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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1997
OR
( ) 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 IDENTIFICATION
CORPORATION No. 22-3211453
44 Whippany Road, Morristown, New Jersey 07962-1983
Telephone Number 973-397-3000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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.......
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [X]
No voting stock of this registrant is held by any non-affiliates of the
registrant. As of February 28, 1998, 90,337,379 shares of this registrant's
Common Stock, par value $.01 per share, were issued and outstanding to Newcourt
Holdings USA, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
PART I
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Item Description Page
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1. Description of Business 3
2. Properties 19
3. Legal Proceedings 19
4. Submission of Matters to a Vote of Security-Holders 19
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 20
6. Selected Financial Data 20
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
8. Financial Statements and Supplementary Data 48
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 95
PART III
10. Directors and Executive Officers of the Registrant 96
11. Executive Compensation 97
12. Security Ownership of Certain Beneficial Owners and
Management 105
13. Certain Relationships and Related Transactions 106
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 107
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
RESTRUCTURING, INITIAL PUBLIC OFFERING AND MERGERS
AT&T Capital Corporation ("AT&T Capital" or the "Company") was incorporated
on December 21, 1992, as AT&T Leasing, Inc., and was renamed AT&T Capital
Corporation on March 31, 1993. The Company was the successor entity to certain
businesses of AT&T Capital Holdings, Inc. (formerly known as AT&T Capital
Corporation) ("Old Capital"), a wholly owned subsidiary of AT&T Corp. ("AT&T"),
and its subsidiaries, including AT&T Credit Holdings, Inc. (formerly known as
AT&T Credit Corporation) ("Old Credit"), a wholly owned subsidiary of Old
Capital that commenced operations in 1985. In a restructuring that occurred on
March 31, 1993 (the "Restructuring"), Old Capital and Old Credit transferred
substantially all their assets, except for certain assets consisting principally
of equity interests in project finance transactions and leveraged leases of
commercial aircraft, in exchange for shares of the Company's common stock and
the assumption by the Company of certain related liabilities.
In connection with the Restructuring, AT&T issued direct, full and
unconditional guarantees of all existing indebtedness outstanding as of March
31, 1993 for borrowed money incurred, assumed or guaranteed by Old Capital
entitled to the benefit of a Support Agreement between AT&T and Old Capital,
including the debt of Old Capital assumed by the Company in the Restructuring.
Debt issued by the Company subsequent to March 31, 1993, however, is not
guaranteed or supported by AT&T (see Note 7 to the Consolidated Financial
Statements).
An initial public stock offering combined with a management stock offering
totaling approximately 14% of the Company's stock occurred on August 4, 1993
("IPO"). As a result of the IPO, approximately 86% of the outstanding common
stock of the Company was owned indirectly by AT&T (through Old Capital and Old
Credit).
On September 20, 1995, AT&T announced a plan to pursue the public or
private sale of its remaining 86% interest in the Company. On such date, AT&T
also announced a plan to separate into three publicly-held stand-alone global
businesses: AT&T, Lucent Technologies Inc. ("Lucent") and NCR Corporation
("NCR") (herein collectively, the "Former Affiliates").
On June 5, 1996, AT&T Capital entered into an Agreement and Plan of
Merger (the "1996 Merger Agreement") with AT&T, Hercules Holdings (Cayman)
Limited ("Hercules (Cayman)") and Antigua Acquisition Corporation ("Antigua"), a
wholly-owned subsidiary of Hercules (Cayman). Hercules (Cayman) is an indirect
wholly-owned subsidiary of The Grand Leasing Company Limited (UK) ("Grand
Leasing"). As a result of the merger which occurred on October 1, 1996 (the
"1996 Merger"), AT&T Capital's then shareowners received $45 in cash for each
outstanding share of the Company's common stock, and Hercules (Cayman) and
certain members of management (the "Management Investors") became the sole
owners of the Company's common stock.
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The aggregate purchase price for the then outstanding shares of the
Company's outstanding common stock and the aggregate amount necessary to
cash-out the Company's stock options in accordance with the 1996 Merger
Agreement (the "1996 Merger Consideration") was approximately $2.2 billion. The
1996 Merger Consideration was funded through (i) a loan to the Company from
Goldman Sachs Credit Partners L.P. in the amount of approximately $1.3 billion,
which was to mature on October 30, 1996 and was repaid by the Company from a
portion of the proceeds of a $3.1 billion offering of equipment
receivable-backed securities by affiliates of the Company on October 15, 1996,
which resulted in an after-tax gain of $79 million (see Note 6 to the
Consolidated Financial Statements), and (ii) equity contributions to the Company
represented by (a) capital contributions of $871 million from Hercules (Cayman),
(b) exchange by the Management Investors of their existing shares totaling $29
million for newly issued shares and (c) the settlement of approximately $5
million of recourse loans previously made to senior executives. Also, in
connection with the 1996 Merger, the Company, through a consolidated subsidiary,
issued to the public $200 million of company-obligated preferred securities (see
Note 8 to the Consolidated Financial Statements), the proceeds of which were
used to pay down short-term debt.
On January 12, 1998, Newcourt Credit Group Inc., an Ontario corporation
("Newcourt"), consummated the purchase (the "Newcourt Acquisition") of all of
the outstanding shares of common stock of AT&T Capital, pursuant to a Stock
Purchase Agreement dated as of November 17, 1997 among the Company, Newcourt,
Hercules (Cayman), the former direct owner of 97.4% of the Company's common
stock, and the Management Stockholders, as defined below. In connection with the
Newcourt Acquisition, all of the outstanding shares of common stock of the
Company were transferred to Newcourt Holdings USA, Inc., a newly-formed Delaware
corporation which is a wholly-owned subsidiary of Newcourt. As a result of the
Newcourt Acquisition, all of the outstanding shares of common stock of the
Company are owned indirectly by Newcourt.
The resulting combination of Newcourt and the Company (the "Merged
Company") has created one of the largest providers of vendor finance in the
world, and one of the world's largest non-bank commercial asset finance
companies. With corporate headquarters in Toronto, Canada, the Merged Company
has approximately $22.3 billion (C$31.2 billion) of owned and managed assets at
December 31, 1997. In addition, the Merged Company remains well capitalized with
equity of $2.7 billion (C$3.9 billion) resulting in a leverage ratio (defined as
total debt to total equity plus Preferred Securities) of 3.2 times at December
31, 1997.
The aggregate purchase price under such Stock Purchase Agreement paid by
Newcourt to the stockholders of AT&T Capital was approximately $1.6 billion
comprised of approximately $1.0 billion in cash and the remainder comprising
approximately 17.6 million of Newcourt common shares. Such shares were issued
entirely to Hercules (Cayman) and generally may not be transferred for periods
ranging from 6 to 18 months following the date of the Newcourt Acquisition. The
cash portion of the purchase price paid by Newcourt was raised through the
issuance by Newcourt of 38.5 million shares of Newcourt common stock at
approximately $32.50 per share to employees of Newcourt and certain of the
Management Stockholders (as defined below) and the public in Canada and the
United States.
The ownership of the Preferred Securities, which were issued by Capita
Preferred Trust, a business trust originated by the Company in October, 1996,
was not affected by the Newcourt Acquisition and the related
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transactions. However, the Newcourt Guarantee (as defined below) ranks senior to
the Trust Guarantee issued by the Company in connection with the Preferred
Securities offering. (see Note 8 to the Consolidated Financial Statements).
Prior to the Newcourt Acquisition, all of the outstanding shares of
common stock of the Company were owned either (i) indirectly, through ownership
of 100% of the common shares of Hercules (Cayman), by Grand Leasing, which in
turn is beneficially owned through warrants to acquire 100% of the common shares
of Grand Leasing by Nomura International plc ("Nomura"), a wholly-owned indirect
subsidiary of The Nomura Securities Co., Ltd., and (ii) directly, at that time,
by 21 members and one former member of the senior management of the Company (the
"Management Stockholders"), with the Management Stockholders owning directly
approximately 2.6% of the outstanding shares of common stock of the Company (or
approximately 4.7% on a fully-diluted basis) and Grand Leasing owning indirectly
approximately 97.4% of the outstanding shares of common stock of the Company (or
approximately 93.6% on a fully diluted basis). The Company's employees and
outside directors owned approximately 1.7% of the Company's common stock on a
fully diluted basis.
On February 9, 1998, the Company and Newcourt entered into a support
agreement (the "Newcourt Support Agreement"). The Newcourt Support Agreement
requires Newcourt to own a majority of the outstanding shares of common stock of
the Company, to cause the Company and its subsidiaries to have a consolidated
tangible net worth of at least $1.00 and to provide funds to the Company (upon
the request of the Company) sufficient to enable the Company to make timely
payments of principal and interest payments on its debt for borrowed money (if
the Company is unable to do so).
On February 20, 1998, the Company entered into a guarantee of certain
outstanding indebtedness and liquidity facilities of Newcourt and Newcourt
Credit Group USA Inc. (the "Newcourt Guarantee") (see Note 7 to the Consolidated
Financial Statements).
RELATIONSHIPS WITH THE FORMER AFFILIATES
As discussed above, in September 1995, AT&T announced plans to separate
itself into three publicly traded companies and to dispose of its approximately
86% equity interest in the Company to the general public or another company (the
"AT&T Restructuring"). Pursuant to the AT&T Restructuring, the Company
consummated the 1996 Merger which resulted in, among other things, the
disposition by AT&T of its remaining equity interest in the Company.
In the first quarter of 1996, AT&T's telecommunications manufacturing
and marketing businesses were transferred to Lucent. On April 10, 1996 AT&T made
a public offering of approximately 17.6% of Lucent's shares. On September 30,
1996, AT&T spun off its entire remaining interest in Lucent to AT&T's
shareholders. Lucent's businesses involve the manufacture and distribution of
public telecommunications systems, business communications systems,
micro-electronic components, and consumer telecommunications products. On
December 31, 1996, AT&T distributed to its shareholders all of its interest in
NCR. NCR's businesses involve the manufacture and distribution of information
technology equipment, including automated teller machines and point-of-sale
terminal equipment.
In the second quarter of 1993, the Company entered into the following
agreements with AT&T: an Operating Agreement (as subsequently amended, the
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"AT&T Operating Agreement"), an Intercompany Agreement (the "AT&T Intercompany
Agreement"), and a License Agreement (as subsequently amended, the "AT&T License
Agreement"). In the second quarter of 1996, the Company entered into separate
operating agreements with each of Lucent and NCR (the "Lucent Operating
Agreement" and "NCR Operating Agreement", respectively, and, collectively with
the AT&T Operating Agreement, the "Operating Agreements") (pursuant to which,
among other things, the Company serves as preferred provider of financing
services and has certain related and other rights and privileges in connection
with the financing of equipment to the customers of Lucent and NCR). Also, in
the second quarter of 1996, the Company entered into letter agreements with
Lucent and NCR regarding the applicability to Lucent and NCR of specified
provisions of the AT&T License Agreement (collectively, with the AT&T License
Agreement, the "License Agreements") and the AT&T Intercompany Agreement
(collectively, with the AT&T Intercompany Agreement, the "Intercompany
Agreements"). (See Note 15 for further discussion of AT&T/Lucent/NCR). The
Former Affiliates are not required to renew the terms of their respective
Operating Agreements, License Agreements and Intercompany Agreements beyond the
expiration of the current terms on August 4, 2000.
In connection with the execution and delivery of the Stock Purchase
Agreement, Lucent, pursuant to the terms of the Lucent Operating Agreement,
consented to the change of control contemplated by the sale of the outstanding
shares of common stock of the Company to Newcourt pursuant to the Stock Purchase
Agreement. In addition, the Company and Newcourt agreed to negotiate with Lucent
to amend the terms of the Lucent Operating Agreement. On March 9, 1998, Newcourt
signed a new five-year agreement with Lucent (the "1998 Lucent Agreement") which
expands the global financing program established to serve Lucent's business
systems customers. The term of the 1998 Lucent Agreement is from October 1, 1997
through September 30, 2002. The 1998 Lucent Agreement replaces the Lucent
Operating Agreement and the letter agreements between the Company and Lucent,
the initial terms of which were scheduled to expire on August 4, 2000. In
addition to the extended term of the 1998 Lucent Agreement, other changes from
the previous Lucent Operating Agreement include Newcourt being the preferred
provider of financing services for a greater portion of Lucent's equipment and
related product sales, a change in the methodology in calculating the amount
required to be paid to Lucent (based upon specific financial, service and
performance levels tied to compensation) which is expected to result in an
increase in such amount, and a single point of contact for customers. The 1998
Lucent Agreement also includes certain early termination provisions and a
buy-out option that could have a material impact on the Company's future
operations, if exercised. Lucent is not required to renew the term of the 1998
Lucent Agreement beyond the current term. In the event of either (a) an early
termination or buy-out or (b) a non-renewal of the 1998 Lucent Agreement by
Lucent, Newcourt will have an extended wind-down period with cost recovery.
The impact of the 1998 Lucent Agreement on the Company's future net
income is at this time unknown. While there is a possibility that the Company's
future net income from Lucent transactions may increase as a result of an
anticipated increase in financing volume arising from Newcourt being the
preferred provider of financing services for a greater portion of Lucent's
equipment and related product sales, there also is a possibility that the
Company's future net income from Lucent transactions may decrease as a result of
the increased amounts due to Lucent under the 1998 Lucent Agreement.
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Pursuant to the AT&T License Agreement, AT&T has licensed to the Company
and certain of its subsidiaries certain trade names and service marks, including
but not limited to the AT&T Capital Corporation, AT&T Credit Corporation, AT&T
Systems Leasing and AT&T Automotive Services names. The AT&T License Agreement
provides that AT&T may require (as a result of AT&T's disposition of the Company
in 1996, upon two years notice and generally at AT&T's expense) the Company to
discontinue the use of the "AT&T" name as part of its corporate name. The
Company's subsidiaries may, notwithstanding such event, continue to use the
other AT&T licensed names (including NCR) and service marks pursuant to the
License Agreements (e.g., as part of such subsidiaries' corporate names and for
marketing purposes), subject to extensive restrictions on the use thereof in
connection with the issuance of securities and incurrence of indebtedness. As of
the date of these financial statements, AT&T has not given any notice requiring
discontinuance of use.
Although the Company intends to seek to maintain and improve its existing
relationships with Lucent, NCR and AT&T, no assurance can be given that the
Operating Agreements or the 1998 Lucent Agreement, will be extended beyond their
respective termination dates or, if extended, that the terms and conditions
thereof will not be modified in a manner adverse to the Company. Failure to
renew the Operating Agreement and the 1998 Lucent Agreement, on terms not
adverse to the Company could have a material adverse effect on the Company.
Moreover, in certain circumstances the Operating Agreements and the 1998 Lucent
Agreement may be terminated prior to their respective expiration dates.
In 1997, approximately 36% and 315% of the Company's total revenues and
net income, respectively, were attributable, directly or indirectly, to the
Former Affiliates. The relative high percentage of net income is a function of
higher volumes, securitization gains and capital lease revenue associated with
the Former Affiliates businesses. In addition, the Company's net loss on sales
of businesses also reduced the net income of businesses other than the Former
Affiliates.
DESCRIPTION OF THE BUSINESS
AT&T Capital is a full-service, diversified equipment leasing and finance
company that operates in the United States, Europe, Canada, the Asia/Pacific
Region, Mexico and South America. The Company is one of the largest equipment
leasing and finance companies in the United States based on the aggregate value
of equipment leased or financed.
The Company, through its various subsidiaries, leases and finances
equipment manufactured and distributed by numerous vendors, including the Former
Affiliates. In addition, the Company provides equipment leasing and financing
and related services directly to end-user customers. The Company's customers
include large global companies, small and mid-size businesses and federal, state
and local governments and their agencies.
AT&T Capital leases and finances a wide variety of equipment including
telecommunications equipment (such as private branch exchanges, telephone
systems and voice processing units), information technology (such as personal
computers, retail point-of-sale systems, and automated teller machines), general
office, manufacturing and medical equipment ("General Equipment"), and
transportation equipment (primarily vehicles), and also finances real estate
(including real estate related loans in the Company's Small Business
Administration ("SBA") lending and franchise finance businesses). The Company is
the largest lessor of telecommunications
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equipment in the United States based on the aggregate value of equipment leased
or financed.
At December 31, 1997, AT&T Capital's portfolio assets (investment in
finance receivables, capital leases and operating leases) were comprised of, or
collateralized by, General Equipment (aggregating 33% of such portfolio assets),
information technology equipment (22%), telecommunications equipment (22%),
loans secured by real estate (12%) and transportation equipment (11%).
The Company leases and finances such equipment through a variety of
financing and related products and services, including capital leases, operating
leases, other collateralized working capital loans for equipment dealers and
distributors, SBA lending, asset based loans and equipment management and
remarketing services. In addition, the Company offers its customers certain
equipment rental and administration services.
AT&T Capital's portfolio assets are diversified among a large customer
base, as well as numerous industries and geographic regions. The Company has one
of the largest customer bases in the commercial equipment leasing and finance
market, aggregating approximately 500,000 customers in its owned and managed
portfolios. At December 31, 1997, on an owned and securitized basis, the
Company's 100 largest customers (including AT&T and Lucent) accounted for
approximately 18% of the Company's owned and securitized portfolio assets, and
no customer (with the exception of AT&T and Lucent, in the aggregate) accounted
for more than 1% of such portfolio assets.
Although the Company operates principally in the United States, the
Company began operations in the United Kingdom in 1991 and Canada in 1992,
acquired a business in Hong Kong in 1994 and opened offices in Mexico and
Australia in 1994. The Company continues to expand globally in response to the
needs of its vendor clients.
For a discussion regarding the Company's total assets, revenues and net
income attributable to leasing and financing relating to clients other than the
Former Affiliates (the "Other Clients"), see the Results of Operations section
of Management's Discussion and Analysis of Financial Condition and Results of
Operations. For a discussion regarding the Company's foreign operations, see
Note 17 to the Consolidated Financial Statements.
Marketing and Business Activities
AT&T Capital provides its financial products and services to its worldwide
customers and clients through three principal marketing channels:
Vendor Finance, Direct Customer Finance and International Finance.
The table below shows approximate financing volumes and assets as a
percent of AT&T Capital's total financing volumes and owned assets, attributable
to each of its origination channels for the year ended December 31, 1997.
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Financing Total
Volume Assets
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($ in millions)
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Vendor Finance $2,272 40% $3,011 34%
Direct Customer Finance 1,882 33 3,609 41
International Finance 1,513 27 2,156 25
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Total $5,667 100% $8,776 100%
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Vendor Finance
AT&T Capital has established vendor finance programs with producers of
telecommunications, information technology and industrial equipment. In
addition, the Vendor Finance unit also offers private label financing programs
for vendors.
The Former Affiliates have collectively been the largest vendor clients
of the Company. Historically, the Company has financed (for the customers of the
Former Affiliates) a large volume of the Former Affiliates' telecommunications
and information technology sales. During the fiscal year ended December 31,
1997, the Company generated approximately $0.9 billion of financing volume from
Lucent and NCR related vendor finance activities. Of this financing volume, 79%
was related to Lucent and 21% was related to NCR.
To facilitate the financing of sales of the Former Affiliates'
equipment, the Company has connected its data and telecommunications systems
with those of the Former Affiliates' sales and marketing offices and maintains
personnel and equipment at the Former Affiliates' sales and marketing sites. The
Company uses these linkages, personnel and equipment in conjunction with its
competitive strengths (e.g., credit scoring capabilities) and its personnel and
equipment based at its own sites to provide high volume processing capabilities
that enable the Company to serve large numbers of customers on an efficient and
timely basis. In addition, these linkages permit the Former Affiliates to
invoice the Company electronically for certain types of telecommunications and
information technology equipment and permit the Company to pay invoices
electronically.
In serving other vendor clients, the Company strategically focuses on
the telecommunications, information technology, medical, manufacturing,
materials handling, image processing and office equipment sectors. AT&T
Capital's vendor finance products include a variety of customized financing
products, sales aid services (including the training of vendor personnel and
point-of-sale support), private label programs (in which AT&T Capital provides
financing to the vendor's customers under the vendor's name), customer
operations support and interfaces, alternate channel programs (distribution
channels not involving the vendor's direct sales force) and support for
value-added retailers or distributors (retailers or distributors that modify
products and re-sell them).
AT&T Capital's management believes its ability to identify creditworthy
accounts represents a strategic competitive resource to vendors seeking to
increase sales without increasing their personnel costs. In addition, the
Company's high volume processing capabilities, relationship-based transaction
skills and residual value assessment, equipment management and marketing
expertise provide vendors with competitive pricing and enhanced customer account
control after sales close.
During the year ended December 31, 1997, the Company generated $1.4
billion of financing volume from its other vendor clients.
Direct Customer Finance
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AT&T Capital directly markets financial products and services to
specific market segments, including small business, structured and technology
equipment finance, short-term instrument and data equipment rentals and consumer
automobile leasing (the Company is currently pursuing the sale of its U.S.
consumer automotive business, see Note 5 to the Consolidated Financial
Statements). Direct Customer Finance activities consist of Technology Finance
and Services, Specialized Commercial Finance and Capital Markets.
Technology Finance and Services
AT&T Capital's equipment management services include procurement,
integration, deployment, tracking and remarketing of equipment.
Technology assets is a fast growing segment of the capital equipment
arena. Having identified this opportunity early on, AT&T Capital is now one of
the largest providers of financing and specialized asset management services to
corporate users of information technology assets. AT&T Capital develops
innovative financing solutions for acquiring, operating and disposing of high
technology assets and capital equipment. It specializes in structuring flexible
solutions for complex transactions to support customers in a multi-vendor
environment. To serve the short-term needs of sophisticated computer users who
operate in periods of peak demand, AT&T Capital also offers rentals of a full
range of high performance computers and test equipment.
Specialized Commercial Finance
AT&T Capital has leveraged on its large customer base, sophisticated
transaction structuring skills, and high volume transaction processing
capabilities to provide specialized financial services directly to target
segments in the commercial finance market. AT&T Capital targets small and
medium-size companies in the United States with products including SBA loans,
asset-base loans, franchise financing, and other financing products (such as
pre-approved credit lines). AT&T Capital is the second largest lender in the
United States government's SBA program - a $9.5 billion government guaranteed
loan program for fiscal year ended September 30, 1997. The SBA program was
established to provide financing to small businesses for equipment, land and
buildings and inventory. AT&T Capital's SBA licensed subsidiary, AT&T Small
Business Lending Corporation, has currently been designated as a preferred
lender by the SBA administration in 58 of the SBA's 68 districts. For the
year-ended December 31, 1997, AT&T Capital provided approximately $0.4 billion
of SBA-guaranteed loans.
Capital Markets
Through its capital markets business, AT&T Capital serves the structured
financing requirements of large companies worldwide. This form of financing
makes maximum use of AT&T Capital's structuring and risk management skills and
allows it to customize transactions to meet customer needs.
AT&T Capital's experience in technology and financial service markets
brings it many opportunities to enter into business relationships with large,
growth-oriented companies that require big-ticket project and equipment finance.
On these corporate and structured finance transactions, AT&T Capital will
generally provide a total financing solution to the client, which results in
AT&T Capital agreeing to finance a significant portion of the investment and
syndicate the balance to a third party.
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AT&T Capital has focused its capital markets initiatives in select
sectors, including transportation, manufacturing, industrial,
telecommunications, media and real estate. To deal effectively with the
complexity of many capital markets projects, AT&T Capital assembles teams that
include specialists in financing structuring, pricing, credit analysis, asset
management and engineering.
International Finance
Although AT&T Capital operates principally in the United States, it has
expanded globally in order to respond to the needs of its vendor clients. AT&T
Capital's international business is managed through four geographic regions:
Canada, Europe, Asia Pacific and Mexico and South America. International
expansion has resulted from a combination of acquisitions, start-up operations
and joint ventures. While AT&T Capital's start-up operations and joint ventures
were primarily focused on supporting global vendor relationships (directly
through vendor channels and indirectly through local distributors), some of its
acquisitions have included specialized commercial and consumer finance
origination capabilities. These acquisitions provided AT&T Capital with an
international infrastructure and growth opportunities.
AT&T Capital began operations in the United Kingdom in 1991, in Canada
in 1992, acquired a business in Hong Kong in 1994 and opened offices in Mexico
and Australia in 1994.
Canada - AT&T Capital Canada is one of the largest general equipment
lessors in Canada, providing financing of telecommunications, computing, office
and industrial equipment and consumer automobile leasing throughout Canada. In
the third quarter of 1996, AT&T Capital Canada acquired the operating assets and
lease portfolio of Municipal Leasing Corporation, a Canadian operation which had
approximately $160 million in assets at the time of the acquisition. Municipal
Leasing Corporation serves the office equipment and automotive leasing needs of
26,000 customers in Ontario.
Europe - In January 1995, AT&T Capital established a European network
for its financial services through the acquisition of the vendor leasing and
finance companies of Banco Central Hispano and certain of its affiliates located
in the United Kingdom, Germany, France, Italy, Belgium, and the Netherlands.
AT&T Capital's expansion to Europe has coincided with the entry into such
markets by AT&T Capital's manufacturer and distributor vendor clients.
Asia/Pacific - AT&T Capital's Asia Pacific operations are focused on
vendor programs and other specialty asset finance businesses.
Mexico and South America - Global manufacturers like Lucent and NCR have
targeted the growth opportunities in Mexico and South America, which resulted in
AT&T Capital establishing a strong presence in these regions. In 1995, AT&T
Capital entered into a joint venture with Banco Frances, a leading Argentine
commercial bank to operate an equipment leasing operation in Argentina. In
Mexico, AT&T Capital has established vendor relationships with such technology
companies as Sun Microsystems and Sony Professional Products.
The Merged Company
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The Merged Company will offer its financing services to clients through
three primary business units: Newcourt Financial, Newcourt Capital, and Newcourt
Services. Newcourt Financial, the Merged Company's commercial finance business,
will provide asset-based financing for a variety of equipment to vendors and
customers. Newcourt Capital, the Merged Company's corporate finance business,
will provide structured corporate finance to a growing list of international
clients, including major corporations, governments and agencies. Finally,
Newcourt Services, the Merged Company's control and support services, will be
responsible for the underwriting, funding, administration and risk management
needs of Newcourt Financial and Newcourt Capital.
Newcourt Financial offers its lending services through select strategic
relationships with equipment manufacturers, dealers and distributors and certain
professional associations. Newcourt Financial's strategy focuses on the
creation, maintenance and enhancement of vendor programs ensuring its position
as the premier provider of global asset based financial products. Newcourt
Financial focuses on the following sectors: Transportation and Industrial
Finance, Technology Finance, Telecommunications Finance, Business Finance,
Specialty Finance, Technology Services, International/Joint Ventures, and
Operations.
Newcourt Capital is the corporate finance business which provides asset
based financing for high value assets and related advisory services to equipment
manufacturers, corporate clients, governments and public sector agencies.
Newcourt Capital focuses on the following sectors: Aerospace Finance, Rail
Finance, Public Sector Finance, Project Finance, Structured Finance,
Telecommunication and Media Finance, Business Finance, and Underwriting and
Syndication.
Newcourt Services is the service business unit responsible for providing
cost effective control and support services to Newcourt Financial and Newcourt
Capital. Newcourt Services consists of the following corporate functions:
Treasury, Credit and Risk Management, Financial Reporting and Administration,
Human Resources, Communications & Marketing, Tax Planning and Compliance,
Systems Development, and Quality Assurance.
Income Tax Considerations
As a result of the 1996 Merger, the Company is no longer a member of
AT&T's consolidated group for Federal income tax purposes. The Company ceased
being a member of such consolidated group for Federal income tax purposes
the "Tax Deconsolidation") upon the consummation of the 1996 Merger (see Notes
1 and 13 to the Consolidated Financial Statements).
When the Company was a part of the AT&T consolidated federal income tax
group, the payment of Federal income taxes associated with sales of products
manufactured by the Former Affiliates was deferred (the amount of such taxes so
deferred being herein called "Gross Profit Tax Deferral"), generally as the
products were depreciated or until sold outside the group. Pursuant to the Gross
Profit Tax Deferral Interest Free Loan Agreement between the Company and AT&T,
AT&T had agreed to extend and had extended interest-free loans to the Company
from time to time in an amount equal to the then outstanding amount of Gross
Profit Tax Deferral. Such loans, the outstanding balance of which totaled $247.4
million as of September 30, 1996, were repaid by the Company immediately prior
to Tax Deconsolidation as required by the agreement. The Company no longer
receives such loans, which had constituted a competitive advantage to the
Company in financing AT&T products.
12
<PAGE>
<PAGE>
Pursuant to the Federal Tax Sharing and the State Tax Sharing Agreements
between the Company and AT&T, the AT&T consolidated Federal income tax liability
was generally allocated among the members of the AT&T consolidated group that
reported taxable income. Members of the AT&T consolidated group that reported
tax losses were compensated by AT&T (through cash payments made on a quarterly
basis) for their losses to the extent those losses were used to reduce the AT&T
consolidated Federal income tax liability. Similar principles and cash payments
also applied to certain state and local income tax liabilities.
Upon Tax Deconsolidation, the Company is no longer entitled to receive
quarterly cash payments from AT&T as compensation for the use of any tax losses.
The tax losses, instead, are available to the Company to reduce future taxable
income. Thus, the Company may derive a benefit in the future from tax losses,
but only to the extent the Company has taxable income in later years. In 1997
and 1996, on a stand-alone basis, the Company had taxable income. (See Note 13
of the Consolidated Financial Statements.)
It is anticipated that Newcourt Holdings USA, Inc. will merge into
Newcourt Credit Group USA Inc. (a wholly-owned subsidiary of Newcourt), with
Newcourt Credit Group USA Inc. being the surviving entity. Effective thereafter,
the surviving entity, including the Company, will file a consolidated tax return
for Federal income tax purposes.
In addition, it is possible that the Company could be subject to the
federal alternative minimum tax. A Company's alternative minimum tax liability
is computed by applying the alternative minimum tax rate, which is lower than
the regular tax rate, to a measure of taxable income that is broader than that
used in computing the regular tax. Payments of any alternative minimum tax
incurred by the Company would be available in the future as credits against the
Company's regular tax liability.
Credit Quality
The following table shows the components of the Company's allowance for
credit losses related to (i) lease financing (capital leases and rentals
receivable on operating leases) from United States operations, (ii) finance
receivables from United States operations and (iii) lease financing and finance
receivables from foreign operations; collectively "finance assets". In addition,
other key credit quality indicators, by loan type, are also provided. The
breakdown of the allowance for credit losses at each year-end reflects
management's estimate of credit losses and may not be indicative of actual
future charge-offs by loan classification.
13
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning
of year:
- - Lease Financing-U.S. $ 82,123 $144,666 $113,735 $95,196 $86,086
- - Finance Receivables-U.S. 50,850 52,607 46,637 56,974 36,139
- - Foreign 36,013 25,947 16,056 7,649 1,736
- ---------------------------------------------------------------------------------
Total 168,986 223,220 176,428 159,819 123,961
- ---------------------------------------------------------------------------------
Additions Charged
to Operations:
- - Lease Financing-U.S. 62,228 69,931 66,505 62,447 91,605
- - Finance Receivables-U.S. 32,433 27,916 15,167 13,488 28,604
- - Foreign 19,639 15,758 4,542 4,953 3,469
- ---------------------------------------------------------------------------------
Total 114,300 113,605 86,214 80,888 123,678
- ---------------------------------------------------------------------------------
Charge-offs:
- Lease Financing-U.S. 48,392 83,885 48,834 47,585 61,233
- Finance Receivables-U.S. 5,693 14,582 10,446 22,908 14,135
- Foreign 13,050 7,278 5,595 3,024 284
- ---------------------------------------------------------------------------------
Subtotal 67,135 105,745 64,875 73,517 75,652
Recoveries:
- - Lease Financing-U.S. 21,171 15,507 13,944 14,666 15,505
- - Finance Receivables-U.S. 887 1,495 1,403 1,561 1,118
- - Foreign 2,362 2,431 2,758 1,745 -
- ---------------------------------------------------------------------------------
Subtotal 24,420 19,433 18,105 17,972 16,623
- ---------------------------------------------------------------------------------
Net Charge-offs:
- - Lease Financing-U.S. 27,221 68,378 34,890 32,919 45,728
- - Finance Receivables-U.S. 4,806 13,087 9,043 21,347 13,017
- - Foreign 10,688 4,847 2,837 1,279 284
- ---------------------------------------------------------------------------------
Total 42,715 86,312 46,770 55,545 59,029
- ---------------------------------------------------------------------------------
Transfers and Other (a):
- - Lease Financing-U.S. (50,993) (64,096) (684) (10,989) (36,767)
- - Finance Receivables-U.S. (6,908) (16,586) (154) (2,478) 5,248
- - Foreign (4,118) (845) 8,186 4,733 2,728
- ---------------------------------------------------------------------------------
Total (62,019) (81,527) 7,348 (8,734) (28,791)
- ---------------------------------------------------------------------------------
Balance at end of year:
- - Lease Financing-U.S. 66,137 82,123 144,666 113,735 95,196
- - Finance Receivables-U.S. 71,569 50,850 52,607 46,637 56,974
- - Foreign 40,846 36,013 25,947 16,056 7,649
- ---------------------------------------------------------------------------------
Total $178,552 $168,986 $223,220 $176,428 $159,819
=================================================================================
</TABLE>
14
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Percentage of loan types to total finance assets:
<S> <C> <C> <C> <C> <C>
- - Lease Financing-U.S. 37.1% 41.3% 62.2% 67.9% 70.6%
- - Finance Receivables-U.S. 36.5% 33.2% 20.8% 21.5% 23.1%
- - Foreign 26.4% 25.5% 17.0% 10.6% 6.3%
================================================================================
Ratio of Net Charge-offs during
the year to average finance assets
outstanding during the year:
- Lease Financing-U.S. 1.09% 1.49% 0.73% 0.78% 1.27%
- Finance Receivables-U.S. 0.23% 0.70% 0.58% 1.69% 1.13%
- Foreign 0.69% 0.32% 0.24% 0.22% 0.15%
================================================================================
Nonaccrual assets $168,723 $135,085 $118,484 $120,494 $160,574
================================================================================
</TABLE>
(a) Primarily includes transfers out of allowance for credit losses related to
receivables securitized, transfers in of reserves related to businesses
acquired and reclassifications.
The lower ratios of net charge-offs to average Lease Financings - U.S.
and Finance Receivables U.S. in 1997 compared to 1996, is primarily a result of
a much lower level of net charge-offs in 1997. The reduction in the allowance
and percentage of Lease Financing - U.S. assets is consistent with continued
securitization activity, including primarily Lease Financing - U.S. assets. The
increase in nonaccrual assets over 1996 is primarily due to a $27.4 million
project finance transaction that was suspended from earnings in early 1997.
The ratio of net charge-offs to average Lease Financing - U.S. assets
increased in 1996 compared with 1995, while the allowance for credit losses
decreased over the same period. These changes were due to the significant
reduction in the Lease Financing portfolios due to the significant increase in
securitizations in 1996. In addition, assets securitized generally include only
those transactions not more than 60 days past due; therefore, the owned
portfolio reflects a higher proportion of delinquent receivables which results
in a higher charge-off ratio. Furthermore, the securitizations generally
comprise receivables from the Company's small-ticket lease portfolios which
carry a higher allowance for credit losses/portfolio asset ratio compared to the
overall ratio. As a result, the Company's overall allowance for credit
losses/portfolio assets ratio decreases when such small-ticket receivables are
sold. The allowance for credit losses decreased primarily to the
reclassification of certain amounts to securitization recourse reserves. The
ratio of net charge-offs to average Finance Receivables increased while the
allowance for credit losses decreased in 1996 compared to 1995, due to a large
financing written-off in 1996 which was substantially reserved for in 1995.
The ratio of net charge-offs to average Finance Receivables increased in
1994 compared with 1993, while the allowance for credit losses decreased in 1994
compared with 1993 due to reserves established for specific assets
15
<PAGE>
<PAGE>
(particularly in the media portfolio) that were subsequently charged off in
1994. As a result, in 1994 there were fewer assets that required specific
reserves.
For a further discussion regarding credit quality and the Company's
portfolio credit performance indicators, see the Credit Quality section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Accounts are placed in nonaccrual status at 90 days past due or sooner if
identified as a problem account. Revenue which would have been recorded in 1997
on nonaccrual U.S. and Foreign assets had these assets been earning at the
original contractual rate amounted to approximately $18.4 million and $1.6
million, respectively. Revenue actually recognized in 1997 on U.S. and Foreign
assets in nonaccrual status at December 31, 1997 amounted to approximately $5.8
million and $1.3 million, respectively.
Lease terms that are modified in the normal course of business, for
which additional consideration is received or insignificant concessions are
made, are accounted for as changes in a provision for a lease in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for
Leases". Pursuant to SFAS No. 114, "Accounting by Creditor for Impairment of a
Loan" and No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures", the amount of impaired loans (requiring an
individual allowance greater than $0.2 million) at December 31, 1997 is $101.1
million (see Note 3 to the Consolidated Financial Statements).
Residual Value Realization
The establishment and realization of residual values on leases are also
important elements of the Company's business. The Company's residual management
capabilities include its equipment remarketing skills, its in-house equipment
refurbishment facilities, its proactive management of its portfolio of residuals
and its knowledge of developing technologies, products and obsolescence trends.
These competencies are used in setting residual values upon the acquisition and
leasing of the equipment based on the estimated value of the equipment at the
end of the lease term and the ability to influence lessee activities and choices
over the life of the lease. These estimates are determined by the Company from,
among other things, on-going studies prepared by the Company, professional
appraisals, historical experience and industry data, market information on sales
of used equipment, the ability to upgrade and enhance equipment value over lease
term, end-of-lease customer behavior plus projections of new product
introductions and obsolescence trends.
The Company strategically manages its owned and securitized portfolios to
ensure a broad diversification of residual risk by equipment type and lease
expiration. The Company's risk management department, in conjunction with
equipment experts in the Company's business units, regularly reviews residual
values, and if they have declined, adjustments are made that result in an
immediate charge to income for capital leases (and residuals where the
associated receivables have been securitized) and adjustments to depreciation
expense for operating leases over the shorter of the useful life of the asset or
the remaining term of the lease. On an aggregate basis, the Company has
historically realized proceeds from the sale or re-leasing of equipment during
the lease term and at lease termination in excess of the Company's recorded
residual values. However, there can be no assurance that such results will be
realized in future years. The Company
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<PAGE>
<PAGE>
recognizes in total revenues, amounts in excess of recorded
residuals over the re-lease term, or upon the sale or other disposition of
leased equipment.
The Company actively manages its residuals by working with lessees and
vendors during the lease term to upgrade and enhance their leased equipment
and/or encourage lessees to extend their leases, as appropriate, and by
monitoring the various equipment industries, particularly the information
technology industries, for obsolescence trends and remarketing opportunities.
The Company utilizes its equipment management (including equipment remarketing),
engineering and other technical expertise to help manage its residual positions.
The following table shows projected residual expirations, as an approximate
percentage of aggregate recorded residuals as of December 31, 1997, by equipment
type for the Company's owned and securitized portfolios, for the years ended
December 31, 1998, 1999, 2000, 2001 and 2002 and thereafter:
<TABLE>
<CAPTION>
Year of Termination
-------------------------------------------------------------
1998 1999 2000 2001 2002+ Total
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Telecommunications 4% 5% 7% 6% 8% 30%
Information Technology 6% 7% 9% 2% 1% 25%
Transportation 4% 9% 9% 2% 5% 29%
General Equipment 3% 3% 3% 3% 4% 16%
-------------------------------------------------------------
Total 17% 24% 28% 13% 18% 100%
</TABLE>
Competition and Related Matters
The equipment leasing and finance industry is highly competitive.
Participants in the industry compete through price (including the ability to
control costs), risk management, innovation and customer service. Principal cost
factors include the cost of funds, the cost of selling to or obtaining new
end-user customers and vendors, and the cost of managing portfolios (including,
for example, billing, collection, credit risk management, and residual
management). Adequate risk management is required to achieve satisfactory
returns on investment and to provide appropriate pricing of financing products.
The Company believes that innovation is necessary to compete in the industry,
involving specialization in certain types of equipment, financial structuring
for larger transactions, utilization of alternative channels of distribution and
optimization of tax treatment between owner and user. In addition, end-users of
equipment generally desire transactions to be simple, flexible and meet the
customer needs.
In its leasing and financing operations and programs, the Company competes
with captive or related leasing companies (such as General Electric Capital
Corporation and IBM Credit Corporation), independent leasing companies (such as
Comdisco, Inc.), certain banks engaged in leasing, lease brokers and investment
banking firms that arrange for the financing of leased equipment, and
manufacturers and vendors who lease their own products to customers. In
addition, the Company competes with all banking and other financial
institutions, manufacturers, vendors and others who extend or arrange credit for
the acquisition of equipment, and in a sense, with end-users' available cash
resources to purchase equipment that the Company may otherwise finance. Many of
the competitors of the Company are large companies that have substantial
capital, technological and marketing resources; some of these competitors are
significantly larger than the Company and have access to debt at a lower cost
than the Company.
17
<PAGE>
<PAGE>
There continue to be substantial changes in the equipment leasing and
finance industry, including the sale or cessation of operations of competitors
of the Company and an apparent trend toward consolidation. While these
developments may on balance be favorable for the Company's prospects, they are
indicative of the strong competitive pressures on all participants in the
industry, including the Company.
The Company's penetration rate for Lucent's sales of telecommunications
equipment in the United States (i.e., the percentage of the dollar volume of
such sales that the Company finances) was approximately 35% for the year ended
December 31, 1997. The Company does not expect material increases in this
penetration rate, and there can be no assurance that the existing rate will be
maintained. The Company's penetration rate for NCR's sales of data processing
and related products, including data warehousing computers, retail point-of-sale
computers, and automated teller machines was approximately 18% for the year
ended December 31, 1997. Additionally, the Company has an insignificant
penetration rate with respect to international sales of Lucent's network systems
products (large telecommunications switches, cable products, cellular telephone
equipment and microwave dishes and equipment), which sales the Company has been
financing for a relatively short period of time. Because the markets for
financing these products are highly competitive and substantially different from
the markets for financing telecommunications equipment in the United States,
there can be no assurance that the penetration rates in these product areas will
increase.
In addition to competition within the leasing and financing industry,
competition experienced in the Former Affiliates' industries may adversely
affect the Company because of the significance to the Company of its business
with customers of the Former Affiliates. Those industries are highly competitive
and subject to rapid changes in technology and customer needs. Many of the
Former Affiliates' competitors are large companies that have substantial
capital, technology and marketing resources.
In addition, the Regional Bell Operating Companies (the "RBOCs"), which
have historically been prohibited from manufacturing telecommunications
equipment will be permitted to manufacture such equipment and compete with
Lucent, subject to satisfying certain conditions, pursuant to telecommunications
legislation recently enacted by Congress. It is possible that one or more of the
RBOCs may decide to manufacture telecommunications equipment or form alliances
with other manufacturers. Either of such developments could result in increased
competition for Lucent, reduce the RBOCs' purchases of equipment from Lucent,
and consequently, adversely impact the Company's financing volumes.
While the Company is not able to fully predict whether Lucent's and NCR's
separation from AT&T and the cessation of their use of the "AT&T" brand name
will affect their equipment sales, any resulting change in the level of
equipment sales by Lucent and NCR would likely have a corresponding impact on
the Company's future financing volumes associated with such sales.
Employees
AT&T Capital had approximately 2,800 employees as of February 28, 1998,
each of whom is referred to within the Company as a "member". Titles are not
used internally. In general, members function using a team approach, with
business generally conducted on a collaborative rather than
18
<PAGE>
<PAGE>
hierarchical basis. Management believes that its members are skilled and highly
motivated and that the Company's ability to achieve its objectives depends upon
their efforts and competencies. None of the Company's members are represented by
a union. The Company believes that its relations with its members are good.
ITEM 2. PROPERTIES
The Company's properties consist primarily of administrative offices,
warehouses for the storage and refurbishment of equipment and a number of
geographically dispersed sales offices. The Company has its headquarters in
Morristown, New Jersey, with its principal domestic offices and warehouses
located in Morristown and Parsippany, New Jersey; Framingham, Massachusetts;
Bloomfield Hills, Michigan; Towson, Maryland; and Dallas, Texas. The Company's
principal international offices are in London, England; Toronto, Canada; Hong
Kong; Sydney, Australia; Mexico City, Mexico; Brussels, Belgium; Frankfurt,
Germany; Milan, Italy; and Paris, France. All these offices and warehouses are
leased (some being subleased from the Former Affiliates), except for one
building (of approximately 9,000 square feet) in Framingham, Massachusetts,
owned by a subsidiary of the Company. This building is designed as office space
and storage and is completely sublet to a nonaffiliated company. The Company
considers its present locations suitable and adequate to carry on its current
business.
As a result of the Newcourt Acquisition, a Real Estate task force has
been put in place to review all of the Merged Company's leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any pending litigation nor is the
Company aware of any threatened litigation which in the opinion of the Company's
management will have a material adverse impact on the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1997.
19
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
Until October 1, 1996, the principal market on which the common stock
of the Company was traded was the New York Stock Exchange ("NYSE").
Since October 1, 1996, there has been no established public trading
market for the Company's common stock. The Company is currently an
indirect wholly-owned subsidiary of Newcourt Credit Group Inc.
<TABLE>
<CAPTION>
Quarter Ended Quarterly Stock Prices Dividends
declared
per share
<S> <C> <C> <C>
High Low
March 31, 1996 $44.000 $38.125 $0.11
June 30, 1996 $44.000 $36.625 $0.11
September 30, 1996 $44.875 $43.750 $0.11
December 31, 1996* $44.875 $44.875 $(c)
</TABLE>
*As discussed above, there is no longer an established public trading
market for the Company's common stock which is no longer traded on the
NYSE. The fourth quarter "high" and "low" price is as of October 1,
1996, the last day of trading.
(b) Holders
As of February 28, 1998, there was one holder of record of the
Company's common stock.
(c) Dividends
It is anticipated that the Company will no longer pay quarterly
dividends in the short-term.
ITEM 6. SELECTED FINANCIAL DATA
The Results of Operations Data for the years ended December 31, 1997, 1996,
1995, 1994 and 1993, as well as the Balance Sheet Data and Other Data at
December 31, 1997, 1996, 1995, 1994 and 1993 are derived from the Consolidated
Financial Statements of the Company at such dates and for such periods, which
have been audited by Coopers & Lybrand L.L.P., independent accountants except
for 1997, which have been audited by Arthur Andersen LLP (see Item 9).
20
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<PAGE>
The selected financial data as presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes thereto.
<TABLE>
<CAPTION>
For the years ended December 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Results of Operations Data:
<S> <C> <C> <C> <C> <C>
Total revenues $1,814,139 $1,952,190 $1,577,035 $1,384,079 $1,359,589
Interest expense 451,470 458,039 411,040 271,812 236,335
Operating and
administrative
expenses 545,728 564,489 473,663 427,187 381,515
Provision for credit
losses 114,301 113,605 86,214 80,888 123,678
Income before income
taxes, cumulative
effect on prior years
of accounting change
and impact of tax rate
change 32,036 278,602 208,239 173,614 138,040
Income before
cumulative effect on
prior years of
accounting change and
impact of tax rate
change 21,007 168,539 127,555 100,336 83,911
Cumulative effect on
prior years of
accounting change (1) - - - - (2,914)
Impact of 1993 tax rate
change (1) - - - - (12,401)
Net income (1) $21,007 168,539 127,555 100,336 68,596
Dividends paid (2) - $ 15,490 $ 19,231 $ 17,338 $ 4,216
Return on average
equity 2.9% 15.9% 12.1% 10.5% 8.5%
Return on average
assets 0.3% 1.8% 1.5% 1.4% 1.1%
Return on average equity
before tax charges (3) 2.9% 15.9% 12.1% 10.5% 10.3%
Return on average assets
before tax charges (3) 0.3% 1.8% 1.5% 1.4% 1.4%
- --------------------------------------------------------------------------------
Balance Sheet Data, at December 31:
Total assets $8,775,895 $8,092,512 $9,541,259 $8,021,923 $6,409,726
Total debt(4) 7,117,994 6,464,924 6,928,409 5,556,458 4,262,405
Total liabilities 7,832,116 7,185,205 8,425,134 7,013,705 5,485,283
Preferred
Securities(5) 200,000 200,000 - - -
Total shareowners'
equity $ 743,779 $ 707,307 $1,116,125 $1,008,218 $ 924,443
</TABLE>
21
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<PAGE>
<TABLE>
<CAPTION>
At or for the years ended December 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Other Data:
Net portfolio assets
of the Company $7,225,327 $7,187,451 $9,105,403 $7,484,798 $6,076,805
Allowance for credit
losses 178,552 168,986 223,220 176,428 159,819
Total owned and
managed assets 13,912,146 12,883,484 11,755,761 10,681,449 9,205,389
Volume of equipment
financed (6) $5,666,718 $5,245,000 $4,567,000 $4,251,000 $3,467,000
Ratio of earnings to
fixed charges (7) 1.07x 1.60x 1.50x 1.62x 1.57x
Ratio of total debt to
shareowners' equity plus
Preferred Securities(5) 7.54x 7.13x 6.22x 5.51x 4.61x
Ratio of allowance for
credit losses to net
charge-offs 4.34x 1.96x 4.77x 3.18x 2.71x
Ratio of net charge-offs
to portfolio assets 0.56% 1.17% 0.50% 0.73% 0.95%
Ratio of allowance for
credit losses to
portfolio assets 2.41% 2.30% 2.39% 2.30% 2.56%
</TABLE>
22
<PAGE>
<PAGE>
(1) Net income for 1993 was adversely impacted by the federal tax rate increase
to 35% ($12.4 million) and a cumulative effect on prior years of accounting
change ($2.9 million). Net income without these charges for 1993 would have been
$83.9 million.
(2) As a result of the 1996 Merger and the Newcourt Acquisition, it is
anticipated that the Company will no longer pay dividends in the short-term.
(3) The Company defines return on average equity before tax charges and return
on average assets before tax charges, as income before cumulative effect on
prior years of accounting change and impact of tax rate change as a percentage
of average equity and average assets, respectively.
(4) Does not include certain interest free loans from AT&T to the Company under
certain tax agreements, in aggregate outstanding principal amounts of $0, $0,
$248.9 million, $214.1 million and $188.6 million, at December 31, 1997, 1996,
1995, 1994 and 1993, respectively.
(5) The Company, through a consolidated subsidiary, issued to the public eight
million shares of Company-obligated preferred securities (the "Preferred
Securities") (see Note 8 to the Consolidated Financial Statements).
(6) Total principal amount of loans and total cost of equipment associated with
finance and lease transactions recorded by the Company and the change in
outstanding inventory financing and asset based loans.
