not later, however, than 5:30 p.m. on the first
business day following the date hereof, or at such later time and date as
may be approved by a majority in interest of the Managers; and at Closing
Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission. If the Company has elected to
rely upon Rule 430A of the 1933 Act Regulations, the price of the
Securities and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
1933 Act Regulations within the prescribed time period and prior to Closing
Time the Company shall have provided evidence satisfactory to the Lead
Manager of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the 1933 Act Regulations.
(b) At Closing Time the Lead Manager shall have received:
(1) The opinion, dated as of Closing Time, of Gibson, Dunn &
Crutcher, counsel for the Company, in form and scope reasonably
satisfactory to counsel for the Managers, to the effect that:
(i) This Agreement and the U.S. Purchase Agreement have each
been duly authorized, executed and delivered by the Company.
(ii) The Securities have been duly authorized for issuance and
sale to the Managers and the Underwriters pursuant to this Agreement
and the U.S. Purchase Agreement, respectively, and, when issued and
delivered by the Company pursuant to this Agreement and the U.S.
Purchase Agreement against payment of the consideration set forth in
the International Pricing Agreement and the U.S. Pricing Agreement,
respectively, will be validly issued and fully paid and
non-assessable.
(iii) The issuance of the Securities is not subject to
preemptive or other similar rights arising by operation of law, under
the charter or bylaws of the Company or, to the best of such
counsel's knowledge and information, otherwise.
(iv) The statements in the Prospectuses under the captions
"Description of Capital Stock" and "Certain United States Tax
Consequences to Non-United States Holders," to the extent that they
constitute matters of law, summaries of legal matters, documents or
proceedings, or legal conclusions, have been reviewed by such counsel
and are correct in all material respects.
(v) The Registration Statement is effective under the 1933 Act
and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued under the 1933 Act or proceedings therefor have been initiated
or threatened by the Commission.
(vi) At the time the Registration Statement became effective and
at the Representation Date, the Registration Statement (other than
the financial statements, schedules and other financial and
statistical data included therein, as to which no opinion need be
rendered) complied as to form in all material respects with the
requirements of the 1933 Act and its regulations.
(vii) The Rights have been duly authorized by the Company, and
when the Securities have been issued and delivered by the Company
pursuant to this Agreement and the U.S. Purchase Agreement, the
Rights will be validly issued.
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<PAGE> 11
(viii) Each document, if any, filed pursuant to the 1934 Act
(other than the financial statements, schedules and other financial
and statistical data included therein, as to which no opinion need be
rendered) and incorporated by reference in the Prospectuses, complied
when filed as to form in all material respects with the 1934 Act and
the 1934 Act Regulations thereunder.
(ix) Neither the Company nor its wholly-owned subsidiary
Greyhound Financial Corporation, is an "investment company," nor is
the Company "controlled" by an "investment company" as such terms are
defined in the Investment Company Act.
(2) The opinion, dated as of Closing Time, of William J. Hallinan,
Esq., Vice President and General Counsel to the Company, in form and
scope satisfactory to counsel for the Managers, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware.
(ii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectuses under the caption
"Capitalization," (except for subsequent issuances, if any, pursuant
to reservations, agreements or employee benefit plans referred to in
the Prospectuses); and the shares of issued and outstanding Common
Stock set forth thereunder have been duly authorized and validly
issued and are fully paid and non-assessable.
(iii) The Company has corporate power and corporate authority to
own, lease and operate its properties and conduct its business as
described in the Registration Statement.
(iv) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in
which such qualification is required, except where the failure of the
Company to so qualify, in the aggregate, will not have a material
adverse effect on the consolidated financial condition or combined
operations of the Company and its subsidiaries.
(v) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate power
and corporate authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement, and
is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification
is required, except where the failure to so qualify, in the
aggregate, will not have a material adverse effect on the
consolidated financial condition or combined operations of the
Company and its subsidiaries; and all of the issued and outstanding
capital stock of each such subsidiary has been duly authorized and
validly issued and is fully paid and nonassessable, and all of such
capital stock is owned by the Company or its affiliates (except
TriCon, the stock of which is owned by Bell Atlantic Corporation),
free and clear of any mortgage, pledge, lien, encumbrance or claim.
