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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
Commission File Number 1-11237
AT&T CAPITAL CORPORATION
A DELAWARE I.R.S. EMPLOYER
CORPORATION NO. 22-3211453
44 Whippany Road, Morristown, New Jersey 07962-1983
Telephone Number 201-397-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
No voting stock of this registrant is held by any non-affiliates of the
registrant. At July 31, 1997, 90,337,379 shares of the registrant's Common
Stock, par value $.01 per share, were issued and outstanding.
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AT&T CAPITAL CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1996* 1997 1996*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Finance revenue $ 54,857 $ 49,712 $109,166 $ 96,963
Capital lease revenue 89,959 160,838 180,706 323,209
Rental revenue on
operating leases (A) 200,328 167,408 397,051 325,486
Revenue from securitizations
and loan sales 21,396 3,108 34,428 10,374
Equipment sales 12,565 29,890 20,740 48,596
Other revenue, net 57,288 49,655 115,231 95,256
------- ------- -------- -------
Total Revenues 436,393 460,611 857,322 899,884
------- ------- -------- -------
Expenses:
Interest 108,852 116,485 214,169 230,072
Operating and
administrative 130,748 126,042 267,031 248,409
Depreciation on
operating leases 133,176 109,550 265,152 211,941
Cost of equipment
sales 11,423 24,618 18,652 40,659
Provision for credit
losses 22,678 23,232 45,957 48,536
------- ------- -------- -------
Total Expenses 406,877 399,927 810,961 779,617
Distributions on Company
-obligated preferred
securities of subsidiary 4,530 - 9,060 -
------- ------- ------- -------
Income before income
taxes 24,986 60,684 37,301 120,267
Provision for income
taxes 9,791 22,905 14,678 45,444
-------- ------- -------- --------
Net Income $ 15,195 $ 37,779 $ 22,623 $ 74,823
======== ======== ======== ========
</TABLE>
2
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A) Includes $21,187 for the three months ended June 30, 1996
and $44,403 for the six months ended June 30, 1996,
respectively, from AT&T Corp.("AT&T"), Lucent Technologies Inc.
("Lucent") and NCR Corporation ("NCR")(herein, "AT&T/Lucent/NCR"
or the "Former Affiliates").
*Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
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AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 9,028 $ -
Net investment in finance receivables 2,146,147 2,135,250
Net investment in capital leases 3,560,019 3,648,731
Net investment in operating
leases, net of accumulated
depreciation of $872,024 in
1997 and $777,905 in 1996 1,478,476 1,403,470
Deferred charges and other assets 799,505 788,935
Deferred income taxes 183,922 116,126
--------- ---------
Total Assets $8,177,097 $8,092,512
========= =========
LIABILITIES, PREFERRED SECURITIES AND SHAREOWNERS' EQUITY:
Liabilities:
Short-term notes, less unamortized
discounts of $5,720 in 1997 and
$3,112 in 1996 $1,631,155 $1,867,247
Income taxes and other payables 535,987 580,575
Payables to affiliates and
Former Affiliates 46,999 139,706
Medium and long-term debt 5,033,366 4,597,677
--------- ---------
Total Liabilities 7,247,507 7,185,205
--------- ---------
Commitments and contingencies
Preferred Securities:
Company-obligated preferred
securities of subsidiary 200,000 200,000
--------- ---------
Shareowners' Equity:
Common stock, one cent par value:
Authorized 150,000,000 shares,
issued and outstanding, 90,337,379
shares in 1997 and 90,198,571 shares
in 1996 903 902
Additional paid-in capital 636,942 633,676
Recourse loans to senior executives (16,821) (15,697)
Foreign currency translation
adjustments (4,096) (3,502)
Retained earnings 112,662 91,928
--------- ---------
Total Shareowners' Equity 729,590 707,307
--------- ---------
Total Liabilities, Preferred
Securities and Shareowners' Equity $8,177,097 $8,092,512
========== ==========
</TABLE>
4
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AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For The Six Months
Ended June 30,
1997 1996*
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,623 $ 74,823
Noncash items included in income:
Depreciation and amortization 254,793 213,536
Deferred taxes (59,544) (3,117)
Provision for credit losses 45,957 48,536
Revenue from securitizations and loan sales (34,428) (10,374)
Decrease (increase) in deferred charges and
other assets 44,069 (34,345)
(Decrease) increase in income taxes and other
payables (48,839) 4,092
(Decrease) increase in payables to
affiliates and Former Affiliates (27,245) 627
--------- ---------
Net Cash Provided by Operating Activities 197,386 293,778
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Financings and lease equipment purchases (2,903,909) (2,901,826)
Principal collections from customers 1,750,266 2,009,146
Cash proceeds from securitizations and
loan sales 768,945 199,136
--------- ---------
Net Cash Used for Investing Activities $ (384,698) $ (693,544)
--------- ---------
</TABLE>
(Continued)
5
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AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For The Six Months
Ended June 30,
1997 1996*
-------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term notes, net $ (236,092) $ 20,801
Additions to medium and long-term debt 1,848,471 1,281,350
Repayments of medium and long-term debt (1,416,039) ( 729,641)
Decrease in payables to Former Affiliates - (18,253)
Dividends paid - (10,324)
--------- ---------
Net Cash Provided by Financing Activities 196,340 543,933
--------- ---------
Net Increase in Cash and Cash
Equivalents 9,028 144,167
Cash and Cash Equivalents at Beginning of Period 0 3,961
---------- ----------
Cash and Cash Equivalents at End of Period $ 9,028 $ 148,128
========== ==========
</TABLE>
In the first six months of 1997 and 1996, the Company entered into capital lease
obligations of $3,256 and $20,503, respectively, for equipment that was
subleased.
* Certain 1996 amounts have been restated to conform to the 1997
presentation.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
6
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AT&T CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by AT&T Capital Corporation and its subsidiaries ("AT&T Capital" or the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in the opinion of management, reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the results of operations, financial position and cash flows for each period
shown. The results for interim periods are not necessarily indicative of
financial results for the full year. These unaudited consolidated financial
statements should be read in conjunction with the audited Consolidated Financial
Statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
2. Recent Pronouncements
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. It allows companies to
choose either 1) a fair value method of valuing stock-based compensation plans
which will affect reported net income, or 2) to continue to follow the existing
accounting rules for stock option accounting but disclose what the impacts would
have been had the fair value method been adopted. The Company adopted the
disclosure alternative which requires annual disclosure of the pro forma net
income and earnings per share amounts assuming the fair value method was adopted
on January 1, 1995. As a result, the adoption of this standard did not have any
impact on the Company's consolidated financial statements.
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement requires that liabilities and
derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value, if practical. It also
requires that servicing assets and other retained interests in the transferred
assets be measured by allocating the previous carrying amount between the assets
sold, if any, and retained interests, if any, based on their relative fair
values at the date of the transfer. This statement was effective for transfers
and servicing of financial assets and extinguishment of liabilities occurring
after December 31, 1996 and application is prospective. In December 1996, SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125" was issued. Management does not expect the adoption of either standard
to have a material impact on the Company's consolidated financial statements.
7
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In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure". SFAS No. 129, which is applicable to all entities,
requires disclosure of information about the liquidation preference of preferred
stock, redeemable stock, and certain other disclosures. SFAS No. 129 is
effective for financial statements for periods ending after December 15, 1997
which for the Company will be 1997. Management does not expect that the adoption
of SFAS No. 129 will have any impact on the consolidated financial statements.
In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 requires total comprehensive income to be reported in a
financial statement. Comprehensive income is defined as the total of net income
and all other non-owner changes in equity. SFAS No. 130 is effective for
financial statements for periods ending after December 15, 1997 which for the
Company will be 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information". SFAS No. 131 establishes a new model for
segment reporting. The Statement requires reporting of financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. It also
requires reporting of certain information about products and services,
geographic areas of operation, and major customers. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997 which for
the Company will be 1998. Comparative information for earlier years will be
restated.
3. Derivative Disclosure
For a discussion regarding the Company's derivatives and related accounting
policies, see Notes 2, 11, and 15 to the Consolidated Financial Statements
included in the Company's 1996 Annual Report filed on Form 10-K. In addition,
the following information is provided pursuant to the SEC's Financial Reporting
Release No. 48 issued in 1997, the purpose of which is to enhance disclosures
regarding derivatives and other financial instruments.
Foreign Currency Forward Exchange Contracts
The Company enters into foreign currency forward exchange contracts to manage
foreign exchange risk (primarily British pounds and Canadian dollars). In the
event of an early termination, sale or extinguishment of such a contract is
determined to be a hedge, the gain or loss shall continue to be deferred over
the remaining term of the contract. The exchange of the principal amount under
the foreign currency forward exchange contracts is reflected in the statement
of cash flows in the "short-term notes, net" amount since the underlying amount
is generally commercial paper.
Interest Rate Swaps and Currency Swaps
Interest rate swaps and the interest component of the currency swaps generally
include the exchange of interest payments without the exchange of underlying
principal amounts. The difference between the two interest payments is recorded
as an adjustment to interest expense and is reflected in the statement of cash
flows in the "net income" amount. The exchange of the principal amount under the
currency swap is reflected in the statement of cash flows in the
"short-term notes, net" amount since the underlying amount is generally
commercial paper.
8
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4. Subsidiary Debentures
The table below shows summarized consolidated financial information for
AT&T Capital Leasing Services, Inc. and AT&T Capital Services Corporation, both
wholly owned subsidiaries of the Company. The Company has guaranteed, on a
subordinated basis, payment on debentures issued by these subsidiaries.