(7) Earnings before income taxes and cumulative effect on prior years of
accounting change plus the sum of interest on indebtedness and the portion of
rentals representative of the interest factor (the "fixed charges") divided by
the fixed charges. Fixed charges do not include distributions on Preferred
Securities. In connection with the 1996 Merger, the portion of the Company's
indebtedness to AT&T which did not bear interest, the GPTD loan, was repaid (see
Notes 1 and 13 to the Consolidated Financial Statements).
23
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
When included in this Annual Report on Form 10-K, 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 7, 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 and uncertainties include, among others, those described
below under "Risk Factors", many of which are beyond the control of AT&T Capital
Corporation ("AT&T Capital" or the "Company"). These forward looking statements
are made only as of the date of this Annual Report on Form 10-K. 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.
1998 SALE OF THE COMPANY AND RELATED TRANSACTIONS
On January 12, 1998, Newcourt Credit Group Inc., an Ontario corporation
("Newcourt"), consummated the purchase (the "Newcourt Acquisition") of all of
the outstanding shares of common stock of AT&T Capital, pursuant to a Stock
Purchase Agreement dated as of November 17, 1997 among the Company, Newcourt,
Hercules Holdings (Cayman) Limited ("Hercules (Cayman)") (the former direct
owner of 97.4% of the Company's common stock), and, at the time, by 21 members
and one former member of the senior management of the Company. In connection
with the Newcourt Acquisition, all of the outstanding shares of common stock of
the Company were transferred to Newcourt Holdings USA, Inc., a newly-formed
Delaware corporation which is a wholly-owned subsidiary of Newcourt. As a result
of the Newcourt Acquisition, all of the outstanding shares of common stock of
the Company are owned indirectly by Newcourt.
The resulting combination of Newcourt and the Company (the "Merged
Company") has created one of the largest providers of vendor finance in the
world, and one of the world's largest non-bank commercial asset finance
companies. With corporate headquarters in Toronto, Canada, the Merged Company
has approximately $22.3 billion (C$31.2 billion) of owned and managed assets at
December 31, 1997. In addition, the Merged Company remains well capitalized with
equity of $2.7 billion (C$3.9 billion) resulting in a leverage ratio (defined as
total debt to total equity plus preferred securities) of 3.2 times at December
31, 1997.
The aggregate purchase price under such Stock Purchase Agreement paid by
Newcourt to the stockholders of AT&T Capital was approximately $1.6 billion
comprised of approximately $1.0 billion in cash and the remainder comprising
approximately 17.6 million of Newcourt common shares. Such shares were issued
entirely to Hercules (Cayman) and generally may not be transferred for periods
ranging from 6 to 18 months following the date of the Newcourt Acquisition. The
cash portion of the purchase price paid by Newcourt was raised through the
issuance by Newcourt of 38.5 million shares
24
<PAGE>
<PAGE>
of Newcourt common stock at approximately $32.50 per share to employees of
Newcourt and the public in Canada and the United States.
On February 9, 1998, the Company and Newcourt entered into a support
agreement (the "Newcourt Support Agreement"). The Newcourt Support Agreement
requires Newcourt to own a majority of the outstanding shares of common stock of
the Company, to cause the Company and its subsidiaries to have a consolidated
tangible net worth of at least $1.00 and to provide funds to the Company (upon
the request of the Company) sufficient to enable the Company to make timely
payments of principal and interest payments on its debt for borrowed money (if
the Company is unable to do so).
On February 20, 1998, the Company entered into a guarantee of certain
outstanding indebtedness and liquidity facilities of Newcourt. See "Liquidity
and Capital Resources" for further discussion.
THE 1996 MERGER AND RELATED TRANSACTIONS
On October 1, 1996, the Company was acquired by an investor group
financed by Nomura International plc which included certain members of
management (the "Investor Group") in a transaction that valued the Company's
equity at approximately $2.2 billion (the "1996 Merger"). The purchase price was
funded through (i) a loan to the Company from Goldman Sachs Credit Partners L.P.
in the amount of approximately $1.3 billion, which was to mature on October 30,
1996 and was repaid by the Company from a portion of the proceeds of a $3.1
billion offering of equipment receivable-backed securities by affiliates of the
Company on October 15, 1996, which resulted in an after-tax gain of $79 million
(see Note 6), and (ii) equity contributions to the Company represented by (a)
capital contributions of $871 million from Hercules (Cayman), (b) exchange by
the Management Investors of their existing shares totaling $29 million for newly
issued shares and (c) the settlement of approximately $5 million of recourse
loans previously made to senior executives. Also, in connection with the 1996
Merger, the Company, through a consolidated subsidiary, issued to the public
$200 million of Company-obligated preferred securities (the "Preferred
Securities") (see Note 8), the proceeds of which were used to pay down
short-term debt.
The 1996 Securitization represented approximately one-third of total
assets and the related gain contributed approximately $79 million, or 48% of the
Company's net income in 1996. The mix of assets sold was split approximately
equally between (a) AT&T, Lucent Technologies Inc., and NCR Corporation (herein
collectively the "Former Affiliates") and (b) clients other than the Former
Affiliates ("Other Clients"). As a result of the 1996 Securitization, 1997
capital lease revenue decreased. In addition, the Company experienced a
decreased level of securitization revenue, offset in part by increased servicing
revenues. The Company's post-1996 Merger recapitalization structure also
resulted in higher leverage and, consequently, higher relative interest expense
in 1997.
FINANCIAL OVERVIEW
Financing volume, portfolio assets and net portfolio revenue
Financing volumes, one of the most important financial indicators of a
leasing company, are generally measured by the amount of the loan, or cost of
the equipment financed, at the inception of the loan or lease agreement. The
financing is then recorded on the balance sheet as an investment in finance
receivables, capital leases or operating leases (together known as
25
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<PAGE>
"Portfolio Assets"). The lease classification is based upon certain criteria
under the Statement of Financial Accounting Standards ("SFAS") No. 13
"Accounting For Leases".
For loans and other similar products ("finance receivables"), finance
revenue is recognized over the life of the contract using the effective interest
method. The amount of finance revenue earned during a period relative to the
average balance of finance receivables outstanding during the period is known as
the finance receivable yield.
For leases classified as capital leases, unearned income is initially
recorded as the difference between (i)the sum of the minimum lease payments due
and the estimated unguaranteed residual values and (ii)the asset purchase price
paid by the Company. Unearned income is amortized to capital lease revenue over
the life of the lease contract using the effective interest method. The amount
of capital lease revenue earned during a period relative to the average balance
of capital leases outstanding during the period is known as the capital lease
yield. Estimated unguaranteed residual values, which are included as part of the
investment in capital leases, are established upon lease inception based upon
the estimated fair value of the equipment at the end of the lease term. They are
determined on the basis of studies prepared by the Company, professional
appraisals, historical experience and industry data. The Company regularly
monitors its estimates of residual values associated with its owned and
securitized portfolios and believes that, in general its residual values are
conservatively stated. The Company has developed extensive expertise in the area
of asset management which contributes to its ability to maximize the proceeds
received upon the disposition of the residuals.
Rental revenue on operating leases is recognized on a straight-line
basis over the related lease term. Rental revenue also includes renewal revenue
which is revenue the Company earns when a customer continues to lease equipment
after its original lease term. During the term of the related lease,
depreciation is generally calculated using the straight-line method based on the
estimated salvage value of the equipment at the end of the lease term. A key
financial measure of operating lease profitability is the associated margin
(which equals the rental revenue less the associated depreciation expense
("operating lease margin") divided by the rental revenue ("operating lease
margin percent")).
Net portfolio revenue is the total of finance revenue, capital lease
revenue, and rental revenue on operating leases ("portfolio revenue") less
depreciation on operating leases. Net portfolio revenue is negatively affected
by the suspension of revenue recognition when a loan or a lease becomes
contractually delinquent for 90 days or more (or earlier if deemed necessary).
Revenue recognition is resumed when the receivable becomes contractually current
and management believes there is no longer any significant probability of loss.
Costs & expenses
The Company incurs three significant types of costs associated with
portfolio revenue: (1)interest expense, (2)operating and administrative ("O&A")
costs and (3)credit provisions.
26
<PAGE>
<PAGE>
Interest expense
Interest expense includes the amortization of costs associated with
raising funds primarily used for financings and lease equipment purchases. In
connection with the 1996 Merger, the Company's senior medium and long-term debt
and commercial paper ratings were downgraded. The Company's senior medium- and
long-term debt and commercial paper were rated as follows:
<TABLE>
<CAPTION>
Prior to the 1996 Subsequent to the
Merger 1996 Merger
- -----------------------------------------------------------------------------------------------
medium and commercial medium and commercial
Rating Agency long-term paper long-term paper
debt debt
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Standard & Poors ("S&P") A A-1 BBB A-2
Duff & Phelps Credit Rating
Co. ("Duff & Phelps") A D-1 BBB D-2
Fitch Investor Services
("Fitch") BBB F-1 BBB F-2
Moody's Investors Services
("Moody's") A-3 P-1 Baa3 P-3
</TABLE>
In response to the announcement of the Newcourt Acquisition, "S&P",
Fitch, and Moody's affirmed the Company's ratings. Duff & Phelps has upgraded
the Company's medium and long-term debt and commercial paper to A- and D-1,
respectively.
As interest rates change, the pricing of new financing volume is
generally adjusted to reflect the Company's higher or lower cost of debt.
However, the pricing in connection with certain small-ticket financing volume
tends to lag and may not be commensurate with the change in the Company's cost
of debt. See "Asset and Liability Management - Match Funding".
The Company generates a substantial portion of its funds to support the
Company's operations from customer receipts, but is also highly dependent upon
external financing, including commercial paper and medium and long-term debt,
foreign bank lines of credit, and public and/or private asset-backed security
interests (or securitizations) (see "Securitizations" for further discussion).
O&A costs
O&A includes the costs associated with processing new financing volume
such as salaries, benefits, occupancy and other day-to-day expenses, account
maintenance (including billing and collecting) and costs incurred during end of
lease activity. As with the Company's other expenses, the ability to minimize
such costs plays an integral part of the competitive pricing of the Company's
financial products. O&A expenses are generally measured as a percentage of total
period-end owned and managed assets. The Company has a strategic objective to
achieve improvements in this ratio, by (i)increasing operating efficiencies and
productivity, (ii)increasing utilization of its operating infrastructure
(primarily related to acquired businesses, international growth, and start-up
activities), and (iii)investing in technology and other operational
improvements.
27
<PAGE>
<PAGE>
Credit provisions
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
office, manufacturing and medical equipment, information technology and
transportation) and a large number of customers located throughout the United
States and, to a lesser extent, abroad. The Company maintains an allowance for
credit losses (which is adjusted through the provision for credit losses
reflected in the income statement) 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 losses in the portfolio as a whole given its
diversification. Generally, the relative provisions recorded on medium and
large-ticket transactions are lower than small-ticket assets. Management also
takes into consideration the potential impact of existing and anticipated
economic conditions in determining the adequacy of allowance levels.
Non-portfolio revenue
Non-portfolio revenue consists of: (i)revenue from securitizations
(which represents the gain realized from selling lease and loan receivables
through securitization vehicles) and the sale of Small Business Administration
("SBA") loans; (ii) revenue from sales of equipment, primarily buy/sell activity
related to computer equipment; and (iii)other revenue which consists mainly of
sales of leased and off-lease equipment, portfolio servicing fees and other fee
related revenue. Non-portfolio revenue as a percent of total revenues is
expected to increase due to the Company's higher securitization activity.
Securitizations
Under a securitization, the Company sells receivables primarily
associated with capital lease transactions. The receivables and the associated
net unearned income stream are removed from the Company's balance sheet for
accounting purposes, although for tax purposes the treatment is unchanged. In
conjunction with a securitization, the Company records a gain on the sale which
generally equals the difference between the proceeds received and the allocated
historical basis of the net assets sold, net of the fair value of any retained
interests. The current intent of Newcourt is for the Company and Newcourt, on a
consolidated basis, to securitize approximately 40-45% of their new consolidated
volumes. The Company's anticipated ongoing securitizations could have
significant impact on the Company's financial position and results of operations
depending upon their timing and magnitude. In addition, assets, revenues and
income derived from the Other Clients businesses as well as foreign businesses
will change depending upon the mix of assets securitized.
With respect to the Company's balance sheet, the impacts from
securitization include, but are not limited to: (i)net investment in finance
receivables and capital leases will decrease (including residual values,
allowance for credit losses and initial direct costs); (ii)upon the sale of
substantially all of the lease receivables associated with a lease, the related
residual value is frozen at its present value at the time of securitization and
reclassified to other assets and deferred charges; (iii)proceeds generated from
securitizations will generally be used to
28
<PAGE>
<PAGE>
reduce debt and manage leverage; and (iv)portfolio quality measures such as
delinquency, non-accrual assets, and net charge-offs/portfolio assets will
likely increase since only receivables not more than 60 days past due are
included in securitizations.
In addition to the gain, the impacts to the Company's income statement
include, but are not limited to: (i)lower asset levels will result in lower
finance revenue and capital lease revenue; (ii)capital lease revenue will no
longer be recognized on residuals associated with the securitization where such
residuals are frozen at the time of securitization; (iii)with lower carrying
values of frozen residuals, income (losses) generated from renewals and sales of
assets at end of lease will be higher (lower) than if the assets were not
securitized; (iv)yields and margins on owned assets are likely to be lower due
to the fact the securitizations will typically include small-ticket products
which generally have higher yields and margins; (v)lower debt levels will
generally result in reduced interest expense; and (vi)fees will be earned on
servicing the portfolios.
Cash flows
Cash required for funding new financing volume represents the Company's
most significant capital need. As the Company continues to grow, cash from
customer collections will generally fall short of the Company's cash financing
needs. To supplement this shortfall, as discussed above, the Company utilizes a
securitization program (funds generated from this activity are captured in the
investing activity category) and accesses commercial paper and medium and
long-term debt markets (such funds are captured under financing activities).
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Net Income
For the Years ended December 31,
1997 1996 1995
---------------------------------------------------
(dollars in millions)
<S> <C> <C> <C>
Net Income $21.0 $168.5 $127.6
</TABLE>
1997 net income was lower due to the decreased level of capital lease
and securitization revenues as a result of the 1996 Securitization.
Restructuring charges, net losses on sales of businesses, relative higher
interest due to the Company's post 1996 Merger capital structure and
distributions on Preferred Securities also decreased net income. Somewhat
offsetting these factors were increases in other revenues, operating lease
margin, lower interest expense associated with carrying less assets and
lower charge-offs.
1996 net income increased 32.1% from 1995. This increase was generated
principally through increased securitization and loan sales revenue, net
portfolio revenues resulting from a higher level of average net portfolio assets
and increased computer trading sales. Somewhat impeding the earnings growth was
increased O&A expenses caused primarily by one-time 1996 Merger related costs. A
higher provision for credit losses also somewhat offset the increased revenues.
29
<PAGE>
<PAGE>
Key financial operating statistics
The following table sets forth certain key financial operating statistics of the
Company's operations:
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
--------------------------------------------------
(dollars in millions)
<S> <C> <C> <C>
Finance revenue $229.9 $204.2 $174.5
Capital lease revenue 361.1 598.2 586.1
Operating lease margin 280.0 241.4 206.5
--------------------------------------------------
Net portfolio revenue 871.0 1,043.8 967.1
less: interest expense 451.5 458.0 411.0
--------------------------------------------------
Net interest margin (a) 419.5 585.8 556.1
Average net portfolio assets
$7,465.0 $8,910.1 $8,308.1
Net interest margin percentage (a)
5.62% 6.57% 6.69%
--------------------------------------------------
Finance receivables- average yield
10.19% 10.35% 10.68%
Capital leases-average yield
9.83% 10.50% 10.29%
Operating lease margin percentage
33.57% 34.64% 36.80%
Total portfolio yield 11.67% 11.72% 11.64%
--------------------------------------------------
Debt/equity plus Preferred
Securities 7.54x 7.13x 6.22x
</TABLE>
a) Net interest margin is comprised of net portfolio revenue (finance revenue,
capital lease revenue and operating lease margin) less interest expense. Net
interest margin percentage equals the net interest margin divided by the
respective average net portfolio assets.
Finance revenue
1997 finance revenue increased $25.7 million or 12.6%, compared to 1996.
A 14.4% increase in average net finance receivables to $2.3 billion accounted
for $29.3 million of the increase, while the decrease in the average yield
offset this increase by $3.6 million. The growth in the portfolio was primarily
due to increases in the large-ticket structured and specialty finance, and SBA
loan portfolios and growth in certain international residential mortgage
portfolios. The reduction 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 "Capital lease revenue" below for a discussion
of the impact of securitizations on yields).
1996 finance revenue increased 17.0% from 1995. The 20.7% increase in
average net finance receivables to $2.0 billion generated approximately $36.2
million of additional revenue and was driven by increases in the large-ticket
structured and specialty finance and certain small-ticket portfolios offset by
$0.1 billion of finance receivables securitized. A decline in the overall
average yield reduced revenue by $6.5 million. The decrease in yield is
consistent with the relative proportion of floating rate loans in the portfolio
and the slightly lower average cost of debt (see "Interest expense" discussion
below).
30
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<PAGE>
Capital lease revenue
1997 capital lease revenue decreased $237.1 million or 39.6% compared to
1996. A 35.5% decrease in the average net capital lease portfolio to $3.7
billion was responsible for approximately $212.6 million of the decrease. The
decrease in the average portfolio was principally due to the 1996 Securitization
which involved primarily capital leases. The reduction in the overall yield on
capital leases by 67 basis points contributed to the remaining decrease in
revenue. The reduction in yields reflects the effects of securitizing higher
yielding assets and competitive pressures. The Company's securitizations have
included small-ticket transactions which generally have higher yields and
margins as compared to larger ticket transactions. Therefore, as securitizations
occur, the proportion of these higher yielding transactions 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.
1996 capital lease revenue increased $12.1 million, or 2.1% from 1995.
The 21 basis point improvement in the average yield contributed $11.6 million to
the increased revenue while the .09% increase in the average net capital lease
portfolio to $5.7 billion contributed the remaining $0.5 million. The improved
yield was primarily due to increased levels of higher yielding assets in certain
small-ticket, automotive and mid-range and mainframe computer portfolios.
However, certain non-U.S. businesses experienced decreased yields in 1996. The
growth in the average net capital lease portfolio, which was experienced
primarily in the small-ticket leasing portfolios and international businesses,
was almost entirely offset by the 1996 Securitization.
Operating lease margin
1997 rental revenue on operating leases of $834.0 million increased
$137.0 million, or 19.7%, compared to 1996. Depreciation expense on operating
leases of $554.1 million increased $98.5 million, or 21.6%, from 1996. The
revenue increase was generated by the Company's enterprise server,
telecommunications and international portfolios. The 107 basis point decline in
operating lease margin percentage to 33.57% resulted from a lower proportion of
renewal revenue, coupled with a slightly lower utilization rate of testing and
diagnostic equipment.
1996 rental revenue on operating leases of $697.0 million increased
24.3% and depreciation expense on operating leases of $455.6 million increased
28.5%. The increased rental revenue was primarily generated by growth in the
Company's small-ticket leasing, automotive and computer related portfolios and
international businesses. The decreased operating lease margin percent relates
primarily to increased depreciation on certain computer-related assets and
certain small-ticket portfolios.
Net interest margin
1997's net interest margin of $419.5 million was 5.62% of average net
portfolio assets compared with $585.8 million, or 6.57% in 1996. The $166.3
million decrease in net interest margin was due to lower capital lease revenue,
higher relative interest expense associated with the Company's post-1996 Merger
capitalization structure, offset by lower interest expense associated with
carrying a lower level of portfolio
31
<PAGE>
<PAGE>
assets. Average net portfolio assets for 1997 of $7,465.0 million were $1,445.1
million, or 16.2%, lower than 1996 causing a decrease in portfolio revenue of
approximately $125.5 million. A slight decrease in the overall portfolio yield
to 11.67% from 11.72%, reduced revenue by approximately $47.4 million. The
Company's post-1996 Merger recapitalization includes higher debt relative to
assets. The interest expense associated with carrying such higher relative debt
reduced the 1997 margin by approximately $84.0 million. The lower level of debt
associated with a smaller asset base partially offset this decrease by $81.3
million.
The decrease in 1996's net interest margin percentage from 6.69% in 1995
was due to the large amount of higher yielding assets securitized and the
increase in the debt to equity plus Preferred Securities ratio. A 22 basis point
decrease in the average cost of debt and an increased average yield of the
Company's total net portfolio assets somewhat offset this decrease. The debt to
equity plus Preferred Securities ratio increased to 7.13 from 6.22 primarily as
a result of the Company's recapitalization associated with the 1996 Merger (see
discussion of interest expense below). The total portfolio yield increased to
11.72% from 11.64% primarily due to yield increases in capital leases (see
"Capital lease revenue - 1996 discussion"). In addition, the 15.3% increase in
average debt exceeded the increase of 7.2% in average portfolio assets.
Non-portfolio revenue
The following table summarizes the components of non-portfolio revenue
which includes revenue from securitizations and loan sales, equipment sales, and
other net revenue. In addition, equipment sales margin (equipment sales less
cost of equipment sales) and the equipment sales margin percentage (equipment
sales margin divided by equipment sales) are presented.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
(dollars in millions)
<S> <C> <C> <C>
Revenue from securitizations
and loan sales $ 82.7 $164.9 $ 16.4
-------------------------------------------
Equipment sales 49.3 90.6 48.7
Cost of equipment sales (44.8) (78.5) (43.4)
-------------------------------------------
Equipment sales margin $ 4.5 $ 12.1 $ 5.3
-------------------------------------------
Equipment sales margin
percentage 9.3% 13.3% 11.0%
-------------------------------------------
-------------------------------------------
Other revenue, net $257.1 $197.2 $190.3
-------------------------------------------
-------------------------------------------
Total non-portfolio revenue $389.1 $452.7 $255.4
-------------------------------------------
</TABLE>
Revenue from securitizations and loan sales
1997 revenue from securitizations and loan sales, including SBA loans,
decreased $82.2 million from 1996. Securitization revenue decreased $92.2
million offset by $10.0 million in higher loan sales revenue. 1996
securitization revenue was unusually high as a result of the 1996
Securitization.
The ten-fold increase in 1996 revenue from securitizations and loan
sales over 1995 was due primarily to the $3.1 billion 1996 Securitization
32
<PAGE>
<PAGE>
as well as other securitizations aggregating $0.3 billion of lease and loan
receivables. This compares to a $75 million securitization in 1995.
Revenue from equipment sales
1997 revenue from sales of equipment decreased 45.5% from 1996.
Similarly, cost of equipment sales decreased 43.0% from 1996. The drop in both
equipment sales revenue and margin highlights the unusually strong results
attained in 1996. During 1996, equipment sales and margin were bolstered by
strong demand for enterprise servers and emerging technology equipment. Volume
and profitability from equipment sales tend to follow customer behavior and
generally are difficult to predict.
1996 revenue from sales of equipment almost doubled 1995 results.
Similarly, cost of equipment sales increased 80.9%, equipment sales margin of
$12.1 million, or 13.3% of revenue from sales of equipment increased from $5.3
million, or 11.0%. The revenue and margin improvements were primarily due to the
1996 factors described in the previous paragraph.
Other revenue
Other revenue consists mainly of sales of leased and off-leased
equipment, portfolio servicing fees and other fee related revenue. Other revenue
for 1997 increased $59.9 million or 30.4% from the prior year. Reflecting a
higher managed asset base, service revenue contributed $23.0 million to the
increase more than doubling to $43.3 million from $20.3 million in 1996. Fee
income grew by $6.7 million, from $20.5 million in 1996, largely the result of
providing software development services. Other revenue was up $18.7 million due
to the disposition of certain warrant and equity instruments. The Company
receives such instruments in conjunction with the structuring of certain of its
complex large-ticket transactions.
1996 other revenue increased 3.6% from 1995. While gains on sale of
leased and off-leased equipment remained flat, the increase in other revenue was
driven by fee related revenue and other portfolio related revenue.
Business by Channel
The Company intends to continue its strategy of expanding its Other
Clients businesses, while at the same time enhancing its relationships with the
Former Affiliates. Because the growth in revenues generated by the Company's
Other Clients businesses can be expected to lag behind the incurrence of
expenses necessary to expand and operate such businesses, the Company
anticipates that the percentage of its total net income (loss) and revenues
attributable to Other Clients businesses may vary from year to year depending
upon the stage of development of these Other Clients businesses.
<TABLE>
<CAPTION>
Other Clients Business: 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets 74.0% 72.3% 65.2%
Revenues 63.8% 62.9% 59.0%
Net income (loss) (214.9)% 32.2% 23.9%
</TABLE>
The 1997 Other Clients businesses net loss is due to lower volumes,
lower securitization gains and capital lease revenue relative to the Former
Affiliates. In addition, the Company's net loss on the sales of businesses also
reduced the Other Client's net income results. The percentages of
33
<PAGE>
<PAGE>
total assets, revenues and net income/(loss) relative to the Other Clients
businesses will vary depending upon the mix of assets securitized.
The 1996 increase in Other Clients businesses assets was generated
across most of the Company's businesses with partially offsetting declines in
certain small-ticket portfolios (as a result of increased securitizations in
1996) and automobile portfolios. The 1996 increase in Other Clients businesses
revenues was generated across all Company businesses. Had the 1996 Merger and
1996 Securitization not occurred, the Company estimates that the Other Clients
businesses would have contributed approximately 34% of net income. This estimate
assumes the exclusion of the 1996 Securitization gain and one-time 1996 Merger
related costs, add back of revenues associated with assets sold, and adjustment
to interest expense for certain other significant 1996 Merger and 1996
Securitization related events.
Expenses
Interest expense
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
---------------------------------------------
(dollars in millions)
<S> <C> <C> <C>
Interest expense $451.5 $458.0 $411.0
Average borrowings outstanding $6,961.7 $7,174.8 $6,225.1
Average cost of debt 6.49% 6.38% 6.60%
</TABLE>
1997 interest expense decreased $6.6 million, or 1.4%, compared to 1996.
As discussed in the net interest margin section, the $81.3 million reduction in
interest expense resulting from carrying a lower level of assets was more than
offset by the $84.0 million impact of carrying relatively higher debt. The
Company issued medium and long-term debt in 1997 at an average rate of 6.28%,
compared to debt maturing having a slightly lower average rate of 6.23%. Average
borrowings for 1997 decreased 3.0% from 1996 primarily due to lower debt
requirements associated with a smaller asset base.
1996 interest expense increased 11.4%, or $47.0 million. Average
borrowings outstanding of $7.2 billion increased 15.3%, or $.9 billion primarily
due to growth in average portfolio assets and an increased debt to equity plus
Preferred Securities ratio. Higher average borrowings contributed $52.3 million
to the increase and was partially offset by $5.3 million due to a decline in the
average cost of debt. The decrease in the cost of debt to 6.38% from 6.60%
resulted from the issuance of medium and long-term debt at a lower cost than the
maturing debt and a shift in the mix toward commercial paper during the second
half of the year due to the recapitalization of the Company. During 1996, the
Company issued approximately $2.0 billion of medium and long-term debt at an
average rate of 5.93%, and repaid $2.1 billion of medium and long-term with an
average rate of 6.91%. In October 1996, the Company repaid approximately $1.6
billion of commercial paper with proceeds from the 1996 Securitization and
Preferred Offering, net of amounts used to purchase the Company's common stock.
Consequently, the lower overall borrowings outstanding should reduce the
Company's interest expense. However, the Company's cost of debt in the future
will be negatively impacted by the loss of interest free loans from AT&T.
On October 25, 1996 the Company, through a subsidiary, issued to the
public eight million Company-obligated preferred securities for $25 per
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share. Holders of the securities are entitled to receive cash distributions at
an annual rate of 9.06%, which is guaranteed by the Company. During 1997 and
1996, $18.1 million and $3.3 million, respectively, of distributions were paid
to the Preferred Securities holders.
Operating and Administrative (O&A) Expenses
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
-----------------------------------------
(dollars in millions)
<S> <C> <C> <C>
O&A expenses (a) $545.7 $ 564.5 $ 473.7
Total period-end owned and
managed assets $13,912.1 $12,883.5 $11,755.8
O&A/period-end total owned and
managed assets 3.92% 4.38% 4.03%
</TABLE>
(a) Excludes Restructuring charges of $35.1 million.
O&A expenses for 1997 decreased 3.3% from 1996. Total owned and managed
assets at December 31, 1997 grew 8.0% from the end of 1996 primarily as a result
of an increase in owned assets of $0.7 billion. As a percent of owned and
managed assets, 1997 O&A expenses of 3.92% improved from 4.38% for 1996. The
decrease in the ratio can be attributed to management's continuing effort to
improve efficiency and increased financing volume utilizing the Company's
infrastructure coupled with not incurring the $52.4 million of 1996
Merger-related costs experienced in 1996.
1996 O&A expenses increased 19.2% from 1995. This increase was due
primarily to $52.4 million of one-time 1996 Merger related costs which include
the accelerated payout and additional amounts due under the Company's Share
Performance Incentive Plan, payments made to certain officers of the Company to
waive certain of their rights under the Company's Leadership Severance Plan,
certain other termination and other payments and 1996 Merger-related transaction
costs. In addition, O&A was impacted by the increased costs associated with
managing a higher level of owned and managed assets. O&A as a percentage of
total period-end owned and managed assets of 4.38% increased from 4.03%.
However, the percentage was 3.97% excluding the above mentioned one-time merger
related costs.
Provision for credit losses
See "Credit Quality" below for a discussion of the provision for credit
losses.
Provision for income taxes
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
-------------------------------------------
(dollars in millions)
<S> <C> <C> <C>
Provision for income taxes $11.0 $110.1 $80.7
Effective income tax rate 34.4% 39.5% 38.7%
</TABLE>
The decrease in the 1997 effective rates resulted from higher relative
tax-exempt income, a lower overall provision for state taxes, somewhat offset by
higher foreign taxes. In addition the absence of certain non-
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deductible one-time merger related costs, as experienced in 1996, contributed to
the decrease.
The increase in the 1996 overall effective tax rate was due primarily to
certain one-time 1996 Merger related costs which were not deductible for tax
purposes.
CREDIT QUALITY
The following table reflects the Company's key portfolio credit
performance indicators. Portfolio assets include the investment in finance
receivables, capital leases and operating leases.
<TABLE>
<CAPTION>
At or for the years ended December 31, 1997 1996 1995
-----------------------------------------
(dollars in millions)
<S> <C> <C> <C>
Portfolio assets (gross of allowance) $7,403.9 $7,356.4 $9,328.6
Provision for credit losses $114.3 $113.6 $86.2
Allowance for credit losses $178.6 $169.0 $223.2
Allowance for credit
losses/portfolio assets 2.41% 2.30% 2.39%
Allowance for credit losses/non-
accrual assets 1.06x 1.25x 1.88x
Non-accrual assets $168.7 $135.1 $118.5
Non-accrual assets/portfolio assets 2.28% 1.84% 1.27%
Net charge-offs/portfolio assets 0.56% 1.17% 0.50%
Delinquency(a)-owned assets 3.08% 2.56% 1.46%
Delinquency(a)-owned and securitized 2.62% 2.18% 1.61%
</TABLE>
a) Delinquencies of two months or greater.
The Company's Securitizations include generally better performing
assets, those transactions that are not more than 60 days past due. Therefore,
the owned portfolio reflects a higher proportion of delinquent receivables
requiring higher allowance requirements.
The increase in non-accrual assets to portfolio assets at the end of
1997 compared to 1996 is primarily due to a $27.4 million project finance
transaction suspended from income recognition in February, 1997. The increase in
the delinquencies since December 31, 1996 of both owned and owned and
securitized assets, is primarily due to the project finance transaction
discussed above.
The decreases in 1996 key credit statistics from 1995 resulted primarily
from the significant increase in securitizations in 1996. The decrease in the
allowance for credit losses was also due primarily to the reclassification of
certain amounts to securitization recourse reserves. Net charge-offs/portfolios
assets was also impacted by the write-off of a large financing of approximately
$11 million. In addition, the increases in the dollar amount of delinquencies
and non-accrual assets resulted from a $36.5 million loan placed on non-accrual
status.
FINANCIAL CONDITION
Sale of Businesses
During the fourth quarter of 1997, the Company sold its fleet automotive
and inventory financing business units totaling approximately 11% and 9% of the
Company's assets and revenues, respectively, at and for
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the nine months ended September 30, 1997. Additionally, the Company is currently
pursuing the sale of its U.S. consumer automotive business. The carrying value
of these assets have been reduced to fair value. The Company's net gains on the
sales of the fleet automotive unit and inventory financing business unit, net of
the loss recorded on the anticipated sale of the U.S. consumer automotive
business, has been included in the income statement caption, Loss on sales of
businesses, net.
Net portfolio assets
The following table reflects components of the Company's net portfolio
assets.
<TABLE>
<CAPTION>
1997 1996
--------------- -------------------
(dollars in millions)
<S> <C> <C>
Net investment in finance receivables (a) $ 2,343.6 $2,135.3
Net investment in capital leases (a) 3,288.1 3,648.7
Net investment in operating leases (b) 1,593.6 1,403.5
--------------- -------------------
Net portfolio assets (net of allowance) 7,225.3 7,187.5
Managed assets $5,136.3 $4,791.0
Net investment in total owned and
managed assets $12,361.6 $11,978.5
</TABLE>
a) Generally represents the sum of the (i) the gross receivable, (ii) the
associated unearned income, (iii) the unguaranteed residual value (for
capital leases only), less (iv) the allowance for credit losses.
b) Generally represents the historical cost of the equipment less the
associated accumulated depreciation.
Net portfolio assets remained relatively flat at $7.2 billion. Operating
leases increased $190.1 million, or 13.5%, primarily due to growth in the
Company's enterprise server, international and telecommunications portfolios.
The net investment in finance receivables increased $208.4 million, or 9.8%, due
primarily to increases in the SBA loan, international residential mortgage and
large-ticket structured and specialty finance portfolios. Somewhat offsetting
such growth was the sale of the Company's inventory financing business. The 9.9%
reduction in capital leases is due to a reduction in the automotive portfolio
(the U.S. consumer automotive business is currently for sale and included in the
balance sheet caption "Assets held for sale and inventory").
The Company's international assets (excluding cross border transactions)
grew to 24.6% of total assets, up slightly from 24.0% at the end of 1996.
The increase in the level of assets managed is attributable to an
increase in SBA loans serviced offset in part by normal run-off. The total
assets managed on behalf of AT&T, Lucent and NCR collectively, represented 29.4%
and 31.1% of the total assets managed at December 31, 1997 and 1996,
respectively.
In the third quarter of 1996, the Company acquired the operating assets
and lease portfolio of Municipal Leasing Corporation. This Canadian operation
has been financing office equipment and automobiles for the past 15 years and
had $160 million in assets at time of the acquisition.
Deferred charges and other assets increased by $137.7 million, or 19.8%,
to $832.9 million. This increase was primarily driven by a net increase of $88.0
million in retained interest in securitized assets.
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Debt
Primarily to fund increased financing volume, total debt of $7.1 billion
at December 31, 1997 increased by 10.1%, from $6.5 billion at December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows
The table below includes key cash flows provided by and used for
operating, investing and financing activities.
<TABLE>
<CAPTION>
For the year ended December 31,
1997 1996 1995
------------------------------------------------
(dollars in millions)
<S> <C> <C> <C>
Net Cash provided by Operating Activities: $ 563.2 $292.3 $ 680.1
Investing Activities:
Principal collections from customers 3,965.9 3,998.2 3,855.6
customers
Cash used for financings and lease equipment purchases(a) (6,583.9) (6,206.9) (5,782.0)
Cash proceeds from securitizations and loan sales 1,500.4 3,390.4 291.5
Financing Activities:
Net proceeds (repayments) from issuance of short-term
notes (b) 1.3 (345.1) (207.0)
Proceeds from the issuance of medium and long-term debt 3,517.3 2,011.7 2,905.9
Repayments of medium and long-term debt $(2,930.5) $(2,135.7) $(1,828.4)
------------------------------------------------
</TABLE>
(a) Includes purchases of finance asset portfolios and businesses.
(b) Short-term notes include primarily commercial paper.
Borrowings
Newcourt has advised the Company that Newcourt intends for the Company
to operate as an indirect wholly-owned subsidiary of Newcourt which will
continue to issue commercial paper and medium and long-term debt in the public
markets. Additionally, Newcourt intends for the Company and Newcourt, on a
consolidated basis to move to a consolidated debt to tangible equity ratio of
approximately 5.5:1. In addition, as discussed previously, the Newcourt Support
Agreement requires Newcourt to own a majority of the outstanding shares of
common stock of the Company, to cause the Company and its subsidiaries to have a
consolidated tangible net worth of at least $1.00 and to provide funds to the
Company (upon the request of the Company) sufficient to enable the Company to
make timely payments of principal and interest payments on its debt for borrowed
money (if the Company is unable to do so).
On February 20, 1998, the Company entered into an agreement whereby the
Company guarantees certain indebtedness and liquidity facilities of Newcourt and
Newcourt Credit Group USA Inc. (the "Newcourt Guarantee"). This debt is used by
Newcourt for general operating purposes. As of February 28, 1998, the Company's
guarantee of such debt was US$1.4 billion (C$2.0 billion).
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<PAGE>
Also, as a result of the Newcourt Acquisition, the Company is currently
renegotiating its existing $2.0 billion back-up facility to support Newcourt's
and the Company's existing commercial paper programs and for general corporate
purposes. The Company is looking to increase its U.S. facility to $2.25 billion
with $1.5 billion having a term of 364 days and $.75 billion having a term of 5
years (the "U.S. facility"). In addition, Newcourt is pursuing a Canadian
facility of C$1.0 billion with a term of 364 days ("the Canadian facility"). It
is expected that the U.S. facility will be guaranteed by Newcourt and Newcourt
Credit Group USA Inc., a wholly-owned subsidiary of Newcourt and rank pari passu
with the Canadian facility. The Canadian facility will be guaranteed by the
Company and Newcourt Credit Group USA Inc.
In August 1997, the Company's back-up credit facility of $2.0 billion
was modified. This facility, negotiated with a consortium of 24 lending
institutions, supports the commercial paper issued by the Company. At December
31, 1997 this facility was unused. Under the most restrictive provision of the
Company's back-up facility, the Company is required to maintain an interest
coverage ratio (the ratio of consolidated earnings before interest and taxes, as
defined, to consolidated interest expense) of 1.25 times. The Company is in
compliance with this and all other covenants of the facility. To meet local
funding requirements, the Company's foreign operations have available lines of
credit of approximately $341.6 million, of which approximately $95.2 million
were available at December 31, 1997. These facilities are generally renewed
annually.
During January 1997, the SEC declared effective a Company debt
registration statement of $4.0 billion. Subsequent to December 31, 1997, the
Company completed the full utilization of such debt available under the
registration statement. On March 20, 1998 the Company filed with the SEC a $5.0
billion debt registration statement on Form S-3. The Company anticipates this
registration statement to be declared effective in the second quarter of 1998.
The ownership of the Company's Trust Originated Preferred Securities of
$200 million, that were issued by a subsidiary of AT&T Capital in October, 1996,
was not affected by the Newcourt Acquisition and related transactions. However,
the Newcourt Guarantee ranks senior to the Trust Guarantee issued by the Company
in connection with the Preferred Securities offering.
The Company considers its current financial resources, together with the
borrowings referred to above and estimated future cash flows, to be adequate to
fund the Company's planned future growth and operating requirements.
On February 29, 1996, shareowners of record as of February 9, 1996, were
paid a fourth quarter 1995 dividend of $.11 per share. During 1996, the
Company's Board of Directors declared dividends each of $.11 per share to
shareowners of record as of May 10, 1996 and August 9, 1996 payable on May 31,
1996 and August 30, 1996, respectively. As a result of the 1996 Merger and the
Newcourt Acquisition, the Company anticipates that it will no longer pay
dividends in the short-term.
ASSET AND LIABILITY MANAGEMENT
The Company'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
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<PAGE>
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. The following
discussion describes certain key elements of this process, including the
Company's use of derivatives to mitigate risk.
Match funding
The Company generally matches the duration and maturity structure of its
liabilities to that of its portfolio assets. The Company routinely projects the
expected future cash flows related to its current portfolio assets. Based on
these projections, the Company is able to match the maturity and duration of its
debt with that of its assets. The cash flow projections incorporate assumptions
about customer behavior such as prepayments, refinancings and charge-offs. The
assumptions are based on historical experience with the Company's individual
markets and customers and are continually monitored and updated as markets and
customer behaviors change, to reflect current customer preferences, competitive
market conditions, portfolio growth rates and portfolio mix.
Interest rate risk and currency exchange risk
The Company actively manages interest rate risk to protect the Company's
margins on existing transactions. Interest rate risk is the risk of earnings
volatility attributable to changes in interest rates. The Company routinely
analyzes its portfolio assets and strives to match floating rate assets with
floating rate debt and fixed rate assets with fixed rate debt. The Company
generally achieves a matched position through issuances of commercial paper and
medium and long-term debt, as well as through the use of interest rate swaps.
The Company does not speculate on interest rates, but rather seeks to mitigate
the possible impact of interest rate fluctuations encountered in the normal
course of business. This is a continual process due to prepayments,
refinancings, non-accrual leases and loans, as well as other portfolio dynamics,
and therefore, interest rate risk can be significantly limited but never fully
eliminated. Additionally, the Company enters into foreign exchange contracts and
participates in the currency swap market to mitigate its exposure to assets and
liabilities denominated in foreign currencies and to meet local funding
requirements.
Using derivatives to manage interest rate and currency risk
The Company uses derivatives to match fund its portfolio and thereby
manage interest rate and currency risk. Derivatives can be customized in terms
of duration and interest rate basis (i.e., fixed or floating). Derivatives used
by the Company are operationally efficient to arrange and maintain. Whether the
Company issues medium and long-term debt on which it pays a fixed rate, or
issues floating rate debt and utilizes interest rate swaps, on which it
generally pays a fixed rate and receives a floating rate, the Company's interest
rate risk position can be equally well managed. However, it is the interplay
between liquidity, capital, portfolio characteristics, and economic and market
conditions that will determine the final mix of medium and long-term debt,
commercial paper and swaps (or other derivatives) used to manage interest rate
risk (see Notes 2, 10 and 16 to the Consolidated Financial Statements).
40
<PAGE>
<PAGE>
The total notional amount of the Company's interest rate swaps was
$2,287.0 million and $1,436.8 million at December 31, 1997 and 1996,
respectively. The total notional amount of the Company's currency swaps was
$240.1 million and $320.6 million at December 31, 1997 and 1996, respectively.
The U.S. dollar equivalent of the Company's foreign currency forward exchange
contracts was $1,511.5 million and $907.3 million at December 31, 1997 and 1996,
respectively.
Derivative credit risk
The notional amount of derivative contracts does not represent direct
credit exposure. Rather, credit exposure may be defined as the market value of
the derivative contract and the ability of the counterparty to perform its
payment obligation under the agreement. The majority of the Company's interest
rate swaps require the Company to pay a fixed rate and receive a floating rate.
Therefore, this risk is reduced in a declining interest rate environment as the
Company is generally in a payable position and is increased in a rising interest
rate environment as the Company is generally in a receivable position. The
Company seeks to control the credit risk of its interest rate swap agreements
through credit approvals, exposure limits and monitoring procedures. All swap
agreements are with major money center banks and intermediaries rated investment
grade by national rating agencies with the majority of the Company's
counterparties being rated "AA" or better.
The Company monitors its derivative positions using techniques including
market value, sensitivity analysis and a value at risk model. The value at risk
tests discussed below for exposure to interest rate and currency rate exposures
are based on a variance/co-variance model using a three-month horizon and a 95%
confidence level. The model assumes that financial returns are normally
distributed. The value at risk model takes into account correlations and
diversification across market factors, including currencies and interest rates.
Estimates of volatility and correlations of market factors are drawn from the
Reuters/JP Morgan RiskMetrics dataset as of January 27, 1998.
Based on the Company's overall interest rate exposure at December 31,
1997, including derivatives and other interest rate sensitive instruments, a
near-term change in interest rates, within a 95% confidence level based on
historical interest rate movements, would not materially affect the consolidated
financial position on a fair value basis, results of operations or cash flows of
the Company.
Based on the Company's overall currency rate exposure at December 31,
1997, including derivatives and other foreign currency sensitive instruments, a
near-term change in currency rates, within a 95% confidence level based on
historical currency rate movements, would not materially affect the consolidated
financial position on a fair value basis, results of operations or cash flows of
the Company.
There were no past due amounts or reserves for credit losses at December
31, 1997, related to derivative transactions. The Company has never experienced
a credit related charge-off associated with derivative transactions.
RISK FACTORS
Risks Related to Plans Involving Newcourt
41
<PAGE>
<PAGE>
Integration of Business
Both the Company and Newcourt have completed a number of acquisitions
during the past five years. Integration of these two businesses will require a
significant amount of management's time. Diversion of management attention from
the Company's existing business could have a material adverse impact on the
revenues and operating results of the Company.
Guarantee of Certain Newcourt Debt
In connection with the Newcourt Acquisition, on February 20, 1998 the
Company entered into an agreement pursuant to which the Company will guarantee
(the "Company Guarantee") the payment of certain indebtedness and liquidity
facilities issued, guaranteed or entered into by Newcourt (as amended,
supplemented, restated or replaced, collectively, the "Newcourt Debt
Securities") for the timely benefit of the holders of the Newcourt Debt
Securities (collectively, the "Newcourt Noteholders"). A copy of the Company
Guarantee is filed as Exhibit 10 to the Company's Current Report on Form 8-K
dated February 20, 1998 filed on March 12, 1998.
Because the Company Guarantee is anticipated to cover future
indebtedness under various documents evidencing or relating to the Newcourt Debt
Securities, as well as amendments, supplements, restatements or replacements of
or to the Newcourt Debt Securities, the aggregate outstanding principal amount
of the Newcourt Debt Securities to be covered by the Company Guarantee is
expected to increase in the future.
The Company's obligations under the Company Guarantee represent an
irrevocable and unconditional guarantee of the due and punctual payment to the
Newcourt Noteholders, on demand, whether at stated maturity or otherwise, of all
debts, liabilities and obligations of Newcourt under the Newcourt Debt
Securities, including present and future, direct and indirect, absolute and
contingent and matured and unmatured debts, liabilities and obligations. The
liability of the Company under the Company Guarantee is anticipated to be
unlimited as to amount and to be absolute and unconditional irrespective of any
conditions or circumstances that might otherwise constitute a defense available
to the Company or Newcourt, including any defense based on the lack of validity
or the unenforceability of the Newcourt Debt Securities or any defense or
counterclaim available to Newcourt.
Sensitivity to Ratings on Debt
As a result of the consummation of the Newcourt Acquisition, each of the
four statistical rating organizations that have been rating the Company's
securities maintained or upgraded their respective ratings on the Company's
short-term and (where applicable) long-term senior unsecured debt. No assurance
can be given that any or all of such rating organizations will not at any future
time or from time to time establish different ratings on the Company's senior
unsecured short-term or long-term debt. To the extent that any of such rating
organizations assigns a lower rating than the existing ratings, such downgrading
would result in relatively higher borrowing costs for the Company, reduce its
access to its traditional funding sources and reduce its competitiveness,
particularly if any such assigned rating is in a generic rating category that
signifies that the relevant debt of the Company is less than investment grade.
In addition, certain ratings downgrading could result in the termination of one
or more of the License Agreements with AT&T and NCR (as defined below)
42
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<PAGE>
or the 1998 Lucent Agreement (as defined below). See "Changes in Relationships
with the Former Affiliates - Operating and Certain Other Agreements with the
Former Affiliates" below. Any such downgrading could have a material adverse
effect on the Company.
Liquidity and Debt Service
The Company's business requires substantial amounts of cash to support
its growth and operations. The Merged Company's ability to obtain funds and the
cost of such funds could be affected by its credit rating and restrictions
contained in existing or future debt instruments and by other events beyond its
control, such as interest rates, general economic conditions and the perception
of its business, results of operations, leverage, financial condition and
business prospects.
Securitization Program
The Company's securitization transactions, structured as both private
conduit programs and the sale of publicly offered securities, are an important
part of the Company's financing to manage its' leverage ratio and to transfer
credit risk. Any delay in the securitization of finance receivables would cause
leverage to fluctuate, postpone the recognition of the gain on such finance
receivables and cause the Company's net income to fluctuate from period to
period.
Continuity of Management
The Merged Company's success depends to a significant extent upon the
continued services of its management. There is no assurance that any of
Newcourt's or the Company's existing officers and key employees will remain in
their current positions for any period of time following the date hereof. The
unavailability of the continued services of such persons could have a material
adverse effect on the Company's business.
Changes in Relationships with the Former Affiliates
Reliance on Major Vendors
A substantial portion of the Company's net income is attributable to the
financing provided by the Company to customers of the Former Affiliates with
respect to products manufactured or distributed by them (the "Former Affiliates
Products") and, to a lesser extent, to the Former Affiliates as end-users,
primarily with respect to the lease of information technology and other
equipment to them as end-users and the administration and management of certain
leased assets on behalf of the Former Affiliates. The Company's commercial
relationships with the Former Affiliates are currently governed by certain
agreements.
Although, while the proportion of the Company's total revenues from the
Other Clients Businesses has grown over the last several years, a substantial
portion of the Company's net income has been generated by the Company's
relationship with the Former Affiliates. A significant decrease in the portion
of the sales of the Former Affiliates Products that are financed by the Company,
or in the absolute amount of the Former Affiliates Product sales (in either
case, particularly with respect to Lucent), or in the amount of transactions
effected by the Company with the Former Affiliates as end-user (particularly
with respect to AT&T) would have a
43
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<PAGE>
material adverse effect on the Company's results of operations and financial
conditions.
Operating and Certain Other Agreements with the Former Affiliates.
In the second quarter of 1993, the Company entered into the following
agreements with AT&T: an Operating Agreement (as subsequently amended, the "AT&T
Operating Agreement"), an Intercompany Agreement (the "AT&T Intercompany
Agreement"), and a License Agreement (as subsequently amended, the "AT&T License
Agreement"). In the second quarter of 1996, the Company entered into separate
operating agreements with each of Lucent and NCR (the "Lucent Operating
Agreement" and "NCR Operating Agreement", respectively, and, collectively with
the AT&T Operating Agreement, the "Operating Agreements") (pursuant to which,
among other things, the Company serves as preferred provider of financing
services and has certain related and other rights and privileges in connection
with the financing of equipment to the customers of Lucent and NCR). Also, in
the second quarter of 1996, the Company entered into letter agreements with
Lucent and NCR regarding the applicability to Lucent and NCR of specified
provisions of the AT&T License Agreement (collectively, with the AT&T License
Agreement, the "License Agreements") and the AT&T Intercompany Agreement
(collectively, with the AT&T Intercompany Agreement, the "Intercompany
Agreements"). (See Note 15 for further discussion of the Former Affiliates). The
Former Affiliates are not required to renew the terms of their respective
Operating Agreements, License Agreements and Intercompany Agreements beyond the
expiration of the current terms on August 4, 2000.
