-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AKZptgUKLaGduR1KkFKonwa/5rFovRavBVIxfHfWix3/7i8j04Mc9J9p6wNVDYgc zLXzgrFMVQfzOb674nQoKw== 0000891092-01-000463.txt : 20010330 0000891092-01-000463.hdr.sgml : 20010330 ACCESSION NUMBER: 0000891092-01-000463 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIT GROUP INC CENTRAL INDEX KEY: 0000020388 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 132994534 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-01861 FILM NUMBER: 1583245 BUSINESS ADDRESS: STREET 1: 1211 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2125361390 MAIL ADDRESS: STREET 1: 1211 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: CIT GROUP HOLDINGS INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CIT FINANCIAL CORP/OLD/ DATE OF NAME CHANGE: 19860512 10-K 1 0001.txt FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 ---------- Form 10-K ---------- (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 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 1-1861 The CIT Group, Inc. (Exact name of registrant as specified in its charter) Delaware 13-2994534 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1211 Avenue of the Americas, New York, New York 10036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 536-1390 ---------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered - ------------------- ------------------------ Common Stock, par value $0.01 per share ............. New York Stock Exchange Toronto Stock Exchange 5 7/8% Notes due October 15, 2008 ................... New York Stock Exchange ---------- 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. [ ] The aggregate market value of the voting stock including Exhangeable Shares held by non-affiliates of the registrant, based on the most recent New York Stock Exchange Composite Transaction closing price of the Common Stock ($23.10 per share), which occurred on February 28, 2001, was $3,059,674,418. For purposes of this computation, all officers, directors, and 5% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors, and beneficial owners are, in fact, affiliates of the registrant. At February 28, 2001, 262,212,301 shares of CIT's Common Stock including Exchangeable Shares, par value $0.01 per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by Reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). None ================================================================================ TABLE OF CONTENTS - -------------------------------------------------------------------------------- Form 10-K Item No. Name of Item Page - --------- ------------ ---- Part I Item 1. Business ........................................................ 1 Overview ...................................................... 1 First Quarter 2001 Business Unit Transfers .................... 8 Common Stock .................................................. 8 Securitization Program ........................................ 8 Industry Concentration ........................................ 9 Competition ................................................... 9 Regulation .................................................... 9 Item 2. Properties ...................................................... 10 Item 3. Legal Proceedings ............................................... 10 Item 4. Submission of Matters to a Vote of Security Holders ............. 10 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ........................................... 11 Item 6. Selected Financial Data ......................................... 12 Item 7. Management's Discussion and Analysis of Financial and Condition and Results of Operations ........................... 14 Item 7A. Quantitative and Qualitative Disclosure about Market Risk ....... 14 Item 8. Financial Statements and Supplementary Data ..................... 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................... 61 Part III Item 10. Directors and Executive Officers of the Registrant .............. 62 Item 11. Executive Compensation .......................................... 62 Item 12. Security Ownership of Certain Beneficial Owners and Management ................................................ 62 Item 13. Certain Relationships and Related Transactions .................. 62 Part IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K ........................................... 63 i Forward-Looking Statements Certain statements contained in this filing are forward-looking statements concerning our operations, economic performance and financial condition. Forward-looking statements are included, for example, in the discussions about: o our liquidity risk management, o our credit risk management, o our asset/liability risk management, o our capital, leverage and credit ratings, o our operational and legal risks, and o how we may be affected by legal proceedings. These statements involve risks and uncertainties that may be difficult to predict. Also, forward-looking statements are based upon management's estimates of fair values and of future costs, using currently available information. Therefore, actual results may differ materially from those expressed or implied in those statements. Factors that could cause such differences include, but are not limited to: o risks of economic slowdown or downturn, o industry cycles and trends, o risks inherent in changes in market interest rates, o funding opportunities and borrowing costs, o changes in funding markets, including commercial paper, term debt and the asset-backed securitization markets, o uncertainties associated with risk management, including credit, prepayment, asset/liability, interest rate and currency risks, o adequacy of reserves for credit losses, o risks associated with the value and recoverability of leased equipment and lease residual values, o changes in regulations governing our business and operations or permissible activities, and o changes in competitive factors. ii PART I Item 1. Business OVERVIEW The CIT Group, Inc., ("we," "our," "us," or "CIT"), a Delaware corporation, is a leading global source of financing and leasing capital for companies in more than 30 industries, including many of today's leading industries and emerging businesses, offering vendor, equipment, commercial, factoring, consumer, and structured financing capabilities. We had $54.9 billion of managed assets and $6.0 billion of stockholders' equity at December 31, 2000. Our principal executive offices are located at 1211 Avenue of the Americas, New York, New York 10036 and our telephone number is (212) 536-1390. CIT became a public company in November 1997 in an initial public offering ("IPO"). At December 31, 2000, The Dai-Ichi Kangyo Bank, Limited ("DKB") owned approximately 27% of the outstanding stock (including the exchangeable shares). We commenced operations in 1908 and have developed a broad array of "franchise" businesses that focus on specific industries, asset types and markets, which are balanced by client, industry and geographic diversification. Our size, scope and diversification were significantly expanded in November 1999, when we acquired Newcourt Credit Group Inc. ("Newcourt"). On March 13, 2001, Tyco International Ltd. (NYSE: TYC), a diversified manufacturing and service company, and CIT announced a definitive agreement whereby Tyco will acquire CIT. As part of this transaction, Tyco has entered into a purchase agreement with DKB for their approximate 27% interest, or 71 million shares, at a price of $35.02, in cash, per CIT share. The remaining shareholders will receive 0.6907 Tyco shares for each share of CIT in a tax-free, stock-for-stock exchange. The transaction, which is expected to close during the third quarter of 2001, is valued at $35.02 per share to CIT shareholders, or approximately $9.2 billion, based on Tyco's March 12, 2001 closing stock price. The financial data in this section reflects the five business segments that comprise CIT, as follows: Commercial Segments: o Equipment Financing and Leasing o Vendor Technology Finance o Commercial Finance o Structured Finance Consumer Segment: o Consumer Certain segments conduct their operations through strategic business units that market their products and services to satisfy the financing needs of specific customers, industries, vendors/manufacturers, and markets. Our business segments are described in greater detail in the following pages. 1 Commercial Segments Our commercial operations are diverse and provide a wide range of financing and leasing products to small, midsize and larger companies across a wide variety of industries, including: manufacturing, retailing, transportation, aerospace, construction and various service related industries. The secured lending, leasing and factoring products of our commercial operations include direct loans and leases, operating leases, leveraged and single investor leases, secured revolving lines of credit and term loans, credit protection, accounts receivable collection, import and export financing, debtor-in-possession and turnaround financing, and acquisition and expansion financing. The following table sets forth the managed assets of our commercial operations at December 31 for each of the years in the five-year period ended December 31, 2000. At December 31, 2000, our commercial segments represented 88.1% and 86.8% of consolidated financing and leasing assets and total managed assets, respectively. In addition to on-balance sheet finance receivables, operating lease equipment, finance receivables held for sale, and certain investments, managed assets include finance receivables previously securitized and still managed by us.
Commercial Segments December 31, - ------------------------------------------- ------------------------------------------------------------------- Dollars in Millions 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Equipment Financing and Leasing ........... $20,078.0 $17,016.7 $13,367.0 $11,709.7 $11,321.6 Vendor Technology Finance ................. 8,121.0 9,597.7 -- -- -- Commercial Finance ........................ 7,693.7 7,002.1 4,996.2 4,250.8 3,838.1 Structured Finance ........................ 2,691.9 2,071.2 81.9 -- -- --------- --------- --------- --------- --------- Total financing and leasing assets ...... 38,584.6 35,687.7 18,445.1 15,960.5 15,159.7 Finance receivables previously securitized and still managed by us ................................... 9,075.9 8,471.5 -- -- -- --------- --------- --------- --------- --------- Total managed assets ...................... $47,660.5 $44,159.2 $18,445.1 $15,960.5 $15,159.7 ========= ========= ========= ========= =========
The table above reflects various asset transfers among our business units in connection with our integration and profitability improvement initiatives. Commercial transactions are generated through direct calling efforts with borrowers, lessees, equipment end-users, vendors, manufacturers and distributors and through referral sources and other intermediaries. In addition, our strategic business units jointly structure certain transactions and refer or cross-sell transactions to other CIT units to best meet our customers' overall financing needs. Our marketing efforts are supplemented by the Multi-National Marketing Group, which promotes our products to the U.S. subsidiaries of foreign corporations in need of asset-based financing, developing business through referrals from DKB and through direct calling efforts. We also buy and sell participations in and syndications of finance receivables and/or lines of credit. In addition, from time to time in the normal course of business, we purchase finance receivables in bulk to supplement our originations and sell select finance receivables and equipment under operating leases for risk and other balance sheet management purposes, or to improve profitability. Equipment Financing and Leasing Segment Our Equipment Financing and Leasing operations had total financing and leasing assets of $20.1 billion at December 31, 2000, representing 45.9% of total financing and leasing assets. On a managed basis, Equipment Financing and Leasing totaled $26.5 billion or 48.2% of total managed assets. We conduct our Equipment Financing and Leasing operations through two strategic business units: o Equipment Financing offers secured equipment financing and leasing and focuses on the broad distribution of its products through manufacturers, dealers/distributors, intermediaries and direct calling efforts primarily in manufacturing, construction, transportation, food services/stores and other industries. o Capital Finance offers secured equipment financing and leasing by directly marketing customized transactions, particularly operating leases of commercial aircraft and rail equipment. Equipment Financing and Capital Finance personnel have extensive expertise in managing equipment over its full life cycle, including purchasing new equipment, maintaining and repairing equipment, estimating residual values and re-marketing via re-leasing or selling equipment. Equipment Financing's and Capital Finance's equipment and industry expertise enables them to effectively manage residual value risk. For example, Capital Finance can repossess commercial aircraft, if necessary, obtain any required maintenance and repairs for such 2 aircraft, and recertify such aircraft with appropriate authorities. We manage the equipment, residual value, and the risk of equipment remaining idle for extended periods of time and where appropriate, we locate alternative equipment users or purchasers. For each year in the period 1996 through 2000, Equipment Financing and Capital Finance have realized in excess of 100% of the aggregate booked residual values in connection with their equipment sales. The following table sets forth the managed assets of our Equipment Financing and Leasing segment at December 31 for each of the years in the five-year period ended December 31, 2000.
Equipment Financing and Leasing December 31, - ------------------------------------------- ------------------------------------------------------------------- Dollars in Millions 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Finance receivables ....................... $14,202.7 $12,999.6 $10,592.9 $ 9,804.1 $ 9,919.5 Operating lease equipment, net ............ 5,875.3 4,017.1 2,774.1 1,905.6 1,402.1 --------- --------- --------- --------- --------- Total financing and leasing assets ...... 20,078.0 17,016.7 13,367.0 11,709.7 11,321.6 Finance receivables previously securitized and still managed by us ................................... 6,387.2 2,189.4 -- -- -- --------- --------- --------- --------- --------- Total managed assets ...................... $26,465.2 $19,206.1 $13,367.0 $11,709.7 $11,321.6 ========= ========= ========= ========= =========
During 2000, certain transfers were completed to better align marketing and risk management efforts, to further improve operating efficiencies, and to implement a more uniform North American strategy. These transfers are detailed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, under "Financing and Leasing Assets", and were in large part the reason for the increase in managed assets, in 2000, for Equipment Financing and Leasing. Equipment Financing Equipment Financing is the largest of our strategic business units with total financing and leasing assets of $14.4 billion at December 31, 2000, representing 33.0% of our total financing and leasing assets. On a managed asset basis, Equipment Financing represents $20.8 billion or 37.9% of total managed assets. Equipment Financing offers secured equipment financing and leasing products, including loans, leases, wholesale and retail financing for distributors and manufacturers, loans guaranteed by the U.S. Small Business Administration, operating leases, sale and leaseback arrangements, portfolio acquisitions, municipal leases, revolving lines of credit and in-house syndication capabilities. Equipment Financing is a diversified, middle market, secured equipment lender that has a global presence, with strong North American marketing coverage. At December 31, 2000, its portfolio included significant financing and leasing assets to customers in a number of different industries, with manufacturing being the largest as a percentage of financing and leasing assets, followed by construction and transportation. Products are originated through direct calling on customers and through relationships with manufacturers, dealers, distributors and intermediaries that have leading or significant marketing positions in their respective industries. This provides Equipment Financing with efficient access to equipment end-users in many industries across a variety of equipment types. The following table sets forth the managed assets of Equipment Financing at December 31 for each of the years in the five-year period ended December 31, 2000.
Equipment Financing December 31, - ------------------------------------------- ------------------------------------------------------------------- Dollars in Millions 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Finance receivables ....................... $12,153.7 $10,899.3 $8,497.6 $7,403.4 $5,616.8 Operating lease equipment, net ............ 2,280.7 1,066.2 765.1 623.8 426.6 --------- --------- -------- -------- -------- Total financing and leasing assets ...... 14,434.4 11,965.5 9,262.7 8,027.2 6,043.4 Finance receivables previously securitized and still managed by us ................................... 6,387.2 2,189.4 -- -- -- --------- --------- -------- -------- -------- Total managed assets ...................... $20,821.6 $14,154.9 $9,262.7 $8,027.2 $6,043.4 ========= ========= ======== ======== ========
3 Capital Finance Capital Finance had financing and leasing assets of $5.6 billion at December 31, 2000, which represented 12.9% of our total financing and leasing assets and 10.3% of managed assets. Capital Finance specializes in providing customized leasing and secured financing primarily to end-users of commercial aircraft and railcars, including operating leases, single investor leases, equity portions of leveraged leases, sale and leaseback arrangements, as well as loans secured by equipment. Typical Capital Finance customers are middle-market to larger-sized companies. New business is generated through direct calling efforts supplemented with transactions introduced by intermediaries and other referral sources. Capital Finance has provided financing to commercial airlines for over 30 years. The Capital Finance aerospace portfolio includes most of the leading U.S. and foreign commercial airlines, with the fleet approaching 300 aircraft, most of which are 10 years old or less. Capital Finance has developed strong direct relationships with most major airlines and all major aircraft and aircraft engine manufacturers. This provides Capital Finance with access to technical information, which enhances customer service, and provides opportunities to finance new business. During 2000 and 1999, we entered into agreements with both Airbus Industrie and the Boeing Company to purchase a total of 88 aircraft, with options to acquire additional units. Deliveries of these new aircraft, which are scheduled to take place over a five-year period, started in the fourth quarter of 2000. All aircraft scheduled for delivery through 2001 have been placed on lease, with other customers already in place for 2002 and 2003 deliveries. Capital Finance has over 25 years experience in financing the rail industry, contributing to its knowledge of asset values, industry trends, product structuring and customer needs. Capital Finance has a dedicated rail equipment group, maintains relationships with several leading railcar manufacturers, and has a significant direct calling effort on all railroads and rail shippers in the United States. The Capital Finance rail portfolio includes all of the U.S. and Canadian Class I railroads and numerous shippers. The operating lease fleet includes primarily covered hopper cars used to ship grain and agricultural products, plastic pellets and cement; gondola cars for coal, steel coil and mill service; open hopper cars for coal and aggregates; center beam flat cars for lumber; and boxcars for paper and auto parts. Capital Finance also has a fleet of locomotives on lease to U.S. railroads. Railcars total in excess of 45,000, with approximately 78% less than 6 years old. In addition, the rail portfolio also includes over 400 locomotives. The following table sets forth the financing and leasing assets of Capital Finance at December 31 for each of the years in the five-year period ended December 31, 2000.
Capital Finance December 31, - ------------------------------------------- ------------------------------------------------------------------ Dollars in Millions 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Finance receivables ....................... $2,049.0 $2,100.3 $2,095.3 $2,400.7 $4,302.7 Operating lease equipment, net ............ 3,594.6 2,950.9 2,009.0 1,281.8 975.5 -------- -------- -------- -------- -------- Total financing and leasing assets ................................ $5,643.6 $5,051.2 $4,104.3 $3,682.5 $5,278.2 ======== ======== ======== ======== ========
Vendor Technology Finance Segment Vendor Technology Finance was realigned following our Newcourt acquisition. The financing and leasing assets of Vendor Technology Finance ("VTF") totaled $8.1 billion and comprised 18.5% of our total financing and leasing assets at December 31, 2000. On a managed asset basis, VTF totaled $10.8 billion or 19.7% of total managed assets. VTF customers range from small-market businesses and consumers to larger-sized companies. VTF operates globally through operations in the United States, Canada, Europe, Latin America, Asia, and Australia, and serves many industries, including a wide range of manufacturers. This international platform provides a global presence to attract and retain large, sales oriented corporate vendor partners through traditional vendor finance programs, joint ventures and profit sharing arrangements. VTF builds alliances with industry-leading equipment vendors, including manufacturers, dealers and distributors, to deliver customized asset-based sales and financing solutions in a wide array of vendor programs. These alliances allow our vendor partners to better utilize core competencies, reduce capital needs and drive incremental sales volume. VTF offers credit financing to the manufacturer's customers for the purchase or lease of the manufacturer's products, while also offering enhanced sales tools to manufacturers and vendors, such as asset 4 management services, efficient loan processing, and real-time credit adjudication. By working in partnership with select vendors, VTF is integrated with the vendor's business planning process and product offering systems to improve execution and reduce cycle times. VTF has significant vendor programs in information technology and telecommunications. These vendor alliances are characterized by the use of joint ventures, profit sharing and other transaction structures. In the case of joint ventures, VTF and the vendor combine financing activities through a distinct legal entity that is jointly owned. Generally, these arrangements are accounted for on an equity basis, with profits and losses distributed according to the joint venture agreement. Additionally, VTF generally purchases finance receivables originated by the joint venture entities. VTF also utilizes "virtual joint ventures", whereby the assets are originated on VTF's balance sheet, while profits and losses are shared with the vendor. These types of strategic alliances are a key source of business for VTF. New business is also generated through intermediaries and other referral sources, as well as through direct end-user relationships. The following table sets forth the managed assets of Vendor Technology Finance at December 31, 2000 and 1999. Vendor Technology Finance December 31, - ---------------------------------------------------- ----------------------- Dollars in Millions 2000 1999 --------- --------- Finance receivables ................................ $ 6,864.5 $ 7,488.9 Operating lease equipment, net ..................... 1,256.5 2,108.8 --------- --------- Total financing and leasing assets ............... 8,121.0 9,597.7 Finance receivables previously securitized and still managed by us .......................... 2,688.7 6,282.1 --------- --------- Total managed assets ............................... $10,809.7 $15,879.8 ========= ========= During 2000, certain transfers were completed to better align marketing and risk management efforts, to further improve operating efficiencies, and to implement a more uniform North American strategy. These transfers are detailed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, under "Financing and Leasing Assets". Commercial Finance Segment At December 31, 2000, the financing and leasing assets of our Commercial Finance segment totaled $7.7 billion, representing 17.6% of total financing and leasing assets and 14.0% of managed assets. We conduct our Commercial Finance operations through two strategic business units, both of which focus on accounts receivable and inventories as the primary source of security for their lending transactions. o Commercial Services provides secured financing as well as factoring and receivable/collection management products to companies in apparel, textile, furniture, home furnishings, and other industries. o Business Credit provides secured financing to a full range of borrowers from small to larger-sized companies. The following table sets forth the financing and leasing assets of Commercial Finance at December 31 for each of the years in the five-year period ended December 31, 2000.
Commercial Finance December 31, - ------------------------------------------- ------------------------------------------------------------------ Dollars in Millions 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Commercial Services ....................... $4,277.9 $4,165.1 $2,481.8 $2,113.1 $1,804.7 Business Credit ........................... 3,415.8 2,837.0 2,514.4 2,137.7 2,033.4 -------- -------- -------- -------- -------- Total financing and leasing assets ...... $7,693.7 $7,002.1 $4,996.2 $4,250.8 $3,838.1 ======== ======== ======== ======== ========
In 1999, Commercial Services completed the acquisitions of certain domestic assets, which added in excess of $1.5 billion in financing and leasing assets. 5 Commercial Services Commercial Services had total financing and leasing assets of $4.3 billion at December 31, 2000, which represented 9.8% of our total financing and leasing assets and 7.8% of managed assets. Commercial Services offers a full range of domestic and international customized credit protection, lending and outsourcing services that include working capital and term loans, factoring, receivable management outsourcing, bulk purchases of accounts receivable, import and export financing and letter of credit programs. Financing is provided to clients through the purchase of accounts receivable owed to clients by their customers, as well as by guaranteeing amounts due under letters of credit issued to the clients' suppliers, which are collateralized by accounts receivable and other assets. The purchase of accounts receivable is traditionally known as "factoring" and results in the payment by the client of a factoring fee which is commensurate with the underlying degree of credit risk and recourse, and which is generally a percentage of the factored receivables or sales volume. When Commercial Services "factors" (i.e., purchases) a customer invoice from a client, it records the customer receivable as an asset and also establishes a liability for the funds due to the client ("credit balances of factoring clients"). Commercial Services also may advance funds to its clients prior to collection of receivables, typically in an amount up to 80% of eligible accounts receivable (as defined for that transaction), charging interest on such advances (in addition to any factoring fees) and satisfying such advances from receivables collections. Clients use Commercial Services' products and services for various purposes, including improving cash flow, mitigating or reducing the risk of charge-offs, increasing sales and improving management information. Further, with the TotalSourceSM product, clients can outsource bookkeeping, collection and other receivable processing activities. These services are attractive to industries outside the typical factoring markets, providing growth opportunities for Commercial Services. Commercial Services generates business regionally from a variety of sources, including direct calling efforts and referrals from existing clients and other sources. Additionally, acquisitions have played a large role in the growth of Commercial Services. Business Credit Financing and leasing assets of Business Credit totaled $3.4 billion at December 31, 2000 and represented 7.8% of our total financing and leasing assets and 6.2% of managed assets. Business Credit offers revolving and term loans secured by accounts receivable, inventories and fixed assets to smaller through larger-sized companies. Clients use such loans primarily for working capital, growth, expansion, acquisitions, refinancings and debtor-in-possession, reorganization and restructurings, and turnaround financings. Business Credit sells and purchases participation interests in such loans to and from other lenders. Through its variable interest rate senior revolving and term loan products, Business Credit meets its customers' financing needs for working capital, growth, acquisition and other financing situations otherwise not met through bank or other unsecured financing alternatives. Business Credit typically structures financings on a fully secured basis, though, from time to time, it may look to a customer's cash flow to support a portion of the credit facility. Revolving and term loans are made on a variable interest rate basis based on published indexes, such as LIBOR or a prime rate of interest. Business is originated through direct calling efforts and intermediary and referral sources, as well as through sales and regional offices. Business Credit has focused on increasing the proportion of direct business origination to improve its ability to capture or retain refinancing opportunities and to enhance finance income. Business Credit has developed long-term relationships with selected finance companies, banks and other lenders and with many diversified referral sources. Business Credit recently formed a joint venture with a leading Canadian bank to originate flow business, which is outside of that bank's standard product offerings. Structured Finance Segment Structured Finance had financing and leasing assets of $2.7 billion, comprising 6.1% of our total financing and leasing assets and 4.9% of managed assets at December 31, 2000. Structured Finance operates internationally through operations in the United States, Canada, and Europe. Structured Finance provides specialized investment 6 banking services to the international corporate finance and institutional finance markets by providing asset-based financing for large ticket asset acquisitions and project financing and related advisory services to equipment manufacturers, corporate clients, regional airlines, governments and public sector agencies. Communications, transportation, and the power and utilities sectors are among the industries that Structured Finance serves. Similar to Vendor Technology Finance, Structured Finance was realigned following the 1999 acquisition of Newcourt. Structured Finance also serves as an origination conduit to its lending partners by seeking out and creating investment opportunities. Structured Finance has established relationships with insurance companies and institutional investors and can arrange financing opportunities that meet asset class, yield, duration and credit quality requirements. Accordingly, Structured Finance has considerable syndication and fee generation capacity. During 2000, certain transfers were completed to better align marketing and risk management efforts, to further improve operating efficiencies, and to implement a more uniform North American strategy. These transfers are detailed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, under "Financing and Leasing Assets". Equity Investments and its subsidiary Venture Capital (together "Equity Investments") were also moved to Structured Finance. Structured Finance and Equity Investments continue to originate and purchase private equity and equity-related securities, arrange transaction financing and participate in merger and acquisition transactions. Equity Investments has investments in emerging growth enterprises in selected industries, including the information technology, communications, life science and consumer products industries. The following table sets forth the financing and leasing assets of Structured Finance at December 31, 2000 and 1999. Structured Finance December 31, - ---------------------------------------------------- ----------------------- Dollars in Millions 2000 1999 -------- -------- Finance receivables ................................ $2,347.3 $1,933.9 Operating lease equipment, net ..................... 58.8 -- Other -- Equity Investments ........................ 285.8 137.3 -------- -------- Total financing and leasing assets ............... $2,691.9 $2,071.2 ======== ======== Consumer Segment Our Consumer segment financing and leasing assets totaled $5.2 billion at December 31, 2000, representing 11.9% of total financing and leasing assets. Total Consumer managed assets were $7.2 billion, representing 13.2% of our total managed assets. Our consumer business is focused primarily on home equity lending and on retail sales financing secured by recreational vehicles and manufactured housing. As a part of an ongoing strategy to maximize the value of our origination network and to improve overall profitability, the Consumer unit sells individual loans and portfolios of loans to banks, thrifts and other originators of consumer loans. The unit also provides contract servicing for securitization trusts and other third parties through a centralized Asset Service Center. The following table sets forth the managed assets of our Consumer segment at December 31 for each of the years in the five-year period ended December 31, 2000.