<TABLE>
<CAPTION>
AT&T Capital Leasing Services, Inc. For the six months ended
June 30,
(Dollars in Thousands)
(unaudited)
1997 1996
---- ----
<S> <C> <C>
Total revenues $ 75,929 $117,241
Interest expense 21,156 38,528
Operating and administrative expenses 41,492 41,531
Provision for credit losses 24,051 21,371
Income (loss) before taxes (12,196) 14,724
Net (loss) income ( 7,335) 8,864
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
(unaudited)
<S> <C> <C>
Total assets $668,373 $628,943
Total debt 558,749 507,180
Total liabilities 629,268 597,203
Total shareowner's equity 39,105 31,742
</TABLE>
<TABLE>
<CAPTION>
AT&T Capital Services Corporation For the six months ended
June 30,
(Dollars in Thousands)
(unaudited)
1997 1996
---- -----
<S> <C> <C>
Total revenues $ 58,809 $ 50,809
Interest expense 3,395 2,321
Operating and administrative expenses 23,517 20,883
Provision for credit losses 591 -
Income before taxes 2,344 5,753
Net income 1,356 3,415
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- -----------
(unaudited)
<S> <C> <C>
Total assets $150,913 $161,232
Total debt 112,269 116,545
Total liabilities 135,176 145,565
Total shareowner's equity 15,737 15,667
</TABLE>
9
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AT&T CAPITAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD LOOKING STATEMENTS
When included in this Quarterly Report on Form 10-Q, the words, "will",
"should", "expects", "intends", "anticipates", "estimates" and similar
expressions, among others, identify forward looking statements for purposes of
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"). Such statements, which include statements contained in this
Item 2, inherently are subject to a variety of risks and uncertainties that
could cause actual results to differ materially from those set forth in such
statements. Such risks, many of which are beyond the control of AT&T Capital
Corporation (the "Company"), and uncertainties include, among others, those
described under "Risk Factors" included in Item 7 of the Company's 1996 Annual
Report on Form 10-K. These forward looking statements are made only as of the
date of this Quarterly Report on Form 10-Q. The Company expressly disclaims any
obligation or undertaking to release any update or revision to any forward
looking statement contained herein to reflect any change in the Company's
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
RESULTS OF OPERATIONS
Three months ended June 30, 1997 vs. June 30, 1996
Unless otherwise indicated, all period to period comparisons represent
activity or balances at or for the three months ended June 30, 1997 versus June
30, 1996.
Net income of $15.2 million decreased $22.6 million, or 59.8%. Second
quarter 1997 net income was lower due to the decreased level of capital lease
revenue as a result of the recent increased level of securitization activity,
higher interest expense associated with higher leverage, a lower level of
sales of off-lease equipment, and distributions on Preferred Securities (as
defined herein). The securitization of $3.1 billion of assets in the fourth
quarter of 1996, higher leverage and the distributions on Preferred Securities
resulting from the Company's recapitalization in connection with its merger in
the fourth quarter of 1996 (the "Merger"), reduced net income by approximately
$30-$35 million. Somewhat offsetting these factors were increases in revenue
from securitizations and loan sales, operating lease margin and other revenue.
In light of the Company's significant securitization during the fourth
quarter of 1996, coupled with the Company's post-Merger recapitalization,
management expects 1997 quarterly income results to continue to be significantly
less than the comparable 1996 periods. However, management expects 1997 earnings
performance to continue to improve as the Company more fully transitions to
its new financing strategy of securitizing one-third of its annual volumes.
10
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Finance revenue of $54.8 million increased $5.1 million, or 10.4%. An 11.0%
increase in the average net finance receivables accounted for $5.5 million of
the increase, while the decrease in the average yield to 10.15% from 10.21%
offset this increase by $0.4 million. Increases in the finance receivables
portfolio were generated primarily through growth in the large-ticket structured
finance and small-ticket portfolios. The decline in yield was experienced by
many of the Company's businesses and relates to increased competitive pressures
and the mix of the assets recently securitized (see below for a discussion of
the impact of securitizations on yields). In addition, a few large nonearning
accounts are also depressing the overall yield. See "Credit Quality" for a
discussion of these accounts.
Capital lease revenue of $90.0 million decreased $70.9 million, or 44.1%,
due primarily to a 42.4% decrease in the average net capital lease portfolio.
The decrease in the average portfolio was primarily due to the $3.0 billion
securitization in the fourth quarter of 1996 involving primarily capital leases.
The overall yield on capital leases decreased from 10.4% to 10.0%. The reduction
in yields occurred for several reasons including the effects of securitizing
higher yielding assets, run-off of relatively higher yielding leases and
competitive pressures. The Company's securitizations have generally included
small-ticket products having higher yields and margins as compared to larger
ticket products. Therefore, as securitizations occur, the proportion of these
higher yielding products in the Company's owned portfolio is reduced causing a
decrease in yields. Higher yields are not necessarily associated with higher
profitability, since these assets commonly carry higher credit provisions and
servicing costs.
Rental revenue on operating leases of $200.3 million increased $32.9
million, or 19.7%. Depreciation expense on operating leases of $133.2 million
increased $23.6 million, or 21.6%. Rental revenue less associated depreciation
("operating lease margin") was $67.2 million, or 33.5% of rental revenue,
compared with $57.9 million, or 34.6% of rental revenue for the comparable prior
year period. The decreased operating lease margin relates primarily to increased
depreciation on certain telecommunications equipment in lease renewal coupled
with a slightly lower utilization rate of testing and diagnostic equipment.
Net interest margin (finance revenue, capital lease revenue and rental
revenue, less depreciation on operating leases and interest expense) ("margin")
was $103.1 million or 5.73% of average net portfolio assets. This compares with
a margin of $151.9 million or 6.54% for the same period last year. The reduced
margin of $48.8 million is due to lower portfolio revenue and higher interest
expense resulting from higher leverage associated with the Company's post-Merger
recapitalization, offset by lower interest expense associated with carrying a
lower level of portfolio assets. Average net portfolio assets of $7.2 billion
were $2.2 billion lower than the comparative prior year quarter resulting in a
decrease in portfolio revenue of approximately $61.6 million. A slight increase
in the overall portfolio yield to 11.79% from 11.50%, due to a shift in the mix
toward operating leases, offset the decrease in revenue by approximately $5.2
million. The Company's post-Merger recapitalization includes higher debt
relative to assets, and the interest expense associated with carrying such
11
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higher relative debt reduced the second quarter's margin by approximately $21.0
million. The lower level of debt associated with a smaller asset base decreased
interest expense by $28.6 million.
Revenue from sales of equipment of $12.6 million decreased 58.0% from $29.9
million. Similarly, cost of equipment sales of $11.4 million decreased from
$24.6 million. Equipment sales revenue less associated cost of equipment sales
("equipment sales margin") was $1.1 million, or 9.1% of equipment sales revenue
this quarter and $5.3 million, or 17.6% in the prior year quarter. The drop in
both equipment sales revenue and margin highlights the unusually strong results
attained in the previous year's second quarter. During 1996, equipment sales and
margin were bolstered by strong demand for mainframes and emerging technology
equipment. Volume and profitability from equipment sales tend to follow customer
behavior and generally are difficult to predict.
Securitization and loan sales revenue increased $18.3 million to $21.4
million. Higher securitization revenue accounted for $14.8 million of the
increase, with the remaining increase of $3.5 million attributable to higher
loan sales revenue. Higher securitization and loan sales revenue was generated
through the sale of $317.3 million of loans and leases in the second quarter of
1997 compared with $33.1 million in 1996.
Other revenue of $57.3 million increased $7.6 million, or 15.4%. Service
revenue more than doubled, up from $4.0 million to $10.1 million in 1997,
reflecting a higher managed asset base. Fee income of $5.3 million grew from the
$2.8 million earned in the prior year as a result of providing software
development services. Somewhat offsetting these improvements was a $4.2 million
decrease in gain on asset sales of $20.4 million primarily as a result of
decreases in the automotive business due to competitive pressures.
Average borrowings outstanding of $6.8 billion decreased 5.9%, or $.4
billion. This decrease was primarily due to a decrease in asset volume as a
result of increased securitization activity. Interest expense of $108.9 million
decreased 6.6%, or $7.6 million. The higher relative proportion of debt to
assets contributed approximately $21.0 million in higher interest, which was
more than offset by the approximately $28.6 million reduction to interest
primarily resulting from carrying fewer assets. The Company's average cost of
debt of 6.41% was slightly down from 6.46% in the prior year. The Company
issued medium and long term debt in the second quarter at an average rate of
6.51%, compared to debt maturing at an average rate of 6.3%.
Operating and administrative ("O&A") expenses of $130.7 million increased
$4.7 million, or 3.7%. Higher expenses are predominantly due to managing a
higher level of owned and managed assets. As a percentage of owned and managed
assets, second quarter annualized O&A expenses were 4.03% and 4.11% at June 30,
1997 and 1996, respectively. The Company's goal is to reduce this ratio to 3.5%
in a few years. (Please refer to the first paragraph of Management's Discussion
and Analysis of Financial Condition and Results of Operations, "Forward Looking
Statements" for a discussion of the risks inherent in forward looking
statements.)
See "Credit Quality" below for a discussion of the provision for credit
losses.
12
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The accompanying consolidated statement of income for the current period
includes $4.5 million of quarterly distributions paid on trust originated,
Company-obligated preferred securities of subsidiary. These distributions relate
to $200 million of preferred securities issued in connection with the
recapitalization associated with the Merger (the "Preferred Securities").
The effective income tax rates were 39.2% and 37.7% for the second quarters
of 1997 and 1996, respectively. The increase in the overall rate is due to
higher effective state and foreign tax rates.
The Company has continued to expand its non-AT&T/Lucent/NCR business. For
the second quarter of 1997, non-AT&T/Lucent/NCR businesses represented 74.0%,
65.2% and 8.9% of the Company's total assets, revenues and net income,
respectively. That compares to 67.2%, 62.7% and 27.8%, of the Company's total
assets, revenues and net income, respectively, for the second quarter of 1996.
The decrease in non-AT&T/Lucent/NCR net income is consistent with lower
portfolio revenue generated from lower average net portfolio assets (as a result
of the $3.1 billion securitization in the fourth quarter of 1996), increased
costs incurred in connection with the foreign businesses (largely
non-AT&T/Lucent/NCR) and lower relative securitization gains compared to
AT&T/Lucent/NCR related gains. The Company anticipates ongoing
securitization activity equal to approximately one-third of the Company's total
annual financing volumes. As a result, the assets, revenues and net
income/(loss) of the non-AT&T/Lucent/NCR business will vary depending upon the
mix of assets securitized. (Please refer to the first paragraph of Management's
Discussion and Analysis of Financial Condition and Results of Operations,
"Forward Looking Statements" for a discussion of the risks inherent in forward
looking statements.)
13
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Six months ended June 30, 1997 versus June 30, 1996
Unless otherwise indicated, all period to period comparisons represent
balances or activity at or for the six months ended June 30, 1997 versus June
30, 1996, respectively.
Net income of $22.6 million decreased 69.8% from $74.8 million. Net income
was lower due to the decreased level of capital lease revenue as a result of the
recent increased level of securitization activity, higher interest expense
associated with higher leverage and distributions on Preferred Securities. The
impact of securitizing $3.1 billion of assets in the fourth quarter of 1996,
higher leverage and the distributions on Preferred Securities resulting from the
Company's recapitalization in connection with the Merger, reduced net income by
approximately $65-$75 million. Somewhat offsetting these factors were increases
in revenue from securitizations and loan sales, other revenue and operating
lease margin.