On March 9, 1998, Newcourt signed a new five-year agreement with Lucent
(the "1998 Lucent Agreement") which expands the global financing program
established to serve Lucent's business systems customers. The term of the 1998
Lucent Agreement is from October 1, 1997 through September 30, 2002. The 1998
Lucent Agreement replaces the Lucent Operating Agreement and the letter
agreements between the Company and Lucent, the initial terms of which were
scheduled to expire on August 4, 2000. In addition to the extended term of the
1998 Lucent Agreement, other changes from the previous Lucent Operating
Agreement include Newcourt being the preferred provider of financing services
for a greater portion of Lucent's equipment and related product sales, a change
in the methodology in calculating the amount required to be paid to Lucent
(based upon specific financial, service and performance levels tied to
compensation) which is expected to result in an increase in such amount, and a
single point of contact for customers. The 1998 Lucent Agreement also includes
certain early termination provisions and a buy-out option that could have a
material impact on the Company's future operations, if exercised. Lucent is not
required to renew the term of the 1998 Lucent Agreement beyond the current term.
In the event of either (a) an early termination or buy-out or (b) a non-renewal
of the 1998 Lucent Agreement by Lucent, Newcourt will have an extended wind-down
period with cost recovery.
The impact of the 1998 Lucent Agreement on the Company's future net
income is at this time unknown. While there is a possibility that the Company's
future net income from Lucent transactions may increase as a result of an
anticipated increase in financing volume arising from Newcourt being the
preferred provider of financing services for a greater portion of Lucent's
equipment and related product sales, there also is a possibility that the
Company's future net income from Lucent transactions may decrease as a result of
the increased amounts due to Lucent under the 1998 Lucent Agreement.
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Although the Company intends to seek to maintain and improve its
existing relationships with Lucent, NCR and AT&T, no assurance can be given that
the Operating Agreements or the 1998 Lucent Agreement, will be extended beyond
their respective termination dates or, if extended, that the terms and
conditions thereof will not be modified in a matter adverse to the Company.
Failure to renew the Operating Agreements and the 1998 Lucent Agreement, on
terms not adverse to the Company could have a material adverse effect on the
Company. Moreover, in certain circumstances the Operating Agreements and the
1998 Lucent Agreement may be terminated prior to their respective expiration
dates.
Certain Increased Costs and Expenses
As a result of the Newcourt Acquisition and the related integration plan
for the Merged Company, AT&T Capital's net income will be adversely impacted
over the next eighteen months. Such integration plan is expected to result in
additional costs which include, but are not limited to, severance and other
employee benefit costs, systems conversions, location closures and other
restructuring costs.
AT&T Capital is targeting to reduce its ratio of operating expenses to
owned and managed assets over the next few years. These reductions are expected
to result from extensive cost savings programs and economies of scale in
processing operations, administration and centralized services. While it is
anticipated that these savings will be recognized, any unanticipated event in
the integration of the businesses by both Newcourt and AT&T Capital may require
significant management time and cause a delay in recognition of the cost
savings.
Competition
The equipment leasing and finance industry in which the Company operates
is highly competitive and is undergoing a process of consolidation. As a result,
certain of the Company's competitors' relative cost bases have been reduced.
Participants in the industry compete through price (including the ability to
control costs), risk management, innovation and customer services. Principal
cost factors include the cost of funds, the cost of selling to or obtaining new
end-user customers and vendors and the cost of managing portfolios. The
Company's competitors include captive or related leasing companies (such as
General Electric Capital Corporation and IBM Credit Corporation), independent
leasing companies (such as Comdisco, Inc.), certain banks engaged in leasing,
lease brokers and investment banking firms that arrange for the financing of
leased equipment, and manufacturers and vendors which lease their own products
to customers. In addition, the Company competes with all banking and other
financial institutions, manufacturers, vendors and others who extend or arrange
credit for the acquisition of equipment, and in a sense, with end-users'
available cash resources to purchase equipment that the Company may otherwise
finance. Many of the competitors of the Company are large companies that have
substantial capital, technological and marketing resources; some of these
competitors are significantly larger than the Company and have access to debt at
a lower cost than the Company. In addition, the Company may not have, in the
immediate future, access to sufficient U.S. Federal tax capacity to pursue
efficiently U.S. tax based lease financing.
Certain Other Risks
45
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<PAGE>
The Company is subject to certain other risks including the risk that
its allowance for credit losses may not prove adequate to cover ultimate losses
and that its estimated residual values will not be realized at the end of the
lease terms. There can be no assurance that such allowance will prove adequate
to cover losses in connection with the Company's investment in finance
receivables, capital leases and operating leases or that such residual values
(which have historically been a significant element of the net income of the
Company) will be realized.
Readiness for Year 2000
Prior to its acquisition by Newcourt, AT&T Capital had begun addressing
the Year 2000 issue, also known as the "millineum bug". This included
inventories of most systems as well as some conversion effort on major systems.
The Merged Company is addressing the Year 2000 issue from a global
perspective. In early 1998, the Merged Company established a global Year 2000
Program Office to provide oversight from both a business and technical
perspective. The program will coordinate vendors, consultants and regional Year
2000 resources. The Merged Company, including AT&T Capital plans to convert its
critical systems by the end of 1998 with conversion of remaining systems and
compliance testing and certification to be completed in 1999. As part of the
integration strategy, the Merged Company plans to aggressively consolidate onto
a limited set of identified Year 2000 compliant systems in order to achieve
operational efficiencies and to minimize the Year 2000 exposures and costs.
Management does not anticipate that the total cost to the Company of
these Year 2000 compliance activities will be material to its financial position
or results of operations in any given year
RECENT PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board (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
beginning after December 15, 1997. The Company will adopt this standard
in its 1998 financial statements. Comparative information for earlier
years will be restated.
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 a company's 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. The
Company will adopt this standard in its 1998 financial statements. Comparative
information for earlier years will be restated.
46
<PAGE>
<PAGE>
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Post Retirement Benefits". SFAS No. 132 revises
employer's disclosures about pension and other post retirement benefit plans but
does not change the measurement or recognition of those plans. The Statement
standardizes the disclosure requirements to the extent practicable, requires
additional information changes in the benefit obligations and fair value of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer useful. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997. The Company will adopt this standard in
its 1998 financial statements. Comparative information for earlier years will be
restated, if readily available.
47
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
At December 31, 1997 1996*
(Dollars in Thousands)
- --------------------------------------------------------------------------------
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 8,317 $ -
Assets held for sale and inventory 478,213 93,775
Net investment in finance
receivables 2,343,604 2,135,250
Net investment in capital leases 3,288,141 3,648,731
Net investment in operating leases, net of
accumulated depreciation of $772,437 in
1997 and $777,905 in 1996 1,593,582 1,403,470
Deferred charges and other assets 832,892 695,160
Deferred Income taxes 231,146 116,126
- --------------------------------------------------------------------------------
Total Assets 8,775,895 8,092,512
- --------------------------------------------------------------------------------
LIABILITIES, PREFERRED SECURITIES AND SHAREOWNERS' EQUITY:
LIABILITIES:
Short-term notes, less unamortized discounts
of $14,357 in 1997 and $3,112 in 1996 1,868,585 1,867,247
Income taxes and other payables 714,122 720,281
Medium and long-term debt 5,249,409 4,597,677
Commitments and contingencies
- --------------------------------------------------------------------------------
Total Liabilities 7,832,116 7,185,205
- --------------------------------------------------------------------------------
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 in 1996 903 902
Additional paid-in capital 651,552 633,676
Recourse loans to senior executives (15,471) (15,697)
Foreign currency translation adjustments (4,032) (3,502)
Retained earnings 110,827 91,928
- --------------------------------------------------------------------------------
Total Shareowners' Equity 743,779 707,307
- --------------------------------------------------------------------------------
Total Liabilities, Preferred Securities and
Shareowners' Equity $8,775,895 $8,092,512
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
*Certain amounts have been reclassified to conform to the 1997
presentation.
48
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Finance revenue $229,855 $204,204 $174,523
Capital lease revenue 361,124 598,203 586,141
Rental revenue on operating leases 834,027 697,020 560,964
Revenue from securitizations and
loan sales 82,663 164,899 16,374
Equipment sales 49,349 90,631 48,724
Other revenue, net 257,121 197,233 190,309
- --------------------------------------------------------------------------------
Total Revenues 1,814,139 1,952,190 1,577,035
- --------------------------------------------------------------------------------
EXPENSES:
Interest 451,470 458,039 411,040
Operating and administrative 545,728 564,489 473,663
Depreciation on operating leases 554,059 455,595 354,509
Cost of equipment sales 44,769 78,538 43,370
Provision for credit losses 114,301 113,605 86,214
Restructuring charges 35,093 - -
Loss on sales of businesses,net 18,563 - -
- --------------------------------------------------------------------------------
Total Expenses 1,763,983 1,670,266 1,368,796
- --------------------------------------------------------------------------------
Distributions on Company-obligated
preferred securities of subsidiary 18,120 3,322 -
- --------------------------------------------------------------------------------
Income before income taxes 32,036 278,602 208,239
Provision for income taxes 11,029 110,063 80,684
- --------------------------------------------------------------------------------
NET INCOME $ 21,007 $168,539 $127,555
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
49
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Common stock
<S> <C> <C> <C>
Balance at beginning of year $ 902 $ 470 $ 470
Repurchase and retirement of shares
in connection with the 1996 Merger - (471) -
Stock issuances:
New shares issued as a result of
the 1996 Merger 1 902 -
Pension and benefit plans - 1 -
- --------------------------------------------------------------------------------
Balance at end of year 903 902 470
- --------------------------------------------------------------------------------
Additional paid-in capital
Balance at beginning of year 633,676 783,244 782,785
Repurchase and retirement of shares
in connection with the 1996 Merger - (1,660,174) -
Stock issuances:
New shares issued as a result
of the 1996 Merger 4,203 821,583 -
Pension and benefit plans - 1,695 459
Tax impacts of the 1996 Merger:
Capital contribution from Former
Affiliates for lost tax depreciation (6,711) 279,876 -
Reduction of deferred tax liabilities
due to the Section 338(h)10 election 17,160 232,929 -
Establishment of goodwill-deferred tax
asset due to the Section 338(h)10
election 4,591 161,999 -
Establishment of current tax receivable
due to tax benefit generated by Hercules
(Cayman) buyout of employee stock options - 16,011 -
Other (1,367) (3,487) -
- --------------------------------------------------------------------------------
Balance at end of year 651,552 633,676 783,244
- --------------------------------------------------------------------------------
Recourse loans to senior executives
Balance at beginning of year (15,697) (20,512) (19,651)
Loans made (4,894) (1,381) (2,613)
Loans repaid 5,120 6,196 1,752
- --------------------------------------------------------------------------------
Balance at end of year (15,471) (15,697) (20,512)
- --------------------------------------------------------------------------------
Foreign currency translation adjustments
Balance at beginning of year (3,502) (2,173) (2,158)
Unrealized translation loss (530) (1,329) (15)
- --------------------------------------------------------------------------------
Balance at end of year (4,032) (3,502) (2,173)
- --------------------------------------------------------------------------------
Retained earnings
Balance at beginning of year 91,928 355,096 246,772
Repurchase and retirement of shares
in connection with the 1996 Merger - (416,217) -
Net income 21,007 168,539 127,555
Cash dividends paid - (15,490) (19,231)
Other (2,108) - -
- --------------------------------------------------------------------------------
Balance at end of year 110,827 91,928 355,096
- --------------------------------------------------------------------------------
Total Shareowners' Equity $ 743,779 $ 707,307 $1,116,125
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
50
<PAGE>
<PAGE>
<TABLE>
<CAPITON>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996* 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 21,007 $ 168,539 $ 127,555
Noncash items included in income:
Depreciation and amortization 606,751 509,957 412,044
Deferred taxes (103,955) (269,972) (2,772)
Provision for credit losses 114,301 113,605 86,214
Revenue from securitizations
and loan sales (82,663) (164,899) (16,374)
(Increase) decrease in deferred
charges and other assets (33,611) (11,274) 26,596
Increase (decrease) in income taxes
and other payables 43,173 (35,131) 50,362
Decrease in payables to
Former Affiliates (1,757) (18,481) (3,509)
- --------------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 563,246 292,344 680,116
- --------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash
acquired - (148,109) (294,472)
Purchase of finance asset portfolios (4,871) (7,339) (19,769)
Financings and lease equipment
purchases (6,579,002) (6,051,483) (5,467,773)
Principal collections from
customers, net of amounts
included in income 3,965,877 3,998,239 3,855,592
Cash proceeds from securitizations
and loan sales 1,500,367 3,390,396 291,476
(Decrease) increase in payables to
affiliates (25,451) 25,451 -
- --------------------------------------------------------------------------------
Net Cash (Used for) Provided by
Investing Activities $(1,143,080) $1,207,155 $(1,634,946)
- --------------------------------------------------------------------------------
(Continued on next page)
51
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996* 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Increase (decrease) in short-term
notes, net $ 1,338 $ (345,104) $ (207,045)
Additions to medium and
long-term debt 3,517,344 2,011,705 2,905,920
Repayments of medium and
long-term debt (2,930,531) (2,135,693) (1,828,426)
(Decrease) increase in payables to
affiliates and Former Affiliates - (247,400) 53,109
Issuance of Company-obligated
preferred securities - 200,000 -
Proceeds from interim bridge-loan to
fund 1996 Merger - 1,255,286 -
Repayment of interim bridge-loan to
fund 1996 Merger - (1,255,286) -
Repurchase of Company common stock - (2,076,863) -
Capital contributions from affiliates
and Former Affiliates - 1,101,459 -
Other 1996 Merger related items - 3,926 -
Dividends paid - (15,490) (19,231)
- --------------------------------------------------------------------------------
Net Cash Provided by (Used for) Financing
Activities 588,151 (1,503,460) 904,327
- --------------------------------------------------------------------------------
Net Increase (decrease) in Cash
and Cash Equivalents 8,317 (3,961) (50,503)
Cash and Cash Equivalents at
Beginning of Period - 3,961 54,464
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at
End of Period $ 8,317 $ - $ 3,961
- --------------------------------------------------------------------------------
</TABLE>
Interest paid, including discounts on commercial paper, was $451.8 million,
$443.4 million and $365.5 million during 1997, 1996 and 1995, respectively.
Net income taxes paid were $160.8 million, $373.5 million and $27.8 million
during 1997, 1996 and 1995, respectively.
52
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<PAGE>
Noncash Investing and Financing Activities:
In conjunction with the 1996 Merger, additional paid-in capital increased
in 1997 and 1996 due to the elimination of deferred tax liabilities of $17.2
million and $232.9 million, respectively, as a result of the Section 338(h)(10)
election under the Internal Revenue Code, as amended, and similar elections in
certain state and local jurisdictions. In addition, additional paid-in capital
was affected by the 1997 adjustment to and the 1996 establishment of a deferred
tax asset of $4.6 million and $162.0 million, respectively, associated with the
step-up in basis to fair value for tax purposes which was not done for book
purposes ("push-down accounting") due to the Company's significant level of
public debt outstanding (see Notes 1 and 13). In 1997 and 1996, certain
management members of the Company exchanged their existing shares of Company
common stock for new shares totaling $2.0 million and $29 million, respectively.
(See Note 1). In addition certain management members were issued shares of
Company common stock in 1997 totaling $2.2 million. Recourse loans issued
associated with such shares totaled $3.7 million in 1997.
In connection with the Company's $1.1 billion public securitization
offering in December 1997, the Company recorded an asset of $100.9 million and a
liability of $105.0 million associated with a note issued with a call provision
(see Notes 6 and 7).
In 1997, 1996 and 1995, the Company entered into capital lease obligations
of $4.2 million, $35.6 million and $105.2 million, respectively, for equipment
that was subleased. In 1996, the Company assumed debt in conjunction with
acquisitions of $3.4 million.
* Certain amounts have been reclassified to conform to the 1997
presentation.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
53
<PAGE>
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. THE COMPANY AND BACKGROUND
Description of the Company
AT&T Capital Corporation ("AT&T Capital" or the "Company") is a
full-service, diversified equipment leasing and finance company that operates
predominantly in the United States; however, it also has operations in Europe,
Canada, the Asia/Pacific region, Mexico and South America. The Company operates
primarily in one business segment - equipment leasing and financing. This
segment represents more than 90% of consolidated revenues, net operating income
and total assets. The Company leases and finances equipment manufactured and
distributed by AT&T Corp. ("AT&T"), Lucent Technologies Inc. ("Lucent") and NCR
Corporation ("NCR") (herein, the "Former Affiliates") and numerous other
companies. The Company also provides Small Business Administration ("SBA")
lending and equipment management and remarketing services. In addition, the
Company offers its customers high-technology equipment rental and certain
equipment administration services.
At December 31, 1997, AT&T Capital's portfolio assets (investment in
finance receivables, capital leases and operating leases) were comprised of, or
collateralized by, general equipment (consisting of general office,
manufacturing and medical equipment) (aggregating 33% of such portfolio assets),
information technology equipment (22%), telecommunications equipment (22%),
loans secured by real estate (12%) and transportation equipment (11%).
AT&T Capital's portfolio assets are diversified among a large customer
base, as well as numerous industries and geographic regions. The Company's
customers are diversified across many industries including manufacturing,
services, communications and retail, as well as many small and mid-size business
customers and Federal, state and local governments and their agencies. At
December 31, 1997, on an owned and securitized basis, the Company's 100 largest
customers (including AT&T and Lucent) accounted for approximately 18% of the
Company's owned and securitized portfolio assets, and no customer (with the
exception of AT&T and Lucent, in the aggregate) accounted for more than 1% of
such portfolio assets.
Other than AT&T and Lucent, as of December 31, 1997, management is not
aware of any significant concentration of business transacted with a particular
customer, supplier or lender that could have a material adverse impact on the
Company's operations. Also, the Company does not have a concentration regarding
the types of financing products or available sources of debt, labor or services,
or licenses or other rights that could have a material adverse impact on its
operations.
54
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<PAGE>
1996 Sale of the Company and Related Transactions
On September 20, 1995, AT&T announced a plan to pursue the public or
private sale of its remaining 86% interest in AT&T Capital. On such date, AT&T
also announced a plan to separate (the "Separation") into three publicly-held
stand-alone global businesses (AT&T, Lucent and NCR). In connection with the
Separation, AT&T sold approximately 17.6% of its equity interest in Lucent in an
initial public offering on April 10, 1996 and spun-off its entire remaining
equity interest in Lucent to AT&T shareowners on September 30, 1996. On December
31, 1996 AT&T spun off its 100% interest in NCR to AT&T shareowners.
On June 5, 1996, AT&T Capital entered into an Agreement and Plan of
Merger (the "1996 Merger Agreement") with AT&T, Hercules Holdings (Cayman)
Limited ("Hercules (Cayman)") and Antigua Acquisition Corporation ("Antigua"), a
wholly-owned subsidiary of Hercules (Cayman). Hercules (Cayman) is an indirect
wholly-owned subsidiary of The Grand Leasing Company Limited (UK) ("Grand
Leasing").
On September 30, 1996 the Company, pursuant to a Gross Profit Tax Deferral
Interest Free Loan Agreement (the "GPTD Agreement") between the Company and
AT&T, made a payment of $247.4 million to AT&T for full repayment of such loans.
See Note 13 for additional discussion of the GPTD Agreement and other tax
implications of the 1996 Merger.
On October 1, 1996, the Company completed a merger (the "1996 Merger")
pursuant to which Antigua was merged with and into the Company pursuant to the
1996 Merger Agreement. As a result of the 1996 Merger, AT&T Capital's
shareowners received $45 in cash for each outstanding share of the Company's
common stock, and Hercules (Cayman) and certain management team members (the
"Management Investors") became the sole owners of the Company's common stock.
The aggregate purchase price for the then outstanding shares of the Company's
outstanding common stock and the aggregate amount necessary to cash-out the
Company's stock options in accordance with the 1996 Merger Agreement (the "1996
Merger Consideration") was approximately $2.2 billion. The 1996 Merger
Consideration was funded through (i) a loan to the Company from Goldman Sachs
Credit Partners L.P. in the amount of approximately $1.3 billion, which was to
mature on October 30, 1996 and was repaid by the Company from a portion of the
proceeds of a $3.1 billion offering of equipment receivable-backed securities by
affiliates of the Company on October 15, 1996, which resulted in an after-tax
gain of $79 million (see Note 6), and (ii) equity contributions to the Company
represented by (a) capital contributions of $871 million from Hercules (Cayman),
(b) exchange by the Management Investors of their existing shares totaling $29
million for newly issued shares and (c) the settlement of approximately $5
million of recourse loans previously made to senior executives. Also, in
connection with the 1996 Merger, the Company, through a consolidated subsidiary,
issued to the public $200 million of Company-obligated preferred securities (see
Note 8), the proceeds of which were used to pay down short-term debt.
55
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<PAGE>
In connection with the 1996 Merger, the Company incurred a $47.6 million
expense relating to the accelerated payout of the Company's Share Performance
Incentive Plan ("SPIP") and other payments to certain officers of the Company
(see Note 14), an $11.0 million expense relating to the Company's 1996 Merger
related and other transaction costs offset by a $6.2 million credit related to
the reversal of tax reserves no longer needed as a result of the payment by the
Company to AT&T in connection with certain tax liabilities described further in
Note 13.
1998 Sale of the Company and Related Transactions
On January 12, 1998, Newcourt Credit Group Inc., an Ontario corporation
("Newcourt"), consummated the purchase (the "Newcourt Acquisition") of all of
the outstanding shares of common stock of AT&T Capital, pursuant to a Stock
Purchase Agreement dated as of November 17, 1997 among the Company, Newcourt,
Hercules (Cayman), the former direct owner of 97.4% of the Company's common
stock, and the Management Stockholders, as defined below. In connection with the
Newcourt Acquisition, all of the outstanding shares of common stock of the
Company were transferred to Newcourt Holdings USA, Inc., a newly-formed Delaware
corporation which is a wholly-owned subsidiary of Newcourt. As a result of the
Newcourt Acquisition, all of the outstanding shares of common stock of the
Company are owned indirectly by Newcourt.
The aggregate purchase price under such Stock Purchase Agreement paid by
Newcourt to the stockholders of AT&T Capital was approximately $1.6 billion
comprised of approximately $1.0 billion in cash and the remainder comprising
approximately 17.6 million of Newcourt common shares. Such shares were issued
entirely to Hercules (Cayman) and generally may not be transferred for periods
ranging from 6 to 18 months following the date of the Newcourt Acquisition. The
cash portion of the purchase price paid by Newcourt was raised through the
issuance by Newcourt of 38.5 million shares of Newcourt common stock at
approximately $32.50 per share to employees of Newcourt and the public in Canada
and the United States.
The ownership of the Preferred Securities, which were issued by Capita
Preferred Trust, a business trust originated by the Company in August, 1996,
was not affected by the Newcourt Acquisition and related transactions. However,
the Newcourt Guarantee (as defined below) ranks senior to the Trust Guarantee
issued by the Company in connection with the Preferred Securities offering (See
Note 8).
Prior to the Newcourt Acquisition, all of the outstanding shares of
common stock of the Company were owned either (i) indirectly, through ownership
of 100% of the common shares of Hercules (Cayman), by Grand Leasing, which in
turn is beneficially owned through warrants to acquire 100% of the common shares
of Grand Leasing by Nomura International plc ("Nomura"), a wholly-owned indirect
subsidiary of The Nomura Securities Co., Ltd., and (ii) directly, by 21 members
and one former member of the senior management of the Company (the "Management
Stockholders"), with the Management Stockholders owning directly approximately
2.6% of the outstanding shares of common stock of the Company (or approximately
4.7% on a fully-diluted basis) and Grand Leasing owning indirectly approximately
97.4% of the outstanding shares of common stock of the Company (or approximately
93.6% on a fully diluted basis). The Company's employees and outside directors
owned approximately 1.7% of the Company's common stock on a fully diluted basis.
56
<PAGE>
<PAGE>
On February 9, 1998, the Company and Newcourt entered into a support
agreement (the "Newcourt Support Agreement"). The Newcourt Support Agreement
requires Newcourt to own a majority of the outstanding shares of common stock of
the Company, to cause the Company and its subsidiaries to have a consolidated
tangible net worth of at least $1.00 and to provide funds to the Company (upon
the request of the Company) sufficient to enable the Company to make timely
payments of principal and interest payments on its debt for borrowed money (if
the Company is unable to do so).
On February 20, 1998, the Company entered into a guarantee of certain
outstanding indebtedness and liquidity facilities of Newcourt and Newcourt
Credit Group USA Inc. (the "Newcourt Guarantee"). (See Note 7).
Relationship of the Company with the Former Affiliates
In the second quarter of 1993, the Company entered into the following
agreements with AT&T: an Operating Agreement (as subsequently amended, the "AT&T
Operating Agreement"), an Intercompany Agreement (the "AT&T Intercompany
Agreement"), and a License Agreement (as subsequently amended, the "AT&T License
Agreement"). In the second quarter of 1996, the Company entered into separate
operating agreements with each of Lucent and NCR (the "Lucent Operating
Agreement" and "NCR Operating Agreement", respectively, and, collectively with
the AT&T Operating Agreement, the "Operating Agreements") (pursuant to which,
among other things, the Company serves as preferred provider of financing
services and has certain related and other rights and privileges in connection
with the financing of equipment to the customers of Lucent and NCR). Also, in
the second quarter of 1996, the Company entered into letter agreements with
Lucent and NCR regarding the applicability to Lucent and NCR of specified
provisions of the AT&T License Agreement (collectively, with the AT&T License
Agreement, the "License Agreements") and the AT&T Intercompany Agreement
(collectively, with the AT&T Intercompany Agreement, the "Intercompany
Agreements"). (See Note 15 for further discussion of AT&T/Lucent/NCR). The
Former Affiliates are not required to renew the terms of their respective
Operating Agreements, License Agreements and Intercompany Agreements beyond the
expiration of the current terms on August 4, 2000.
In connection with the execution and delivery of the Stock Purchase
Agreement, Lucent, pursuant to the terms of the Lucent Operating Agreement,
consented to the change of control contemplated by the sale of the outstanding
shares of common stock of the Company to Newcourt pursuant to the Stock Purchase
Agreement. In addition, the Company and Newcourt agreed to negotiate with Lucent
to amend the terms of the Lucent Operating Agreement. On March 9, 1998, Newcourt
signed a new five-year agreement with Lucent (the "1998 Lucent Agreement") which
expands the global financing program established to serve Lucent's business
systems customers. The term of the 1998 Lucent Agreement is from October 1, 1997
through September 30, 2002. The 1998 Lucent Agreement replaces the Lucent
Operating Agreement and the letter agreements between the Company and Lucent,
the initial terms of which were scheduled to expire on August 4, 2000. In
addition to the extended term of the 1998 Lucent Agreement, other changes from
the previous Lucent Operating Agreement include Newcourt being the preferred
provider of financing services for a greater portion of Lucent's equipment and
related product sales, a change in the methodology in calculating the amount
required to be paid to Lucent (based upon specific financial, service and
performance levels tied to compensation) which is expected to result in an
increase in such amount,
57
<PAGE>
<PAGE>
and a single point of contact for customers. The 1998 Lucent Agreement also
includes certain early termination provisions and a buy-out option that could
have a material impact on Newcourt's future operations, if exercised. Lucent is
not required to renew the term of the 1998 Lucent Agreement beyond the current
term. In the event of either (a) an early termination or buy-out or (b) a non-
renewal of the 1998 Lucent Agreement by Lucent, Newcourt will have an extended
wind down period with cost recovery.
The impact of the 1998 Lucent Agreement on the Company's future net
income is at this time unknown. While there is a possibility the Company's
future net income from Lucent transactions may increase as a result of an
anticipated increase in financing volume arising from Newcourt being the
preferred provider of financing services for a greater portion of Lucent's
equipment and related product sales, there also is a possibility the Company's
future net income from Lucent transactions may decrease as a result of the
increased amounts due to Lucent under the 1998 Lucent Agreement.
Pursuant to the AT&T License Agreement, AT&T has licensed to the Company
and certain of its subsidiaries certain trade names and service marks, including
but not limited to the AT&T Capital Corporation, AT&T Credit Corporation, AT&T
Systems Leasing and AT&T Automotive Services names. The AT&T License Agreement
provides that AT&T may require (as a result of AT&T's disposition of the Company
in 1996, upon two years notice and generally at AT&T's expense) the Company to
discontinue the use of the "AT&T" name as part of its corporate name. The
Company's subsidiaries may, notwithstanding such event, continue to use the
other AT&T licensed names (including NCR) and service marks pursuant to the
License Agreements (e.g., as part of such subsidiaries' corporate names and for
marketing purposes), subject to extensive restrictions on the use thereof in
connection with the issuance of securities and incurrence of indebtedness. As of
the date of these financial statements, AT&T has not given any notice requiring
discontinuance of use.
Although the Company intends to seek to maintain and improve its
existing relationships with Lucent, NCR and AT&T, no assurance can be given that
the Operating Agreements or the 1998 Lucent Agreement, will be extended beyond
their respective termination dates or, if extended, that the terms and
conditions thereof will not be modified in a manner adverse to the Company.
Failure to renew the Operating Agreement and the 1998 Lucent Agreement, on terms
not adverse to the Company could have a material adverse effect on the Company.
Moreover, in certain circumstances the Operating Agreements and the 1998 Lucent
Agreement may be terminated prior to their respective expiration dates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements reflect the historical cost of the
Company's assets and liabilities. Adjustments to the Company's consolidated
financial statements to reflect the fair value of the Company's assets and
liabilities as a result of the 1996 Merger ("push down" accounting) were not
reflected therein due to the existence of substantial publicly traded debt of
the Company.
Consolidation
58
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<PAGE>
The accompanying consolidated financial statements include all
majority-owned subsidiaries. The accounts of operations located outside of the
United States are included on the basis of their fiscal years, ended either
November 30, or December 31.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual results
could differ from those estimates. Significant areas in which estimates are used
include residual values, income taxes, retained interests in securitized assets
and related reserves, allowance for credit losses, valuation of assets held for
sale, restructuring reserves and contingencies.
Revenue Recognition for Finance Receivables and Capital Leases
For loans and other financing contracts (finance receivables), revenue is
recognized over the life of the contract using the interest method.
For leases classified as capital leases, the difference between (i) the sum
of the minimum lease payments due and the estimated unguaranteed residual values
and (ii) the asset purchase price paid by the Company is initially recorded as
unearned income. The difference is subsequently amortized over the life of the
lease contract and recognized as revenue, using the interest method.
Accrual of income on portfolio assets is generally suspended when a loan or
a lease becomes contractually delinquent for 90 days or more (or earlier if
deemed necessary). Accrual is resumed when the receivable becomes contractually
current and management believes there is no longer any significant probability
of loss.
Investment in Operating Leases
Equipment under operating leases is generally depreciated over the
estimated useful life of the asset. During the term of the related lease, annual
depreciation is generally calculated on a straight-line basis based on the
estimated residual values at the end of the respective lease terms. Rental
revenue is recognized on a straight-line basis over the related lease terms.
Estimated Unguaranteed Residual Values
Estimated unguaranteed residual values are established upon acquisition and
leasing of the equipment based upon the estimated value of the equipment at the
end of the lease term. They are determined on the basis of studies prepared by
the Company, professional appraisals, historical experience and industry data.
Although it is reasonably possible that a change in the unguaranteed residual
values could occur in the near term, the Company actively manages its residual
values by working with lessees and vendors during the lease term to encourage
lessees to extend their leases or upgrade and enhance their leased equipment.
Residual values are reviewed by the Company at least annually. Declines in
residual values for capital leases are recognized as an immediate charge to
income. Declines in residual values for operating leases are recognized as
59
<PAGE>
<PAGE>
adjustments to depreciation expense over the shorter of the useful life of the
asset or the remaining term of the lease.
Upon the sale or securitization of substantially all of the receivables
associated with a capital lease, the associated residual value is frozen at its
then current book value. Such residual value ceases to accrete to its estimated
value at the end of the lease term and is recorded in Deferred charges and other
assets on the accompanying balance sheet.
Allowance for Credit Losses
In connection with the financing of leases and other receivables, the
Company records an allowance for credit losses to provide for estimated losses
in the portfolio. The allowance for credit losses is estimated by management
considering delinquencies and problem assets, an assessment of overall risks and
evaluation of probable losses in the portfolio given its diversification, and a
review of historical loss experience. Although currently deemed adequate by
management, it is reasonably possible that a change in the estimate could occur
in the near term as a result of changes in the above mentioned factors.
The Company's reserve policy is based on an analysis of the aging of the
Company's portfolio, a review of all non-accrual receivables and leases, and
prior collection experience. An account is charged off when analysis indicates
that the account is uncollectible. Additionally, Company policy generally
requires the "at risk" portion (the amount of the receivable not covered by
estimated equipment or other collateral value) of accounts 180 days past due
to be reserved for or charged off.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Other Assets
Securitization Related
As part of its funding strategy, the Company sells generally
non-prepayable capital lease and loan receivables in the public and private
asset-backed securities markets. The securitization structures provide for
limited recourse to the Company for certain uncollectible amounts. The Company
continues to be responsible for the administration and collection of the
receivables on behalf of the investors for which the Company receives servicing
fees (see Note 11). Portions of the Company's securitization transactions during
1997, 1996 and 1995 qualified to be accounted for as sales for financial
reporting pursuant to Statement of Financial Accounting Standards ("SFAS") No.
77 "Reporting by Transferors for Transfers of Receivables with Recourse" ("SFAS
No. 77") and/or SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No.
77 applied in 1995 and 1996, while SFAS No. 125, applied in 1997 and thereafter.
The Company derecognizes assets sold, records assets received or
retained and records a gain or loss on the sale. The asset received is generally
cash. Assets retained represent an interest in the cash flows of the receivables
sold. Such retained interest may include cash collateral accounts, excess spread
assets, securities backed by the transferred assets and residual interests in
securitized trusts ("retained interests"). Securitization revenue (or gain on
sale) generally equals the difference
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between the historical basis in the net assets sold and the cash received plus
the allocated historical cost of the retained interests. In accordance with SFAS
No. 125, such historical cost allocations are made using the relative amounts of
(a) the fair market value of the interests sold (amounts invested by third
parties) and (b) the estimated fair market value of retained interests.
Because there generally are not observable market prices for the
retained interests in the Company's securitizations, the Company estimates the
value of those interests using assumptions to discount expected cash flows to a
present value. Key assumptions include estimated future prepayment, delinquency,
default and loss rates on the securitized assets and estimated market discount
rates. While these assumptions are based on the Company's historical experience,
future experience could differ from these estimates due to changes in customer
behavior, changes in economic conditions or other factors.
The Company has used in its 1997 and 1996 securitizations an assumed
constant prepayment rate (which includes terminations due to prepayments and
defaults) based upon its historical experience of 6%. Expected losses are based
upon the Company's historical loss experience. In addition, the Company uses a
fair market discount rate, reflective of the risks associated with the
underlying net cash flows, to determine the fair value of the retained
interests. Such discount rates generally range from 10.00% to 10.50%.
Interest is recorded on the retained interests on an accrual basis.
Property, Plant and Equipment
The cost of property and equipment is depreciated on a straight-line
basis over their estimated useful lives, which generally range from three to
twenty-five years. Leasehold improvements are amortized over the lesser of the
term of the related lease or the estimated useful lives of the related assets on
a straight-line basis.
Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets on the date of acquisition, and is amortized as a
charge against income on a straight-line basis generally over three to twenty
year periods. Goodwill in excess of associated expected operating cash flows is
considered to be impaired and is written down to fair value. The accompanying
consolidated balance sheet caption Deferred charges and other assets includes
$85.6 million and $104.6 million of goodwill at December 31, 1997 and 1996,
respectively. The accompanying consolidated statements of income caption
Operating and administrative expenses includes $11.8 million, $12.6 million and
$13.2 million of goodwill amortization for the years ended December 31, 1997,
1996 and 1995, respectively.
Assets Held for Sale
The Company has certain assets held for sale. Such assets are recorded
at the lower of cost or market. For further discussion see Note 5.
Derivative Financial Instruments
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<PAGE>
The Company enters into derivative financial instruments, mainly interest
rate swaps and currency swaps, to hedge interest rate and foreign currency
exchange risk and to match fund assets and liabilities. Interest rate swaps
generally involve the exchange of interest payments without the exchange of
underlying notional principal amounts. Currency swaps generally involve both the
exchange of principal and interest payments in distinct currencies. The criteria
which must be satisfied for hedges are as follows: (1) the asset or liability to
be hedged exposes AT&T Capital, as a whole, to interest rate or currency
exchange risk, (2) the derivative acts to reduce the interest rate or currency
exchange risk by reducing the sensitivity to interest rate or currency exchange
movements, and (3) the derivative is designated and effective as a hedge.
For interest rate swaps and the interest component of the currency swaps,
the Company records the net interest to be received or paid as an adjustment to
interest expense. The net amount is reflected in the statement of cash flows in
the net income amount. The exchange of the principal amount under the currency
swaps is reflected in the statement of cash flows in the short-term notes, net
amount since the underlying amount is generally commercial paper. In the event
of an early termination of a swap contract, the gain or loss on swap accounted
for as a hedge is amortized over the remaining life of the related transaction.
The Company does not enter into speculative swaps; however, if the underlying
transaction associated with a swap accounted for as a hedge is terminated early,
the swap is then considered speculative. The gain or loss on a speculative swap
is recognized immediately.
The Company also enters into foreign currency forward exchange contracts to
hedge foreign exchange risk. In the event of an early termination, sale or
extinguishment of such a contract that 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.
Foreign Currency Translation
The financial statements of the Company's foreign operations are translated
into US dollars and the resulting translation adjustments are recorded as a
separate component of shareowners' equity. A transaction gain or loss realized
upon settlement of a foreign currency transaction generally is included in
determining net income for the period in which the transaction is settled.
Impairment of Loans
Included in finance receivables are loans that the Company considers
impaired. A loan is considered impaired when it is probable the Company will be
unable to collect all amounts due according to the original contractual term of
the loan agreement. Groups of smaller homogeneous loans, such as consumer loans
and residential real estate loans, are specifically excluded from this
definition. As a practical expedient, impairment is measured based on the loan's
observable market price of the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded as an addition to
the allowance for credit losses. See "Revenue Recognition for Finance
Receivables and Capital
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<PAGE>
Leases" above for a further discussion of revenue recognition policies. (See
Note 3).
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles held and used by
the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An impairment has occurred when the estimate of undiscounted future
cash flows expected to be generated by the asset is less than its carrying
amount. If an impairment occurred, the measurement of the impairment is based on
the fair value of the asset. During 1997, the Company recorded a $42.9 million
impairment relating to certain assets held for sale (see Note 5). No impairment
losses were recognized in 1996 and 1995.
Recent Pronouncements
In July 1997, the Financial Accounting Standards Board (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 beginning after December 15, 1997. The Company will adopt this
standard in its 1998 financial statements. Comparative information for earlier
years will be restated.
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 a company's 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. The Company will adopt this standard in its 1998 financial statements.
Comparative information for earlier years will be restated.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Post Retirement Benefits". SFAS No. 132 revises
employer's disclosures about pension and other post retirement benefit plans but
does not change the measurement or recognition of those plans. The statement
standardizes the disclosure requirements to the extent practicable, requires
additional information changes in the benefit obligations and fair value of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer useful. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997. The Company will adopt this standard in
its 1998 financial statements. Comparative information for earlier years will be
restated, if readily available.
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3. NET INVESTMENT IN FINANCE RECEIVABLES AND CAPITAL LEASES
Finance receivables and capital leases consisted of the following:
<TABLE>
<CAPTION>
Finance
Receivables Capital Leases
At December 31, 1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Receivables $2,511,963 $2,294,054 $3,606,216 $4,056,152
Estimated unguaranteed
residual values - - 432,838 380,325
Unearned income (93,028) (105,289) (656,436) (680,670)
Allowance for credit losses (75,331) (53,515) (94,477) (107,076)
- --------------------------------------------------------------------------------
Net investment $2,343,604 $2,135,250 $3,288,141 $3,648,731
</TABLE>
For a discussion regarding the Company's securitization activities, see
Note 6.
The schedule of maturities at December 31, 1997 for finance receivables and
capital leases is as follows:
<TABLE>
<CAPTION>
Finance Capital
Receivables Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1998 $ 582,769 $1,211,991
1999 335,734 992,877
2000 273,940 652,604
2001 259,511 374,183
2002 212,772 170,411
2003 and thereafter 847,237 204,150
- --------------------------------------------------------------------------------
Total $2,511,963 $3,606,216
- --------------------------------------------------------------------------------
</TABLE>
As of December 31, 1997, the recorded investment in impaired loans which
required an individual valuation allowance greater than $.2 million was $101.1
million with an aggregate valuation allowance for all such impaired loans of
$22.3 million. If such loans had not been considered impaired, and thus earned
income during 1997 (at their original contractual terms), finance revenue would
have been approximately $9.3 million higher. The amount of impaired loans at
December 31, 1996 and 1995 was not material.
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4. NET INVESTMENT IN OPERATING LEASES
The following is a summary of equipment under operating leases at December
31, 1997 and 1996, including equipment on lease to Former Affiliates (see Note
15):
<TABLE>
<CAPTION>
At December 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Original equipment cost:
Information technology $ 748,616 $ 673,298
Telecommunications 741,690 557,567
Transportation 242,630 550,242
General equipment and other 553,619 354,658
- --------------------------------------------------------------------------------
2,286,555 2,135,765
Less: Accumulated depreciation (772,437) (777,905)
Rental receivables, net 79,464 45,610
- --------------------------------------------------------------------------------
Net investment in operating leases $ 1,593,582 $ 1,403,470
- --------------------------------------------------------------------------------
</TABLE>
Minimum future rentals to be received on noncancelable operating leases as
of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998 $ 680,321
1999 399,545
2000 210,532
2001 69,603
2002 33,763
2003 and thereafter 6,490
- --------------------------------------------------------------------------------
Total minimum future rentals $1,400,254
- --------------------------------------------------------------------------------
5. ASSETS HELD FOR SALE AND INVENTORY
The Company is currently pursuing the sale of its US consumer automotive
business. The carrying value of these assets was reduced to $419.8 million,
their estimated fair value based on an estimated sale price, net of costs to
sell. The adjustment of $42.9 million was recorded in the fourth quarter of 1997
and is included in the income statement caption Loss on sales of businesses,
net. During 1997, 1996 and 1995, this business operation generated revenues of
$137.0 million, $140.4 million and $123.4 million and net income (loss) of
$(39.7) million, $8.6 million and $8.9 million, respectively.
Also, assets held for sale at December 31, 1997 and 1996 include
inventory of off-lease equipment and warehoused assets totaling $58.4 million
and $93.8 million for 1997 and 1996, respectively.
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6. SECURITIZATIONS AND LOAN SALES
See Note 1 for a discussion regarding the Company's Securitization
policies.
At December 31, 1997 and 1996, on a historical cost basis, $2,936.5 million
and $2,984.7 million, respectively, of receivables previously securitized
remained outstanding.
On a periodic basis, the Company sells the guaranteed portion of SBA loans
in the secondary market. The gain on these sales is 1) decreased by an
adjustment to reduce the carrying value of the retained unguaranteed portion of
the loan to its fair value and 2) adjusted for any excess servicing fees to be
received.
The following table summarizes securitization and loan sales activity and
balances:
</TABLE>
<TABLE>
<CAPTION>
At or for the years ended December 31, 1997 1996 1995
(in millions, except as noted)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets securitized, net (in billions) $ 1.1 $ 3.1 $ 0.1
Proceeds from assets securitized (in billions) 1.3 3.1 0.1
Securitization revenue 57.1 149.3 5.9
Retained interests in assets securitized 283.9 195.9 61.5
Maximum exposure in retained interests 221.3 104.9 254.8
SBA loans sold, at par 219.7 170.2 146.7
Proceeds from SBA loan sales 240.5 184.9 157.2
SBA loan sales revenue $ 25.6 $ 15.6 $ 10.5
</TABLE>
In addition, the Company recorded a collateralized borrowing in the
amount of $105.0 million, which represents the proceeds received from investors
for a portion of the 1997 securitization since the applicable criteria of SFAS
No. 125 for sales treatment were not met (see Note 7).
In 1995, the Company utilized a different securitization structure than
in 1997 or 1996. In 1995, the Company provided recourse in an amount greater
than the retained interest in the assets securitized. Therefore, the maximum
exposure exceeded the retained interest.
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7. DEBT
Newcourt purchased the common stock of the Company on January 12, 1998.
Newcourt has advised the Company that Newcourt intends for the Company to
operate as an indirect wholly-owned subsidiary of Newcourt which will continue
to issue commercial paper and medium and long-term debt in the public markets.
In addition, the Newcourt Support Agreement with the Company supports all of the
Company's debt. (See Note 1 for further discussion of Newcourt.)
On February 20, 1998, the Company entered into an agreement whereby the
Company guarantees certain indebtedness and liquidity facilities of Newcourt and
Newcourt Credit Group USA Inc. This debt is used by Newcourt for general
operating purposes. As of February 28, 1998, the Company's guarantee of such
debt was US$1.4 billion (C$2.0 billion).
Also, as a result of the Newcourt Acquisition, the Company is currently
renegotiating its existing back-up facility to support Newcourt's and the
Company's existing commercial paper programs and for general corporate purposes.
The Company is looking to increase its US facility to $2.25 billion with $1.5
billion having a term of 364 days and $.75 billion having a term of 5 years (the
"US facility"). In addition, Newcourt is pursuing a Canadian facility of C$1.0
billion with a term of 364 days (the "Canadian facility"). It is expected that
the US facility will be guaranteed by Newcourt and Newcourt Credit Group USA
Inc., a wholly-owned subsidiary of Newcourt and rank pari passu with the
Canadian facility. The Canadian facility will be guaranteed by the Company and
Newcourt Credit Group USA Inc.
Commercial Paper
Commercial paper is generally issued at a discount with the majority
maturing within 90 days. As of December 31, 1997 the maturities of commercial
paper ranged up to six months. As of December 31, 1996 the maturities of
commercial paper ranged up to 45 days. Interest rates ranged from 5.90% to 7.20%
and 5.60% to 7.20% at December 31, 1997 and 1996, respectively. The discount
amortized on commercial paper, which reflects the cost of such debt, amounted to
$106.3 million, $100.3 million and $94.0 million in 1997, 1996 and 1995,
respectively.
In August 1997, the Company's back-up credit facility of $2.0 billion was
modified. This facility, negotiated with a consortium of 24 lending
institutions, supports the commercial paper issued by the Company. (At December
31, 1997 this facility was unused.) Under the most restrictive provision of the
Company's back-up facility, the Company is required to maintain an interest
coverage ratio (the ratio of consolidated earnings before interest and taxes, as
defined, to consolidated interest expense) of 1.25 times. The Company is in
compliance with this and all other covenants of the facility. To meet local
funding requirements, the Company's foreign operations have available lines of
credit of approximately $341.6 million, of which approximately $95.2 million
were available at December 31, 1997. These facilities are generally renewed
annually. Facility fees paid for the revolving and foreign credit arrangements
are not material.
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Data with respect to short-term notes (principally commercial paper) are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
End of year balance, net $1,868,585 $1,867,247 $2,212,351
Weighted average interest rate at
year-end 7.0% 6.1% 5.9%
Highest month-end balance $2,479,688 $3,021,459 $2,212,351
Average month-end balance (a) $1,979,034 $2,154,614 $1,921,298
Weighted average interest rate (b) 6.1% 5.7% 5.3%
- --------------------------------------------------------------------------------
</TABLE>
(a) The average month-end balance was computed by dividing the total of the
outstanding month-end balances by the number of months.
(b) The weighted average interest rate during the year is calculated by
dividing the interest charged for the year by the average month-end
balance.
Medium and Long-term Debt
Medium and long-term debt outstanding at December 31, 1997 and 1996,
consisted of the following:
<TABLE>
<CAPTION>
Maturities 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.67% - 5.99% Medium-term notes 1997 - 2001 $ 714,400 $1,331,900
6.00% - 6.93% Medium-term notes 1997 - 2002 3,350,600 1,621,525
7.03% - 8.08% Medium-term notes 1997 - 2005 294,050 621,625
Floating rate Medium-term notes
Interest periodically reprices
based on various indices. As
of December 31, 1997 and 1996,
the average interest rate
ranged from 5.78%-6.22% and
5.47%-5.65%,
respectively. 1997 - 2000 587,250 682,000
Other long-term debt- Interest
ranging from 3.61%-12.03% and
4.75%-12.03%, respectively. 1997 - 2003 303,109 340,627
- --------------------------------------------------------------------------------
Total medium and long-term debt $5,249,409 $4,597,677
- --------------------------------------------------------------------------------
</TABLE>
The Company's medium and long-term debt matures as follows:
<TABLE>
<S> <C>
1998 $2,676,236
1999 1,781,492
2000 281,445
2001 215,329
2002 143,693
2003 and thereafter 46,214
- --------------------------------------------------------------------------------
Total $5,144,409
- --------------------------------------------------------------------------------
</TABLE>
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Included in Other long-term debt are the $105.0 million relating to the
proceeds received from an asset-backed security associated with the 1997 public
securitization to which the Company has a call option (see Note 6). Since this
is a noncash item, the debt maturity table (above) excludes such borrowing.
To reduce exposure to interest rate movements, the Company enters into
interest rate swap agreements (see Note 16). The weighted average interest rate
on average total debt outstanding, including the effect of these swaps, was
6.49% and 6.38% for the years ended December 31, 1997 and 1996, respectively.
During January 1997, the SEC declared effective a Company debt
registration statement of $4.0 billion. Subsequent to December 31, 1997, the
Company completed the full utilization of such debt available under the
registration statement. On March 20, 1998 the Company filed with the SEC a $5.0
billion debt registration statement on Form S-3. The Company anticipates this
registration statement to be declared effective in the second quarter of 1998.
In connection with transactions preceding the initial public offering of
the Company's stock in 1993, AT&T issued a guarantee on all of the Company's
debt outstanding at that date. As of December 31, 1997 and 1996, $106.8 million
and $189.7 million, respectively, of medium and long-term debt was guaranteed by
AT&T.
8. COMPANY-OBLIGATED PREFERRED SECURITIES OF SUBSIDIARY
In the fourth quarter of 1996, Capita Preferred Trust (the "Trust")
issued $200 million of Trust Originated Preferred Securities (the "Preferred
Securities") to the public (the "Offering"). The Trust invested the proceeds
received from the Offering and its issuance of common securities to the Company
in preferred securities ("Partnership Preferred Securities") of its affiliate,
Capita Preferred Funding L.P. (the "Partnership"). The Trust and the Partnership
are consolidated subsidiaries of the Company. The Partnership, in turn, used
proceeds from the issuance of the Partnership Preferred Securities and a Company
capital contribution to invest primarily in 20-year debentures of the Company
and two wholly-owned subsidiaries (the "Debentures"). Payments in respect of the
Debentures issued by the Company's subsidiaries have been guaranteed, on a
subordinated basis, by the Company.