(vi) There are no legal or governmental proceedings pending or
to the best of such counsel's knowledge, threatened which are
required to be disclosed in the Registration Statement, other than
those disclosed therein, and all pending legal or governmental
proceedings to which the Company or any subsidiary is a party or of
which any of their property is the subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, are reasonably expected to be, alone or
in the aggregate, not material.
(vii) To the best of such counsel's knowledge, there are no
contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to, or
incorporated by reference in, the Registration Statement or to be
filed as exhibits thereto other than those described or referred to
therein or filed or incorporated by reference as
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<PAGE> 12
exhibits thereto, the descriptions thereof or references thereto are
correct, and no default exists by the Company in the due performance
or observance of obligations, agreements, covenants or conditions,
which alone or in the aggregate are material, contained in any
contracts, indentures, loan agreements, notes, leases or other
instruments, which alone or in the aggregate are material, so
described, referred to, filed or incorporated by reference; and the
execution and delivery of this Agreement and the U.S. Purchase
Agreement and the consummation of the transactions contemplated
herein and therein did not and will not conflict with or constitute a
breach of, or default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument known to
such counsel and to which the Company or any of its subsidiaries is a
party or by which it or any of them may be bound or to which any of
the property or assets of the Company or any of its subsidiaries is
subject, or any law, administrative regulation or administrative or
court decree known to such counsel to be applicable to the Company of
any court or governmental agency, authority or body or any arbitrator
having jurisdiction over the Company; nor will such action result in
any violation of the provisions of the charter or by-laws of the
Company.
(viii) To the best of such counsel's knowledge, the Company and
its subsidiaries own or possess or have obtained adequate trademarks,
servicemarks and trade names necessary to conduct the business now
operated by them, and neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted
rights of others with respect to any trademarks, service marks or
trade names which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected
to materially adversely affect the conduct of the business,
operations, financial condition or income of the Company and its
subsidiaries considered as one enterprise.
(ix) No consent, approval, authorization, or order of any court
or governmental authority or agency is required in connection with
the sale of the Securities by the Company, except such as may be
required under the 1933 Act or the 1933 Act Regulations or state
securities laws.
In giving his opinion, as required by this Section 5(b)(2) such
counsel may rely as to all matters of state law other than the laws of
the United States of America, the laws of the State of Arizona, and the
corporate laws of the State of Delaware, and as to all matters of
foreign law, upon opinions of counsel satisfactory to counsel to the
Managers, in which case, the opinion shall state that although such
counsel has not made an independent investigation of the laws other than
the General Corporations Law of the State of Delaware, or the laws of
Arizona or the United States, such counsel believes the Managers and he
are entitled so to rely. In giving the opinions referred to in the
foregoing clause (iv), such counsel may omit reference to a foreign
subsidiary so long as (A) he shall have delivered to the Lead Manager a
signed opinion of other counsel for such foreign subsidiary,
satisfactory to counsel to the Managers which other opinion shall give
substantially the same opinions with respect to such foreign subsidiary
as required by the foregoing clause (iv), and (B) he states that such
other opinion is satisfactory to him and that although he has not made
an independent investigation of the foreign laws applicable to such
foreign subsidiary, he believes the Managers are entitled to rely on
such other opinion.
(3) The opinion, dated as of Closing Time, of Brown & Wood, counsel
for the Managers, with respect to the matters set forth in clauses (ii)
through (vii), inclusive, and clause (i) of Section 5(b)(1) and 5(b)(2),
respectively.
(4) In giving their opinions required by subsections (b)(l), (b)(2)
and (b)(3), respectively, of this Section, Gibson, Dunn & Crutcher, Mr.