Finance revenue of $109.2 million increased 12.6% from $97.0 million. The
14.5% increase in average net finance receivables accounted for $14.0 million of
the increase. A slightly lower yield of 10.09% from 10.26% offset $1.8 million
of the increase. The growth in the portfolio was primarily due to the increase
in the large-ticket structured finance and small-ticket portfolios. The
reduction in yield is due to the same factors described in the three months
ended June 30, 1997 discussion.
Capital lease revenue of $180.7 million decreased 44.1% from $323.2 million
due primarily to a 41.3% decrease in the average net capital lease portfolio.
The decrease in the average portfolio was principally due to the $3.0 billion
securitization in the fourth quarter of 1996 involving primarily capital leases.
Revenue on operating leases of $397.1 million increased 22.0% and
depreciation expense on operating leases of $265.2 million increased 25.1%.
Operating lease margin was $131.9 million, or 33.2% of rental revenue compared
with $113.5 million, or 34.9% of rental revenue. Refer to the three month
discussion of operating lease revenue for a discussion of the variance.
Net interest margin of $207.6 million or 5.74% of average net portfolio
assets decreased from $303.6 million or 6.55% in the prior year. The reduced
margin of $96.0 million is due to lower portfolio revenue, higher relative
interest expense associated with the Company's post-Merger capitalization
structure, offset by lower interest expense associated with carrying a lower
level of portfolio assets. Average net portfolio assets of $7.2 billion were
$2.0 billion lower than the comparative prior year generating lower portfolio
revenue of approximately $117.3 million. A slight increase in the overall
portfolio yield of 11.66% from 11.51%, due to a shift in the mix toward
operating leases, offset the revenue drop by approximately $5.4 million. The
Company's post-Merger recapitalization resulted in higher leverage. The interest
expense associated with carrying such higher relative debt reduced the margin by
approximately $42.0 million. The lower level of debt associated with a smaller
asset base decreased interest expense by $57.9 million.
Revenue from sales of equipment of $20.7 million decreased 57.3% from $48.6
million. Similarly, cost of equipment sales of $18.6 million decreased 54.1%
from $40.7 million. Equipment sales margin of $2.1 million, or 10.1% of revenue
from sales of equipment decreased from $7.9
14
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<PAGE>
million, or 16.3%. Refer to the three month discussion of results for a
discussion of lower equipment sales revenue and margin.
Securitization and loan sales revenue increased $24.1 million to $34.4
million. Higher securitization revenue accounted for $19.0 million of the
increase, with the remaining increase of $5.1 million attributable to higher
loan sales revenue. Higher securitization and loan sales revenue was generated
through the sale of $708.6 million of loans and leases in the six months ended
June 30, 1997 compared to $130.9 million for the prior year.
Other revenue increased 21.0% to $115.2 million from $95.3 million. Service
revenue more than doubled from $8.5 million to $19.8 million. Fee income of
$10.3 million increased $5.1 million from $5.2 million. Refer to the three month
discussion of other revenue for explanation of these increases.
Average borrowings outstanding of $6.7 billion decreased 5.2%, or $.4
billion. This decrease was primarily due to a smaller asset base as a result of
increased securitization activity. Interest expense of $214.2 million decreased
6.9%, or $15.9 million. The higher relative proportion of debt to assets
contributed $42.0 million in higher interest, which was more than offset by the
$57.9 million reduction to interest resulting from carrying fewer assets.
O&A expenses of $267.0 million increased 7.5% from $248.4 million. This
increase was due to increased costs associated with managing a higher level of
assets. Total owned and managed assets of $13.0 billion grew 5.8% from the $12.3
billion reported at June 30, 1996. As a percent of owned and managed assets,
annualized O&A expenses of 4.12% were up slightly from 4.05% at June 30, 1996.
In addition to servicing a larger portfolio, certain technology systems
investments and costs relating to the Company's separation from AT&T have
contributed to the increase in the O&A ratio.
See "Credit Quality" below for a discussion of the provision for credit
losses.
The accompanying consolidated statement of income for the current period
includes $9.1 million of distributions paid on $200 million of Preferred
Securities.
The Company's effective income tax rate of 39.3% increased from 37.8%. Refer
to the three month discussion for the explanation of the increase.
Non-AT&T/Lucent/NCR businesses represented 74.0%, 63.9% and (30.9%) of the
total assets, revenues and net income, respectively. That compares to 67.2%,
61.8% and 28.4%, respectively. The 1997 non-AT&T/Lucent/NCR net loss is
consistent with lower portfolio revenue generated from lower average net
portfolio assets (as a result of the $3.1 billion securitization in the fourth
quarter of 1996), increased costs incurred in connection with the foreign
businesses (largely non-AT&T/Lucent/NCR) and lower relative securitization
gains compared to AT&T/Lucent/NCR related gains. Refer to the three month
discussion for a description of certain factors affecting the
non-AT&T/Lucent/NCR results.
CREDIT QUALITY
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<PAGE>
The active management of credit losses is an important element of the
Company's business. The Company seeks to minimize its credit risk through
diversification of its portfolio assets by customer, industry segment,
geographic location and maturity. The Company's financing activities have been
spread across a wide range of equipment types (e.g., telecommunications, general
equipment (such as general office, manufacturing and medical equipment),
information technology and transportation) and real estate and a large number of
customers located throughout the United States and, to a lesser extent, abroad.
The following chart (dollars in millions) reflects the Company's portfolio
credit performance indicators:
<TABLE>
<CAPTION>
At At
June 30, December 31,
1997 1996 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for credit losses $155.6 $238.6 $169.0
Allowance for credit losses/Portfolio assets 2.12% 2.44% 2.30%
Non-accrual assets $150.2 $150.3 $135.1
Non-accrual assets/Portfolio assets 2.05% 1.54% 1.84%
Net charge-offs*/Portfolio assets 1.08% .55% 1.17%
Delinquency-owned assets
(two months or greater) 2.77% 1.99% 2.56%
Delinquency-owned and securitized assets
(two months or greater) 2.49% 2.09% 2.18%
</TABLE>
(*) Net charge-offs are based upon the twelve months ended June 30, 1997 and
1996 and December 31, 1996.
The 1997 second quarter provision for credit losses of $22.7 million
decreased $.5 million, or 2.4% compared to the second quarter of 1996. For the
first half of 1997, the provision for credit losses of $46.0 million reflects a
5.3% decrease over the prior years. These decreases are consistent with the
decrease in small-ticket assets as a result of continuing securitization
activity. Generally, the relative provisions recorded on medium and large-ticket
transactions are lower than small-ticket assets.
The increase in the ratio of net charge-offs/portfolio assets over the
second quarter of 1996 is reflective of an $11.2 million write-off of a
large financing taken in the third quarter of 1996.
The decrease in the allowance for credit losses and related ratio is due to
the decrease in portfolio assets and the portfolio shift away from small-ticket
assets.
The increase in nonaccrual assets to portfolio assets over June 30, 1996 is
primarily due to a $27.1 million project finance transaction.
The increase in the delinquencies since year-end and June 30, 1996 of both
owned and owned and managed assets, is primarily due to the project finance
transaction discussed above.
The Company maintains an allowance for credit losses at a level management
believes is adequate to cover estimated losses in the portfolio based on a
review of historical loss experience, a detailed analysis of delinquencies and
problem portfolio assets, and an assessment of probable
16
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<PAGE>
losses in the portfolio, as a whole, given its diversification. Management also
takes into consideration the potential impact of existing and anticipated
economic conditions.
FINANCIAL CONDITION
Net portfolio assets remained flat at $7.2 billion at June 30, 1997 compared
to December 31, 1996. In the first half of 1997, the Company securitized $453.5
million of capital leases and $165.3 million of finance receivables. Capital
leases decreased $88.7 million, which reflects the impact of the securitization
offset, in part, by new capital lease originations. Finance receivable
originations in the first half of 1997 offset the effect of securitizations,
keeping finance receivables flat at $2.1 billion. The increase of $75.0 million
in operating leases to $1.5 billion was experienced by many of the Company's
businesses.
The total owned and managed portfolio assets at June 30, 1997 of $13.0
billion increased slightly from $12.9 at December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of 1997, the Company issued short-term debt of $24.6
billion and repaid $24.8 billion (principally commercial paper) and issued
medium and long-term debt of $1.8 billion and repaid $1.4 billion. In the first
six months of 1996, the Company issued commercial paper of $12.6 billion and
made repayments of $12.6 billion and issued medium and long-term debt of $1.3
billion and repaid $.7 billion.
During the six month periods ended June 30, 1997 and 1996, principal
collections from customers, proceeds from securitized receivables and loan sales
aggregating $2.5 billion and $2.2 billion were received, respectively. These
receipts were primarily used for finance receivables and lease equipment
purchases of $2.9 billion in the first half of 1997 and 1996.
The Company maintains a back-up credit facility of $1.8 billion. This
facility, negotiated with a consortium of 25 lending institutions, supports its
commercial paper. At June 30, 1997, this facility was unused. Under the most
restrictive provision of the Company's back-up facility, the Company is required
to maintain a minimum consolidated tangible net worth (based on a formula that
includes a portion of current net income) of $558.2 million at June 30, 1997.
The Company is in compliance with this and all other covenants of the agreement.
As of June 30, 1997, the Company has $2.2 billion of debt securities available
for issuance under an effective registration statement. To meet local
funding requirements, the Company's foreign operations have available lines of
credit of approximately $297.2 million, of which approximately $58.0 million was
available at June 30, 1997.
Net cash provided by operating activities for the first half of 1997 was
$197.4 million as compared to net cash provided of $293.8 million in the similar
prior-year period. The change in the level of cash associated with operating
activities is a function of lower net income (as previously discussed) and a
reduction in the Company's payables.
Future financing is contemplated to be arranged as necessary to meet the
Company's capital and other requirements with the timing of issue,
17
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<PAGE>
principal amount and form depending on the Company's needs and prevailing market
and general economic conditions.
The Company considers its current financial resources, together with the
debt facilities referred to above and estimated future cash flows, to be
adequate to fund the Company's future growth and operating requirements.
The Company's ratio of debt to equity plus Preferred Securities was 7.17 at
June 30, 1997 similar to the December 31, 1996 ratio of 7.13.