Consumer December 31, - ------------------------------------------- ------------------------------------------------------------------ Dollars in Millions 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Financing and leasing assets: Home equity ............................. $2,451.7 $2,215.4 $2,244.4 $1,992.3 $2,005.5 Manufactured housing .................... 1,802.1 1,666.9 1,417.5 1,125.7 790.2 Recreational vehicles ................... 648.0 361.2 744.0 501.9 510.1 Liquidating portfolio* .................. 298.2 462.8 848.4 313.1 49.5 -------- -------- -------- -------- -------- Total financing and leasing assets ........ 5,200.0 4,706.3 5,254.3 3,933.0 3,355.3 Finance receivables previously securitized and still managed by us ................................... 2,040.4 2,567.8 2,516.9 2,385.6 1,437.4 -------- -------- -------- -------- -------- Total managed assets ...................... $7,240.4 $7,274.1 $7,771.2 $6,318.6 $4,792.7 ======== ======== ======== ======== ========
- ---------- * Balances include recreational boat and wholesale loan product lines exited in 1999. Prior year balances have been conformed. 7 Our home equity products include both fixed and variable-rate closed-end loans and variable-rate lines of credit. We primarily originate, purchase and service loans secured by first or second liens on detached, single family residential properties. Customers borrow for the purpose of consolidating debts, refinancing an existing mortgage, funding home improvements, paying education expenses and, to a lesser extent, purchasing a home, among other reasons. Consumer primarily originates loans through brokers and correspondents with a high proportion of home equity applications processed electronically over the internet via BrokerEdgeSM using our proprietary systems. Through experienced lending professionals and automation, Consumer provides rapid turnaround time from application to loan funding, a characteristic considered to be critical by its broker relationships. Our underwriting standards reflect a commitment to credit quality, as almost 80% of the portfolio are in a first lien position and the weighted average loan to value ratio at origination is approximately 75%. Consumer also provides nationwide retail financing for the purchase of new and used recreational vehicles and manufactured housing. These loans are predominantly originated through recreational vehicle and manufactured housing dealer, manufacturer and broker relationships. Servicing The Asset Service Center centrally services and collects substantially all of our Consumer receivables, including loans originated or purchased by our Consumer segment, as well as loans originated or purchased and subsequently securitized with servicing retained. The servicing portfolio also includes loans owned by third parties that are serviced by our Consumer segment for a fee on a "contract" basis. These third-party portfolios totaled $1.4 billion at December 31, 2000. FIRST QUARTER 2001 BUSINESS UNIT TRANSFERS Certain small-ticket commercial businesses were transferred from Equipment Financing to Consumer. Accordingly, effective January 1, 2001, the Consumer segment was renamed Specialty Finance. COMMON STOCK At December 31, 2000, CIT had 261,897,768 issued and outstanding shares of common stock, including 11,637,709 exchangeable shares of CIT Exchangeco Inc. At December 31, 2000, DKB, our largest shareholder, owned approximately 27% of our outstanding common stock. On November 15, 1999, we issued 76,428,304 shares of CIT common stock and 27,577,082 exchangeable shares of CIT Exchangeco Inc. (exchangeable on a one-for-one basis for shares of CIT common stock) under the terms of the Newcourt acquisition. This issuance reflected an exchange ratio of .70 shares of our common stock for each of the 148,536,081 outstanding common shares of Newcourt. Canadian resident holders of Newcourt common shares could elect to receive exchangeable shares issued by CIT Exchangeco in lieu of CIT common stock in order to defer gain or loss recognition on the acquisition for income tax purposes. Prior to the acquisition, we amended our Certificate of Incorporation to rename and combine our Class A Common Stock and Class B Common Stock as Common Stock, which is now the only class of common stock outstanding. SECURITIZATION PROGRAM We fund most of our assets on balance sheet using our access to the commercial paper, medium-term note and capital markets. In an effort to broaden funding sources and to provide an additional source of liquidity, we have in place an array of programs to access both the public and private asset backed securitization markets. Current products utilized in these programs include commercial receivables and leases and consumer loans secured by recreational vehicles and residential real estate. During 2000, we securitized $4.1 billion of financing and leasing assets and the outstanding securitized asset balance at December 31, 2000 was $11.1 billion or 20.2% of our total managed assets. The 1999 Newcourt acquisition provided us with commercial securitization capabilities. Under a typical asset backed securitization, we sell a "pool" of secured loans or leases to a special-purpose entity, typically a trust. The special-purpose entity, in turn, issues certificates and/or notes that are collateralized by the pool and entitle the holders thereof to participate in certain pool cash flows. We retain the servicing of the securitized contracts, for which we earn a servicing fee. We also participate in certain "residual" cash flows (cash 8 flows after payment of principal and interest to certificate and/or note holders, servicing fees and other credit related disbursements). At the date of securitization, we estimate the "residual" cash flows to be received over the life of the securitization, record the present value of these cash flows as a retained interest in the securitization (retained interests can include bonds issued by the special-purpose entity, cash reserve accounts on deposit in the special-purpose entity or interest only receivables) and recognize a gain. In estimating residual cash flows and the value of the retained interests, we make a variety of financial assumptions, including pool credit losses, prepayment speeds and discount rates. These assumptions are empirically supported by both our historical experience and anticipated trends relative to the particular products securitized. Subsequent to recording the retained interests, we review them quarterly for impairment. These reviews are performed on a disaggregated basis. Fair values of retained interests are calculated utilizing current pool demographics, actual note/certificate outstandings, current and anticipated credit losses, prepayment speeds and discount rates. These revised fair values are then compared to our carrying values. Our retained interests had a carrying value at December 31, 2000 of $840.4 million, including interests in commercial securitized assets of $684.5 million and consumer securitized assets of $155.9 million. Retained interests are subject to credit and prepayment risk. Our interests relating to commercial securitized assets are generally subject to lower prepayment risk because of their contractual terms. These assets are subject to the same credit granting and monitoring processes which are described in the Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the "Credit Risk Management" section. INDUSTRY CONCENTRATION See the "Industry Composition" section of "Concentrations" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures about Market Risk. COMPETITION Our markets are highly competitive and are characterized by competitive factors that vary based upon product and geographic region. Competitors include captive and independent finance companies, commercial banks and thrift institutions, industrial banks, leasing companies, manufacturers and vendors. Substantial financial services networks have been formed by insurance companies and bank holding companies that compete with us. On a local level, community banks and smaller independent finance and mortgage companies are a competitive force. Some competitors have substantial local market positions. Many of our competitors are large companies that have substantial capital, technological and marketing resources. Some of these competitors are larger than us and may have access to capital at a lower cost than us. Also, our competitors include businesses that are not related to bank holding companies and, accordingly, may engage in activities, for example, short-term equipment rental and servicing, which currently are prohibited to us. Competition has been enhanced in recent years by a strong economy and growing marketplace liquidity; though, in the second half of 2000, the economy slowed, marketplace liquidity tightened and borrowing costs increased. The markets for most of our products are characterized by a large number of competitors. However, with respect to some of our products, competition is more concentrated. We compete primarily on the basis of pricing, terms and structure. From time to time, our competitors seek to compete aggressively on the basis of these factors and we may lose market share to the extent we are unwilling to match competitor pricing and terms in order to maintain interest margins and/or credit standards. Other primary competitive factors include industry experience and client service and relationships. In addition, demand for our products with respect to certain industries, such as the commercial airline industry, will be affected by demand for such industry's services and products and by industry regulations. REGULATION DKB is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the "Act"), and is registered as such with the Board of Governors of the Federal Reserve. Since DKB owns approximately 27% of CIT's outstanding common stock, we are subject to certain provisions of the Act and examination by the Federal Reserve System (the "Federal Reserve"). In general, the Act limits the activities in which a bank holding 9 company and its subsidiaries may engage to those of banking or managing or controlling banks or performing services for their subsidiaries and to continuing activities which the Federal Reserve determined to be "so closely related to banking or managing or controlling banks as to be a proper incident thereto" as of November 11, 1999. Our current principal business activities constitute permissible activities for a non-bank subsidiary of a bank holding company. Our operations are subject, in certain instances, to supervision and regulation by state, federal and various foreign governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things, (i) regulate credit granting activities, including establishing licensing requirements, if any, in applicable jurisdictions, (ii) establish maximum interest rates, finance charges and other charges, (iii) regulate customers' insurance coverages, (iv) require disclosures to customers, (v) govern secured transactions, (vi) set collection, foreclosure, repossession and claims handling procedures and other trade practices, (vii) prohibit discrimination in the extension of credit and administration of loans, and (viii) regulate the use and reporting of information related to a borrower's credit experience. In addition to the foregoing, CIT Online Bank, a Utah industrial loan corporation wholly owned by CIT, is subject to regulation and examination by the Federal Deposit Insurance Corporation and the Utah Department of Financial Institutions. The above regulation and supervision could limit our discretion in operating our businesses. For example, state laws often establish maximum allowable finance charges for certain consumer and commercial loans. Noncompliance with applicable statutes or regulations could result in the suspension or revocation of any license or registration at issue, as well as the imposition of civil fines and criminal penalties. No assurance can be given that applicable laws or regulations will not be amended or construed differently, that new laws and regulations will not be adopted or that interest rates we charge will not rise to maximum levels permitted by law, the effect of any of which could be to adversely affect our business or results of operations. Under certain circumstances, the Federal Reserve has the authority to issue orders which could restrict our ability to engage in new activities or to acquire additional businesses or to acquire assets outside of the normal course of business. In addition to being subject to the Act, DKB is subject to Japanese banking laws, regulations, guidelines and orders that affect our permissible activities. We have entered into an agreement with DKB in order to facilitate DKB's compliance with applicable U.S. and Japanese banking laws, and with the regulations, interpretations, policies, guidelines, requests, directives and orders of the applicable regulatory authorities, their staffs or any court (collectively, the "Banking Laws"). That agreement prohibits us from engaging in any new activity or entering into any transaction for which prior approval, notice or filing is required under Banking Laws, unless DKB obtains the required prior approval, gives such prior notice or makes such filings. We are also prohibited from engaging in any activity that would cause DKB, CIT or any affiliate of DKB or CIT to violate any Banking Laws. If, at any time, DKB determines that any of our activities is prohibited by any Banking Law, we are required to take all reasonable steps to cease such activities. Under the terms of that agreement, DKB is responsible for making all determinations as to compliance with applicable Banking Laws. Item 2. Properties The operations of CIT and its subsidiaries are generally conducted in leased office space located in numerous cities and towns throughout the world. Such leased office space is suitable and adequate for our needs and we utilize, or plan to utilize in the foreseeable future, substantially all of our leased office space. Item 3. Legal Proceedings We are a defendant in various lawsuits arising in the ordinary course of our business. We aggressively manage our litigation and evaluate appropriate responses to our lawsuits in light of a number of factors, including the potential impact of the actions on the conduct of our operations. In the opinion of management, none of the pending matters is expected to have a material adverse effect on our financial condition or results of operations. However, there can be no assurance that an adverse decision in one or more of such lawsuits will not have a material adverse effect. Item 4. Submission of Matters to a Vote of Security Holders We did not submit any matters to a vote of security holders during the fourth quarter of 2000. 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The following table sets forth the high and low last reported sale prices for the Common Stock for the periods indicated.
2000 1999 1998 ------------------- ------------------- ------------------- Common Stock Prices High Low High Low High Low - ------------------- -------- -------- -------- -------- -------- -------- First Quarter ............................... $22 3/16 $13 5/8 $33 7/16 $27 5/8 $33 $29 7/16 Second Quarter .............................. $19 3/16 $14 7/8 $33 13/16 $27 9/16 $37 1/2 $31 1/4 Third Quarter ............................... $20 9/16 $15 7/8 $29 5/8 $20 1/16 $36 1/4 $25 3/8 Fourth Quarter .............................. $20 1/4 $13 5/16 $25 3/8 $17 13/16 $31 13/16 $19 1/8
Our Common Stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Below are the dividends per share paid during the past three years. Dividends Paid 2000 1999 1998 -------------- ------- ------- ------- First Quarter ......................... $0.10 $0.10 $ * Second Quarter ........................ 0.10 0.10 0.10 Third Quarter ......................... 0.10 0.10 0.10 Fourth Quarter ........................ 0.10 0.10 0.10 ----- ----- ----- Year .................................. $0.40 $0.40 $0.30 ===== ===== ===== - ---------- * No dividends were paid to holders of the Common Stock. The declaration and payment of dividends by us is evaluated quarterly and is subject to the discretion of the Board of Directors. As of February 15, 2001, there were 19,984 stockholders of CIT, including both record holders and individual participants holding through a registered clearing agency. 11 Item 6. Selected Financial Data The following tables set forth selected consolidated financial information regarding our results of operations and balance sheet. The data presented below should be read in conjunction with Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures about Market Risk and Item 8. Financial Statements and Supplementary Data.
Years Ended December 31, ------------------------------------------------------------------- Dollars in Millions, except per share data 2000 1999(2) 1998 1997 1996 -------- -------- -------- -------- ------ Results of Operations Net finance income ......................... $2,750.7 $1,272.5 $ 974.3 $ 887.5 $797.9 Net finance margin ......................... 1,469.4 917.4 804.8 740.7 676.2 Operating revenue .......................... 2,381.4 1,268.2 1,060.2 1,046.5(1) 920.3 Salaries and general operating expenses ................................ 1,035.2 516.0 407.7 420.0 385.3 Provision for credit losses ................ 255.2 110.3 99.4 113.7 111.4 Goodwill amortization ...................... 86.3 25.7 10.1 8.4 7.8 Net income ................................. 611.6 389.4 338.8 310.1 260.1 Net income per diluted share ............... 2.33 2.22 2.08 1.95 1.64
At December 31, ------------------------------------------------------------------- Dollars in Millions 2000 1999(2) 1998 1997 1996 --------- --------- --------- --------- --------- Balance Sheet Data Finance receivables: Commercial ............................... $29,304.0 $27,119.2 $15,589.1 $14,054.9 $13,757.6 Consumer ................................. 4,193.5 3,887.9 4,266.9 3,664.8 3,239.0 --------- --------- --------- --------- --------- Total finance receivables .................. 33,497.5 31,007.1 19,856.0 17,719.7 16,996.6 Reserve for credit losses .................. 468.5 446.9 263.7 235.6 220.8 Operating lease equipment, net ............. 7,190.6 6,125.9 2,774.1 1,905.6 1,402.1 Goodwill ................................... 1,964.6 1,850.5 216.5 134.6 129.5 Total assets ............................... 48,689.8 45,081.1 24,303.1 20,464.1 18,932.5 Commercial paper ........................... 9,063.5 8,974.0 6,144.1 5,559.6 5,827.0 Variable-rate senior notes ................. 11,130.5 7,147.2 4,275.0 2,861.5 3,717.5 Fixed-rate senior notes .................... 17,571.1 19,052.3 8,032.3 6,593.8 4,761.2 Subordinated fixed-rate notes .............. 200.0 200.0 200.0 300.0 300.0 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company ............... 250.0 250.0 250.0 250.0 -- Stockholders' equity ....................... 6,007.2 5,554.4 2,701.6 2,432.9 2,075.4
- -------------------------------------------------------------------------------- (1) Includes a 1997 gain of $58.0 million on the sale of an equity interest acquired in connection with a loan workout. (2) Includes results of operations of Newcourt Credit Group Inc. from the November 15, 1999 acquisition date. 12
At or for the Years Ended December 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Selected Data and Ratios Profitability Net finance income as a percentage of average earning assets ("AEA")(1) ............................. 6.76% 4.97% 4.75% 4.87% 4.82% Net finance margin as a percentage of AEA ........................... 3.61% 3.59% 3.93% 4.06% 4.09% Return on average tangible stockholders' equity(2) .............. 16.0% 14.2% 14.0% 14.6% 14.0% Return on average stockholders' equity .......................... 10.7% 12.0% 13.2% 14.0%(5) 13.0% Return on AEA .................................... 1.50% 1.52% 1.65% 1.70%(5) 1.57% Ratio of earnings to fixed charges ............... 1.39x 1.45x 1.49x 1.51x 1.49x Salaries and general operating expenses (excluding goodwill amortization) as a percentage of average managed assets ("AMA")(3) ..................... 2.01% 1.75% 1.78% 2.11%(5) 2.18% Efficiency ratio (excluding goodwill amortization)(4) ..................... 43.8% 41.3% 39.2% 40.8%(5) 41.9% Credit Quality 60+ days contractual delinquency as a percentage of finance receivables ................................... 2.98% 2.71% 1.75% 1.67% 1.72% Net credit losses as a percentage of average finance receivables ................ 0.71% 0.42% 0.42% 0.59% 0.62% Reserve for credit losses as a percentage of finance receivables ........................ 1.40% 1.44% 1.33% 1.33% 1.30% Leverage Total debt (net of overnight deposits) to tangible stockholders' equity(2)(6) ........ 8.78x 8.75x 6.82x 5.99x 7.49x Tangible stockholders' equity(2) to managed assets ................................ 7.8% 7.7% 10.4% 11.4% 9.7% Other Total managed assets(7) (dollars in millions) ......................... $54,900.9 $51,433.3 $26,216.3 $22,344.9 $20,005.4 Employees ........................................ 7,355 8,255 3,230 3,025 2,950
- -------------------------------------------------------------------------------- (1) "AEA" means the average of finance receivables, operating lease equipment, finance receivables held for sale and certain investments, less credit balances of factoring clients. (2) Tangible stockholders' equity excludes goodwill. (3) "AMA" means average earning assets plus the average of finance receivables previously securitized and still managed by us. (4) Efficiency ratio reflects the ratio of salaries and general operating expenses to the sum of operating revenue less minority interest in subsidiary trust holding solely debentures of the Company. (5) Excluding the gain of $58.0 million on the sale of an equity interest acquired in a loan workout and certain nonrecurring expenses, for the year ended December 31, 1997, (i) the return on average stockholders' equity would have been 13.1%, (ii) the return on AEA would have been 1.58%, (iii) the efficiency ratio would have been 41.1% and (iv) salaries and general operating expenses as a percentage of AMA would have been 2.01%. (6) Total debt excludes and stockholders' equity includes Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company. (7) "Managed assets" include (i) financing and leasing assets, (ii) certain investments and (iii) off-balance sheet finance receivables previously securitized and still managed by us. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures About Market Risk Overview For the year ended December 31, 2000, our net income totaled a record $611.6 million, increasing from $389.4 million in 1999 and $338.8 million in 1998. The 2000 earnings represented the thirteenth consecutive increase in our annual earnings, and the tenth consecutive year of record earnings. During the year, we sought to improve CIT's profitability by improving lower return businesses or by identifying lower performing portfolios for sale or liquidation, and by strengthening our pricing discipline. Additionally, the 2000 results reflect growth from 1999 acquisition activities, solid fee and other income generation, as well as considerable expense savings related to operational integrations. The improvements in 1999 over 1998 resulted from stronger revenues from a higher level of financing and leasing assets. Earnings per diluted share increased from the preceding year by 5.0% in 2000 and 6.7% in 1999. Earnings per share improved considerably less than the corresponding increases in net income due to 104.0 million shares issued in the acquisition of Newcourt in November 1999. Excluding the impact of goodwill amortization, earnings per diluted share increased from the preceding year by 12.4% in 2000 and by 10.4% in 1999. Return on average tangible stockholders' equity improved to 16.0% in 2000 and 14.2% in 1999 from 14.0% in 1998. Information pertaining to 1999 reflects the results of acquired operations from each acquisition date through year end. Segment data reflects the realignment of Vendor Technology Finance and Structured Finance from the prior year Newcourt segment, as reported in the 1999 10-K. In addition, during 2000 we continued to realign businesses and shift assets between business units, as $2,702.2 million of financing and leasing assets and $2,902.2 million of managed assets were transferred from Vendor Technology Finance to Equipment Financing, and a $313.0 million telecommunications portfolio was transferred to Structured Finance from Equipment Financing. These transfers were done to better align marketing and risk management efforts, to further improve operating efficiencies, and to implement a more uniform North American strategy. The following table summarizes our net income and related data.
Years Ended December 31, --------------------------------- 2000 1999 1998 ------ ------ ------ Net income (dollars in millions) ........................................ $611.6 $389.4 $338.8 Earnings per diluted share (EPS) ........................................ $ 2.33 $ 2.22 $ 2.08 Earnings per diluted share excluding goodwill amortization .............. $ 2.62 $ 2.33 $ 2.11 Return on average stockholders' equity (ROE) ............................ 10.7% 12.0% 13.2% Return on average stockholders' equity excluding goodwill amortization ................................................. 12.0% 12.6% 13.6% Return on average tangible stockholders' equity (ROTE) .................. 16.0% 14.2% 14.0% Return on average earning assets (ROA) .................................. 1.50% 1.52% 1.65% Return on average earning assets excluding goodwill amortization ................................................. 1.69% 1.60% 1.70%
Managed assets totaled $54.9 billion at December 31, 2000, $51.4 billion at December 31, 1999, and $26.2 billion at December 31, 1998, while financing and leasing portfolio assets totaled $43.8 billion, $40.4 billion and $23.7 billion at December 31, 2000, 1999 and 1998, respectively. The increase in both managed and portfolio assets over 1999 reflects increased volume of originations across all business segments, which was dampened by continued pricing discipline and by the sale of over $1 billion of non-strategic assets during the year. For the year 2000, financing and leasing assets grew 8.1% in the commercial segments and 10.5% in the Consumer segment, with a 6.1% increase in finance receivables and a 17.4% increase in operating leases. In the commercial segments, 2000 growth, excluding the effect of the asset transfers, was particularly strong in Structured Finance and Vendor Technology Finance, while our Consumer growth was driven by gains in the recreational vehicle and home equity portfolios. The 1999 increase of 96.2% in managed assets over 1998 reflects primarily the acquisitions made in 1999. The remainder of the 1999 increase reflects strong new business volume, offset by a drop in Consumer assets due to our decision to discontinue and liquidate our recreational boat and wholesale inventory finance portfolios. See "Financing and Leasing Assets" for additional information. 14 Net Finance Margin A comparison of the components of 2000, 1999, and 1998 net finance margin is set forth below. Years Ended December 31, ------------------------------------- Dollars in Millions 2000 1999 1998 --------- --------- --------- Finance income ....................... $ 5,248.4 $ 2,565.9 $ 2,015.1 Interest expense ..................... 2,497.7 1,293.4 1,040.8 --------- --------- --------- Net finance income ................... 2,750.7 1,272.5 974.3 Depreciation on operating lease equipment .................... 1,281.3 355.1 169.5 --------- --------- --------- Net finance margin ................... $ 1,469.4 $ 917.4 $ 804.8 ========= ========= ========= Average earning assets ("AEA") ....... $40,682.5 $25,583.0 $20,495.8 Net finance margin as a % of AEA ..... 3.61% 3.59% 3.93% Net finance margin increased 60.2% to $1,469.4 million in 2000 from 1999, and 14.0% in 1999 from 1998. The increase in 2000 primarily reflects growth in our loans, leases and operating leases due to acquisitions. The increase in 1999 from 1998 was due to acquisitions and strong internal business generation. As a percentage of AEA, net finance margin was 3.61% in 2000 versus 3.59% and 3.93% in 1999 and 1998, respectively. Net finance margin as a percentage of AEA increased from the prior year in 2000, as wider margins in our businesses acquired in 1999 more than offset the impact of the continued growth in operating leases. The operating leasing business, which generally has lower initial net finance margins than finance receivables, also generates equipment gains, renewal fees and tax depreciation benefits. Finance income totaled $5,248.4 million in 2000, $2,565.9 million in 1999 and $2,015.1 million in 1998. As a percentage of AEA, finance income (excluding interest income related to short-term interest-bearing deposits) was 12.69% in 2000, 9.88% in 1999 and 9.69% in 1998. The increase in yield in 2000 and 1999 primarily reflected changes in product mix due to acquisitions and the sale or liquidation of non-strategic, lower yielding assets. Interest expense totaled $2,497.7 million in 2000, $1,293.4 million in 1999 and $1,040.8 million in 1998. As a percentage of AEA, interest expense (excluding interest related to short-term interest-bearing deposits and dividends related to preferred capital securities) was 5.92% in 2000, 4.91% in 1999 and 4.94% in 1998, reflecting the impact of prevailing interest rates at the time of the Newcourt acquisition, the rising interest rate environment throughout most of 2000 and wider borrowing spreads over U.S. Treasury rates in 2000. We seek to mitigate interest rate risk by matching the repricing characteristics of our assets with our liabilities, which is in part done through portfolio management and the use of derivative financial instruments, principally interest rate swaps. For further discussion, see "Risk Management." The operating lease equipment portfolio was $7.2 billion at December 31, 2000 versus $6.1 billion and $2.8 billion at December 31, 1999 and December 31, 1998, respectively. As a result, depreciation on operating lease equipment increased to $1,281.3 million in 2000, versus $355.1 million and $169.5 million in 1999 and 1998, respectively. As a percentage of average operating leases, depreciation was 19.50%, 9.51%, and 7.66% in 2000, 1999 and 1998, respectively. The increase in 2000 over 1999 reflects the full year impact of the acquired assets, which include smaller ticket and shorter term leases. This more than offsets the impact of an increase in airline and rail assets, with longer depreciable lives, from 1998 to 2000 in the Equipment Financing and Leasing segment. Other Revenue We continue to emphasize growth and diversification of our other "non-spread" revenues to improve overall profitability of CIT. Other revenue improved to $912.0 million during 2000, from $350.8 million during 1999 and $255.4 million during 1998, primarily due to the 1999 acquisition activity, as set forth in the following table. Years Ended December 31, -------------------------- Dollars in Millions 2000 1999 1998 ------ ------ ------ Fees and other income ......................... $480.9 $161.0 $ 90.7 Factoring commissions ......................... 154.7 118.7 95.7 Gains on sales of leasing equipment ........... 113.2 56.4 45.2 Gains on securitizations ...................... 109.5 14.7 12.5 Gains on venture capital investments .......... 53.7 -- 11.3 ------ ------ ------ Total ...................................... $912.0 $350.8 $255.4 ====== ====== ====== 15 Included in fees and other income are miscellaneous fees, syndication fees and gains from receivable sales. Receivable sales increased primarily in our Consumer business, reflecting its receivable origination and whole loan sale strategy to maximize the value of our origination network. Miscellaneous fees increased across all commercial segments during 2000; however, the increase is primarily due to the 1999 acquisitions. Fees from syndication activity in the acquired Structured Finance segment also had a significant impact on the year over year increase. Factoring commissions were up due to the 1999 factoring acquisitions. Gains on sales of leasing equipment and securitizations each increased due to higher volumes in 2000. We also benefited from the maturation of certain venture capital investments and a strong IPO market in the early part of the year. The 1999 increase in other revenue from 1998 reflects primarily an increase in factoring commissions, due in part to the two acquisitions completed during the year, syndication fees from the Structured Finance segment and gains recognized on sales of receivables. Salaries and General Operating Expenses Salaries and general operating expenses were $1,035.2 million in 2000, $516.0 million in 1999, and $407.7 million in 1998. Expenses were up significantly in 2000 due to the prior year acquisitions, with the largest portion of this increase in employee costs and facilities expenses. Integration cost savings exceeded our original forecast of $150 million in annual cost savings from pre-acquisition levels. These cost savings were the result of an integration plan established in connection with the acquisition that identified certain real estate locations for elimination, as well as involuntary employee terminations. Our personnel decreased to approximately 7,355 at December 31, 2000 from 8,255 at December 31, 1999 due to integration reductions. This compared to 3,230 at December 31, 1998, reflecting the 1999 acquisitions. We manage expenditures using a comprehensive budgetary process. Expenses are monitored closely by business unit management and are reviewed monthly with our senior management. To ensure overall project cost control, an approval and review procedure is in place for major capital expenditures, such as computer equipment and software, including post-implementation evaluations. The efficiency ratio and the ratio of salaries and general operating expenses to AMA are two measurements that management uses to monitor productivity. AMA is comprised of average earning assets plus the average of finance receivables previously securitized and still managed by us. These ratios exclude goodwill amortization and are set forth in the following table. Years Ended December 31, -------------------------- 2000 1999 1998 ------ ------ ------ Efficiency ratio ................................. 43.8% 41.3% 39.2% Salaries and general operating expenses as a percentage of AMA ............................ 2.01% 1.75% 1.78% The lower efficiency (higher ratio) in 2000 and 1999 from 1998 reflects the impact of the Newcourt acquisition, as that company's efficiency ratio was historically significantly higher than CIT's. Integration cost savings and efficiency enhancements improved the efficiency ratio for the year 2000 to 43.8% from the 48.3% level for the 1999 fourth quarter, when the acquisition was completed. Goodwill Amortization Goodwill amortization was $86.3 million in 2000 versus $25.7 million and $10.1 million in 1999 and 1998, respectively, reflecting the full year impact of the 1999 acquisitions, all of which were accounted for under the purchase method. Provision and Reserve for Credit Losses/Credit Quality The provision for credit losses was $255.2 million for 2000, $110.3 million for 1999, and $99.4 million for 1998. Net charge-offs were $235.6 million for 2000, $95.0 million for 1999, and $78.8 million for 1998. Our net charge-off experience, in amount and as a percentage of finance receivables, is provided in the following table. 16
Years Ended December 31, ----------------------------------------------------- Dollars in Millions 2000 1999 1998 --------------- --------------- --------------- Equipment Financing and Leasing... $102.9 0.71% $ 16.7 0.16% $ 18.2 0.18% Vendor Technology Finance ........ 31.7 0.54 -- -- -- -- Commercial Finance ............... 46.2 0.60 29.0 0.47 14.8 0.31 Structured Finance ............... 0.4 0.03 -- -- -- -- ------ ---- ------ ---- ------ ---- Total Commercial Segments ...... 181.2 0.62 45.7 0.25 33.0 0.22 Consumer ......................... 54.4 1.32 49.3 1.19 45.8 1.18 ------ ---- ------ ---- ------ ---- Total .......................... $235.6 0.71% $ 95.0 0.42% $ 78.8 0.42% ====== ==== ====== ==== ====== ====
The increase in Equipment Financing and Leasing net credit losses primarily reflects the impact of acquired assets. The increase in 2000 in Commercial Finance net credit losses primarily reflects one food wholesaler account charged-off in 2000. The 1999 increase over 1998 in Commercial Finance was due to high recoveries in 1998. Our consolidated reserve for credit losses increased to $468.5 million (1.40% of finance receivables) at December 31, 2000 from $446.9 million (1.44%) at December 31, 1999 and $263.7 million (1.33%) at December 31, 1998, as we recorded provisions of $19.6 million, $15.3 million and $20.6 million in excess of net charge-offs during 2000, 1999 and 1998, respectively. The increase in the 2000 and 1999 ratio of reserve to receivables from 1998 reflects the acquired assets, which carried a higher reserve percentage than CIT's historical ratio, and is commensurate with this historically higher past due loan and charge-off profile. The decrease in the ratio of reserve to finance receivables in 2000 from 1999, reflects product mix changes as well as the implementation of CIT credit standards in the acquired portfolios. Our consolidated reserve for credit losses is periodically reviewed for adequacy considering economic conditions, collateral values and credit quality indicators, including charge-off experience and levels of past due loans and non-performing assets. It is management's judgment that the consolidated reserve for credit losses is adequate to provide for credit losses inherent in the portfolios. We review finance receivables periodically to determine the probability of loss, and take charge-offs after considering such factors as delinquencies, the financial condition of obligors, the value of underlying collateral, as well as third party credit enhancements such as guarantees and recourse from manufacturers. Charge-offs are recorded on consumer receivables and certain small ticket commercial finance receivables beginning at 180 days of contractual delinquency based upon historical loss severity. The consolidated reserve for credit losses is intended to provide for losses inherent in the portfolio, which requires the application of estimates and significant judgement as to the ultimate outcome of collection efforts and realization of collateral, among other things. Therefore, changes in economic conditions or other events affecting specific obligors or industries may necessitate additions or deductions to the consolidated reserve for credit losses. Past Due and Non-performing Assets The following table sets forth certain information concerning our past due and non-performing assets (and the related percentages of finance receivables) at December 31, 2000, 1999 and 1998.