Hallinan and Brown & Wood shall each additionally state that nothing has
come to their attention that would lead such counsel to believe that the
Registration Statement (other than the financial statements, schedules
and other financial and statistical data included or incorporated
therein), at the time it became effective or at the Representation Date,
contained an untrue statement of a material fact or omitted to state a
material
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<PAGE> 13
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectuses (other than the
financial statements, schedules and other financial and statistical data
included or incorporated therein, as to which no statement need be
made), at the Representation Date (unless the term "Prospectuses" refers
to a prospectus which has been provided to the Managers or the
Underwriters, as the case may be, by the Company for use in connection
with the offering of the Securities that differs from the corresponding
Prospectus on file at the Commission at the time the Registration
Statement became effective, in which case at the time it is first
provided to the Managers or the Underwriters, as the case may be, for
such use) or at Closing Time, included an untrue statement of a material
fact or omitted 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.
(c) At Closing Time there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Prospectuses, any material adverse change in the condition, financial or
otherwise of the Company and its subsidiaries considered as one enterprise,
or in the earnings, business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise, whether or not arising
in the ordinary course of business, and the Lead Manager shall have
received a certificate of the President or a Vice President of the Company
and of the chief financial officer or chief accounting officer of the
Company, dated as of Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been initiated or threatened by
the Commission. As used in this Section 5(c), the term "Prospectuses" means
the Prospectuses in the form first used to confirm sales of the Securities.
(d) At the time of execution of this Agreement, the Lead Manager shall
have received from each of (i) Deloitte & Touche, (ii) KPMG Peat Marwick
and (iii) Coopers & Lybrand, a letter dated such date, in form and
substance satisfactory to the Lead Manager, and substantially in the same
form as the draft letter previously delivered to and approved by the Lead
Manager.
(e) At Closing Time the Lead Manager shall have received from Deloitte
& Touche a letter, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection
(d) of this Section, except that the "specified date" referred to in such
letter shall be a date not more than five days prior to Closing Time.
(f) At Closing Time counsel for the Managers shall have been furnished
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the International
Securities as herein contemplated and related proceedings, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained, all proceedings
taken by the Company in connection with the issuance and sale of the
Securities as herein contemplated shall be reasonably satisfactory in form
and scope to the Lead Manager and counsel for the Managers.
(g) At Closing Time, the Securities shall have been approved for
listing on the New York Stock Exchange.
(h) In the event that the Managers exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the International
Option Securities, the representations and warranties of the Company
contained herein and the statements in any certificates furnished by the
Company hereunder shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the Lead Manager shall have
received:
(1) A certificate, dated such Date of Delivery, of the President or
a Vice President of the Company and of the chief financial officer or
chief accounting officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(c) hereof remains
true and correct as of such Date of Delivery.
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<PAGE> 14
(2) The favorable opinion of Gibson, Dunn & Crutcher, counsel for
the Company, in form and scope satisfactory to counsel for the Managers,
dated such Date of Delivery, relating to the International Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Sections 5(b)(1) and 5(b)(4)
hereof.
(3) The favorable opinion of William J. Hallinan, Esq., General
Counsel of the Company, in form and scope satisfactory to counsel for
the Managers, dated such Date of Delivery, relating to the International
Option Securities to be purchased on such Date of Delivery and otherwise
to the same effect as the opinion required by Sections 5(b)(2) and
5(b)(4) hereof.
(4) The favorable opinion of Brown & Wood, counsel for the
Managers, dated such Date of Delivery, relating to the International
Option Securities to be purchased on such Date of Delivery and otherwise
to the same effect as the opinion required by Sections 5(b)(3) and
5(b)(4) hereof.