Holders of the 8 million shares of Preferred Securities will be
entitled to receive quarterly cash distributions at an annual rate of 9.06% and
a liquidation amount of $25 per share. Under the terms of the Offering, the
Company issued an irrevocable guarantee, to the extent the Trust has funds
available therefor, on the distributions, redemption and liquidation of the
Preferred Securities. Distribution will be made on the Preferred Securities to
the extent that the Trust has funds available, which is dependent on the payment
of distributions on the Partnership Preferred Securities by the Partnership to
its limited partner, the Trust. Distributions on the Partnership Preferred
Securities will be declared and paid only as determined in the sole discretion
of the Company in its capacity as the general partner of the Partnership. The
Partnership's ability to pay such distributions to the Trust is dependent on the
receipt of interest payments on the Debentures from the Company and its two
69
<PAGE>
<PAGE>
subsidiaries. As discussed in Note 1, the Newcourt Acquisition and related
transactions did not effect ownership of the Preferred Securities. However, the
Newcourt Guarantee ranks senior to the Trust Guarantee issued by the Company in
connection with the Preferred Securities offering.
The table below shows summarized consolidated financial information of
the Company's two subsidiaries, AT&T Capital Leasing Services, Inc. and AT&T
Capital Services Corporation which have issued the Debentures. The summarized
financial information includes transactions with the Company that are eliminated
in consolidation.
<TABLE>
<CAPTION>
AT&T Capital Leasing Services, Inc.
At or for the years ended December 31, 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Total revenues $ 172,736 $244,560 $197,537
Interest expense 47,467 69,490 62,420
Operating and administrative expenses 93,914 86,121 85,621
Provision for credit losses 39,171 51,862 39,996
(Loss) income before income taxes (10,617) 34,509 7,234
Net (loss) income (a) (23,164) 20,733 4,241
Total assets 786,895 628,945 1,387,325
Total debt 675,420 507,180 1,061,640
Total liabilities 742,633 597,203 1,214,257
Total shareowner's equity $ 44,262 $ 31,742 $ 173,068
---------- ---------- ----------
AT&T Capital Services Corporation
At or for the years ended December 31, 1997 1996 1995
--------- --------- ---------
Total revenues $ 113,655 $ 111,572 84,732
Interest expense 6,752 5,157 4,046
Operating and administrative expenses 49,049 46,423 36,108
Provision for credit losses 1,257 650 107
Income before income taxes 4,511 10,260 7,724
Net income 2,627 6,098 4,385
Total assets 147,182 161,232 116,952
Total debt 108,794 116,545 72,635
Total liabilities 133,800 145,565 99,031
Total shareowner's equity $ 13,382 $ 15,667 $ 17,921
</TABLE>
(a) Net loss for 1997 has been increased by a $12.5 million tax
provision. A $33.0 million tax provision was recorded for a deferred
intercompany gain resulting from the transfer of assets to an affiliate, which
is eliminated on an AT&T Capital consolidated basis. This was partially offset
by a $20.5 million tax benefit on a $51.8 million tax loss, which includes
equity investment revenues not taxable to AT&T Capital Leasing Services.
The significant decrease in AT&T Capital Leasing Services, Inc. 1996
total assets compared to 1995, is due to significant securitization activity
(see Note 6 for further discussion of securitizations).
9. DIVIDENDS
On February 29, 1996, shareowners of record as of February 9, 1996, were
paid a fourth quarter 1995 dividend of $.11 per share. During 1996, the
Company's Board of Directors declared dividends each of $.11 per share to
shareowners of record as of May 10, 1996 and August 9, 1996 payable on
70
<PAGE>
<PAGE>
May 31, 1996 and August 30, 1996, respectively. As a result of the 1996 Merger
and the Newcourt Acquisition, the Company anticipates that it will no longer pay
dividends in the short-term.
10. FAIR VALUE DISCLOSURES
Fair value is a subjective and imprecise measurement that is based on
assumptions and market data which require significant judgment and may only be
valid at a particular point in time. The use of different market assumptions or
valuation methodologies may have a material effect on the estimated fair value
amounts. Accordingly, management cannot provide assurance that the fair values
presented are indicative of the amounts that the Company could realize in a
current market exchange.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments at December 31, 1997 and 1996:
Cash and Cash Equivalents
The carrying amount is a reasonable estimate of fair value.
Interest in Asset-Backed Security
This asset is the result of a call option the Company has relating to a
note issued by the CERTS 97-1 (see Note 6). The fair value of the interest in
asset-backed security is equal to the related amount recorded as the
collateralized borrowing (see Note 7) since that liability is a floating rate
obligation.
Net Investment in Finance Receivables
The fair value of the finance receivable portfolio is estimated by
discounting the expected future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
Short-term Notes (Commercial Paper and Other Short-term Notes)
The carrying amount is a reasonable estimate of fair value for commercial
paper. Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of other short-term
notes.
Medium and Long-term Debt
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of existing debt.
Interest Rate and Currency Swap Agreements
The fair value of interest rate and currency swaps is estimated by
discounting the expected future cash flows using an estimated rate at which the
Company could terminate the swaps in the market today.
71
<PAGE>
<PAGE>
Foreign Exchange Contracts
The fair value of foreign exchange contracts is estimated based on current
market quotes obtained from dealers for foreign exchange contracts with the same
remaining terms.
Credit Facilities
The fair values of the credit facilities are based on fees currently paid
for similar arrangements.
The following table summarizes the carrying and fair values of on-balance
sheet instruments (as determined using the methods described above):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 8,317 $ 8,317 $ - $ -
Interest in asset-backed
security 100,924 105,000 - -
Net investment in finance
receivables (Note 3) 2,343,604 2,367,266 2,135,250 2,140,878
Liabilities:
Short-term notes (Note 7) 1,868,585 1,868,585 1,867,247 1,867,247
Medium and long-term debt
(Note 7) $5,249,409 $5,361,314 $4,597,677 $4,663,012
- ---------------------------------------------------------------------------
</TABLE>
Matching maturities of its portfolio assets and debt is a key component
of the financial strategy used by the Company to manage interest rate risk.
Based on unaudited calculations performed by the Company, the increased fair
value of the Company's debt (including the effects of interest rate and currency
swaps, as shown below) has been offset by the increased fair value of the
Company's portfolio assets at December 31, 1997 and December 31, 1996,
respectively. The fair value of the Company's lease portfolio is not a required
disclosure under SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments" and, therefore, only the fair value of the finance receivable
portfolio has been disclosed.
72
<PAGE>
<PAGE>
The following tables summarize the carrying and fair values of off-balance
sheet financial instruments (as determined using methods described above):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
Carrying Amount Fair Value
Receivable Payable Receivable Payable
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swap agreements $ 9,733 $(1,832) $11,268 $(15,753)
Currency swap agreements 339 (532) 7,147 3,235
Foreign currency forward $ 27,241 $(16,106) $22,609 $ (2,959)
exchange contracts
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
Carrying Amount Fair Value
Receivable Payable Receivable Payable
- --------------------------------------------------------------------------------
Interest rate swap agreements $ 258 $ (2,662) $14,247 $(26,318)
Currency swap agreements 69 (1,255) 3,407 (14,870)
Foreign currency forward
exchange contracts $ 7,807 $(21,405) $ (931) $(25,654)
- --------------------------------------------------------------------------------
</TABLE>
Hedging the net cash inflows from foreign denominated assets is a key
component of the financial strategy used by the Company to manage its exposure
to foreign currency fluctuations. Based on unaudited calculations performed by
the Company, the increased fair value of the Company's forward exchange
contracts has been offset by a decrease in the fair value of the Company's
foreign denominated assets at December 31, 1997. Likewise, at December 31, 1996,
the decreased fair value of the Company's forward exchange contracts was offset
by an increase in the fair value of the Company's foreign denominated assets.
As of December 31, 1997, the Company has unused revolving credit
facilities totaling $2.0 billion and approximately $95.2 million of unused
foreign credit facilities. The fair value of the credit facilities is based upon
fees currently paid for similar arrangements which are not material (see Note
7).
73
<PAGE>
<PAGE>
11. OTHER REVENUE
Other revenue, net consisted of the following:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net gain on sale of leased and off-lease
equipment $ 88,636 $ 86,639 $ 86,987
Portfolio servicing fees 43,286 20,303 23,584
Other fee related revenue 60,545 51,449 44,105
Other portfolio related revenue 64,654 38,842 35,633
- --------------------------------------------------------------------------------
Total other revenue, net $257,121 $197,233 $190,309
</TABLE>
The higher portfolio servicing fees in 1997 resulted from the Company's
increased securitization activities since October 1996.
Included in other portfolio related revenue is $18.7 million related to
the gains recorded from the sale of certain equity securities. The Company
obtains equity securities in conjunction with structuring certain complex
capital market transactions.
12. RESTRUCTURING CHARGES
In the fourth quarter of 1997, the Company's management approved a plan
of restructuring (the "Plan"). The objective of the Plan, which is independent
of the Newcourt Acquisition, is to enhance the overall efficiency and
profitability of the Company by reducing operating and administrative costs in
line with acceptable industry standards. In connection with the Plan, the
Company recorded a pretax restructuring charge of $35.1 million. This charge
includes $32.9 million relating to severance and benefit related costs for the
elimination of approximately 200 employees, including administrative,
communications, systems, operations, sales and marketing, finance, human
resources, legal, facilities and other functions across all business and
corporate support units. In addition to the severance and benefit related costs,
$2.2 million of the restructuring charges are related to costs to close a
facility.
The Company anticipates that the Plan will be substantially completed by
December 31, 1998. Management believes that the $35.1 million reserve is
adequate to complete the Plan. It is reasonably possible that there may be
additional restructuring reserves recorded in the future relating to the
Newcourt Acquisition.
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<PAGE>
<PAGE>
13. INCOME TAXES
It is anticipated that Newcourt Holdings USA, Inc. will merge into
Newcourt Credit Group USA Inc. (a wholly-owned subsidiary of Newcourt), with
Newcourt Credit Group USA Inc. being the surviving entity. Effective thereafter,
the surviving entity, including the Company, will file a consolidated tax return
for Federal income tax purposes.
Following the 1996 Merger, the Company was no longer included in the
consolidated Federal and state returns of AT&T and filed a stand-alone
consolidated Federal income tax return ("Tax Deconsolidation").
In connection with the 1996 Merger, Hercules (Cayman) and AT&T made an
election under Section 338(h)(10) of the Internal Revenue Service Code (the
"Section 338(h)(10) election") and similar elections under state and local laws.
Under these elections, the 1996 Merger was deemed to be an asset sale for tax
purposes resulting in the elimination of substantially all deferred tax
liabilities as of the 1996 Merger date of $232.9 million. In 1997, the Company
trued-up this amount which resulted in an increase to additional paid-in capital
of $17.2 million. In addition, the Company stepped-up its assets and liabilities
to their fair value for tax purposes, which was not done for book purposes
("push-down accounting") due to the Company's significant level of public debt
outstanding. Such difference between books and taxes, generated a deferred tax
asset of $162.0 million, the "1996 Merger-related tax goodwill". In 1997, the
Company trued-up this amount which resulted in an increase in the 1996
Merger-related tax goodwill of $4.6 million.
In connection with AT&T's 1996 sale of its 86% interest in the Company,
AT&T agreed to pay the Company approximately $280 million for lost tax
depreciation relating to the Section 338(h)(10) election. The Company offset
such receivable from AT&T with amounts owed to AT&T for income taxes due as of
the 1996 Merger date. This amount was trued-up in 1997 which resulted in a
reduction to additional paid-in capital of $6.7 million. The Company was also
entitled to a tax deduction for the cash-out of the Company's stock options by
Hercules (Cayman). The tax benefit of such payment reduced the Company's 1996
current tax liability by approximately $16.0 million. At December 31, 1997 and
1996 the Company had a current tax receivable of $41.5 million and $6.9 million,
respectively.
As part of the GPTD Agreement the Company has, prior to the 1996 Merger,
received interest free loans to the extent of the tax deferrals generated by
transactions between AT&T and the Company. On September 30, 1996, the Company,
pursuant to the GPTD Agreement, made a payment of $247.4 million to AT&T for
full repayment of such loans. The GPTD Agreement required the Company to repay
such loans immediately prior to the Company no longer being a member of AT&T's
consolidated group for Federal income tax purposes. These interest free loans
amounted to $248.9 million at December 31, 1995. The average balance outstanding
for such loans was $248.9 million and $245.9 million during the nine months
ended September 30, 1996 and the year ended December 31, 1995, respectively.
Also on September 30, 1996, pursuant to the 1996 Merger Agreement, the Company
made a $35.0 million payment to AT&T in exchange for AT&T assuming all tax
liabilities associated with Federal and combined state taxes for periods prior
to the consummation of the 1996 Merger.
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<PAGE>
<PAGE>
In addition, it is possible that the Company could be subject to the
Federal alternative minimum tax. A company's alternative minimum tax ("AMT")
liability is computed by applying the alternative minimum tax rate, which is
lower than the regular tax rate, to a measure of taxable income that is broader
than that used in computing the regular tax. Payments of any alternative minimum
tax incurred by the Company would be available in the future as credits against
the Company's regular tax liability.
The Company has no available AMT credit carryforwards at December 31,
1997 to reduce future Federal income taxes payable.
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996* 1995*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 94,283 $ 310,704 $70,102
State and local (a) 12,918 68,409 13,415
Foreign 12,218 21,384 10,789
- --------------------------------------------------------------------------------
Total current portion 119,419 400,497 94,306
- --------------------------------------------------------------------------------
Deferred:
Federal (83,309) (221,208) (2,873)
State and local (a) (14,326) (49,878) 205
Foreign (15,545) 1,926 2,483
- --------------------------------------------------------------------------------
Total deferred portion (113,180) (269,160) (185)
Tax credits:
Current (4,435) (20,762) (10,850)
Deferred (b) 9,225 (512) (2,587)
- --------------------------------------------------------------------------------
Total provision for income taxes $ 11,029 $ 110,063 $80,684
- --------------------------------------------------------------------------------
</TABLE>
*Certain amounts have been reclassified to conform to the 1997 presentation.
(a) Includes true-ups relating to tax returns filed for prior years.
(b) The 1997 debit balance is the result of a reversal of a foreign deferred tax
liability on which a US deferred tax credit had been recorded.
76
<PAGE>
<PAGE>
Deferred income tax assets consist of the following:
<TABLE>
<CAPTION>
At December 31,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Gross deferred income tax liabilities:
Lease related differences $ - $ (999)
Securitization-related - (54,519)
Pensions (2,122) (1,176)
Other - (5,347)
- --------------------------------------------------------------------------------
Gross deferred income tax liabilities (2,122) (62,041)
- --------------------------------------------------------------------------------
Gross deferred income tax assets:
1996 Merger-related tax goodwill 153,587 159,604
Allowance for credit losses 17,173 5,644
State net operating losses 9,492 -
Foreign net operating losses 1,064 7,205
Deferred foreign tax credit 14,305 23,237
Lease-related differences 25,952 -
Securitization related 790 -
Other 17,805 4,476
- --------------------------------------------------------------------------------
Gross deferred income tax assets 240,168 200,166
- --------------------------------------------------------------------------------
Valuation allowance (6,900) (21,999)
- --------------------------------------------------------------------------------
Net deferred income tax assets $ 231,146 $ 116,126
- --------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
<PAGE>
A valuation allowance has been recorded to offset certain deferred tax
assets due to the uncertainty of realizing the benefit of foreign tax credits
and foreign net operating loss carryforwards.
A valuation allowance has not been established for non-foreign deferred
tax assets. Management believes that based upon its consistent history of
profitable operations, coupled with its forecast of taxable income, which
employs certain tax-planning strategies, it is probable that non-foreign
deferred tax assets of approximately $230 million will be realized on future tax
returns, primarily through the generation of future taxable income. The ultimate
realization of the deferred tax assets will require aggregate taxable income of
approximately $640 million to $700 million in future years.
A reconciliation between the Federal statutory tax rate and the
Company's effective tax rate is shown below:
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of Federal
income tax effect 2.3 4.3 4.2
Tax exempt income (13.2) (1.4) (1.6)
Goodwill - 0.3 0.5
Foreign taxes 9.7 1.0 1.0
Other * 0.6 0.3 (0.4)
- --------------------------------------------------------------------------------
Effective tax rate 34.4% 39.5% 38.7%
- --------------------------------------------------------------------------------
</TABLE>
* Includes true-ups relating to tax returns filed for previous years for
Federal, state and local, and foreign income taxes as well as Foreign tax
credits.
The Company has available state net operating loss carryforwards
totaling approximately $289 million which will expire in the years 1999 through
2011.
For the years ended December 31, 1997, 1996 and 1995, the consolidated
income (loss) before income taxes and cumulative effect of accounting change by
domestic and foreign source was $68,458 and $(36,422), $296,876 and $(18,274),
$210,296 and $(2,057), respectively.
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<PAGE>
<PAGE>
14. PENSION AND BENEFIT PLANS
Pension
Under a defined contribution plan, the amount of future pension benefits is
based solely on the amount contributed and the returns earned on those amounts.
The Retirement and Savings Plan ("RSP") has a profit sharing component
(including a cash or deferred arrangement) under Section 401(k) of the Internal
Revenue Code and a money purchase component. The Company's annual contribution
under the profit sharing component, which is discretionary above 5%, is expected
to equal approximately 9% of employee pay (i.e., aggregate base salaries and
annual incentives of participants in the RSP). In addition, under the money
purchase component, the Company matches an amount equal to 66-2/3% of the first
6% of compensation that each employee contributes to the RSP under Section
401(k). RSP participants can select from a variety of funds within the RSP to
invest their allotments. The Company recorded $16,417, $14,954 and $14,367 of
pension expense in 1997, 1996 and 1995, respectively, related to the RSP. In
addition, in 1997, 1996 and 1995 the Company recorded pension expense of $4,339,
$2,649 and $2,431, respectively, in connection with RSP-related nonqualified
plans. The Company also sponsors various international plans which are available
to certain employees of its international subsidiaries. These plans are similar
to the RSP, in that they enable employees of the Company to contribute a
percentage of their salary to provide for retirement income. The Company
recorded $2,053, $1,736 and $1,412 of pension expense in 1997, 1996 and 1995,
respectively, related to the various international plans.
The Company does not provide post-employment benefits to its employees.
As of the date of the 1996 Merger, as a result of the change in control
provisions in the RSP, all participants became fully vested.
As of the date of the Newcourt Acquisition, as a result of the change in
control provisions in the RSP, all participants became fully vested.
The Company sponsors three unfunded supplemental retirement plans (two
non-qualified plans and one qualified severance plan) that provide certain
employees with additional benefits after retirement (the "Plans"). Components of
net periodic pension cost for the years ended December 31, were:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned $ 516 $ 595
Interest cost on projected benefit obligation 649 608
Amortization 564 490
Settlement loss* 2,410 455
- --------------------------------------------------------------------------------
Net periodic pension cost after settlement loss $4,139 $2,148
- --------------------------------------------------------------------------------
</TABLE>
*Lump sums were paid to certain participants upon separation of their
service.
79
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The funded status of the Plans at December 31 was:
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligations:
Vested benefit obligation $7,035 $5,926
Non-vested benefit obligation 1,553 1,104
Total 8,588 7,030
Additional benefits on estimated future salary level 828 1,306
Total projected benefit obligation 9,416 8,336
Plan assets at fair value - -
Unfunded projected benefit obligation 9,416 8,336
Unrecognized prior service cost 3,981 4,413
Unrecognized net loss 834 1,413
Additional liability 4,051 4,773
Accrued pension liability recorded $8,652 $7,283
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1997 and 1996, the projected benefit obligation was
determined using assumed weighted average discount rates of 7.5% and assumed
long-term rates of increase in future compensation levels of 4.5% or 5.5% in
both years, depending on the plan.
Share Performance Incentive Plan
Prior to the 1996 Merger, the Company's Share Performance Incentive Plan,
as amended ("SPIP"), was designed to provide the opportunity for cash incentive
awards to key employees at the end of five three-year performance periods. The
first such period terminated on June 30, 1996, with each of the other
performance periods ending on the annual anniversary of such date through and
including June 30, 2000. These incentive awards were generally based on the
performance of the Company's stock price and dividend yield relative to the
interest rate on three-year treasury notes and the total return on the stock
relative to a specified peer group of financial services companies over three
year performance periods. The estimated compensation expense relating to the
SPIP has been charged against income over the respective performance periods. As
a result of the 1996 Merger, the SPIP provided an accelerated payout and
additional amounts to certain key employees resulting in a pre-tax charge of
$36.2 million for year ended December 31, 1996. The Company discontinued the
SPIP effective October 1, 1996 (the 1996 Merger date).
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<PAGE>
<PAGE>
Leveraged Stock Purchase Plan
Prior to the 1996 Merger, under the Company's Leveraged Stock Purchase Plan
("LSPP"), 2,000,000 shares of common stock and options to purchase common stock
were reserved for purchase or grant. The terms and provisions of the LSPP
required certain senior management employees to purchase an aggregate of 851,716
shares of common stock in conjunction with the Company's initial public offering
at the offering price of $21.50 per share ("offering price"). The eligible
employees had the option of borrowing from the Company, on a recourse basis,
88.5% to 97.7% of the purchase price of the shares. The recourse loans would
have matured on August 4, 2000, and had a stated interest rate of 6.0%
compounded on an annual basis. The purchased shares were pledged as collateral
for the recourse loans. Sale of these shares was restricted prior to August 4,
1996, and was contingent upon repayment of the loans and certain other
requirements. The recourse loans were shown on the balance sheet as a reduction
of equity.
In addition, under the LSPP, the same senior management employees were
granted premium priced stock options which provided participants with an
opportunity to purchase up to 1,095,040 shares of Company stock at an exercise
price equal to 125% of the offering price ($26.875 per share). The options were
exercisable during the period from August 4, 1996, through August 4, 2003.
Pursuant to the terms of the LSPP, no further purchases of stock, Company loans
or option grants were made under the LSPP subsequent to December 31, 1993. No
options were canceled during 1996. Options canceled during 1995 were 102,852.
Options exercised during 1996 prior to the 1996 Merger were 53,352. As of the
1996 Merger date, all remaining LSPP options (851,382) were cashed out by
Hercules (Cayman) at the difference between the exercise price and $45 per
share. Effective on the 1996 Merger date, the Company discontinued the LSPP.
1993 Long Term Incentive Plan
Prior to the 1996 Merger, under the Company's 1993 Long Term Incentive Plan
("1993 LTIP") the Company granted various stock-based and other awards to
employees of the Company. The number of shares available for grant or purchase
under the 1993 LTIP were 3,500,000 (following approval by the Company's
shareowners of an additional 1,500,000 shares on April 19, 1996). Similar to the
LSPP, eligible employees purchasing stock under the 1993 LTIP had the option of
borrowing from the Company, on a recourse basis, 88.5% to 97.7% of the purchase
price of the shares. The recourse loans, which were due seven years from the
loan date, had stated interest rates ranging from 6.0% to 7.92%, compounded on
an annual basis. The purchased shares were pledged as collateral for the
recourse loans. Sale of these shares was prohibited for a three-year period and
was contingent upon repayment of the loan and certain other requirements. The
recourse loans were shown on the balance sheet as a reduction of equity. Awards
under the 1993 LTIP were made to executives and employees of the Company at the
Company's discretion.
81
<PAGE>
<PAGE>
The following table summarizes the option activity relating to the 1993
LTIP through the 1996 Merger date:
<TABLE>
<CAPTION>
Shares Under Option Number Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 1,103,369 $21.50-$30.63
Changes in 1995:
Options exercised (16,978) $21.50-$26.15
Options canceled (79,605) $21.50-$26.15
Options granted 345,036 $21.50-$47.03
- -------------------------------------------------------------------------------
Options outstanding at December 31, 1995 1,351,822 $21.50-$47.03
Changes in 1996 prior to 1996 Merger date:
Options exercised (70,195) $21.50-$26.15
Options canceled (42,937) $21.50-$38.63
Options granted 5,206 $38.25-$38.63
- -------------------------------------------------------------------------------
Options outstanding at October 1, 1996
prior to 1996 Merger 1,243,896 $21.50-$47.03
- ---------------------------------------------------------------------------
Options exercisable at December 31, 1997 - -
Options exercisable at December 31, 1996 - -
- ---------------------------------------------------------------------------
</TABLE>
Upon consummation of the October 1, 1996 Merger Agreement, all option
holders received from Hercules (Cayman) $45 in cash for each option. As a result
no compensation cost was incurred by the Company relating to the cashout of
these options. Effective on the 1996 Merger date, the Company discontinued the
1993 LTIP.
In addition, the Company had awarded restricted stock under the 1993
LTIP to certain employees in consideration of services rendered. During 1996 and
1995, respectively, restricted stock awards of 7,796 and 19,967 shares were made
to employees under the LTIP.
As part of the 1996 Merger Agreement, most of the senior management
employees who were participants in the LSPP and 1993 LTIP, were given the
opportunity to exchange all of the Company pre-1996 Merger shares, purchased
under the above mentioned plans, for an equal value of the Company's post-1996
Merger shares, which was on the basis of 4.5 new shares for each of the
Company's pre-1996 Merger shares. Management employees who effected the exchange
had their LSPP or 1993 LTIP recourse loans extended to the year 2006. All of the
outstanding shares of common stock of the Company were acquired in connection
with the Newcourt Acquisition (see Note 1). The new recourse loans had a stated
interest rate of 7.13%, compounded on an annual basis. The exchanged shares
(resulting from the 1996 Merger) were pledged as collateral for the recourse
loans. Sale of the underlying shares were restricted and was contingent upon
repayment of the loan and certain other requirements. The recourse loans are
shown on the balance sheet as a reduction of equity.
82
<PAGE>
<PAGE>
Employee Stock Purchase Plan
In April 1994, the Company's shareowners approved an employee stock
purchase plan effective August 1, 1994. The AT&T Capital Corporation 1994
Employee Stock Purchase Plan ("ESPP") enabled employees to purchase shares of
AT&T Capital common stock at a discount. The price per share was 90% of the fair
market value of the common stock at the time of its purchase. No compensation
expense was recorded in connection with the ESPP. The maximum aggregate number
of shares of common stock that could have been purchased under the ESPP was
500,000. During 1996 and 1995, 10,074 and 27,965 shares were purchased by
employees at prices ranging from $38.88 to 41.63 and $22.05 to $36.00 per share,
respectively. As a result of the 1996 Merger agreement, the ESPP was
discontinued on June 5, 1996.
1996 Long Term Incentive Plan
A new fixed option plan, the 1996 Long Term Incentive Plan (the "1996
LTIP"), was adopted on the date of the 1996 Merger. Under the 1996 LTIP, certain
members of management who effected an exchange of pre-1996 Merger shares in the
Company received options to purchase new shares of the Company having exercise
prices aggregating $29.25 million. Additional options to purchase the Company's
stock having exercise prices aggregating $9.75 million also were available for
grant to the same group.
In addition, options to purchase the Company's stock having exercise
prices aggregating $64 million were available for grant to general members.
These grants were to be made annually over a 5 year period. The Board of
Directors could also have considered grants over time, commencing after 1997, of
options to purchase the Company's stock with exercise prices aggregating a
further $13 million to junior management. Awards under the 1996 LTIP were made
to members of the Company at the Company's discretion.
All stock options granted under the 1996 LTIP were at a price no less
than fair market value on the date of the grant, would have expired after 11
years and vested over a five year period.
The following table summarizes the option activity relating to the 1996
LTIP:
<TABLE>
<CAPTION>
Shares Under Option Number Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1995 - $ -
Changes in 1996:
Options granted 5,147,500 $10.00
Options canceled (42,100) $10.00
Options exercised - -
- --------------------------------------------------------------------------------
Options outstanding at December 31, 1996 5,105,400 $10.00
Changes in 1997:
Options granted 279,905 $16.00 - $16.48
Options canceled (1,531,590) $10.00
Options exercised - -
- --------------------------------------------------------------------------------
Options outstanding at December 31, 1997 3,853,715 $10.00 - $16.48
Options exercisable at December 31, 1997 1,033,850 $10.00 - $16.48
Options exercisable at December 31, 1996 - -
</TABLE>
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<PAGE>
Following the Newcourt acquisition, option holders received a cash
payment, from Newcourt, for the value of the vested stock option gain (the
difference between the exercise price of the options and the value of the
underlying Company shares based on the Newcourt Acquisition price).
Additionally, the option holders were given the right to receive (on a three
year vesting schedule) shares of common stock of Newcourt equal to the value of
the stock option gain relating to unvested options.
Effective January 1, 1996 the Company adopted 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 new standard been adopted. The Company
adopted the disclosure alternative which requires disclosure of the pro forma
net income amount 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. If the Company had elected to
recognize compensation costs based on the fair value at the date of grant for
awards in 1997, 1996 and 1995, in accordance with the provisions of SFAS 123, on
a pro forma basis, the Company's net income would have been reduced by $1.1
million, $1.3 million and $0.6 million for 1997, 1996 and 1995, respectively.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in the future are anticipated.
The weighted average fair values at date of grant for pre-1996 Merger
options granted in 1996 and 1995 were $6.71 and $7.03 per share, respectively.
The weighted average fair value at date of grant for options granted in 1997 was
$6.48 per share.
For 1997, the fair value was estimated using the Black-Scholes option
valuation model using the following assumptions: (a) Expected volatility rate of
0% (assumed for a private company) (b) Risk free interest rate of 6.7%, (c)
Expected dividend yield of 0% and (d) Expected life of 8 years.
For 1996, as a result of the 1996 Merger and the related accelerated
vesting of all prior option grants, the fair value was determined as being the
difference between the grant price and the final cash settlement price of $45
per share for all option grants made in 1996. For post-1996 Merger option
grants, the minimum value was estimated using the following assumptions: (a)
Risk free interest rate of 6.2% and (b) Expected life of 5 years.
For 1995, the fair value was estimated using the Black-Scholes
option-valuation model using the following assumptions: (a) Expected volatility
rate of 24.3%, (b) Risk free interest rate of 7.4%, (c) Expected dividend yield
of 0% and (d) Expected life of 3 years.
Severance Plans
The Company maintains broad-based plans that provide for benefits to
members upon certain terminations of employment. Such benefits are calculated
using annual base pay and annual incentive awards as well as
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<PAGE>
other factors. For the years ended December 31, 1997 and 1996, net income was
reduced by $13.9 million and $6.6 million for termination payments.
15. RELATED-PARTY TRANSACTIONS
Nomura
On October 1, 1996 the Company entered into an Advisory Agreement with
an affiliated company, Nomura (the indirect beneficial owner of Hercules
(Cayman)). Under the agreement Nomura provided support services to the Company.
As part of the same agreement, the Company incurred a securitization fee of $24
million in connection with its October 15, 1996 $3.1 billion public
securitization of lease and loan receivables (see Note 6). Furthermore, Nomura
earned from the Company a $2.0 million fee in connection with its issuance of
Preferred Securities (see Note 8). Nomura also received a quarterly retainer fee
of $0.75 million for certain other services provided to the Company. This fee
amounted to $3.0 million for 1997 and $.75 million for 1996. In connection with
the Newcourt Acquisition the Advisory Agreement terminated by its own terms.
In connection with the above-mentioned $3.1 billion securitization,
Nomura underwrote, on a principal basis, certain cash collateral account loans
in an amount equal to 3.8% of the securitization proceeds as a credit
enhancement. During 1997, Nomura sold substantially all of such credit
enhancement to an independent third party and as of December 31, 1997 retained
0.3% of the securitization proceeds as a credit enhancement.
Upon the termination of certain management members, Nomura purchased the
members' outstanding shares plus any interest due on recourse loans owed by the
member. During 1997, Nomura purchased 813,776 shares for a total of $8.4
million.
Also, in the fourth quarter of 1997, the Company issued and repaid notes
of $500 million in aggregate principal amount to Nomura. The Company paid Nomura
$1.8 million of related interest.
Former Affiliates
In 1996, rental expense under existing leases with AT&T and affiliates
for the nine months through the 1996 Merger date was $3.8 million. Such expense
for the year ended 1995 was $5.5 million.
During 1996 and 1995, the Company purchased services from AT&T and
affiliates, including data processing, billing and collection, administration
and other services. The Company's expenses for such services, for the nine
months through the 1996 Merger date were $13.1 million. For the year ended 1995,
expenses amounted to $20.0 million.
1996 lease revenues, in which the Company was the lessor to AT&T of
equipment, through the 1996 Merger date were $67.2 million. For the year ended
1995, such revenues were $105.8 million.
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<PAGE>
The Company is also a party to the AT&T Operating Agreement and the AT&T
License Agreement, pursuant to which AT&T provides the Company with the right to
be the preferred provider of leasing and financing services for AT&T's products
on a basis consistent with past practice (see Note 1). The Company and AT&T are
party to the AT&T Intercompany Agreement whereunder, among other things, the
Company manages and administers, for a fee, certain lease portfolios of
subsidiaries of AT&T. In 1996, for the nine months through the 1996 Merger date,
the Company recognized service fee revenue of $4.8 million for such services. In
1995, fee revenue of $7.6 million was earned for such services. The Company is
currently renegotiating the servicing fees with AT&T (see Note 1).
In the second quarter of 1996, the Company entered into separate
operating agreements with each of Lucent and NCR, and entered into letter
agreements with Lucent and NCR regarding the applicability to Lucent and NCR of
specified provisions of the License Agreement and the Intercompany Agreement
between the Company and AT&T (see Note 1).
The Company has paid a sales assistance fee ("SAF") to Lucent, which fee
is related to the volume of the Company's Lucent-related business. Under the
terms of the Lucent Operating Agreement, Lucent is prohibited from accepting a
SAF from any other provider of leasing services. In early 1996, after a period
of negotiations, the Company agreed to pay a substantial increase in the SAF for
1995, both as an absolute amount and as a percentage of volumes attributable to
Lucent. After giving effect to the increase, the SAF paid by the Company to
Lucent for 1995 was approximately double the 1994 fee. In early 1997, the
Company and Lucent agreed to include international volumes and certain third
party volumes in the amount upon which the Company pays SAF, for the remaining
term of Lucent's Operating Agreement (retroactive to 1996). The impact of this
revision was not material to the Company's financial statements.
On March 9, 1998, Newcourt signed the 1998 Lucent Agreement. (See Note
1.)
16. COMMITMENTS AND CONTINGENCIES
Derivative Financial Instruments
In the normal course of business, the Company is routinely party to various
derivative financial instruments. These financial instruments are used by the
Company to reduce interest rate and foreign currency exposure, as well as to
meet the financing needs of its customers.
At both December 31, 1997 and 1996, in management's opinion, there was
no significant risk of loss in the event of nonperformance of the counterparties
to derivative contracts. There were no past due amounts, nor were there any
reserves for credit losses on derivatives as of December 31, 1997 and 1996.
Generally, the Company does not require collateral or other security to support
financial instruments with credit risk. The Company has never experienced a
credit related charge-off associated with derivative transactions.
Information is provided below for each significant derivative product type.
The derivatives, with which the Company is involved, are primarily interest rate
swaps, currency swaps, and foreign currency forward exchange contracts.
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<PAGE>
Interest Rate and Currency Swaps
The Company enters into interest rate and foreign currency swap agreements
with major money center banks and intermediaries located in major financial
centers to reduce interest rate exposure, to more closely match the maturity of
its debt portfolio to that of its asset portfolio and to reduce its exposure to
currency fluctuations. Interest rate swaps also may allow the Company to raise
funds at floating rates and effectively swap them into fixed rates that are
lower than those available to the Company if fixed-rate borrowings were made
directly. The majority of foreign currency swaps are used to hedge Canadian
dollars.
Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. Generic swaps' notional amounts generally do not change for
the life of the contract. Amortizing and accreting swaps' notional amounts
generally change based upon a predetermined amortization or accretion schedule.
Currency swaps generally involve the exchange of both principal and interest
payments in distinct currencies.
The notional amounts shown below for interest rate swaps represent an
agreed upon amount on which calculations of amounts to be exchanged are based
and for currency swaps also represent the US equivalent of an amount exchanged.
Notional amounts do not represent the Company's exposure. Rather, the Company's
exposure is limited to the current fair value of the contracts with a positive
fair value at the reporting date (see Note 10). A key assumption in the
information below is that rates remain constant at the reporting date levels. To
the extent that rates change, the variable interest rate information will
change.
Activity in interest rate and currency swaps which are all held for
purposes other than trading for 1997 and 1996, is summarized as follows:
<TABLE>
<CAPTION>
Generic Amortizing Generic
Pay Pay Pay Currency
Notional Amounts Fixed Fixed/Floating Floating Swaps Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $1,121,139 $ 872,643* $ 240,000 $264,993 $2,498,775
Additions 303,877 370,189 100,000 150,074 924,140
Maturities/
amortization (527,873) (143,364) (240,000) (94,418) (1,005,655)
Terminations (119,800) (540,033) - - (659,833)
- --------------------------------------------------------------------------------
December 31, 1996 777,343 559,435* 100,000 320,649 1,757,427
Additions 27,250 264,606 1,334,000 69,089 1,694,945
Maturities/
amortization (366,375) (196,955) (100,000) (112,926) (776,256)
Terminations - (112,350) - (36,684) (149,034)
- --------------------------------------------------------------------------------
December 31, 1997 $ 438,218 $ 514,736* $1,334,000 $240,128 $2,527,082
- --------------------------------------------------------------------------------
</TABLE>
*Included in these year end balances are floating rate swaps with notional
amounts of $126,842, $25,545 and $30,004 for 1997, 1996 and 1995, respectively.
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<PAGE>
The schedule of maturities at December 31, 1997 for interest rate and
currency swaps which are all held for purposes other than trading is as follows:
<TABLE>
<CAPTION>
Generic Amortizing Generic
Pay Pay Pay Currency
Fixed Fixed/Floating Floating Swaps Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total notional
amounts $ 438,218 $ 514,736* $1,334,000 $ 240,128 $2,527,082
Weighted average
pay rate 7.42% 5.87% 5.93% 6.25% 6.21%
Weighted average
receive rate 5.94% 5.94% 6.26% 5.81% 6.10%
1998 Maturities $ 205,818 $ 172,168 $ 710,000 $ 130,761 $1,218,747
Weighted average
pay rate 6.99% 5.69% 5.95% 6.32% 6.13%
Weighted average
receive rate 5.93% 6.36% 6.21% 5.83% 6.15%
1999 Maturities $ 201,680 $ 99,470 $ 624,000 $ 71,722 $ 996,872
Weighted average
pay rate 8.00% 5.58% 5.91% 6.46% 6.34%
Weighted average
receive rate 5.86% 5.98% 6.31% 5.82% 6.15%
2000 Maturities $ 30,720 $ 60,538 - $ 19,486 $ 110,744
Weighted average
pay rate 6.53% 5.71% - 5.72% 5.94%
Weighted average
receive rate 6.54% 5.38% - 5.74% 5.76%
2001 Maturities - $ 45,049 - $ 18,159 $ 63,208
Weighted average
pay rate - 5.64% - 5.47% 5.59%
Weighted average
receive rate - 5.48% - 5.72% 5.55%
2002 Maturities - $112,420 - - $ 112,420
Weighted average
pay rate - 6.19% - - 6.19%
Weighted average
receive rate - 5.77% - - 5.77%
2003-2017 Maturities - $ 25,091 - - $ 25,091
Weighted average
pay rate - 7.75% - - 7.75%
Weighted average
receive rate - 5.83% - - 5.83%
- --------------------------------------------------------------------------------
</TABLE>
*Included in this amount is $126,842 of floating rate swaps. The schedule of
maturities for these swaps is $5,898, $6,242, $6,607, $3,095 and $105,000, in
1998, 1999, 2000, 2001 and 2002, respectively.
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Foreign Currency Forward Exchange Contracts
The Company enters into foreign currency forward exchange contracts to
hedge foreign exchange risk (primarily Canadian dollars and British pounds). The
US dollar equivalent of such contracts was $1.5 billion and $.9 billion at
December 31, 1997 and 1996, respectively. The Company enters into these
contracts to hedge the cash flows associated with foreign currency denominated
assets. The term of these contracts is rarely more than three years. The purpose
of the Company's foreign currency hedging activities is to protect the Company
from the risk that the eventual dollar net cash inflows resulting from these
assets will be adversely affected by changes in exchange rates.
Other Commitments and Contingencies
Certain regional office facilities and equipment of the Company are leased
with renewal options of one to five years. Rental expense for the years ended
December 31, 1997, 1996 and 1995 was $26,254, $21,247, and $22,752,
respectively. Rental expense associated with sublease rentals on operating
leases for 1997, 1996 and 1995, was $17, $51, and $165, respectively. Minimum
annual rental commitments at December 31, 1997, under these operating lease
agreements are as follows:
<TABLE>
<S> <C>
1998 $18,692
1999 16,058
2000 12,630
2001 8,379
2002 7,054
2003 and thereafter 30,543
- --------------------------------------------------------------------------------
Total $ 93,356
- --------------------------------------------------------------------------------
</TABLE>
The total of minimum rentals to be received in the future under
noncancelable subleases related to operating leases as of December 31, 1997, was
$27,454. The total of minimum rentals to be received in the future under
noncancelable subleases related to capital leases (recorded as debt) as of
December 31, 1997, was $68,325.
As part of its lending activities, the Company has entered into
noncancelable commitments to extend credit to some of its customers. As of
December 31, 1997, the Company had approximately $362,200 of such unused
commitments with a remaining term in excess of one year.
The Company may, in the ordinary course of business, become a party to
litigation involving collection matters, contract claims, and other legal
proceedings relating to the conduct of its business. In management's judgment,
the resolution of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
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17. FOREIGN OPERATIONS
The following data on other geographic areas pertain to operations that are
located outside the US (primarily Europe, Canada, the Asia/ Pacific Region,
Mexico and South America). Net income (loss) includes certain allocated
operating expenses and interest expense. Revenues between geographic areas are
not material. The increase in the net loss relating to foreign operations
resulted primarily from the allocation of restructuring costs in 1997 and the
allocation of 1996 Merger related costs in 1996.
A summary of the Company's operations by geographic area is presented
below:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Total Revenues:
<S> <C> <C> <C>
United States $ 1,518,805 $ 1,683,499 $ 1,370,672
Foreign 295,334 268,691 206,363
- --------------------------------------------------------------------------------
Total $ 1,814,139 $ 1,952,190 $ 1,577,035
- --------------------------------------------------------------------------------
Net Income (Loss):
United States $ 44,281 $ 180,433 $ 130,587
Foreign (23,274) (11,894) (3,032)
- --------------------------------------------------------------------------------
Total $ 21,007 $ 168,539 $ 127,555
- --------------------------------------------------------------------------------
At December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Total Assets:
United States $ 6,621,351 $ 6,150,074 $ 7,868,941
Foreign 2,154,544 1,942,438 1,672,318
- --------------------------------------------------------------------------------
Total $ 8,775,895 $ 8,092,512 $ 9,541,259
- --------------------------------------------------------------------------------
</TABLE>
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REPORT OF MANAGEMENT
--------------------
Management is responsible for the preparation, integrity and objectivity of
the financial statements and all other financial information included in this
report. Management is also responsible for maintaining a system of internal
controls as a fundamental requirement for the operational and financial
integrity of results.
The financial statements, which reflect the consolidated accounts of AT&T
Capital Corporation and its Subsidiaries, and other financial information shown
were prepared in conformity with generally accepted accounting principles.
Estimates included in the financial statements were based on judgments of
qualified personnel.
To maintain its system of internal controls, management carefully selects
key personnel and establishes the organizational structure to provide an
appropriate division of responsibility. We believe it is essential to conduct
business affairs in accordance with the highest ethical standards as set forth
in the Company's Guide to Business Conduct. These guidelines and other
informational programs are designed and used to ensure that policies, standards,
and managerial authorities are understood throughout the organization. AT&T
Capital's Business Controls Group, monitors compliance with the system of
internal controls by means of an annual plan of internal audits. On an ongoing
basis, the system of internal controls is reviewed, evaluated and revised as
necessary in light of the results of constant management oversight, internal and
independent audits, changes in the Company's business and other conditions.
Management believes that the system of internal controls, taken as a whole,
provides reasonable assurance that (1) financial records are adequate and can be
relied upon to permit the preparation of financial statements in conformity with
generally accepted accounting principles, and (2) access to assets occurs only
in accordance with management's authorizations.
During 1997, the Audit Committee of the Board of Directors met periodically
with management, AT&T Capital's Business Controls Group and the independent
auditors to review the manner in which these groups of individuals are
performing their responsibilities and to carry out the Audit Committee's
oversight role with respect to auditing, internal controls and financial
reporting matters. Periodically, the independent auditors met privately with the
Audit Committee. Both the Business Controls Group and the independent auditors
had access to the Audit Committee and its individual members at any time.
As a result of the Newcourt Acquisition, the Board of Directors assumed the
duties and responsibilities previously performed by the Audit Committee.
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The 1997 financial statements have been audited by Arthur Andersen LLP,
Independent Public Accountants and the 1996 and 1995 financial statements have
been audited by Coopers & Lybrand L.L.P. Their audits were conducted in
accordance with generally accepted auditing standards and their reports follow.
Steven K. Hudson
Chief Executive Officer
Daniel A. Jauernig
Group President and
Chief Financial Officer
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareowner of AT&T Capital Corporation:
We have audited the accompanying consolidated balance sheet of AT&T Capital
Corporation and Subsidiaries at December 31, 1997, and the related consolidated
statements of income, changes in shareowners' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AT&T Capital Corporation and
Subsidiaries at December 31, 1997, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 11, 1998
(except with
respect to the
matter discussed
in Note 7, as to
which the date is
March 20, 1998)
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<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Shareowners of AT&T Capital Corporation:
We have audited the accompanying balance sheet of AT&T Capital Corporation
and Subsidiaries at December 31, 1996 and the related consolidated statements of
income, changes in shareowners' equity, and cash flows for each of the two years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AT&T Capital
Corporation and Subsidiaries at December 31, 1996, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles in the United States.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
March 6, 1997
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On March 4, 1998, the Company's Board of Directors dismissed Arthur
Andersen LLP as the Company's independent public accountants and appointed Ernst
& Young LLP to serve as the Company's independent public accountants for the
year 1998. Arthur Andersen LLP will continue to serve as the Company's
independent accountants for 1997. There have been no disagreements between the
Company and Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement(s) would have caused Arthur Andersen LLP to make reference to the
subject matter of such disagreements in connection with its auditors report.
On February 12, 1997, the Audit Committee of the Company's Board of
Directors (with the concurrence of the Board of Directors) dismissed Coopers &
Lybrand L.L.P. as the Company's independent public accountants and appointed
Arthur Andersen LLP to serve as the Company's independent public accountant for
the year 1997. There were no disagreements with Coopers & Lybrand L.L.P. on any
accounting or financial disclosure during the two fiscal years preceding
February 12, 1997.
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<PAGE>
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
DAVID F. BANKS. Mr. Banks has been Chairman of the Board of the Company
since January 1998. Prior to that he was Chief Executive Officer of the Company
from May 1997 through December 1997. From 1995 to May 1997 he was Chief
Executive Officer of Penna Holdings plc, a United Kingdom public company
specializing in provision of human resources services. Prior to that he was
Finance Director of General Atlantic Group Ltd., a privately held industrial
holding company based in San Francisco, California, from 1991 to 1995. In
addition, Mr. Banks is Chairman of the Board of Newcourt Credit Group Inc. and
a director of Duty Free Shoppers, Argent plc and the K&J Coal Company. Age: 55.
Date First Elected: October 1996.
STEVEN K. HUDSON. Mr. Hudson has been the Company's Chief Executive
Officer and a member of the Board of Directors since January 1998. Mr. Hudson
is also Newcourt's Chief Executive Officer and was its founding principal. He
established Newcourt in 1984 and since that time, has provided strategic
direction to Newcourt. He is a member of the Board of Directors of AGRA Inc.,
the Royal Ontario Museum Foundation and the St. Joseph's Health Centre
Foundation of Toronto. He is a member of the Executive Committee of the
Canadian Finance and Leasing Association and Director of the Foundation for
Leasing Education. Age: 39. Date First Elected: January 1998.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The business of the Company is managed under the direction of the Board of
Directors. The Board of Directors has also established one Committee to devote
attention to specific subjects and to assist it in the discharge of its
responsibilities. The functions of this Committee and its current members are
described below.
The COMPENSATION COMMITTEE recommends to the Board the compensation arrangements
for, and grants of awards and incentive payments to, certain of the
Company's senior officers and management; considers matters related to
management development and succession; administers certain of the Company's
compensation plans; periodically reviews the competitive position of the
Company's total compensation relative to the Company's peers and competitors;
approves aggregate award of stock options or other equity awards to be granted
to the Company's members; approves certain employment agreements involving the
Company's members; and approves certain benefit plans of the Company and its
subsidiaries. The members of the Compensation Committee are Messrs. Banks
(Chairman) and Hudson.
EXECUTIVE OFFICERS
Executive officers of the Company serve at the discretion of the Board
of Directors. No executive officer of the Company (other than Mr. Banks) has a
written employment or noncompetition agreement with the Company (see page 102
for additional information regarding "Employment, Change in Control and
Termination Arrangements"). The executive officers of the Company consist of the
following ten officers: Messrs. David F. Banks, Steven K. Hudson, Paul Currie,
Michael A. DeBernardi, Daniel A. Jauernig, David D. McKerroll, Bradley D.
Nullmeyer, Borden D. Rosiak, David J. Sharpless and Glenn A. Votek. Information
regarding Messrs. Banks and Hudson, Chairman of the Board and Chief Executive
Officer of the Company, respectively, is set forth above under "Directors."
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Paul Currie, 39, has served as Executive Vice President of the Company
since January 1998. He has also served as an Executive Vice President of
Newcourt since February 1998. From 1989 to 1997 he was a partner with Coopers &
Lybrand in the Financial Advisory Services Group.
Michael A. DeBernardi, 43, has served as Executive Vice President - Chief
Credit Officer of the Company since January 1998. From 1985 to January 1998, Mr.
DeBernardi was Vice President-Chief Credit Officer of the Company. He is also a
director and Chairman of the Audit Committee of Oritani Savings Bank, SLA.
Daniel A. Jauernig, 32, is a Group President and Chief Financial Officer
of the Company. In addition, Mr. Jauernig is also President and Chief Financial
Officer of Newcourt Services. From 1991 to January 1998 Mr. Jauernig was
Treasurer of Newcourt.
David D. McKerroll, 38, has served as a Group President of the Company
since January 1998. In addition, Mr. McKerroll is also President of Newcourt
Capital. Having joined Newcourt in 1987 Mr. McKerroll was one of Newcourt's
founding partners. From 1996 to 1998, Mr. McKerroll served as an Executive Vice
President of Newcourt and from 1990 to 1996 he served as Senior Vice President,
Corporate Division of Newcourt.