ASSET AND LIABILITY MANAGEMENT
AT&T Capital's asset and liability management process takes a coordinated
approach to the management of interest rate and foreign currency risks. The
Company's overall strategy is to match the duration and average cash flows of
its borrowings with the duration and average cash flows of its portfolio assets,
as well as the currency denominations of its borrowings with those of its
portfolio assets, in a manner intended to reduce the Company's interest rate and
foreign currency exposure. For a description of certain key elements of this
process, including AT&T Capital's use of derivatives to mitigate risk, see the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
At June 30, 1997, the total notional amount of the Company's interest rate
and currency swaps was $2.1 billion and $.6 billion, respectively, as compared
to $1.4 billion and $.3 billion, respectively, as of December 31, 1996. The U.S.
dollar equivalent of the Company's foreign currency forward exchange contracts
was $1.1 billion and $.9 billion at June 30, 1997 and December 31, 1996,
respectively.
There were no past due amounts or reserves for credit losses at June 30,
1997 related to derivative transactions. The Company has never experienced a
credit related charge-off associated with derivative transactions.
RECENT PRONOUNCEMENTS
See Note 2 to the unaudited consolidated financial statements. financial
statements.
18
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AT&T CAPITAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number
10 (a) Letter Agreement dated as of May 30, 1997 between
and among registrant, Thomas C. Wajnert, and Nomura
International plc covering the resignation of Thomas
C. Wajnert from the position of Chief Executive
Officer.
10 (b) Employment Agreement dated as of May 30, 1997
between the registrant and David F. Banks.
12. Computation of Ratio of Earnings to Fixed Charges
27. Financial Data Schedule
(b) Current reports on Form 8-K:
Report on Form 8-K, dated May 30, 1997, was filed pursuant
to Item 5 (Other Events).
Report on Form 8-K, dated May 12, 1997, was filed pursuant
to Item 5 (Other Events).
19
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AT&T CAPITAL CORPORATION
/s/ RAMON OLIU, JR.
---------------------------
August 13, 1997 Ramon Oliu, Jr.
Senior Vice President and
Chief Financial Officer
20
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<PAGE>
EXHIBIT INDEX
EXHIBITS
Exhibit Description
Number
10 (a) Letter Agreement dated as of May 30, 1997 between and among
registrant, Thomas C. Wajnert, and Nomura International plc
covering the resignation of Thomas C. Wajnert from the position
of Chief Executive Officer.
10 (b) Employment Agreement dated as of May 30, 1997 between the registrant
and David F. Banks.
12. Computation of Ratio of Earnings to Fixed Charges
27. Financial Data Schedule
<PAGE>
<PAGE>
Exhibit 10(a)
Form 10-Q for the Quarter Ended
June 30, 1997
File No. 1-11237
Mr. Thomas C. Wajnert -1- May 30, 1997
May 30, 1997
Mr. Thomas C. Wajnert
Young Road
Bernardsville, New Jersey 07924
Dear Tom:
In light of your intention to resign from the position of Chief
Executive Officer of AT&T Capital Corporation (the "Company"), the purpose of
this letter is to describe our ongoing relationship after such resignation.
1. Effective Date of Resignation: Your resignation will be
effective as of May 30, 1997 (the "Resignation Date").
2. Effect of Resignation:
a. You shall remain employed as non-executive Chairman of the
Company (relinquishing your executive powers) until May 31, 1998. The Company
reserves the right to renew, with your consent, your employment as Chairman
through the end of 1998, and again, with your consent, through the end of 1999,
by delivering to you 30 days advance notice of any such proposed renewal, and
upon your consent thereto you agree to continue to serve as Chairman, subject to
the terms and conditions set forth below and Section 6 of your Employment
Agreement with the Company dated September 30, 1996 (the "Employment
Agreement"). Except as set forth in this letter, the provisions of the
Employment Agreement shall remain in full force and effect, except that all
references to Chief Executive Officer in the Employment Agreement shall no
longer be applicable, and that nothing described in or arising from the terms of
this Agreement nor any event occurring on
<PAGE>
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Mr. Thomas C. Wajnert -2- May 30, 1997
or before May 30, 1997 shall constitute "Good Reason" for purposes of your
Employment Agreement or any of the other agreements described below.
b. If the Company does not renew your employment as Chairman on or
before May 31, 1998, the Company and Nomura International plc ("Nomura") shall
use their respective reasonable best efforts to secure, by renomination or
otherwise, your continued service as a Director of the Company, with a title no
less prestigious than Vice Chairman, through at least November 30, 1998.
c. Upon the termination of your employment as Chairman, the term of
your employment under the Employment Agreement shall be deemed to have been
terminated. If you continue to serve as a Director after the termination of the
Employment Agreement, in addition to any payments pursuant to the Employment
Agreement, you will entitled to normal independent director compensation.
d. Upon the execution of this Agreement by the parties, you shall
be entitled to receive an amount (the "Resignation Amount") equal to $762,489.50
which represents 25% of the sum (which is equal to $3,049,958) of (i) the
Applicable Percentage of your current Final Average Pay (each as defined in the
Employment Agreement), determined as if your employment had been terminated by
the Company on May 28, 1997 and without regard to any requirement for notice
(that is, 239.34% of $1,101,971, or $2,637,458) and (ii) 110% of your current
Target Bonus (as defined in the Employment Agreement) for 1997 (that is, 110% of
$375,000, or $412,500)). The Resignation Amount shall be payable on May 30,
1997. Upon the earlier of (i) the termination of your employment or (ii) May 30,
1998, the Termination Amount (as defined in the Employment Agreement) and all
other termination benefits set forth in the Employment Agreement will be
determined as if your employment had been terminated by the Company without
<PAGE>
<PAGE>
Mr. Thomas C. Wajnert -3- May 30, 1997
Cause (as defined in the Employment Agreement) on May 28, 1997, without regard
to any requirement for notice and without interest, and shall be paid or
provided (except as otherwise provided in the next succeeding sentence) on the
earlier of (i) May 30, 1998 or (ii) your last day of employment with the
Company. For the avoidance of any doubt and not withstanding anything to the
contrary elsewhere, you shall receive the following benefits on the following
schedule:
(a) upon termination of your employment with the Company, you
shall receive continued basic life insurance coverage (in an
amount not less than $625,000) for 24 months;
(b) upon termination of your employment with the Company, if you
then have supplemental life insurance coverage through the
Company, you may continue that coverage, at your cost, for up
to 24 months;
(c) within 30 days after termination of your employment with the
Company, you shall be paid the Compensation Payment (as
defined in the Employment Agreement);
(d) beginning as of the Resignation Date, you shall receive
outplacement benefits to the extent that you would have been
entitled to such benefits had you been terminated without
Cause (pursuant to Section 6 of the Employment Agreement) on
the Resignation Date;
(e) upon termination of your employment with the Company, you
shall receive all other benefits, under Company plans or
programs generally applicable to senior executives, to which
an otherwise similarly situated senior executive being
terminated by the Company without cause would then be
entitled; and
(f) commencing on the date that your employment by the Company as
Chairman terminates, you shall receive, in 24 equal monthly
installments, an aggregate amount equal to your Final Average
Pay (which shall be deemed to be no less than $3,049,958),
conditioned on your compliance with Section 12 of the
Employment Agreement.
Except as expressed provided to the contrary in item (f) above and in the second
succeeding sentence below, the Company's obligations under this Section 2(d) are
absolute and unconditional. The Resignation Amount shall be deducted from the
<PAGE>
<PAGE>
Mr. Thomas C. Wajnert -4- May 30, 1997
amounts payable to you as the Termination Amount, which, after such deduction,
shall be no less than $2,287,468.50. In addition, the eighth sentence of Section
6.1 of the Employment Agreement shall be deleted and the following substituted
in lieu thereof: "As a condition to Executive's receipt of $325,000 of the
Termination Amount (as the net Termination Amount is determined after the
deduction of any prepayments thereof agreed to by the parties), prior to or
within ten days after the date of termination, Executive shall sign a separation
agreement and general release in the form annexed hereto as Exhibit F." Except
as set forth in this letter and except for any obligations of the Company with
respect to the Termination Amount, the provisions of Section 6 of the Employment
Agreement (other than Sections 6.1(c)(i) and 6.1(c)(vi) thereof, which shall be
deemed deleted) shall remain in full force and effect.
e. By your execution of this letter, you agree to comply with the
terms of Section 12 of the Employment Agreement (without regard to the periods
of time for compliance set forth therein) until the later of (i) two years after
your last day of employment by the Company and (ii) 180 days after your last day
as a Director of the Company.
f. Except as expressly modified by this letter, the provisions of
your Subscription Agreement with the Company (as successor by merger to Antigua
Acquisition Corporation ("Antigua")) dated as of September 30, 1996; your Stock
Purchase Agreement with Nomura and the Company (as successor by merger to
Antigua) dated as of September 30, 1996 (the "Stock Purchase Agreement"); your
Sale Participation Agreement with Nomura dated as of September 30, 1996; and
your Stock Option Agreement with the Company dated as of October 1, 1996 (the
"Stock Option Agreement") shall remain in full force and effect.
<PAGE>
<PAGE>
Mr. Thomas C. Wajnert -5- May 30, 1997
3. Terms of Your Ongoing Employment:
a. As non-executive Chairman of the Company you will report to the
designated committee of the board (which shall initially consist of Guy Hands)
and you will render such reasonable assistance to the Company's Chief Executive
Officer as he or she may request. You will continue to chair board meetings of
the Company, but will not serve on the Executive Committee of the board. You
will, however, serve as an ex officio, non-voting member of all committees of
the Board. As reasonably requested by the designated committee of the board
(which shall initially consist of Guy Hands), you will perform public and
leasing industry relations activities, ambassadorial duties and assistance with
the refinancing of Hercules Limited's equity interests on behalf of the Company.
You agree to devote up to one-half your working time and efforts to the
performance of services, duties and responsibilities in connection with your
employment by the Company, and will perform your functions at the Company with
at least the care that an ordinarily prudent person of like ability, experience
and talent would reasonably be expected to exercise under similar circumstances.