(5) A letter from Deloitte & Touche, in form and substance
satisfactory to the Lead Manager and dated such Date of Delivery,
substantially the same in form and substance as the letter furnished to
the Lead Manager pursuant to Section 5(e) hereof, except that the
"specified date" in the letter furnished pursuant to this Section
5(h)(5) shall be a date not more than five days prior to such Date of
Delivery.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Lead Manager by notice to the Company at any time at or prior to Closing Time
and such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Manager and each
person, if any, who controls any Manager within the meaning of Section 15 of the
1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the information deemed to be part of
the Registration Statement pursuant to Rule 430A(b) of the 1933 Act
Regulations, if applicable, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or any Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including,
subject to Section 6(c) hereof, the fees and disbursements of counsel
chosen by MLIL), incurred in investigating, preparing or defending against
any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under (i) or
(ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Manager through the Lead Manager expressly for use in the Registration Statement
(or any amendment thereto) or any preliminary prospectus or Prospectus (or any
amendment or supplement thereto). The foregoing indemnity with respect to any
untrue statement contained in or omission from a preliminary prospectus shall
-14-
<PAGE> 15
not inure to the benefit of any Manager (or any person controlling any such
Manager) from whom the person asserting any such loss, liability, claim, damage
or expense purchased any of the International Securities which are the subject
thereof if the Company shall sustain the burden of proving that such person was
not sent or given a copy of the International Prospectus (or the International
Prospectus as amended or supplemented) (in each case exclusive of the documents
from which information is incorporated by reference) at or prior to the written
confirmation of the sale of such International Securities to such person and the
untrue statement contained in or omission from such preliminary prospectus was
corrected in the International Prospectus (or the International Prospectus as
amended or supplemented).
(b) Each Manager severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Manager
through the Lead Manager expressly for use in the Registration Statement (or any
amendment thereto) or any such preliminary prospectus or Prospectus (or any
amendment or supplement thereto).
(c) Each indemnified party shall give as promptly as reasonably practicable
notice to each indemnifying party of any action commenced against it in respect
of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement, except
to the extent of any prejudice to such indemnifying party arising from such
failure to provide such notice. An indemnifying party may participate at its own
expense in the defense of such action. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
one local counsel per jurisdiction) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances.
(d) Any payment made by the Company pursuant to Section 6(a), or by any
Manager pursuant to Section 6(b), arising with respect to any loss, liability,
claim, damage or expense incurred in a currency other than U.S. dollars shall be
made by the Company, or such Manager, as the case may be, in such amount of U.S.
dollars as shall be necessary to enable the indemnified party to purchase the
amount of such other currency needed to satisfy such loss, liability, claim,
damage or expense, including any premiums and costs of exchange payable in
connection with conversion of U.S. dollars into the relevant currency.
Section 7. Contribution. To provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in Section 6
hereof is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company and the Managers
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by said indemnity agreement incurred by the
Company or one or more of the Managers, as incurred, in such proportions that
the Managers are responsible for that portion represented by the percentage that
the underwriting discount appearing on the cover page of the International
Prospectus bears to the initial public offering price appearing thereon and the
Company is responsible for the balance; provided, however, that no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Furthermore, in no event shall the Managers
be required to contribute an amount in excess of the total underwriting
discounts received by the Managers in connection with the transactions
contemplated by this Agreement. For purposes of this Section, each person, if
any, who controls a Manager within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as such Manager, and each director of
the Company, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act shall have the same rights to contribution as the Company.
-15-
<PAGE> 16
Section 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement and the International Pricing Agreement, or contained in certificates
of officers of the Company submitted pursuant hereto, shall remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of any Manager or controlling person, or by or on behalf of the Company, and
shall survive delivery of the Securities to the Managers and the Underwriters.
Section 9. Termination of Agreement.
(a) The Lead Manager may terminate this Agreement, immediately upon notice
to the Company, at any time at or prior to Closing Time (i) if there has been,
since the date of this Agreement or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or elsewhere or any outbreak or escalation of hostilities or
other calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the reasonable judgment of the Lead
Manager, impracticable to market the Securities or enforce contracts for the
sale of the Securities, or (iii) if trading in the Common Stock has been
suspended by the Commission or the New York Stock Exchange, or if trading
generally on any of the American Stock Exchange, the New York Stock Exchange,
the NASDAQ/NMS or the International Stock Exchange of the United Kingdom and the
Republic of Ireland Limited has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, by any of said Exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by federal
or New York authorities. As used in this Section 9(a), the term "Prospectuses"
means the Prospectuses in the form first used to confirm sales of the
Securities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof.