Bradley D. Nullmeyer, 38, has served as a Group President of the Company
since January 1998. In addition, Mr. Nullmeyer is also President of Newcourt
Financial. Having joined Newcourt in 1986, Mr. Nullmeyer was one of Newcourt's
founding partners. From 1996 to 1998, Mr. Nullmeyer served as an Executive Vice
President of Newcourt and from 1990 to 1996 he served as Senior Vice President
and Chief Operating Officer of Newcourt.
Borden D. Rosiak, 51, has served as an Executive Vice President of the
Company since January 1998. From 1994 to 1998 Mr. Rosiak was Executive Vice
President and Chief Financial Officer of Newcourt. Prior to joining Newcourt,
Mr. Rosiak served as Chief Financial Officer of Confederation Life Insurance
Company from 1992 to 1994; in August 1994 Confederation Life Insurance Company
was placed into insolvency.
David J. Sharpless, 47, has served as Executive Vice President -
International of the Company since January 1998. Mr. Sharpless is also Deputy
Chairman of Newcourt and oversees the activities of Newcourt's international
unit. Mr. Sharpless also serves as Chairman of the Board of Dell Financial
Services Inc. From 1982 to 1997, Mr. Sharpless was a senior partner with Blake,
Cassels and Graydon.
Glenn A. Votek, 39, has been Executive Vice President and Treasurer of the
Company since January 1998. From October 1995 to January 1998 Mr. Votek was Vice
President and Treasurer of the Company and from 1991 to 1995 he served in a
number of capacities within the treasury group of the Company.
Item 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the past three
fiscal years to the Company's CEO, the four most highly compensated executive
officers serving as such on December 31, 1997 (other than the CEO)
97
<PAGE>
<PAGE>
and two former executive officers who would have been among the four most highly
compensated executive officers had they not ceased serving as executive officers
in September and December 1997, respectively.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------------------- --------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------------- --------------------------------------------
------------------------------------------- --------------------------------------------
Awards Payouts
------------------------------------------- --------------------------------------------
- --------------------- ------ ----------- ------------ ---------- ---------- ---------- ------- -----------------
Name and Principal Year Salary Bonus Other Restricted Securities LTIP All Other
Position ($) ($) Annual Stock Underlying Payouts Compensation
Compensation Award(s) Options(#) ($) ($)(3)
($)(1) ($)(2)
- --------------------- ------ ----------- ------------ ---------- ---------- ---------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David F. Banks, 1997 369,863 937,500 0 0 150,000 0 0
Chief Executive 1996 N/A N/A N/A N/A N/A N/A N/A
Officer 1995 N/A N/A N/A N/A N/A N/A N/A
Charles D. Van 1997 325,000 0 6,889 0 0 0 86,159
Sickle, 1996 305,750 346,900 6,889 0 195,000 445,952 4,424,479
Group President 1995 284,344 346,900 7,594 0 10,500 0 46,684
Mani A. Sadeghi, 1997 279,167 115,000 6,889 0 0 0 68,421
Group President 1996 206,917 178,530 3,100 0 145,000 1,483,886
1995 182,546 178,530 3,100 0 4,000 17,968
James S. Tenner 1997 223,950 96,299 3,100 0 0 0 45,539
Strategic Business 1996 195,367 133,609 3,100 0 145,000 269,172 2,330,979
Leader-AT&T Capital 1995 176,648 128,863 3,100 0 1,500 0 35,206
Leasing Services
Ramon Oliu, Jr., 1997 218,750 120,000 21,472 0 0 0 48,221
Senior Vice 1996 154,583 118,967 3,100 0 95,000 41,200 1,829,583
President and Chief 1995 140,000 118,967 663 0 1,000 0 29,545
Financial Officer
Thomas C. Wajnert,
Former Chairman of 1997 625,000 375,000 6,889 0 0 0 8,349,000
the Board 1996 553,625 677,808 6,889 0 598,900 796,936 10,627,954
1995 502,079 677,808 11,718 0 60,000 218,228 103,935
Ruth A. Morey, 1997 174,521 0 7,184 0 0 0 2,933,918
Former Senior Vice 1996 247,250 266,000 7,109 0 135,000 354,038 3,170,704
President - Chief 1995 231,798 266,568 6,437 0 7,500 0 40,617
Information Officer
</TABLE>
98
<PAGE>
<PAGE>
- ---------
(1) Includes tax gross-ups for financial counseling and relocation expenses
to the named executive officers (other than Mr. Banks) and former executive
officers in the following amounts: Mr. Van Sickle, $6,889; Mr. Sadeghi, $6,889;
Mr. Tenner, $3,100; Mr. Oliu, $21,472; Mr. Wajnert, $6,889; and Ms. Morey,
$7,184.
(2) In connection with the 1998 Newcourt Acquisition, the shares held by Messrs.
Van Sickle, Sadeghi, Tenner, Oliu and Wajnert were cashed out at $17.43 per
share in the following amounts: Mr. Van Sickle, $3,693,748, Mr. Sadeghi,
$1,293,550; Mr. Tenner, $2,544,518; Mr. Oliu, $1,680,077; and Mr. Wajnert,
$9,769,706. Part of these proceeds were used to pay off the Loan made by the
Company to the named executive officers and former executive officer (see
"Indebtedness of Management" on page 104). Ms. Morey received $1,751,850 (plus
$63,263 in interest reimbursement) for the sale of her shares on September 30,
1997 to Hercules Holdings (Cayman) Limited at the time of her termination of
employment.
(3) (i) Severance in connection with termination of employment on August 25,
1997 and December 30, 1997, respectively, to the following former executive
officers: Ms. Morey, $1,214,636 and Mr. Wajnert, $2,321,226; (ii) qualifying
termination payments under the Company's Senior Executive Annual Incentive Plan
("SEAIP")" to Ms. Morey in the amount of $266,568; (iii) termination payments
under the Company's Executive Benefit Plan for the following named executive
officers: Mr. Wajnert, $5,813,336 and Ms. Morey, $1,403,134; (iv) Company
contributions to the Company's Retirement and Savings Plan and related
non-qualified plans in the following amounts: Mr. Wajnert, $186,170; Mr.
Van Sickle, $86,159; Ms. Morey, $49,580; and Mr. Sadeghi, $68,421; Mr. Tenner
$45,539 and Mr. Oliu, $48,221; (v) the dollar value of the benefit of premiums
paid for split-dollar life insurance policies (Mr. Wajnert, $28,269).
The following table sets forth the number of shares of the Company's Common
Stock subject to stock options granted to the individuals listed in the Summary
Compensation Table during 1997, together with related information.
99
<PAGE>
<PAGE>
OPTION GRANTS IN 1997
Individual Grants
--------------------------------------------------
<TABLE>
<CAPTION>
Number of Potential Realizable
Securities Percent of Value at Assumed
Underlying Total Options Exercise Annual Rate of Stock
Options Granted to or Base Price Appreciation
Granted Employees in Price Expiration for Option Term(3)
Name (#)(1) Fiscal Year(2) ($/Sh) Date 5%($) 10%($)
- ------ --------- -------------- ------ ---- ----- ------
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David F. Banks
150,000 53.590% $16.48 5/30/08 1,437,347 3,752,982
Charles D. Van Sickle
0 0.000 N/A N/A N/A N/A
Mani A. Sadeghi
0 0.000 N/A N/A N/A N/A
James S. Tenner
0 0.000 N/A N/A N/A N/A
Ramon Oliu, Jr.
0 0.000 N/A N/A N/A N/A
Thomas C. Wajnert
0 0.000 N/A N/A N/A N/A
Ruth A. Morey.......
0 0.000 N/A N/A N/A N/A
</TABLE>
- ---------
(1) In connection with the 1998 Newcourt Acquisition, all of the vested options
held by the named executive officers and former executive officer were cashed
out in the following amounts: Mr. Banks, $142,500; Mr. Van Sickle, $289,770; Mr.
Sadeghi, $215,470; Mr. Tenner, $215,470; Mr. Oliu, $141,170; and Mr. Wajnert,
$1,486,000. Unvested options (other than Mr. Wajnert's, which were forfeited)
were converted into restricted shares of Newcourt common stock and vest over a
three year period subject to the following schedule: 25% in year 1, 25% in year
2, and 50% in year 3. As a result of the termination of employment of Ms. Morey,
all options held by her were forfeited.
(2) The indicated percentages represent the aggregate options to purchase the
Company's Common Stock granted to the named executive officers and former
executive officers expressed as a percentage of the aggregate options to
purchase the Company's Common Stock granted to all members of the Company and
its subsidiaries in 1997.
(3) The 5 and 10 percent growth rates are set forth in accordance with the rules
of the Securities and Exchange Commission. Because the exercise price for such
options equals the market price of the Common Stock on the date of grant, no
gain to the executives is possible without an increase in the stock price, which
increase would benefit the stockholders as a whole. Zero growth in the stock
price will result in zero realizable value to the executive. The 5 and 10
percent growth rates are intended for illustration only and are not intended to
be predictive of future growth, if any; the actual value, if any, that may be
realized by any executive will depend on
100
<PAGE>
<PAGE>
the value of the Common Stock on the date of exercise. At present,
there is no public market for the Common Stock.
The following table sets forth the number of shares of the Company's Common
Stock subject to stock options exercised by the individuals listed in the
Summary Compensation Table during 1997, together with related information, and
the value of unexercised options.
AGGREGATED COMPANY OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying Unexercised
Unexercised in-the-Money
Options at Options at
Fiscal Year-End(#) Fiscal Year-End($)(2)
Shares -----------------------------------------
Acquired on Exercisable/ Exercisable/
Name Exercise Value Unexercisable Unexercisable
(#)(1) Realized($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David F. Banks 0 0 150,000 142,500
0 0
Charles D. Van Sickle0 0 39,000 289,770
156,000 1,159,080
Mani A. Sadeghi......0 0 29,000 215,470
116,000 861,880
James S. Tenner 0 0 29,000 215,470
116,000 861,880
Ramon Oliu, Jr. 0 0 19,000 141,170
76,000 564,680
Thomas C. Wajnert....0 0 200,000 1,486,000
0 0
Ruth A. Morey 0 0 0 0
</TABLE>
0 0
(1) See Footnote 2, clause (i) of the Summary Compensation Table on page.
(2) In accordance with the terms of the applicable stock option agreements
pursuant to which the options in the table were granted, a professional
appraisal firm determined that the fair market value of the Common Stock as
of June 30, 1997 was $12.80 per share (on a fully diluted basis).
Such appraisal assumed, as required by the stock option agreements, that the
value would not be affected by any discount attributable to the illiquidity
of the Common Stock or the fact that any shares of Common Stock may
constitute a majority interest in the Company or any premium attributable to
any special rights of any stockholder with respect to its shares of Common
Stock. The valuation analysis conducted by the valuation firm was based upon
a number of other assumptions with respect to industry performance, general
business, financial, market and economic conditions and other matters, many
of which are beyond the control of the Company. It did not purport to be an
appraisal or to reflect the prices at which the Company might actually be
sold or the prices at which any securities may trade at the present time or
at any time in the future. Subsequent to the date of such appraisal, the
Company entered into a stock purchase agreement in connection with the
Newcourt Acquisition (the "Stock Purchase Agreement"). Options were valued
at $17.43 per share, the value at which the Common Stock was purchased by
Newcourt on January 12, 1998 pursuant to the Stock Purchase Agreement.
DEFINED BENEFIT PLAN RETIREMENT BENEFITS
The Company has two nonqualified pension plans, effective January 1, 1994, in
which Mr. Tenner is the only named executive officer who participates: the AT&T
Capital Corporation Executive Benefit Plan ("EBP") and the AT&T Capital
Corporation Supplemental Executive Retirement Plan ("SERP").
101
<PAGE>
<PAGE>
Under the EBP, a participant's benefit equals 40% of "Final Pay" (as defined in
the EBP), less benefits provided under all other qualified and non-qualified
sources from both AT&T and the Company (including the SERP described below,
subject to reduction if benefits commence before age 60).
Under the SERP, certain executives will be provided with supplemental
retirement benefits to ease the transition from coverage under the AT&TMPP (as
such term is defined below) to coverage under the Company's new defined
contribution plan.
The EBP and the SERP are considered "unfunded" plans under the Employee
Retirement Income Security Act of 1974, as amended; however, the Company has
made a contribution to a rabbi trust to satisfy its obligations under the EBP.
Through December 31, 1993, Messrs. Wajnert and Van Sickle, and Ms. Morey,
participated in the AT&T Management Pension Plan ("AT&TMPP"), a non-contributory
pension plan which covers all management employees, including executive
officers, of AT&T and certain of its affiliates.
Mr. Wajnert is also covered by a supplemental AT&T Mid-Career Pension Plan. The
plan provides additional pension credits equal to the difference between age 35
and their maximum possible years of service attainable at age 65, but not to
exceed actual net credited service, at approximately one-half the rate of the
AT&TMPP.
Messrs. Wajnert and Van Sickle and Ms. Morey ceased to participate in the
above-mentioned pension plans effective January 1, 1994. Their accrued annual
pension amounts under these plans are $105,660, $45,799, AND $21,003,
respectively. Pensions will be payable to each of them when each reaches age 65.
EMPLOYMENT, CHANGE IN CONTROL AND TERMINATION ARRANGEMENTS
Mr. Banks' employment with the Company commenced on May 30, 1997 and terminates
on the earlier of (i) May 30, 1998 or (ii) the termination of Mr. Banks'
employment pursuant to the terms of the Employment Agreement dated as of May 30,
1997 between the Company and Mr. Banks (the "Employment Agreement"). The
Employment Agreement provides for a base salary of $625,000 per year (subject to
increases as may be approved by the Board from time to time), and an annual
incentive bonus for 1997 in an amount between $312,500 and $937,500 and for
1998 a target annual incentive of 60% of base salary. The agreement also
provides for the grant in 1997 of options to purchase 150,000 shares of Company
stock. Of these options, all of which were immediately vested upon grant (See
"Option Grants in 1997" table on page 100).
Upon his termination of employment, Mr. Banks would be entitled to the product
of (i) the quotient of (a) the excess of (1) 180 over (2) the number of days of
notice provided prior to termination, divided by (b) 365, multiplied by (ii) the
base salary.
On January 12, 1998, Mr. Banks and the Company mutually agreed to terminate his
Employment Agreement with the Company in order to replace such agreement with a
New Employment Agreement between Mr. Banks and Newcourt.
Pursuant to an employment agreement dated September 30, 1996 between Mr. Wajnert
and Antigua Acquisition Corporation, as amended, Mr. Wajnert will continue to
provide advisory services to the Company (i.e., general consulting advice
regarding equipment leasing and finance, strategy, markets and related issues)
commencing December 31, 1997 for which he will be paid fees according to the
following schedule: 24 equal monthly payments aggregating $3,049,959 commencing
on January 30, 1998; a payment of $1,478,570 on January 2, 1999; and a payment
of $1,478,570 on January 2, 2000.
102
<PAGE>
<PAGE>
The SEAIP, LTIP and the EBP contain certain provisions which become operative
upon a "Sale of Control" (as defined in such plans). The Company has also
adopted a 1996 Leadership Severance Plan ("1996 LSP") in which the named
executives participate, pursuant to which benefits may become payable on certain
terminations of employment prior to and following a change in control (as
defined in the 1996 LSP).
In the event of a "Qualifying Termination" under the SEAIP, each participant in
the SEAIP becomes vested with the right to receive a cash award for that year
equal to the higher of (i) 110% of that participants' target incentive, if any,
and (ii) such participants' cash award for the immediately preceding year.
The EBP provides for 100% accelerated vesting for the named executives and
former executive upon the occurrence of (i) a change in control of the Company
or (ii) the participant's termination of employment (other than a "Nonqualifying
Termination" as defined in the EBP).
Under the 1996 LSP, in the event of (x) a termination of employment as a result
of a reduction in force, change in operations, facility relocation or closing or
other job elimination or (y) a "Qualifying Termination" of employment prior to
the second anniversary of the Closing Date or "Other Eligible Termination" in
connection with a Change in Control (a "RIF Termination"), each of the named
executive officers (other than Mr. Banks) would receive severance benefits equal
to (i) the greater of (A) 2 weeks compensation for each full year of continuous
service and (B) 200% of Final Annual Pay and (ii) 135% of the premium which
would be required to maintain "COBRA" continuing medical and dental coverage for
24 months (the "continuation period"). If the named executive's employment is
terminated by the Company (other than as a result of a RIF Termination, cause,
disability or retirement prior to the second anniversary of the Closing Date or
"Other Eligible Termination"), the executive would receive severance benefits
equal to (i) the greater of (A) one weeks compensation for each full year of
continuous service and (B) 150% of Final Annual Pay and (ii) 135% of an 18-month
continuation period "COBRA" premium.
103
<PAGE>
<PAGE>
Additional benefits upon severance include continued basic life insurance and
supplemental life insurance (at the executive's cost) for the relevant
continuation period. By executing a release of claims, the executive may receive
an enhanced severance payment equal to 20% of a severance payment. If any
payments from the Company under the 1996 LSP or otherwise, would be subject to
an excise tax under Section 4999 of the Internal Revenue Code, then the named
executive would be entitled to receive an additional payment so that he would
retain an amount of such payments as if the excise tax had not applied.
INDEBTEDNESS OF MANAGEMENT
Each of the individuals named in the Summary Compensation Table (except Mr.
Banks) is indebted to the Company pursuant to notes originally executed under
the LSPP or the 1993 Long Term Incentive Plan ("1993 LTIP"). Under the LSPP or
1993 LTIP, each of the named executive officers, except Messrs. Banks and
Sadeghi, was required to purchase shares of Common Stock with an aggregate
purchase price approximately equal to a specified multiple of such executive's
base salary.
Between 88.5% and 97.7% of the purchase price for the shares of Common Stock
purchased by a participant (the "Purchased Shares") was paid for out of the
proceeds of a seven-year full recourse loan (a "Loan") made by the Company to
such participant, with the balance of such purchase price being paid by such
participant in cash. Interest accrued on each Loan at the rate of 6% per annum
compounded annually (or, if higher, the safe harbor rate under applicable tax
laws as of the date of purchase of the Purchased Shares).
The Purchased Shares of a participant were pledged to the Company to secure
repayment of the Loan to such participant.
In connection with the 1998 Newcourt Acquisition, the shares held by Messrs. Van
Sickle, Sadeghi, Tenner, Oliu and Wajnert were cashed out at $17.43 per share in
the following amounts: Mr. Van Sickle, $3,693,748, Mr. Sadeghi, $1,293,550; Mr.
Tenner, $2,544,518; Mr. Oliu, $1,680,077; and Mr. Wajnert, $9,769,706. Part of
these proceeds were used to pay off the Loan (as defined above) made by the
Company to the named executive officers. Ms. Morey received $1,751,850 (plus
$63,263.09 in interest reimbursement) for the sale of her shares to Hercules
Holdings (Cayman) Limited at the time of her termination of employment.
The following table sets forth for each for each named executive officer and
former officers named in the Summary Compensation Table the largest aggregate
amount of his or her indebtedness to the Company (all of which is related to the
Loans referred to above) outstanding at any time during 1997 (the "Highest 1997
Loan Balance") and the amount of the indebtedness outstanding as of December 31,
1997 (the "Current Balance"):
104
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Current Balance Highest 1997
Name at December 31, 1997 Loan Balance
<S> <C> <C>
David F. Banks
Chief Executive Officer..........................N/A N/A
Charles D. Van Sickle ........................$1,172,485 $1,172,485
Group President
Mani A. Sadeghi.................................$451,686 $451,686
Group President
James S. Tenner.................................$781,645 $781,645
Strategic Business Leader-
AT&T Capital Leasing Services
Ramon Oliu, Jr..................................$557,602 $557,602
Senior Vice President
and Chief Financial Officer
Thomas C. Wajnert ........................... $3,101,148 $3,101,148
Former Chairman of the Board
Ruth A. Morey ........................................$0 $953,155
Former Senior Vice President -
Chief Information Officer
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables set forth information with respect to beneficial ownership
of the Company's Common Stock as of January 12, 1998 by each director, by each
nominee for director, by each of the five executive and two former executive
officers of the Company named in the Summary Compensation Table under Item 11
above, by all directors and executive officers of the Company as a group, and by
each person who is known to be the beneficial owner of more than 5% of the
Common Stock:
(a) Security Ownership of Beneficial Owners of More
than 5% of the Company's Voting Securities
<TABLE>
<CAPTION>
Amount of
and Nature
of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Newcourt Holdings USA, Inc. 90,337,379 100%
</TABLE>
105
<PAGE>
<PAGE>
(b) Security Ownership of Directors, Nominees for Director and Management
I. Equity Securities of AT&T Capital Corporation
<TABLE>
<CAPTION>
Amount of Percent
and Nature of Class
of Beneficial
Title of Class Name of Beneficial Owner Ownership
- ------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock David F. Banks......................0(1) (1)
Common Stock Steven K. Hudson....................0(1) (1)
Common Stock Charles D. Van Sickle...............0(1) (1)
Common Stock Mani A. Sadeghi.....................0(1) (1)
Common Stock James S. Tenner.....................0(1) (1)
Common Stock Ramon Oliu, Jr. ....................0(1) (1)
Common Stock Thomas C. Wajnert...................0(1) (1)
Common Stock Ruth A. Morey.......................0(1) (1)
</TABLE>
All directors and executive officers as a group, including the above.(1)
- ---------
(1) In connection with the 1998 Newcourt Acquisition, all of the shares
outstanding and held by the named executive officers (except for Ms. Morey
who sold her shares on September 30, 1997) were sold to Hercules Holdings
(Cayman) Limited. on January 12, 1998, Hercules Holdings (Cayman) Limited
sold all of the shares outstanding to Newcourt Credit Group Inc. which in
turn transferred such shares to Newcourt Holdings USA, Inc.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information is set forth under the caption "Executive Compensation".
106
<PAGE>
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of the report:
(1) Financial Statements: Page
Consolidated Balance Sheets 48
Consolidated Statements of Income 49
Statements of Changes
in Shareowners' Equity 50
Consolidated Statements of Cash Flows 51
Notes to the Consolidated Financial
Statements 54
Report of Management 91
Report of Independent Public Accountants -
Arthur Andersen LLP 93
Report of Independent Auditors -
Coopers & Lybrand L.L.P. 94
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
Financial statement schedules other than the one listed above
are omitted because the required information is included in
the financial statements or notes thereto or because of the
absence of conditions under which they are required.
Report of Independent Public Accountants - Arthur Andersen LLP
Report of Independent Auditors - Coopers & Lybrand LLP
(3) Exhibits:
Exhibit
Number
2. Certificate of Merger, filed October 1, 1996
3(a). Restated Certificate of Incorporation of the registrant is
incorporated by reference to Exhibit 3(i) of the registrant's
Current Report on Form 8-K [No. 1-11237] dated October 1,
1996, filed with the Securities and Exchange Commission.
3(b). Amended and Restated By-laws of the registrant is incorporated
by reference to Exhibit 3(ii) of the registrant's Current
Report on Form 8-K [No. 1-11237] dated October 1, 1996, filed
with the Securities and Exchange Commission.
107
<PAGE>
<PAGE>
4(a). Indenture dated as of July 1, 1993 between the registrant and
Chemical Bank, Trustee (the "Indenture") is incorporated by
reference to Exhibit 4A of the registrant's Registration
Statement on Form S-3 [No. 33-49671] filed with the Securities
and Exchange Commission.
4(b). First Indenture Supplement dated as of June 24, 1994, to the
Indenture is incorporated by reference to Exhibit 4A-2 of the
registrant's Registration Statement on Form S-3 [No.33-54359]
filed with the Securities and Exchange Commission.
4(c). Instruments other than described above in 4(a) and 4(b) that
define the rights of holders of long-term debt of the
registrant and all of its consolidated subsidiaries, are
omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
The registrant hereby agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon
request.
4(d). Second Indenture Supplement dated as of January 10, 1997, to
the Indenture incorporated by reference to Exhibit 4A-3 of the
registrant's Registration Statement on Form S-3 [No. 33-
18367] filed with the Securities and Exchange Commission.
10(a). Operating Agreement between the registrant and AT&T dated as
of June 25, 1993 is incorporated by reference to Exhibit 10.1
of the registrant's Registration Statement on Form S-1 [No.
33-49605] filed with the Securities and Exchange Commission.
10(b). First Amendment to Operating Agreement between the registrant
and AT&T dated January 5, 1995 is incorporated by reference to
Exhibit 10(b) of the registrant's Annual Report on Form 10-K
[No. 1-11237] for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
10(c). Intercompany Agreement between the registrant and AT&T dated
as of June 25, 1993 is incorporated by reference to Exhibit
10.2 of the registrant's Registration Statement on Form S-1
[No. 33-49605] filed with the Securities and Exchange
Commission.
10(d). License Agreement between the registrant and AT&T dated as of
June 25, 1993 is incorporated by reference to Exhibit 10.3 of
the registrant's Registration Statement on Form S-1 [No. 33-
49605] filed with the Securities and Exchange Commission.
10(e). Registration Rights Agreement between the registrant and AT&T
dated as of June 25, 1993 is incorporated by reference to
Exhibit 10.4 of the registrant's Registration Statement on
Form S-1 [No. 33-49605] filed with the Securities and Exchange
Commission.
10(f). Tax Agreements between the registrant and AT&T dated as of
June 25, 1993 is incorporated by reference to Exhibit 10.5 of
the registrant's Registration Statement on Form S-1 [No.
33-49605] filed with the Securities and Exchange Commission.
108
<PAGE>
<PAGE>
10(g). AT&T Capital Corporation 1993 Long Term Incentive Plan is
incorporated by reference to Exhibit 10.9 of the registrant's
Registration Statement on Form S-1 [No. 33-49605] filed with
the Securities and Exchange Commission.
10(h). AT&T Capital Corporation 1993 Leveraged Stock Purchase Plan is
incorporated by reference to Exhibit 10.14 of the registrant's
Registration Statement on Form S-1 [No. 33-49605] filed with
the Securities and Exchange Commission.
10(i). Form of Stock Purchase Agreement and related exhibits under
the 1993 Leveraged Stock Purchase Plan is incorporated by
reference to Exhibit 10.15 of the registrant's Registration
Statement on Form S-1 [No. 33-49605] filed with the Securities
and Exchange Commission.
10(j). AT&T Capital Corporation 1993 Share Performance Incentive Plan
is incorporated by reference to Exhibit 10.17 of the
registrant's Registration Statement on Form S-1 [No. 33-49605]
filed with the Securities and Exchange Commission.
10(k). Amendment Number 1 to the 1993 Share Performance Incentive
Plan dated November 14, 1995 is incorporated by reference to
Exhibit 10(o) of the registrant's Annual Report on Form 10-K
[No. 1-11237] for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
10(l). Restructuring Agreement dated as of March 29, 1993, among the
Registrant, Old Capital, Old Credit and AT&T is incorporated
by reference to Exhibit 10.18 of the registrant's Registration
Statement on Form S-1 [No. 33-49605] filed with the Securities
and Exchange Commission.
10(m). AT&T Capital Corporation 1993 Employee Compensation Adjustment
Plan is incorporated by reference to Exhibit 10.21 of the
registrant's Registration Statement on Form S-1 [No. 33-49605]
filed with the Securities and Exchange Commission.
10(n). AT&T Capital Corporation 1993 Financial Counseling Plan is
incorporated by reference to Exhibit 10.22 of the registrant's
Registration Statement on Form S-1 [No.33-49605] filed with
the Securities and Exchange Commission.
10(o). AT&T Capital Corporation 1995 Annual Incentive Plan is
incorporated by reference to Exhibit 10(w) of the registrant's
Annual Report on Form 10-K [No. 1-11237] for the year ended
December 31, 1994, filed with the Securities and Exchange
Commission.
10(p). AT&T Capital Corporation 1995 Senior Executive Annual
Incentive Plan is incorporated by reference to Exhibit A of
the registrant's definitive Proxy Statement dated March 20,
1995 issued in connection with the 1995 Annual Meeting of
Stockholders.
109
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<PAGE>
10(q). AT&T Capital Corporation Executive Benefit Plan as amended and
restated effective as of December 4, 1995 is incorporated by
reference to Exhibit 10(y) of the registrant's Annual Report
on Form 10-K [No. 1-11237] for the year ended December 31,
1995, filed with the Securities and Exchange Commission.
10(r). AT&T Capital Corporation Supplemental Executive Retirement
Plan effective January 1, 1994 is incorporated by reference to
Exhibit 10(z) of the registrant's Annual Report on Form 10-K
[No. 1-11237] for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
10(s). T&T Capital Corporation Compensation Limit Excess Plan
effective January 1, 195 is incorporated by reference to
Exhibit 10(aa) of the registrant's Annual Report on Form 10-K
[No. 1-11237] for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
10(t). Amendment to the AT&T Capital Corporation Compensation Limit
Excess Plan dated October 1, 1995 is incorporated by reference
to Exhibit 10(ab) of the registrant's Annual Report on Form
10-K [No. 1-11237] for the year ended December 31, 1995, filed
with the Securities and Exchange Commission.
10(u). AT&T Capital Corporation Leadership Severance Plan effective
October 2, 1995 is incorporated by reference to Exhibit
10(ac)of the registrant's Annual Report on Form 10-K [No. 1-
11237] for the year ended December 31, 1995, filed with the
Securities and Exchange Commission.
10(v). The Agreement between the registrant and AT&T dated January 5,
1996 is incorporated by reference to Exhibit 10(ad) of the
registrant's Annual Report on Form 10-K [No. 1-11237] for the
year ended December 31, 1995, filed with the Securities and
Exchange Commission.
10(w). Lucent Technologies Operating Agreement dated as of April 2,
1996 between the Company and Lucent Technologies Inc. is
incorporated by reference to Exhibit 10(a) of the registrant's
Quarterly Report on Form 10-Q [No. 1-11237] for the Quarter
Ended March 31, 1996, filed with the Securities and Exchange
Commission.
10(x). NCR Operating Agreement dated as of May 6, 1996 between the
Company and NCR Corporation is incorporated by reference to
Exhibit 10(b) of the registrant's Quarterly Report on Form
10-Q [No. 1-11237] for the Quarter Ended March 31, 1996, filed
with the Securities and Exchange Commission.
110
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10(y). Letter Agreement dated April 2, 1996 between Lucent
Technologies Inc. and the Company regarding the applicability
of the Intercompany Agreement to Lucent Technologies Inc. is
incorporated by reference to Exhibit 10(c) of the registrant's
Quarterly Report on Form 10-Q [No. 1-11237] for the Quarter
Ended March 31, 1996, filed with the Securities and Exchange
Commission.
10(z). Letter Agreement dated April 2, 1996 between Lucent
Technologies Inc. and the Company regarding the License to Use
Lucent Name and Mark is incorporated by reference to Exhibit
10(d) of the registrant's Quarterly Report on Form 10-Q [No.
1-11237] for the Quarter Ended March 31, 1996, filed with the
Securities and Exchange Commission.
10(aa). Letter Agreement dated April 18, 1996 between NCR Corporation
and the Company regarding the applicability of the
Intercompany Agreement to NCR Corporation is incorporated by
reference to Exhibit 10(e) of the registrant's Quarterly
Report on Form 10-Q [No. 1-11237] for the Quarter Ended March
31, 1996, filed with the Securities and Exchange Commission.
10(ab). Letter Agreement dated April 18, 1996 between NCR Corporation
and the Company regarding the License to Use NCR Name and Mark
is incorporated by reference to Exhibit 10(f) of the
registrant's Quarterly Report on Form 10-Q [No. 1-11237] for
the Quarter Ended March 31, 1996, filed with the Securities
and Exchange Commission.
10(ac). AT&T Capital Corporation 1993 Long Term Incentive Plan, as
amended is incorporated by reference to the Company's Proxy
Statement dated March 19, 1996.
10(ad). Amendment to the AT&T Capital Corporation 1995 Senior
Executive Annual Incentive Plan dated October 1, 1996 is
incorporated by reference to Exhibit 10(a) of the registrant's
Quarterly Report on Form 10-Q [No. 1-11237] for the Quarter
Ended March 31, 1996, filed with the Securities and Exchange
Commission.
10(ae). Amendment to the AT&T Capital Corporation Supplemental
Executive Retirement Plan dated October 1, 1996 is
incorporated by reference to Exhibit 10(b) of the registrant's
Quarterly Report on Form 10-Q [No.1-11237] for the Quarter
Ended September 30, 1996, filed with the Securities and
Exchange Commission.
10(af). Amendment to Share Performance Award under the AT&T Capital
Corporation 1993 Long-Term Incentive Plan dated October 1,
1996 is incorporated by reference to Exhibit 10(c) of the
registrant's Quarterly Report on Form 10-Q [No. 1-11237] for
the Quarter Ended September 30, 1996, filed with the
Securities and Exchange Commission.
111<PAGE>
<PAGE>
10(ag). Amendment Number 2 to the AT&T Capital Corporation 1993 Share
Performance Incentive Plan dated October 1, 1996 is
incorporated by reference to Exhibit 10(d) of the registrant's
Quarterly Report on Form 10-Q [No. 1-11237] for the Quarter
Ended September 30, 1996, filed with the Securities Exchange
Commission.
10(ah). 1996 AT&T Capital Corporation Leadership Severance Plan
effective October 1, 1996 is incorporated by reference to
Exhibit 10(e) of the registrant's Quarterly Report on Form
10-Q [No. 1-11237] for the Quarter Ended September 30, 1996,
filed with the Securities and Exchange Commission.
10(ai). Employment Agreement between Antigua Acquisition Corporation
and Thomas C. Wajnert dated September 30, 1996 is incorporated
by reference to Exhibit 10(f) of the registrant's Quarterly
Report on Form 10-Q [No. 1-11237] for the Quarter Ended
September 30, 1996, filed with the Securities and Exchange
Commission.
10(aj). AT&T Capital Corporation Stock Option Agreement dated October
1, 1996 is incorporated by reference to Exhibit 10(g) of the
registrant's Quarterly Report on Form 10-Q [No. 1-11237] for
the Quarter Ended September 30, 1996, filed with the
Securities and Exchange Commission.
10(ak). AT&T Capital Corporation 1996 Long Term Incentive Plan dated
October 1, 1996 is incorporated by reference to Exhibit 10(h)
of the registrant's Quarterly Report on Form 10-Q [No. 1-
11237] for the Quarter Ended September 30, 1996, filed with
the Securities and Exchange Commission.
10(al). Credit Agreement dated as of September 16, 1996, among AT&T
Capital Corporation, the Banks Listed Herein and Morgan
Guaranty Trust Company of New York, as Agent (5-year term) is
incorporated by reference to Exhibit 10(i)of the registrant's
Quarterly Report on Form 10-Q [No. 1-11237] for the Quarter
Ended September 30, 1996, filed with the Securities and
Exchange Commission.
10(am). Credit Agreement dated as of September 16, 1996, among AT&T
Capital Corporation, the Banks Listed Herein and Morgan
Guaranty Trust Company of New York, as Agent (364-day term) is
incorporated by reference to Exhibit 10(j) of the registrant's
Quarterly Report on Form 10-Q [No. 1-11237] for the Quarter
Ended September 30, 1996, filed with the Securities and
Exchange Commission.
10(an). Form of first Amendment to Agreement and Plan of Merger among
AT&T Capital Corporation, AT&T Corp., Hercules Limited and
Antigua Acquisition Corporation dated August 20, 1996 is
incorporated by reference to Exhibit 10 of the registrant's
Current Report on Form 8-K [No. 1-11237], filed with the
Securities and Exchange Commission.
112
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10(ao). Amendment No. 2 to the 1996 AT&T Capital Corporation
Leadership Severance Plan effective January 17, 1997 is
incorporated by reference to Exhibit 10(ao) of the
registrant's Annual Report on Form 10-K [No. 1-11237] for the
year ended December 31, 1996, filed with the Securities and
Exchange Commission.
10(ap). 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 is incorporated by
reference to Exhibit 10(a) of the registrant's Quarterly
Report on Form 10-Q [No. 1-11237] for the Quarter Ended June
30, 1997, filed with the Securities and Exchange Commission.
10(aq). Letter Agreement dated as of December 29, 1997 between and
among the registrant and Thomas C. Wajnert covering the mutual
agreement of the termination of his employment as Chairman of
the Company is incorporated by reference to Exhibit 10 of the
registrant's Current Report on Form 8-K [No. 1-11237], dated
January 5, 1998, filed with the Securities and Exchange
Commission.
10(ar). Employment Agreement dated as of May 30, 1997 between the
registrant and David F. Banks is incorporated by reference to
Exhibit 10(b) of the registrant's Quarterly Report on Form
10-Q [No. 1-11237] for the Quarter Ended June 30, 1997, filed
with the Securities and Exchange Commission.
10(as). Stock Purchase Agreement dated as of November 17, 1997, among
the Company, Newcourt, Hercules Holdings (Cayman) Limited and
other selling stockholders of the Company is incorporated by
reference to Exhibit 99. A) of the registrant's Current Report
on Form 8-K [No. 1-11237], dated November 19, 1997 (as amended
on the Company's Current Report on Form 8-K/A dated February
11, 1998), filed with the Securities and Exchange Commission.
10(at). Support Agreement dated February 9, 1998 between Newcourt
Credit Group Inc. and AT&T Capital Corporation is incorporated
by reference to Exhibit 10(a) of the registrant's Current
Report on Form 8-K [No. 1-11237], dated February 9, 1998 (as
amended on the Company's Current Report on Form 8-K/A dated
February 18, 1998), filed with the Securities and Exchange
Commission.
10(au). Guarantee dated February 20, 1998 made by AT&T Capital
Corporation is incorporated by reference to Exhibit 10 of the
registrant's Current Report on Form 8-K [No. 1-11237], dated
February 20, 1998, filed with the Securities and Exchange
Commission.
10(av). Financial Services Agreement dated as of March 9, 1998
between Lucent Technologies Inc., a Delaware Corporation and
Newcourt Credit Group Inc., an Ontario Corporation.
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
113
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<PAGE>
COMMISSION IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE
SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
12. Computation of Ratio of Earnings to Fixed Charges
16(a). Letter on change in certifying accountants - to the Securities
and Exchange Commission from Coopers & Lybrand L.L.P., dated
February 12, 1997 is incorporated by reference to Exhibit 16
of the registrant's Current Report on Form 8-K [No. 1-11237],
dated February 12, 1997, filed with the Securities and
Exchange Commission.
16(b). Letter on change in certifying accountants - to the Securities
and Exchange Commission from Arthur Andersen LLP, dated March
4, 1998 is incorporated by reference to Exhibit 16 of the
registrant's Current Report on Form 8-K [No. 1- 11237], dated
March 4, 1998, filed with the Securities and Exchange
Commission.
21. Subsidiaries of the registrant.
24(a). Powers of Attorney executed by officers and directors who
signed this report.
24(b). Certificate of Corporate Resolution.
27. Financial Data Schedule
99. AT&T Capital Corporation Excess Benefit Plan for the fiscal
year December 31, 1997
(b) Current Reports on Form 8-K: Report on Form 8-K dated November
19, 1997 was filed pursuant to Item 1 (Changes in Control of
the Registrant) and Item 5 (Other Events).
114
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<PAGE>
SCHEDULE II
AT&T CAPITAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- --------------------------------------------------------------------------------
Other
Balance at Charge-offs, Additions/ Balance
Beginning Net of (Deductions) at End
of Period Additions Recoveries (a) of Period
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Allowance for
Credit Losses:
US:
Lease Financing(1)$ 82,123 $ 62,228 $ 27,221 $ (50,993) $ 66,137
Finance
Receivables(2) 50,850 32,433 4,806 (6,908) 71,569
Foreign 36,013 19,639 10,688 (4,118) 40,846
- --------------------------------------------------------------------------------
Total $ 168,986 $114,300 $ 42,715 $ (62,019) $ 178,552
================================================================================
1996
Allowance for
Credit Losses:
US:
Lease Financing(1)$144,666 $ 69,931 $ 68,378 $ (64,096) $ 82,123
Finance
Receivables(2) 52,607 27,916 13,087 (16,586) 50,850
Foreign 25,947 15,758 4,847 (845) 36,013
- --------------------------------------------------------------------------
Total $223,220 $113,605 $ 86,312 $ (81,527) $ 168,986
==========================================================================
1995
Allowance for
Credit Losses:
US:
Lease Financing(1)$113,735 $ 66,505 $ 34,890 $ (684) $144,666
Finance
Receivables(2) 46,637 15,167 9,043 (154) 52,607
Foreign 16,056 4,542 2,837 8,186 25,947
- --------------------------------------------------------------------------------
Total $176,428 $ 86,214 $ 46,770 $ 7,348 $223,220
================================================================================
</TABLE>
(1) Shown on the balance sheet as a deduction from applicable finance assets,
primarily capital leases.
(2) Shown on the balance sheet as a deduction from finance receivables.
(a) Primarily includes transfers out of credit losses related to
receivables securitized, transfers in of reserves related to
businesses acquired and reclassifications.
115
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the 1997 consolidated financial statements of AT&T Capital
Corporation and Subsidiaries (the "Company") included on page 48 in this Form
10-K, and have issued our report thereon dated March 11, 1998 (except with
respect to the matter discussed in Note 7, as to which the date is
March 20, 1998). Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. The 1997 information included in the related
schedules listed as an exhibit on page 107 are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission rules and are not part of the basic financial
statements. These schedules have been subject to the auditing procedures applied
if the audit of the 1997 basic financial statements and, in our opinion, fairly
state in all material respects the 1997 financial data required to be set forth
therein in relation to the 1997 basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 11, 1998
116
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
Our report on the balance sheet of AT&T Capital Corporation and Subsidiaries on
December 31, 1996 and the related consolidated statements of income, changes in
shareowners' equity, and cash flows for each of the two years in the period
ended December 31, 1996 is included on page 94 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the 1996 and
1995 information included within the related financial statement schedule listed
as an exhibit on page 107 of this Form 10-K.
In our opinion, the 1996 and 1995 financial statement information referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
March 6, 1997
117
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AT&T CAPITAL CORPORATION
By Steven K. Hudson
-------------------------
Steven K. Hudson
March 25, 1998 (Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
David F. Banks Chairman
Steven K. Hudson Chief Executive Officer
Principal Financial Officer:
Daniel A. Jauernig Group President and
Chief Financial Officer
By Steven K. Hudson
-----------------------
Principal Accounting Officer: (Steven K. Hudson,
Attorney-in-fact* and
on his own behalf as
Thomas G. Adams Vice President and Director and a Principal
Controller Executive Officer).
Directors:
D.F. Banks March 30, 1998
S.K. Hudson
* by power of attorney
118
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Number
2. Certificate of Merger, filed October 1, 1996
3(a). Restated Certificate of Incorporation of the registrant is
incorporated by reference to Exhibit 3(i) of the registrant's
Current Report on Form 8-K [No. 1-11237] dated October 1,
1996, filed with the Securities and Exchange Commission.
3(b). Amended and Restated By-laws of the registrant is incorporated
by reference to Exhibit 3(ii) of the registrant's Current
Report on Form 8-K [No. 1-11237] dated October 1, 1996, filed
with the Securities and Exchange Commission.
4(a). Indenture dated as of July 1, 1993 between the registrant and
Chemical Bank, Trustee (the "Indenture") is incorporated by
reference to Exhibit 4A of the registrant's Registration
Statement on Form S-3 [No. 33-49671] filed with the Securities
and Exchange Commission.
4(b). First Indenture Supplement dated as of June 24, 1994, to the
Indenture is incorporated by reference to Exhibit 4A-2 of the
registrant's Registration Statement on Form S-3 [No.33-54359]
filed with the Securities and Exchange Commission.
4(c). Instruments other than described above in 4(a) and 4(b) that
define the rights of holders of long-term debt of the registrant
and all of its consolidated subsidiaries, are omitted pursuant
to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant
hereby agrees to furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
4(d). Second Indenture Supplement dated as of January 10, 1997, to the
Indenture incorporated by reference to Exhibit 4A-3 of the
registrant's Registration Statement on Form S-3 [No. 33- 18367]
filed with the Securities and Exchange Commission.
10(a). Operating Agreement between the registrant and AT&T dated as of
June 25, 1993 is incorporated by reference to Exhibit 10.1 of
the registrant's Registration Statement on Form S-1 [No.
33-49605] filed with the Securities and Exchange Commission.
10(b). First Amendment to Operating Agreement between the registrant
and AT&T dated January 5, 1995 is incorporated by reference to
Exhibit 10(b) of the registrant's Annual Report on Form 10-K
[No. 1-11237] for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
10(c). Intercompany Agreement between the registrant and AT&T dated as
of June 25, 1993 is incorporated by reference to Exhibit 10.2
of the registrant's Registration Statement on Form S-1 [No.
33-49605] filed with the Securities and Exchange Commission.
119
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<PAGE>
10(d). License Agreement between the registrant and AT&T dated as of
June 25, 1993 is incorporated by reference to Exhibit 10.3 of
the registrant's Registration Statement on Form S-1 [No. 33-
49605] filed with the Securities and Exchange Commission.
10(e). Registration Rights Agreement between the registrant and AT&T
dated as of June 25, 1993 is incorporated by reference to
Exhibit 10.4 of the registrant's Registration Statement on Form
S-1 [No. 33-49605] filed with the Securities and Exchange
Commission.
10(f). Tax Agreements between the registrant and AT&T dated as of June
25, 1993 is incorporated by reference to Exhibit 10.5 of the
registrant's Registration Statement on Form S-1 [No. 33-49605]
filed with the Securities and Exchange Commission.
10(g). AT&T Capital Corporation 1993 Long Term Incentive Plan is
incorporated by reference to Exhibit 10.9 of the registrant's
Registration Statement on Form S-1 [No. 33-49605] filed with the
Securities and Exchange Commission.
10(h). AT&T Capital Corporation 1993 Leveraged Stock Purchase Plan is
incorporated by reference to Exhibit 10.14 of the registrant's
Registration Statement on Form S-1 [No. 33-49605] filed with the
Securities and Exchange Commission.
10(i). Form of Stock Purchase Agreement and related exhibits under the
1993 Leveraged Stock Purchase Plan is incorporated by reference
to Exhibit 10.15 of the registrant's Registration Statement on
Form S-1 [No. 33-49605] filed with the Securities and Exchange
Commission.
10(j). AT&T Capital Corporation 1993 Share Performance Incentive Plan
is incorporated by reference to Exhibit 10.17 of the
registrant's Registration Statement on Form S-1 [No. 33-49605]
filed with the Securities and Exchange Commission.
10(k). Amendment Number 1 to the 1993 Share Performance Incentive Plan
dated November 14, 1995 is incorporated by reference to Exhibit
10(o) of the registrant's Annual Report on Form 10-K [No.
1-11237] for the year ended December 31, 1995, filed with the
Securities and Exchange Commission.
10(l). Restructuring Agreement dated as of March 29, 1993, among the
Registrant, Old Capital, Old Credit and AT&T is incorporated by
reference to Exhibit 10.18 of the registrant's Registration
Statement on Form S-1 [No. 33-49605] filed with the Securities
and Exchange Commission.
10(m). AT&T Capital Corporation 1993 Employee Compensation Adjustment
Plan is incorporated by reference to Exhibit 10.21 of the
registrant's Registration Statement on Form S-1 [No. 33-49605]
filed with the Securities and Exchange Commission.
120
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<PAGE>
10(n). AT&T Capital Corporation 1993 Financial Counseling Plan is
incorporated by reference to Exhibit 10.22 of the registrant's
Registration Statement on Form S-1 [No.33-49605] filed with the
Securities and Exchange Commission.
10(o). AT&T Capital Corporation 1995 Annual Incentive Plan is
incorporated by reference to Exhibit 10(w) of the registrant's
Annual Report on Form 10-K [No. 1-11237] for the year ended
December 31, 1994, filed with the Securities and Exchange
Commission.
10(p). AT&T Capital Corporation 1995 Senior Executive Annual Incentive
Plan is incorporated by reference to Exhibit A of the registrant's
definitive Proxy Statement dated March 20, 1995 issued in
connection with the 1995 Annual Meeting of Stockholders.
10(q). AT&T Capital Corporation Executive Benefit Plan as amended and
restated effective as of December 4, 1995 is incorporated by
reference to Exhibit 10(y) of the registrant's Annual Report on
Form 10-K [No. 1-11237] for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
10(r). AT&T Capital Corporation Supplemental Executive Retirement Plan
effective January 1, 1994 is incorporated by reference to Exhibit
10(z) of the registrant's Annual Report on Form 10-K [No. 1-11237]
for the year ended December 31, 1995, filed with the Securities
and Exchange Commission.
10(s). AT&T Capital Corporation Compensation Limit Excess Plan effective
January 1, 1995 is incorporated by reference to Exhibit 10(aa) of
the registrant's Annual Report on Form 10-K [No. 1-11237] for the
year ended December 31, 1995, filed with the Securities and
Exchange Commission.
10(t). Amendment to the AT&T Capital Corporation Compensation Limit
Excess Plan dated October 1, 1995 is incorporated by reference to
Exhibit 10(ab) of the registrant's Annual Report on Form 10-K [No.
1-11237] for the year ended December 31, 1995, filed with the
Securities and Exchange Commission.
10(u). AT&T Capital Corporation Leadership Severance Plan effective
October 2, 1995 is incorporated by reference to Exhibit 10(ac)of
the registrant's Annual Report on Form 10-K [No. 1- 11237] for the
year ended December 31, 1995, filed with the Securities and
Exchange Commission.
10(v). The Agreement between the registrant and AT&T dated January 5,
1996 is incorporated by reference to Exhibit 10(ad) of the
registrant's Annual Report on Form 10-K [No. 1-11237] for the year
ended December 31, 1995, filed with the Securities and Exchange
Commission.
121
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<PAGE>
10(w). Lucent Technologies Operating Agreement dated as of April 2, 1996
between the Company and Lucent Technologies Inc. is incorporated
by reference to Exhibit 10(a) of the registrant's Quarterly Report
on Form 10-Q [No. 1-11237] for the Quarter Ended March 31, 1996,
filed with the Securities and Exchange Commission.
10(x). NCR Operating Agreement dated as of May 6, 1996 between the
Company and NCR Corporation is incorporated by reference to
Exhibit 10(b) of the registrant's Quarterly Report on Form 10-Q
[No. 1-11237] for the Quarter Ended March 31, 1996, filed with the
Securities and Exchange Commission.
10(y). Letter Agreement dated April 2, 1996 between Lucent Technologies
Inc. and the Company regarding the applicability of the
Intercompany Agreement to Lucent Technologies Inc. is incorporated
by reference to Exhibit 10(c) of the registrant's Quarterly Report
on Form 10-Q [No. 1-11237] for the Quarter Ended March 31, 1996,
filed with the Securities and Exchange Commission.
10(z). Letter Agreement dated April 2, 1996 between Lucent Technologies
Inc. and the Company regarding the License to Use Lucent Name and
Mark is incorporated by reference to Exhibit 10(d) of the
registrant's Quarterly Report on Form 10-Q [No. 1-11237] for the
Quarter Ended March 31, 1996, filed with the Securities and
Exchange Commission.