The Company shall make reasonable accommodation for your other activities so
long as such activities do not materially interfere with your duties and
responsibilities to the Company. Nothing herein shall preclude you from engaging
in charitable and community affairs, from managing any passive investment made
by you in publicly traded equity securities or other property (provided that no
such investment may exceed 1% of the equity of any entity, without prior
consultation with the Executive Committee of the board), or accepting, subject
to prior consultation with the Executive Committee of the board, other part-time
employment, so long as in each case such activities do not materially interfere
with your duties and responsibilities hereunder, or from serving,
<PAGE>
<PAGE>
Mr. Thomas C. Wajnert -6- May 30, 1997
subject to the prior consultation with the Executive Committee of the board, as
a member of boards of directors or as a trustee of any other corporation,
association or entity. These provisions replace those of Sections 1.1, 1.2 and
1.4 of the Employment Agreement.
b. Your place of employment shall be a suitable office in or near
the Company's executive offices (to be mutually agreed upon with the Company's
Chief Executive Officer), which office will be provided by the Company at its
expense. The Company will also provide you at its expense with a secretary, who
will be an employee of the Company.
c. Unless your employment with the Company is terminated (i) by the
Company for Cause, (ii) by reason of death or Permanent Disability (as defined
in the Employment Agreement) or (iii) by you without Good Reason (as defined in
the Employment Agreement) (in each case in accordance with Section 6 of the
Employment Agreement), the Company shall pay you through the expiration of the
term set forth in paragraph 2(a) above (as such term may be extended pursuant to
paragraph 2(a)) a Base Salary (as defined in the Employment Agreement) equal to
$625,000 per annum, payable as set forth in Section 3.1 of the Employment
Agreement. You shall also be paid an annual bonus in respect of 1997 equal to
$375,000 at the time that 1997 annual bonus payments are made to the Company
senior executives, but in no event later than March 1, 1998. You shall be paid
an annual bonus in respect of 1998 equal to $375,000 multiplied by a fraction,
the numerator of which is the number of days during 1998 during which you
continue to be employed by the Company as Chairman and the denominator of which
is 365. Such bonus shall be paid on the earliest of (i) your last day of
employment, (ii) the time that 1998 annual bonus payments are made to the
Company senior
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Mr. Thomas C. Wajnert -7- May 30, 1997
executives and (iii) March 1, 1999. Any annual bonus in respect of any period
after 1998 shall be in the sole discretion of the Company's board of directors.
d. For purposes of determining, in accordance with the Company's
Executive Benefit Plan, the pension benefit to which you are entitled under
Section 4.1 of the Employment Agreement, you shall be deemed (i) to be a "Vested
Participant"; (ii) to continue to be a "Tier 1 Participant"; (iii) to have a
"Final Average Pay" no less than $1,101,971; and (iv) to continue to accrue
additional "Credited Service" (without regard to the 10 year limit in Section
4.2(a) of the Executive Benefit Plan) through your last day of employment with
the Company (with the quoted terms having the meanings set forth in the
Executive Benefit Plan).
e. Notwithstanding anything to the contrary contained in the Stock
Option Agreement or elsewhere, upon the execution of this Agreement by the
parties, Options (as defined in the Stock Option Agreement) shall be deemed to
be "vested in accordance with Section 3.1(a)" of the Stock Option Agreement with
respect to 200,000 of the underlying shares of Common Stock ("Shares") for which
the Option under the Stock Option Agreement was granted. If the Company renews
your employment as Chairman in accordance with paragraph 2(a) hereof, and unless
your employment with the Company is terminated prior to December 31, 1998 (i) by
the Company for Cause, (ii) for death or Permanent Disability or (iii) by you
without Good Reason (in each case in accordance with Section 6 of the Employment
Agreement), Options with respect to an additional 200,000 of the underlying
Shares shall be deemed to be "vested in accordance with Section 3.1(a)" of the
Stock Option Agreement on December 31, 1998 and, if the Company further renews
your employment as Chairman, and unless your employment with the Company is
terminated prior to December 31, 1999 (i) by the Company for
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Mr. Thomas C. Wajnert -8- May 30, 1997
Cause, (ii) for death or Permanent Disability, or (iii) by you without Good
Reason (in each case in accordance with Section 6 of the Employment Agreement),
Options with respect to the remaining 198,900 of the underlying Shares shall be
deemed to be "vested in accordance with Section 3.1(a)" of the Stock Option
Agreement on December 31, 1999, in each case without reference to any
performance criteria.
For purposes of the Stock Option Agreement, any termination
of your employment with the Company (other than termination (i) by the Company
for Cause or (ii) by you without Good Reason (in each case in accordance with
Section 6 of the Employment Agreement)) shall be deemed to be a "termination by
the Group without Cause."
f. Notwithstanding anything to the contrary contained in the Stock
Purchase Agreement or elsewhere, upon the execution of this Agreement by the
parties, the right of the Purchasing Entity (as defined in the Stock Purchase
Agreement) to purchase from the Seller, the Seller's Estate or the Seller's
Trust (each as defined in the Stock Purchase Agreement) up to all Investment
Shares (as defined in the Stock Purchase Agreement) held by such persons upon
the termination of your employment with the Company shall be limited to 66-2/3%
of the number of Investment Shares held in the aggregate by such persons on the
termination date. If the Company renews your employment as Chairman pursuant to
paragraph 2 hereof, and unless your employment with the Company is terminated
prior to December 31, 1998 (i) by the Company for Cause, (ii) for death or
Permanent Disability or (iii) by you without Good Reason (in each case in
accordance with Section 6 of the Employment Agreement), such right shall be
limited to 33-1/3% of the number of Investment Shares held in the aggregate by
such persons on the termination date and, if the Company further renews your
<PAGE>
<PAGE>
Mr. Thomas C. Wajnert -9- May 30, 1997
employment as Chairman beyond December 31, 1998, and unless your employment with
the Company is terminated prior to December 31, 1999 (i) by the Company for
Cause, (ii) for death or Permanent Disability or (iii) by you without Good
Reason (in each case in accordance with Section 6 of the Employment Agreement),
the right of the Purchasing Entity to purchase Investment Shares from such
persons shall terminate.
For purposes of the Stock Purchase Agreement, any termination of
your employment (other than termination (i) by the Company for Cause or (ii) by
you without Good Reason (in each case in accordance with Section 6 of the
Employment Agreement)) shall be deemed to be a "termination by the Group without
Cause."
4. Press Release. Attached to this Agreement is the press release
that you and the Company agree will be issued in connection with your
resignation as the Chief Executive Officer of the Company. In addition, you will
not utter or issue any disparaging or derogatory remark, or make any untruthful
statement, about any of the Releasees (as that term is defined in the Separation
and General Release attached to the Employment Agreement). The Company's Board
of Directors will not utter or issue any disparaging or derogatory remark, or
make any untruthful statement, about you.
5. Legal Fees. Except to the extent expressly provided otherwise in
the next sentence, each party shall bear the costs of any legal fees and other
fees and expenses which may be incurred in respect of enforcing its respective
rights under this letter. The Company shall pay the reasonable fees and
disbursements of your legal counsel in connection with the negotiation and
execution of this letter agreement.
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Mr. Thomas C. Wajnert -10- May 30, 1997
6. Representations.
a. The Company hereby represents and warrants that (i) the
execution, delivery and performance of this letter agreement by the Company and
the consummation of the transactions contemplated hereby has been duly
authorized by all necessary corporate action and (ii) the execution, delivery
and performance of this letter agreement by the Company and the consummation of
the transactions contemplated hereby will not result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any other
agreement or instrument to which the Company is a party or by which the Company
is bound, or any "employee benefit plan" (within the meaning of either section
3(3) of the Employee Retirement Income Security Act of 1974 or Rule 405 under
the Securities Act of 1933) of the Company applicable to you, nor will such
actions result in any violation of the provisions of the certificate of
incorporation or by-laws of the Company or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company.
b. You hereby represent and warrant to the Company that (i) you
have the capacity to execute, deliver and perform this letter agreement and (ii)
your execution, delivery and performance of this letter agreement and the
consummation of the transactions contemplated hereby will not result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, any other agreement or instrument to which you are a party or by which
you are bound, nor will such actions result in any violation of any statute or
any order, rule or regulation of any court or governmental agency or body having
jurisdiction over you.
7. Miscellaneous. This letter agreement shall constitute an
amendment to the Employment Agreement in accordance with Section 11 thereof,
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<PAGE>
Mr. Thomas C. Wajnert -11- May 30, 1997
an amendment to the Stock Option Agreement in accordance with Section 5.7
thereof and an amendment to the Stock Purchase Agreement in accordance with
Section 13 thereof. This agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
as of the day and year first written above.
---------------------------------
Thomas C. Wajnert
AT&T CAPITAL CORPORATION
By:
-----------------------------
Name:
Title:
The undersigned agrees to paragraphs 2(b) and 3(e) hereof as of the day
and year first written above:
NOMURA INTERNATIONAL plc
By:
-----------------------------
Name:
Title:
<PAGE>
<PAGE>
Exhibit 10(b)
Form 10-Q for the Quarter Ended
June 30, 1997
File No. 1-11237
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), was entered into as of
May 30, 1997 by and between AT&T Capital Corporation, a Delaware corporation
and David F. Banks ("Executive").
RECITALS
To induce Executive to serve as the Chief Executive Officer of
AT&T Capital Corporation, a Delaware Corporation (the "Company"), the Company
desires to provide Executive with compensation and other benefits on the terms
and conditions set forth in this Agreement. Executive is willing to accept such
employment and perform services for the Company, on the terms and conditions
hereinafter set forth.
It is therefore hereby agreed by and between the parties as
follows:
1. EMPLOYMENT
1.1 Subject to the terms and conditions of this Agreement, the
Company shall employ Executive during the term hereof as its Chief Executive
Officer. In his capacity as the Chief Executive Officer of the Company,
Executive shall report to the Board of Directors of the Company (the "Board")
and shall have the customary powers, responsibilities and authorities of chief
executive officers of corporations of the size, type and nature of the Company,
as it exists from time to time, or as are assigned by the Board.
1.2 Subject to the terms and conditions of this Agreement,
Executive hereby accepts employment as the Chief Executive Officer of the
Company commencing on May 30, 1997, and, except as set forth in Section 1.4,
agrees to devote his full working time and efforts to the performance of
services, duties and responsibilities in connection therewith, and shall perform
his functions at the Company with at least the care that an ordinarily prudent
person of like ability, experience and talent would reasonably be expected to
exercise under similar circumstances. Executive shall perform such duties and
exercise such powers, commensurate with his position, as the Chief Executive
Officer of the Company as the Board shall from time to time delegate to him and
as are consistent with Section 1.1 hereof, on such terms and conditions and
subject to such restrictions as such Board may reasonably from time to time
impose.
1.3 At all times during the term of employment hereunder,
Executive shall be a member of the Board.
1.4 Nothing in this Agreement shall preclude Executive from
engaging in charitable and community affairs, from managing any passive
investment made by him in publicly traded equity securities or other property so
long as such activities do not materially interfere with his duties and
responsibilities hereunder, or from serving, subject to the prior approval of
such Board of Directors, as a member of boards of directors or as a trustee of
any other corporation, association or entity. The Board hereby consents to
Executive's current outside board and association activities as set forth in
EXHIBIT A to this Agreement.