Section 10. Default by One or More of the Managers. If one or more of the
Managers shall fail at Closing Time to purchase the International Securities
which it or they are obligated to purchase under this Agreement and the
International Pricing Agreement (the "Defaulted Securities"), the Lead Manager
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting Managers, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the Lead
Manager shall not have completed such arrangements within such 24-hour period,
then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of International Securities, each of the non-defaulting Managers
shall be obligated, severally and not jointly, to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
International Securities, this Agreement shall terminate without liability
on the part of any non-defaulting Manager.
No action taken pursuant to this Section shall relieve any defaulting
Manager from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either the Lead Manager or the Company shall have the right to
postpone Closing Time for a period not exceeding seven days in order to effect
any required changes in the Registration Statement or Prospectuses or in any
other documents or arrangements.
Section 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Managers
shall be directed to the Lead Manager c/o Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, 10900 Wilshire Boulevard, Suite 900, Los
Angeles, California 90024, attention
-16-
<PAGE> 17
of Scott A. Ryles, Managing Director; notices to the Company shall be directed
to it at Dial Tower, 1850 N. Central Avenue, Phoenix, Arizona 85004-9857,
Attention: Robert J. Fitzsimmons, Vice President-Treasurer, facsimile: (602)
207-5543.
Section 12. Parties. This Agreement and the International Pricing
Agreement shall each inure to the benefit of and be binding upon the Managers
and the Company and their respective successors. Nothing expressed or mentioned
in this Agreement or the International Pricing Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Managers and
the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 hereof and their heirs
and legal representatives, any legal or equitable right, remedy or claim under
or in respect of this Agreement or the International Pricing Agreement or any
provision herein or therein contained. This Agreement and the International
Pricing Agreement and all conditions and provisions hereof and thereof are
intended to be for the sole and exclusive benefit of the Managers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any Manager shall be deemed to be a successor by reason merely of such purchase.
Section 13. Governing Law and Time. This Agreement and the International
Pricing Agreement shall be governed by and construed in accordance with the laws
of the State of New York applicable to agreements made and to be performed in
said State. Except as otherwise provided, specified times of day refer to New
York City time.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Managers and the Company in accordance with its terms.
Very truly yours,
GFC FINANCIAL CORPORATION
By_______________________
Samuel L. Eichenfield
Chairman and Chief
Executive Officer
Confirmed and Accepted,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL LIMITED
By:
---------------------------------
Name:
For itself and as Lead Manager
of the other Managers named
in Schedule A hereto.
-17-
<PAGE> 18
SCHEDULE A
<TABLE>
<CAPTION>
NAME OF NUMBER OF INITIAL
MANAGER INTERNATIONAL SECURITIES
------------------------------------------------------------------ ------------------------
<S> <C>
Merrill Lynch International Limited...............................
------------
Total................................................... 1,400,000
------------
------------
</TABLE>
-18-
<PAGE> 19
EXHIBIT A
1,400,000 SHARES
GFC FINANCIAL CORPORATION
(A DELAWARE CORPORATION)
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
INTERNATIONAL PRICING AGREEMENT
April , 1994
MERRILL LYNCH INTERNATIONAL LIMITED
as Lead Manager of the several
Managers named in the within-
mentioned Purchase Agreement
Merrill Lynch International Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Dear Sirs:
Reference is made to the International Purchase Agreement, dated April ,
1994 (the "International Purchase Agreement"), relating to the purchase by the
several Managers named in Schedule A thereto, for whom Merrill Lynch
International Limited is acting as lead manager (the "Lead Manager"), of the
above shares of Common Stock (the "Initial International Securities"), of GFC
Financial Corporation (the "Company") and relating to the option granted to such
Managers to purchase up to an additional 210,000 shares of Common Stock of the
Company to cover over-allotments in connection with the sale of the Initial
International Securities (the "International Option Securities"). The Initial
International Securities and the International Option Securities are
collectively herein referred to as the International Securities.