At December 31, ----------------------------------------------------- Dollars in Millions 2000 1999 1998 --------------- --------------- --------------- Finance receivables, past due 60 days or more: Equipment Financing and Leasing... $399.8 2.88% $209.6 1.93% $149.9 1.41% Vendor Technology Finance ........ 184.9 3.07 314.9 4.16 -- -- Commercial Finance ............... 107.9 1.40 64.0 0.91 32.1 0.64 Structured Finance ............... 96.2 5.59 61.5 4.12 -- -- ------ ---- ------ ---- ------ ---- Total Commercial Segments ...... 788.8 2.69 650.0 2.42 182.0 1.17 Consumer ......................... 211.1 5.03 189.1(1) 4.62(1) 166.0 3.89 ------ ---- ------ ---- ------ ---- Total .......................... $999.9 2.98% $839.1 2.71% $348.0 1.75% ====== ==== ====== ==== ====== ==== Non-performing assets: Equipment Financing and Leasing... $351.0 2.53% $139.9 1.29% $135.2 1.27% Vendor Technology Finance ........ 93.9 1.56 247.9 3.27 -- -- Commercial Finance ............... 65.3 0.85 27.6 0.39 14.5 0.29 Structured Finance ............... 118.6 6.90 61.5 4.12 -- -- ------ ---- ------ ---- ------ ---- Total Commercial Segments ...... 628.8 2.15 476.9 1.77 149.7 0.96 Consumer ......................... 199.3 4.75 158.5(1) 3.87(1) 129.0 3.02 ------ ---- ------ ---- ------ ---- Total .......................... $828.1 2.47% $635.4 2.05% $278.7 1.40% ====== ==== ====== ==== ====== ====
- -------------------------------------------------------------------------------- (1) For these calculations, certain finance receivables held for sale and the associated past due and non-performing balances are included. 17 Non-performing assets reflect both finance receivables on non-accrual status and assets received in satisfaction of loans. The 2000 increase from 1999 in our Equipment Financing and Leasing segment delinquency and non-performing asset ratios was in large part due to the acquired assets, which historically carried a higher level of delinquency and non-performing assets, as well as an increase in trucking industry delinquencies and non-performing assets. The increase in Structured Finance delinquency and non-performing assets from December 31, 1999 was primarily due to one account which was classified as non-performing during the fourth quarter of 2000. In 1999, Equipment Financing and Leasing past due loans increased, but non-performing assets remained relatively stable at 1.29%. The increase in 1999 Equipment Financing and Leasing past dues also included three commercial aircraft that became past due in the fourth quarter. The increases in Commercial Finance in 2000 past due and non-performing balances was due to the over 20% growth in the Business Credit unit and economic softening in various markets. The increases, in both 2000 and 1999 Consumer past due and non-performing accounts are due to softening in the manufactured housing market. Income Taxes The provision for federal, foreign and state and local income taxes totaled $373.9 million in 2000, compared with $207.6 million in 1999, and $185.0 million in 1998. The effective income tax rate for 2000 was 37.9%, compared with 34.8% in 1999, and 35.3% in 1998, primarily as a result of an increase in non-deductible goodwill amortization and foreign taxes, partially offset by lower state and local taxes. Results by Business Segment In Equipment Financing and Leasing, net income increased 24.3% from 1999, as the dollar amounts of increased margin and non-spread revenues more than offset higher charge-offs and operating expenses. As a percentage of AEA, Equipment Financing and Leasing net income dropped from 1999, as the relative revenue and spread improvements fell short of credit provisions and operating expense increases. The increased net income in 2000 over 1999 for Equipment Financing and Leasing, as well as the return on AEA trends, reflect the transfers of acquired assets. Commercial Finance net income improved 14.4% from 1999, and reflected increased factoring commissions, largely from the 1999 acquisitions. Consumer segment earnings grew by 22.2% and benefited from improved efficiency and gains on receivable sales. Whole loan sales are part of our ongoing Consumer business strategy to maximize the value of our origination network. The increased corporate expense in 2000 over 1999 included higher goodwill amortization and higher corporate interest expense. Net income for 1999 improved $50.6 million or 14.9% from 1998, as all of our original business segments improved from 1998. Both the Equipment Financing and Leasing and Commercial Finance segments improved approximately 19% from 1998, due to the continuation of strong asset growth. The Commercial Finance segment results also reflected two 1999 acquisitions. The Consumer segment earnings grew by 35% and benefited from improved efficiency and gains on receivable sales. The increased corporate expense in 1999 over 1998 included higher goodwill amortization, and higher corporate interest expense. The table below summarizes selected financial information by business segment, based upon a fixed leverage ratio across business units and the allocation of a majority of corporate expenses.
For the Years Ended December 31, ----------------------------------------------------------------- Net Income Return on AEA ---------------------------- ---------------------------- Dollars in Millions 2000 1999 1998 2000 1999 1998 ------ ------ ------ ------ ------ ------ Equipment Financing and Leasing ................ $287.8 $231.5 $193.9 1.42% 1.65% 1.59% Vendor Technology Finance ...................... 148.9 7.5 -- 1.91 --(1) --(1) Commercial Finance ............................. 161.8 141.4 119.1 3.03 3.35 3.36 Structured Finance ............................. 89.6 -- -- 4.04 --(1) -- ------ ------ ------ ---- ---- ---- Total Commercial Segments .................... 688.1 380.4 313.0 1.93 1.85 1.98 Consumer ....................................... 73.3 60.0 44.3 1.45 1.18 0.99 ------ ------ ------ ---- ---- ---- Total Segments ............................... 761.4 440.4 357.3 1.87 1.72 1.74 Corporate ...................................... (149.8) (51.0) (18.5) --(1) --(1) --(1) ------ ------ ------ ---- ---- ---- Total ....................................... $611.6 $389.4 $338.8 1.50% 1.52% 1.65% ====== ====== ====== ==== ==== ====
- -------------------------------------------------------------------------------- (1) These percentages are not meaningful. 18 Financing and Leasing Assets Our managed assets grew $3.5 billion (6.7%), to $54.9 billion in 2000, and grew $25.2 billion (96.2%) to $51.4 billion in 1999, due primarily to acquisitions. Financing and leasing assets that we own grew $3.4 billion (8.4%) to $43.8 billion in 2000, and grew $16.7 billion (70.4%) to $40.4 billion in 1999. Managed assets include finance receivables, operating lease equipment, finance receivables held for sale, certain investments, and finance receivables previously securitized and still managed by us. In connection with the integration of Newcourt, we transferred various assets among our business units to better align core competencies, gain scale, raise efficiency and improve profitability. During 2000, we transferred $1,713.3 million of finance receivables, $988.9 million of operating leases and $2,902.2 million of securitized assets from Vendor Technology Finance to Equipment Financing. Also, a telecommunications portfolio totaling $313.0 million was transferred to Structured Finance from Equipment Financing. These transfers are in addition to 1999 movements when finance receivables of $2,149.4 million and operating leases of $208.4 million were transferred to Equipment Financing from Vendor Technology Finance and $229.4 million of finance receivables and $4.4 million of operating leases were transferred to Vendor Technology Finance from Equipment Financing. Additionally, in 1999, $231.3 million of finance receivables were transferred to Capital Finance from Structured Finance. Excluding the impact of asset transfers in 2000, Vendor Technology Finance and Structured Finance portfolio assets grew at a rate of 12.8% and 14.9%, respectively, during the year, while Commercial Finance was up 9.9%. Consumer managed assets were flat year 2000 over 1999; however, on an owned basis (excluding the liquidating portfolio), assets were up 15.5% as no consumer asset-backed securitizations were completed in 2000. Business volume, excluding factoring, was $25.3 billion in 2000, up from $13.2 billion in 1999, as volume was strong across all commercial segments and in the Consumer home equity portfolio. 19 The managed assets of our business segments and the corresponding strategic business units are presented in the following table, and reflect the previously discussed transfers between business units.
At December 31, % Change ----------------------------------------- ------------------------- Dollars in Millions 2000 1999 1998 '00 vs. '99 '99 vs. '98 --------- --------- --------- ----------- ----------- Equipment Financing: Finance receivables ............................. $12,153.7 $10,899.3 $ 8,497.6 11.5% 28.3% Operating lease equipment, net .................. 2,280.7 1,066.2 765.1 113.9 39.4 --------- --------- --------- ----- ----- Total ......................................... 14,434.4 11,965.5 9,262.7 20.6 29.2 --------- --------- --------- ----- ----- Capital Finance: Finance receivables ............................. 1,863.1 1,838.0 1,655.4 1.4 11.0 Operating lease equipment, net .................. 3,594.6 2,931.8 1,982.0 22.6 47.9 Liquidating portfolio(1) ........................ 185.9 281.4 466.9 (33.9) (39.7) --------- --------- --------- ----- ----- Total ......................................... 5,643.6 5,051.2 4,104.3 11.7 23.1 --------- --------- --------- ----- ----- Total Equipment Financing and Leasing Segment ......................... 20,078.0 17,016.7 13,367.0 18.0 27.3 --------- --------- --------- ----- ----- Vendor Technology Finance: Finance receivables ............................. 6,864.5 7,488.9 -- (8.3) --(3) Operating lease equipment, net .................. 1,256.5 2,108.8 -- (40.4) --(3) --------- --------- --------- ----- ----- Total Vendor Technology Finance Segment ............................. 8,121.0 9,597.7 -- (15.4) --(3) --------- --------- --------- ----- ----- Commercial Services ............................... 4,277.9 4,165.1 2,481.8 2.7 67.8 Business Credit ................................... 3,415.8 2,837.0 2,514.4 20.4 12.8 --------- --------- --------- ----- ----- Total Commercial Finance Segment ............................. 7,693.7 7,002.1 4,996.2 9.9 40.1 --------- --------- --------- ----- ----- Structured Finance: Finance receivables ............................. 2,347.3 1,933.9 -- 21.4 --(3) Operating lease equipment, net .................. 58.8 -- -- -- -- Other - Equity Investments ...................... 285.8 137.3 81.9 108.2 67.6 --------- --------- --------- ----- ----- Total Structured Finance Segment ..................................... 2,691.9 2,071.2 81.9 30.0 --(3) --------- --------- --------- ----- ----- Total Commercial Segments ..................... 38,584.6 35,687.7 18,445.1 8.1 93.5 --------- --------- --------- ----- ----- Consumer: Home equity ..................................... 2,451.7 2,215.4 2,244.4 10.7 (1.3) Manufactured housing ............................ 1,802.1 1,666.9 1,417.5 8.1 17.6 Recreational vehicles ........................... 648.0 361.2 744.0 79.4 (51.5) Liquidating portfolio(2) ........................ 298.2 462.8 848.4 (35.6) (45.5) --------- --------- --------- ----- ----- Total Consumer Segment ........................ 5,200.0 4,706.3 5,254.3 10.5 (10.4) --------- --------- --------- ----- ----- TOTAL FINANCING AND LEASING PORTFOLIO ASSETS ...................................... 43,784.6 40,394.0 23,699.4 8.4 70.4 --------- --------- --------- ----- ----- Finance receivables previously securitized: Commercial ...................................... 9,075.9 8,471.5 -- 7.1 --(3) Consumer ........................................ 1,582.7 1,987.0 2,025.0 (20.3) (1.9) Consumer liquidating portfolio(2) ............... 457.7 580.8 491.9 (21.2) 18.1 --------- --------- --------- ----- ----- Total ......................................... 11,116.3 11,039.3 2,516.9 0.7 338.6 --------- --------- --------- ----- ----- TOTAL MANAGED ASSETS .......................... $54,900.9 $51,433.3 $26,216.3 6.7% 96.2% ========= ========= ========= ===== =====
- -------------------------------------------------------------------------------- (1) Consists primarily of ocean going maritime and project finance. Capital Finance discontinued marketing to these sectors in 1997. (2) Consists of recreational boat and wholesale loan product lines, which we exited in 1999. (3) These percentages are not meaningful. 20 Concentrations Financing and Leasing Assets Composition Our ten largest financing and leasing asset accounts in the aggregate represented 3.9% of our total financing and leasing assets at December 31, 2000 (with the largest account representing less than 1%) and 3.7% at December 31, 1999. All ten accounts were commercial accounts and were secured by equipment, accounts receivable and/or inventory. Geographic Composition The following table presents our financing and leasing assets by customer location.
At December 31, ---------------------------------------------------- 2000 1999 --------------------- ---------------------- Dollars in Millions Amount Percent Amount Percent --------- ------- --------- ------- United States: Northeast ......................... $ 9,099.3 20.8% $ 8,257.2 20.5% West .............................. 8,336.9 19.0 7,594.0 18.8 Midwest ........................... 7,723.1 17.6 7,042.7 17.4 Southeast ......................... 6,228.6 14.2 5,380.5 13.3 Southwest ......................... 4,940.3 11.4 4,426.1 11.0 --------- ----- --------- ----- Total United States .................. 36,328.2 83.0 32,700.5 81.0 --------- ----- --------- ----- Foreign: Canada ............................ 2,357.4 5.4 2,797.5 6.9 All other ......................... 5,099.0 11.6 4,896.0 12.1 --------- ----- --------- ----- Total ................................ $43,784.6 100.0% $40,394.0 100.0% ========= ===== ========= =====
Our managed asset geographic diversity does not differ significantly from our owned asset geographic composition. Our financing and leasing asset portfolio in the United States is diversified by state. At December 31, 2000, with the exception of California (10.4% of financing and leasing assets), Texas (7.9%), and New York (6.9%), no state represented more than 4.6% of financing and leasing assets. Our 1998 managed and owned asset geographic composition did not significantly differ from our 1999 managed and owned asset geographic composition. Financing and leasing assets to foreign obligors totaled $7.5 billion at December 31, 2000. After Canada, $2.4 billion (5.4% of financing and leasing assets), the largest foreign exposures were to England, $1.2 billion (2.8%), and Australia, $399.6 million (0.9%). Our remaining foreign exposure was geographically dispersed, with no other individual country exposure greater than 0.8% of financing and leasing assets. At December 31, 1999, financing and leasing assets to foreign obligors totaled $7.7 billion. After Canada, $2.8 billion (6.9% of financing and leasing assets), the largest foreign exposures were to England, $1.6 billion (4.0%), and Australia, $397.6 million (1.0%). Our remaining foreign exposure was geographically dispersed, with no other individual country exposure greater than 0.8% of financing and leasing assets. 21 Industry Composition The following table presents our financing and leasing assets by major industry class.
At December 31, ---------------------------------------------------- 2000 1999 --------------------- ---------------------- Dollars in Millions Amount Percent Amount Percent --------- ------- --------- ------- Manufacturing(1) (no industry greater than 2.6%) ... $ 8,787.2 20.1% $ 8,566.5 21.2% Retail(2) ........................... 4,211.3 9.6 4,032.0 10.0 Commercial airlines ................. 3,557.2 8.1 3,091.2 7.7 Transportation(3) ................... 3,431.0 7.8 3,348.2 8.3 Construction equipment .............. 2,697.8 6.2 2,697.0 6.7 Home mortgage ....................... 2,451.7 5.6 2,215.4 5.5 Service industries .................. 1,987.1 4.5 1,768.1 4.4 Manufactured housing ................ 1,802.1 4.1 1,666.9 4.1 Communications ...................... 1,496.7 3.4 1,372.6 3.4 Wholesaling ......................... 1,445.0 3.3 1,303.6 3.2 Other (no industry greater than 2.6%) ........................ 11,917.5 27.3 10,332.5 25.5 --------- ----- --------- ----- Total ............................. $43,784.6 100.0% $40,394.0 100.0% ========= ===== ========= =====
- -------------------------------------------------------------------------------- (1) Includes manufacturers of textiles and apparel, industrial machinery and equipment, electrical and electronic equipment, and other industries. (2) Includes retailers of apparel (3.8%) and general merchandise (2.6%). (3) Includes rail, bus, over-the-road trucking industries, and business aircraft. Our telecommunications portfolio is included in "Communications" in the industry composition table above. This portfolio is included in our Structured Finance segment and totals approximately $690 million at December 31, 2000, comprising approximately 1.6% of total financing and leasing assets, of which 10.0% are on non-accrual status. This portfolio consists of 60 accounts with an average balance of $11.4 million. The 10 largest accounts in the portfolio aggregate $277 million with the largest single account under $50.0 million. Our telecommunications transactions are collateralized by the assets of the customer (equipment, receivable, cash, etc.) and are also secured by a pledge of all of the stock of the non-public companies. Our 1998 managed and owned asset industry composition did not differ significantly from our 1999 managed and owned asset industry composition. Risk Management Our business activities contain various elements of risk. We consider the principal types of risk to be credit risk (including credit, collateral and equipment risk) and market risk (including interest rate, foreign currency and liquidity risk.) We consider the management of risk essential to conducting our commercial and consumer businesses and to maintaining profitability. Accordingly, our risk management systems and procedures are designed to identify and analyze risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. We review and monitor credit exposures, both owned and managed, on an ongoing basis to identify, as early as possible, those customers that may be experiencing declining creditworthiness or financial difficulty, and periodically evaluate our finance receivables across the entire organization. We monitor concentrations by borrower, industry, geographic region and equipment type and management adjusts limits as conditions warrant to seek to minimize the risk of credit loss. Our Asset Quality Review Committee is comprised of members of senior management, including the Chief Risk Officer and the Chief Financial Officer. Periodically, the Committee meets with senior executives of our strategic business units and corporate credit risk management group to review portfolio status and performance, 22 as well as the status of individual financing and leasing assets, owned and managed, greater than $500,000 to obligors with higher risk profiles. In addition, this committee periodically meets with the Chairman and Chief Executive Officer of CIT to review overall credit risk, including geographic, industry and customer concentrations. Credit Risk Management We have developed systems specifically designed to manage credit risk in our Commercial and Consumer business segments. We evaluate financing and leasing assets for credit and collateral risk during the credit granting process and periodically after the advancement of funds. In response to our growing businesses, we formed a corporate credit risk management group, which reports to the Chief Risk Officer, in the fourth quarter of 1999 to oversee and manage credit risk throughout CIT. This group's structure includes senior credit executive alignment with each of the business units, as well as a senior executive with corporate-wide asset recovery and work-out responsibilities. This group reviews large transactions, non-traditional transactions and transactions which are outside of established target market definitions and risk acceptance criteria or which exceed the strategic business units' credit authority. In addition, our Executive Credit Committee, which includes the Chairman and Chief Executive Officer, the Chief Risk Officer, three members of the corporate credit risk management group and two group Chief Executive Officers, approves credits that are beyond the authority of the business units. The credit risk management group also includes an independent credit audit function. Each of our strategic business units has developed and implemented a formal credit management process in accordance with formal uniform guidelines established by the credit risk management group. These guidelines set forth risk acceptance criteria for: o acceptable maximum credit line; o selected target markets and products; o creditworthiness of borrowers, including credit history, financial condition, adequacy of cash flow and quality of management; and o the type and value of underlying collateral and guarantees (including recourse from dealers and manufacturers.) We also employ a risk adjusted pricing process where the perceived credit risk is a factor in determining the interest rate and/or fees charged for our financing and leasing products. As economic and market conditions change, credit risk management practices are reviewed and modified, if necessary, to seek to minimize the risk of credit loss. For small ticket business originated in our Vendor Technology Finance segment and the Consumer segment, we utilize automated credit scoring capabilities. In these proprietary models, we utilize statistical techniques in analyzing customer attributes, including industry and corporate data, trade payment history, and other credit bureau information. Model scores are measured against actual delinquency and loss experience. Modifications are made to the models based upon this monitoring effort as appropriate. The design and monitoring of these automated statistical models is led by our Management Science Group, staffed by specialists with considerable experience and expertise in this discipline. Compliance with established corporate policies and procedures and the credit management processes at each strategic business unit are reviewed by the credit audit group. The credit audit group examines adherence with established credit policies and procedures and tests for inappropriate credit practices, including whether potential problem accounts are being detected and reported on a timely basis. The credit audit group reports to the Chief Risk Officer and to the Audit Committee. Equipment/Residual Risk Management We have developed systems, processes and expertise to manage the equipment and residual risk in our Commercial segments. Our process consists of a four-pronged approach: 1) residual setting and valuation at deal inception, 2) approvals and authorizations, 3) systematic residual reviews, and 4) monitoring of residual realizations. Over time, we have developed experienced internal equipment management specialists, as well as 23 external consultant networks, who understand equipment values. We believe this to be one of our core competencies. These specialists set values in our larger-ticket transactional business, and develop standard residual matrices for our lower-ticket, higher-volume transaction business. Transactions outside of these standard residual matrices, or transactions over certain dollar limits, must be approved by various combinations of business unit management or Corporate risk management. Reviews for impairment are performed at least annually. Residual realizations, by business unit and product, are reviewed as part of our ongoing financial and asset quality review, both within the business units and by Corporate management. Commercial We have developed systems specifically designed to effectively manage credit risk in our Commercial segments. The process starts with the initial evaluation of credit risk and underlying collateral at the time of origination and continues over the life of the finance receivable or operating lease, including collecting past due balances and liquidating underlying collateral. Credit personnel of the applicable strategic business unit review each potential borrower's financial condition, results of operations, management, industry, customer base, operations, collateral and other data, such as third party credit reports, to thoroughly evaluate the customer's borrowing and repayment ability. Borrowers are graded according to credit quality based upon our uniform credit grading system, which grades both the borrower's financial condition and the underlying collateral. Credit facilities are subject to approval within our overall credit approval and underwriting guidelines and are issued commensurate with the credit evaluation performed on each borrower. As mentioned previously, senior business unit and credit risk management are actively involved in the ongoing, disciplined asset quality review process. Consumer and Small-ticket Leasing We have developed proprietary automated credit scoring models by loan type that include both customer demographics and credit bureau characteristics. The profiles emphasize, among other things, occupancy status, length of residence, length of employment, debt to income ratio (ratio of total installment debt and housing expenses to gross monthly income), bank account references, credit bureau information and combined loan to value ratio. The models are used to assess a potential borrower's credit standing and repayment ability considering the value or adequacy of property offered as collateral. Our credit criteria include reliance on credit scores, including those based upon both our proprietary internal credit scoring model and external credit bureau scoring, combined with judgment. The credit scoring models are regularly reviewed for effectiveness utilizing statistical tools. We regularly evaluate the consumer loan portfolio using past due, vintage curve and other statistical tools to analyze trends and credit performance by loan type, including analysis of specific credit characteristics and other selected subsets of the portfolios. Adjustments to credit scorecards and lending programs are made when deemed appropriate. Individual underwriters are assigned credit authority based upon their experience, performance and understanding of the underwriting policies and procedures of our consumer operations and a credit approval hierarchy exists to ensure that all applications are reviewed by an underwriter with the appropriate level of authority. See "Provision and Reserve for Credit Losses/Credit Quality". Market Risk Management Market risk is the risk of loss arising from changes in values of financial instruments, including interest rate risk, foreign exchange risk, derivative credit risk and liquidity risk. We engage in transactions in the normal course of business that expose us to market risks, and we maintain what we believe are conservative management practices and policies designed to effectively mitigate such risks. The objectives of our market risk management efforts are to preserve company value by hedging changes in future expected net cash flows and to decrease the cost of capital. Strategies for managing market risks associated with changes in interest rates and foreign exchange rates are an integral part of the process, since those strategies affect our future expected cash flows as well as our cost of capital. Our Capital Committee sets policies, oversees and guides the interest rate and currency risk management process, including establishment and monitoring of risk metrics, and ensures the implementation of those policies. 24 Other risks monitored by the Capital Committee include derivative credit risk and liquidity risk. The Capital Committee is comprised of members of senior management, including the Chairman and Chief Executive Officer, the Chief Financial Officer, the Treasurer, and the Controller. Business unit executives also serve on the Capital Committee on a rotating basis. Interest Rate and Foreign Exchange Risk Management -- We offer a variety of financing products to our customers including fixed and floating-rate loans of various maturities and currency denominations, and a variety of leases, including operating leases. Changes in market interest rates, or in the relationships between short-term and long-term market interest rates, or in the relationships between different interest rate indices (i.e., basis risk) can affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities, which can result in an increase in interest expense relative to finance income. We measure our asset/liability position in economic terms through duration measures and value at risk analysis, and we measure its periodic effect on earnings using maturity gap analysis. A matched asset/liability position is generally achieved through a combination of on and off-balance sheet financial instruments, including issuing commercial paper, medium term notes, long-term debt, interest rate and currency swaps, foreign exchange contracts, and through asset syndication and securitization. We do not speculate on interest rates or foreign exchange rates, but rather seek to mitigate the possible impact of such rate fluctuations encountered in the normal course of business. This process is ongoing due to prepayments, refinancings and actual payments varying from contractual terms, as well as other portfolio dynamics. We periodically enter into structured financings (involving both the issuance of debt and an interest rate swap with corresponding notional principal amount and maturity) to manage liquidity and reduce interest rate risk at a lower overall funding cost than could be achieved by solely issuing debt. Interest rate swaps with notional principal amounts of $9.9 billion at December 31, 2000 and $8.8 billion at December 31, 1999 were designated as hedges against outstanding debt and were principally used to convert the interest rate on variable-rate debt to a fixed-rate, establishing a fixed-rate term debt borrowing cost for the life of the swap. These hedges reduce our exposure to rising interest rates, but also reduce the benefits from lower interest rates. A comparative analysis of the weighted average principal outstanding and interest rates paid on our debt before and after the effect of interest rate swaps is shown in the following table.