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2. TERM OF EMPLOYMENT. Executive's term of employment under this
Agreement shall commence on May 30, 1997 and, subject to the terms hereof, shall
terminate on the earlier of (i) May 30, 1998 (the "Termination Date") or (ii)
termination of Executive's employment pursuant to this Agreement.
3. COMPENSATION.
3.1 SALARY. The Company shall pay Executive a base salary ("Base
Salary") during Executive's term of employment hereunder equal to $625,000 per
annum. Base Salary shall be payable in accordance with the ordinary payroll
practices of the Company and may be increased by the Board in its sole
discretion.
3.2 ANNUAL BONUS.
(a) Executive shall be paid an annual bonus in respect of 1997 in
an amount between $312,500 and $937,500 at the time that 1997 annual cash bonus
payments are made to Company senior executives, but in no event later than March
31, 1998.
(b) Executive shall be paid an annual bonus (each, together with
the bonus described in clause (a) above, a "Bonus") in respect of 1998 with a
target amount equal to 60% of Base Salary (the "Target Bonus") based on
performance criteria determined by the Board in its sole discretion. The Board
in its sole discretion may determine whether Executive has met the performance
criteria. If performance exceeds target, the Board may authorize the Company to
pay a bonus greater than the Target Bonus and if performance is below target,
the Board may authorize the Company to pay a bonus lower than the Target Bonus.
3.3 STOCK OPTION GRANTS. Effective on the date of the
Transaction, Executive shall receive options to purchase 150,000 shares of
Company common stock subject to the terms and conditions of EXHIBIT B.
3.4 HOUSING EXPENSES. The Company shall reimburse Executive for
housing expenses (i.e., rental payments and utility costs) incurred by Executive
for up to 6 months at an amount not to exceed $4000 per month.
3.5 PERSONAL TRAVEL EXPENSES. The Company shall reimburse
Executive for his and his companion's reasonable personal travel expenses
(including business class air travel) on not more often than a fortnightly basis
from New Jersey to London incurred during the remainder of 1997.
4. EMPLOYEE BENEFITS.
4.1 EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. Except as
otherwise specifically provided in this Agreement, the Company shall provide
Executive during the term of his employment hereunder with coverage under all
employee pension and welfare benefit programs, plans and practices (commensurate
with his positions in the Company and to the extent permitted under any employee
benefit plan), other than the Company's Executive Benefit Plan, Senior Executive
Annual Incentive Plan and severance plans, in accordance with the terms thereof,
which the Company makes available to its senior executives, other than those in
which he elects not to participate by written notice to the Company.
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4.2 VACATION AND FRINGE BENEFITS. Executive shall be entitled to
five weeks paid vacation in each calendar year (on a pro rata basis), which
shall be taken at such times as are consistent with Executive's responsibilities
hereunder. In addition, Executive shall be entitled to the perquisites and other
fringe benefits made available to senior executives of the Company, commensurate
with his position with the Company.
5. EXPENSES. Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement in
accordance with the Company's expense policies as they may exist from time to
time.
6. TERMINATION OF EMPLOYMENT.
6.1 TERMINATION NOT FOR CAUSE. (a) Either Executive or the
Company may terminate Executive's employment at any time for any reason. If
Executive's employment is terminated by the Company other than (i) for Cause (as
defined in Section 6.2 hereof) or (ii) as a result of Executive's death or
permanent disability (as defined in Section 6.2 hereof), the Company shall
provide Executive with six months prior notice of the effective date of such
termination or in lieu of all or any portion of such notice period, the Company
shall pay Executive, within 30 days following the date of termination, an amount
equal to the product of (i) the quotient of (a) the excess of (1) 180 over (2)
the number of days of notice provided Executive prior to the termination,
divided by (b) 365, multiplied by (ii) the Base Salary.
6.2 VOLUNTARY TERMINATION BY EXECUTIVE; DISCHARGE FOR CAUSE. (a)
If Executive's employment is terminated by the Company for Cause, as hereinafter
defined, or by Executive, Executive shall only be entitled to receive any earned
and unpaid Base Salary and any Bonus amount awarded but not yet paid. Executive
shall not be entitled, among other things, to the payment of any Bonus in
respect of all or any portion of the fiscal year in which such termination
occurs or any form of severance payment. After the termination of Executive's
employment under this Section 6.2, the obligations of the Company to make any
further payments or provide any benefits specified herein, to Executive, other
than as otherwise provided in this Agreement or under the terms of the plans and
programs of the Company, shall thereupon cease and terminate.
(b) As used herein, the term "Cause" shall be limited to (i)
Executive's conviction of a felony (or a guilty or no contest plea in connection
therewith) or (ii) a material breach by the Executive of his duties and
responsibilities under the Agreement that causes significant harm to the
Company, which breach is (A) either willful and deliberate or the product of
gross neglect, (B) committed in bad faith or without reasonable belief that such
breach is in, or not contrary to, the best interests of the Company and (C) not
remedied within a reasonable period of time after receipt of written notice from
the Company specifying such breach.
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<PAGE>
7. NOTICES. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company: AT&T Capital Corporation, 44 Whippany Road,
Morristown, NJ 07962
Attention: General Counsel
To Executive: Mr. David F. Banks, c/o AT&T Capital Corporation,
44 Whippany Road, Morristown, NJ 07962
Any such communications shall be delivered by hand, facsimile or sent certified
mail, return receipt requested, postage prepaid, addressed as above (or to such
other address as such party may designate in a notice duly delivered as
described above), and the third business day after the actual date of mailing
shall constitute the time at which notice was given, provided that reasonable
steps are taken to assure that notice is actually received.
8. SEVERABILITY. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. Each party shall bear the costs of any legal
fees and other fees and expenses which may be incurred in respect of enforcing
its respective rights under this Agreement.
9. ASSIGNMENT. This contract shall be binding upon and inure to
the benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign
this Agreement to any successor (whether by merger, purchase or otherwise) to
all or substantially all of the stock, assets or businesses of the Company, if
such successor expressly agrees to assume the obligations of the Company
hereunder.
10. AMENDMENT. This Agreement may only be amended by written
agreement of the parties hereto.
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Executive shall
not, without the prior written consent of the Company, use, divulge, disclose
or make accessible to any other person, corporation or other entity any
Confidential Information pertaining to the business of the Company or any of
its affiliates, except (i) while employed by the Company, in the business of
and for the benefit of the Company, or (ii) when required to do so by a court
of competent jurisdiction, by any governmental agency having supervisory
authority over the business of the Company, or by any administrative body or
legislative body. For purposes of this Section 11, "Confidential Information"
shall include non-public information concerning the financial data, strategic
business plans, product development (or other proprietary product data),
customer lists, marketing plans and other non-public, proprietary and
confidential information of the Company and its subsidiaries (the "Restricted
Group") or customers, that, in any case, is not otherwise available to the
public (other than by Executive's breach of the terms hereof).
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<PAGE>
12. SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the
extent consistent with the intended preservation of such rights and
obligations. The provisions of this Section 12 are in addition to the
survivorship provisions of any other section of this Agreement.
13. GOVERNING LAW. This Agreement shall be construed,
interpreted and governed in accordance with the laws of the State of New
Jersey, without reference to rules relating to conflicts of law.
14. EFFECT ON PRIOR AGREEMENTS/WAIVER OF SEVERANCE. This
Agreement contains the entire understanding between the parties hereto and
supersedes in all respects any prior or other agreement or understanding
between the Company or any affiliate of the Company and Executive. In
addition, as this Agreement provides for the payment of annual bonus and
termination provisions, Executive waives any and all rights he may have to any
annual bonus or any severance payments under any Company annual bonus or
severance plan or program.
15. WITHHOLDING. The Company shall be entitled to withhold from
any payments hereunder any amount of withholding required by law.
AT&T CAPITAL CORPORATION
BY:
------------------------------- --------------------------
SARA A. MCAULEY DAVID F. BANKS
SENIOR VICE PRESIDENT
<PAGE>
<PAGE>
EXHIBIT A
APPROVED CURRENT OUTSIDE BOARD/ASSOCIATION ACTIVITY
1. Director of Paragon Group plc
2. Director of K&J Coal Co., Inc.
3. Trustee of Kenyon College
4. Penna Holdings plc
5. GHN Limited
6. Sanders & Sidney plc
7. Prideaux & Associates Limited
8. The Atkins Restaurant Company Limited
9. National Home Loans Holding plc
10. GRS Holding Company Limited
11. BBM Limited
12. Selby Millsmith Limited
<PAGE>
<PAGE>
Exhibit B
1
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of May 30, 1997 is made by and between
AT&T Capital Corporation, a Delaware corporation hereinafter referred to as the
"Company", and David F. Banks, an employee of the Company or a Subsidiary (as
defined below) of the Company, hereinafter referred to as "Optionee".
WHEREAS, the Company wishes to afford the Optionee the
opportunity to purchase shares of its $.01 par value Common Stock ("Common
Stock");
WHEREAS, the Company wishes to carry out the Plan (as hereinafter
defined), the terms of which are hereby incorporated by reference and made a
part of this Agreement; and
WHEREAS, the Board of Directors of the Company or the Committee
(as hereinafter defined), appointed to administer the Plan, has determined that
it would be to the advantage and best interest of the Company and its
stockholders to grant the options provided for herein to the Optionee as an
incentive for increased efforts during his term of office with the Company or
its Subsidiaries, and has advised the Company thereof and instructed the
undersigned officer to issue said Options;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they
shall have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.
Section 1.1 - Act
"Act" shall mean the Securities Act of 1933, as amended, or any
successor law.
Section 1.2 - Affiliate
"Affiliate" shall mean, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. Solely for purposes of this Agreement, GRS Holding Company Limited and
Babcock & Brown, Inc. and their respective Affiliates shall be deemed to be
Affiliates of Nomura (as defined below).
Section 1.3 - Board of Directors
"Board of Directors" means the Board of Directors of the Company.