Pursuant to Section 2 of the International Purchase Agreement, the Company
agrees with each Manager as follows:
1. The initial public offering price per share for the International
Securities, determined as provided in said Section 2, shall be $ .
2. The purchase price per share for the International Securities to be
paid by the several Managers shall be $ , being an amount equal to
the initial public offering price set forth above less $ per
share.
A-1
<PAGE> 20
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Managers and the Company in accordance with its terms.
Very truly yours,
GFC FINANCIAL CORPORATION
By________________________
Samuel L. Eichenfield
Chairman and Chief
Executive Officer
Confirmed and Accepted,
as of the date first above
written:
MERRILL LYNCH INTERNATIONAL LIMITED
By:
-------------------------------
Name:
For itself and as Lead Manager
of the other Managers named
in the International
A-2
<PAGE> 1
EXHIBIT 5.1
GIBSON, DUNN & CRUTCHER
LAWYERS
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071-3197
---------------
(213) 229-7000
TELEX: 674930 GIBTRASK LSA
FACSIMILE: (213) 229-7520
April 12, 1994
GFC Financial Corporation
Dial Tower
Phoenix, Arizona 85077
Re: GFC Financial Corporation -- Form S-3
Registration Statement (No. 33-52957)
Gentlemen:
We have acted as counsel for GFC Financial Corporation, a Delaware
corporation (the "Company"), in connection with the registration by the Company
of 8,050,000 shares of the Company's Common Stock, $.01 par value (the
"Shares"), on Form S-3 Registration Statement No. 33-52957 (the "Registration
Statement") under the Securities Act of 1933, as amended. We understand that the
Company proposes to sell (the "U.S. Offering") a portion of the Shares in the
United States and Canada to a group of underwriters (the "Underwriters") for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated will act as
representative and sell (the "International Offering") a portion of the Shares
outside of the United States and Canada to a group of underwriters (the
"Managers") for whom Merrill Lynch International Limited will act as lead
manager.
On the basis of such investigation as we deem necessary, we are of the
opinion that the Shares have been duly authorized and, when issued and sold in
accordance with the terms of the Registration Statement and a purchase agreement
between the Company and the Underwriters with respect to the U.S. Offering and a
purchase agreement between the Company and the Managers with respect to the
International Offering, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" contained in the prospectus that forms a part of the
Registration Statement.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER
GIBSON, DUNN & CRUTCHER
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference and to the use in this
Amendment No. 1 to Registration Statement No. 33-52957 of GFC Financial
Corporation on Form S-3 of our reports dated March 4, 1994, appearing in the
Annual Report on Form 10-K/A of GFC Financial Corporation for the year ended
December 31, 1993 and appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
DELOITTE & TOUCHE
Phoenix, Arizona
April 18, 1994
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in Amendment No. 1 to the
registration statement (No. 33-52957) on Form S-3 of GFC Financial Corporation
of our report on Fleet Factors Corporation (a wholly-owned subsidiary of Fleet
Financial Group, Inc.) dated January 28, 1994, relating to the balance sheets as
of November 30, 1993 and December 31, 1992 and the related statements of income,
changes in stockholder's equity, and cash flows for the eleven months ended
November 30, 1993 and the year ended December 31, 1992, which report appears in
the February 14, 1994 Form 8-K of GFC Financial Corporation and to the reference
to our Firm under the heading "Experts" in the prospectus, which is part of the
registration statement.
KPMG PEAT MARWICK
PROVIDENCE, RHODE ISLAND
APRIL 18, 1994
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in Amendment No.
1 to the registration statement of GFC Financial Corporation on Form S-3 (File
No. 33-52957) of our report dated February 7, 1994 on our audits of the
consolidated financial statements of TriCon Capital Corporation -- Predecessor
Business, which report is included in this registration statement and the Annual
Report on Form 10-K of GFC Financial Corporation and includes an explanatory
paragraph for certain accounting changes. We also consent to the reference to
our firm under the caption "Experts."
COOPERS & LYBRAND
NEW YORK, NEW YORK
APRIL 18, 1994