Years Ended December 31, -------------------------------------------------------------------- Before Swaps -------------------------------------------------------------------- Dollars in Millions 2000 1999 1998 ------------------ ------------------ ------------------ Commercial paper and variable-rate senior notes ................................. $19,848.6 6.53% $11,896.2 5.26% $ 9,672.6 5.53% Fixed-rate senior and subordinated notes ........................................ 17,689.7 6.72 10,115.1 6.47 7,476.5 6.31 --------- ---- --------- ---- --------- ---- Composite ...................................... $37,538.3 6.62% $22,011.3 5.71% $17,149.1 5.87% ========= ==== ========= ==== ========= ====
Years Ended December 31, -------------------------------------------------------------------- After Swaps -------------------------------------------------------------------- 2000 1999 1998 ------------------ ------------------ ------------------ Commercial paper and variable-rate senior notes ................................. $14,762.1 6.74% $ 8,977.7 5.32% $ 7,069.9 5.47% Fixed-rate senior and subordinated notes ........................................ 22,776.2 6.67 13,033.6 6.25 10,079.2 6.39 --------- ---- --------- ---- --------- ---- Composite ...................................... $37,538.3 6.70% $22,011.3 5.87% $17,149.1 6.01% ========= ==== ========= ==== ========= ====
The weighted average composite interest rate after swaps in each of the years presented increased from the composite interest rate before swaps primarily because a larger proportion of our debt, after giving effect to interest rate swaps, was subject to a fixed interest rate. However, the weighted average interest rates before swaps do not necessarily reflect the interest expense that would have been incurred over the life of the borrowings had we chosen to manage interest rate risk without the use of such swaps. Derivatives are discussed further in Note 9 -- "Derivative Financial Instruments" of Item 8. - -- "Financial Statements and Supplementary Data." 25 Our foreign operations include Canada, Latin America, Europe, Asia and Australia and are funded through both local currency borrowings and U.S. dollar borrowings which are converted to local currency through the use of foreign exchange forward contracts or cross-currency swaps. At December 31, 2000, $2.9 billion in notional principal amount of foreign exchange forwards and $1.2 billion in notional principal amount of cross-currency swaps were designated as currency-related debt hedges. We also utilize foreign exchange forward contracts to hedge our net investments in foreign operations. Translation gains and losses of the underlying foreign net investment, as well as offsetting derivative gains or losses on designated hedges, are reflected in other comprehensive income as a separate component of equity in the Consolidated Balance Sheets. As of December 31, 2000, $0.8 billion in notional principal of foreign exchange forwards were designated as hedges of net investments in foreign operations. We regularly monitor and simulate through computer modeling our degree of interest rate sensitivity by measuring the repricing characteristics of interest-sensitive assets, liabilities, and off-balance sheet derivatives. The Capital Committee reviews the results of this modeling monthly. The interest rate sensitivity modeling techniques employed by us include the creation of prospective twelve month "baseline" and "rate shocked" net interest income simulations. At the date that interest rate sensitivity is modeled, "baseline" net interest income is derived considering the current level of interest-sensitive assets and related run-off (including both contractual repayment and historical prepayment experience), the current level of interest-sensitive liabilities and related maturities and the current level of off-balance sheet derivatives. The "baseline" simulation assumes that, over the next successive twelve months, market interest rates (as of the date of simulation) are held constant and that no new loans or leases are extended. Once the "baseline" net interest income is calculated, market interest rates, which were previously held constant, are raised 100 basis points instantaneously and parallel across the entire yield curve, and a "rate shocked" simulation is run. Interest rate sensitivity is then measured as the difference between calculated "baseline" and "rate shocked" net interest income. Utilizing our computer modeling, if no new fixed-rate loans or leases were extended and no actions to alter the existing interest rate sensitivity were taken subsequent to December 31, 2000, an immediate hypothetical 100 basis point parallel change in the yield curve on January 1, 2001 would affect net income by an estimated $25 million after-tax over the next twelve months. Although management believes that this measure provides a meaningful estimate of our interest rate sensitivity, it does not account for potential changes in the credit quality, size, composition and prepayment characteristics of the balance sheet and other business developments that could affect net income. Accordingly, no assurance can be given that actual results would not differ materially from the potential outcome simulated by our computer modeling. Further, it does not necessarily represent management's current view of future market interest rate movements. Derivative Risk Management -- We enter into interest rate and currency swaps and foreign exchange forward contracts as part of our overall market risk management practices. We assess and manage the external and internal risks associated with these derivative instruments in accordance with the overall operating goals established by our Capital Committee. External risk is defined as those risks outside of our direct control, including counterparty credit risk, liquidity risk, systemic risk and legal risk. Internal risk relates to those operational risks within the management oversight structure and includes actions taken in contravention of CIT policy. The primary external risk of derivative instruments is counterparty credit exposure, which is defined as the ability of a counterparty to perform its financial obligations under a derivative contract. We control the credit risk of our derivative agreements through counterparty credit approvals, pre-established exposure limits and monitoring procedures. The Capital Committee approves each counterparty and establishes exposure limits based on credit analysis and market value. All derivative agreements are with major money center financial institutions rated investment grade by nationally recognized rating agencies, with the majority of our counterparties rated "AA" or better. Credit exposures are measured based on the market value of outstanding derivative instruments. Both current exposures and potential exposures, based on two standard deviations in market rates, are calculated for each derivative contract, summarized by counterparty, and reported to the Capital Committee. Liquidity Risk Management -- Liquidity risk refers to the risk of CIT being unable to meet potential cash outflows promptly and cost effectively. Factors that could cause such a risk to arise might be a disruption of a securities market or other source of funds. We actively manage and mitigate liquidity risk by maintaining 26 diversified sources of funding. The primary funding sources are commercial paper (U.S., Canada and Australia), medium-term notes (U.S., Canada and Europe) and asset-backed securities (U.S. and Canada). Included as part of our securitization programs are committed asset-backed commercial paper programs in the U.S. and Canada. We also maintain committed bank lines of credit to provide back-stop support of commercial paper borrowings and local bank lines to support our international operations. Additional sources of liquidity are loan and lease payments from customers, whole loan asset sales and loan syndications. We also target and monitor certain liquidity metrics to ensure both a balanced liability profile and adequate alternate liquidity availability. Among the target ratios are maximum percentage of outstanding commercial paper to total debt and minimum percentage of committed bank line coverage to outstanding commercial paper. Liquidity We maintain committed bank lines of credit aggregating $8.5 billion to provide back-stop support of commercial paper borrowings and approximately $198.0 million of local bank lines to support our international operations. Our primary bank line agreements include a minimum equity requirement of $3.8 billion. Included as part of our securitization programs are committed asset-backed commercial paper programs in the U.S. and Canada aggregating approximately $4.8 billion. At December 31, 2000, $4.6 billion of registered, but unissued, debt securities remained available under shelf registration statements, including $2.0 billion of European Medium-Term Notes. To ensure uninterrupted access to capital at competitive interest rates, we maintain strong investment grade ratings as outlined below. Short Term Long Term ---------- --------- Moody's ........................................ P-1 A1 Standard & Poor's .............................. A-1 A+ Fitch .......................................... F1 A+ Dominion Bond Rating Service ................... R-1 (mid) A (high) As part of our continuing program of accessing the public and private asset-backed securitization markets as an additional liquidity source, general equipment finance receivables of $4.1 billion were securitized during 2000. We securitized recreational vehicle and general equipment finance receivables of $1.5 billion in 1999. The increase in securitization activity in 2000 from 1999 was primarily due to the impact of a full year of activity from Vendor Technology Finance and Equipment Financing operations, which have established securitization vehicles and relationships with institutional investors in the U.S. and Canada to ensure broad market access. At December 31, 2000, we had $2.5 billion of registered, but unissued, securities available under shelf registration statements relating to our asset-backed securitization programs. Capitalization Leverage reduction and disciplined capital allocation are high priorities for us, and the ongoing evaluation of risk adjusted returns and growth prospects of business units across the organization will continue. Businesses that do not fit strategically, or portfolios that do not meet profitability requirements will be improved, liquidated or sold. Currently, we have approximately $5 billion in assets, which are under review or are being considered for sale or liquidation. Progress was made toward increasing tangible capitalization during the second half of 2000. As a result, the tangible equity to managed assets and total debt to tangible equity ratios improved to 7.82% and 8.78x from 7.47% and 9.27x at June 30, 2000, respectively. 27 The following table presents information regarding our capital structure. At December 31, ----------------------- Dollars in Millions 2000 1999 ---------- --------- Commercial paper ................................. $ 9,063.5 $ 8,974.0 Term debt ........................................ 28,901.6 26,399.5 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company ("Preferred Capital Securities") ............... 250.0 250.0 Stockholders' equity ............................. 6,007.2 5,554.4 --------- --------- Total capitalization ............................. 44,222.3 41,177.9 Goodwill ......................................... 1,964.6 1,850.5 --------- --------- Total tangible capitalization .................... $42,257.7 $39,327.4 ========= ========= Tangible stockholders' equity and Preferred Capital Securities to managed assets ................................. 7.82% 7.69% Total debt (excluding overnight deposits) to tangible stockholders' equity and Preferred Capital Securities ..................................... 8.78x 8.75x Total debt (excluding overnight deposits) to stockholders' equity and Preferred Capital Securities ............... 6.02x 5.96x The Company-obligated mandatorily redeemable preferred securities are 7.70% Preferred Capital Securities issued in 1997 by CIT Capital Trust I, a wholly-owned subsidiary. CIT Capital Trust I invested the proceeds of that issue in Junior Subordinated Debentures of CIT having identical rates and payment dates. At December 31, 2000, CIT had 261,897,768 issued and outstanding shares of common stock, including 11,637,709 exchangeable shares of CIT Exchangeco Inc. At December 31, 2000, The Dai-Ichi Kangyo Bank, Limited ("DKB"), our largest shareholder, owned approximately 27% of our outstanding stock. Recent Accounting Pronouncements During 1999, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133." SFAS 137 delayed the implementation of SFAS No. 133, which is now effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. During June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133." We adopted SFAS 133 and 138 as of January 1, 2001. The adoption did not have a material effect on either the statement of financial position or the results of operations. During September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a replacement of FASB Statement No. 125." SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001, and is effective for recognition and reclassification of collateral and for disclosures for fiscal years ending after December 15, 2000. We have adopted the disclosures for this statement and we do not expect the adoption of this standard to affect the accounting for, or the structure of, our securitization transactions. 28 Subsequent Event On March 13, 2001, Tyco International Ltd. (NYSE: TYC), a diversified manufacturing and service company, and CIT announced a definitive agreement whereby Tyco will acquire CIT. As part of this transaction, Tyco has entered into a purchase agreement with DKB for their approximate 27% interest, or 71 million shares, at a price of $35.02, in cash, per CIT share. The remaining shareholders will receive 0.6907 Tyco shares for each share of CIT in a tax-free, stock-for-stock exchange. The transaction, which is expected to close during the third quarter of 2001, is valued at $35.02 per share to CIT shareholders, or approximately $9.2 billion, based on Tyco's March 12, 2001 closing stock price. In connection with the transaction, CIT's credit ratings have been reviewed by the rating agencies as follows: Standard & Poor's has re-affirmed the short and long-term ratings, Fitch has taken no action, Moody's has re-affirmed the short-term rating and has placed the long-term rating under review, and Dominion Bond Rating Service has placed both the short and long-term ratings under review. 29 Item 8. Financial Statements and Supplementary Data. INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors of The CIT Group, Inc.: We have audited the accompanying consolidated balance sheets of The CIT Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of CIT's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The CIT Group, Inc. and subsidiaries at December 31, 2000 and 1999, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Short Hills, New Jersey January 25, 2001, except as to Note 25, which is as of March 13, 2001 30 THE CIT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, ----------------------- Dollars in Millions 2000 1999 --------- --------- Assets Financing and leasing assets: Loans and leases: Commercial .................................. $29,304.0 $27,119.2 Consumer .................................... 4,193.5 3,887.9 --------- --------- Finance receivables ....................... 33,497.5 31,007.1 Reserve for credit losses ...................... (468.5) (446.9) --------- --------- Net finance receivables ..................... 33,029.0 30,560.2 Operating lease equipment, net ................. 7,190.6 6,125.9 Finance receivables held for sale .............. 2,698.4 3,123.7 Cash and cash equivalents ........................ 812.1 1,073.4 Goodwill ......................................... 1,964.6 1,850.5 Other assets ..................................... 2,995.1 2,347.4 --------- --------- Total assets ................................ $48,689.8 $45,081.1 ========= ========= Liabilities and Stockholders' Equity Debt: Commercial paper ............................... $ 9,063.5 $ 8,974.0 Variable-rate senior notes ..................... 11,130.5 7,147.2 Fixed-rate senior notes ........................ 17,571.1 19,052.3 Subordinated fixed-rate notes .................. 200.0 200.0 --------- --------- Total debt .................................. 37,965.1 35,373.5 Credit balances of factoring clients ............. 2,179.9 2,200.6 Accrued liabilities and payables ................. 1,640.8 1,191.8 Deferred federal income taxes .................... 646.8 510.8 --------- --------- Total liabilities ........................... 42,432.6 39,276.7 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company .................................... 250.0 250.0 Stockholders' equity: Common stock ................................... 2.7 2.7 Paid-in capital ................................ 3,527.2 3,521.8 Retained earnings .............................. 2,603.3 2,097.6 Accumulated other comprehensive income ...................................... 11.7 2.8 Treasury stock, at cost ........................ (137.7) (70.5) --------- --------- Total stockholders' equity .................. 6,007.2 5,554.4 --------- --------- Total liabilities and stockholders' equity ...................... $48,689.8 $45,081.1 ========= ========= See accompanying notes to consolidated financial statements. 31 THE CIT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, ---------------------------------- Dollars in Millions (except per share amounts) 2000 1999 1998 -------- -------- -------- Finance income ................................................... $5,248.4 $2,565.9 $2,015.1 Interest expense ................................................. 2,497.7 1,293.4 1,040.8 -------- -------- -------- Net finance income ............................................ 2,750.7 1,272.5 974.3 Depreciation on operating lease equipment ........................ 1,281.3 355.1 169.5 -------- -------- -------- Net finance margin ............................................ 1,469.4 917.4 804.8 Other revenue .................................................... 912.0 350.8 255.4 -------- -------- -------- Operating revenue ............................................. 2,381.4 1,268.2 1,060.2 -------- -------- -------- Salaries and general operating expenses .......................... 1,035.2 516.0 407.7 Provision for credit losses ...................................... 255.2 110.3 99.4 Goodwill amortization ............................................ 86.3 25.7 10.1 Minority interest in subsidiary trust holding solely debentures of the Company ..................................... 19.2 19.2 19.2 -------- -------- -------- Operating expenses ............................................ 1,395.9 671.2 536.4 -------- -------- -------- Income before provision for income taxes ...................... 985.5 597.0 523.8 Provision for income taxes ....................................... 373.9 207.6 185.0 -------- -------- -------- Net income .................................................... $ 611.6 $ 389.4 $ 338.8 ======== ======== ======== Net income per basic share ....................................... $ 2.34 $ 2.24 $ 2.09 Net income per diluted share ..................................... $ 2.33 $ 2.22 $ 2.08
See accompanying notes to consolidated financial statements. 32 THE CIT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated Class B Other Total Common Common Paid-in Treasury Retained Comprehensive Stockholders' Dollars in Millions Stock Stock Capital Stock Earnings Income Equity -------- -------- -------- -------- -------- ------------- ------------- Balance, December 31, 1997 ......................... $ 0.4 $ 1.3 $ 948.3 $ -- $1,482.9 $ -- $2,432.9 Net income ......................................... 338.8 338.8 Cash dividends ..................................... (48.9) (48.9) Conversion of Class B Common Stock to common stock ........................... 1.3 (1.3) -- Repurchase of common stock ......................... (25.4) (25.4) Costs relating to common stock offering .................................. (1.0) (1.0) Restricted common stock grants ..................... 5.2 5.2 -------- -------- -------- -------- -------- ------ -------- Balance, December 31, 1998 ......................... 1.7 -- 952.5 (25.4) 1,772.8 -- 2,701.6 Net income ......................................... 389.4 389.4 Foreign currency translation adjustments ..................................... 0.3 0.3 Unrealized gain on equity and securitization investments, net ................. 2.5 2.5 -------- Total comprehensive income ......................... 392.2 -------- Cash dividends ..................................... (64.6) (64.6) Repurchase of common stock ......................... (45.1) (45.1) Issuance of common stock and exchangeable shares in connection with the Newcourt acquisition ................... 1.0 2,562.7 2,563.7 Restricted common stock grants ..................... 6.6 6.6 -------- -------- -------- -------- -------- ------ -------- Balance, December 31, 1999 ......................... 2.7 -- 3,521.8 (70.5) 2,097.6 2.8 5,554.4 Net income ......................................... 611.6 611.6 Foreign currency translation adjustments ...................................... 4.3 4.3 Unrealized gain on equity and securitization investments, net ................. 4.6 4.6 -------- Total comprehensive income ......................... 620.5 -------- Cash dividends ..................................... (105.9) (105.9) Repurchase of common stock ......................... (67.2) (67.2) Restricted common stock grants ..................... 5.4 5.4 -------- -------- -------- -------- -------- ------ -------- Balance, December 31, 2000 ......................... $ 2.7 $ -- $3,527.2 $ (137.7) $2,603.3 $ 11.7 $6,007.2 ======== ======== ======== ======== ======== ====== ========
See accompanying notes to consolidated financial statements. 33 THE CIT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, --------------------------------------------- Dollars in Millions 2000 1999 1998 ----------- ----------- ----------- Cash flows from operations Net income ........................................................... $ 611.6 $ 389.4 $ 338.8 Adjustments to reconcile net income to net cash flows from operations: Provision for credit losses ...................................... 255.2 110.3 99.4 Depreciation and amortization .................................... 1,408.7 402.8 195.9 Provision for deferred federal income taxes ...................... 211.5 163.5 100.2 Gains on equipment, receivable and investment sales .............. (371.8) (109.3) (75.1) Increase in accrued liabilities and payables ..................... 449.0 221.2 34.2 Increase in other assets ......................................... (690.9) (125.6) (89.2) Other ............................................................ 31.9 33.9 11.0 ----------- ----------- ----------- Net cash flows provided by operations .......................... 1,905.2 1,086.2 615.2 ----------- ----------- ----------- Cash flows from investing activities Loans extended ....................................................... (49,275.8) (39,657.9) (35,818.9) Collections on loans ................................................. 41,847.5 34,315.7 32,463.4 Proceeds from asset and receivable sales ............................. 7,055.4 3,733.2 1,381.3 Purchases of assets to be leased ..................................... (2,457.6) (1,633.2) (1,101.7) Purchases of finance receivable portfolios ........................... (1,465.6) (492.1) (600.0) Net increase in short-term factoring receivables ..................... (175.4) (242.9) (255.4) Acquisitions, net of cash acquired ................................... -- (538.0) -- Other ................................................................ (79.4) (36.0) (19.5) ----------- ----------- ----------- Net cash flows used for investing activities ....................... (4,550.9) (4,551.2) (3,950.8) ----------- ----------- ----------- Cash flows from financing activities Proceeds from the issuance of variable and fixed-rate notes .......... 12,645.3 7,700.0 6,863.5 Repayments of variable and fixed-rate notes .......................... (10,143.2) (5,538.3) (4,111.5) Net increase in commercial paper ..................................... 89.5 2,571.2 584.5 Net repayments of non-recourse leveraged lease debt .................. (31.2) (156.8) 6.6 Cash dividends paid .................................................. (105.9) (64.6) (48.9) Purchase of treasury stock ........................................... (67.2) (45.1) (25.4) ----------- ----------- ----------- Net cash flows provided by financing activities .................... 2,387.3 4,466.4 3,268.8 ----------- ----------- ----------- Effect of exchange rate changes on cash .............................. (2.9) (1.6) -- ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents ................. (261.3) 999.8 (66.8) Cash and cash equivalents, beginning of year ......................... 1,073.4 73.6 140.4 ----------- ----------- ----------- Cash and cash equivalents, end of year ............................... $ 812.1 $ 1,073.4 $ 73.6 =========== =========== =========== Supplemental cash disclosures Interest paid ........................................................ $ 2,449.7 $ 1,268.9 $ 1,021.3 Federal, foreign and state and local income taxes paid ............... $ 28.4 $ 66.4 $ 81.4 Supplemental non-cash disclosure Stock issued for acquisition ......................................... $ -- $ 2,563.7 $ --
See accompanying notes to consolidated financial statements. 34 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1--The Company The CIT Group, Inc. ("CIT") is a diversified finance company engaging in vendor, equipment, commercial, consumer and structured financing and leasing activities. CIT operates extensively in the United States and Canada, with strategic locations in Europe, Latin America and the Pacific Rim. On November 15, 1999, CIT issued 76,428,304 shares of CIT common stock and 27,577,082 exchangeable shares of CIT Exchangeco Inc. (exchangeable on a one-for-one basis for shares of CIT common stock) under the terms of the acquisition of Newcourt Credit Group Inc. ("Newcourt"). In addition, prior to the acquisition, CIT's Certificate of Incorporation was amended to rename and combine the Class A Common Stock and Class B Common Stock as Common Stock, which is now the only class of common stock outstanding. At December 31, 2000, The Dai-Ichi Kangyo Bank, Limited ("DKB") owned approximately 27% of the outstanding stock (including the exchangeable shares). In November 1998, CIT's majority stockholder, DKB, sold 55,000,000 shares of Class A Common Stock in a secondary public offering (the "Secondary Offering") for which DKB received all the proceeds. Prior to the sale, DKB converted all of its Class B Common Stock into an identical number of shares of Class A Common Stock. Note 2--Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements and accompanying notes include the accounts of CIT and its subsidiaries. All significant intercompany transactions have been eliminated. Prior period amounts have been reclassified to conform to the current presentation. The 1999 acquisitions were accounted for using the purchase method of accounting. The acquisitions affect the comparability of the consolidated financial statements as the consolidated statements of income reflect results of the acquired operations for the full year 2000, as compared to a partial year for each acquisition for 1999. Financing and Leasing Assets CIT provides funding for a variety of financing arrangements, including term loans, lease financing and operating leases. The amounts outstanding on loans and leases are referred to as finance receivables and, when combined with finance receivables held for sale, net book value of operating lease equipment, and certain investments, represent financing and leasing assets. At the time of designation for sale, securitization or syndication by management, assets are classified as finance receivables held for sale. These assets are carried at the lower of aggregate cost or market value. Income Recognition Finance income includes interest on loans, the accretion of income on direct financing leases, and rents on operating leases. Related origination and other nonrefundable fees and direct origination costs are deferred and amortized as an adjustment of finance income over the contractual life of the transactions. Income on finance receivables other than leveraged leases is recognized on an accrual basis commencing in the month of origination using methods that generally approximate the interest method. Leveraged lease income is recognized on a basis calculated to achieve a constant after-tax rate of return for periods in which CIT has a positive investment in the transaction, net of related deferred tax liabilities. Rental income on operating leases is recognized on an accrual basis. The accrual of finance income on commercial finance receivables is generally suspended and an account is placed on non-accrual status when payment of principal or interest is contractually delinquent for 90 days or more, or earlier when, in the opinion of management, full collection of all principal and interest due is doubtful. Given the nature of revolving credit facilities, including those combined with term loan facilities (advances and interest accruals increase revolving loan balances and payments reduce revolving loan balances), the placement of revolving credit facilities on non-accrual status includes the review of other qualitative and quantitative credit related factors, and generally does not result in the reversal of significant amounts of accrued interest. To the extent the estimated fair value of collateral does not satisfy both the principal and accrued income outstanding, accrued 35 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) but uncollected income at the date an account is placed on non-accrual status is reversed and charged against income. Subsequent income received is applied to the outstanding principal balance until such time as the account is collected, charged-off or returned to accrual status. The accrual of finance income on consumer loans is suspended, and all previously accrued but uncollected income is reversed, when payment of principal and/or interest on consumer finance receivables is contractually delinquent for 90 days or more. Other revenue includes: (1) factoring commissions, (2) commitment, facility, letters of credit and syndication fees, (3) servicing fees and (4) gains and losses from the sales of leasing equipment, venture capital investments, and the sales and securitizations of finance receivables. Lease Financing Direct financing leases are recorded at the aggregate future minimum lease payments plus estimated residual values less unearned finance income. Operating lease equipment is carried at cost less accumulated depreciation and is depreciated to estimated residual value using the straight-line method over the lease term or projected economic life of the asset. Equipment acquired in satisfaction of loans and subsequently placed on operating lease is recorded at the lower of carrying value or estimated fair value when acquired. Lease receivables include leveraged leases, for which a major portion of the funding is provided by third party lenders on a nonrecourse basis, with CIT providing the balance and acquiring title to the property. Leveraged leases are recorded at the aggregate value of future minimum lease payments plus estimated residual value, less nonrecourse third party debt and unearned finance income. Management performs periodic reviews of the estimated residual values with impairment, other than temporary, recognized in the current period. Reserve for Credit Losses on Finance Receivables The consolidated reserve for credit losses is periodically reviewed for adequacy considering economic conditions, collateral values and credit quality indicators, including charge-off experience and levels of past due loans and non-performing assets. Changes in economic conditions or other events affecting specific obligors or industries may necessitate additions or deductions to the consolidated reserve for credit losses. It is management's judgment that the consolidated reserve for credit losses is adequate to provide for credit losses inherent in the portfolio. Charge-off of Finance Receivables Finance receivables are reviewed periodically to determine the probability of loss. Charge-offs are taken after considering such factors as the borrower's financial condition and the value of underlying collateral and guarantees (including recourse to dealers and manufacturers). Such charge-offs are deducted from the carrying value of the related finance receivables. To the extent that an unrecovered balance remains due, a final charge-off is taken at the time collection efforts are no longer deemed useful. Charge-offs are recorded on consumer and certain small ticket commercial finance receivables beginning at 180 days of contractual delinquency based upon historical loss severity. Impaired Loans Impaired loans are measured based upon: 1) the present value of expected future cash flows discounted at the loan's effective interest rate, or 2) the fair value of the collateral, if the loan is collateral dependent. Impaired loans include any loan transaction on non-accrual status or any troubled debt restructuring, subject to periodic individual review by CIT's Asset Quality Review Committee ("AQR"). The AQR is comprised of members of senior management, which reviews overall owned and managed portfolio performance across the organization, as well as individual accounts of $500,000 or more meeting certain credit risk grading parameters. Excluded from impaired loans are: 1) certain individual small dollar commercial non-accrual loans (under $500,000) for which the collateral value supports the outstanding balance, 2) consumer loans, which are subject to automatic charge-off procedures, and 3) short-term factoring customer receivables, generally having terms of no more than 30 days. In general, the impaired loans are collateral dependent. Any shortfall between the estimated fair value and the recorded investment in the loan is recognized by recording a provision for credit losses. 36 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Long-Lived Assets A review for impairment of long-lived assets, such as operating lease equipment, is performed whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of identifiable assets acquired, less the estimated fair value of liabilities assumed from business combinations and is amortized over periods not exceeding 25 years from date of acquisition, on a straight line basis. Goodwill is reviewed for impairment whenever events indicate the carrying amounts may not be recoverable. If the estimated future cash flows of CIT are projected to be less than the carrying amount of goodwill, an impairment write-down equal to the difference between the discounted cash flows and the recorded goodwill would be recorded as a charge to operations. Securitizations CIT's retained interests in securitized assets are included in other assets. Pools of assets are originated and sold to independent trusts which in turn, issue securities to investors backed by the asset pools. CIT retains the servicing rights and participates in certain cash flows from the pools. The present value of expected net cash flows that exceeds the estimated cost of servicing is recorded at the time of sale as "retained interest". CIT, in its estimation of residual cash flows and retained interests, inherently employs a variety of financial assumptions, including loan pool credit losses, prepayment speeds and discount rates. These assumptions are empirically supported by both CIT's historical experience, market trends and anticipated trends relative to the particular products securitized. Subsequent to the recording of retained interests, CIT reviews such assets for impairment on a quarterly basis. These reviews are performed on a disaggregated basis. Fair values of retained interests are calculated utilizing current and anticipated credit losses, prepayment speeds and discount rates and are then compared to CIT's carrying values. Unrealized gains and losses, representing the difference between carrying value and current fair market value, are recorded as other comprehensive income in a separate component of equity. Declines in value considered to be other than temporary are recognized directly in operations. Other Assets Assets received in satisfaction of loans are carried at the lower of carrying value or estimated fair value less selling costs, with write-downs at the time of receipt recognized by recording a charge-off. Subsequent write-downs of such assets, which may be required due to a decline in estimated fair market value after receipt, are reflected in general operating expenses. Realized and unrealized gains (losses) on marketable equity securities included in CIT's venture capital investment companies are included directly in operations. Unrealized gains and losses, representing the difference between carrying value and estimated current fair market value, for all other debt and marketable equity securities are recorded as other comprehensive income in a separate component of equity. Investments in joint ventures are accounted for using the equity method, whereby the investment balance is carried at cost and adjusted for the proportionate share of undistributed earnings or losses. Fixed assets such as computer equipment, furniture, and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the related assets. 37 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Derivative Financial Instruments CIT primarily uses interest rate and currency swaps for worldwide market risk management. These transactions are entered into as hedges against the effects of future interest rate and currency fluctuations and, accordingly, are not carried at fair value. CIT does not enter into derivative financial instruments for trading or speculative purposes. The net interest differential, including premiums paid or received, if any, on interest rate swaps, is recognized on an accrual basis as an adjustment to finance income or as interest expense to correspond with the hedged position. In the event that early termination of a derivative instrument occurs, the net proceeds paid or received are deferred and amortized over the shorter of the remaining original contract life of the interest rate swap or the maturity of the hedged position. CIT uses derivative instruments to hedge the interest rate associated with the anticipated securitization, syndication, or whole loan sale of financing and leasing assets. Such derivative transactions are designated as hedges against a sale that is probable and for which the significant characteristics and terms have been identified, but for which there is no legally binding obligation. The net interest differential on the derivative instrument, including premium paid or received, if any, is recognized as an adjustment to the basis of the corresponding assets at the time of sale. In the event the anticipated sale does not occur, the related hedge position may be liquidated with any gain or loss recognized in operations at such time, and the related assets would be reclassified to finance receivables. CIT also uses foreign exchange forward contracts to hedge the net investments in foreign operations. These instruments are designated as hedges and resulting gains and losses are reflected in accumulated other comprehensive income as a separate component of equity. Stock-Based Compensation Stock option plans are accounted for in accordance with Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25".) In accordance with APB 25, no compensation expense is recognized for stock options issued. Pro forma disclosures, as if CIT applied the "Fair Value Based Method" for stock options granted to employees, have been provided in Note 16--"Postretirement and Other Benefit Plans." Compensation expense associated with restricted stock awards is recognized over the associated vesting periods. Foreign Currency Translation CIT has operations in Canada, Europe and other countries outside the United States. The functional currency for these foreign operations is the local currency. The assets and liabilities of these operations are translated at the rate of exchange in effect at the balance sheet date. Revenue and expense items are translated at the average exchange rate prevailing during the year. The resulting translation adjustments, as well as offsetting gains and losses on hedges of net investments in foreign operations, are reflected in accumulated other comprehensive income as a separate component of equity. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are determined using enacted tax rates expected to apply in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment of such change in tax rates. 38 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Consolidated Statements of Cash Flows Cash and cash equivalents includes cash and interest-bearing deposits, which generally represent overnight money market investments of excess cash borrowed in the commercial paper market and maintained for liquidity purposes. Cash inflows and outflows from commercial paper borrowings and most factoring receivables are presented on a net basis in the Statements of Cash Flows, as their original term is generally less than 90 days. Other Comprehensive Income Other comprehensive income includes unrealized gains and losses on equity investments, securitization retained interests and foreign currency translation adjustments pertaining to both the net investment in foreign operations and the related derivatives designated as hedges of such investments. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Note 3--Acquisitions On November 15, 1999, CIT acquired Newcourt, a publicly traded, non-bank financial services enterprise that originated, invested in and securitized, syndicated and sold asset-based loans and leases. Newcourt's origination activities focused on the commercial and corporate finance segments of the asset-based financing market. Newcourt, which was headquartered in Toronto, Canada, operated extensively in the United States and Canada, with strategic locations in Europe, Latin America, and the Pacific Rim. In connection with the acquisition, 76,428,304 shares of CIT common stock and 27,577,082 exchangeable shares of CIT Exchangeco Inc. (exchangeable on a one-for-one basis for shares of CIT common stock) were issued for all Newcourt common stock outstanding. The value of CIT common stock issued in connection with the acquisition (including exchangeable shares) was $2,563.7 million, based upon 148,536,081 outstanding shares of Newcourt at a price of $17.26. The price per share was determined by multiplying the average closing price of CIT common stock for the two-day period both before and after the acquisition announcement on August 5, 1999 by the exchange ratio of .70. The acquisition has been accounted for using the purchase method. The difference between the purchase price and the estimated fair value of net assets acquired has been allocated to goodwill in the Consolidated Balance Sheets. The goodwill created by the Newcourt acquisition was $1,583.2 million, which includes an increase of $200.1 million during 2000 following a refinement to the original purchase price allocations as summarized, on an after tax basis, in the table below. Dollars in Millions Amount ------ Retained interests in securitization transactions ...................... $117.6 Pre-acquisition contingencies .......................................... 32.2 Business restructuring, including adjustments to reflect dispositions .. 26.4 Other .................................................................. 23.9 ------ Total increase ...................................................... $200.1 ====== This goodwill is being amortized on a straight-line basis over twenty-five years from the date of acquisition. In connection with the acquisition, CIT established an integration plan, which identified activities that would not continue and the associated costs of exiting those activities. The plan identified areas for adjusting the amount of real estate required, including the closing of the Newcourt corporate location in New Jersey, the reduction of corporate office space in Toronto, Canada, and the elimination of various other operating locations throughout the United States and Canada. The plan also identified employees for involuntary termination. 39 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes activity in the restructuring liability. The remaining accrual balances represent expenditures expected during 2001.
Severance and Other Leasehold Transaction Termination Termination and Other Dollars in Millions Costs Costs Costs Total ----------- ----------- ----------- ------ Balance at November 15, 1999 ................................. $102.1 $ 24.5 $ 72.6 $199.2 Cash payments .............................................. (48.1) -- (38.0) (86.1) Transaction fees paid in CIT stock ......................... -- -- (14.3) (14.3) Non-cash reductions ........................................ -- -- (2.5) (2.5) ------ ------ ------ ------ Balance at December 31, 1999 ................................. 54.0 24.5 17.8 96.3 Cash payments .............................................. (60.7) (10.2) (8.1) (79.0) Additions .................................................. 6.7 -- -- 6.7 Non-cash reductions ........................................ -- (2.4) (6.2) (8.6) ------ ------ ------ ------ Balance at December 31, 2000 ................................. $ -- $ 11.9 $ 3.5 $ 15.4 ====== ====== ====== ======
On April 1, 1999, CIT purchased certain factoring assets of Congress Financial Corporation ("Congress") from First Union Corporation, and on December 1, 1999, CIT purchased the domestic factoring business of Heller Financial Inc. ("Heller"). In total, these two acquisitions added in excess of $1.5 billion in financing and leasing assets. The combined goodwill created at the acquisition dates for these purchases was $270.6 million. This goodwill is being amortized on a straight-line basis over twenty years from the dates of acquisition. The actual 2000 results and the unaudited pro forma condensed consolidated statement of income for the year ended December 31, 1999, which has been prepared assuming that the 1999 acquisitions had occurred at the beginning of that year, follow. Years Ended December 31, -------------------------- Dollars in Millions, except per share amounts 2000 1999 Pro Forma -------- -------------- Operating revenue .......................... $2,381.4 $2,201.1 Net income ................................. $ 611.6 $ 448.1 Basic earnings per share ................... $ 2.34 $ 1.69 Diluted earnings per share ................. $ 2.33 $ 1.68 The pro forma results have been prepared for comparative purposes only. The pro forma results for the year ended December 31, 1999 are based on the historical operating results of the acquired companies prior to the acquisitions. The 1999 pro forma results include certain adjustments, primarily to recognize accretion and amortization based on the allocated purchase price of assets and liabilities. Further, the 1999 pro forma results do not include cost savings, reduced securitization activity and other initiatives introduced by CIT. Accordingly, management does not believe that the 1999 pro forma results are indicative of the actual results that would have occurred had the acquisition closed at the beginning of 1999, nor are they indicative of future results. Note 4--Finance Receivables The following table presents the breakdown of finance receivables by loans and lease receivables. December 31, ------------------------- Dollars in Millions 2000 1999 ---------- ---------- Loans: Commercial ....................................... $18,727.0 $16,997.9 Consumer ......................................... 4,193.4 3,887.9 Lease receivables .................................. 10,577.1 10,121.3 --------- --------- Finance receivables .............................. $33,497.5 $31,007.1 ========= ========= 40 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Included in lease receivables at December 31, 2000 and 1999 are leveraged lease receivables of $1.1 billion and $931.9 million, respectively. Leveraged lease receivables exclude the portion funded by nonrecourse debt payable to third party lenders of $2.1 billion at both December 31, 2000 and 1999. Commercial and consumer loans are presented net of unearned income of $1.5 billion at both December 31, 2000 and 1999. Lease receivables are presented net of unearned income of $2.6 billion and $2.2 billion at December 31, 2000 and 1999, respectively. At December 31, 2000 and 1999, finance receivables exclude $11.1 billion and $11.0 billion, respectively, of finance receivables previously securitized and still managed by CIT. The following table sets forth the contractual maturities of finance receivables.