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2
Section 1.4 - Change of Control
"Change of Control" shall mean (i) any transaction (including,
without limitation, a merger, consolidation or reorganization, or a sale of
derivative securities that effectively transfers a beneficial ownership
interest) as a result of which either (a) (1) the combined beneficial ownership
interest of the Company by Nomura International plc ("Nomura") and its
Affiliates falls below 40% on a fully diluted basis and (2) the combined
beneficial ownership interest of the Company by another Person and its
Affiliates exceeds the combined beneficial ownership interest of Nomura and its
Affiliates or (b) the combined beneficial ownership interest of the Company by
Nomura and its Affiliates falls below 20% on a fully diluted basis or (ii) a
sale, or series of sales, of all or substantially all of the assets of the
Company as a result of which either (A) (I) the combined beneficial ownership
interest by Nomura and its Affiliates of the assets of the business conducted by
the Company falls below 40% of the assets of the business conducted by the
Company immediately prior to such sale or series of sales (measured on the basis
of the net book value, on a consolidated basis, thereof) and (II) the combined
beneficial ownership interest of another Person of former assets of the business
as conducted by the Company immediately prior to such sale or series of sales
exceeds the combined beneficial ownership interest by Nomura and its Affiliates
of the assets of the business conducted by the Company immediately prior to such
sale or series of sales (measured on the basis of the net book value, on a
consolidated basis, thereof) or (B) the combined beneficial ownership interest
by Nomura and its Affiliates of the assets of the business conducted by the
Company falls below 20% of the assets of the business conducted by the Company
immediately prior to such sale or series of sales (measured on the basis of the
net book value, on a consolidated basis, thereof); provided that the provisions
set forth in clause (ii) shall be deemed not to apply in the case of any
transfer, sale, assignment, pledge, hypothecation or other disposition of assets
in connection with, or incident to, any borrowings, securitizations or other
financing transactions or in the case of the recapitalization, reclassification,
liquidation or dissolution of the Company.
Section 1.5 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.6 - Committee
"Committee" shall mean the Compensation Committee of the Board
of Directors.
Section 1.7 - Common Stock and Share
"Common Stock" or "Share" means common stock of the Company which
may be authorized but unissued, or issued and reacquired.
Section 1.8 - Effective Time
"Effective Time" shall mean the date of the effective time of the
merger of Antigua Acquisition Corporation, a Delaware corporation ("Merger
Sub"), with and into the Company pursuant to the Agreement and Plan of Merger,
dated as of June 5, 1996, as amended, among the Company, AT&T Corp., a New York
corporation, Hercules Limited, a Cayman Islands company, and Merger Sub.
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3
Section 1.9 - Fair Market Value
"Fair Market Value" shall mean, with respect to a share of Common
Stock, (i) prior to an IPO, the amount established at the immediately preceding
determination, which determination will have been made not less than annually,
by an independent U.S.-based investment banker (or, in the sole discretion of
the Board of Directors, an independent U.S.-based appraisal firm) selected by
the Board of Directors as the fair market value of a Share without giving effect
to any discount attributable to the illiquidity of the Shares or the fact that
any such Shares may constitute a minority interest in the Company or any premium
attributable to any special rights of any holder with respect to its Shares;
provided that prior to the first such determination (which shall occur not later
than January 31, 1997), the Fair Market Value of a share of Common Stock shall
be the Exercise Price provided in Section 2.2(a) hereof and (ii) after an IPO,
the Market Price Per Share of the Shares.
Section 1.10 - Grant Date
"Grant Date" shall mean the date on which the Options provided
for in this Agreement were granted.
Section 1.11 - Group
"Group" shall mean, with respect to a particular time, any of the
Company and its Subsidiaries as of such time. Any event that results in an
entity ceasing to be a Subsidiary of the Company shall be deemed to constitute
the cessation of employment with the Group of all employees of such former
Subsidiary, except for such employees of such former Subsidiary who become
employees of the Company or one of its then Subsidiaries within 10 days of such
event.
Section 1.12 - IPO
"IPO" shall mean a sale of Shares to the public that results in
an active trading market in the Shares.
Section 1.13 - Market Price Per Share
"Market Price Per Share" at any date shall be deemed to be the
average of the daily closing prices for the 20 consecutive trading days
commencing on the 30th trading day prior to the date in question. The closing
price for each day shall be (x) if the Common Stock is listed or admitted to
trading on a national securities exchange, the closing price on the New York
Stock Exchange Consolidated Tape (or any successor composite tape reporting
transactions on national securities exchanges) or, if such a composite tape
shall not be in use or shall not report transactions in the Common Stock, the
last reported sales price regular way on the principal national securities
exchange on which the Common Stock is listed or admitted to trading (which shall
be the national securities exchange on which the greatest number of shares of
Common Stock has been traded during such 20 consecutive trading days), or, if
there is no transaction on any such day in any situation, the mean of the bid
and asked prices on such day or (y) if the Common Stock is not listed or
admitted to trading on any such exchange, the closing price, if reported, or, if
the closing price is not reported, the average of the closing bid and asked
prices as reported by the National Association of Securities Dealers Automated
Quotation System (NASDAQ) or a similar source selected from time to time by the
Company for the purpose. In the event such closing prices are unavailable, the
Market Price Per Share shall
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4
be deemed to be the fair market value as determined in good faith by the Board
of Directors, on the basis of such relevant factors as it in good faith
considers, in the reasonable judgment of the Board of Directors, appropriate.
Section 1.14 - Offering Percentage
"Offering Percentage" shall mean, with respect to any public
offering of Shares, that percentage of all outstanding stock of the Company
(determined as of the time after the relevant public offering) represented by
the Shares sold in such public offering.
Section 1.15 - Options
"Options" shall mean the options to purchase Common Stock granted
under this Agreement, which options have not been designated as "incentive stock
options" within the meaning of Section 422 of the Code.
Section 1.16 - Person
"Person" shall mean any individual, partnership, firm,
corporation, limited liability company, association, trust, unincorporated
organization or other entity.
Section 1.17 - Plan
"Plan" shall mean the AT&T Capital Corporation 1996 Long Term
Incentive Plan.
Section 1.18 - Pronouns
The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.
Section 1.19 - QPO
"QPO" shall mean a sale of shares of Common Stock to the public
pursuant to a registration statement under the Act that has been declared
effective by the Securities and Exchange Commission (other than a registration
statement on Form S-4 or Form S-8, or any successor or other forms promulgated
for similar purposes, or a registration statement in connection with an offering
to employees of the Company and its Subsidiaries) that results in an active
trading market in the Common Stock.
Section 1.20 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.21 - Subsidiary
"Subsidiary" shall mean any corporation other than the Company in
an unbroken chain of corporations beginning with the Company if each of the
corporations, or group of commonly controlled corporations, other than the last
corporation in the unbroken chain then owns stock possessing 50% or more of the
voting stock in one of the other corporations in such chain.
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5
ARTICLE II
GRANT OF OPTIONS
Section 2.1 - Grant of Options
For good and valuable consideration, on and as of the date hereof
the Company irrevocably grants to the Optionee an Option to purchase any part or
all of an aggregate of the number of shares set forth with respect to each such
Option on the signature page hereof of its Common Stock, par value $.01 per
share, upon the terms and conditions set forth in this Agreement.
Section 2.2 - Exercise Price
The exercise price of the Shares covered by the Options (the
"Exercise Price") shall be $16.48 without commission or other charge.
Section 2.3 - Options Confer No Rights to Continued Employment
Nothing in this Agreement or in the Plan shall confer upon the
Optionee any right to continue in the employ of the Company or any Subsidiary or
shall interfere with or restrict in any way the rights of the Company and its
Subsidiaries, which are hereby expressly reserved, to terminate the employment
of the Optionee at any time for any reason whatsoever, with or without Cause.
Section 2.4 - Adjustments in Options
Subject to Paragraph 9 of the Plan, in the event that the
outstanding shares of the stock subject to an Option are, from time to time,
changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of a merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, combination of
shares, or otherwise, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares or other consideration as to which
such Option, or portions thereof then unexercised, shall be exercisable and the
exercise price therefor. Any such adjustments made by the Committee shall be
final and binding upon the Optionee, the Company and all other interested
Persons.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Vesting
Options shall be fully vested, thereby becoming eligible for exercise in
accordance with Section 3.2, as of the date of this agreement, and are
hereinafter referred to as "Vested Options".
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6
Section 3.2 - Exercisability
Options are not exercisable by the Optionee into Common Stock in
any circumstances except that Vested Options may be exercised into Common Stock
by the Optionee only following the event of (i) a Change of Control or (ii) a
QPO, provided that, prior to a Change of Control, the maximum number of Shares
for which Options may be so exercised by the Optionee shall be limited to a
number of Shares equal to the product of (x) 2 times (y) the Offering Percentage
times (z) the total number of Shares underlying all Options granted to Optionee
under the Plan or any other plans of the Corporation or any Subsidiary; provided
further that, in the case of either clause (i) or clause (ii), if the Optionee
is, or formerly was, a member of the Corporate Leadership Team of the Company
(or a member of any successor organization to the Corporate Leadership Team or,
there is no such successor organization, an executive officer of the Group in a
position substantially similar to a position of a member of the Corporate
Leadership Team as comprised currently or in the future) no Options may be
exercised unless on the date on which the Optionee proposes to exercise any
Options the Company has ratings on both its long term debt and short term debt
by both Moody's Investors Services, Inc. and Standard & Poor's Ratings Group
(or, if either or both of such organizations no longer rate such securities,
such other nationally recognized statistical rating organization or
organizations that have been selected by the Board of Directors in good faith)
in one of its generic rating categories that signifies investment grade and no
such organization has announced, either publicly or to the Company, that it
contemplates downgrading either or both of such ratings to one of its generic
rating categories that signifies less than investment grade, except to the
extent that the Board of Directors, having considered all of the alternatives
available to the Company (other than any capital contributions by, or sales of
equity securities to, any person, including, without limitation, the then
existing stockholders, or any of them), determines that it is not in the best
interests of the Company to continue to maintain any of such investment grade
ratings; provided further that if, on the tenth anniversary of the Effective
Time, any Vested Options held by the Optionee have not then previously been
exercisable for a period of at least 60 days, the restriction on exercisability
set forth in the immediately preceding proviso shall be of no further effect
with respect to such Vested Options.
Section 3.3 - Expiration of Options
The Options may not be exercised into Common Stock to any extent
by the Optionee after, and shall terminate upon, the eleventh anniversary of the
Grant Date (or, if any Options are not then exercisable in accordance with
Section 3.2, then, with respect to such Options only, such later date that is 60
days following the date on which such Options shall become so exercisable).
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7
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only the Optionee or his or
her duly appointed attorney-in-fact may exercise an Option or any portion
thereof. After the death of the Optionee, any exercisable portion of an Option
may, prior to the time when an Option becomes unexercisable under Section 3.3,
be exercised by his or her personal representative or by any Person empowered to
do so under the Optionee's will or under the then applicable laws of descent and
distribution.
Section 4.2 - Partial Exercise
Any exercisable portion of an Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that any partial exercise shall be for whole
shares of Common Stock only.