10(aa). Letter Agreement dated April 18, 1996 between NCR Corporation and
the Company regarding the applicability of the Intercompany
Agreement to NCR Corporation is incorporated by reference to
Exhibit 10(e) of the registrant's Quarterly Report on Form 10-Q
[No. 1-11237] for the Quarter Ended March 31, 1996, filed with the
Securities and Exchange Commission.
10(ab). Letter Agreement dated April 18, 1996 between NCR Corporation and
the Company regarding the License to Use NCR Name and Mark is
incorporated by reference to Exhibit 10(f) of the registrant's
Quarterly Report on Form 10-Q [No. 1-11237] for the Quarter Ended
March 31, 1996, filed with the Securities and Exchange Commission.
10(ac). AT&T Capital Corporation 1993 Long Term Incentive Plan, as amended
is incorporated by reference to the Company's Proxy Statement
dated March 19, 1996.
10(ad). Amendment to the AT&T Capital Corporation 1995 Senior Executive
Annual Incentive Plan dated October 1, 1996 is incorporated by
reference to Exhibit 10(a) of the registrant's Quarterly Report on
Form 10-Q [No. 1-11237] for the Quarter Ended March 31, 1996,
filed with the Securities and Exchange Commission.
122
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<PAGE>
10(ae). Amendment to the AT&T Capital Corporation Supplemental Executive
Retirement Plan dated October 1, 1996 is incorporated by reference
to Exhibit 10(b) of the registrant's Quarterly Report on Form 10-Q
[No. 1-11237] for the Quarter Ended September 30, 1996, filed with
the Securities and Exchange Commission.
10(af). Amendment to Share Performance Award under the AT&T Capital
Corporation 1993 Long-Term Incentive Plan dated October 1, 1996 is
incorporated by reference to Exhibit 10(c) of the registrant's
Quarterly Report on Form 10-Q [No. 1-11237] for the Quarter Ended
September 30, 1996, filed with the Securities and Exchange
Commission.
10(ag). Amendment Number 2 to the AT&T Capital Corporation 1993 Share
Performance Incentive Plan dated October 1, 1996 is incorporated
by reference to Exhibit 10(d) of the registrant's Quarterly Report
on Form 10-Q [No. 1-11237] for the Quarter Ended September 30,
1996, filed with the Securities Exchange Commission.
10(ah). 1996 AT&T Capital Corporation Leadership Severance Plan effective
October 1, 1996 is incorporated by reference to Exhibit 10(e) of
the registrant's Quarterly Report on Form 10-Q [No. 1-11237] for
the Quarter Ended September 30, 1996, filed with the Securities
and Exchange Commission.
10(ai). Employment Agreement between Antigua Acquisition Corporation and
Thomas C. Wajnert dated September 30, 1996 is incorporated by
reference to Exhibit 10(f) of the registrant's Quarterly Report on
Form 10-Q [No. 1-11237] for the Quarter Ended September 30, 1996,
filed with the Securities and Exchange Commission.
10(aj). AT&T Capital Corporation Stock Option Agreement dated October 1,
1996 is incorporated by reference to Exhibit 10(g) of the
registrant's Quarterly Report on Form 10-Q [No. 1-11237] for the
Quarter Ended September 30, 1996, filed with the Securities and
Exchange Commission.
10(ak). AT&T Capital Corporation 1996 Long Term Incentive Plan dated
October 1, 1996 is incorporated by reference to Exhibit 10(h) of
the registrant's Quarterly Report on Form 10-Q [No. 1- 11237] for
the Quarter Ended September 30, 1996, filed with the Securities
and Exchange Commission.
10(al). Credit Agreement dated as of September 16, 1996, among AT&T
Capital Corporation, the Banks Listed Herein and Morgan Guaranty
Trust Company of New York, as Agent (5-year term) is incorporated
by reference to Exhibit 10(i)of the registrant's Quarterly Report
on Form 10-Q [No. 1-11237] for the Quarter Ended September 30,
1996, filed with the Securities and Exchange Commission.
123
<PAGE>
<PAGE>
10(am). Credit Agreement dated as of September 16, 1996, among AT&T
Capital Corporation, the Banks Listed Herein and Morgan Guaranty
Trust Company of New York, as Agent (364-day term) is incorporated
by reference to Exhibit 10(j) of the registrant's Quarterly Report
on Form 10-Q [No. 1-11237] for the Quarter Ended September 30,
1996, filed with the Securities and Exchange Commission.
10(an). Form of first Amendment to Agreement and Plan of Merger among AT&T
Capital Corporation, AT&T Corp., Hercules Limited and Antigua
Acquisition Corporation dated August 20, 1996 is incorporated by
reference to Exhibit 10 of the registrant's Current Report on Form
8-K [No. 1-11237], filed with the Securities and Exchange
Commission.
10(ao). Amendment No. 2 to the 1996 AT&T Capital Corporation Leadership
Severance Plan effective January 17, 1997 is incorporated by
reference to Exhibit 10(ao) of the registrant's Annual Report on
Form 10-K [No. 1-11237] for the year ended December 31, 1996,
filed with the Securities and Exchange Commission.
10(ap). 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 is incorporated by reference to Exhibit
10(a) of the registrant's Quarterly Report on Form 10-Q [No.
1-11237] for the Quarter Ended June 30, 1997, filed with the
Securities and Exchange Commission.
10(aq). Letter Agreement dated as of December 29, 1997 between and among
the registrant and Thomas C. Wajnert covering the mutual agreement
of the termination of his employment as Chairman of the Company is
incorporated by reference to Exhibit 10 of the registrant's
Current Report on Form 8-K [No. 1-11237], dated January 5, 1998,
filed with the Securities and Exchange Commission.
10(ar). Employment Agreement dated as of May 30, 1997 between the
registrant and David F. Banks is incorporated by reference to
Exhibit 10(b) of the registrant's Quarterly Report on Form 10-Q
[No. 1-11237] for the Quarter Ended June 30, 1997, filed with the
Securities and Exchange Commission.
10(as). Stock Purchase Agreement dated as of November 17, 1997, among the
registrant, Newcourt Credit Group Inc., Hercules Holdings (Cayman)
Limited and other selling stockholders of the Company is
incorporated by reference to Exhibit 99. A) of the registrant's
Current Report on Form 8-K [No. 1-11237], dated November 19, 1997
(as amended on the Company's Current Report on Form 8-K/A dated
February 11, 1998), filed with the Securities and Exchange
Commission.
10(at). Support Agreement dated February 9, 1998 between Newcourt Credit
Group Inc. and the registrant is incorporated by reference to
Exhibit 10(a) of the registrant's Current Report on
Form 8-K [No. 1-11237], dated
124
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<PAGE>
February 9, 1998 (as amended on the registrant's Current Report on
Form 8-K/A dated February 18, 1998), filed with the Securities and
Exchange Commission.
10(au). Guarantee dated February 20, 1998 made by AT&T Capital Corporation
is incorporated by reference to Exhibit 10 of the registrant's
Current Report on Form 8-K [No. 1-11237], dated February 20, 1998,
filed with the Securities and Exchange Commission.
10(av). Financial services Agreement dated as of March 9, 1998 between
Lucent Technologies Inc., a Delaware Corporation and Newcourt
Credit Group Inc., an Ontario Corporation. CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED,
AND RULE 24B-2 PROMULGATED THEREUNDER. OMITTED INFORMATION HAS
BEEN REPLACED WITH ASTERISKS.
12. Computation of Ratio of Earnings to Fixed Charges
16(a). Letter on change in certifying accountants - to the Securities and
Exchange Commission from Coopers & Lybrand L.L.P., dated February
12, 1997 is incorporated by reference to Exhibit 16 of the
registrant's Current Report on Form 8-K [No. 1-11237], dated
February 12, 1997, filed with the Securities and Exchange
Commission.
16(b). Letter on change in certifying accountants - to the Securities and
Exchange Commission from Arthur Andersen LLP, dated March 4, 1998
is incorporated by reference to Exhibit 16 of the registrant's
Current Report on Form 8-K [No. 1- 11237], dated March 4, 1998
filed with the Securities and Exchange Commission.
21. Subsidiaries of the registrant.
24(a). Powers of Attorney executed by officers and directors who signed
this report.
24(b). Certificate of Corporate Resolution.
27. Financial Data Schedule
99. AT&T Capital Corporation Excess Benefit Plan for the fiscal year
ended December 31, 1997
125
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<PAGE>
Exhibit 10 (av)
Form 10-K for 1997
File no. 1-11237
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
[EXECUTION COPY]
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FINANCIAL SERVICES AGREEMENT
DATED AS OF MARCH 9, 1998
BETWEEN
LUCENT TECHNOLOGIES INC.
A DELAWARE CORPORATION
AND
NEWCOURT CREDIT GROUP INC.
AN ONTARIO CORPORATION
----------------------------------------------------------------
<PAGE>
<PAGE>
Exhibit 10 (av)
Form 10-K for 1997
File no. 1-11237
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
FINANCIAL SERVICES AGREEMENT
FINANCIAL SERVICES AGREEMENT dated as of March 9, 1998 (this
"Agreement") between LUCENT TECHNOLOGIES INC. a Delaware corporation ("Lucent")
and NEWCOURT CREDIT GROUP INC., an Ontario corporation ("Newcourt").
WHEREAS, Newcourt is a controlling affiliate of Capital;
WHEREAS, Capital and Lucent are parties to the Intercompany
Agreement, the License Agreement, and the Operating Agreement (collectively, the
"Original Agreements") and other related agreements;
WHEREAS, it is the intention of the parties hereto that the
Original Agreements and certain other related agreements be replaced by this
Agreement;
WHEREAS, Lucent's Customers from time to time finance their
purchases of Products, making their intent to do so known to Lucent or its
Authorized Dealers;
WHEREAS, Lucent desires LTPF to provide such financing on ready
and competitive terms to enhance the sales of its Products;
WHEREAS, LTPF desires to make credit available on terms seen as
competitive by both it and Lucent and to compensate Lucent for introduction to
such Customers;
WHEREAS, Lucent desires to promote LTPF as its primary provider
of Financing Services and Ancillary Services so long as LTPF does so on ready
and competitive terms; and
WHEREAS, it is the mutual objective of the parties to this
Agreement that during the term of this Agreement: LTPF will, either through
Newcourt or one or more of its Subsidiaries or third parties acceptable to
Lucent, (i) make available to Customers of Lucent and Authorized Dealers
appropriate forms of Customer Financings for the purchase, lease or other
acquisition of Products, and otherwise provide Lucent and Authorized Dealers
with Customer Financing in the form of purchases or financings of receivables
arising from the sale, lease or other furnishing by Lucent or Authorized Dealers
of Products to Customers; (ii) make available to Authorized Dealers appropriate
forms of Dealer Financing and make available to Lucent appropriate forms of
Outsource Financing; and (iii) make available to Lucent, Customers and
Authorized Dealers, where appropriate, various types of Ancillary Services.
NOW, THEREFORE, in consideration of the mutual promises herein
set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the conditions and
upon the terms hereof, the parties hereby agree as follows:
<PAGE>
<PAGE>
2
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Agreement, the following terms will
have the following meanings, applicable both to the singular and the plural
forms of the terms defined:
"AAA" has the meaning ascribed thereto in SECTION 14.4(b).
"ADJUSTED FINANCEABLE PRODUCT SALES" has the meaning for such or
similar term in the then current Annual Operating Plan, or if no definition is
specified, means, with respect to any measurement period, the aggregate purchase
price (net of discount) paid by or on behalf of Customers to Lucent Entities or
Authorized Dealers, together with any related sales taxes and installation and
similar costs, for Financeable Products during such measurement period.
"ADJUSTED FINANCING AMOUNT" has the meaning for such or similar
term in the then current Annual Operating Plan, or if no definition is
specified, means, with respect to any measurement period, the aggregate amount
paid by NCT for Financeable Products sold by Lucent Entities during such
measurement period, together with the aggregate amount of Financings of any
related sales taxes and installation and similar costs. If during any period for
which Adjusted Financeable Product Sales are calculated there has occurred a
disposition, phase-in or an acquisition by Lucent Entities of any significant
Financeable Product line, the Adjusted Financing Amount and Adjusted Financeable
Product Sales amount with respect to such period shall be normalized in a fair
and reasonable manner.
"ADJUSTED NOTIONAL FEE BASE" shall mean the (a) Notional Fee Base
for each period during the Term minus (b) (i) *** as to the each of the first
*** consecutive Monthly Payments, or (ii) *** as to the next *** such payments,
or (iii) *** as to all subsequent such payments, as the case may be, of the ***
for such period.
"AFFILIATE" means, with respect to any Person, any other Person
that directly or indirectly controls, is controlled by or is under common
control with such Person. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to vote a majority of the securities having voting power for the
election of directors (or other Persons acting in similar capacities) of such
Person or otherwise to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise.
"AFTER-TAX BASIS" means, with respect to any payment to be
received or accrued by any Person, the amount of such payment supplemented by a
further payment or payments (which shall be payable either simultaneously with
the initial payment or, in the event that taxes resulting from the receipt or
accrual of such initial payment are not payable in the year of receipt or
accrual, at the time or times such taxes become payable) so that the sum of all
such initial and supplemental payments, after deduction of all taxes imposed by
any taxing authority (after taking into account any credits or deductions or
other tax benefits arising
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<PAGE>
3
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
therefrom to the extent such are currently utilized) resulting from the receipt
or accrual of such payments (whether or not such taxes are payable in the year
of receipt or accrual) will be equal to the initial payment to be so received or
accrued.
"AGREEMENT" has the meaning ascribed thereto in the preamble
hereto, as such agreement is amended and supplemented from time to time in
accordance with its terms.
"ALTERNATIVE FINANCING SERVICE" means a Financing offered or
provided to Lucent, Customers or Authorized Dealers by a Person (other than an
Affiliate of Lucent or NCT, or a Person that contracts with NCT to enable NCT to
indirectly provide such Financing program) that offers financings or other
services competitive with Financings or Ancillary Services offered by NCT
hereunder.
"ALTERNATIVE FINANCING SERVICE PROVIDER" means a Person which
provides Alternative Financing Services.
"ANCILLARY SERVICES" means (i) the provision of property,
casualty or similar types of insurance with respect to Products, (ii) asset
monitoring, recovery and remarketing services with respect to Products, and
(iii) any other value-added services relating to Products or Financings offered
by NCT from time to time and agreed to by the parties to be treated as Ancillary
Services for purposes of this Agreement.
"ANNUAL OPERATING PLAN" has the meaning ascribed thereto in
SECTION 12.1.
"AT&T" means AT&T Corp., a New York corporation, formerly known
as American Telephone and Telegraph Company.
"AUTHORIZED DEALER" means any Person that is authorized by BCS to
acquire Products directly or indirectly from Lucent for resale on a wholesale or
retail basis.
"BASE RATE" means as of any date, the implicit annual rate of a
Payment Stream generally applicable with respect to comparable equipment under a
comparable Finance Contract to a comparable Customer, all as determined from
time to time by LTPF in accordance with generally accepted financial principles
and in a manner consistent with the Annual Operating Plan and by reference to
LTPF's standard rates for such transactions. The Base Rate shall be calculated
in a manner consistent with the methodology used to determine the Implicit Rate.
"BCS" means the business unit of the Lucent Entities now commonly
known as Business Communications Systems, as such business may be renamed or
divided into separate divisions of Lucent Entities or consolidated with other
divisions of Lucent Entities, in which later case this Agreement shall apply to
the portion of the divisions which are continuing the BCS business.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which banking institutions in New Jersey are authorized or required
by law to be closed.
<PAGE>
<PAGE>
4
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
"BUY-OUT NOTICE" has the meaning ascribed thereto in SECTION
16.1.
"BUY-OUT OPTION" has the meaning ascribed thereto in SECTION
16.1.
"CAPITAL" means AT&T Capital Corporation, a Delaware corporation,
and its successors and permitted assigns.
***
"CEO" has the meaning ascribed thereto in SECTION 11.3(a).
"CHANGE OF CONTROL" means, with respect to a Person, the
occurrence of any of the following events: (a) the consummation of a merger or
consolidation of the Person with any other entity resulting in holders of the
Person's voting Securities receiving less than 50% of the voting Securities of
the surviving entity; (b) the sale, lease, exchange or transfer of all or
substantially all of the Person's assets; (c) the approval by the holders of the
Person's voting Securities of any plan or proposal for the liquidation or
dissolution of the Person; (d) the acquisition by any other Person of *** or
more of the outstanding voting power of the Person's Securities; or (f) a change
in a majority of the directors of the Person in any period of less than two
years, not counting persons elected or nominated by a vote of at least
two-thirds of the directors in office at the beginning of such period or whose
election or nomination was previously so approved; provided, however, that no
transaction with respect to an NCT Entity shall constitute a Change of Control
hereunder if, following such transaction, 100% of the capital stock or equity
interests in such NCT Entity is owned directly or indirectly by Newcourt.
"CODE" means the Internal Revenue Code of 1986, as amended, or
any successor Federal income tax code.
"COMMENCEMENT DATE" has the meaning ascribed thereto in SECTION
15.1(a).
"CREDIT LOSS RESERVE" means the credit loss reserve for LTPF
established from time to time by LTPF which is intended to provide for LTPF's
future expected or estimated credit losses on all Finance Contracts included
within the Old Portfolio and the New Portfolio at the time the amount of the
reserve is established. The amount of the Credit Loss Reserve shall be
established by LTPF pursuant to the Annual Operating Plan, evaluating all
relevant factors and criteria with respect thereto including the historical
performance of the Old and New Portfolio, trends and standards in the industry
for losses and reserves and all other published industry credit loss information
which is relevant to the establishment of the Credit Loss Reserve. The adequacy
of, and the method for calculating, the Credit Loss Reserve shall be evaluated
and, as necessary, adjusted by LTPF, from time to time, but in no event less
than annually.
"CUSTOMER" means any Person that is an end user of Products, and
does not include Authorized Dealers.
<PAGE>
<PAGE>
5
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
"CUSTOMER FINANCING" means any direct or indirect (i) financing
of the sale, lease or other furnishing of Products by Lucent Entities (or
Authorized Dealer) to Customers, and includes, without limitation, Finance
Contracts entered into directly with Customers and (ii) purchase or financing of
receivables arising form such sales, leases or other furnishings of Products by
Lucent Entities (or Authorized Dealer).
"CUSTOMER OUTSOURCING PROGRAM" means any program of Lucent
Entities for the acquisition, maintenance and/or operation by Lucent Entities of
telecommunications, computer, data and/or information networks or operations for
Customers and Authorized Dealers under what is generally referred to in the
industry as an outsourcing or network or systems management contract
("Outsourcing Contract") between the applicable Customer and the applicable
Lucent Entities.
"DEALER FINANCING" means any direct or indirect (i) financing of
the purchase or lease by Authorized Dealers of Products for resale or re-lease
to Customers, including, without limitation, floor planning loans and other
forms of inventory financing and (ii) provision of other types of secured loans
to such Authorized Dealers.
"DEDICATED EMPLOYEES" has the meaning ascribed thereto in SECTION
16.3(f).
"DISCOUNT RATE" means, for any Funding Date, a per annum rate
equal to (a) the Discount Rate Margin plus (b) the Weighted Average Terms
Treasury Rate.
"DISCOUNT RATE MARGIN" means, initially, *** as modified in
accordance with SECTION 3.4.
"DISCOUNT RATE PROPOSAL" has the meaning ascribed thereto in
SECTION 3.4.
"DOLLARS" and "$" mean the lawful money of the United States of
America.
***
"ESTIMATED RESIDUAL VALUE" means the estimated residual value, at
the end of the term of the Finance Contract of the Financed Product, as
determined by LTPF at the inception of the Financing in accordance with GAAP and
the Annual Operating Plan.
"FINANCE CONTRACT" means a lease, conditional sale contract,
promissory note or other financing contract, entered into between LTPF (or NCT
on behalf of LTPF) and a Customer from time to time with respect to a Financing
and any and all amendments, riders and other documents which pertain thereto.
"FINANCE MARKETING SUPPORT" has the meaning ascribed thereto in
SECTION 6.1(a).
"FINANCED PRODUCTS" means Products with respect to which
Financing has been provided.
<PAGE>
<PAGE>
6
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
"FINANCEABLE PRODUCTS" means all Products (other than consumables
or maintenance, service or similar contracts) sold to Customers within the
applicable area and marketing channel.
"FINANCING" means Customer Financing, Dealer Financing and
Outsource Financing.
***
"FINANCING SERVICES" means the offering or providing of (i)
Financings with respect to the sale or furnishing of Products and related
services by Lucent including, without limitation, leases, installment sales
contracts, conditional sales contracts and loans (whether secured or unsecured)
and (ii) any other forms of financing or extensions of credit.
"FUNDING DATE" shall have the meaning set forth in SECTION
3.2(a).
"GAAP" means generally accepted accounting principles in the
United States, consistently applied, as may be in effect from time to time.
"IMPLICIT RATE" means the annual implicit rate of return under a
Finance Contract, as calculated by LTPF utilizing (a) generally accepted
financial principles; (b) the Estimated Residual Value (the future value for
purposes of such calculation); (c) the True Product Cost (the present value for
purposes of such calculation); and (d) the Payment Stream (the payments for
purposes of such calculation).
"INFORMATION SUPPORT" has the meaning ascribed thereto in SECTION
6.1(e).
"INITIAL TERM" has the meaning ascribed thereto in SECTION
15.1(a).
"INTERCOMPANY AGREEMENT" means the Intercompany Agreement between
Capital and AT&T dated as of June 25, 1993, to the extent such agreement applies
to Lucent pursuant to a letter agreement dated as of April 2, 1996, regarding
"Applicability of Intercompany Agreement to Lucent Technologies, Inc." among
Lucent, AT&T and Capital.
"INVESTMENT BALANCE" means as of any date of determination with
respect to a Finance Contract, an amount equal to (a) all Payments due, past
due, and to become due LTPF under such Finance Contract (excluding rental taxes,
if applicable), discounted to their then net present value using the Discount
Rate for such Finance Contract as of the Funding date for such Finance Contract,
plus ***.
"LIBOR" means, for any month, a rate of interest determined on
the basis of at least two offered rates for deposits in United States dollars
for a 30 day period appearing on the Reuters Screen LIBO Page as of 11:00 a.m.
(London time) on the day that is two London business days prior to the first day
of such month. If at least two such offered rates appear on the Reuters Screen
LIBO Page, the rate with respect to the month will be the arithmetic
<PAGE>
<PAGE>
7
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
average (rounded upwards to the next 1/16th of 1%) of such offered rates. If
fewer than two offered rates appear, LIBOR in respect of that month will be
determined on the basis of the rates at which deposits in United States dollars
are offered by The Chase Manhattan Bank at approximately 11:00 a.m. (London
time) on the day that is two London business days preceding the first day of
such month to prime banks in the London interbank market for a 30 day period
commencing on the first day of such month.
"LICENSE AGREEMENT" means the License Agreement between Capital
and AT&T dated as of June 25, 1993, to the extent such agreement applies to
Lucent pursuant to a letter agreement dated as of April 2, 1996 regarding
"License to Use Lucent Name and Mark" among Lucent, AT&T and Capital.
"LOCATION SUPPORT" has the meaning ascribed thereto in SECTION
6.1(c).
"LTPF" has the meaning ascribed thereto in SECTION 2.1.
"LUCENT" has the meaning ascribed thereto in the preamble.
"LUCENT ENTITIES" means Lucent (and its successors) and all
Persons that constitute Subsidiaries of Lucent from time to time.
"LUCENT MANAGEMENT FEE" has the meaning ascribed thereto in
SECTION 4.1(a).
"LUCENT RESPONSIBILITY" has the meaning ascribed thereto in
SECTION 9.2(b).
"MAJORITY VOTE" means, with respect to actions by the Operating
Committee, *** of the *** votes which can be cast.
"MARKS" means the Lucent trade names, trademarks and service
marks specified on SCHEDULE 1.1, which shall be agreed to by the parties within
30 days of the date of this Agreement and which may be updated or modified from
time to time by mutual agreement of the parties.
"MEMBERS" means the Persons designated to serve on the Operating
Committee in accordance with SECTION 11.2(a).
"MONTHLY PAYMENT DATE" means the fifteenth calendar day of each
calendar month during the Term (except for that calendar month or portion
thereof which occurs during the Initial Term), and if such date is not a
Business Day, the next succeeding Business Day.
"NCT" shall mean Newcourt and/or one or more of its Subsidiaries
reasonably acceptable to Lucent which shall be performing under this Agreement
or provide Financing.
<PAGE>
<PAGE>
8
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
"NCT PURCHASER" means the Newcourt Entitiy through which LTPF
shall be deemed to be operating in order to most efficiently and effectively
underwrite transactions in a given country, channel or product line.
"NEW PORTFOLIO" means the Finance Contracts and related equipment
subject thereto which are originated by the Newcourt Entities through LTPF after
***.
"NEW PORTFOLIO FEE BASE" means, in any month, all New Portfolio
Proceeds realized by LTPF.
"NEW PORTFOLIO PROCEEDS" means, in any month, an amount equal to:
(a) the net present value of the Payment Stream under each Finance Contract
originated in the New Portfolio during such month, calculated as of the
applicable Funding Date for each Finance Contract, ***, minus (b) the net
present value of the Payment Stream under each such Finance Contract, calculated
as of the applicable Funding Date for each Finance Contract, utilizing ***; plus
(c) all proceeds realized by LTPF during such month from *** with respect to
Products subject to Finance Contracts included within the New Portfolio which
proceeds are in excess of the *** and which are net of all costs and expenses
incurred by LTPF in connection with such sale or other disposition ***.
"NEWCOURT" means Newcourt Credit Group Inc., an Ontario
corporation, and its successors.
"NEWCOURT ENTITIES" means Newcourt and all Persons that
constitute Subsidiaries of Newcourt from time to time.
"NEXT YEAR" has the meaning ascribed thereto in SECTION 3.4.
"NON-RENEWAL NOTICE" has the meaning ascribed in SECTION 15.1(a).
"NOTIFICATION" means all notices permitted or required to be
given to any Person hereunder. Such Notification must be given in writing and
will be deemed to be duly given on the date of delivery if delivered in person
or sent by facsimile transmission or on the earlier of actual receipt or 3
Business Days after the date of mailing if mailed by registered or certified
mail, first class postpaid, return receipt requested, to such Person, at the
last known address of such Person.
"NOTIONAL EQUITY CHARGE" means, in any month, the sum of the
following items which are properly allocable to such month:
(a) an amount equal to (i) *** of the *** for each Finance
Contract deemed to be purchased by NCT from LTPF during such month multiplied
by (ii) the *** then in effect; and
(b) an amount equal to (i) (A) the aggregate amount of all
outstanding *** as of the end of the previous month plus the aggregate amount
of all outstanding
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9
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
*** as of the end of the current month, divided by (B) 2, multiplied by (ii)
the *** then in effect.
"NOTIONAL FEE BASE" shall have the meaning set forth in SECTION
4.2.
"NOTIONAL FEE CHARGES" means, in any month, the following:
(a) all of the following expenses incurred during such month by
or on behalf of LTPF, determined in accordance with GAAP, which are properly
allocable to LTPF:
(i) ***
(ii) all credit losses of LTPF under the Old Portfolio or New Portfolio
which are in excess of the Credit Loss Reserve, and
(iii) all SG&A Expenses; plus
(b) the Notional Equity Charge for such month; plus
(c) any net increase in the Credit Loss Reserve during such
month; minus
(d) any net decrease in the Credit Loss Reserve during such
month; plus
(e) any residual value insurance premiums.
"NOTIONAL RESIDUAL EQUITY RATE" means for one year the period of
*** through ***, an annual rate of interest equal to ***, compounded monthly,
and for each succeeding one year period ending on ***, an annual rate of
interest, compounded monthly, equal to the sum of (x) the average asking yield
for U.S. Treasury Notes with maturities one year from the last day of
immediately preceding one year period, as published in The Wall Street Journal,
plus (y) *** basis points.
"NOTIONAL STREAM EQUITY RATE" means a monthly rate of interest
equal to *** during the period of *** through ***, and thereafter during each
month, a monthly rate of interest equal to (i) (a) the sum of (x) LIBOR, plus
(y) *** basis points, divided by (b) 12, or if LIBOR can not be determined prior
to the first day of the month, the parties shall equitably adjust the formula
using the Prime Rate or such other measure as the parties shall mutually agree.
"NOTIONAL THIRD PARTY DIRECT FEES" means all gross fees, income
or revenues received by LTPF for any Financings or Ancillary Services performed
by a third party financing source on behalf of LTPF or which contracted with
LTPF to provide such Financings or Ancillary Services.
"NOTIONAL THIRD PARTY INDIRECT FEES" means any net fees, income
or revenue (after all related costs , expenses and charges of Lucent Entities)
received by Lucent Entities if (i) a third party financing source is selected by
LTPF to provide Financings or Ancillary Services for a particular market channel
or geographic region or a Product line within a particular market channel or
geographic region, (ii) ***, and (iii) ***.
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10
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
"OLD PORTFOLIO" means the Old Securitized Portfolio and the Old
Unsecuritized Portfolio.
"OLD PORTFOLIO BASE RTE" means a cumulative *** return *** on
equity to Newcourt of ***, compounded monthly, with respect to the average net
book value of (a) the ***, (b) the ***, and (c) the net of any other balance
sheet accounts pertaining to the items described in clauses (a) and (b) hereof
(all as reflected on Newcourt's books maintained in accordance with GAAP without
regard to any sale, syndication or securitization of the Finance Contracts ***),
determined utilizing a notional debt to equity ratio of ***.
"OLD PORTFOLIO FEE BASE" means in any month, all Old Securitized
Portfolio Proceeds and all Old Unsecuritized Portfolio Proceeds realized by
Newcourt in excess of the Old Portfolio Base RTE.
"OLD SECURITIZED PORTFOLIO" means the Finance Contracts and any
related equipment subject thereto being serviced by Capital or its Subsidiaries
that were originated by Capital or its Subsidiaries prior to ***, and sold,
syndicated or securitized prior to such date ***.
"OLD SECURITIZED PORTFOLIO PROCEEDS" means, in any month (a) the
*** included with the Old Securitized Portfolio determined in accordance with
GAAP, plus (b) the income recognized by LTPF during such month *** of the Old
Securitized Portfolio that was sold, syndicated or securitized ***, plus (c) any
gain or loss realized by LTPF during such month in connection with *** of the
Old Securitized Portfolio, determined in accordance with GAAP, ***, plus (d) any
*** realized by LTPF during such month with respect to the Old Securitized
Portfolio, which *** shall be determined in accordance with ***.
"OLD UNSECURITIZED PORTFOLIO" means the Finance Contracts and any
related equipment subject thereto being serviced by Capital or its Subsidiaries
that were originated by Capital or its Subsidiaries prior to ***, but which are
not included within the Old Securitized Portfolio.
"OLD UNSECURITIZED PORTFOLIO PROCEEDS" means, in any month (a)
the *** included within the Old Unsecuritized Portfolio, determined in
accordance with GAAP without regard to any sale, syndication, or securitization
of such Finance Contracts; plus (b) any gain or loss realized during such month
in connection with *** of the Old Unsecuritized Portfolio, determined in
accordance with GAAP, ***.
"OPERATING AGREEMENT" means the Lucent Operating Agreement
between Capital and Lucent dated as of April 2, 1996.
"OPERATING COMMITTEE" means the Operating Committee designated in
accordance with SECTION 11.1.
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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
"ORIGINAL AGREEMENTS" has the meaning ascribed thereto in the
preamble hereto.
"OUTSOURCE FINANCING" means any direct or indirect financing
(including, without limitation, through secured loans and leases) of or with
respect to any Customer Outsourcing Program.
"OWNED AND MANAGED ASSETS" shall mean the Old Portfolio assets
and New Portfolio assets which are managed by LTPF. For purposes of this
definition, the value of portfolio assets that have been securitized will be
equal to the present value of the contracted lease or loan payments discounted
at the implicit rate of the financing.
"PARTIAL TERMINATION NOTICE" has the meaning ascribed thereto in
SECTION 15.3(a).
"PAYMENT STREAM" means the fixed monthly or periodic amounts a
Customer is required to pay under the terms of a Finance Contract and shall not
include any end of the term extension, renewal or buy-out payment.
"PERFORMANCE METRICS" means the performance metrics *** set forth
in the then current Annual Operating Plan, as modified from time to time by the
parties for the following measures of LTPF's performance: ***.
"PERMITTED GENERAL PURPOSES" means, with respect to the use of
the Marks by Newcourt Entities, the use of such Marks solely in connection with
the operations of LTPF for purposes of identifying NCT as the provider of
Financing Services or such Ancillary Services as Lucent may agree to Customers
(including, without limitation, in agreements, letterheads, brochures, building
directories, signs, computer programs, newsletters and other publications and
other forms of communication or advertising).
"PERSON" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government (and any department
or agency thereof) or other entity.
"PERSONNEL SUPPORT" has the meaning ascribed thereto in SECTION
6.1(b).
"PRIME RATE" means, for any month, the rate of interest per annum
publicly announced by The Chase Manhattan Bank as its prime rate in effect at
its principal office in New York City as of the first day of that month.
"PRODUCTS" means any products (including, without limitation,
related Software licenses, but not including real estate) and related
installation and maintenance services provided, furnished, manufactured, sold
and/or marketed by BCS which results in revenue or income to BCS, and such
additional Lucent goods or services as the parties may from time to time agree.
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12
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
"RENEWAL TERM" has the meaning ascribed thereto in SECTION 15.1.
"REPLACEMENT FUNDING AGREEMENT" has the meaning ascribed thereto
in SECTION 3.4.
"RESIDUAL INVESTMENT" means the present value, as of the Funding
Date, of the Estimated Residual Value discounted at the Implicit Rate.
"RETROACTIVE DATE" means ***.
***
"SALES SITE" means any site, office or location from which Lucent
conducts the sale or marketing of Products.
"SERVICE AREAS" has the meaning ascribed thereto in SECTION
2.3(a).
"SENIOR MANAGEMENT EXECUTIVES" has the meaning ascribed thereto
in SECTION 14.3.
***
"SG&A EXPENSES" means, with respect to any period, all expenses
or costs incurred by LTPF or allocated to LTPF from other sources (e.g., from a
Lucent Entity or Newcourt Entity) in connection with the management, operation,
promotion or administration of LTPF which are properly deductible in accordance
with GAAP as an expense for such period, including but not limited to salaries &
benefits (including commissions); bonuses; relocation expenses; travel, living
and conferences; dues and memberships; occupancy costs; professional fees; data
processing costs; telecommunications costs; operational expenses; external
administration costs (including warehousing, portfolio servicing, debt
servicing, etc.); repairs and maintenance for off-lease equipment, repossession
and restructuring charges; advertising and promotions; supplies, postage and
contributions; trustee fees; outside printing; subscriptions and memberships;
and loss on disposal of support assets.
"SIGNIFICANT ACCOUNT" means an Authorized Dealer or a Customer
that (i) has one or more Finance Contracts with an aggregate accounting net
investment balance in excess of *** (ii) has been designated by BCS as a Global
account, or (iii) has been reasonably designated by BCS as a "Significant
Account" by notice to LTPF.
"SOFTWARE" means any Product comprising intellectual property
commonly or generically known as software, together with related storage disks
and instructional and other documents, the acquisition or use of which by any
Person is customarily financed by NCT Entities.
"STANDARD DOCUMENTS" means forms of documents prepared (and
periodically revised) by NCT Entities in connection with the offering of various
types of Financings and
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13
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
Ancillary Services, including forms of leases, loan agreements, security
agreements, guarantees, financing statements and other documents appropriate for
the conducting of NCT Entities' business of providing Financing and Ancillary
Services.
"START-UP DATE" means the date on which LTPF commences
operations, which date shall be as soon as reasonably practicable following the
Commencement Date.
"SUBSIDIARY" means, with respect to any Person, any other Person
which is directly or indirectly controlled by such Person. For purposes of this
definition, "control", as applied to any Person, means the possession, directly
or indirectly, of the power to vote a majority of the securities having voting
power for the election of directors (or other Persons acting in similar
capacities) of such Person or otherwise to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"SYSTEMS SUPPORT" has the meaning ascribed thereto in SECTIONS
5.3(b) AND 6.1(d).
"TERM" means the Initial Term and any Renewal Term.
"TRANSITION PERIOD" has the meaning ascribed thereto in SECTION
15.1(b).
"TRUE PRODUCT COST" means the price shown on the invoice for the
Financed Product, including any applicable sales and similar taxes, shipping,
installation and other costs, less any down payments or capital cost reductions
made by the Customer and any discounts paid or payable to Customer.
"U.S. RATING AGENCY" means any of the following: ***.
"VIRTUAL PURCHASE PRICE" means, with respect to each Finance
Contract, the present value, as of the Funding Date, of the Payment Stream,
discounted at ***.
***
"WEIGHTED AVERAGE TERMS TREASURY RATE" means a rate equal to the
average of the asking yield for Treasury Notes with a period to maturity
equivalent to the weighted average of the original term (rounded to the nearest
month) of all Finance Contracts added to the New Portfolio on a Funding Date, as
published in The Wall Street Journal, for each Funding Date.
SECTION 1.2. CORRELATIVE MEANINGS. Capitalized terms used herein without
definition (such as "Financed") that have correlative defined terms (such as
"Financing") will have a meaning correlative to the defined term.
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14
ARTICLE II
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
LEASING VEHICLE
SECTION 2.1 LEASING VEHICLE--LTPF.
(a) NCT shall cooperate with Lucent to provide Financing Services and
Ancillary Services using the name "Lucent Technologies Product Finance" ("LTPF")
or such other name as the parties hereto may agree. LTPF shall be a division of
one or more Newcourt Entities (which is managed as provided in this Agreement)
and, for all purposes including legal, tax and accounting purposes, shall not be
a corporation, partnership, joint venture, limited liability company or any
other form of distinct legal entity separate from NCT. NCT shall maintain fair,
accurate, detailed, independent and separate books and records for purposes of
reflecting the financial status of, results of operations of, and for gauging
the business efficiency of LTPF and determining the separate fee payments to be
made by NCT to Lucent hereunder, including the provision of credit by third
parties with whom NCT contracts.
(b) Lucent and NCT shall at all times be and remain independent
contractors with respect to each other and the operation of LTPF and neither
shall have any fiduciary duty to the other as a partner, co-venturer, joint
owner or the like.
SECTION 2.2 PURPOSE. The primary purpose of NCT in operating LTPF will be to
support and enhance sales of Products by providing for its sole profit
integrated Financing Services and Ancillary Services for Customers and
Authorized Dealers in all direct and indirect marketing channels worldwide.
Financing Services and Ancillary Services will cover Products, but may also
include incidental related products and services (which may be manufactured,
marketed or sold by third parties). LTPF may engage in such other business
activities related to the purpose set forth above (including providing
additional financial products and asset management services) as are approved by
the parties.
SECTION 2.3 SCOPE OF LTPF SERVICES.
(a) LTPF shall be the select provider of Financing Services (directly or
indirectly) for the geographic areas set forth in the initial Annual Operating
Plan (each such area being a "Service Area") ***, except that initially the only
Service Areas shall be the United States and Canada.
(b) New Service Areas (i.e., geographic areas or specific channels
within geographic areas) will be added as LTPF demonstrates that it has the
ability to (i) commence providing Financing Services within the period set forth
in the Annual Operating Plan (or any proposed amendment thereto) on a ready and
competitive basis and (ii) meet the Performance Metrics for the new Service
Area. New Services Areas shall be designated or added by ***. LTPF shall be
considered for any potential new Service Area, and Lucent and Newcourt agree
that their preference is to have LTPF be the Financing Service provider for a
potential Service Area ***.
(c) If a new Service Area is added, LTPF shall meet the time
requirements set forth in the Annual Operating Plan to begin providing Financing
Services in the new Service Area and shall begin meeting the Performance Metrics
within the timeframes set forth in the Annual
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15
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
Operating Plan for the new Service Area. If LTPF fails to begin providing
Financing Services within the required time, or fails to meet the Performance
Metrics, the Service Area shall become subject to partial termination pursuant
to the provisions of SECTION 15.3.
(d) LTPF will select, for any Service Area and any market channel,
geographic region or Product line within a Service Area, the financing or
funding source best able in its opinion (and reasonably acceptable to Lucent) to
meet the service and performance requirements of Lucent.
(e) The goal of Newcourt and Lucent is that LTPF eventually have the
capability to be the worldwide provider directly and indirectly of Financing
Services for the sale of Products and that as LTPF develops these capabilities
and performs under this Agreement, more areas may be added as Service Areas.
SECTION 2.4 LOCATION. LTPF will have its administrative headquarters in New
Jersey (or such other location as the parties may agree). The parties shall
determine an suitable co-location plan with respect to the appropriate employees
of Lucent and LTPF in accordance with the primary purpose of LTPF as described
in SECTION 2.2 above.
ARTICLE III
CERTAIN MECHANICS AND PROCEDURES RELATING TO
FINANCINGS UNDERTAKEN BY LTPF
SECTION 3.1 IN GENERAL. All Financings shall be booked in the name of LTPF or
such other names as shall from time to time be designated by LTPF. Except as
otherwise set forth herein, LTPF shall maintain segregated books and records for
business of LTPF including all transactions and activities relating to the Old
Portfolio and the New Portfolio as if LTPF were a separate entity as opposed to
a division of one or more NCT entities. All such books and records shall be
maintained in accordance with GAAP, except as otherwise directed by the
Operating Committee in order to reflect the virtual nature of LTPF.
SECTION 3.2 LTPF PAYMENTS TO LUCENT.
(a) True Product Cost. On the Business Day immediately following the
date on which NCT receives such customary documents as NCT and the Operating
Committee may from time to time require in order to evidence the origination of
a Financing, LTPF shall pay Lucent or its designees on the aggregate True
Product Costs with respect to Financings originated on that immediately
preceding Business Day (such date on which LTPF is required to fund Lucent or
its designee shall be referred to as a "Funding Date").
(b) ***
SECTION 3.3 NCT VIRTUAL PURCHASE. (a) Pursuant to the terms and conditions of
this Agreement, LTPF shall be deemed to have sold, assigned and conveyed to the
NCT Purchaser
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
on each Funding Date all LTPF rights in the Payment Stream for each Financing
Contract originating on that Funding Date.
(b) The purchase price which NCT shall be deemed to have paid to LTPF in
consideration of its deemed sale to NCT of a Finance Contract shall be the
Virtual Purchase Price.
SECTION 3.4 ADJUSTMENT TO DISCOUNT RATE. *** LTPF shall deliver to Lucent a
written proposal ("Discount Rate Proposal") setting forth the applicable
"Discount Rate Margin" to be used in determining the Virtual Purchase Price for
Finance Contracts ***. Lucent shall have a period of 45 days after LTPF's
delivery to Lucent of the Discount Rate Proposal to (i) accept the Discount Rate
Proposal with respect to all Finance Contracts originated ***, which acceptance
shall be in writing; or (ii) reject the Discount Rate Proposal with respect to
all Finance Contracts originated ***. If Lucent accepts the Discount Rate
Proposal, then the applicable Discount Rate Margin set forth in the Discount
Rate Proposal shall become effective, as of ***, with respect to all Finance
Contracts and such Discount Rate Margin shall be deemed to replace the
definition of Discount Rate Margin in the Agreement. Conversely, if Lucent
rejects the Discount Rate Proposal, then ***.
ARTICLE IV
NOTIONAL FEE BASE AND MANAGEMENT FEE
SECTION 4.1 LUCENT MANAGEMENT FEE
(a) NCT shall pay to Lucent (the "Lucent Management Fee"): (i) on each
of the first *** consecutive Monthly Payment Dates (beginning ***), an amount
equal to *** of the Adjusted Notional Fee Base for the immediately preceding
calendar month; (ii) on *** Monthly Payment Dates, an amount equal to *** of the
Adjusted Notional Fee Base for the immediately preceding calendar month; and
(iii) on *** Monthly Payment Dates, an amount equal to *** of the Adjusted
Notional Fee Base for the immediately preceding calendar month ***.
(b) If the Adjusted Notional Fee Base is ever less than $0, then any
such deficiency (a "Deficiency") shall be subtracted from the Adjusted Notional
Fee Base in each of the next succeeding months until such time as the Adjusted
Notional Fee Base for any of such months is a positive number. In no event shall
Lucent ever have any liability or obligation to NCT to repay any portion of the
Lucent Management Fee or compensate NCT for any portion of a Deficiency;
provided, however, this sentence shall not prohibit NCT from receiving from
Lucent any portion of any Lucent Management Fee which is in excess of the proper
amount of such Fee as determined pursuant to any audit of the books and records
of LTPF pursuant to SECTION 4.4.
SECTION 4.2 NOTIONAL FEE BASE
The notional fee base ("Notional Fee Base") for each period during the
Term shall be equal to: (a) the Old Portfolio Fee Base, plus (b) the New
Portfolio Fee Base, plus (c) Notional
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17
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
Third Party Direct Fees, plus (d) Notional Third Party Indirect Fees minus (e)
all Notional Fee Charges, in each case determined on an accrual basis for the
period to which the Notional Fee Base relates.
SECTION 4.3 RETROACTIVE ECONOMIC BENEFITS. Within 30 days after the Commencement
Date, NCT shall pay to Lucent an amount equal to *** of NCT's estimate of the
*** for the period beginning *** and ending *** utilizing the methodology set
forth in the initial Annual Operating Plan. NCT shall provide Lucent with
detailed, supporting information as to NCT's calculation of the amount of such
payment. For a period of thirty (30) days after the date on which such sum is
paid (the "True-up Period"), either NCT or Lucent may propose any adjustments to
such payment amount. At the end of such thirty (30) day period, if the agreed
upon adjustments indicate that NCT has overpaid Lucent, Lucent shall pay NCT
such overpayment, or if such adjustments indicate NCT has underpaid such
payment, NCT shall pay Lucent such underpayment.
SECTION 4.4 RIGHT TO INSPECT AND AUDIT. At any time during the Term, Lucent
shall have the right at reasonable times and places, to inspect and audit any
NCT records or books of account necessary to determine the fairness and accuracy
of the Lucent Management Fee and NCT's efficient operation of LTPF and
achievement of the Performance Metrics. For these purposes NCT will secure the
full cooperation of its personnel and any independent accountants who have
examined such books and records for NCT or otherwise reported on the fair and
accurate nature of NCT's financial statements. Such full cooperation will
include granting Lucent access to any such accountant's work papers.
ARTICLE V
COVENANTS OF NEWCOURT ENTITIES
SECTION 5.1 FINANCING SERVICES PROVIDED BY LTPF.
(a) LTPF shall, during the Term of this Agreement and within the Service
Areas, through Newcourt Entities or third parties reasonably acceptable to
Lucent:
(1) provide Financing Services and Ancillary Services to
Customers and Authorized Dealers;
(2) as BCS introduces new Products, use its good faith efforts,
in cooperation with Lucent, to modify existing or devise new Financing Services
and Ancillary Services to support the sale, lease or other furnishings of such
new Products;
(3) cooperate with BCS and Authorized Dealers, as requested, in
promoting and advertising the availability of the Financing Services and
Ancillary Services to Customers, including providing their sales and marketing
personnel with information with respect to such Financings and Ancillary
Services and generally responding to inquiries made by Customers or
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
the employees of BCS or Authorized Dealers with respect to such Financing
Services and Ancillary Services;
(4) prepare Standard Documents for use in connection with
standardized types of Financings and maintain the capacity to (A) modify such
Standard Documents to document particular Financings and Ancillary Services and
(B) prepare appropriate documentation for any customized Financings and
Ancillary Services that LTPF may offer to particular Customers or Authorized
Dealers pursuant to this Agreement;
(5) cooperate with BCS and Authorized Dealers to facilitate
Financings (including, where appropriate, extensions, renewals or modifications
of existing Financings) of replacements or upgrades of Financed Products or
additions of Products to previously Financed Products (subject to adequate
protection of the interests of LTPF in any Financings that would be affected
thereby);
(6) employ or retain personnel having the requisite financial,
legal and other skills to respond to the requests of Customers or Authorized
Dealers with respect to unusual, specialized or complex Financings and Ancillary
Services; and
(7) endeavor to maintain good relations with Customers and
Authorized Dealers and, by offering courteous, efficient and informed Financing
Services and Ancillary Services, promote and support the efforts of BCS and
Authorized Dealers to sell, distribute and market the Products.
(b) In connection with the activities described in paragraph (a) above,
NCT shall, during the term of this Agreement and within the Service Areas:
(1) employ and train appropriate personnel and maintain, adapt
and upgrade its telecommunications, information-processing and record-keeping
systems as it deems necessary or appropriate for the purpose of carrying out
such activities; and
(2) obtain and maintain such franchises, licenses and permits as
it deems necessary or appropriate for the purpose of carrying out such
activities.
SECTION 5.2 TRAINING OF LUCENT PERSONNEL. LTPF shall conduct training programs
for appropriate sales personnel employed by Lucent and Authorized Dealers at
which such individuals shall be trained in the proper documentation of
Financings, the techniques of using Financing Services and Ancillary Services
offered by LTPF as sales tools and the details of such Financing Services and
Ancillary Services. LTPF shall also provide appropriate training and assistance
to the Lucent Entities' operational and office support personnel with respect to
the implementation of any procedures for implementing Financing Services, the
electronic systems interfaces between the Lucent Entities and the NCT Entities'
computer systems and related matters.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
SECTION 5.3 PROVIDING LUCENT WITH INFORMATION AS TO FINANCINGS AND FINANCE
MARKETS. (a) LTPF shall provide to Lucent on a monthly basis (or as otherwise
reasonably requested) information concerning levels of applications for and
approvals of Financings and Ancillary Services, turn-around times for processing
applications for Financings and Ancillary Services, levels of completed and
outstanding Financings, payment and delinquency histories with respect to
Financings and Ancillary Services, and any other information with respect to
Financings and Ancillary Services under this Agreement reasonably requested by
Lucent, including on a monthly basis specific reports showing Customer
end-of-term status.
(b) NCT shall permit and facilitate reasonable and appropriate
linkages between the NCT Entities' and Lucent Entities' computer and
telecommunications systems for the purpose of retrieving and transmitting
between the systems information and documentation in connection with the
offering, documentation and monitoring of Financings and Ancillary Services
(including the information described in SECTION 5.3(a) and otherwise
facilitating the efficient implementation of the relationships and activities
contemplated in this Agreement as more fully described in the Annual Operating
Plan (which type of support is referred to herein as "Systems Support");
SECTION 5.4 SUPPORTING WORLDWIDE ACTIVITIES. LTPF will perform any commercially
reasonable services required by Lucent to facilitate centralized control for
Lucent to track and monitor Customers and Customer Financings. BCS and NCT will
use all commercially reasonable efforts to have any other financing sources
operate through LTPF to help in this worldwide coordination and control. ***
ARTICLE VI
COVENANTS OF LUCENTARTICLE COVENANTS OF LUCENT
SECTION 6.1 SUPPORT OF NCT ENTITIES.