At December 31, --------------------------------------------------- 2000 1999 --------------------- ---------------------- Dollars in Millions Amount Percent Amount Percent ---------- ------- ---------- ------- Due within one year ........................ $14,185.7 42.3% $11,761.2 37.9% Due within one to two years ................ 5,450.6 16.3 5,375.1 17.3 Due within two to four years ............... 5,774.6 17.2 5,789.3 18.7 Due after four years ....................... 8,086.6 24.2 8,081.5 26.1 --------- ----- --------- ----- Total .................................... $33,497.5 100.0% $31,007.1 100.0% ========= ===== ========= =====
Information about concentrations of credit risk is set forth in "Concentrations" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures about Market Risk. The following table sets forth the information regarding total non-performing assets. At December 31, ------------------ Dollars in Millions 2000 1999 ------ ------ Non-accrual finance receivables .................. $704.2 $510.3 Assets received in satisfaction of loans ......... 123.9 125.1 ------ ------ Total non-performing assets .................... $828.1 $635.4 ====== ====== Percent to finance receivables ................... 2.47% 2.05% ====== ====== At December 31, 2000 and 1999, the recorded investment in impaired loans, which are generally collateral dependent, totaled $326.6 million and $241.5 million, respectively, with a corresponding specific reserve for credit losses allocation of $59.9 million and $24.9 million, respectively. The average monthly recorded investment in the impaired loans was $256.6 million, $116.9 million and $73.2 million for the years ended December 31, 2000, 1999 and 1998, respectively. There was no finance income recorded on these loans during 2000, 1999 or 1998 after being classified as impaired. The amount of finance income that would have been recorded under contractual terms for year end impaired loans would have been $38.1 million, $26.9 million, and $16.1 million in 2000, 1999, and 1998, respectively. 41 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 5--Reserve for Credit Losses The following table presents changes in the reserve for credit losses.
At December 31, ------------------------------- Dollars in Millions 2000 1999 1998 ------ ------- ------- Balance, January 1 ......................................... $446.9 $ 263.7 $ 235.6 ------ ------- ------- Provision for credit losses ................................ 255.2 110.3 99.4 Reserves relating to acquisitions/dispositions ............. 2.0 167.9 7.5 ------ ------- ------- Additions to the reserve for credit losses ............... 257.2 278.2 106.9 ------ ------- ------- Finance receivables charged-off ............................ (255.8) (111.1) (103.7) Recoveries on finance receivables previously charged-off .................................... 20.2 16.1 24.9 ------ ------- ------- Net credit losses ........................................ (235.6) (95.0) (78.8) ------ ------- ------- Balance, December 31 ....................................... $468.5 $ 446.9 $ 263.7 ------ ------- ------- Reserve for credit losses as a percentage of finance receivables .................................... 1.40% 1.44% 1.33% ====== ======= =======
Note 6--Operating Lease Equipment The following table provides an analysis of operating lease equipment by equipment type, net of accumulated depreciation of $1,080.9 million at December 31, 2000 and $719.4 million at December 31, 1999. At December 31, ------------------------ Dollars in Millions 2000 1999 -------- -------- Commercial aircraft ....................... $1,885.5 $1,528.4 Railroad equipment ........................ 1,697.1 1,398.1 Information technology .................... 1,155.4 925.1 Telecommunications ........................ 560.4 468.7 Transportation ............................ 385.2 428.4 Business aircraft ......................... 364.0 334.3 Manufacturing ............................. 305.6 258.6 Other ..................................... 837.4 784.3 -------- -------- Total ................................... $7,190.6 $6,125.9 ======== ======== Included in the preceding table is equipment not currently subject to lease agreements of $351.0 million and $235.9 million at December 31, 2000 and 1999, respectively. Rental income on operating leases, which is included in finance income, totaled $1.7 billion in 2000, $617.8 million in 1999, and $314.1 million in 1998. The following table presents future minimum lease rentals on non-cancelable operating leases as of December 31, 2000. Excluded from this table are variable rentals calculated on the level of asset usage, re-leasing rentals, and expected sales proceeds from remarketing operating lease equipment at lease expiration, all of which are important components of operating lease profitability. Years Ended December 31, - ------------------------ Dollars in Millions Amount ----------- 2001 .............................................. $1,522.6 2002 .............................................. 992.1 2003 .............................................. 535.4 2004 .............................................. 280.3 2005 .............................................. 169.3 Thereafter ........................................ 298.4 -------- Total ......................................... $3,798.1 ======== 42 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 7--Investments in Debt and Equity Securities At December 31, 2000 and 1999, CIT's investments in debt and equity securities designated as available for sale totaled $849.7 million and $892.0 million, respectively. Included in CIT's investments in debt and equity securities are retained interests in commercial securitized assets of $684.5 million and consumer securitized assets of $155.9 million at December 31, 2000 and commercial securitized assets of $676.8 million and consumer securitized assets of $194.8 million at December 31, 1999. Retained interests include interest-only strips, retained subordinated securities, and cash reserve accounts related to securitizations. The carrying value of the retained interests in securitized assets is reviewed quarterly for valuation impairment. The securitization programs cover a wide range of products and collateral types with significantly different prepayment and credit risk characteristics. The prepayment speed, in the tables below, is based on CPR which expresses payments as a function of the declining amount of loans at a compound annual rate. Expected credit losses are based upon annual loss rates. The key economic assumptions used in measuring the retained interests at the date of securitization for transactions completed during 2000 by product type were as follows.
Consumer ---------------------------------- Manufactured Commercial Housing & Recreational Equipment Home Equity Vehicle & Boat --------------- ------------ -------------- Prepayment speed .................................. 4.50% - 9.81% -- -- Expected credit losses ............................ 0.52% - 1.28% -- -- Weighted average discount rate .................... 8.50% - 9.86% -- -- Weighted average life (in years) .................. 0.69 - 2.69 -- --
Ranges of key economic assumptions used in calculating the fair value of the retained interests in securitized assets by product type at December 31, 2000 were as follows.
Consumer ---------------------------------- Manufactured Commercial Housing & Recreational Equipment Home Equity Vehicle & Boat --------------- ------------ -------------- Prepayment speed .................................. 4.50% - 9.08% 16.84% - 30.00% 20.56% - 30.00% Expected credit losses ............................ 0.55% - 4.03% 0.15% - 0.90% 0.00% - 0.94% Weighted average discount rate .................... 8.74% - 10.35% 8.00% - 12.00% 8.00% - 8.50% Weighted average life (in years) .................. 0.52 - 1.97 2.37 - 3.95 0.79 - 2.88
The impact of 10 percent and 20 percent adverse changes to the key economic assumptions on the fair value of retained interests as of December 31, 2000 is shown in the following tables.
Consumer ---------------------------------- Manufactured Commercial Housing & Recreational Dollars in Millions Equipment Home Equity Vehicle & Boat --------------- ------------ -------------- Prepayment speed: 10 percent adverse change ......................... $ (0.8) $(1.8) $(5.0) 20 percent adverse change ......................... (1.4) (3.6) (9.2) Expected credit losses: 10 percent adverse change ......................... (20.6) (0.4) (3.4) 20 percent adverse change ......................... (41.3) (0.8) (6.7) Weighted average discount rate: 10 percent adverse change ......................... (8.7) (0.9) (2.0) 20 percent adverse change ......................... (17.2) (1.7) (4.0)
These sensitivities are hypothetical and should be used with caution. Changes in fair value based on a 10 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular 43 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) assumption on the fair value of the retained interests is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities. The following tables summarize static pool credit losses, which represent the sum of actual and projected future credit losses, divided by the original pool of the respective assets. Amounts shown for each year are a weighted average for the securitizations during the period. Commercial Equipment Securitizations During ---------------------- 2000 1999 ------ ------- Actual and projected losses at: December 31, 2000 .................................. 1.83% 3.92% December 31, 1999 .................................. -- 4.59% Recreational Vehicle and Boat Securitizations During ---------------------- 2000 1999 ------ ------- Actual and projected losses at: December 31, 2000 .................................. -- 2.32% December 31, 1999 .................................. -- 2.25% The table that follows summarizes certain cash flows received from and paid to securitization trusts for the year ended December 31, 2000. Year Ended Dollars in Millions December 31, 2000 ----------------- Proceeds from new securitizations ........................... $4,310.9 Other cash flows received on retained interests ............. 327.7 Servicing fees received ..................................... 65.2 Purchases of delinquent or foreclosed assets ................ (11.0) Purchases of ineligible contracts ........................... (44.2) Reimbursable servicing advances, net ........................ (44.7) Purchases of contracts through clean up calls ............... (259.0) -------- Total, net ................................................ $4,344.9 ======== Charge-offs for the year ended December 31, 2000 and receivables past due 60 days or more at December 31, 2000 are set forth below, for both finance receivables and managed receivables. In addition to finance receivables, managed receivables include finance receivables previously securitized and still managed by us, but exclude operating leases and equity investments.
Charge-offs for the Year Ended December 31, 2000 -------------------------------------------------- Finance Receivables Managed Receivables ---------------------- --------------------- Dollars in Millions Amount Percent Amount Percent ------ ------- ------ ------- Commercial ................................. $181.2 0.62% $346.2 0.88% Consumer ................................... 54.4 1.32 85.7 1.15 ------ ---- ------ ---- Total .................................... $235.6 0.71% $431.9 0.93% ====== ==== ====== ==== Past Due 60 Days or More at December 31, 2000 -------------------------------------------------- Finance Receivables Managed Receivables ---------------------- --------------------- Dollars in Millions Amount Percent Amount Percent ------ ------- ------ ------- Commercial ................................. $788.8 2.69% $1,279.6 3.18% Consumer ................................... 211.1 5.03 279.4 3.86 ------ ---- -------- ---- Total .................................... $999.9 2.98% $1,559.0 3.29% ====== ==== ======== ====
44 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 8--Debt The following table presents data on commercial paper borrowings.
At December 31, -------------------------------------- Dollars in Millions 2000 1999 1998 -------- -------- -------- Borrowings outstanding ..................................... $9,063.5 $8,974.0 $6,144.1 Weighted average interest rate ............................. 6.57% 5.71% 5.35% Weighted average maturity .................................. 37 days 27 days 38 days For the Years Ended December 31, -------------------------------------- Dollars in Millions 2000 1999 1998 -------- -------- -------- Daily average borrowings .................................. $10,565.1 $6,694.5 $6,572.1 Maximum amount outstanding ................................ $12,868.2 $9,295.0 $7,655.9 Weighted average interest rate ............................ 6.23% 5.17% 5.51%
The following tables present the contractual maturities of total debt at December 31, 2000 and 1999.
At December 31, 2000 --------------------------------------------- Total Commercial Variable-rate at December 31, Dollars in Millions Paper Senior Notes Total 1999 ---------- ------------- --------- --------------- Due in 2000 (rates ranging from 4.00% to 7.57%) .................................... $ -- $ -- $ -- $14,056.2 Due in 2001 (rates ranging from 5.90% to 6.97%) .................................... 9,063.5 6,755.5 15,819.0 1,225.0 Due in 2002 (rates ranging from 6.58% to 8.52%) .................................... -- 4,355.0 4,355.0 820.0 Due in 2003 (rates ranging from 5.81% to 6.04%) .................................... -- 20.0 20.0 20.0 -------- --------- --------- --------- Total .............................................. $9,063.5 $11,130.5 $20,194.0 $16,121.2 ======== ========= ========= =========
The consolidated weighted average interest rates on variable senior notes at December 31, 2000 and 1999 were 6.76% and 6.03%, respectively.
At December 31, 2000 ------------------------------------------- Fixed-rate Notes Total ----------------------------- at December 31, Senior Subordinated Total 1999 ----------- ------------ --------- --------------- Due in 2000 (rates ranging from 5.00% to 9.34%) ...................................... $ -- $ -- $ -- $ 4,827.2 Due in 2001 (rates ranging from 5.50% to 9.25%) ...................................... 4,464.8 200.0 4,664.8 4,678.7 Due in 2002 (rates ranging from 5.50% to 8.26%) ...................................... 3,028.4 -- 3,028.4 2,885.0 Due in 2003 (rates ranging from 4.90% to 8.26%) ...................................... 3,851.5 -- 3,851.5 1,268.8 Due in 2004 (rates ranging from 4.41% to 8.26%) ...................................... 1,752.3 -- 1,752.3 1,766.4 Due in 2005 (rates ranging from 5.91% to 8.26%) ...................................... 2,890.6 -- 2,890.6 3,670.9 Due after 2005 (rates ranging from 3.25% to 8.25%) ...................................... 1,566.0 -- 1,566.0 -- ----------- ------ --------- --------- Face amount of maturities ............................. 17,553.6 200.0 17,753.6 19,097.0 Purchase accounting adjustment and issue discount ....................................... 17.5 -- 17.5 155.3 ----------- ------ --------- --------- Total ................................................ $ 17,571.1 $200.0 $17,771.1 $19,252.3 =========== ====== ========= =========
45 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Fixed-rate senior and subordinated debt outstanding at December 31, 2000 mature at various dates through 2028, with interest rates ranging from 3.25% to 9.25%. The consolidated weighted average interest rates on fixed-rate senior and subordinated debt at December 31, 2000 and 1999 were 6.83% and 6.61%, respectively. The purchase accounting adjustment and issue discount was reduced during 2000 primarily by the cash settlement of a derivative contract. The following table represents information on unsecured committed lines of credit with 47 banks that can be drawn upon to support commercial paper borrowings at December 31, 2000. Maturity Amount - -------- -------- Dollars in Millions March 2001 ............................................... $4,053.9 April 2003 ............................................... 765.0 March 2005 ............................................... 3,720.0 -------- Total credit lines ................................. $8,538.9 ======== The credit line agreements contain clauses that allow CIT to extend the expiration dates upon written consent from the participating banks. Certain foreign operations utilize local financial institutions to fund operations. At December 31, 2000, local credit facilities totaled $198.0 million, of which $104.6 million was available. Note 9--Derivative Financial Instruments As part of managing the exposure to changes in market interest rates, CIT, as an end-user, enters into various interest rate swap transactions, all of which are transacted in over-the-counter markets, with other financial institutions acting as principal counterparties. CIT uses off-balance sheet derivatives for hedging purposes only, and does not enter into derivative financial instruments for trading or speculative purposes. To ensure both appropriate use as a hedge and hedge accounting treatment, all derivatives entered into are designated according to a hedge objective against: commercial paper, a specifically underwritten debt issue or a specific pool of assets. CIT's primary hedge objectives include the conversion of variable-rate liabilities to fixed-rates, the conversion of fixed-rate liabilities to variable-rates, the fixing of spreads on variable-rate liabilities to various market indices and the elimination of interest rate risk associated with anticipated securitization, syndication or whole loan sale of financing and leasing assets. The notional amounts, rates, indices and maturities of CIT's off-balance sheet derivatives are required to closely match the related terms of CIT's hedged assets and liabilities. CIT utilizes foreign exchange forward contracts or cross-currency swaps to convert U.S. dollar borrowings into local currency to the extent that local borrowings are not cost effective or available. CIT also utilizes foreign exchange forward contracts to hedge its net investment in foreign operations. The following table presents the notional principal amounts of interest rate swaps by class and the corresponding hedged liability position.
Notional Amount Interest Rate Swaps in Millions Comments - ---------------------------- --------------- -------------------------------------------------- Floating to fixed-rate swaps $8,916.6 Effectively converts the interest rate on an equivalent amount of commercial paper and variable-rate notes to a fixed-rate. Fixed to floating-rate swaps 1,002.8 Effectively converts the interest rate on an equivalent amount of fixed-rate notes to a variable-rate. -------- Total interest rate swaps $9,919.4 ========
46 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CIT's hedging activity increased interest expense by $25.9 million, $35.8 million and $23.4 million in 2000, 1999 and 1998, respectively, over the interest expense that would have been incurred with the existing debt structure but without CIT's hedging activity. However, this calculation of interest expense does not take into account any actions CIT would have taken to reduce interest rate risk in the absence of hedging activity, such as issuing more fixed-rate debt that would also tend to increase interest expense. CIT is party to cross-currency interest rate swaps with a notional principal amount of $1.2 billion. The swaps hedge foreign currency risk and have maturities ranging from 2001 to 2019 that correspond with the terms of the debt. CIT also entered into foreign currency exchange and bond forward contracts with notional amounts of $2.9 billion and $26.9 million, respectively, with maturities ranging from 2001 to 2004, to hedge foreign currency and interest rate risk. CIT is exposed to credit risk to the extent that the counterparty fails to perform under the terms of a derivative instrument. This risk is measured as the market value of interest rate swaps, bond forwards, or foreign exchange forwards with a positive fair value, which totaled $151.6 million at December 31, 2000, reduced by the effects of master netting agreements as presented in Note 20 -- "Fair Values of Financial Instruments." CIT manages this credit risk by requiring all derivative transactions be conducted with counterparties rated investment grade by nationally recognized rating agencies, with the majority of the counterparties rated "AA" or higher, and by setting limits on the exposure with any individual counterparty. Accordingly, CIT's actual counterparty credit risk at December 31, 2000 is not considered significant. The following table presents the notional principal amounts, weighted average interest rates expected to be received or paid and the maturities of U.S. dollar interest rate swaps at December 31, 2000.
Floating to Fixed-rate Fixed to Floating-rate ---------------------------------- -------------------------------- Weighted Average Weighted Average ------------------- ----------------- Years Ending Notional Receive Pay Notional Receive Pay December 31, Amount Rate Rate Amount Rate Rate - --------------------------------- -------- ------- ------- --------- ------- ----- Notional Amount in Millions 2001 ............................ $1,980.3 6.73% 6.52% $ 162.0 5.95% 6.80% 2002 ............................ 1,336.4 6.64 6.47 61.0 6.18 6.88 2003 ............................ 2,902.2 6.63 6.96 311.0 7.15 8.48 2004 ............................ 1,009.4 6.72 7.18 11.0 7.85 7.42 2005 ............................ 131.9 6.65 6.44 257.8 6.92 7.99 2006-Thereafter ................. 986.2 6.71 6.94 200.0 5.92 6.76 -------- ---- ---- -------- ---- ---- Total ......................... $8,346.4 6.68% 6.79% $1,002.8 6.60% 7.63% ======== ==== ==== ======== ==== ====
In addition, at December 31, 2000, CIT had outstanding interest rate swaps denominated in Canadian dollars and Australian dollars. The Canadian dollar derivatives included instruments with U.S. dollar equivalent notional principal amount of $394.8 million that converted floating-rate debt to fixed-rate debt at weighted average receive and pay rates of 5.88% and 6.20%, respectively. The Australian dollar derivatives convert U.S. dollar equivalent $163.9 million in floating-rate debt to fixed-rate debt at weighted average receive and pay rates of 6.29% and 6.37%, respectively. The contractual maturities for both the Canadian and Australian derivatives are predominately between 2001 and 2004. All other foreign currency derivatives had an outstanding notional balance of U.S. dollar equivalent $11.5 million, which converted floating-rate debt to fixed-rate debt, maturing through 2002, at weighted average receive and pay rates of 5.14% and 3.56%, respectively. All rates were those in effect at December 31, 2000. Variable-rates are based on the contractually determined rate or other market rate indices and may change significantly, affecting future cash flows. 47 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents the notional principal amounts of foreign exchange forwards, cross currency swaps and bond forwards at December 31, 2000. The bond forwards are utilized to hedge certain assets held for syndication.
Cross-Currency Bond Foreign Exchange Forwards Swaps Forwards ----------------------------------------------------- -------------- --------------- Hedges of Net Investments in Years ended Hedges of Debt Foreign Operations Total December 31, Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount - --------------------------------- --------------- ------------------ --------------- --------------- --------------- Notional Amounts in Millions 2001 ............................ $1,223.0 $573.4 $1,796.4 $ 183.4 $26.9 2002 ............................ 498.4 221.6 720.0 11.7 -- 2003 ............................ 293.1 35.7 328.8 131.7 -- 2004 ............................ 7.5 -- 7.5 125.5 -- 2005 ............................ -- -- -- 695.8 -- 2006-Thereafter ................. -- -- -- 88.9 -- -------- ------ -------- -------- ----- Total ......................... $2,022.0 $830.7 $2,852.7 $1,237.0 $26.9 ======== ====== ======== ======== =====
During 1999, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133." SFAS 137 delayed the implementation of SFAS No. 133, which is now effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. During June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133." We adopted SFAS 133 and 138 as of January 1, 2001. The adoption did not have a material effect on either the statement of financial position or the results of operations. Note 10--Preferred Capital Securities In February 1997, CIT Capital Trust I (the "Trust"), a wholly-owned subsidiary of CIT, issued in a private offering $250.0 million of 7.70% Preferred Capital Securities (the "Capital Securities"), which were subsequently registered with the Securities and Exchange Commission pursuant to an exchange offer. The Trust subsequently invested the offering proceeds in Junior Subordinated Debentures (the "Debentures") of CIT, having identical rates and payment dates. The Debentures of CIT represent the sole assets of the Trust. Holders of the Capital Securities are entitled to receive cumulative distributions at an annual rate of 7.70% through either the redemption date or maturity of the Debentures (February 15, 2027). Both the Capital Securities issued by the Trust and the Debentures of CIT owned by the Trust are redeemable in whole or in part on or after February 15, 2007 or at any time in whole upon changes in specific tax legislation, bank regulatory guidelines or securities law. Distributions by the Trust are guaranteed by CIT to the extent that the Trust has funds available for distribution. CIT records distributions payable on the Capital Securities as an operating expense in the Consolidated Statements of Income. Note 11--Stockholders' Equity Under the most restrictive provisions of agreements relating to outstanding debt, CIT may not, without the consent of the holders of such debt, permit stockholders' equity to be less than $200 million. Our primary bank line agreements include a minimum equity requirement of $3.8 billion. During 1998, CIT's Board of Directors authorized the purchase of up to 2,000,000 shares of common stock to provide for, among other things, its employee compensation programs. On March 14, 2000, the Board of Directors renewed and extended the 1998 stock repurchase program by authorizing the purchase of up to 3,000,000 additional shares of its common stock. Previously, on July 22, 1999, the Board of Directors renewed and extended the same program by authorizing the purchase of up to 2,000,000 additional shares. All 5,000,000 shares were repurchased under these extensions. 48 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CIT has common stock, par value $.01 per share, with 1,210,000,000 shares authorized as of December 31, 2000. The following table summarizes activity in the outstanding common stock and exchangeable shares for 2000 and 1999, respectively.
Common Stock --------------------------------------------------- Less Exchangeable Issued Treasury Outstanding Shares ----------- --------- ----------- ------------ Balance at December 31, 1998 .................... 163,144,879 (967,930) 162,176,949 -- Shares issued: Newcourt acquisition ........................... 76,428,304 -- 76,428,304 27,577,082 Restricted shares issued, net ................... 27,997 -- 27,997 -- Shares purchased, net ........................... -- (1,777,755) (1,777,755) -- Conversion of Exchangeco shares to common shares ............................... 2,684,772 -- 2,684,772 (2,684,772) ----------- --------- ----------- ---------- Balance at December 31, 1999 .................... 242,285,952 (2,745,685) 239,540,267 24,892,310 Restricted shares issued, net ................... 1,412,025 -- 1,412,025 -- Shares purchased, net ........................... -- (3,946,834) (3,946,834) -- Conversion of Exchangeco shares to common shares ............................... 13,254,601 -- 13,254,601 (13,254,601) ----------- --------- ----------- ---------- Balance at December 31, 2000 .................... 256,952,578 (6,692,519) 250,260,059 11,637,709 =========== ========= =========== ==========
On November 15, 1999, 27,577,082 exchangeable shares of CIT Exchangeco Inc., par value of $.01 per share, were issued in connection with the Newcourt acquisition. The holders of Exchangeco shares have dividend, voting and other rights equivalent to those of CIT common stock holders. These shares may be exchanged at any time at the option of the holder on a one-for-one basis for CIT common stock, and in any event CIT may redeem these shares on a one-for-one basis on or before November 1, 2004. Note 12--Other Revenue The following table sets forth the components of other revenue. Years Ended December 31, -------------------------- Dollars in Millions 2000 1999 1998 ------ ------ ------ Fees and other income ...................... $480.9 $161.0 $ 90.7 Factoring commissions ...................... 154.7 118.7 95.7 Gains on sales of leasing equipment ........ 113.2 56.4 45.2 Gains on securitizations ................... 109.5 14.7 12.5 Gains on venture capital investments ....... 53.7 -- 11.3 ------ ------ ------ Total .................................... $912.0 $350.8 $255.4 ====== ====== ====== Note 13--Salaries and General Operating Expenses The following table sets forth the components of salaries and general operating expenses (excluding goodwill amortization). Years Ended December 31, ---------------------------- Dollars in Millions 2000 1999 1998 -------- ------ ------ Salaries and employee benefits ........... $ 600.7 $309.4 $245.4 Other operating expenses ................. 434.5 206.6 162.3 -------- ------ ------ Total .................................. $1,035.2 $516.0 $407.7 ======== ====== ====== 49 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 14--Income Taxes The effective tax rate of CIT varied from the statutory federal corporate income tax rate as follows. Years Ended December 31, ------------------------ Percentage of Pretax Income 2000 1999 1998 ---- ---- ---- Federal income tax rate ........................... 35.0% 35.0% 35.0% Increase (decrease) due to: Goodwill amortization ........................... 2.1 0.2 0.1 Foreign income taxes ............................ 2.0 -- -- State and local income taxes, net of federal income tax benefit ........... 1.6 2.7 3.0 Other ........................................... (2.8) (3.1) (2.8) ---- ---- ---- Effective tax rate ................................ 37.9% 34.8% 35.3% ==== ==== ==== The provision for income taxes is comprised of the following. Years Ended December 31, ------------------------------ Dollars in Millions 2000 1999 1998 ------ ------ ------ Current federal income tax provision ....... $ 24.6 $ 16.7 $ 60.4 Deferred federal income tax provision ...... 211.5 163.5 100.2 ------ ------ ------ Total federal income taxes ............... 236.1 180.2 160.6 Foreign income taxes ....................... 113.2 3.0 -- State and local income taxes ............... 24.6 24.4 24.4 ------ ------ ------ Total provision for income taxes ......... $373.9 $207.6 $185.0 ====== ====== ====== The tax effects of temporary differences that give rise to significant portions of the deferred federal and foreign income tax assets and liabilities are presented below. At December 31, ------------------------- Dollars in Millions 2000 1999 -------- --------- Assets: Amortization of intangibles ................. $ (300.8) $ (282.1) Net operating loss carryforwards ............ (216.0) (153.8) Alternative minimum tax ..................... (85.7) (50.7) Provision for credit losses ................. (73.4) (90.1) Loan origination fees ....................... (29.7) (22.6) Other ....................................... (96.3) (81.1) -------- -------- Total deferred tax assets ................ (801.9) (680.4) -------- -------- Liabilities: Leasing transactions ........................ 1,006.6 932.7 Market discount income ...................... 388.9 226.6 Other ....................................... 51.6 29.7 -------- -------- Total deferred tax liabilities ........... 1,447.1 1,189.0 -------- -------- Net deferred tax liability ..................... $ 645.2 $ 508.6 ======== ======== Included in deferred federal income taxes on the Consolidated Balance Sheets are unamortized investment tax credits of $1.6 million and $2.2 million at December 31, 2000 and 1999, respectively. Included in the accrued liabilities and payables caption in the Consolidated Balance Sheets are state and local deferred tax liabilities of $112.6 million and $66.8 million at December 31, 2000 and 1999, respectively, arising from the temporary differences shown in the above tables. At December 31, 2000 CIT has $538.6 million of non-capital losses available for tax purposes to offset future taxable income arising from the reversal of deferred income tax liabilities. These non-capital tax losses arise principally from temporary differences relating to depreciation and restructuring charges as well as certain other 50 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) permanent differences. Non-capital losses pertaining to the Canadian operations of $208.2 million will expire at various dates through the year 2007. Net operating losses pertaining to the U.S. operations of $330.4 million will expire at various dates through the year 2020. CIT had an alternative minimum tax credit carryforward for income tax purposes of $85.7 million at December 31, 2000. During 2000, the net deferred tax liability was reduced by $95.6 million for the tax effect of purchase price allocation refinements recorded in goodwill. Note 15--Earnings Per Share ("EPS") Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding for the period. The diluted EPS computation includes the potential impact of dilutive securities, including stock options and restricted stock grants. The dilutive effect of stock options is computed using the treasury stock method, which assumes the repurchase of common shares by CIT at the average market price for the period. Options that have an anti-dilutive effect are not included in the denominator and averaged approximately 14.9 million shares for the year ended December 31, 2000. The reconciliation of the numerator and denominator of basic EPS with that of diluted EPS is presented for the years ended December 31, 2000 and 1999 and 1998.