Section 4.3 - Manner of Exercise
An Option, or any exercisable portion thereof, may be exercised
solely by delivering to the Secretary or his office all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other Person
then entitled to exercise the Option or portion thereof, stating that
the Option or portion thereof is thereby exercised, such notice
complying with all applicable rules established by the Committee;
(b) Full payment (in cash, by check or by a combination thereof)
for the shares with respect to which such Option or portion thereof is
exercised;
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Optionee or other Person
then entitled to exercise such Option or portion thereof, stating that
(i) the shares of stock are being acquired for the Optionee's or such
other Person's own account, for investment and without any present
intention of distributing or reselling said shares or any of them except
as may be permitted under the Act and then applicable rules and
regulations thereunder, (ii) except as provided below, the Optionee or
other Person then entitled to exercise such Option or portion thereof
will not transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any of the shares (each, a "Transfer") at any time prior to
the tenth anniversary of the date of the Effective Time and (iii) the
Optionee or other Person then entitled to exercise such Option or
portion thereof will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such Person is
contrary to the representation and agreement referred to above;
provided, however, that the Committee may, in its absolute discretion,
take whatever additional actions it deems appropriate to ensure the
observance and performance of such representation and agreement and to
<PAGE>
<PAGE>
8
effect compliance with the Act and any other federal or state securities
laws or regulations;
(d) Full payment to the Company of all amounts which, under
federal, state or local law, it is required to withhold upon exercise of
the Option; and
(e) In the event the Option or portion thereof shall be exercised
pursuant to Section 4.1 by any Person or Persons other than the
Optionee, appropriate proof of the right of such Person or Persons to
exercise the Option.
Without limiting the generality of the foregoing, the Committee may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on exercise of an Option does not violate the Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of subsection (c) above and the agreements herein.
The written representation and agreement referred to in clause (i) of subsection
(c) above shall, however, not be required if the shares to be issued pursuant to
such exercise have been registered under the Act, and such registration is then
effective in respect of such shares.
The written agreement referred to in clause (ii) of subsection
(c) above will permit only the following Transfers prior to the tenth
anniversary of the Effective Time:
(w) A transfer upon the death of the Optionee or other Person
then entitled to exercise such Option or portion thereof to his or her
executors, administrators, testamentary trustees, legatees or
beneficiaries; provided that it is expressly understood that any such
transferee shall be bound by the provisions of the written agreement
referred to in clause (ii) of subsection (c) above;
(x) A transfer made after the date of exercise of the Option or
portion thereof in compliance with the federal securities laws to a
trust or custodianship the beneficiaries of which may include only the
Optionee or other Person then entitled to exercise such Option or
portion thereof, his or her spouse or the Optionee's or such other
Person's lineal descendants; provided, in each such case, that such
transfer is made expressly subject to the Agreement and that the
transferee agrees in writing to be bound by the provisions of the
written agreement referred to in clause (ii) of subsection (c) above;
(y) A sale of shares pursuant to an effective registration
statement under the Act filed by the Company or pursuant to a sale
participation agreement that has been entered into by the Optionee and
Nomura or an Affiliate or Affiliates of Nomura; and
(z) in connection with a sale in the public market (subject to
the provisions of Rule 144 under the Act where applicable) from and
after a QPO; provided that such sale shall be subject to such black-out
period and/or other restrictions on such sale as shall be reasonably
requested by any underwriters in offerings of the securities of the
Company in order to insure the success of such offerings; and provided
further that the number of shares that may be sold in each one-year
period following the QPO will be limited to the greater of (i) 25% of
the total number of shares of Common Stock, on a fully diluted basis,
held by the Optionee or such other Person immediately following the QPO
and (ii) that number of shares of Common Stock underlying the Options or
any other stock options issued by the Company held by the Optionee or
such other Person as to which (A) pursuant to the terms of such options,
the Optionee's right to purchase
<PAGE>
<PAGE>
9
such stock would expire during such one-year period and (B) such
options are actually exercised by the Optionee or other Person then
entitled to exercise such options or portions thereof.
Notwithstanding the foregoing permitted Transfers, the Optionee or other Person
then entitled to exercise such Option or portion thereof will further represent
and agree in the written agreement referred to in subsection (c) above that he
or she will not at any time transfer, sell, assign, pledge, hypothecate or
otherwise dispose of any shares at any time, directly or indirectly, to any
competitor or prospective competitor of the Company or to any affiliate of
such a person, other than:
(A) in connection with a sale to a third party pursuant to a
stock purchase agreement or sale participation agreement that has been
entered into by the Optionee and Nomura or an Affiliate or Affiliates of
Nomura;
(B) in a widely distributed, underwritten public offering upon
the exercise of the rights provided for under a registration rights
agreement covering such shares; or
(C) pursuant to a sale effected (when otherwise permitted as
provided above) through an open market, nondirected broker's transaction
in which the Optionee or other Person then entitled to exercise such
Option as seller does not know the buyer is a competitor or prospective
competitor.
Section 4.4 - Conditions to Issuance of Stock Certificates
The shares of stock deliverable upon the exercise of an Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of an Option or portion thereof prior to fulfillment of all of
the following conditions:
(a) The obtaining of approval or other clearance from any state
or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time (not to exceed 60
days) following the exercise of the Option as the Committee may from
time to time establish for reasons of administrative convenience.
Section 4.5 - Rights as Stockholder
The holder of an Option shall not be, nor have any of the rights
or privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of the Option or any portion thereof unless and
until certificates representing such shares shall have been issued by the
Company to such holder.
<PAGE>
<PAGE>
10
ARTICLE V
MISCELLANEOUS
Section 5.1 - Administration
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee shall be final and binding upon the Optionee, the Company
and all other interested Persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Options. In its absolute discretion, the Board of
Directors may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan and this Agreement.
Section 5.2 - Options Not Transferable
Except as may be provided in any other agreement between the
Optionee and the Company, neither the Options nor any interest or right therein
or part thereof shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
The Company shall at all times during the term of the Options
reserve and keep available, either in its treasury or out of its authorized but
unissued shares of stock, such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
Section 5.4 - Notices
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
or her status and address by written notice under this Section 5.4. Any notice
shall have been deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
<PAGE>
<PAGE>
11
Section 5.5 - Titles
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
Section 5.6 - Applicability of Plan and Other Agreements
The Options and the shares of Common Stock issued to the Optionee
upon exercise of the Options shall be subject to all of the terms and provisions
of the Plan and any other agreements between the Optionee and the Company, to
the extent applicable to the Options and such Shares. In the event of any
conflict between this Agreement and the Plan, the terms of the Plan shall
control. In the event of any conflict between this Agreement or the Plan and any
other agreements between the Optionee and the Company, the terms of the other
agreements between the Optionee and the Company shall control.
Section 5.7 - Amendment
This Agreement may be amended or supplemented by the Company,
when authorized by a resolution of the Committee or of the Board of Directors,
to cure any ambiguity, defect or inconsistency, to comply with Section 2.4
hereof or to make any change that does not adversely affect the rights of the
Optionee. Any other amendment or supplement of this Agreement may be made only
by a writing executed by the parties hereto which specifically states that it is
amending this Agreement.
Section 5.8 - Governing Law
The laws of the State of Delaware shall govern the
interpretation, validity and performance of the terms of this Agreement
regardless of the law that might be applied under principles of conflicts of
laws.
Section 5.9 - Jurisdiction
Any suit, action or proceeding against the Optionee with respect
to this Agreement, or any judgment entered by any court in respect of any
thereof, may be brought in any court of competent jurisdiction in the State of
New Jersey, as the Company may elect in its sole discretion, and the Optionee
hereby submits to the non-exclusive jurisdiction of such courts for the purpose
of any such suit, action, proceeding or judgment. The Optionee hereby
irrevocably waives any objections which he may now or hereafter have to the
laying of the venue of any suit, action or proceeding arising out of or relating
to this Agreement brought in any court of competent jurisdiction in the State of
New Jersey, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in any
inconvenient forum. No suit, action or proceeding against the Company with
respect to this Agreement may be brought in any court, domestic or foreign, or
before any similar domestic or foreign authority other than in a court of
competent jurisdiction in the State of New Jersey, and the Optionee hereby
irrevocably waives any right which he may otherwise have had to bring such an
action in any other court, domestic or foreign, or before any similar
<PAGE>
<PAGE>
12
domestic or foreign authority. The Company hereby submits to the jurisdiction of
such courts for the purpose of any such suit, action or proceeding.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
AT&T CAPITAL CORPORATION
By:
----------------------------
Name: Sara R. McAuley
Title: Senior Vice President
x Aggregate number of shares
------------------------- of Common Stock for which
(Optionee) the Option hereunder is
granted: 150,000
DAVID F. BANKS
- ---------------------------
(Print Name)
- --------------------------
(Address)
- --------------------------
(Address)
Optionee's Taxpayer
Identification Number: ###-##-####
<PAGE>
<PAGE>
EXHIBIT 12
FORM 10-Q for the Quarter
Ended June 30, 1997
File No. 1-11237
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES*
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Six Months Ended
June 30, 1997
-------------
<S> <C>
Earnings from continuing operations:
Income before income taxes $ 37,301
Add: Fixed charges included in income before
income taxes 218,257
-------
Total earnings from continuing operations, as adjusted 255,558
-------
Total fixed charges* $218,257
=======
Ratio of earnings to fixed charges 1.17
=======
</TABLE>
* Fixed charges include interest on indebtedness and a portion of rentals
representative of the interest factor.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information primarily extracted from
AT&T Capital Corporation's unaudited consolidated income statement and balance
sheet as of and for the three months ended March 31, 1996 and is qualified in
its entirety by reference to such unaudited consolidated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,028
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> (155,598)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> (872,024)<F1>
<TOTAL-ASSETS> 8,177,097
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 5,033,366
<COMMON> 903
0
0
<OTHER-SE> 728,687
<TOTAL-LIABILITY-AND-EQUITY> 8,177,097<F3>
<SALES> 20,740
<TOTAL-REVENUES> 857,322
<CGS> 18,652
<TOTAL-COSTS> 283,804
<OTHER-EXPENSES> 267,031
<LOSS-PROVISION> 45,957
<INTEREST-EXPENSE> 214,169
<INCOME-PRETAX> 37,301
<INCOME-TAX> 14,678
<INCOME-CONTINUING> 22,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,623
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
* In accordance with Regulation S-K item 601(c) 2, inapplicable or
immaterial financial data is reflected as zero value.
<F1> Accumulated depreciation relates to equipment under operating leases.
<F2> This item is not applicable since the Company does not prepare a
classified balance sheet.
<F3> Includes Preferred Securities.
</FN>
</TABLE>