Lucent agrees that during the Term of this Agreement in connection with
the offering or provision of Financing Services or Ancillary Services in the
Service Areas by LTPF:
(a) Lucent shall promote LTPF to Customers and Authorized Dealers
as its select provider of Customer Financings and Dealer Financings, as
appropriate, and Ancillary Services made available by LTPF (which type of
support described in this paragraph is referred to herein as "Finance Marketing
Support"), in the Service Areas. Lucent covenants and agrees that Lucent's sales
representatives engaged in the sale or marketing of Products for which LTPF
offers Customer Financing or Dealer Financings or Ancillary Services shall be
made aware of Lucent promotional and informational literature provided by LTPF
concerning such Financing Services and Ancillary Services and, where
appropriate, Standard Documents. Lucent covenants and agrees that such sales
representatives shall make Financing options offered by LTPF known to Customers
and Authorized Dealers interested in Financing the purchase, lease or other
acquisition of Products and, where appropriate, shall make the Ancillary
Services offered by LTPF known to such Customers and Authorized Dealers. In
addition, Lucent covenants and agrees that such sales representatives shall make
the
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
existence of LTPF Financing Services and Ancillary Services of LTPF known to
Customers and Authorized Dealers.
(b) Lucent shall cooperate with LTPF by causing Lucent sales
representatives to make available to Customers and Authorized Dealers access to
LTPF Customer Financings and Dealer Financings and, as appropriate, Ancillary
Services, and to provide training to appropriate personnel employed by LTPF with
respect to the Products and the sales and marketing thereof (which type of
support described in this paragraph is referred to herein as "Personnel
Support").
(c) Lucent shall provide appropriate personnel of designate by
LTPF with office space at appropriate Sales Sites and appropriate office support
services on the terms and conditions set forth in SCHEDULE 6.1 attached hereto
and made a part hereof (which type of support is referred to herein as "LOCATION
SUPPORT");
(d) Lucent shall permit and facilitate reasonable and appropriate
linkages between the Newcourt Entities' and Lucent Entities' computer and
telecommunications systems for the purpose of retrieving and transmitting
between the systems information and documentation in connection with the
offering, documentation and monitoring of Financings and Ancillary Services and
otherwise facilitating the efficient implementation of the relationships and
activities contemplated in this Agreement (which type of support shall be
referred to "Systems Support");
(e) Lucent shall, subject to confidentiality terms of this
Agreement, provide to LTPF appropriate information with respect to Lucent's
Product development and marketing plans for the purposes of permitting LTPF to
more effectively design appropriate programs for Financing Services and
Ancillary Services and to determine the likely residual values of Products
(which type of support described in this paragraph is referred to herein as
"Information Support"). Without limiting the foregoing, Lucent shall keep LTPF
informed on a regular and timely basis of Product development and marketing
plans and results to the extent Lucent deems it relevant to the activities
contemplated under this Agreement. Lucent agrees that Lucent shall also provide
LTPF with appropriate information within the possession or control of Lucent
that is relevant to an analysis of the credit standing of any Customer or
Authorized Dealer proposed to directly or indirectly receive Financing Services
or Ancillary Services from LTPF.
SECTION 6.2 OTHER FINANCING SOURCES.
(a) Subject to SECTION 2.3, this Agreement shall, at any time, apply
only to the then current Service Areas, ***, and in any areas which are not
Service Areas, Lucent may, subject to SECTION 2.3, provide or set up any
Financing or Ancillary programs with any Persons Lucent Entities may desire. ***
(b) Notwithstanding the other provisions of this ARTICLE VI, Lucent may,
but shall not be required to, provide to LTPF any (i) Finance Marketing Support
in connection with any Customer Outsourcing Program, (ii) Location Support or
Systems Support in connection with
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
any Customer Outsourcing Program in addition to that currently provided by
Lucent, and (iii) Information Support in connection with any Customer
Outsourcing Program except that Lucent shall provide information to NCT relating
to the specific Products being Financed by NCT in connection with any Customer
Outsourcing Program. In addition to the foregoing, Lucent may, in connection
with any Customer Outsourcing Program with any Customer, without providing a
right to bid thereon to LTPF or NCT, (x) guarantee or assume the payment
obligations of such Customer under financings for products provided to such
Customer by any Alternative Financing Service Provider and (y) finance, through
the financing program or arrangement in effect with such alternative financing
source, upgrades or add-ons to the products that have been so financed through
such Alternative Financing Service Provider.
(c) *** the Alternative Financing Service Providers set forth on
Schedule 6.2 *** (and any fees, income or revenue *** from these programs shall
be included as Notional Third Party Indirect Fees).
ARTICLE VII
COVENANT NOT TO COMPETE
7.1 COVENANT NOT TO COMPETE
(a) In General. Subject to SECTION 7.1(b), the Newcourt Entities shall
not at any time during the Term, directly or indirectly, enter into any program,
joint venture or similar arrangement relating to the financing or leasing within
any Service Area of the following entities' products which compete with Products
financed by or through LTPF or relating to the provision of Ancillary Services
(collectively the "Competing Business") to the following entities and their
respective Affiliates ("Lucent Competitors"):
***
(b) Exceptions. Notwithstanding SECTION 7.1(a), the restrictions set
forth in SECTION 7.1(a) shall not impair, affect or interfere with the ability
of the Newcourt Entities to:
(i) enter into any relationship with any Lucent Competitor which
Lucent has consented to in writing;
(ii) purchase only the indebtedness portion of completed
transactions of any type; provided that the Newcourt Entities shall not provide
a quote, provide an indication of interest, letter of intent or similar
interest, or agree or commit to purchase any such transaction or an interest in
such transaction until ***
(iii) lease products directly to, provide loans directly to, or
otherwise provide financial services directly to a Lucent Competitor;
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(iv) enter into any programs, joint ventures or other similar
arrangements or to effect any fundings or the purchase of any transactions
originated outside any Service Area; provided, however, in the event that a
Newcourt Entity enters into a relationship with a Lucent Competitor in a
geographic territory which is not then a Service Area and such territory later
becomes a Service Area, the Newcourt Entities shall be entitled to continue such
relationship; provided that such arrangement shall not be continued beyond the
later of (A) 180 days after the date the geographic territory becomes a Service
Area or (B) the then applicable term specified in the program, joint venture or
other applicable documents
(v) continue the relationships described on Schedule 7.1;
(vi) continue a program or joint venture which constitutes a
Competing Business that has been acquired by a Newcourt Entity; provided,
however, (I) such business shall not be continued beyond 180 days after the date
of such acquisition, and (II) the Newcourt Entities shall not acquire a business
or entity which has, as substantially all of its business, a Competing Business,
unless the Newcourt Entities divested or discontinued within 180 days after such
acquisition.
(c) During the Term, Lucent may add in good faith additional Lucent
Competitors, provided, however, that if Newcourt has an existing program, joint
venture or similar arrangement with any of these additional Lucent Competitors,
Newcourt may continue such arrangement as if such arrangement were listed on
Schedule 7.1.
SECTION 7.2 COVENANT NOT TO SOLICIT. The Lucent Entities and the Newcourt
Entities agree that during the Term they shall not solicit for employment any
employees of each other who are engaged, in any significant manner, in the
activities subject to this Agreement.
SECTION 7.3 MUTUAL STANDSTILL. During the Term and any Transition Period,
neither the Newcourt Entities, on one hand, nor the Lucent Entities, on the
other hand, will, without the prior written consent of the other party, (i)
propose any transaction between the parties or their respective security holders
involving any of the other party's (or its ultimate parent company's) securities
or security holders or (ii) acquire, or assist, advise or encourage any other
Person in acquiring, directly or indirectly, control of the other party (other
than the party's interest in LTPF).
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
ARTICLE VIII
REMARKETING OF PRODUCTS
SECTION 8.1 IN GENERAL. (a) The Operating Committee and NCT shall develop and
coordinate the strategies with respect to the disposition or re-lease (whether
by the extension of the existing lease or by a new lease to a third party) of
Products financed by NCT (whether at the end of the lease term or upon the
return or repossession of the leased Product prior to the end of such term),
with the objective of maintaining the relevant Customers and Authorized Dealers
as purchasers and users of Products. Subject to (b) below, NCT will not be
restricted in terms of its right to sell, release or otherwise dispose of
returned or repossessed Products (including Products that have been leased by or
subject to security interests or other claims in favor of NCT).
(b) Lucent shall have the right to purchase any Products which
are returned to LTPF at ***. If Lucent does not exercise this option, Lucent
shall have the right to match any bid received by LTPF for any such Products if
the bid is less than ***. Lucent may exercise this option to purchase Products
for an aggregate purchase price payable by Lucent not in excess of *** of
Financings expected to be originated in the then current fiscal year based upon
the then current Annual Operating Plan.
SECTION 8.2 RIGHTS TO USE SOFTWARE. Lucent hereby grants, on behalf of itself
and any other applicable Lucent Entity, a license to the appropriate Newcourt
Entity to use any and all Software associated with routine use of Products,
which license shall with respect to any such Software be effective automatically
and immediately upon Financing by NCT through LTPF of such Products in
connection with which such Software is to be used. Except as provided herein,
the scope of the license granted to NCT shall be consistent with the scope of
the license granted by Lucent in its standard form of sales agreement with
respect to such Software. NCT shall (i) not be required to pay any license fee
for such Software or otherwise comply with the terms of any applicable license
agreement for so long as NCT is merely providing Financing for such Software or
any related Products or has foreclosed on or otherwise repossessed or reacquired
such Software in connection with a default under or expiration or termination of
the related Financing but is not using such Software (except for purposes of
testing or demonstrating such Software in connection with any proposed
disposition of such Software) and (ii) be entitled to assign its license to any
other Person, provided that if such Person is not NCT and Lucent's standard form
of license agreement for such Software requires the prior consent of Lucent to
assign such license, NCT shall assign such license only upon execution and
delivery by the assignee of the Lucent's standard form of license agreement for
such Software and agreement by such assignee to pay, at the then-prevailing
rate, any fees required to be paid by a licensee of such Software to Lucent
pursuant to the terms of such license agreement.
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
ARTICLE IX
ARTICLE REPRESENTATIONS AND WARRANTIES;
ALLOCATION OF RISKS
SECTION 9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Unless otherwise agreed with respect to particular Financings or
Ancillary Services or programs with respect thereto, Lucent will be deemed to
make the following representations, warranties and covenants to NCT when NCT
initially provides a Financing or Ancillary Service with respect to a Product
(to the extent such representations, warranties or covenants are applicable to
the particular Financing or Ancillary Service):
(1) NCT will, upon payment to Lucent of the True Product Cost of
any Product being Financed, receive (A) if the Financing involves a lease or an
installment sale, whereby title to the Product shall be transferred by a Lucent
Entity to NCT, marketable title to the Product (other than Products constituting
Software) free and clear of any lien or charge thereon created by or through any
Lucent Entity and (B) to the extent any portion of such Product is not
manufactured or developed by a Lucent Entity and with respect to which a Lucent
Entity has received a warranty or indemnity from another Person, an assignment
by the Lucent Entity of the remaining portion of any such applicable warranty,
express or implied, and indemnity rights applicable to such Product to the
extent that such warranty and indemnity rights are assignable (and if any such
warranty or indemnity rights are not so assignable, the Lucent Entity will hold
any such warranty and indemnity rights for the benefit of NCT and will, at the
direction and expense of NCT, take all such actions as such NCT Entity
reasonably requests to enforce all or any part of such warranty and indemnity
rights);
(2) none of the Lucent Entities nor, to Lucent's knowledge, any
of their employees or agents will knowingly participate in, or fail to disclose
to NCT any knowledge of, any fraudulent or illegal act in connection with the
Financing or Ancillary Service;
(3) the Products financed by NCT, if sold by a Lucent Entity to
the Customer or NCT, will be delivered to the Customer or Authorized Dealer
named in the applicable Financing agreement and installed at the location, if
any, indicated in the applicable Financing agreement in accordance with such
Lucent Entity's normal operating practices and the terms of the contract with
the Customer or Authorized Dealer, and the Lucent Entity will honor all express
and implied warranties and agreements, representations and assurances made by it
to any Customer or Authorized Dealer with respect to any such Product; and
(4) if an employee of a Lucent Entity obtained the Customer's
signature on a Finance Contract, Lucent has delivered or will deliver such
Finance Contract to NCT, and to the Lucent Entity and its employees' knowledge,
there are no other original copies; and
(5) the Lucent Entities and their employees, agents and
representatives will not make any representation, warranty or covenant on behalf
of LTPF or any Newcourt Entity to a
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
Customer or Authorized Dealer with respect to the: (A) Financing, (B) the
Standard Documents, (C) or other documents provided by an NCT Entity, or (D) the
Ancillary Service, except (i) with the consent of a Newcourt Entity, (ii) in
accordance with standard operating practices between the Lucent Entities, on the
one hand, and LTPF and/or the Newcourt Entities, on the other hand, or (iii) at
the direction of LTPF or any Newcourt Entity.
(b) Unless otherwise agreed with respect to particular Financings,
Ancillary Services or programs with respect thereto, NCT will be deemed to make
the following representations, warranties and covenants to Lucent each time that
NCT resells a Financed Product to Lucent or provides Financing or Ancillary
Service with respect to a Product (to the extent such representations,
warranties or covenants are applicable to the particular Financing or Ancillary
Service), or if Lucent purchases a Finance Contract from NCT or LTPF:
(1) Lucent will, upon payment of the purchase price of any
Financed Product, receive (A) marketable title to the Product free and clear of
any lien or charge thereon created by or through NCT and (B) to the extent any
portion of such Product is not manufactured or developed by Lucent and with
respect to which NCT has received a warranty or indemnity from a Person other
than Lucent, an assignment of any such applicable warranty, express or implied,
and indemnity rights to the extent that such rights are assignable (and if any
such warranty or indemnity rights are not so assignable, NCT will hold any such
warranty and indemnity rights for the benefit of such Lucent Entity and will, at
the direction and expense of Lucent, take all such actions as Lucent reasonably
requests to enforce all or any part of such warranty and indemnity rights);
(2) neither NCT nor, to its knowledge any employees or agents
thereof will knowingly participate in, or fail to disclose to Lucent any
knowledge of, any fraudulent or illegal act in connection with the Financing or
Ancillary Service;
(3) Lucent will, upon payment of the Investment Balance (or such
other amount as may be agreed upon for Lucent to purchase a Finance Contract),
receive title to the Finance Contract free and clear of any lien or charge
thereon created by or through any Newcourt Entity, except for rights of the
Customer under the Finance Contract; and
(4) The Newcourt Entities and their employees, agents and
representatives will not make any representation, warranty or covenant on behalf
of any Lucent Entity to a Customer or Authorized Dealer with respect to the any
products and any contract, agreement or other documents provided by a Lucent
Entity or related to the furnishing of products or services by any Lucent
Entity.
SECTION 9.2 ALLOCATION OF CERTAIN RISKS.
(a) LTPF shall assume responsibility for and bear the risks of
delinquency, default and non-payment under any Financings unless (i) Lucent and
NCT agree otherwise in writing, (ii) NCT is entitled to indemnification for such
risks pursuant to the terms of ARTICLE XIII, or (iii) such delinquency, default
or non-payment is a Lucent Responsibility, as defined below (in which event such
risks will be borne in accordance with this SECTION 9.2).
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(b) A "Lucent Responsibility" means a delinquency, default or
non-payment by a Customer or an Authorized Dealer under any Financing resulting
from:
(1) a demonstrated failure by a Lucent Entity to deliver, install
or service, as the case may be, such Product in accordance with its contractual
or legal obligation to deliver, install or service such Product;
(2) a demonstrated failure of any Product to comply with any
contractual representation, warranty or covenant provided by a Lucent Entity
with respect to such Product or with any warranty of a Lucent Entity applicable
to such Product by operation of law;
(3) any adjudicated offset or counterclaim prevailed upon by the
relevant Customer or Authorized Dealer against the amounts due by it under the
Financing on the basis of disputes between such Customer or Authorized Dealer
and a Lucent Entity (or on the basis of amounts owing by a Lucent Entity to such
Customer or Authorized Dealer) under any business dealings between such Customer
or Authorized Dealer and a Lucent Entity, whether or not related to such Product
or such Financing;
(4) a demonstrated breach or violation by a Lucent Entity or any
of its employees of the provisions of SECTION 9.1(a) (whether or not such breach
or violation gives rise to a right of termination of this Agreement);
(5) a finding as a matter of law or equity, that any Lucent
Entity is responsible for the Customer's or Authorized Dealer's failure to honor
its obligations under a Financing or such Customer or Authorized Dealer is able
to avail itself of a defense to any claim asserted by the relevant NCT Entity
with respect to such Financing based on non-performance by any Lucent Entity of
any obligations of any such Lucent Entity (whether or not related to the
Financed Product) or any breach by a Lucent Entity of any warranty (at contract
or at law) with respect to any Product, despite customary "hell or high water"
contained in the Finance Contract.
(c) If a Lucent Responsibility occurs, or Lucent breaches a
representation or warranty contained in SECTION 9.1(a), then Lucent shall pay to
LTPF the amount of the damages to LTPF or NCT as a result of such event, not to
exceed the Investment Balance, and if such damages were incurred by NCT, LTPF
shall pay over such amount to NCT. If Lucent pays the Investment Balance, Lucent
shall be entitled to purchase the Finance Contract and title to the related
Equipment, which shall be conveyed to Lucent in accordance with the
representations and warranties contained in SECTION 9.1(b)(3).
(d) If NCT breaches a representation or warranty contained in SECTION
9.1(b), NCT shall pay to Lucent the amount of Lucent's daamages, not to exceed
the amount Lucent paid LTPF or NCT for the relevant Product and/or Finance
Contract.
SECTION 9.3 COLLECTION AND REPOSSESSION ACTIONS. Except as provided in SECTION
9.4, NCT will be entitled, in its discretion, and on behalf of LTPF, to take or
not to take any and all
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
actions to collect amounts due and unpaid or otherwise enforce its rights upon
the occurrence of a default by a Customer or Authorized Dealer under a Financing
including, without limitation, to make demand for payment or performance,
institute an action for payment of amounts due or for specific performance,
institute collection proceedings, effect acceleration or termination of the
Financing, foreclose upon or take possession of security (which may include the
Financed Product) provided by or on behalf of the Customer or Authorized Dealer
or enforce remedies to take possession and control of the Product.
SECTION 9.4 ACTIONS AGAINST SIGNIFICANT ACCOUNTS. LTPF shall, to the extent
practicable, provide advance notice to Lucent of any legal proceeding or
repossession action to be initiated against a Significant Account.
ARTICLE X
GRANT OF LICENSE
SECTION 10.1 GRANT OF LICENSE. Lucent hereby grants to NCT a non-exclusive,
non-transferable, worldwide license and right to use the Marks for Permitted
General Purposes. Under such license, NCT shall be entitled to use the Marks for
purposes of identifying NCT as the source of any Financing Services or Ancillary
Services offered or provided by NCT hereunder from time to time (including,
without limitation, in agreements, business cards, letterheads, brochures, and
computer programs) in a manner satisfactory to Lucent and in accordance with
SECTION 10.3 below.
SECTION 10.2 TERMINATION OF LICENSE. From and after the earlier of (i) *** days
after notice by Lucent to NCT and (ii) the termination of this Agreement, NCT
shall discontinue use of the Marks and the license granted to NCT shall
terminate, except that to the extent the existing Finance Contracts utilize the
Marks in the Finance Contracts and related documentation, NCT may continue to
use the marks to the extent reasonably necessary to facilitate the orderly
servicing and disposition of such Finance Contracts.
SECTION 10.3 OTHER ISSUES.
(a) NCT agrees to abide by Lucent's guidelines specifying the dimensions
and other aspects of the use and appearance of the Marks as they may be
generally in effect from time to time.
(b) NCT's use of the Marks shall be subject to prepublication review and
approval with respect to, but not limited to, content, style, appearance,
composition, timing and media. One copy of all such marketing material shall be
provided to Lucent (Attention: ***).
(c) NCT agrees to provide Lucent with any documents reasonably requested
by Lucent in connection with its registration and enforcement of the Marks
worldwide.
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(d) NCT agrees that it acquires no rights to the Marks by its use and
that any use of the Marks by NCT inures to the sole benefit of Lucent.
(e) In the event that NCT becomes aware of any unauthorized use of the
Marks by third parties, NCT agrees to promptly notify Lucent and to cooperate
fully, at Lucent's expense, in any enforcement of Lucent's rights against such
third parties. Nothing contained in this paragraph shall be construed to require
Lucent to enforce any rights against third parties or to restrict Lucent's
rights to license or consent to such third parties' use of the Marks.
ARTICLE XI
MANAGEMENT OF LTPF
SECTION 11.1 MANAGEMENT OF LTPF. Except as otherwise expressly provided in this
Agreement, NCT shall, in accordance with SECTION 11.3, operate LTPF in
consultation with, as to certain matters, and with the consent of as to other
matters, an operating committee (the "Operating Committee").
SECTION 11.2 OPERATING COMMITTEE; NUMBER AND ELECTION OF MEMBERS; ADDITIONAL
COMMITTEES.
(a) The Operating Committee shall initially consist of four members
(each, a "Member"), two designated by Lucent and two by NCT.
(b) If additional committees of LTPF are formed by the Operating
Committee, NCT and Lucent shall be entitled to the same representation on any
such additional committee as NCT and Lucent receive on the Operating Committee.
(c) ***
(d) The Members of the Operating Committee shall conduct the affairs of
the Operating Committee in a commercially reasonable manner.
SECTION 11.3 POWERS OF OPERATING COMMITTEE; IMPASSE.
(a) Newcourt shall extensively consult with the Operating Committee on
the operation of LTPF as to:
(1) Financing product and market strategy;
(2) internal audits;
(3) appointment, termination and compensation of senior
officers of LTPF, other than the chief executive officer,
or officer holding the equivalent position, of LTPF (the
"CEO");
(4) LTPF's compliance with its Performance Metric targets and
other obligations;
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PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(5) matters specified in an Annual Operating Plan; and
(6) other matters agreed upon by Lucent and Newcourt.
(b) Operating Committee approval and consent shall be necessary for the
approval or amendment of each Annual Operating Plan; provided, that if the
Operating Committee reaches an impasse with respect to any matter related to the
business affairs of LTPF, or fails to approve any Annual Operating Plan after
employing all reasonable efforts to resolve such impasse, the matter will be
resolved in accordance with ARTICLE XIV.
(c) The CEO shall be nominated by Newcourt, and Operating Committee
approval shall be required to appoint the CEO.
(d) Either Newcourt or the Operating Committee may request the removal
of the CEO, but the CEO may not be removed without the approval of the other
party or group. If Newcourt and the Operating Committee can not reach agreement
on the removal of the CEO, the matter shall be resolved in accordance with
ARTICLE XIV.
SECTION 11.4 PLACE OF MEETINGS. Meetings of the Operating Committee may be held
either within or without the State of New Jersey. The Members serving on the
Operating Committee, by Majority Vote, may appoint from among themselves a
chairperson to preside at meetings of the Operating Committee. Any Member shall
be permitted to attend any meeting of the Operating Committee in person or by
conference call.
SECTION 11.5 REGULAR MEETINGS. The Operating Committee shall meet at least once
a month (unless otherwise agreed by the parties). No notice need be given to
Members of regular meetings for which the Members have previously designated a
time and place for the meeting.
SECTION 11.6 SPECIAL MEETINGS. Special meetings of the Operating Committee may
be held at any time upon the request of at least two Members. Notification of
any special meeting shall be given to each Member at least two Business Days
before the meeting. Notification of the time, place and purpose of such meeting
may be waived in writing before or after such meeting. Attendance of a Member at
such meeting shall also constitute a waiver of Notification thereof. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Operating Committee need be specified in the notice or waiver of notice
of such meeting.
SECTION 11.7 QUORUM OF AND ACTION BY OPERATING COMMITTEE. The presence, in
person or by written proxy, of a majority of the Members shall constitute a
quorum for the transaction of business at any meeting of the Operating
Committee. Except as otherwise expressly set forth in this Agreement, any action
to be taken or approved by the Operating Committee hereunder must be taken or
approved by Majority Vote of the Operating Committee and any action so taken or
approved shall constitute the act of the Operating Committee.
SECTION 11.8 COMPENSATION; REIMBURSEMENT.
(a) The Members shall serve in such capacity without compensation from
LTPF therefor. The Members at all times shall remain the employees of their
respective employers
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and shall owe duties of loyalty and care to such respective employers, and not
to any other Persons.
(b) The compensation policies and arrangements (including base salaries,
bonuses and incentive programs) applicable to members of the Operating Committee
who are "dedicated" to LTPF will be set by the senior executive management
representatives of Lucent and NCT, and the compensation policies and
arrangements (including base salaries, bonuses and incentive programs)
applicable to all other LTPF dedicated employees will be set as indicated in the
Annual Operating Plan. Incentive compensation shall be equally aligned with the
economic performance of LTPF and with Lucent's applicable sales targets.
(c) LTPF will reimburse each of the parties for the direct costs
reflected in the Annual Operating Plan, incurred in performed administrative or
other services that are outsourced to or otherwise performed by such party on
behalf of LTPF, as agreed to between NCT and Lucent.
SECTION 11.9 RESIGNATION AND REMOVAL. Any Member may resign at any time. Such
resignation shall be made in writing and shall take effect at the time specified
therein, or if no time is specified, at the time of its receipt by LTPF. Each
party hereto will have the right to remove and replace its designees to the
Operating Committee at any time. In addition, each party will have the right to
propose the removal of the other party's designees at any time; provided, that
the removal of a party's designees may be effected only with that party's
consent, which consent shall not be unreasonably withheld or delayed.
SECTION 11.10 ACTION BY WRITTEN CONSENT. Any action that may be taken at a
meeting of the Operating Committee may be taken without a meeting if a consent
in writing, setting forth the action to be taken, shall be signed by all of
those Persons entitled to vote at that meeting, and such consent shall have the
same force and effect as a unanimous vote of the Operating Committee at a
meeting duly called and held. No notice shall be required in connection with the
use of a written consent pursuant to this SECTION 11.10.
SECTION 11.11 OFFICERS; EMPLOYEES.
(a) The officers of LTPF will consist of the CEO and such other or
alternative senior officers as may be appointed from time to time in
consultation with the Operating Committee or its designee. Except with respect
to the CEO, each party will have the right to nominate officers, but the
appointment of any them requires consultation with the Operating Committee. The
Operating Committee may request LTPF to remove and replace any officer, except
the CEO, at any time and from time to time. Unless NCT objects, NCT shall
promptly remove any such officer. If NCT objects, NCT shall set forth its basis
for such objection. In the event NCT and the Operating Committee reach an
impasse on such issue, such issue shall be resolved pursuant to the procedure
set forth in ARTICLE XIV.
(b) The officers of LTPF will be responsible for identifying managing
the day to day operations of LTPF, including any employees within or external to
NCT's organization who will be providing services to LTPF and any third party
financing sources which will be funding or
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originating Financings on behalf of or in coordination with LTPF. Lucent may
identify employees of Lucent who will be "dedicated" to LTPF, with the
reasonable consent of the CEO.
(c) The appropriate officers of LTPF will submit to the Operating
Committee such reasonable periodic reports regarding the actual and planned
business activities of LTPF as the Operating Committee reasonably directs. In
addition, the officers of LTPF will cooperate fully with each of the parties
hereto (including submitting requested forecasts, projections and other reports)
as may be reasonably requested as a part of such party's own business planning
and forecasting activities.
ARTICLE XII
ANNUAL OPERATING PLAN; BOOKS AND RECORDS
SECTION 12.1 ANNUAL OPERATING PLAN.
(a) The business activities of LTPF will be conducted by NCT pursuant to
an annual operating plan (the "Annual Operating Plan"). The Annual Operating
Plan will be prepared by LTPF and approved by the Operating Committee. The
Annual Operating Plan, covering the period from the Commencement Date through
September 30, 1998, which will include the financial commitments of LTPF for the
periods of October 1, 1997, to September 30, 1998, and October 1, 1998 to
September 30, 1999, will be mutually agreed to by Newcourt and Lucent as soon as
possible. The appropriate officers of LTPF will prepare and submit subsequent
Annual Operating Plans by June 30 of each year during the Term for the next one
year period, commencing June 30, 1998 with an Annual Operating Plan for the
period October 1, 1998 to September 30, 1999, and in such detail as will allow
the Operating Committee to consider and approve the plans prior to the beginning
of the fiscal year covered by any such plans.
(b) Each Annual Operating Plan will address such matters as the CEO
determines or the Operating Committee directs; and should, address at least the
following (and where appropriate, by channel, product line and geographic
region): (i) fully detailed financial projections and assumptions as to such
period's Notional Fee Base; (ii) organizational structure and staffing
requirements; (iii) compensation structure; (iv) Financing product offerings;
(v) target credit approval rates; (vi) ***; (vii) target customer response
times; (viii) lease rate *** policies; (ix) residual policies; (x) ***; (xi) bad
debt reserve levels, usage and reserve policies; (xii) ***; and (xiii) ***.
(c) Should the Operating Committee fail to approve an Annual Operating
Plan, the impasse will be resolved according to the process set forth in ARTICLE
XIV hereof. If an Annual Operating Plan has not been established with respect to
any fiscal year NCT shall be responsible for operating LTPF in accordance with
the parameters set forth in the prior fiscal year's Annual Operating Plan
(except that the *** shall be increased by *** over the
target for the prior fiscal year) until an Annual Operating Plan is established
for the then current period, in which event NCT shall be responsible to operate
LTPF in accordance with the newly established Annual Operating Plan.
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SECTION 12.2 BOOKS AND RECORDS; RIGHT OF INSPECTION.
(a) During the Term, NCT shall maintain LTPF's management books and
records appropriate or necessary in connection with the conduct of the business
of LTPF pursuant to the terms of this Agreement.
(b) Lucent may examine and copy in person, at any reasonable time and
for any reasonable purpose, such information as it deems necessary regarding the
business, affairs and operations of LTPF.
SECTION 12.3 *** If for any fiscal year, LTPF shall achieve a *** for that year
which is less than *** of the amount specified for the Annual Operating Plan
for that year, the *** shall be *** for the next fiscal year, unless the
Operating Committee agrees otherwise by a Majority Vote. Any revision to the
Annual Operation Plan for the next fiscal year shall specify whether or not the
*** is included.
ARTICLE XIII
INDEMNIFICATION
SECTION 13.1 NEWCOURT INDEMNITY. Newcourt agrees to save, protect, indemnify and
hold harmless, on an After-Tax Basis, the Lucent Entities and their respective
employees, officers, directors, agents and representatives from and against all
liabilities, costs (including attorneys fees and disbursements), claims and
charges arising from or relating to: (i) the breach by any Newcourt Entity of
any representations, warranties or covenants of any Newcourt Entity contained in
or delivered pursuant to this Agreement, or any other agreement of any Newcourt
Entity relating to Products, Financings or Ancillary Services; or (ii) any
violation by any Newcourt Entity or any of its employees or agents of any law
applicable to the sale, lease or other furnishing of Products or to any related
Financings or Ancillary Services (including, without limitation, any law
relating to the reporting of or extension or denial of credit, the collection of
debt or the repossession or disposition of products). The foregoing indemnity
shall not apply in respect of liabilities, costs, claims or charges to the
extent arising from or relating to (x) any action, sufferance or omission by any
Lucent Entity or its employees effected in bad faith or (y) any breach or
violation by a Lucent Entity of the provisions of this Agreement or any such
other applicable agreement between a Lucent Entity and a Newcourt Entity
(whether or not such breach or violation gives rise to a right of termination of
this Agreement or such other agreement).
SECTION 13.2 LUCENT INDEMNITY. Lucent agrees to save protect, indemnify and hold
harmless, on an After-Tax Basis, the Newcourt Entities and their respective
employees, officers, directors, agents and representatives of each of the
foregoing from and against all liabilities, costs (including attorneys fees and
disbursements), claims and charges arising from or relating to: (i) breach by a
Lucent Entity of any representations, warranties or covenants contained in or
delivered pursuant to this Agreement or any other agreement relating to
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Products, Financings or Ancillary Services; (ii) any products, environmental or
other similar adjudicated liability relating to the Products ; (iii) any
misrepresentation made by any employee or agent of a Lucent Entity to any
Customer or Authorized Dealer as to the commitment of a Newcourt Entity to
provide any Financings or Ancillary Services to such Customer or Authorized
Dealer or the likely availability thereof; (iv) Lucent's rights to or ownership
interests in the Marks or the invalidity or ineffectiveness of or any
infringement against the Marks to the extent such liabilities, costs, claims or
damages arise or are asserted (or are sustainable) under applicable United
States federal, state or local law; (v) the invalidity or ineffectiveness of the
license granted under this Agreement or pursuant hereto to the extent such
liabilities, costs, claims or damages are asserted (or are sustainable) under
applicable United States federal, state or local law. The foregoing indemnity
shall not apply in respect of liabilities, costs, claims or charges to the
extent arising from or relating to (x) any action, sufferance or omission by a
Newcourt Entity or an employee of a Newcourt Entity that is effected in bad
faith or (y) any breach or violation by Newcourt Entity or any employee of
Newcourt Entity of the provisions of this Agreement or any such other applicable
agreement between a Lucent Entity and a Newcourt Entity (whether or not such
breach or violation gives rise to a right of termination of this Agreement or
such other agreement).
SECTION 13.3 INDEMNITY PROCEDURE. Each indemnified party under SECTION 13.1 or
SECTION 13.2 shall, promptly after receipt of notice of a claim or action
against such indemnified party in respect of which indemnity may be sought
hereunder, notify the indemnifying party in writing of the claim or action;
provided, that the failure to notify the indemnifying party will not relieve it
from any liability which it may have to an indemnified party on account of the
indemnity agreement contained in SECTION 13.1 or SECTION 13.2 unless, and only
to the extent that, the indemnifying party was prejudiced by such failure, and
in no event will such failure relieve the indemnifying party from any other
liability which it may have to such indemnified party. If any such claim or
action shall be brought against an indemnified party, and it shall have notified
the indemnifying party thereof, the indemnifying party will be entitled to
participate therein, and, to the extent that it wishes, to assume the defense
thereof with counsel satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of any claim or action, the indemnifying party will not be liable to the
indemnified party under SECTION 13.1 or SECTION 13.2 for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, that the
indemnified party will have the right to employ separate counsel to represent it
if, in the reasonable judgment of such indemnified party, it is advisable for it
to be represented by separate counsel, and in such event the fees and expenses
of such separate counsel will be paid by such indemnified party. The
indemnifying party may not without the prior written consent of the indemnified
party agree to any settlement of any claim or action as the result of which any
remedy or relief, other than solely for monetary damages for which the
indemnifying party will be responsible hereunder, will be applied to or against
the indemnified party. In any action hereunder as to which the indemnifying
party has assumed the defense thereof with counsel satisfactory to the
indemnified party, the indemnified party will continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but the
indemnifying party will not be obligated hereunder to reimburse the indemnified
party for the costs thereof.
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ARTICLE XIV
DISPUTE RESOLUTION
SECTION 14.1 DISPUTES. The procedures for discussion, negotiation and
arbitration set forth in this ARTICLE XIV will apply to all disputes solely
between the parties or their respective Affiliates under this Agreement.
SECTION 14.2 RESOLUTION OF DISPUTES. The parties hereto agree and acknowledge
that they shall use good faith to resolve all differences and disputes.
Consistent with the foregoing principles, the parties desire to avoid the
expense and delay of resolving disputes by use of traditional civil litigation.
Accordingly the parties agree to resolve their differences and disputes by first
engaging in extensive discussions at the Operating Committee level.
SECTION 14.3 REFERRAL TO EXECUTIVE OFFICERS. Either party may, by giving written
notice to the other party, demand that any dispute or difference be referred to
the President of Newcourt Financial and the *** of Lucent (or such other senior
executive appointed by the applicable party) (the "Senior Management
Executives") who will attempt in good faith and reasonable diligence to resolve
the dispute. Any such notice shall state, with reasonable particularity, the
nature of the dispute. The parties and their respective Senior Management
Executives shall endeavor in good faith to resolve the dispute. If the dispute
is not resolved by the Senior Management Executives within 30 calendar days,
either party may have the matter will be submitted to mediation pursuant to the
provisions of SECTION 14.4 hereof.
SECTION 14.4 MEDIATION.
(a) If, and only if, a notice pursuant to SECTION 14.3 has been given
and the Senior Management Executives of the parties have not resolved the
dispute within 30 days after the giving of such notice, then either party may
submit the dispute to mediation.
(b) Except as otherwise provided in this Section or as otherwise agreed
upon, in writing by the parties, such mediation shall be administered by the
American Arbitration Association (the "AAA") under its Commercial Mediation
Rules as in effect at such time (the "Mediation Rules").
(c) The party desiring such mediation shall first provide notice to the
other party requesting mediation. If the other party objects to mediation within
10 days after the request for mediation has been given, the dispute shall not be
submitted for mediation. If the other party does not object in writing to the
request for mediation within 10 days, the party sending the request for
mediation shall initiate the mediation by filing a written request for mediation
with the AAA and delivering a copy of such request to the other party. Such
request shall state, with reasonable particularity, the nature of the dispute
and shall include such additional information as may be required by the
Mediation Rules.
(d) Upon delivery of the mediation request, the parties shall endeavor
in good faith to select a neutral mediator who is acceptable to each party. If
the parties have not selected a
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mutually acceptable neutral mediator within five Business Days after the
delivery of the mediation request, they shall so notify the AAA and the AAA
shall appoint a mediator in accordance with the Mediation Rules. Unless
otherwise agreed upon by the parties, all mediation sessions shall be held at
the AAA's regional office in New Jersey. The parties shall endeavor in good
faith to resolve the dispute through the mediation process contemplated by this
Section and neither party shall be entitled unilaterally to terminate the
mediation prior to thirty days after the appointment of a mediator.
(e) The fees and expenses of the mediator and AAA will be borne one-half
by Lucent and one-half by NCT. All other expenses in connection with the
arbitration shall be the responsibility of the party incurring such expense.
SECTION 14.5 ARBITRATION.
(a) If a party receiving a request for mediation pursuant to SECTION
14.4 has objected to mediation in accordance with SECTION 14.4 or if the dispute
has been submitted to mediation pursuant to SECTION 14.4 and such mediation has
been properly terminated (without resolution of the dispute) pursuant to the
Mediation Rules and this Agreement, then either party may demand that the
dispute be resolved by binding arbitration.
(b) The party desiring such arbitration shall initiate the arbitration
by delivering a written demand for arbitration to the other party and taking
such other action as is required by the Arbitration Rules. Such demand shall
state, with reasonable particularity, the nature of the Dispute and shall
include such additional information as may be required by the Arbitration Rules.
(c) The parties shall attempt to select, within 5 days after such notice
of demand for arbitration is given, a neutral arbitrator satisfactory to each.
(d) If the parties are not able to jointly select an arbitrator within
such 5 day period, the parties shall each appoint, by notice to the other party,
a reasonably qualified neutral arbitrator within 10 days after provision of the
notice referred to in paragraph (c) above. If one party appoints such an
arbitrator within such time period and the other party fails to appoint an
arbitrator within such time period, the arbitrator appointed by the one party
shall be the sole arbitrator of the dispute.
(e) In the event that an arbitrator is not selected pursuant to
paragraph (c) or (d) above, and, instead, two arbitrators are selected pursuant
to paragraph (d) above, the two arbitrators will, within 10 days after the
appointment of the later of them to be appointed, select a third reasonably
qualified neutral arbitrator who will act as the sole arbitrator of the dispute.
After selection of such sole arbitrator, the two initial arbitrators shall have
no further role with respect to the dispute.
(f) The sole arbitrator selected pursuant to paragraph (c), (d) or (e)
above will set a time for the hearing of the dispute which will not be later
than 30 days after the date of appointment of the sole arbitrator pursuant to
paragraph (c), (d) or (e) above, and the final decision of such
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arbitrator will be rendered in writing to the parties not later than 30 days
after the last hearing date, unless otherwise agreed by the parties in writing.
(g) Except as otherwise set forth herein or agreed to by the parties,
any arbitration hereunder will be conducted in accordance with the Commercial
Arbitration Rules of the AAA then prevailing, and the decision of the arbitrator
will be final and binding on the parties, and will be enforceable in any court
having jurisdiction over the parties. Compliance with the provisions of this
Agreement concerning arbitration of disputes is a condition precedent to the
commencement of any suit, action or proceeding in any Federal, state or local
court with respect to any dispute governed by this ARTICLE XIV.
(h) The arbitrator will be limited to interpreting or construing the
applicable provisions of this Agreement, and will have no authority or power to
alter, amend, revoke or suspend any provision of this Agreement; it being
understood, however, that the arbitrator will have full authority to implement
the provisions of this Agreement and to fashion appropriate remedies for
breaches of this Agreement; provided that the arbitrator shall not (1) have any
authority in excess of the authority a court having jurisdiction over the
parties and the controversy or dispute would have absent these arbitration
provisions and (2) have any right or power to award punitive, special, indirect,
consequential or exemplary damages.
(i) If a party fails or refuses to appear at and participate in an
arbitration hearing after due notice, the arbitrator may hear and determine the
controversy upon evidence produced by the appearing party.
(j) The fees and expenses of the arbitrator and AAA will be borne
one-half by Lucent and one-half by NCT. All other expenses in connection with
the arbitration shall be the responsibility of the party incurring such expense.
SECTION 14.6 CONFIDENTIALITY. The existence, substance and results of any
mediation or arbitration hereunder shall be held confidential by the parties and
their Affiliates and shall not be disclosed to other Persons except (1) to their
respect legal counsel, auditors or directors, or (2) to the extent such
disclosure is either (I) required to enforce the arbitration award or remedy or
(II) required by applicable law, regulation, rule, court order or similar legal
process. The existence and results of any dispute resolution procedure under
this Article shall be held in confidence by the parties and their Affiliates and
shall not be disclosed to any third party. All views expressed and suggestions,
admissions and proposals made by the parties during the course of the procedures
contemplated by this ARTICLE XIV shall be entitled to the same degree of
confidentiality as they would enjoy under a mediation or arbitration proceeding
pursuant to the Mediation Rules or Arbitration Rules. Notwithstanding any other
provision of this Agreement, the Mediation Rules and/or the Arbitration Rules to
the contrary, the foregoing restrictions do not apply to disclosures (a) to the
parties' attorneys, auditors, and/or directors, (b) which are necessary or
appropriate to enforce or apply any resolution of the Dispute (including,
without limitation, any arbitration decision, award or remedy), and/or (c) which
are required by applicable law, regulation, court order or rule, or similar
legal process.
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SECTION 14.7 LITIGATION. Compliance with the provisions of this Article is a
condition precedent to the commencement or maintenance of any action, claim,
suit or proceeding (whether in the form of an original action, third-party
action, counterclaim, cross claim or otherwise) with respect to any Dispute in
any court (federal, state, local, foreign or otherwise) or other judicial
tribunal and no such action, suit or proceeding may be commenced or maintained
unless and until the dispute resolution procedures contemplated by SECTIONS 14.2
through 14.6 have been exhausted by the parties.
SECTION 14.8 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement during the course of dispute resolution
pursuant to the provisions of this ARTICLE XIV.
ARTICLE XV
TERM AND TERMINATION; TRANSITION PERIOD
SECTION 15.1 INITIAL TERM AND RENEWAL.
(a) This Agreement shall become effective on the date hereof (the
"Commencement Date") and, subject to SECTION 15.2, shall remain in effect until,
and shall terminate on, September 30, 2002 (the "Initial Term"). This Agreement
shall automatically be renewed and remain in effect for a period of three years
(the "Renewal Term"), commencing upon the expiration of the Initial Term or any
previous Renewal Term, unless either party elects not to extend the terms of
this Agreement beyond the Initial Term by giving the other party notice of such
election (a "Non-Renewal Notice") at least 6 months prior to the expiration of
the Initial Term or the Renewal Term (it being understood that failure to give
timely notice of non-renewal (which time for the delivery of notice shall be of
the essence of this Agreement) will be deemed to constitute an election by the
parties to renew the term of this Agreement for the Renewal Term as provided
herein).
(b) If this Agreement is not renewed at the end of the Initial Term or
any Renewal Term, then this Agreement shall remain in effect for a period of 18
months beginning on the later of one year before the scheduled end of the Term
or the day the Non-Renewal Notice is delivered (the "Transition Period"). During
the last 6 months of the Transition Period (the "Wind Down Period"), (i) except
as set forth in SECTION 15.5, all of the parties' rights and obligations under
this Agreement shall continue in full force and effect, and (ii) the parties
shall take appropriate steps to wind down the operations of LTPF in an orderly
manner in accordance with SECTION 15.5(a). Upon the expiration of the Transition
Period, this Agreement shall terminate.
SECTION 15.2 EARLY TERMINATION. This Agreement may be terminated in its entirety
prior to the expiration of the Term:
(a) at any time, by the mutual written consent of Newcourt and Lucent;
or
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(b) at the election of Lucent, by notice to NCT, in the event that NCT
commences a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy or similar law or statute or makes an assignment of its property or
any substantial portion thereof for the benefit of creditors and such proceeding
or assignment is continuing or in effect as the time of such notice; or
(c) at the election of Lucent, by notice to NCT, in the event that there
is commenced against NCT an involuntary proceeding seeking to have NCT declared
a bankrupt or seeking to have a receiver appointed with respect to a substantial
portion of its property which is not dismissed within 60 days of commencement or
there is entered an order declaring NCT a bankrupt or appointing a receiver with
respect to a substantial portion of its property and such order is not dismissed
within 60 days and such proceeding or order is continuing or in effect at the
time of such notice; or
(d) at the election of NCT, by notice to Lucent, in the event that
Lucent commences a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy or similar law or statute or makes an assignment of its property or
any substantial portion thereof for the benefit or creditors and such proceeding
or assignment is continuing or in effect at the time of such notice; or
(e) at the election of NCT, by notice to Lucent, in the event that there
is commenced against Lucent an involuntary proceeding seeking to have Lucent
declared a bankrupt or seeking to have a receiver appointed with respect to a
substantial portion of its property which is not dismissed within 60 days of
commencement, or there is entered an order declaring Lucent a bankrupt or
appointing a receiver with respect to a substantial portion of its property and
such order is not dismissed within 60 days and such proceeding or order is
continuing or in effect at the time of such notice; or
(f) at the election of Lucent by notice to Newcourt, if (i) for any
period of ninety (90) consecutive days, the long-term senior unsecured debt of
Newcourt shall not be rated investment grade credit or equivalent by at least
one U.S. Rating Agency; and (ii) within such 90 day period Newcourt shall be
unable to secure a six month or longer forward funding commitment from one or
more financial or insurance institutions with long-term senior unsecured debt
rated investment grade credit or equivalent by at least one U.S. Rating Agency
to ensure sufficient funding of LTPF; and (iii) such forward funding commitment
(or its replacement) is not renewed or replaced with a similar forward funding
commitment at least 90 days prior to its scheduled expiration date; or
(g) at the election of Lucent by notice to Newcourt, if LTPF fails ***;
or
(h) at the election of Lucent by notice to Newcourt upon a Change in
Control of NCT by a Person that (i) is a Lucent Competitor or (ii) does
financings for products of a Lucent Competitor that if performed by NCT, would
violate NCT's covenants set forth in SECTION 7.1, unless within 90 days of the
acquisition, the entity that finances the Lucent Competitor divests itself of
such financing arrangement; or
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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(i) at the election of Lucent by notice to Newcourt, if any Newcourt
Entity shall materially breach any of its obligations under SECTION 7.1 or
ARTICLE X, and either (I) such breach is not cured within 15 days after notice
or (II) within 15 days after notice, Newcourt fails to submits to Lucent a
written explanation of the manner in which the breach shall be cured, or (III)
Newcourt provides Lucent with a written explanation of the manner in which it
will cure the breach, but and in any event such breach is not cured within 45
days after notice; or
(j) at the election of Lucent by notice to Newcourt if any amounts due
to Lucent under Articles III or IV or *** are not paid when due (other than
amounts which are being disputed in good faith) and such failure is not cured
within 30 days after notice to Newcourt; or
(k) at the election of Newcourt by notice to Lucent, if any Lucent
Entity shall materially breach any of (x) its obligations under Article XVII or
(y) its material obligations under Article VI, and in the case of Article VI,
such breach is not cured within 30 days after notice to Lucent.
SECTION 15.3 PARTIAL EARLY TERMINATIONS AND PERFORMANCE METRICS.
(a) Performance Metrics Partial Termination Events. If any of the
Performance Metrics set forth below in this Section 15.3(a) are in any material
respects not satisfied and are not remedied within the applicable cure period
specified in paragraphs (i) through (iii) of this Section 15.3(a), Lucent may,
upon written notice to NCT ("Partial Termination Notice") within 30 days after
the expiration of the applicable cure period specified below, terminate this
Agreement as to ***:
(i) If LTPF *** fails to achieve ***, Lucent may give NCT written
notice of such failure. NCT shall, within thirty (30) days of the
date of delivery of such notice, supply Lucent with a plan to
remedy the situation. Unless NCT, within *** after the date of
the delivery of such notice, (A) ***, or (B) ***, Lucent shall be
entitled, upon delivery of the Partial Termination Notice, to
***. If LTPF, *** after the delivery by Lucent to NCT of the
notice indicating that *** has not been accomplished, is unable
cure the deficiency as required above or ***, Lucent shall be
entitled, upon delivery of the Partial Termination Notice, to
***. If LTPF, within the applicable cure period, achieves *** and
LTPF, ***, Lucent shall be entitled, upon delivery of the Partial
Termination Notice, to ***.
(ii) If LTPF *** fails to ***, Lucent may give NCT written notice of
such failure. NCT shall, within thirty (30) days of the date of
delivery of such notice, supply Lucent with a plan to remedy the
situation. Unless NCT, within *** after the date of the delivery
of such notice, (A) ***, or (B) ***, Lucent shall be entitled,
upon delivering a Partial Termination Notice, to ***. If LTPF,
within *** after the delivery by Lucent to NCT of the notice ***,
is unable to ***, Lucent shall be entitled, upon delivery of the
Partial Termination Notice, to ***. If LTPF ***, and LTPF, ***,
Lucent shall be entitled, upon delivery of the Partial
Termination Notice, to ***; and
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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(iii) If LTPF fails ***, Lucent may give LTPF written notice of such
failure. If Lucent provides such notice, LTPF shall, within 30
days after the notice, supply Lucent with a plan to remedy the
deficiency or situation. Unless LTPF *** or ***, Lucent shall be
entitled, upon delivery of a Partial Termination Notice, to ***.
As used in this paragraph, ***.
(b) Consequences of Partial Terminations. If Lucent terminates this
Agreement with respect to *** prior to the expiration of the Term in accordance
with SECTION 15.3(a), (x) Lucent shall be free to establish a joint venture,
strategic alliance or other vendor financing relationship with one or more other
parties with respect to ***; (y) the non-competition provisions of ARTICLE VII
shall, effective 180 days after the delivery of the applicable Termination
Notice, cease and be of no further force or effect with respect to ***; and (z)
the parties shall wind down the operations of LTPF with respect to *** pursuant
to provisions which are substantially similar to those set forth in SECTION
15.5(a). Notwithstanding the foregoing, all of the Outstanding Portfolio that
was originated in the Product line, channel, region, country or area, subject to
the termination, shall continue to be part of the Old or New Portfolio, as
applicable.