Income Shares Per-Share Dollars in Millions, except per share amounts (Numerator) (Denominator) Amount ----------- ------------- ------ For the Year Ended December 31, 2000 Basic EPS: Income available to common shareholders ..... $611.6 261,141,544 $2.34 Effect of dilutive securities: Restricted shares ........................... -- 1,386,353 (0.01) Stock options ............................... -- 169,082 -- ------ ----------- ----- Diluted EPS .................................... $611.6 262,696,979 $2.33 ====== =========== ===== For the Year Ended December 31, 1999 Basic EPS: Income available to common shareholders ..... $389.4 174,013,063 $2.24 Effect of dilutive securities: Restricted shares ........................... -- 1,001,269 (0.02) Stock options ............................... -- 146,753 -- ------ ----------- ----- Diluted EPS .................................... $389.4 175,161,085 $2.22 ====== =========== ===== For the Year Ended December 31, 1998 Basic EPS: Income available to common shareholders ..... $338.8 161,987,897 $2.09 Effect of dilutive securities: Restricted shares ........................... -- 936,250 (0.01) Stock options ............................... -- 264,592 -- ------ ----------- ----- Diluted EPS .................................... $338.8 163,188,739 $2.08 ====== =========== =====
Note 16--Postretirement and Other Benefit Plans Retirement and Postretirement Medical and Life Insurance Benefit Plans Certain employees of CIT who have completed one year of service and are 21 years of age or older participate in The CIT Group Holdings, Inc. Retirement Plan (the "Plan"). The retirement benefits under the Plan are based on the employee's age, years of benefit service, and a percentage of qualifying compensation during the final years of employment. Plan assets consist of marketable securities, including common stock and government and corporate debt securities. CIT funds the Plan to the extent it qualifies for an income tax deduction. Such funding is charged to salaries and employee benefits expense. 51 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CIT also provides certain health care and life insurance benefits to eligible retired employees. Salaried participants generally become eligible for retiree health care benefits after reaching age 55 with 10 years of benefit service and 11 years of medical plan participation. Generally, the medical plans pay a stated percentage of most medical expenses reduced by a deductible as well as by payments made by government programs and other group coverage. The plans are funded on a pay as you go basis. The following tables set forth the change in obligations, plan assets, and funded status of the plans as well as the net periodic benefit cost.
At or for the Years Ended December 31, ---------------------------------------------------------------------- Retirement Benefits Postretirement Benefits --------------------------------- ------------------------------- Dollars in Millions 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------- ------- ------- Change in Benefit Obligations Benefit obligation at beginning of year ...... $ 107.9 $ 118.1 $ 100.4 $ 36.7 $ 37.2 $ 35.0 Service cost ................................. 7.0 7.2 6.3 2.0 1.8 1.5 Interest cost ................................ 8.5 7.6 6.9 3.0 2.3 2.3 Plan participants' contributions ............. -- -- -- 0.2 -- -- Plan amendments .............................. 2.6 1.3 -- (7.8) -- -- Actuarial loss/(gain) ........................ 4.6 (23.8) 7.0 5.1 (2.8) 1.2 Benefits paid ................................ (2.9) (2.5) (2.5) (2.9) (1.8) (2.8) ------- ------- ------- ------- ------- ------- Benefit obligation at end of year ............ $ 127.7 $ 107.9 $ 118.1 $ 36.3 $ 36.7 $ 37.2 ======= ======= ======= ======= ======= ======= Change in Plan Assets Fair value of plan assets at beginning of year $ 140.7 $ 132.8 $ 128.5 $ -- $ -- $ -- Actual return on plan assets ................. (0.4) 10.4 6.8 -- -- -- Plan participants' contributions ............. -- -- -- 0.2 -- -- Benefits paid ................................ (2.9) (2.5) (2.5) (2.9) (1.8) (2.8) Employer contributions ....................... -- -- -- 2.7 1.8 2.8 ------- ------- ------- ------- ------- ------- Fair value of plan assets at end of year ..... $ 137.4 $ 140.7 $ 132.8 $ -- $ -- $ -- ======= ======= ======= ======= ======= ======= Reconciliation of Funded Status at End of Year Funded status ................................ $ 9.7 $ 32.8 $ 14.7 $ (36.3) $ (36.7) $ (37.2) Unrecognized prior service cost .............. 2.4 (0.1) (1.5) -- -- -- Unrecognized net gain ........................ (6.0) (25.8) (4.7) (3.0) (8.4) (6.2) Unrecognized net transition obligation ....... -- -- -- 11.8 21.2 22.9 ------- ------- ------- ------- ------- ------- Prepaid/(accrued) benefit cost ............... $ 6.1 $ 6.9 $ 8.5 $ (27.5) $ (23.9) $ (20.5) ======= ======= ======= ======= ======= ======= Weighted-average Assumptions Discount rate ................................ 7.50% 7.75% 6.50% 7.50% 7.75% 6.50% Rate of compensation increase ................ 4.50% 4.75% 4.25% 4.50% 4.75% 4.25% Expected return on plan assets ............... 10.00% 10.00% 10.00% -- -- -- Components of Net Periodic Benefit Cost Service cost ................................. $ 7.0 $ 7.2 $ 6.3 $ 2.0 $ 1.8 $ 1.5 Interest cost ................................ 8.5 7.6 6.9 3.0 2.3 2.3 Expected return on plan assets ............... (14.0) (13.2) (12.8) -- -- -- Amortization of prior service cost ........... 0.1 -- (0.2) -- -- -- Amortization of transition obligation ........ -- -- -- 1.6 1.6 1.6 Amortization of gains ........................ (0.8) -- (0.5) (0.4) (0.5) (0.8) ------- ------- ------- ------- ------- ------- Total net periodic expense/(benefit) ......... $ 0.8 $ 1.6 $ (0.3) $ 6.2 $ 5.2 $ 4.6 ======= ======= ======= ======= ======= =======
For 2000, the assumed health care cost trend rates decline to an ultimate level of 5.25% in 2006 for all retirees; for 1999, 5.50% in 2005 for all retirees; and for 1998, 4.50% in 2005 for employees prior to reaching age 65. 52 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage point change in assumed health care cost trend rates would have the following effects. Postretirement Benefits ----------------------- For the Years Ended ----------------------- Dollars in Millions 2000 1999 ------ ------ Effect of One-percentage Point Increase on: Year end benefit obligation ......................... $ 1.4 $ 2.8 Total of service and interest cost components ....... $ 0.5 $ 0.4 Effect of One-percentage Point Decrease on: Year end benefit obligation ......................... $(1.3) $(2.6) Total of service and interest cost components ....... $(0.4) $(0.4) Savings Incentive Plan Certain employees of CIT participate in The CIT Group Holdings, Inc. Savings Incentive Plan. This plan qualifies under section 401(k) of the Internal Revenue Code. CIT's expense is based on specific percentages of employee contributions and plan administrative costs and aggregated $13.2 million, $10.4 million and $9.6 million for 2000, 1999 and 1998, respectively. Corporate Annual Bonus Plan The CIT Group Bonus Plan ("Bonus Plan") is an annual bonus plan covering certain executive officers and other employees. The amount of awards depend on a variety of factors, including corporate performance and individual performance during the calendar year for which awards are made and is subject to approval by the Compensation Committee of the Board of Directors. For the years ended December 31, 2000, 1999 and 1998, expenses for the Bonus Plan amounted to $40.0 million, $24.3 million and $18.6 million, respectively. Relating to their 1999 bonus, certain senior executive officers were permitted to defer up to fifty percent (50%) (in the form of CIT stock units). The deferred portion of the bonus was converted into restricted shares at a 25% premium, based on the closing price of CIT shares on the date of approval. Such restricted shares vest over a three-year period. The premium element is subject to forfeiture if the executive voluntarily terminates employment with CIT prior to three years from the date of the award. No deferral was offered for 2000. Long-Term Equity Compensation Plan CIT sponsors a Long-Term Equity Compensation Plan (the "ECP"). The ECP allows CIT to issue to employees up to 28,900,000 shares of common stock through grants of annual incentive awards, incentive and non-qualified stock options, stock appreciation rights, restricted stock, performance shares and performance units. Common stock issued under the ECP may be either authorized but unissued shares, treasury shares or any combination thereof. All options granted have 10 year terms. Options granted in 2000, 1999 and 1998 vest one-third on the first, second and third anniversary of the date of grant. 53 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Data for the stock option plans is summarized as follows.
2000 1999 -------------------------------- -------------------------------- Weighted Weighted Average Option Average Option Shares Price Per Share Shares Price Per Share ---------- --------------- ---------- --------------- Outstanding at beginning of year ..... 16,551,643 $26.89 4,766,109 $27.39 Granted .............................. 7,096,081 $14.22 7,556,714 $23.38 Exercised ............................ (117,530) $12.40 (27,698) $27.00 Forfeited ............................ (2,487,154) $26.99 (397,099) $26.10 Converted Newcourt options outstanding at year end 1999 ....... -- -- 4,653,617 $32.02 ---------- ------ ---------- ------ Outstanding at end of year ........... 21,043,040 $22.72 16,551,643 $26.89 ========== ====== ========== ====== Options exercisable at year end ...... 7,801,955 $26.79 3,060,247 $26.13 ========== ====== ========== ====== Weighted average fair value of options granted (1999 excludes converted Newcourt options) during the year .. $ 4.50 $ 6.87 ====== ======
On November 18, 1999, 5,985,714 options were granted to certain employees as part of a broad-based incentive program. The CIT options that were granted to replace Newcourt options become vested and exercisable in accordance with the original grants. The fair value of options granted was determined at the date of grant using the Black-Scholes option pricing model, which assumed the following.
Expected Average Expected Risk Free Option Issuance Option Life Range Dividend Yield Volatility Range Interest Rate Range ----------------- ----------------- -------------- ----------------- -------------------- 2000 ............ 3-5 years 2.82% 36.23% - 43.51% 5.70% - 6.77% 1999 ............ 3-5 years 1.75% 28.93% - 34.82% 4.61% - 5.92%
The following table summarizes information about stock options outstanding and options exercisable at December 31, 2000.
Options Outstanding Options Exercisable ----------------------------------------------- ---------------------------- Range of Remaining Weighted Weighted Exercise Number Contractual Average Number Average Price Outstanding Life Exercise Price Exercisable Exercise Price - ------------------- ----------- -------- -------------- ----------- -------------- $12.40 - $19.63 ... 7,144,308 9.7 years $14.21 52,228 $12.86 $21.08 - $32.44 ... 12,847,904 7.9 years $25.20 7,446,463 $25.99 $33.06 - $68.22 ... 1,050,828 7.3 years $50.19 303,264 $49.04 ---------- --------- Total ............ 21,043,040 7,801,955 ========== =========
Employee Stock Purchase Plan In 1998, CIT adopted an Employee Stock Purchase Plan (the "ESPP"). Under the ESPP, CIT is authorized to issue up to 1,000,000 shares of common stock to eligible employees. Under the terms of the ESPP, employees can choose to have between 1% and 10% of their base salary withheld to purchase CIT's stock at 85% of fair market value. During 2000, 1999 and 1998, CIT sold 207,177 shares, 132,084 shares and 21,214 shares, respectively, to participating employees under the ESPP. Restricted Stock In January 2000, CIT issued 114,037 restricted shares in connection with the Bonus Plan. In addition, in January and November 2000, CIT issued 10,350 and 933 shares respectively in connection with awards to outside members of the Board of Directors. All shares were issued at fair market value. The per share value of the January 54 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2000 Bonus Plan grant was $19.625. The per share values of the January and November 2000 Directors' grants were $19.625 and $16.75 respectively. Restricted shares issued in connection with the Bonus Plan vest on the third anniversary of the grant (January 2003). Restricted shares awarded to the outside members of the Board of Directors all vest one-third on the first, second and third anniversary of the grant date. On January 1, 2000, CIT issued 1,284,080 restricted shares in connection with the Performance Accelerated Restricted Share program. The shares were issued at a fair market value of $20.75. Restricted shares under this grant can vest on an accelerated basis in either three or four years (January 1, 2003 or 2004) based on earnings per share performance of CIT. If conditions for accelerated vesting are not met in either year, the remaining awards will vest on the fifth anniversary of grant (January 1, 2005). In January 1999, CIT issued 68,225 restricted shares in connection with the Bonus Plan. Such shares were issued at fair market value, which was $32.44 per share. The 1999 shares granted vest one-third on the first, second and third anniversary of the date of grant. The holder of restricted stock generally has the rights of a stockholder of CIT, including the right to vote and to receive cash dividends. Restricted stock of 1,446,032 shares and 945,606 shares was outstanding at December 31, 2000 and 1999. For the years ended December 31, 2000, 1999 and 1998, compensation expense recognized in connection with restricted stock was $13.2 million, $4.9 million and $5.2 million, respectively. Accounting for Stock-Based Compensation Plans CIT has elected to apply Accounting Principles Board Opinion 25 ("APB 25") rather than the optional provisions of SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") in accounting for its stock-based compensation plans. Under APB 25, CIT does not recognize compensation expense on the issuance of its stock options because the option terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. As required by SFAS 123, CIT has determined the pro forma information as if CIT had accounted for stock options granted under the fair value method of SFAS 123. Had the compensation cost of CIT's stock-based compensation plans been determined based on the operational provisions of SFAS 123, CIT's net income for 2000 and net income per diluted share would have been $591.8 million and $2.25, compared to $611.6 million and $2.33, as reported. For 1999, net income and net income per diluted share would have been $355.6 million and $2.03, compared to $389.4 million and $2.22, as reported. For 1998, net income and net income per diluted share would have been $333.4 million and $2.04, compared to $338.8 million and $2.08, as reported. Note 17--Lease Commitments CIT has entered into noncancellable long-term lease agreements for premises and equipment. The following table presents future minimum rentals under such noncancellable leases at December 31, 2000. Years Ended December 31, Amount - ------------------------ -------- Dollars in Millions 2001 ............................................... $ 60.1 2002 ............................................... 53.5 2003 ............................................... 47.8 2004 ............................................... 41.6 2005 ............................................... 36.4 Thereafter ......................................... 32.1 ------ Total ........................................... $271.5 ====== In addition to fixed lease rentals, leases generally require payment of maintenance expenses and real estate taxes, both of which are subject to escalation provisions. Minimum payments have not been reduced by minimum sublease rentals of $54.8 million due in the future under noncancellable subleases. 55 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Rental expense, net of sublease income on premises and equipment, was as follows. Years Ended December 31, --------------------------------------- Dollars in Millions ............ 2000 1999 1998 ------- ------- ------- Premises ....................... $47.7 $24.8 $17.1 Equipment ...................... 11.1 7.1 6.5 Less sublease income ........... (5.7) (1.3) (1.3) ----- ----- ----- Total ........................ $53.1 $30.6 $22.3 ===== ===== ===== Note 18--Legal Proceedings In the ordinary course of business, there are various legal proceedings pending against CIT. Management believes that the aggregate liabilities, if any, arising from such actions will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of CIT. Note 19--Credit-Related and Other Commitments In the normal course of meeting the financing needs of its customers, CIT enters into various credit-related commitments. These financial instruments generate fees and involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the Consolidated Balance Sheets. To minimize potential credit risk, CIT generally requires collateral and other credit-related terms and conditions from the customer. At the time credit-related commitments are granted, management believes the fair value of the underlying collateral and guarantees approximates or exceeds the contractual amount of the commitment. In the event a customer defaults on the underlying transaction, the maximum potential loss to CIT will be the contractual amount outstanding less the value of all underlying collateral and guarantees. The accompanying table summarizes the contractual amounts of credit-related commitments.
At December 31, ---------------------------------------------------------- Due to Expire ------------------------- Total Total Within After Outstanding Outstanding Dollars in Millions One Year One Year 2000 1999 -------- -------- ------------ ----------- Unused commitments to extend credit: Financing and leasing assets ................... $2,728.1 $371.4 $3,099.5 $3,128.1 Letters of credit and acceptances: Standby letters of credit ...................... 171.9 2.0 173.9 168.5 Other letters of credit ........................ 467.8 32.5 500.3 373.9 Acceptances .................................... 6.7 -- 6.7 12.7 Guarantees ....................................... 645.3 -- 645.3 351.2
During 2000 and 1999, we entered into agreements with both Airbus Industrie and the Boeing Company to purchase a total of 88 aircraft (at an estimated cost of approximately $5 billion), with options to acquire additional units, and with the flexibility to delay or terminate certain positions. Deliveries of these new aircraft are scheduled to take place over a five-year period, which started in the fourth quarter of 2000. Outstanding commitments to purchase aircraft, rail and other equipment from manufacturers to be placed on operating lease during 2001 totaled $694.0 million, of which $492.1 million have agreements in place to lease to third parties. Similar commitments to manufacturers for year 2000 purchases totaled $224.5 million at December 31, 1999. Note 20--Fair Values of Financial Instruments SFAS No. 107 "Disclosures About Fair Value of Financial Instruments" requires disclosure of the estimated fair value of CIT's financial instruments, excluding leasing transactions accounted for under SFAS 13. The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instrument, assuming adequate market liquidity. Since no established trading market exists for a significant portion of CIT's financial instruments, fair value estimates are based on judgments regarding future 56 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involving uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions or estimation methods may significantly affect the estimated fair values. Because of these limitations, management provides no assurance that the estimated fair values presented would necessarily be realized upon disposition or sale. Actual fair values in the marketplace are affected by other significant factors, such as supply and demand, investment trends and the motivations of buyers and sellers, which are not considered in the methodology used to determine the estimated fair values presented. In addition, fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of future business transactions and the value of assets and liabilities that are part of CIT's overall value but are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include customer base, operating lease equipment, premises and equipment, assets received in satisfaction of loans, and deferred tax balances. In addition, tax effects relating to the unrealized gains and losses (differences in estimated fair values and carrying values) have not been considered in these estimates and can have a significant effect on fair value estimates. The carrying amounts for cash and cash equivalents approximate fair value because they have short maturities and do not present significant credit risks. Credit-related commitments, as disclosed in Note 19--"Credit-Related and Other Commitments", are primarily short term floating-rate contracts whose terms and conditions are individually negotiated, taking into account the creditworthiness of the customer and the nature, accessibility and quality of the collateral and guarantees. Therefore, the fair value of credit-related commitments, if exercised, would approximate their contractual amounts. Estimated fair values, recorded carrying values and various assumptions used in valuing CIT's financial instruments at December 31, 2000 and 1999 are set forth below.
2000 1999 --------------------------- -------------------------- Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value Asset Asset Asset Asset Dollars in Millions (Liability) (Liability) (Liability) (Liability) ----------- ----------- ----------- ----------- Finance receivables -- loans(a) ................ $22,599.8 $22,878.4 $20,638.1 $20,726.4 Finance receivables held for sale .............. 2,698.4 2,698.4 3,123.7 3,123.7 Other assets(b) ................................ 1,809.0 1,827.1 1,728.8 1,746.2 Commercial paper(c) ............................ (9,063.5) (9,063.5) (8,974.0) (8,974.0) Fixed-rate senior notes and subordinated fixed-rate notes(d) ......................... (18,145.7) (17,969.4) (19,405.6) (19,082.7) Variable-rate senior notes(d) .................. (11,221.8) (11,127.2) (7,209.4) (7,146.7) Credit balances of factoring clients and other liabilities(d) (e) .................... (3,480.3) (3,480.3) (3,228.3) (3,228.3) Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company(f) .................................. (250.0) (240.8) (250.0) (232.8) Derivative Financial Instruments:(g) Interest rate swaps, net .................... (15.5) (229.2) (125.4) (134.0) Cross-currency swaps, net ................... (4.0) (2.1) (16.5) 13.8 Foreign exchange forwards, net .............. 84.7 60.3 25.4 19.1 Bond forwards, net .......................... -- (2.2) 13.2 13.5
- -------------------------------------------------------------------------------- (a) The fair value of performing fixed-rate loans was estimated based upon a present value discounted cash flow analysis, using interest rates that were being offered at the end of the year for loans with similar terms to borrowers of similar credit quality. Discount rates used in the present value calculation range from 8.14% to 10.01% for 2000 and 8.32% to 10.37% for 1999. The maturities used represent the average contractual maturities adjusted for prepayments. For floating-rate loans that reprice frequently and have no significant change in credit quality, fair value approximates carrying value. The net carrying value of lease finance receivables not subject to fair value disclosure totaled $10.4 billion in 2000 and $10.0 billion in 1999. 57 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (b) Other assets subject to fair value disclosure include accrued interest receivable, retained interests in securitizations and investment securities. The carrying amount of accrued interest receivable approximates fair value. Investment securities actively traded in a secondary market were valued using quoted available market prices. Investments not actively traded in a secondary market were valued based upon recent selling price or present value discounted cash flow analysis. The carrying value of other assets not subject to fair value disclosure totaled $1,202.2 million in 2000 and $618.6 million in 1999. Excluded from other assets is ($16.1) million net premium on foreign exchange forwards, which is included in this table under derivative financial instruments. (c) The estimated fair value of commercial paper approximates carrying value due to the relatively short maturities. (d) The carrying value of fixed-rate senior notes and subordinated fixed-rate notes includes $288.6 million and $256.6 million of accrued interest at December 31, 2000 and 1999, respectively. The variable-rate senior notes include $91.2 million and $62.2 million of accrued interest at December 31, 2000 and 1999, respectively. These amounts are excluded from the other liabilities balances in this table. The carrying value of the fixed-rate senior notes includes the net liability carrying value of derivative financial instruments (as presented in this table and explained in footnote "g") of $86.0 million and $103.3 million at December 31, 2000 and 1999, respectively. These derivative financial instrument values are included in the fixed-rate senior notes on the Consolidated Balance Sheets. Fixed-rate notes were valued using a present value discounted cash flow analysis with a discount rate approximating current market rates for issuances by CIT of similar term debt at the end of the year. Discount rates used in the present value calculation ranged from 6.10% to 8.31% in 2000 and 5.65% to 7.83% in 1999. (e) The estimated fair value of credit balances of factoring clients approximates carrying value due to their short settlement terms. Other liabilities include accrued liabilities and deferred federal income taxes. Accrued liabilities and payables with no stated maturities have an estimated fair value that approximates carrying value. The carrying value of other liabilities not subject to fair value disclosure totaled $607.5 million in 2000 and $356.1 million in 1999. (f) Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely debentures of the Company were valued using a present value discounted cash flow analysis with a discount rate approximating current market rates of similar issuances at the end of the year. (g) CIT enters into derivative financial instruments for hedging purposes only. The 2000 and 1999 carrying values for interest rate swaps, cross-currency swaps and bond forwards represent purchase accounting adjustments associated with the instruments acquired from Newcourt and do not necessarily correlate directly with the presented fair values as CIT has other instruments that are carried only off-balance sheet. The carrying value balances will amortize as the instruments acquired mature. The carrying value for foreign exchange forwards is based on the change in spot rate from the initial contract date to the year end. The estimated fair values are obtained from dealer quotes and represent the net amount receivable or payable to terminate the agreement, taking into account current market interest rates and counter-party credit risk. See Note 9--"Derivative Financial Instruments" for notional principal amounts associated with the instruments. Note 21--Certain Relationships and Related Transactions CIT has in the past and may in the future enter into certain transactions with affiliates of CIT. It is anticipated that such transactions will be entered into at a fair market value for the transaction. CIT's interest-bearing deposits generally represent overnight money market investments of excess cash that are maintained for liquidity purposes. From time to time, CIT may maintain such deposits with DKB. At December 31, 2000 and December 31, 1999, CIT's credit line coverage totaled $8.5 billion and $8.4 billion, respectively, of committed facilities. At December 31, 2000, DKB was committed under a five-year, $3.7 billion revolving credit facility and a 364-day, $3.7 billion revolving credit facility for $173.5 million per facility. In addition, DKB was committed under a separate $333.9 million credit facility for $17.4 million. At December 31, 1999, DKB was a committed bank under a five-year, $3.7 billion revolving credit facility and a 364-day, $1.7 billion revolving credit facility for $210.0 million and $93.0 million, respectively. Additional information regarding these credit lines can be found in Note 8--"Debt." CIT has entered into interest rate swap and cross-currency interest rate swap agreements with financial institutions acting as principal counterparties, including affiliates of DKB. The notional principal amount outstanding on interest rate swap agreements with DKB totaled $200.0 million and $220.0 million at December 31, 2000 and 1999, respectively. The notional principal amount outstanding on foreign currency swaps with DKB totaled $168.6 million at year end 2000 and 1999. CIT has entered into leveraged leasing arrangements with third party loan participants, including affiliates of DKB. Amounts owed to affiliates of DKB are $373.1 million at December 31, 2000 and $398.3 million at December 31, 1999. At December 31, 2000 and 1999, CIT has entered into credit-related commitments with DKB in the form of letters of credit totaling $19.5 million and $16.5 million, respectively, equal to the amount of the single lump sum premium necessary to provide group life insurance coverage to certain eligible retired employees and an amount to fund certain overseas finance receivables. CIT has entered into cash collateral loan agreements with DKB pursuant to which DKB made four loans to separate cash collateral trusts in order to provide additional security for payments on the certificates of the related securitization trusts. These securitization trusts were formed for the purpose of securitizing certain recreational vehicle and recreational marine finance receivables. At December 31, 2000 and 1999, the principal amount outstanding on the cash collateral loans with DKB was $8.9 million and $15.7 million, respectively. 58 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 22--Business Segment Information Management's Policy in Identifying Reportable Segments CIT's reportable segments are comprised of strategic business units aggregated into segments based upon the commonality of their products, customers, distribution methods, operations and servicing, and the nature of their regulatory environment. Types of Products and Services CIT has five reportable segments: Equipment Financing and Leasing, Vendor Technology Finance, Commercial Finance, Structured Finance and Consumer. Equipment Financing and Leasing, Vendor Technology Finance and Structured Finance offer secured lending and leasing products to midsize and larger companies across a variety of industries, including aerospace, construction, rail, machine tool, business aircraft, technology, manufacturing and transportation. For 1999, CIT's internal financial information combined Vendor Technology Finance and Structured Finance in the Vendor Technology Finance segment, due to the short period from the acquisition date to the end of the year and the business restructuring which took place as of year end. The Commercial Finance segment offers secured lending and receivables collection as well as other financial products to small and midsize companies. These include secured revolving lines of credit and term loans, credit protection, accounts receivable collection, import and export financing and factoring, debtor-in-possession and turnaround financing. CIT's Consumer segment offers retail installment sale products to consumers focused primarily on home equity and retail sales financing secured by recreational vehicles and manufactured housing. Segment Profit and Assets The accounting policies of the segments are the same as those described in Note 2--"Summary of Significant Accounting Policies." Since CIT generates a majority of its revenue from interest, fees, and asset gains, management relies primarily on operating revenues to assess the performance of the segment. CIT also evaluates segment performance based on profit after income taxes, as well as asset growth, credit risk management and other factors. The following table presents reportable segment information and the reconciliation of segment balances to the consolidated financial statement totals and the consolidated managed assets total at or for the years ended December 31, 2000, 1999 and 1998. Goodwill amortization is allocated to Corporate and Other for purposes of the table.
Equipment Vendor Financing Technology Commercial Structured Total Corporate Consolidated Dollars in Millions and Leasing Finance Finance Finance(1) Consumer Segments and Other(1) Total ----------- ------- ------- ---------- -------- -------- ------------ ------------ December 31, 2000 Operating revenue ........... $ 969.4 $ 540.0 $ 499.1 $ 175.3 $ 256.0 $ 2,439.8 $ (58.4) $ 2,381.4 Income taxes ................ 147.3 96.5 109.2 49.9 43.4 446.3 (72.4) 373.9 Net income .................. 287.8 148.9 161.8 89.6 73.3 761.4 (149.8) 611.6 Total managed assets ........ 26,465.2 10,809.7 7,693.7 2,691.9 7,240.4 54,900.9 -- 54,900.9 December 31, 1999 Operating revenue ........... 504.6 104.1 429.3 -- 243.1 1,281.1 (12.9) 1,268.2 Income taxes ................ 108.2 5.5 100.6 -- 37.5 251.8 (44.2) 207.6 Net income .................. 231.5 7.5 141.4 -- 60.0 440.4 (51.0) 389.4 Total managed assets ........ 19,206.1 15,879.8 7,002.1 2,071.2 7,274.1 51,433.3 -- 51,433.3 December 31, 1998 Operating revenue ........... 447.3 -- 348.7 -- 222.4 1,018.4 41.8 1,060.2 Income taxes ................ 93.3 -- 84.7 -- 27.2 205.2 (20.2) 185.0 Net income .................. 193.9 -- 119.1 -- 44.3 357.3 (18.5) 338.8 Total managed assets ........ 13,367.0 -- 4,996.2 -- 7,771.2 26,134.4 81.9 26,216.3
- -------------------------------------------------------------------------------- (1) For 1998, Equity Investments is included in Corporate and Other. This unit is part of Structured Finance in 2000 and 1999. 59 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Finance income and other revenues derived from United States based financing and leasing assets were $5,215.6 million, $2,641.0 million and $2,129.9 million for the years ending December 31, 2000, 1999 and 1998, respectively. Finance income and other revenues derived from foreign based financing and leasing assets were $944.8 million, $275.7 million and $140.6 million for the years ending December 31, 2000, 1999 and 1998, respectively. Note 23--Summarized Financial Information of Subsidiaries The following table presents summarized consolidated financial information for CIT Holdings LLC and its wholly owned subsidiary, Capita Corporation (formerly AT&T Capital). CIT has guaranteed on a full and unconditional basis the existing registered debt securities and certain other indebtedness of these subsidiaries. Therefore, CIT has not presented related financial statements or other information for these subsidiaries on a stand-alone basis. The following summarized consolidated financial information reflects results as of and for the year ended December 31, 2000 and also the transfer of various subsidiaries among other CIT entities. Year Ended December 31, 2000 -------------------------------- Capita Dollars in Millions CIT Holdings LLC Corporation ---------------- ----------- Operating revenue ........................... $ 710.7 $ 442.5 Operating expenses .......................... 451.5 308.2 -------- ------- Income before provision for income taxes .... $ 259.2 $ 134.3 Net income .................................. $ 176.0 $ 98.1 At December 31, 2000 -------------------------------- Capita CIT Holdings LLC Corporation ---------------- ----------- Assets Cash and cash equivalents ................... $ 48.6 $ 129.3 Financing and leasing assets ................ 6,781.5 5,294.7 Receivables from affiliates and other assets 914.4 145.9 -------- -------- Total assets ................................ $7,744.5 $5,569.9 ======== ======== Liabilities and Shareholders' Equity Liabilities: Debt ...................................... $4,323.3 $3,879.6 Other ..................................... 477.0 326.2 -------- -------- Total liabilities ........................... 4,800.3 4,205.8 Total shareholders' equity .................. 2,944.2 1,364.1 -------- -------- Total liabilities and shareholders' equity .. $7,744.5 $5,569.9 ======== ======== 60 THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 24--Selected Quarterly Financial Data (Unaudited)
2000 ----------------------------------------------------- First Second Third Fourth Dollars in Millions, except per share amounts Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- -------- Net finance margin ................................... $349.1 $359.2 $370.5 $390.6 $1,469.4 Other revenue ........................................ 238.2 232.3 224.2 217.3 912.0 Salaries and general operating expenses .............. 268.2 257.5 250.2 259.3 1,035.2 Provision for credit losses .......................... 61.6 64.0 65.8 63.8 255.2 Goodwill amortization ................................ 20.5 20.6 22.7 22.5 86.3 Minority interest in subsidiary trust holding solely debentures of the Company ................... 4.8 4.8 4.8 4.8 19.2 Provision for income taxes ........................... 88.3 93.2 95.0 97.4 373.9 Net income ........................................... $143.9 $151.4 $156.2 $160.1 $611.6 Net income per diluted share ......................... $ 0.55 $ 0.58 $ 0.60 $ 0.61 $ 2.33 1999 ----------------------------------------------------- First Second Third Fourth Dollars in Millions, except per share amounts Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- -------- Net finance margin ................................... $212.1 $214.4 $218.2 $272.7 $917.4 Other revenue ........................................ 64.7 74.8 81.9 129.4 350.8 Salaries and general operating expenses .............. 105.8 108.0 110.2 192.0 516.0 Provision for credit losses .......................... 21.9 23.8 32.2 32.4 110.3 Goodwill amortization ................................ 3.2 5.0 4.9 12.6 25.7 Minority interest in subsidiary trust holding solely debentures of the Company ................... 4.8 4.8 4.8 4.8 19.2 Provision for income taxes ........................... 49.2 51.3 51.1 56.0 207.6 Net income ........................................... $ 91.9 $ 96.3 $ 96.9 $104.3 $389.4 Net income per diluted share ......................... $ 0.57 $ 0.59 $ 0.60 $ 0.49 $ 2.22
Note 25--Subsequent Event On March 13, 2001, Tyco International Ltd. (NYSE: TYC), a diversified manufacturing and service company, and CIT announced a definitive agreement whereby Tyco will acquire CIT. As part of this transaction, Tyco has entered into a purchase agreement with DKB for their approximate 27% interest, or 71 million shares, at a price of $35.02, in cash, per CIT share. The remaining shareholders will receive 0.6907 Tyco shares for each share of CIT in a tax-free, stock-for-stock exchange. The transaction, which is expected to close during the third quarter of 2001, is valued at $35.02 per share to CIT shareholders, or approximately $9.2 billion, based on Tyco's March 12, 2001 closing stock price. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 61 PART III Item 10. Directors and Executive Officers of the Registrant. CIT will file this by amendment no later than April 30, 2001. Item 11. Executive Compensation. CIT will file this by amendment no later than April 30, 2001. Item 12. Security Ownership of Certain Beneficial Owners and Management. CIT will file this by amendment no later than April 30, 2001. Item 13. Certain Relationships and Related Transactions. CIT will file this by amendment no later than April 30, 2001. 62 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (a) The following documents are filed with the Securities and Exchange Commission as part of this report: 1. The financial statements of The CIT Group, Inc. and Subsidiaries as set forth on pages 30 - 61. 2. All schedules are omitted because they are not applicable or because the required information appears in the consolidated financial statements or the notes thereto. 3. The following is an index of the Exhibits required by Item 601 of Regulation S-K filed with the Securities and Exchange Commission as part of this report: 3.1 Amended and Restated Certificate of Incorporation of The CIT Group, Inc., dated November 12, 1999. 3.2 By-Laws of The CIT Group, Inc., dated November 12, 1997 (incorporated by reference to Exhibit 3.2 to Form 8-A filed by CIT on October 29, 1997). 4.1 Form of certificate of Class A Common Stock (incorporated by reference to Exhibit 4.1 to Form 8-A filed by CIT on October 29, 1998). 4.2 Upon the request of the Securities and Exchange Commission, the Company will furnish a copy of all instruments defining the rights of holders of long-term debt of CIT. 10.1 Regulatory Compliance Agreement, dated November 18, 1997 (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to Form S-2 filed by CIT on November 12, 1997). 10.2 Registration Rights Agreement, dated November 18, 1997 (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to Form S-2 filed by CIT on November 12, 1997). 10.3 Employment Agreement of Albert R. Gamper, Jr., dated November 1, 1999. 10.4 Employment Agreement of Joseph M. Leone, dated September 13, 2000, comparable to the agreements for Thomas L. Abbate, William M. O'Grady and Ernest D. Stein. 10.5 The CIT Group Bonus Plan (incorporated by reference to Exhibit 10 (d) to Form 10-K filed by CIT for the fiscal year ended December 31, 1992). 10.6 The CIT Group Holdings, Inc. Supplemental Savings Plan (incorporated by reference to Exhibit 10(f) to Form 10-K filed by CIT for the fiscal year ended December 31, 1992). 10.7 The CIT Group Holdings, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10(g) to Form 10-K filed by CIT for the fiscal year ended December 31, 1992). 10.8 The CIT Group Holdings, Inc. Executive Retirement Plan and New Executive Retirement Plan, each effective as of January 1, 1995 (incorporated by reference to Exhibit 10.12 to Amendment No. 2 to Form S-2 filed by CIT on November 12, 1997). 10.9 The CIT Group, Inc. Long-Term Equity Compensation Plan, amended and restated as of July 26, 2000. 10.10 The CIT Group, Inc. Employee Stock Purchase Plan, as amended and restated January 28, 1999 and amended September 17, 1999 (incorporated by reference to Annex R to the Joint Management Information Circular and Proxy Statement filed by CIT and Newcourt Credit Group Inc. on September 21, 1999). 10.11 The CIT Group, Inc. Transition Option Plan, amended and restated as of July 26, 2000. 10.12 Agreement and Plan of Merger, dated March 12, 2001, by and between Tyco Acquisition Corp. XIX (NV) and The CIT Group, Inc., including Guarantee of Tyco International Ltd. 12 Computation of Ratios of Earnings to Fixed Charges. 21 Subsidiaries of the Registrant. 23 Consent of KPMG LLP. 24 Powers of Attorney. 63 (b) A Current Report on Form 8-K, dated October 26, 2000 was filed with the Securities and Exchange Commission reporting CIT's announcement of its earnings results for the quarter ended September 30, 2000 and the declaration of a dividend for the quarter ended September 30, 2000. A Current Report on Form 8-K, dated November 2, 2000, was filed with the Securities and Exchange Commission containing Form T-1, Statement of Eligibility of Trustee for Allfirst Bank with respect to a Registration Statement filed on Form S-3 by The CIT Group, Inc. and The CIT Group Securitization Corporation II, as coregistrants, for CIT RV Trust 2000-A. A Current Report on Form 8-K, dated November 7, 2000, was filed with the Securities and Exchange Commission containing the Term Sheet dated November 7, 2000 relating to CIT RV Trust 2000-A. A Current Report on Form 8-K, dated December 1, 2000, was filed with the Securities and Exchange Commission regarding CIT's Investor Day Conference and earnings guidance for 2001. 64 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. THE CIT GROUP, INC. By: /S/ ERNEST D. STEIN .......................................... Ernest D. Stein Executive Vice President and General Counsel March 26, 2001 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: Signature and Title Date ---------------- ---- ALBERT R. GAMPER, JR.* .................................................... Albert R. Gamper, Jr. Chairman, President, Chief Executive Officer and Director (principal executive officer) DANIEL P. AMOS* .................................................... Daniel P. Amos Director JOHN S. CHEN* .................................................... John S. Chen Director ANTHEA DISNEY* .................................................... Anthea Disney Director WILLIAM A. FARLINGER* .................................................... William A. Farlinger Director THOMAS H. KEAN* .................................................... Thomas H. Kean Director PAUL G. MORTON* ................................................... Paul G. Morton Director TAKATSUGU MURAI* ................................................... Takatsugu Murai Director WILLIAM M. O'GRADY* .................................................... William M. O'Grady Director PAUL N. ROTH* .................................................... Paul N. Roth Director PETER J. TOBIN* .................................................... Peter J. Tobin Director KEIJI TORII* .................................................... Keiji Torii Director THEODORE V. WELLS, JR.* .................................................... Theodore V. Wells, Jr. Director 65 Signature and Title Date ---------------- ---- ALAN F. WHITE* .................................................... Alan F. White Director /S/ JOSEPH M. LEONE March 26, 2001 .................................................... Joseph M. Leone Executive Vice President and Chief Financial Officer (principal accounting officer) *BY: /S/ ERNEST D. STEIN March 26, 2001 ............................................... Ernest D. Stein Attorney-In-Fact Original powers of attorney authorizing Albert R. Gamper, Jr., Ernest D. Stein, and James P. Shanahan and each of them to sign on behalf of the above-mentioned directors are held by the Corporation and available for examination by the Securities and Exchange Commission pursuant to Item 302(b) of Regulation S-T. 66 EX-10.3 2 0002.txt EMPLOYMENT AGREEMENT THE CIT GROUP, INC. November 1, 1999 Mr. Albert R. Gamper, Jr. 65O CIT Drive Livingston, New Jersey 07039 Dear Al: Reference is made to your employment agreement, dated December 29, 1989 (the "Employment Agreement"), with The CIT Group, Inc. (the "Company"), as amended by letter agreements dated November 16, 1992, December 20, 1994, and April 1, 1997. The Board of Directors (the "Board") of the Company is pleased to extend your employment agreement with the Company on the following terms and conditions, all other terms and conditions being null and void: 1. Term. This letter agreement will be effective as of November 1, 1999. The term of this Agreement (the "Term") will be for a period of thirty-eight months beginning on November 1, 1999 and, except as otherwise provided in paragraph 4 below, ending on December 31, 2002. This letter agreement and the Term may be extended for one or more additional periods as provided in paragraph 7 or by written agreement signed by you and the Company at any time prior to the end of the Term then in effect. 2. Duties and Authority. During the Term, you shall serve as the Chief Executive Officer, President, Chairman of the Executive Committee and a member of the Board of the Company. You agree to accept the position of Chairman of the Board of the Company if the position is offered to you. Subject to the overall direction and control of the Board, as Chief Executive Officer and President, you shall have general charge and control of the business and affairs of the Company, which shall include but shall not be limited to responsibility for overall policy making as well as day-to-day operations (including hiring and firing of personnel, establishing credit policy, personnel compensation and the nature and pricing of the business of the Company). You agree to devote substantially all of your business time and energies to the business of the Company and to faithfully, diligently and competently perform your duties hereunder, except that you may devote a reasonable amount of time to serving as a director of not-for-profit institutions, and with the approval of the Board, of business corporations. You shall not be assigned any duties that are inconsistent with your status as Chief Executive Officer of the Company. 3. Compensation and Benefits. In full consideration for all services rendered by you in all capacities during the Term, you will receive the following compensation and benefits: (a) Base Salary. An annual base salary of $875,000 payable in accordance with the customary payroll practices of the Company. Your Base Salary and performance will be reviewed by the Board during the Term pursuant to normal Company practices. Your Base Salary may be increased (but not reduced) by the Board from time to time, based upon your performance and responsibilities, pursuant to the Company's standard procedures for salary adjustments. (b) Bonuses. You will participate in all executive bonus and incentive compensation plans (collectively, "Incentive Plans") now or hereafter maintained by the Company for which your level of employment makes you eligible in accordance with the Company's policies and the terms of such Incentive Plans. (e) Expense Reimbursement. The Company will reimburse you for your ordinary and necessary business and travel expenses incurred by you in the performance of your duties. When traveling on Company business or personal travel, you shall be authorized for security reasons to travel on CIT's corporate aircraft. The cost of your personal travel on CIT's corporate aircraft shall be imputed to you as income. If you are flying on commercial airlines for Company business, first class is authorized. (d) Other Benefit. You will be eligible to participate in all employee retirement and welfare benefit plans now or hereafter maintained by or on behalf of the Company, including the Company's Executive Retirement Program and receive all fringe benefits and vacations, for which your level of employment makes you eligible in accordance with the Company's policies and the terms of such plans. In addition, the Company will provide you with (i) a supplemental pension benefit and (ii) a supplemental savings benefit, in each case in an amount equal to the value of the benefit you would be entitled to receive under the Company's Retirement Plan or Savings Incentive Plan, as the case may be, but for the limitations on the amount of such benefits imposed by Internal Revenue Code Sections 415 and 401(a)(l7). In connection with your benefits under the Company's Executive Retirement Program, the Company will not unreasonably withhold its consent to your retirement. (e) Additional Benefits. In addition to the benefits described above, the Company shall provide the following special benefits to you: (1) Attorney and Accountant Expense Reimbursement. The Company shall reimburse you for up to $25,000 annually for attorneys' fees and -2- disbursements incurred by you for tax advice or other legal counsel and for accounting fees incurred by you for tax advice or other financial planning; (2) Office and Staff. The Company shall provide you with suitable offices located in northern New Jersey, and you shall not be required to relocate your residence from the New Jersey area. You may also employ secretaries and assistants of your own selection as you deem appropriate or necessary. The Company shall also provide you with a car and driver substantially equivalent to that enjoyed by you under your past employment agreement. (3) Dues. The Company shall reimburse you for the full cost (annual dues plus initiation fees) of one country club or luncheon club membership of your choice; and (4) Indemnification and Insurance. The Company will provide you with suitable director's and officer's liability insurance to the extent available on commercially reasonable terms. The Company shall not amend the provisions of Article ELEVENTH and TWELFTH of its Restated Certificate of Incorporation or Article X of its By-Laws in any manner adverse to you without your consent. (f) Modifications. The Company may at any time or from time to time amend, modify, suspend or terminate any bonus, incentive compensation or other benefit plans or programs provided hereunder for any reason and without your consent; provided that, without your consent, the Company may not reduce the aggregate value of the benefits provided to the Executive hereunder, or administer the Company Executive Retirement Program in a manner substantially inconsistent with past practices. 4. Termination of the Executive's Employment. (a) Termination Date. The effective date of your termination of employment with the Company shall be the "Termination Date." (b) By the Company. The Board by majority vote may terminate your employment in its sole discretion at any time during the Term, with or without Cause. For purposes of this letter agreement. "Cause" means (A) your gross negligence, recklessness or malfeasance in the performance of your duties hereunder, (B) your committing any criminal act, act of fraud or other misconduct resulting or intending to result directly or indirectly in gain or personal enrichment at the expense of the Company, or (C) your willfully engaging in any conduct relating to the business of the Company that could reasonably be expected to have a materially detrimental effect on the business or financial condition of the Company. (c) By You. You may terminate your employment with the Company at any time during the Term, with or without Good Reason, upon fifteen (15) days prior written notice by you to the Company. For purposes of this letter agreement, -3- "Good Reason" means the assignment to you of duties and responsibilities not commensurate with your status as Chief Executive Officer of the Company, the failure of the Company to provide compensation and benefits to you at the levels required herein, you are required without your consent to relocate or perform a significant portion of your duties under this Employment Agreement outside a fifty (50) mile radius from your present principal place of employment, or the failure of the Company to adhere in any substantial manner to any of its other covenants herein. Termination of your employment by you following the completion of a Change of Control contract extension as provided in 7(a) will be deemed a "Good Reason" termination entitling you to the benefits and payments covered in paragraph 5 reduced by the amount of any "Special Payment" previously paid to you pursuant to paragraph 7(b). The failure of the Company to offer to renew this Employment Agreement, at least ninety (90) days prior to the Termination Date, on terms and conditions (including payment of base salary and participation in incentive plans and benefits) at least as favorable as in the final year of your last Term shall also be deemed a "Good Reason" termination entitling you to the benefits and payments covered in paragraph 5. 5. Severance Payment (a) Without Cause and Good Reason Termination. If during the Term the Company terminates your employment without Cause or you terminate your employment for Good Reason, all compensation payable to you under paragraph 3 hereof will cease as of the Termination Date and the Company will provide to you, subject to paragraph 6, the following sums and benefits: (1) A payment of three times your Base Salary on the Termination Date, plus three times the average annual bonus you received in the prior two years, plus a pro-rata annual bonus for that portion of the bonus year up to the Termination Date based on the average annual bonus, if any, paid in the prior two (2) full years; the sum of which is payable in 24 equal installments at the end of each of the 24 months following the Termination Date. If, however, prior to the second anniversary of the Termination Date, you violate the noncompetition provisions of paragraph 6(b)(A), then the Company will have no obligation to make any of the payments that remain payable by the Company under this paragraph 5(a)(l) on or after the date of such violation. (2) Immediate vesting of each outstanding unvested stock option, stock appreciation right, tandem -4- option, tandem stock appreciation right, restricted stock, performance share, performance unit, annual incentive award, or any similar equity or incentive share or unit. (3) All previously earned and accrued entitlements and benefits from the Company, including any such entitlements and benefits under the Company's pension, disability and life insurance plans, policies and programs. (4) Continued benefit coverage which permits you to continue to receive, for three (3) years from the Termination Date, at the Company's expense, life insurance and medical, dental and disability benefits at least comparable to those provided by the Company to you on the Termination Date, provided that such benefits shall cease if you obtain other employment with comparable benefits, as determined by the Company. Three (3) years additional benefit service and age credit under the Company's Retirement Plan and the Executive Retirement Plan. (The amount of any benefit payable as a result of such three (3) year additional service and age credit shall be paid from the applicable benefit or retirement plan as permitted by the provisions of such applicable benefit or retirement plan and the law, or in the event not paid from the applicable benefit or retirement plan, such benefit shall be paid by the Company.) (5) The reasonable costs of outplacement services, a fully equipped office and secretary to be utilized by you for up to two years, and a car and driver for two years that are substantially equivalent to the car and driver you had on the Termination Date. (6) Any awards due to you under the terms of the Company's Long Term Equity Compensation Plan or any plan as may have been hereafter adopted by the Company. Upon such payment, all of your rights under all such plans will then terminate. -5- (7) All benefits payable to you under the terms and conditions of the Company's Executive Benefits Program, if any. All of the amounts and benefits to be provided pursuant to clauses (4), (5), (6) and (7) above shall be provided without duplication for the amounts and benefits to be provided pursuant to clause (3) above. (b) For Cause Termination - or Termination By You Without Good Reason. If your employment is terminated by the Company for Cause or if you terminate your employment for any reason other than Good Reason, you will receive only the amounts specified in paragraph 5(a)(3). In the event you are eligible under the terms and conditions of the Company's various executive benefit plans, if any, you will also receive the benefits specified in paragraph 5(a)(7) provided you are not in breach of this Agreement. (c) Death or Disability. In the event of your death or your disability due to physical or mental illness or other disability which renders you unable, on other than a temporary basis, to perform the duties of your employment, the Employment Term will terminate as of the date of your death or disability and you or your estate will receive the benefits specified in paragraphs 5(a)(2), 5(a)(3), 5(a)(7) and, in the case of disability, you shall also receive the benefits specified in paragraph 5(a)(4). In addition, you or your estate shall receive an amount equal to your Base Salary on the date of your death or disability for three years. Disability will be determined by the Board in a manner consistent with the Company's Long Term Disability Plan. 6. Confidentiality and Competitive Activity. (a) You acknowledge that you have acquired and will continue to acquire during the Term, confidential information regarding the business of the Company, Dai-Ichi Kangyo Bank (DKB) and their respective subsidiaries and affiliates. Accordingly, you agree that, without the written consent of the Board, you will not, at any time, disclose to any unauthorized person or otherwise use any such confidential information. For this purpose, confidential information means non-public information concerning the financial data, business strategies, product development (and proprietary product data), customer lists, marketing plans and other proprietary information concerning the Company or DKB and their respective subsidiaries and affiliates, except for specific items which have become publicly available other than as a result of your breach of this letter agreement. (b) During the Term and if you resign with or without Good Reason or your employment is terminated by the Company with or without Cause, you retire under the terms of the Company's Retirement Plan prior to the end of the Term or you resign following the expiration of this Employment Agreement, then for two years after the Termination Date, you will not, without the written consent of the Board, -6- directly or indirectly, (A) knowingly engage or be interested in (as owner, partner, stockholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any business in the United States which is in competition with any line of business actively being conducted on the Termination Date by the Company or any of its subsidiaries; provided that if your employment has been terminated by the Company without Cause, or you have terminated your employment with the Company for Good Reason (except in the event of a termination of your employment within eighteen months of a Change of Control), you may so compete from and after the six month anniversary of the Termination Date in which event you shall forfeit your right to receive future severance payments pursuant to paragraph 5(a)(1) hereof, and (B) whether or not your termination of employment occurred without Cause or for Good Reason, hire any person who was employed by the Company or any of its subsidiaries or affiliates (other than persons employed in a clerical or other non-professional position) within the six-month period preceding the date of such hiring, or solicit, entice, persuade or induce any person or entity doing business with the Company or DKB and their respective subsidiaries and affiliates, to terminate such relationship or to refrain from extending or renewing the same. Nothing herein, however, will prohibit you from acquiring or holding not more than one percent of any class of publicly traded securities of any such business; provided that such securities entitle you to no more than one percent of the total outstanding votes entitled to be cast by securityholders of such business in matters on which such securityholders are entitled to vote. Notwithstanding anything in the foregoing to the contrary, in the event of a Change of Control, the provisions of clause (A) and clause (B) shall apply following termination of your employment for any reason. (c) Remedy for Breach. You hereby acknowledge that the provisions of this paragraph 6 are reasonable and necessary for the protection of the Company, DKB and their respective subsidiaries and affiliates. In addition, you further acknowledge that the Company, DKB and their respective subsidiaries and affiliates will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, you agree that, in addition to any other relief to which the Company may be entitled, the Company will be entitled to seek and obtain injunctive relief (without the requirement of any bond) from a court of competent jurisdiction for the purposes of restraining you from an actual or threatened breach of such covenants. In addition, and without limiting the Company's other remedies, in the event of any breach by you of such covenants, the Company will have no obligation to pay any of the amounts that remain payable by the Company under paragraph 5(a)(1). -7- 7. Change of Control (a) Termination/Contract Extension. In the event of a Change of Control during the Term, you may elect, on 90 days prior written notice, to terminate your employment upon the first anniversary of the change of control, and have such termination deemed "Good Reason." In the event the first anniversary of such a Change of Control occurs after the end of the Term, the Term shall be extended to the earlier of: (i) ninety (90) days after the end of the Term or (2) the first anniversary of the Change of Control. (b) Special Payment. In addition to the compensation and benefits already required under the provisions of your Employment Agreement, if a Change of Control should occur on or prior to December 31, 2002, you will receive a special payment (the "Special Payment"). The amount of such Special Payment shall equal the sum of your prior four years' annual bonuses under The CIT Group Bonus Plan and will be payable over a one-year period as follows: 1/2 of the payment shall be paid to you within 30 days after the date of the Change of Control; 1/2 shall be paid to you on or before the first anniversary date of such Change of Control. Notwithstanding the foregoing provisions of this paragraph, all or any part of such Special Payment shall not be payable to you: if during the one-year period commencing on the date of a Change of Control, and ending on the first anniversary of such date: (i) your employment is involuntarily terminated by the Company for "Cause" as defined in the Employment Agreement; (ii) you voluntarily terminate employment with the Company for any reason other than "Good Reason" as defined in the Employment Agreement; (iii) you breach any non-competition or confidentiality covenant under Section 6 of the Employment Agreement or (iv) you have received previously a payment pursuant to paragraph 5(a)(l). For purposes of this Paragraph (b) "Special Payment", a termination of your employment on account of your death, disability or retirement on or after age 55 under the terms of the Company's retirement plan (provided such is consistent with Section 7(a)) shall constitute a termination for "Good Reason." In the absence of a separate beneficiary designation, your beneficiary under the Group Life Insurance Plan will receive any Special Payment remaining to be paid upon your death. (c) Change of Control Defined. For purposes of this letter agreement, a "Change of Control" shall be deemed to have occurred if: (1) any Person or Group other than DKB or its Affiliates becomes the Beneficial Owner, directly or indirectly, of securities representing a majority of the combined voting power of the Company's then outstanding securities generally entitled to vote for the election of directors (capitalized terms not otherwise defined herein are used as defined under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); or (2) as a result of a cash tender offer, merger or other business combination, sales of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the combination of the persons who were directors of the Company immediately before the Transaction and persons designated by the persons who -8- were directors of the Company immediately before the Transaction, shall cease to constitute a majority of the Board of the Company or of any successor to the Company. Notwithstanding the foregoing, a Change of Control resulting from a Change of Control of DKB shall not require the extension of the Term hereunder. 8. Miscellaneous. (a) Survival; Notices. The obligations of the Company in paragraph 5 and your obligations in paragraph 6 will survive the termination of this letter agreement. Any notice, consent or other communication made or given in connection with this letter agreement will be in writing and will be deemed to have been duly given when delivered or five days after mailed by United States registered or certified mail, return receipt requested, to the parties at the address set forth on the first page of this letter agreement (attention: General Counsel, if to the Company). (b) Entire Agreement. This letter agreement supersedes any and all existing agreements between you and the Company or any of its subsidiaries or affiliates relating to the terms of your employment. (c) Amendments and Waivers. No provisions of this letter agreement may be amended, modified, waived or discharged except as agreed to in writing by you and the Board. The failure of a party to insist upon strict adherence to any term of this letter agreement on any occasion will not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this letter agreement. (d) Successors. This letter agreement shall be binding upon and inure to the benefit of you and the Company and its successors and permitted assigns. Neither this letter agreement nor any of the rights of the parties hereunder may be assigned by either party hereto except that the Company may assign its rights and obligations hereunder to a corporation or other entity that acquires substantially all of its assets. Any assignment or transfer of this letter agreement in violation of the foregoing provisions will be void. (e) Governing Law. This letter agreement will be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and/or to be performed in that State. (f) Legal Counsel; Offsets and Reductions. In the event you obtain legal counsel to enforce your rights under this letter agreement, the Company will pay you reasonable legal fees if you recover any amount on such claim. Except as provided in paragraph 6, if your employment is terminated by the Company, your severance shall not be subject to any offsets or reductions for your subsequently earned income or reduction by reason of any claim by the Company. -9- (g) Severability. If the provision of this letter agreement is invalid or unenforceable, the balance of this letter agreement will remain in effect, and if such provision is inapplicable to any person or circumstance, it will nevertheless remain applicable to all other persons and circumstances. (h) Withholdings. The Company is authorized to withhold from any benefit provided or payment due hereunder the amount of withholding taxes due any federal, state, or local authority in respect of such benefit or payment and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. (i) Tax Gross-Up. In the event that any payment made to you pursuant to this employment agreement with the Company becomes subject to excise taxes under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company will pay to you the amount of such excise taxes plus all federal, state and local taxes applicable to the Company's payment of such excise taxes including any additional excise taxes due under Section 4999 of the Code with respect to payments made pursuant to this letter agreement. The determination of amounts required to be paid under this letter agreement shall be made by an independent auditor selected and paid by the Company. Such independent auditor shall be a nationally recognized United States public accounting firm, which may be the independent accounting firm used by the Company to audit its financial statements. If you are in agreement with the terms of this letter, so indicate by signing and returning the enclosed copy of this letter, whereupon this letter shall constitute a binding agreement between you and the Company. Very truly yours, THE CIT GROUP ,INC. By: _____________________________________ Name: Title: Agreed: _____________________________________ -10- EX-10.4 3 0003.txt EMPLOYMENT AGREEMENT Albert R. Gamper, Jr. The CIT Group, Inc. T: 973 740-5395 Chairman, President and 650 CIT Drive F: 973 740-5772 Chief Executive Officer Livingston, NJ 07039-5795 al.gamper@cit.com CIT [LOGO] September 13, 2000 Mr. Joseph M. Leone 978 Arapaho Trail Franklin Lakes, NJ 07417 Dear Joe, The purpose of this letter agreement (the "Employment Agreement") is to set forth the terms and conditions of your employment with The CIT Group, Inc. (the "Company") as follows: 1. Term. This Employment Agreement will be effective as of September 1, 2000 (the "Effective Date"). The term of this Employment Agreement (the "Term") will begin on the Effective Date and, except as otherwise provided in paragraph 4 below, end on December 31, 2002. This Employment Agreement and the Term may be extended for one (1) or more additional periods by written agreement signed by you and the Company at any time prior to the end of the Term then in effect. 2. Duties. During the Term, you will serve in such capacities and devote substantially all of your business time and energies to the business of the Company and faithfully, diligently and competently perform such duties, as are assigned to you by the Chief Executive Officer of the Company (the "CEO") or pursuant to his delegation. 