(c) Performance Metric Makeup/Payment. If any of the Performance Metrics
set forth below in this SECTION 15.3(c) is in any material respect not satisfied
and is not remedied within the applicable cure period specified in paragraphs
(i), (ii) or (iii) of this SECTION 15.3(c), Newcourt shall pay damages to Lucent
according to the following:
(i) If LTPF *** fails to *** Lucent may give Newcourt written notice
of such failure. Within *** of receipt of ***.
(ii) If LTPF *** fails to *** Lucent may give notice to Newcourt of
***. Newcourt shall, within thirty (30) days of the date of
delivery of such notice, supply Lucent with a plan designed to
address the problem and within ***.
(iii) If *** Newcourt shall ***.
SECTION 15.4 OVERRIDING PRINCIPLES.
Notwithstanding anything else contained in SECTION 15.2 or SECTION 15.3 to the
contrary, if a Performance Metrics is not achieved as a result of an event
which: (a) arises by reason of Lucent's material breach of this Agreement, or
(b) is beyond the control of NCT and generally effects comparable financing
sources in materially adverse and similar manner, then the portion of the
non-performance which is attributable to such event shall not serve as a basis
or part of the basis for Lucent to exercise any of its termination rights under
this ARTICLE XV. Newcourt will bear the burden of proving that the exception in
clause (b) has been met. Thereafter, LTPF will utilize commercially reasonable
efforts to cure such failure. To the extent that the effect of such
non-performance is a *** or less reduction of the *** and is not caused by
Lucent's material breach, such reduction shall be *** for the following
year.
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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
SECTION 15.5 EFFECT OF TERMINATION.
(a) Non-Renewal. If Lucent or Newcourt delivers a timely Non-Renewal
Notice pursuant to SECTION 15.1(a), the parties rights and obligations under
this Agreement shall continue in full force and effect, except with respect to
the following:
(i) The parties shall immediately enter into good faith negotiations
regarding a final 18-month transition Operating Plan or shorter
period if the Non-Renewal Notice is delivered in the First
Renewal Period or any subsequent Renewal Period (the "Transition
Operating Plan"). Such Transition Operating Plan shall (A)
supersede any existing Operating Plan (including any Performance
Matrix in any prior Operating Plan), and (B) provide for (1) the
continued operation of LTPF during the period prior to the Wind
Down Period in a manner that will not require any material
capital commitments; and (2) the orderly winding down of LTPF
during the Wind Down Period. The Transition Operating Plan will
provide for orderly removal of co-located employees and the
de-installation of all systems during the Wind Down Period.
(ii) During the Transition Period, LTPF shall establish and maintain
appropriate accruals and reserves in anticipation of the
additional charges and costs, including employee terminations to
be incurred in connection with the wind down of the operations of
LTPF throughout the Transition Period and Wind Down Period and so
long as the Old Portfolio and New Portfolio have Finance
Contracts with remaining unpaid payments or unrealized Residual
Investments. Throughout the Transition Period and Wind Down
Period and so long as the Old Portfolio and New Portfolio have
Finance Contracts with remaining unpaid payments or unrealized
Residual Investments, NCT shall continue to maintain segregated
books and records for the business of LTPF and shall continue to
pay Lucent the Lucent Management Fee.
(iii) The covenants of NCT and its affiliates set forth in Article VII
shall cease to be of any effect as of ***.
(iv) The covenants of Lucent in SECTION 6.1 AND 6.2 shall cease to be
of any effect as of ***.
(v) Upon the expiration of the Transition Period, Lucent may purchase
one or more Finance Contracts by giving NCT three (3) business
days written notice that it desires to purchase such Finance
Contract. The purchase price for such Finance Contract shall be
an amount equal to (a) all Payments due, past due, and to become
due LTPF under such Finance Contract (excluding rental taxes, if
applicable), discounted to their net present value as of the
applicable date of purchase at an interest rate of ***.
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42
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(vi) Except as provided in SECTIONS 15.5(a)(v) AND (x), Lucent shall
have no additional rights to any property of LTPF, including, but
not limited to the operating systems, the interfaces or equipment
of LTPF or used by LTPF.
(vii) Throughout the Transition Period and a period of *** thereafter,
neither Lucent nor any Lucent Entity will, without the prior
written consent of NCT, hire or engage, as an employee,
independent contractor or in any other similar capacity, any
Dedicated Employee whose primary duties are related to the
servicing of either the Old Portfolio or the New Portfolio.
(viii) Throughout the Transition Period and a period of *** thereafter,
neither Lucent nor any Lucent Entity will, without the prior
written consent of NCT, hire or engage, as an employee,
independent contractor or in any other similar capacity, any
Dedicated Employee whose primary duties are not related to the
servicing of either the Old Portfolio or the New Portfolio.
(ix) NCT shall deliver to Lucent an image of the then current Lucent
customer database and lease portfolio in a mutually agreed upon
medium and format with recognizably defined fields (for example,
defined fields for "customer", "product" and others).
(x) NCT shall service all owned and managed assets in the Old
Portfolio and New Portfolio pursuant to the terms and conditions
set forth in SECTION 16.3(g), and Lucent shall continue to have
systems interfaces to track and monitor the Customers and the
Finance Contracts.
(xi) Any time during the Wind Down Period, Lucent may terminate the
Location Support upon *** notice to Newcourt.
(xii) Except as specified in SECTION 15.6, upon the expiration of the
Transition Period, all obligations of NCT and Lucent under this
Agreement shall terminate.
(b) Complete Early Termination by Lucent. If Lucent terminates this
Agreement in its entirety prior to the expiration of the Term in accordance with
SECTION 15.2, the following terms and conditions shall be applicable:
(i) The parties shall immediately enter into good faith negotiations
regarding a final 6-month transition Operating Plan (the "Early
Termination Transition Operating Plan"). Such Early Termination
Transition Operating Plan shall (a) supersede any existing
Operating Plan, and (b) provide for the immediately orderly
winding down of LTPF during the six months transition period (the
"Early Termination Wind Down Period") including the immediate
orderly removal of co-located employees and the de-installation
of all systems.
(ii) During the Early Termination Wind Down Period, LTPF shall
establish and maintain appropriate accruals and reserves in
anticipation of the additional
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
charges and costs associated to be incurred in connection with
the wind down of the operations of LTPF. Throughout the
Transition Period and Wind Down Period and so long as the Old
Portfolio and New Portfolio have Finance Contracts with remaining
unpaid payments or unrealized Residual Investments, NCT shall
continue to maintain segregated books and records for the
business of LTPF and shall continue to pay Lucent the Lucent
Management Fee.
(iii) The covenants of NCT and its affiliates set forth in Article VII
shall cease to be of any effect on ***.
(iv) The covenants of Lucent in SECTION 6.1 AND 6.2 shall cease to be
of any effect as of ***.
(v) Upon the expiration of the Early Termination Wind Down Period,
Lucent may purchase one or more Finance Contracts by giving NCT
three (3) business days written notice that it desires to
purchase such Finance Contract. The purchase price for such
Finance Contract shall be an amount equal to (a) all Payments
due, past due, and to become due LTPF under such Finance Contract
(excluding rental taxes, if applicable), discounted to their net
present value as of the applicable date of purchase at an
interest rate of ***.
(vi) Except as provided in SECTIONS 15.5(b)(v) AND (viii), Lucent
shall have no additional rights to any property of LTPF,
including, but not limited to the operating systems, the
interfaces or equipment of LTPF or used by LTPF.
(vii) NCT shall deliver to Lucent an image of the then current Lucent
customer database and lease portfolio in a mutually agreed upon
medium and format with recognizably defined fields (for example,
defined fields for "customer", "Product" and others).
(viii) Newcourt shall service the owned and managed assets in the Old
Portfolio and New Portfolio pursuant to the terms and conditions
set forth in Section 16.3(g), and Lucent shall continue to have
systems interfaces to track and monitor the Customers and the
Finance Contracts.
(ix) Except as specified in SECTION 15.6, upon the expiration of the
Transition Period, all obligations of NCT and Lucent under this
Agreement shall terminate.
(x) Throughout the Early Termination Wind Down Period and a period of
*** thereafter, neither Lucent nor any Lucent Entity will,
without the prior written consent of Newcourt, hire or engage, as
an employee, independent contractor or in any other similar
capacity, any Dedicated Employee whose primary duties are related
to the servicing of either the Old Portfolio or the New
Portfolio.
(xi) If the termination is pursuant to Section 15.2(g), Newcourt shall
pay to Lucent upon demand, as liquidated damages and not as a
penalty and in lieu of all other
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
damages, losses or expenses suffered or incurred by Lucent as a
result of the occurrence the termination event set forth in
Section 15.2(g), the sum of ***.
(c) Complete Early Termination by Newcourt. If Newcourt terminates this
Agreement in its entirety prior to the expiration of the Term in accordance with
SECTION 15.2, the following terms and conditions shall be applicable:
(i) The parties shall immediately enter into good faith negotiations
regarding a final 6-month transition Operating Plan (the "Early
Termination Transition Operating Plan"). Such Early Termination
Transition Operating Plan shall (a) supersede any existing
Operating Plan, and (b) provide for the immediately orderly
winding down of LTPF during the six months transition period (the
"Early Termination Wind Down Period") including the immediate
orderly removal of co-located employees and the de-installation
of all systems.
(ii) During the Early Termination Wind Down Period, LTPF shall
establish and maintain appropriate accruals and reserves in
anticipation of the additional charges and costs associated to be
incurred in connection with the wind down of the operations of
LTPF. Throughout the Transition Period and Wind Down Period and
so long as the Old Portfolio and New Portfolio have Finance
Contracts with remaining unpaid payments or unrealized Residual
Investments, NCT shall continue to maintain segregated books and
records for the business of LTPF and shall continue to pay Lucent
the Lucent Management Fee.
(iii) The covenants of Newcourt and its affiliates set forth in Article
VII shall cease to be of any effect as of ***.
(iv) The covenants of Lucent in SECTION 6.1 AND 6.2 shall cease to be
of any effect as of ***.
(v) Except as provided in SECTIONS 15.5(c)(vii) AND (ix), Lucent
shall have no additional rights to any property of LTPF,
including, but not limited to the operating systems, the
interfaces or equipment of LTPF or used by LTPF.
(vi) NCT shall deliver to Lucent an image of the then current Lucent
customer database and lease portfolio in a mutually agreed upon
medium and format with recognizably defined fields (for example,
defined fields for "customer", "Product" and others).
(vii) Upon the expiration of the Early Termination Wind Down Period,
Lucent may purchase one or more Finance Contracts by giving NCT
three (3) business days written notice that it desires to
purchase such Finance Contract. The purchase price for such
Finance Contract shall be an amount equal to (a) all Payments
due, past due, and to become due LTPF under such Finance Contract
(excluding rental taxes, if applicable), discounted to their net
present value as of the applicable date of purchase at an
interest rate of ***.
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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(viii) Throughout the Early Termination Wind Down Period and a period of
*** thereafter, neither Lucent nor any Lucent Entity will,
without the prior written consent of Newcourt, hire or engage, as
an employee, independent contractor or in any other similar
capacity, any Dedicated Employee whose primary duties are related
to the servicing of either the Old Portfolio or the New
Portfolio.
(ix) Newcourt shall service the owned and managed assets in the Old
Portfolio and New Portfolio pursuant to the terms and conditions
set forth in SECTION 16.3(g), and Lucent shall continue to have
systems interfaces to track and monitor the Customers and the
Finance Contracts.
(x) Except as specified in SECTION 15.6, upon the expiration of the
Transition Period, all obligations of Newcourt and Lucent under
this Agreement shall terminate.
SECTION 15.6 EFFECT OF TERMINATION. Upon the termination of this Agreement as
provided in this ARTICLE XV, all obligations of the parties hereto with respect
to any future Financings and Ancillary Services under this Agreement will cease;
provided, that the obligations of the parties set forth herein as they relate to
completed Financings and Ancillary Services (including the obligations set forth
in SECTION 8.2, ARTICLE IX, SECTION 10.2, SECTION 15.5 and this SECTION 15.6 and
the provisions herein as to indemnification, dispute resolution, confidentiality
and miscellaneous matters (ARTICLES XIII, XIV, XVII AND XVIII) will continue in
full force and effect.
ARTICLE XVI
BUY-OUT OPTION
SECTION 16.1 BUY-OUT OPTION NOTICE. At least *** prior to the expiration of the
Term, Lucent, may, by delivery of notice (the "Buy-Out Notice") to Newcourt,
elect to have the fair market value of LTPF determined in order for Lucent to
determine whether to exercise its Buy-Out Option (the "Buy-Out Option") under
SECTION 16.2.
SECTION 16.2 BUY-OUT OPTION.
(a) The fair market value of LTPF shall be an amount equal to: (x)
Notional Fee Base for (i) the latest full fiscal year of LTPF's operations, or
(ii) the twelve (12) month period ending on the last day of the calendar month
of the Buy-Out Notice, whichever is greater, multiplied by (y) the average
earnings multiples at which "Three Comparables" trade or would be purchased in
the United States as of the date of the Buy-Out Notice, as determined by a
mutually acceptable independent investment bank or appraisal firm. "Three
Comparables" shall mean three equipment finance companies with similar
businesses, portfolios and operations which are most comparable to the LTPF
operation and the Old Portfolio and the New Portfolio. If the parties can not
agree on an investment bank or appraisal firm, each party shall select its own
investment bank or appraisal firm, and those two banks or firms shall select a
third independent investment bank or appraisal firm.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(b) The parties shall instruct the investment bank or appraisal firm to
complete the determination of the Three Comparables and issue a final report
within 45 days after Lucent provided the Buy-Out Notice. During this period,
Newcourt shall also provide Lucent with an accounting or an estimate of the
components set forth in clauses (ii) to (iv) of Section 16.3(c) that Lucent
would be required to pay at the closing of any purchase if Lucent were to
exercise the Buy-Out Option.
(c) Upon Lucent's receipt of a final report by the investment bank or
appraisal firm establishing the average earnings multiples for the Three
Comparables and Newcourt's estimate of the notional debt of LTPF pursuant to
Section 16.2(b), Lucent shall have 15 days to determine whether it will exercise
its Buy-Out Option. Lucent shall exercise its Buy-Out Option by giving notice to
Newcourt within the foregoing 15 day period that Lucent is exercising its
Buy-Out Option. If Lucent fails to make any election or fails provide the
appropriate notice to Newcourt within the 15 day period, Lucent shall be deemed
to have elected not to exercise its Buy-Out Option. If Lucent elects not to
exercise the Buy-Out Option, or fails to properly exercise the Buy-Out Option in
accordance with this paragraph (c), then the Buy-Out Option shall terminate.
(d) If Lucent shall have exercised its Buy-Out Option, then Lucent,
effective as of the Purchase Effective Date (as defined below), shall purchase
from NCT all of NCT's interest in the Old Portfolio and New Portfolio as of the
Purchase Effective Date and all of the assets of NCT relating to the LTPF
(collectively, "NCT's Interest") for a purchase price (the "Purchase Price")
equal to ***.
SECTION 16.3 CLOSING AND PURCHASE. The following terms and conditions shall
govern the purchase and sale of NCT's Interest:
(a) Unless otherwise agreed by Lucent and NCT, the closing of such
purchase and sale shall occur at the principal offices NCT where LTPF maintained
its headquarters, on the expiration of the Term or as soon as practical
thereafter (the "Purchase Effective Date").
(b) At the closing, NCT shall sell, assign, transfer and convey its
NCT's Interests to Lucent, free and clear of all liens, claims and other
encumbrances (other than those arising pursuant to this Agreement).
(c) At the closing, Lucent shall pay to NCT an amount equal to ***.
(d) ***
(e) The following assets shall be included within the definition of
NCT's Interest:
(i) all of NCT's interest in the Old Portfolio and the New Portfolio
as of the Purchase Effective Date;
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(ii) all fixed and other assets of NCT with respect to which
allocations previously were made in calculating the Management
Fee accrued to Lucent and that were still being utilized to
operate LTPF as of the date of the Buy-Out Notice; and
(iii) a non-exclusive, non-transferable perpetual license in all the
operating systems and software of NCT which were being utilized
to operate LTPF as of the date of the Buy-Out Notice.
(f) NCT shall provide Lucent with the opportunity to hire any NCT
employees who are dedicated on a full-time basis to LTPF other than any member
of NCT's Senior Management team dedicated to the Business (the "Dedicated
Employees"), and shall support Lucent's efforts to hire the Dedicated Employees.
(g) Servicing. Subsequent to the Closing, NCT shall continue servicing
the Old and New Portfolios for the account of Lucent pursuant to a servicing
agreement to be entered into between Newcourt and Lucent based on then market
fees and standards.
(h) The remaining terms and conditions of the purchase and sale of NCT's
Interest shall be negotiated in good faith promptly after Lucent delivers to
Newcourt the Buy-Out Notice. If the parties do not finalize the purchase and
sale agreement within 90 days after the establishment of the fair market value
and Lucent's confirmation that it will be exercising its option, the matter will
be resolved pursuant to Article XIV.
ARTICLE XVII
CONFIDENTIALITY
SECTION 17.1 CONFIDENTIALITY. Newcourt and Lucent agree that the terms of this
Agreement may be publicly disclosed to the extent required in any public filing
made by the Lucent Entities or Newcourt Entities with the Securities and
Exchange Commission, the Canadian securities commission or similar securities
agencies (collectively "Securities Commissions"); however, Newcourt and Lucent
covenant and agree that each shall, and shall cause its respective Affiliates
to, treat any information provided by the Lucent Entities (including the
Customer list) to Newcourt Entities (in the case of Newcourt's obligations
hereunder) or by the Newcourt Entities to the Lucent Entities (in the case of
Lucent's obligations hereunder) pursuant to this Agreement (including, without
limitation, any proprietary information otherwise acquired hereunder) as
confidential and to hold such information and use it solely for purposes of this
Agreement and not without the prior consent of the other party hereto, to
disclose, or cause to be disclosed, such information to any Person, except that
any such information may be disclosed (a) to the Newcourt Entities' or the
Lucent Entities' agents, directors, officers, employees, representatives,
accountants, counsel or special counsel who have a need to know or have access
to such information and who have been instructed or have a duty to keep such
information confidential in accordance with the terms hereof, (b) to the
Affiliates of Newcourt and Lucent, and such Affiliates' agents, directors,
officers, employees, representatives, accountants, counsel or special counsel
who have a need to know or have access to such information and who have been
instructed or have a duty to keep such information confidential and to use it in
accordance with the terms hereof, (c) to such other Persons who are reasonably
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48
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
deemed necessary by Newcourt and Lucent, as the case may be, in connection with
the enforcement of their rights under this Agreement, (d) to the extent required
pursuant to applicable law or any governmental authority (including, but not
limited to, the IRS, state taxing authorities, any Securities Commission or
federal or state judicial authorities), (e) to the extent required or
appropriate to be disclosed in response to a reasonable request by rating
agencies, underwriters, or creditors in connection with financing transactions
undertaken by Newcourt or Lucent or their Affiliates, who agree or are under a
duty to hold such information confidential in accordance with the terms hereof,
(f) to the extent that prior to such disclosure, such information is in the
public domain or (g) to Persons other than Lucent Competitors involved in
potential acquisitions of, mergers with or purchase of all or substantially all
of the assets of Newcourt (or any other Newcourt Entity) or Lucent (or any other
Lucent Entity) who, in each case, agree in writing to hold such information
confidential in accordance with the terms hereof. Newcourt and Lucent will take
such action as may be reasonably necessary to ensure that the competitors of the
other party do not acquire such information.
ARTICLE XVIII
MISCELLANEOUS
SECTION 18.1 AMENDMENTS; WAIVERS.
(a) This Agreement can be amended only by a writing duly executed by the
parties hereto.
(b) Any waiver of a breach or non-performance, or any failure to
exercise any remedy within the time periods set forth in this Agreement, shall
not be deemed a waiver of any other breach or non-performance, or subsequent
breach or non-performance, whether or not similar or identical in nature.
SECTION 18.2 NO PARTNERSHIP. Nothing contained in this Agreement will be
construed in any manner to constitute the creation of a partnership between the
parties. All Lucent Entities and all NCT Entities are, and will at all times be
and remain independent contractors with respect to the subject matter of this
Agreement.
SECTION 18.3 THIRD PARTIES. Nothing in this Agreement, expressed or implied, is
intended or will be construed to confer upon any Person (including Customers and
Authorized Dealers) other than the parties hereto and their permitted successors
and assigns any right, remedy or claim under or by reason of this Agreement.
SECTION 18.4 INTELLECTUAL PROPERTY RIGHTS AND CUSTOMER LISTS. Any software or
management system developed solely for and paid for by LTPF will be the sole
property of LTPF. ***
SECTION 18.5 TRANSFER OF INTERESTS. (a) Newcourt will not sell, assign, transfer
or otherwise dispose of or encumber (collectively, "assign"), this Agreement or
its interest in LTPF to another Person, except a wholly-owned Subsidiary of
Newcourt without the prior written consent of Lucent.
<PAGE>
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49
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(b) Lucent will not sell, assign, transfer or otherwise dispose of
(collectively, "assign") or encumber its rights under this Agreement without the
prior written consent of Newcourt except (i) to a Lucent Entity or (ii) to
another Person which acquires all or substantially all of the assets now
comprising BCS (the "Assets"). Lucent shall use its diligent efforts to have
this Agreement assigned to and assumed by a Person acquiring the Assets.
SECTION 18.6 SUBSIDIARIES.
(a) Lucent agrees and acknowledges that Lucent shall be responsible for,
and hereby guarantees, the due and punctual payment and performance, in
accordance with their terms, of the obligations hereunder applicable to any
Lucent Entity or any business unit or division within a Lucent Entity or in any
other agreement or commitment of a Lucent Entity or any business unit or
division within a Lucent Entity entered into at any time and from time to time
in connection with this Agreement with or for the benefit of any Newcourt Entity
or any business unit or division within a Newcourt Entity. Lucent further
acknowledges and agrees that the foregoing undertaking and guarantee shall
extend for the benefit of any permitted assignee of Newcourt or such business
unit's or division's rights and benefits with respect to any such agreement or
commitment and, if reasonably requested by Newcourt, Lucent shall affirm such
undertaking and guarantee for the benefit of any such assignee. Newcourt agrees
that any obligation of Lucent hereunder or thereunder that is paid or performed
by a Lucent Entity (other than Lucent) shall be deemed to be paid or performed,
as the case may be, by Lucent.
(b) Newcourt agrees and acknowledges that Newcourt shall be responsible
for and hereby guarantees the due and punctual payment and performance, in
accordance with their terms, of the obligations hereunder applicable to any
Newcourt Entity or any business unit or division of any Newcourt Entity or in
any other agreement or commitment of such Newcourt Entity or any business unit
or division within any Newcourt Entity entered into at any time and from time to
time in connection with this Agreement with or for the benefit of the Lucent
Entities or any business unit or division within a Lucent Entity. Newcourt
further acknowledges and agrees that the foregoing undertaking and guarantee
shall extend for the benefit of any permitted assignee of Lucent's, with respect
to any such agreement or commitment and, if reasonably requested by Lucent,
Newcourt shall affirm such undertaking and guarantee for the benefit of any such
assignee. Lucent agrees that any obligation of Newcourt hereunder or thereunder
that is paid or performed by any Newcourt Entity shall be deemed to be paid or
performed, as the case may be, by Newcourt.
SECTION 18.7 NOTICES. All notices, consents, deliveries, demands, approvals and
other communications which are required or permitted to be given hereunder will
be in writing and will be deemed to have been duly given if personally delivered
(including overnight courier service), telecopied or mailed certified first
class mail, postage prepaid, addressed as follows:
<PAGE>
<PAGE>
50
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(a) if to Lucent, to:
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Telecopier Number:
Attn: Treasurer
with a copy to: Paul D. Diczok
Lucent Technologies Inc.
219 Mt. Airy Road
Room 2F220
Basking Ridge, New Jersey 07920
Telecopier Number: 908-953-4912
Attn: Paul D. Diczok, Esq.
(b) If to NCT, to:
NEWCOURT CREDIT GROUP INC.
BCE Place
181 Bay Street
Suite 3500
P.O. Box 827
Toronto, Ontario, Canada M5J2T3
Telecopier Number: 416-594-2515
Attn: Bradley D. Nullmeyer
with a copy to:
AT&T/Newcourt
44 Whippany Road
Morristown, NJ 07962
Telecopier Number: 973-397-4440
Attn: Scott Moore, General Counsel
SECTION 18.8 ORIGINAL AGREEMENTS. (a) Upon the Commencement Date, the following
agreements, as between Lucent and Capital, shall terminate the Original
Agreements, the Location Support Agreement (as defined in the Operating
Agreement (and any related letter supplements), and any agreements relating to
the payment of sales assistance or similar fees to Lucent and their employees,
except to the extent any term of any of the Original Agreements or such other
agreement specifies that it survives termination of that agreement.
<PAGE>
<PAGE>
51
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(b) Lucent and Newcourt each hereby mutually waive and release
any and all claims each party or any of its Affiliates may have has against the
other party or its Affiliates as a result of any actual or purported breach or
violation of the Original Agreements and the other agreements terminated
pursuant to SECTION 18.8(a).
SECTION 18.9 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
the choice of law provisions of its conflicts of law rules.
SECTION 18.10 HEADINGS. This article and section headings and subheading
contained in this Agreement are intended solely for the convenience of reference
and will not affect in any manner the meaning or interpretation of this
Agreement.
SECTION 18.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original instrument, but all of
which together will constitute one and the same agreement, and will become
binding when one or more counterparts have been executed and delivered by each
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first above written.
[Signatures on following page]
<PAGE>
<PAGE>
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
LUCENT TECHNOLOGIES INC. NEWCOURT CREDIT GROUP INC.
/s/ William T. O'Shea /s/ Robert J. Hicks
BY: _______________________________ BY: ______________________________
NAME: William T. O'Shea NAME: Robert J. Hicks
TITLE: Group President--BCS TITLE: Senior Vice President
/s/ Donald K. Peterson /s/ Daniel A. Jauernig
BY: _______________________________ BY: ______________________________
NAME: Donald K. Peterson NAME: Daniel A. Jauernig
TITLE: Executive Vice President TITLE: Chief Financial Officer
and CFO
<PAGE>
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
SCHEDULES
SCHEDULE 1.1 APPLICABLE TRADE NAMES AND SERVICE MARKS
SCHEDULE 6.1 LOCATION SUPPORT
SCHEDULE 6.2 EXISTING ALTERNATIVE FINANCING SERVICE PROVIDERS
SCHEDULE 7.1 PERMITTED LUCENT COMPETITORS
<PAGE>
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
SCHEDULE 1.1
APPLICABLE TRADE NAMES AND SERVICE MARKS
<PAGE>
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
SCHEDULE 6.1
LOCATION SUPPORT
(a) SUPPORT SPACE AND SERVICES. Subject to the availability of space in
each appropriate Sales Site, Lucent agrees to provide to LTPF, (i) appropriate
furnished office space ("Support Space"), and (ii) basic office support services
for such Support Space during regular business hours (including, cleaning,
relamping, data and telephone lines, duplicating facilities, file storage, mail
room and similar services), which service shall be limited in any event to the
support services that are regularly available at such Sales Site. Lucent further
agrees that, to the extent practicable, the Support Space shall be located in
reasonable proximity to the appropriate Lucent sales personnel.
(b) COMPLIANCE WITH RULES AND REGULATIONS AND LEASES. NCT agrees that
LTPF shall occupy its respective Support Space in accordance with the rules and
regulations and general office business practices for the Sales Site in
question, whether such Sales Site is owned or leased by a Lucent Entity. Lucent
shall provide LTPF with a copy of such rules and regulations and advise LTPF
regarding any other general office business practices to permit the LTPF to
fulfill its obligations hereunder. LTPF's occupancy of any leased or subleased
sales sites shall be in compliance with any applicable leases or subleases with
third parties.
(c) REIMBURSEMENT FOR SUPPORT SPACE. NCT agrees to reimburse (on behalf
of LTPF) Lucent for the proportionate costs of provision of the Support Space
and of such Support Space's allocable share of any common expenses associated
with the Sales Site, including, but not limited to, (i) building operating
expenses, (ii) utility user charges (at actual cost for dedicated utilities and
as appropriately apportioned or otherwise measured if not so dedicated to LTPF)
and (iii) fixed general charges for building amenities or services that are not
charged on a per-use basis (collectively, the "Reimbursement Cost"). The
Reimbursement Cost for each Support Space (i) shall be mutually agreed on a
periodic basis by Lucent and NCT as part of the Annual Operating Plan and (ii)
shall be paid by NCT, on behalf of LTPF, without requiring any prior invoice
therefor, in equal monthly installments in advance on the first day of each
calendar month. NCT further agrees to pay or reimburse, on behalf of LTPF,
Lucent (i) for the office support services (if same have not previously been
included in the Reimbursement Cost) and (iii) for any specially-ordered building
services incurred with respect to the use and occupancy of the Support Space by
LTPF, for which all such payments should be due within 30 days of receipt of a
periodic statement for such user and office service charges.
(d) TERM OF OCCUPANCY. The term of occupancy (the "Support Space Term")
for each Support Space identified by the parties shall commence, for those
Support Spaces occupied by LTPF personnel on the Commencement Date on such date
and shall commence for each Support Space hereafter identified pursuant to the
terms hereof on the date LTPF shall first occupy such Support Space. The Support
Space Term for any given Support Space shall expire and terminate on the
earliest to occur of (i) the effective date of the termination of the Agreement,
(ii) the date the Sales Site containing the Support Space is vacated for any
reason
<PAGE>
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
by Lucent, or (iii) the date which is 90 days from the date of notice of
termination given by the LTPF to Lucent.
(e) END OF SUPPORT SPACE TERM. Upon the expiration of the Support Space
Term in accordance with the terms of this Agreement or other termination of
occupancy of any Support Space by LTPF, LTPF shall (i) vacate and surrender the
Support Space to Lucent or the Company owning or controlling the Sales Site,
broom clean and in good order, condition and repair, ordinary wear and tear and
damage by the elements, fire or other casualty excepted, (ii) on or prior to
such date, at LTPF's sole cost and expense, remove from the Support Space any
unauthorized alterations and restore the Support Space as appropriate, and (iii)
remove all of the LTPF's personal property.
(f) NO LEASE. The terms of this SCHEDULE 6.1 and LTPF's occupancy of any
Support Space are intended to provide for "location support" and shall not
constitute or be deemed to constitute a lease, sublease or co-tenancy agreement.
<PAGE>
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
SCHEDULE 6.2
EXISTING ALTERNATIVE FINANCING SERVICE PROVIDERS
***
<PAGE>
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1934, AS AMENDED, AND RULE 24B-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
SCHEDULE 7.1
PERMITTED LUCENT COMPETITORS
***
<PAGE>
<PAGE>
EXHIBIT 12
Form 10-K for 1997
File No. 1-11237
AT&T CAPITAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings from continuing
operations:
Income before
income taxes
and extraordinary
loss $ 32,036 $278,602 $208,239 $173,614 $138,040
Deduct undistributed
earnings on equity
investments, net of
losses - - - -
Add fixed charges
included in income
before income taxes
and cumulative effect
of accounting change 460,221 465,121 418,624 277,913 242,100
- ---------------------------------------------------------------------------
Total earnings from
continuing
operations, as
adjusted $492,257 $743,723 $626,863 $451,527 $380,140
- ---------------------------------------------------------------------------
Total fixed charges* $460,221 $465,121 $418,624 $277,913 $242,100
Ratio of earnings
to fixed charges 1.07 1.60 1.50 1.62 1.57
- ---------------------------------------------------------------------------
</TABLE>
* Fixed charges include interest on indebtedness and the portion of rentals
representative of the interest factor. Fixed charges do not include
distributions on Company-obligated preferred securities of the Company's
subsidiaries.
<PAGE>
<PAGE>
EXHIBIT 21
Form 10-K for 1997
File No. 1-11237
SUBSIDIARIES OF AT&T CAPITAL CORPORATION
As of December 31, 19947
<TABLE>
<CAPTION>
State or Other
Jurisdiction
of Incorporation
Name of Subsidiary(*) or Organization
- ---------------------------------------------------------------------------
<S> <C>
Antigua Funding Corporation Delaware
AT&T Automotive Services, Inc. Delaware
AT&T Capital Canada, Inc. (1) Ontario, Canada
1177662 Ontario Inc. Ontario, Canada
AT&T Capital FSC, Inc. Virgin Islands
AT&T Capital Limited England
AT&T Capital (Automotive Services) Limited England
AT&T Commercial Finance Corporation (2) Delaware
American Express CapitaFinance LLC (a) Arizona
ATMOR Holdings Inc. Delaware
ATMOR Properties Inc. (in trust) Delaware
AT&T Capital Leasing Services, Inc. (3) Massachusetts
The Lease Factor, Inc. Massachusetts
Eaton Express Corporation Massachusetts
Thermo Capital Company LLC (b) Delaware
Picker Financial Group LLC (c) Delaware
AT&T Capital Services Corporation Delaware
AT&T Systems Leasing Corporation Michigan
AT&T Credit Corporation Delaware
AT&T Credit Consumer Finance Corporation Delaware
AT&T Credit Corporation of Puerto Rico Delaware
Capita Credit Corporation Delaware
The Capita Corporation Singapore Pte Ltd. Singapore
AT&T Small Business Lending Corporation Delaware
Capita Beteiligungs AG Germany
Capita Colombia Holding Corp. Delaware
Global Vendor Services Ltda. Colombia
Capita Global Finance Corporation Delaware
Capita Hungary Trading and Servicing Company Limited Hungary
Capita Russia Holdings I Corp. Delaware
Capita Russia Holdings II Corp. Delaware
Capita Corporation CIS Russian Federation
The Capita Corporation Polska Sp.zo.o Poland
Capita Funding Pty Limited Australia
Capita International L.L.C. Delaware
Arrendadora Capita Corporation S.A. de C.V. Mexico
Capita Servicios, S.A. de C.V. Mexico
The Capita Corporation de Mexico S.A. de C.V. Mexico
Capita Leasing GmbH Austria
Capita Premium Finance Corporation Delaware
Capita Resources, Inc. Delaware
Capital Syndication Corporation Delaware
Midrange Solutions Group Inc. Delaware
The Capita Corporation de Argentina SA Argentina
The Capita Corporation de Mexico, S.A. de C.V.(5) Mexico
The Capita Corporation Holding B. V. Netherlands
Capita Corporation Italy, S.p.A. Italy
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 21
Form 10-K for 1997
File No. 1-11237
SUBSIDIARIES OF AT&T CAPITAL CORPORATION
As of December 31, 19947
(Continued)
<TABLE>
<S> <C>
Capita Holding France, S.A. France
The Capita Corporation Finance France SNC France
Capita Holding Germany GmbH Germany
Capita A.G. & Co. Germany
Capita Holdings U.K. Limited England
AT&T Capital (Vendor Services) Limited England
The Capita Corporation Nederland B.V. The Netherlands
The Capita Corporation NV/SA Belgium
The Capita Corporation AG Switzerland
The Capita Corporation Australia Limited (7) Australia
Hunter Leasing Limited Australia
Lonsfield Pty. Ltd. Australia
The Capita Corporation do Brasil Ltda. Brazil
The Capita Corporation Hong Kong Limited (6) Hong Kong
The Capita Corporation New Zealand Limited New Zealand
The Capita Leasing Corporation People's Republic of China
The Capita Leasing Corporation (BVI) Ltd. British Virgin Islands
The Equipment Insurance Company Vermont
</TABLE>
(*) All subsidiaries do business under their corporate names, and the other
names indicated in the footnotes below.
(1) Hyster Credit Company
(2) Hyster Credit Company and JCB Finance Company
(3) Eaton Financial Company
(4) AT&T Capital Corporation and The Capita Corporation
(5) AT&T Capital de Mexico and The Capita Corporation
(6) AT&T Capital Corporation
(7) The Capita Corporation
(a) 50%/50% joint venture with American Express Travel Related Services Company,
Inc.
(b) 50%/50% joint venture with Thermo Electron Company
(c) 50%/50% joint venture with Picker Financial Corporation
<PAGE>
<PAGE>
Exhibit 24(a)
Form 10-K for 1997
File No. 1-11237
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the Securities and
Exchange Commission, under the provisions of the Securities Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director, an officer, or both an officer and
a director of the Company, as indicated below under his name:
NOW, THEREFORE, the undersigned hereby constitutes and appoints DANIEL A.
JAUERNIG and STEVEN K. HUDSON, and each of them, as attorneys for him and in his
name, place and stead, and in each of his offices and capacities as a director,
an officer, or both an officer and a director of the Company, to execute and
file such annual report on Form 10-K, and thereafter to execute and file any
amendment or amendments thereto on Form 8 or any other applicable form, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and about the premises, including the use or transmission of any personal
identification numbers assigned to the undersigned by the Securities and
Exchange Commission, as fully, for all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of March, 1998.
/s/ David F. Banks
------------------
David F. Banks
Director and Chairman of the Board
<PAGE>
<PAGE>
Exhibit 24(a)
Form 10-K for 1997
File No. 1-11237
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the Securities and
Exchange Commission, under the provisions of the Securities Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director, an officer, or both an officer and
a director of the Company, as indicated below under his name:
NOW, THEREFORE, the undersigned hereby constitutes and appoints DANIEL A.
JAUERNIG as attorney for him and in his name, place and stead, and in each of
his offices and capacities as a director, an officer, or both an officer and a
director of the Company, to execute and file such annual report on Form 10-K,
and thereafter to execute and file any amendment or amendments thereto on Form 8
or any other applicable form, hereby giving and granting to said attorney full
power and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises, including the use
or transmission of any personal identification numbers assigned to the
undersigned by the Securities and Exchange Commission, as fully, for all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorney may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of March, 1998.
/s/ Steven K. Hudson
--------------------
Steven K. Hudson
Director and Chief Executive Officer
<PAGE>
<PAGE>
Exhibit 24(a)
Form 10-K for 1997
File No. 1-11237
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the Securities and
Exchange Commission, under the provisions of the Securities Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director, an officer, or both an officer and
a director of the Company, as indicated below under his name:
NOW, THEREFORE, the undersigned hereby constitutes and appoints THOMAS G.
ADAMS AND STEVEN K. HUDSON, and each of them, as attorneys for him and in his
name, place and stead, and in each of his offices and capacities as a director,
an officer, or both an officer and a director of the Company, to execute and
file such annual report on Form 10-K, and thereafter to execute and file any
amendment or amendments thereto on Form 8 or any other applicable form, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and about the premises, including the use or transmission of any personal
identification numbers assigned to the undersigned by the Securities and
Exchange Commission, as fully, for all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of March, 1998.
/s/ Daniel A. Jauernig
----------------------
Daniel A. Jauernig
Group President and
Chief Financial Officer
<PAGE>
<PAGE>
Exhibit 24(a)
Form 10-K for 1997
File No. 1-11237
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the Securities and
Exchange Commission, under the provisions of the Securities Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director, an officer, or both an officer and
a director of the Company, as indicated below under his name:
NOW, THEREFORE, the undersigned hereby constitutes and appoints DANIEL A.
JAUERNIG, as attorney for him and in his name, place and stead, and in each of
his offices and capacities as a director, an officer, or both an officer and a
director of the Company, to execute and file such annual report on Form 10-K,
and thereafter to execute and file any amendment or amendments thereto on Form 8
or any other applicable form, hereby giving and granting to said attorney full
power and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises, including the use
or transmission of any personal identification numbers assigned to the
undersigned by the Securities and Exchange Commission, as fully, for all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorney may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 24th day of March, 1998.
/s/ Thomas G. Adams
-------------------
Thomas G. Adams
Vice President and Controller
<PAGE>
<PAGE>
Exhibit 24(b)
Form 10-K for 1997
File No. 1-11237
CERTIFICATE OF CORPORATE RESOLUTIONS
I, Glen J. DuMont, an Assistant Secretary of AT&T Capital Corporation,
hereby certify that the following resolutions were duly adopted by the Board of
Directors of AT&T Capital Corporation by consent dated March 17, 1997:
RESOLVED: that the Company's Annual Report on Form 10-K for 1997
substantially in the form presented to the Board is approved, with such changes
as the Chief Financial Officer may approve, provided that any material changes
will also be approved by the General Counsel and the Chief Executive Officer and
that the Board of Directors will be advised of any material changes made in the
financial statements (or related notes) in the Form 10-K; and
FURTHER RESOLVED: that the Chief Executive Officer, the Chief Financial
Officer and the Controller are each severally authorized to sign the Form 10-K
in the name and on behalf of the Company.
Dated: March 17, 1998
/s/ Glen J. DuMont
------------------
Glen J. DuMont
<PAGE>
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Exhibit 99
Form 10-K for 1997
File No. 1-11237
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
(X) ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
Commission File Number 1-11237
AT&T CAPITAL CORPORATION EXCESS BENEFIT PLAN
AT&T CAPITAL CORPORATION
A DELAWARE I.R.S. EMPLOYER
CORPORATION NO. 22-3211453
44 Whippany Road, Morristown, New Jersey 07962-1983
Telephone Number 973-397-3000
Total number of pages in this filing are 11.
The Exhibit Index is on page 11.
1
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TABLE OF CONTENTS
Signatures 3
Report of Independent Public Accountants - Arthur Andersen LLP 4
Report of Independent Accountants - Coopers & Lybrand L.L.P. 5
Statements of Financial Condition at December 31, 1997 and 1996 6
Statements of Income and Changes in Plan Equity for the three
years ended December 31, 1997 7
Notes to Financial Statements 8
Exhibit Index 11
(Financial statement schedules are not included because of the absence of
conditions under which they are required.)
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
members of the Administrative Committee of the AT&T Capital Corporation Excess
Benefit Plan have executed this annual report.
AT&T CAPITAL CORPORATION EXCESS BENEFIT PLAN
Date: March 30, 1998
By Sara R. McAuley
----------------------------------
Sara R. McAuley
Senior Vice President-
Corporate Resources Officer
Date: March 30, 1998
By Scott J. Moore
-----------------------------------
Scott J. Moore
Senior Vice President - Legal
General Counsel and Secretary
Date: March 30, 1998
By Daniel A. Jauernig
------------------------------------
Daniel A. Jauernig
Group President and
Chief Financial Officer
3
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
---------------------------------
To the Participants and Administrative Committee of the AT&T Capital
Corporation Excess Benefit Plan:
We have audited the accompanying statement of financial condition of the
AT&T Capital Corporation Excess Benefit Plan (the "Plan") at December 31, 1997,
and the related statement of income and changes in plan equity for the year then
ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of the Plan at December 31,
1997, and the results of its operations and changes in its plan equity for the
year then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 30, 1998
4
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REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Participants and Administrative Committee of the AT&T Capital
Corporation Excess Benefit Plan:
We have audited the accompanying statements of financial condition of the
AT&T Capital Corporation Excess Benefit Plan (the "Plan") at December 31, 1996,
and the related statements of income and changes in plan equity for each of the
years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of the Plan at December 31,
1996, and the income and changes in plan equity for each of the years ended
December 31, 1996 and 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
March 28, 1997
5
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AT&T CAPITAL CORPORATION EXCESS BENEFIT PLAN
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
At December 31, 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Assets:
Receivable from Employer $ 3,346,759 $ 2,347,382
------------ -----------
Total Plan assets: $ 3,346,759 $ 2,347,382
=========== ===========
Total Plan equity $ 3,346,759 $ 2,347,382
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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AT&T CAPITAL CORPORATION EXCESS BENEFIT PLAN
STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Additions:
Earnings on employer
contributions $ 121,695 $ 82,753 $ 39,373
Employer contributions, net of
forfeitures 1,132,869 784,938 815,786
---------- ---------- ----------
Total additions 1,254,564 867,691 855,159
---------- ---------- ----------
Deductions:
Distributions to participants (255,187) (27,759) (11,576)
---------- ---------- ----------
Total deductions (255,187) (27,759) (11,576)
---------- ---------- ----------
Net increase 999,377 839,932 843,583
Plan equity, beginning of year 2,347,382 1,507,450 663,867
---------- ---------- ----------
Plan equity, end of year $3,346,759 $2,347,382 $1,507,450
========== ========== ==========
</TABLE>
7
The accompanying notes are an integral part of these financial statements.
<PAGE>
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AT&T CAPITAL CORPORATION EXCESS BENEFIT PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of Plan
The following description of the AT&T Capital Corporation Excess Benefit
Plan (the "Plan"), a nonqualified defined contribution plan, provides a summary
of the material terms of the Plan.
General
AT&T Capital Corporation (the "Company" or "Employer") sponsors the AT&T
Capital Corporation Retirement and Savings Plan, as amended (the "RSP"), a
qualified defined contribution money purchase and profit sharing plan covering
employees of the Company and its domestic subsidiaries. Effective January 1,
1994, the Company adopted the Plan to allow eligible employees to receive
contributions which would otherwise be limited under the RSP by Section 415 of
the Internal Revenue Code (the "IRC") to the lesser of $30,000 or 25% of the
participant's taxable wages (up to the IRC compensation limit pursuant to
Section 401(a)(17) of $160,000 in 1997, and $150,000 for 1996 and 1995). Under
the RSP, participants are entitled to make before and after-tax contributions
limited to 12% of annual pay. The Company makes a matching contribution equal to
66-2/3% of the participant's contributions up to 6% of their annual pay (the
"Company match"). In addition, the Company is required to make annual
contributions (the "uniform points contributions") to the Plan equal to 5% of
total payroll with respect to each year. The Company may also make a
discretionary uniform points contribution with respect to each Plan year. Unless
and until the Company's Board of Directors or Compensation Committee otherwise
directs, the discretionary uniform points contribution shall equal 4% of total
payroll, as defined. The uniform points contributions are allocated to
participants based on years of service and pay. Participants in the RSP with
aggregate participant and Employer contributions for the year that exceed the
IRC limitations automatically participate in the Plan. The provisions of the
Plan allow for Company match and uniform points contributions, in excess of IRC
limits described above, to be credited to participant accounts under the Plan.
RSP participant before and after-tax contributions exceeding these IRC
limitations will be refunded to the participant.
Vesting
As a result of a change in control of the Company resulting from the 1996
Merger (defined in Note 6), all Plan participants employed by the Company before
October 1, 1996 became fully vested in the uniform points contributions, Company
match and related earnings.
As a result of a change in control of the Company resulting from the 1998
Merger (defined in Note 6) all Plan participants employed by the Company before
January 12, 1998 became fully vested in the uniform points contribution, Company
match and related earnings.
8
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Subsequent to January 12, 1998, participants become vested in the Company
match and related earnings within 1-1/2 years of continuous service and become
vested in the uniform points contributions and related earnings over 5 years of
continuous service at a rate of 20% per year.
Regardless of the number of years of continuous service, a participant
shall be fully vested in the Company match and uniform points contributions and
related earnings if the participant terminates employment because of disability,
terminates employment on or after attaining age 65 or upon the occurrence of
certain other events (including a change in control of the Company) as defined
in the Plan document.
Forfeitures
Non-vested contributions credited under the Plan are forfeited upon
termination. For the year ended December 31, 1997 and 1996, forfeited non-vested
accounts were $13,418 and $15,874, respectively.
Payment of Benefits
The vested portion of a participant's account will be paid to the
participant in 60 monthly installments upon the participant attaining the age of
65. The Company, at its sole discretion, may commence such payments to a
terminated participant prior to their 65th birthday. Upon death, a lump sum
payment equaling the vested portion of the participant's account will be paid to
the participant's beneficiary.
2. Accounting Policies
Funding
The Plan is considered an unfunded nonqualified deferred compensation plan
under the IRC, and therefore, not subject to most of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"). The cumulative
contributions due to the Plan and related earnings are held in an irrevocable
grantor trust by the Employer with Merrill Lynch (the "Trust"). Benefits payable
under the Plan will be paid from the Trust. The assets of the Trust have been
invested in the Merrill Lynch Government Fund (the "Government Fund"). The
Government Fund invests in a portfolio of securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
Administrative Costs
All costs and expenses of the Plan are paid by the Company.
Receivable from Employer
The receivable from the Employer represents the cumulative contributions
and related earnings held by the Employer with Merrill Lynch, in addition to the
contribution due by the Employer to the Trust as of the end of each year. The
Company funded the 1997 and 1996 Employer contributions due the Plan plus
related earnings to the Trust in March 1998 and 1997, respectively.
9
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The contribution due to the Trust from the Employer at year end earns
interest at a rate no less than the rate of return on investments in the
Government Fund, a similar investment option, from December 31st of that year
until such amounts are funded to the trust.
3. Administration of the Plan
The Plan is administered by an Administrative Committee appointed by the
Compensation Committee of the Company's Board of Directors. Merrill Lynch has
been appointed as recordkeeper for the Plan.
4. Federal Income Tax Status
The Plan is not a qualified plan under Section 401 of the IRC and;
therefore, is a nonqualified deferred compensation plan. Earnings on Trust
assets are taxable to the Company. Plan participants are not taxed, for federal
income tax purposes, on Company contributions to the Plan or earnings on Plan
assets until the taxable year in which such contributions are received by the
participant. The Company is not entitled to a current tax deduction for
contributions made to the Plan until such time as the benefits are taxable to
the participant.
5. Plan Termination
Although it has not expressed any intention to do so, the Compensation
Committee of the Board of Directors of the Company reserves the right to amend,
suspend, or terminate the Plan at any time.
6. 1996 and 1998 Mergers
On January 12, 1998, all of the Company's outstanding shares of common
stock were purchased by Newcourt Credit Group Inc., an Ontario corporation
("Newcourt") in a transaction accounted for under the purchase method of
accounting (the "1998 Merger"). The Company currently is an indirect
wholly-owned subsidiary of Newcourt.
On October 1, 1996, the Company completed a merger (the "1996 Merger") to
which the Company was merged with and into an indirect wholly-owned subsidiary
of GRS Holding Company, Ltd., owner of a UK rail leasing business, with the
Company being the surviving entity.
10
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EXHIBIT INDEX
Exhibit
Number
None
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information primarily extracted from
AT&T Capital Corporation's audited consolidated income statement and balance
sheet for and at the year ended December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> (178,552)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> (772,437)<F1>
<TOTAL-ASSETS> 8,775,895
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 5,249,409
<COMMON> 903
0
0
<OTHER-SE> 742,876
<TOTAL-LIABILITY-AND-EQUITY> 8,775,895<F3>
<SALES> 49,349
<TOTAL-REVENUES> 1,814,139
<CGS> 44,769
<TOTAL-COSTS> 598,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 114,301
<INTEREST-EXPENSE> 451,470
<INCOME-PRETAX> 32,036
<INCOME-TAX> 11,029
<INCOME-CONTINUING> 21,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,007
<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 Company-obligated preferred securities of $200,000.
</FN>
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