3. Compensation and Benefits. In full consideration for all services rendered by you in all capacities during the Term, you will receive the following compensation and benefits: (a) Base Salary. An annual base salary ("Base Salary") of not less than the amount you received immediately prior to the commencement of this current Employment Agreement payable in accordance with the customary payroll practices of the Company. Your Base Salary and performance will be reviewed by the CEO or pursuant to his delegation during the Term pursuant to normal Company practices. Your Base Salary may be increased (but not reduced) by the CEO from time to time, based upon your performance and responsibilities, pursuant to the Company's standard procedures for salary adjustments. (b) Bonuses. You will participate in all executive bonus and incentive compensation plans (collectively, "Incentive Plans") now or hereafter maintained by the Company for which your level of employment makes you eligible in accordance with the Company's policies and the terms of such Incentive Plans. (c) Expense Reimbursement. The Company will reimburse you, in accordance with applicable policies and practices of the Company in effect from time to time, for your ordinary and necessary business expenses. (d) Other Benefits. You will be eligible to participate in all employee retirement and welfare benefit plans now or hereafter maintained by or on behalf of the Company, including the Company's Executive Retirement Plan and receive all fringe benefits, vacations and supplemental pension benefits, for which your level of employment makes you eligible in accordance with the Company's policies and the terms of such plans. (e) Modifications. The Company may at any time or from time to time amend, modify, suspend or terminate any bonus or incentive compensation or employee benefit plans or programs provided hereunder for any reason and without your consent; provided that, without your consent, the Company may not reduce the aggregate value of the employee benefit plans or programs provided to you hereunder unless such reduction is consistent with reductions affecting similarly situated employees of the Company. 4. Termination of Your Employment. (a) By the Company. The Company may terminate your employment in its sole discretion at any time during the Term, with or without Cause, upon fifteen (15) days prior notice by the Company to you. For purposes of this Employment Agreement, "Cause" means any of the following: (1) action by you involving willful malfeasance in connection with the performance of your duties hereunder, (2) your unreasonable neglect or refusal to perform the executive duties assigned to you under this Employment Agreement, (3) your being convicted of a crime constituting a felony under federal or applicable state or local law, (4) your engaging in any activity that is directly or indirectly in competition with the Company or any affiliate or in any activity that is inimical to the best interests of the Company or any affiliate, or (5) your violation of the Company's policy covering standards of corporate conduct as determined by the Company's CEO. If the Company terminates your employment for Cause, all the Company's obligations under this Employment Agreement shall thereupon cease and terminate, except for those amounts specified in paragraph 5(a)(2). 2 (b) By You. You may terminate your employment with the Company at any time during the Term, with or without Good Reason, upon fifteen (15) days prior notice by you to the Company. For purposes of this Employment Agreement, "Good Reason" means (1) the assignment to you of duties and responsibilities not commensurate with your status as a senior executive of the Company, (2) the failure of the Company to provide compensation and benefits to you at the levels required herein, (3) following a Change of Control as defined in paragraph 7(d), you are required by the Company, or if applicable a Subsidiary, or a successor to the Company or a Subsidiary, without your consent to relocate or perform a significant portion of your duties under this Employment Agreement outside a fifty (50) mile radius from your present principal place of employment, (4) the failure of the Company to adhere in any substantial manner to any of its other covenants herein, or (5) the failure of the Company to offer to renew this Employment Agreement on the terms and conditions (including payment of base salary and participation in Incentive Plans and benefit programs) at least as favorable in the final year of your last Employment Agreement, unless, at the time of the Company's failure to offer to renew this Employment Agreement, you have reached the age of 65 and you can be lawfully required to retire. 5. Severance Payment. (a) Without Cause and Good Reason Termination. If during the Term, the Company terminates your employment without Cause or you terminate your employment for Good Reason, all compensation payable to you under paragraph 3 hereof will cease as of the effective date of such termination (the "Termination Date") and the Company will pay to you, subject to paragraph 6 and, with respect to paragraphs 5(a)(1), (3) and (4) subject to the condition that you execute and deliver to the Company an effective general release of any and all claims you have or may have against the Company as of the Termination Date, in a form prepared by the Company, the following: (1) An amount equal to two (2) times your then current Base Salary plus two (2) times the average annual bonus you received in the prior two (2) years under The CIT Group, Inc. Bonus Plan, plus a pro-rata annual bonus amount for that portion of the bonus year up to the Termination Date, based on the average annual bonus, if any, paid in the prior two (2) full years. This payment shall be payable fifty percent (50%) in twelve (12) equal installments at the end of each of the twelve (12) months following the Termination Date, and fifty percent (50%) in a lump sum on the anniversary of the Termination Date. If, however, prior to the anniversary of the Termination Date, you violate the noncompetition 3 provisions of paragraph 6(b)(i), then the Company will have no obligation to make any of the payments that remain payable by the Company under this paragraph 5(a)(1) on or after the date of such violation. Notwithstanding the provisions of this paragraph 5(a)(1), if you have received, are scheduled to receive or are otherwise eligible to receive all or any portion of a "Special Payment" in accordance with paragraph 7(b) below, the amount payable to you under this paragraph 5(a)(1) shall be reduced by the amount of such "Special Payment" paid or payable to you under paragraph 7(b). (2) All previously earned and accrued entitlements and benefits from the Company, including any such entitlements and benefits under the Company's pension, disability, life insurance and medical plans, policies and programs. (3) (a) Continued benefit coverage which permits you to continue to receive, for two (2) years from the Termination Date, at the Company's expense, life insurance and medical, dental and disability benefits at least comparable to those provided by the Company to you on the Termination Date, provided that such benefits shall cease if you obtain other employment with comparable benefits, as determined by the Company; and (b) two (2) years additional benefit service and age credit under the Company's Retirement Plan and the Executive Retirement Plan, except that to the extent you participate in the cash balance arrangement under the Company's Retirement Plan, rather than receiving two (2) years additional benefit service and age credit under the Company's Retirement Plan, your cash balance account will be increased as of the Termination Date as if you had received two (2) years of additional contributions based on your compensation as of the Termination Date. (The amount of any benefit payable as a result of such two (2) year additional service and age credit shall be paid from the applicable benefit or retirement plan as permitted by the provisions of such 4 applicable benefit or retirement plan and the Code, or in the event not paid from the applicable benefit or retirement plan, such benefit shall be paid by the Company). (4) Outplacement services, not to exceed a reasonable cost, until such time as you accept new employment. (5) Any awards due to you under the terms of the Company's Long-Term Equity Compensation Plan (the "ECP") or any successor plan as may have been hereafter adopted by the Company. Upon such payment, all of your rights under all such plans will then terminate. (6) All benefits payable to you under the terms and conditions of the Company's Executive Retirement Plan, if any. All of the amounts and benefits to be provided pursuant to clauses (3), (4), (5) and (6) above shall be provided without duplication for the amounts and benefits to be provided pursuant to clause (2) above. (b) For Cause Termination or Termination By You Without Good Reason. If your employment is terminated by the Company for Cause or if you terminate your employment for any reason other than Good Reason, you will receive only the amounts specified in paragraph 5(a)(2). (c) Death or Disability. In the event of your death or your disability due to physical or mental illness or other disability which renders you unable, on other than a temporary basis, to perform the duties of your employment, the Term will terminate as of the date of your death or disability and you or your beneficiary will receive the benefits specified in paragraphs 5(a)(2),(5) and (6) plus an amount equal to your Base Salary on such date for one (1) year. Disability will be determined in a manner consistent with the Company's Long-Term Disability Plan. 6. Confidentiality and Competitive Activity. (a) Confidential information. You acknowledge that you have acquired and will continue to acquire during the Term, confidential information regarding the business of the Company, Dai-Ichi Kangyo Bank ("DKB") and their respective subsidiaries and affiliates. Accordingly, you agree that, without the written consent of the Board, you will not, at any time, disclose to any unauthorized person or otherwise use any such confidential information. For this purpose, confidential 5 information means non-public information concerning the financial data, business strategies, product development (and proprietary product data), customer lists, marketing plans, and other proprietary information concerning the Company or DKB and their respective subsidiaries and affiliates, except for specific items which have become publicly available other than as a result of your breach of this Employment Agreement. (b) Competition and Solicitation. If (1) you resign with or without Good Reason, (2) your employment is terminated by the Company with or without Cause, (3) you retire under the terms of the Company's Retirement Plan, or (4) solely for the purposes of (ii) below, you resign following the expiration of this Employment Agreement, then for one (1) year after the Termination Date, in the case of clause (i) below, and for two (2) years after the Termination Date, in the case of clause (ii) below, you will not, without the written consent of the Board, directly or indirectly, (i) knowingly engage or be interested in (as owner, partner, stockholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any business in the United States or Canada which is in competition with any line of business actively being conducted on the Termination Date by the Company or any of its subsidiaries; provided that if your employment has been terminated by the Company without Cause or you have terminated your employment with the Company for Good Reason, you may so compete in which event you shall forfeit your right to receive future severance payments pursuant to paragraph 5(a)(1) hereof and (ii) whether or not your termination of employment occurred without Cause or for Good Reason, hire any person who was employed by the Company or any of its subsidiaries or affiliates (other than persons employed in a clerical or other non-professional position) within the six-(6)month period preceding the date of such hiring, or solicit, entice, persuade or induce any person or entity doing business with the Company or DKB and their respective subsidiaries and affiliates, to terminate such relationship or to refrain from extending or renewing the same. Nothing herein, however, will prohibit you from acquiring or holding not more than one percent (1%) of any class of publicly traded securities of any such business; provided that such securities entitle you to no more than one percent (1%) of the total outstanding votes entitled to be cast by securityholders of such business in matters on which such securityholders are entitled to vote. (c) Remedy for Breach. You hereby acknowledge that the provisions of this paragraph 6 are reasonable and necessary for the protection of the Company, DKB, and their respective subsidiaries and affiliates. In addition, you further acknowledge that the Company, DKB and their respective subsidiaries and affiliates will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, you agree that, in addition to any other relief to which the Company may be entitled, the Company will be entitled to seek and obtain injunctive relief (without the requirement of any bond) from a court of competent jurisdiction for the purposes of restraining you from any actual or threatened breach of such covenants. In addition, and without limiting the Company's other remedies, in the event of any 6 breach by you of such covenants, the Company will have no obligation to pay any of the amounts that remain payable by the Company under paragraph 5(a)(1). (d) Enforceability. If a court determines that any of the provisions of this paragraph 6 are unenforceable because of the duration or geographical scope of such provisions, the parties hereto agree that the duration or scope of such provisions, as the case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced. 7. Change of Control. (a) Contract Extension. If during the Term, a "Change of Control" occurs as defined in paragraph 7(d), the Term of your employment shall automatically be extended until the second anniversary date of such Change of Control. (b) Special Payment. In addition to the compensation and benefits already required under the provisions of your Employment Agreement, if while you are an active employee of the Company, a Change of Control should occur on or prior to December 31, 2002, you will receive a special payment (the "Special Payment"). The amount of such Special Payment shall equal the sum of your annual bonuses, if any, for the two (2) immediately preceding calendar years under The CIT Group, Inc. Bonus Plan and will be payable over a two (2) year period as follows: one-third (1/3) of the payment shall be paid to you within thirty (30) days after the date of the Change of Control; one-third (1/3) shall be paid to you on or before the first anniversary date of such Change of Control; and one-third (1/3) shall be paid to you on or before the second anniversary date of such Change of Control, provided, however, the Company, in its sole discretion, may accelerate the payment of all or any part of the Special Payment determined in accordance with this paragraph 7(b). Notwithstanding the foregoing provisions of this paragraph, all or any part of such Special Payment shall not be payable to you if during the two (2) year period commencing on the date of a Change of Control, and ending on the second anniversary of such date: (1) your employment is involuntarily terminated by the Company for "Cause" as defined in the Employment Agreement; (2) you voluntarily terminate employment with the Company for any reason other than "Good Reason" as defined in the Employment Agreement; or (3) you breach any confidentiality or competition covenant under paragraph 6 of the Employment Agreement. For purposes of this paragraph 7(b), a termination of your employment on account of your death, disability or retirement on or after age fifty-five (55) under the terms of the Company's Retirement Plan shall constitute a termination for "Good Reason." In the absence of a separate beneficiary designation, your beneficiary under the Group Life Insurance Plan will receive any Special Payment remaining to be paid upon your death. 7 (c) Awards Granted Under the ECP. Upon a Change of Control (as defined in paragraph 7(d)), (1) all Awards granted under The CIT Group, Inc. Long-Term Equity Compensation Plan (the "Plan") shall vest and become exercisable; (2) any Period of Restriction (as defined in the Plan) and other restrictions imposed on Restricted Stock (as defined in the Plan) shall lapse; and (3) the Performance Target (as defined in the Plan) with respect to all outstanding Awards shall be deemed to have been attained upon a Change of Control. (d) Change of Control Defined. For purposes of this Employment Agreement, a "Change of Control" shall be deemed to have occurred if: (1) any Person or Group other than DKB or an Affiliate becomes the Beneficial Owner, directly or indirectly, of securities representing a majority of the combined voting power of the Company's then outstanding securities generally entitled to vote for the election of directors (capitalized terms not otherwise defined herein are used as defined under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); or (2) as a result of a cash tender offer, merger or other business combination, sales of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the combination of the persons who were directors of the Company immediately before the Transaction, and persons designated by the persons who were directors of the Company immediately before the transaction, shall cease to constitute a majority of the Board of the Company or of any successor to the Company. Notwithstanding the foregoing, a Change of Control resulting from a Change of Control of DKB shall not require the extension of the Term hereunder. 8. Miscellaneous. (a) Survival; Notices. The obligations of the Company in paragraph 5 and your obligations in paragraph 6 will survive the termination of this Employment Agreement. Any notice, consent or other communication made or given in connection with this Employment Agreement will be in writing and will be deemed to have been duly given when delivered or five (5) days after mailed by United States registered or certified mail, return receipt requested, to the parties at the address set forth on the first page of this Employment Agreement (attention: General Counsel, if to the Company). (b) Entire Agreement. This Employment Agreement supersedes and renders null and void any and all existing agreements and understandings between you and the Company or any of its subsidiaries or affiliates relating to the terms and conditions of your employment. (c) Amendments and Waivers. No provisions of this Employment Agreement may be amended, modified, waived or discharged except as agreed to in writing by you and the Company. The failure of a party to insist upon strict adherence to any term of this Employment Agreement on any occasion will not 8 be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Employment Agreement. (d) Successors. This Employment Agreement shall be binding upon and inure to the benefit of you and the Company and its successors and permitted assigns. Neither this Employment Agreement nor any of the rights of the parties hereunder may be assigned by either party hereto except that the Company may assign its rights and obligations hereunder to a corporation or other entity that acquires substantially all of its assets. Any assignment or transfer of this Employment Agreement in violation of the foregoing provisions will be void. (e) Governing Law. This Employment Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in that State. (f) Legal Counsel; Offsets and Reductions. In the event you obtain legal counsel to enforce your rights under this Employment Agreement, the Company will pay your reasonable legal fees if you recover any amount on such claim. Except as provided herein, if your employment is terminated by the Company, your severance shall not be subject to any offsets or reductions for your subsequently earned income or reduction by reason of any claim by the Company. (g) Severability. If any provision of this Employment Agreement is invalid or unenforceable, the balance of this Employment Agreement will remain in effect, and if such provision is inapplicable to any person or circumstance, it will nevertheless remain applicable to all other persons and circumstances. (h) Withholding. The Company is authorized to withhold from any benefit provided or payment due hereunder the amount of withholding taxes due any federal, state, or local authority in respect of such benefit or payment and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. (i) Tax Gross-Up. In the event that any payment made to you pursuant to this Employment Agreement with the Company becomes subject to excise taxes under Section 4999 of the Code, the Company will pay to you the amount of such excise taxes plus all federal, state and local taxes applicable to the Company's payment of such excise taxes including any additional excise taxes due under Section 4999 of the Code with respect to payments made pursuant to this Employment Agreement. The determination of amounts required to be paid under this Employment Agreement shall be made by an independent auditor selected and paid by the Company. Such independent auditor shall be a nationally recognized United 9 States public accounting firm, which may be the independent accounting firm used by the Company to audit its financial statements. If you are in agreement with: the terms of this letter, please so indicate by signing and returning the enclosed copy of this letter, whereupon this letter shall constitute a binding agreement between you and the Company. Very truly yours, THE CIT GROUP, INC. By: /s/ Albert R. Gamper, Jr. -------------------------------------- Name: Albert R. Gamper, Jr. Title: Chairman, President & CEO Agreed: /s/ Joseph M. Leone - ------------------------------- 10 EX-10.9 4 0004.txt LONG-TERM EQUITY COMPENSATION PLAN The CIT Group, Inc. Long-Term Equity Compensation Plan Amended and Restated as of July 26, 2000 Table of Contents Page Article 1. Establishment, Objectives, and Duration.................... 1 1.1. Establishment of the Plan................................ 1 1.2. Objectives of the Plan................................... 1 1.3. Duration of the Plan..................................... 1 Article 2. Definitions ............................................... 1 2.1. Annual Incentive Award................................... 1 2.2. Award.................................................... 2 2.3. Award Agreement.......................................... 2 2.4. Beneficial Owner or Beneficial Ownership................. 2 2.5. Board or Board of Directors.............................. 2 2.6. Change of Control........................................ 2 2.7. Code .................................................... 2 2.8. Committee................................................ 2 2.9. Company.................................................. 2 2.10. Covered Employee......................................... 2 2.11. Director................................................. 2 2.12. Disability............................................... 3 2.13. Effective Date........................................... 3 2.14. Employee................................................. 3 2.15. Exchange Act............................................. 3 2.16. Fair Market Value........................................ 3 2.17. Freestanding SAR......................................... 3 2.18. Incentive Stock Option or ISO............................ 3 2.19. Insider.................................................. 3 2.20. Nonemployee Director..................................... 3 2.21. Nonqualified Stock Option or NQSO........................ 3 2.22. Option................................................... 3 2.23. Option Price............................................. 3 2.24. Participant.............................................. 3 2.25. Performance Share........................................ 4 2.26. Performance Target....................................... 4 2.27. Performance Unit......................................... 4 2.28. Period of Restriction.................................... 4 2.29. Person................................................... 4 2.30. Plan..................................................... 4 2.31. Plan Year................................................ 4 2.32. Restricted Stock......................................... 4 2.33. Retirement............................................... 4 2.34. Shares................................................... 4 2.35. Stock Appreciation Right or SAR.......................... 4 2.36. Subsidiary............................................... 5 i Page 2.37. Tandem SAR.................................................. 5 Article 3. Administration................................................. 5 3.1. The Administrator............................................ 5 3.2. Authority of the Administrator............................... 5 3.3. Determination of Performance Target.......................... 5 3.4. Decisions Binding............................................ 5 Article 4. Shares Subject to the Plan and Maximum Awards.................. 5 4.1. Number of Shares Available for Grants........................ 5 4.2. Lapsed Awards................................................ 6 4.3. Adjustments in Authorized Shares............................. 6 4.4. Maximum Awards............................................... 6 Article 5. Eligibility and Participation.................................. 7 5.1. Eligibility.................................................. 7 5.2. Actual Participation......................................... 7 Article 6. Annual Incentive Awards........................................ 7 6.1. General...................................................... 7 6.2. Determination of Annual Incentive Awards..................... 7 6.3. Payment of Annual Incentive Awards........................... 7 6.4. Termination of Employment.................................... 7 6.5. Nontransferability of Annual Incentive Award................. 8 6.6. Adjustment................................................... 8 Article 7. Stock Options.................................................. 8 7.1. Grant of Options............................................. 8 7.2. Award Agreement.............................................. 8 7.3. Option Price................................................. 8 7.4. Duration of Options.......................................... 9 7.5. Exercise of Options.......................................... 9 7.6. Payment...................................................... 9 7.7. Restrictions on Share Transferability........................ 9 7.8. Termination of Employment.................................... 9 7.9. Nontransferability of Options................................ 10 Article 8. Stock Appreciation Rights...................................... 10 8.1. Grant of SARs................................................ 10 8.2. Exercise of Tandem SARs...................................... 10 8.3. Exercise of Freestanding SARs................................ 11 8.4. SAR Agreement................................................ 11 8.5. Term of SARs................................................. 11 8.6. Payment of SAR Amount........................................ 11 8.7. Rule 16b-3 Requirements...................................... 11 8.8. Termination of Employment.................................... 11 8.9. Nontransferability of SARs................................... 11 ii Page Article 9. Restricted Stock............................................... 12 9.1. Grant of Restricted Stock.................................... 12 9.2. Restricted Stock Agreement................................... 12 9.3. Transferability.............................................. 12 9.4. Other Restrictions........................................... 12 9.5. Voting Rights................................................ 13 9.6. Dividends and Other Distributions............................ 13 9.7. Termination of Employment.................................... 13 Article 10. Performance Units and Performance Shares...................... 13 10.1. Grant of Performance Units/Shares........................... 13 10.2. Value of Performance Units/Shares........................... 13 10.3. Earning of Performance Units/Shares......................... 13 10.4. Payment of Performance Shares/Units......................... 14 10.5. Termination of Employment................................... 14 10.6. Nontransferability.......................................... 14 Article 11. Beneficiary Designation....................................... 14 Article 12. Deferrals..................................................... 15 Article 13. Change of Control............................................. 15 13.1. Vesting Upon a Change of Control.............................15 13.2. Termination, Amendment, and Modifications of Change of Control Provisions............................... 15 Article 14. Amendment, Adjustment, and Termination........................ 16 14.1. Amendment and Termination................................... 16 14.2. Adjustment of Awards........................................ 16 14.3. Awards Previously Granted................................... 16 14.4. Compliance with Code Section 162(m)......................... 16 Article 15 Withholding.................................................... 16 15.1. Tax Withholding............................................. 16 15.2. Share Withholding........................................... 16 Article 16. Successors.................................................... 17 Article 17. Legal Construction............................................ 17 17.1. Gender and Number........................................... 17 17.2. Severability................................................ 17 17.3. Requirements of Law......................................... 17 17.4. Securities Law Compliance................................... 17 17.5. Governing Law............................................... 17 17.6. Special Compensation........................................ 17 17.7. Incompetent Payee........................................... 17 17.8. Plan Not an Employment Contract............................. 18 iii The CIT Group, Inc. Long-Term Equity Compensation Plan Amended and Restated as of July 26, 2000 Article 1. Establishment, Objectives, and Duration 1.1. Establishment of the Plan. The CIT Group, Inc., a Delaware corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as "The CIT Group, Inc. Long-Term Equity Compensation Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Annual Incentive Awards, Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares and Performance Units. The Plan became effective as of November 1, 1997 (the "Effective Date"). The Plan was amended and restated as of October 26, 1999 with respect to awards made on or after such date. The Plan has been amended and restated again as of July 26, 2000 and shall remain in effect as provided in Section 1.3 hereof. 1.2. Objectives of the Plan. The objectives of the Plan are to optimize the profitability and growth of the Company through incentives which are consistent with the Company's goals and which link the personal interests of Participants to those of the Company's stockholders; to provide Participants with an incentive for excellence in individual performance; and to promote teamwork among Participants. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants who make significant contributions to the Company's success and to allow Participants to share in the success of the Company. 1.3. Duration of the Plan. The Plan shall commence on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Compensation Committee of the Board of Directors of the Company to amend or terminate the Plan at any time pursuant to Article 14 hereof, until all Awards granted hereunder are satisfied by the issuance of Shares and/or the payment of cash. However, in no event may an Award be granted under the Plan on or after the tenth anniversary of the Effective Date. Article 2. Definitions Except where the context otherwise indicates, any masculine term used herein shall include the feminine, the plural shall include the singular, and the singular shall include the plural. Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized: 2.1. "Annual Incentive Award" means annual incentive compensation awarded under Article 6. 2.2. "Award" means, individually or collectively, a grant under this Plan of Annual Incentive Awards, Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares or Performance Units. 2.3. "Award Agreement" means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to an Award. 2.4. "Beneficial Owner" or "Beneficial Ownership" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. 2.5. "Board" or "Board of Directors" means the board of directors of the Company. 2.6. "Change of Control" (a) Any Person becomes the Beneficial Owner, directly or indirectly, of securities representing a majority of the combined voting power of the Company's then outstanding securities generally entitled to vote for the election of Directors; or (b) As a result of a cash tender offer, merger or other business combination, sales of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were Directors of the Company immediately before the Transaction shall cease to constitute a majority of the Board of the Company or of any successor to the Company. Notwithstanding the foregoing, the Company's initial public offering shall not constitute a Change of Control for the purposes of this Plan. 2.7. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.8. "Committee" means the Compensation Committee of the Board or such other Committee appointed by the Board pursuant to Section 3.1 to administer the Plan with respect to grants of Awards. 2.9. "Company" means The CIT Group, Inc., a Delaware corporation, and any successor thereto, or any Subsidiary, division or affiliate thereof. 2.10. "Covered Employee" means any Participant who is designated by the Committee prior to the date that the Committee establishes the Performance Targets for a Plan Year, to be a "covered employee" within the meaning of Code Section 162(m). 2.11. "Director" means any individual who is a member of the Board of Directors. 2 2.12. "Disability" means a physical or mental impairment sufficient to make an individual eligible for benefits under the Company's Long-Term Disability Plan. 2.13. "Effective Date" shall have the meaning ascribed to such term in Section 1.1 hereof. 2.14. "Employee" means any individual who is an employee of the Company or any Subsidiary. 2.15. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto. 2.16. "Fair Market Value" means the closing sale price at which Shares were sold regular way on the relevant date on the principal securities exchange on which Shares were traded on such date or, if there was no sale on the relevant date, then on the last previous day on which there was such a sale; provided that "Fair Market Value" for any Awards made concurrent with or contingent upon the consummation of the initial public offering of Shares in 1997 means the initial public offering price of Shares covered by such initial public offering. 2.17. "Freestanding SAR" means an SAR that is granted independently of any Options, as described in Article 8 herein. 2.18. "Incentive Stock Option" or "ISO" means an option to purchase Shares granted under Article 7 herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Code Section 422. 2.19. "Insider" shall mean an individual who is, on the relevant date, an officer, Director or Beneficial Owner of ten percent (10%) or more of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act and the General Rules and Regulations promulgated thereunder. 2.20. "Nonemployee Director" means a Director who is not an Employee of the Company or any Subsidiary or of the Dai-Ichi Kangyo Bank, Limited or any of its direct or indirect subsidiaries. 2.21. "Nonqualified Stock Option" or "NQSO" means an option to purchase Shares granted under Article 7 herein which is not intended to be treated as an "incentive stock option" under Code Section 422. 2.22. "Option" means an Incentive Stock Option or a Nonqualified Stock Option. 2.23. "Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option. 2.24. "Participant" means an Employee or Director designated by the Committee to participate in the Plan. 3 2.25. "Performance Share" means an Award granted to a Participant, as described in Article 10 herein. 2.26. "Performance Target" means a Company goal which shall be equal to a desired level or levels for any Plan Year or Plan Years of any or a combination of the following criteria on an absolute or relative basis and, where applicable, measured before or after interest, depreciation, amortization, service fees, extraordinary items and/or special items: (i) pre-tax earnings, (ii) operating earnings, (iii) after-tax earnings, (iv) return on investment, (v) earned value added, (vi) earnings per share, (vii) revenues, (viii) cash flow or cash flow on investment, (ix) return on assets or return on net assets, (x) return on capital, (xi) return on equity, (xii) return on sales, (xiii) operating margin, (xiv) total shareholder return or stock price appreciation or (xv) net income, in each case determined in accordance with generally accepted accounting principles (subject to modifications approved by the Committee) consistently applied for the Company on a divisional, subsidiary or consolidated basis or any combination thereof. 2.27. "Performance Unit" means an Award granted to a Participant, as described in Article 10 herein. 2.28. "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of a Performance Target, if applicable, or upon the occurrence of other events as determined by the Committee, at its discretion), and the Shares are subject to a substantial risk of forfeiture, as provided in Article 9 herein. 2.29. "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as described in Section 13(d) thereof. 2.30. "Plan" means The CIT Group, Inc. Long-Term Equity Compensation Plan. 2.31. "Plan Year" means the fiscal year of the Company. 2.32. "Restricted Stock" means an Award of Shares granted to a Participant pursuant to Article 9 herein. 2.33. "Retirement" shall have the meaning ascribed to such term in The CIT Group, Inc. Retirement Plan. 2.34. "Shares" means the shares of Class A common stock of the Company par value $.01 per Share. 2.35. "Stock Appreciation Right" or "SAR" means an Award, granted alone or in connection with a related Option, designated as an SAR, pursuant to the terms of Article 8 herein. An SAR may be either a Freestanding SAR or a Tandem SAR. 4 2.36. "Subsidiary" means any corporation, partnership, joint venture, or other entity which is consolidated with the Company for financial reporting purposes, provided that for ISOs, "Subsidiary" has the meaning set forth in Code Section 422. 2.37. "Tandem SAR" means an SAR that is granted in connection with a related Option pursuant to Article 8 herein, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be canceled). Article 3. Administration 3.1. The Administrator. The Plan shall be administered by the Committee. 3.2. Authority of the Administrator. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions of the Plan, the Committee shall have full power and authority, in its sole discretion, to (a) select Participants from among all eligible Employees and Directors and determine the nature, amount, terms and conditions of Awards in a manner consistent with the Plan; (b) make Awards to Participants; (c) construe and interpret the Plan and any agreement or instrument entered into under the Plan; (d) adopt, amend, waive or rescind such rules and regulations as the Committee may deem appropriate for the proper administration or operation of the Plan; (e) subject to the provisions of Article 14, amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan; and (f) make all other determinations and take all other actions as may be necessary, appropriate or advisable for the administration or operation of the Plan. As permitted by law and to the extent permitted by Code Section 162(m), the Committee may delegate to any individual or committee (including a Committee of Nonemployee Directors, to the extent that the Committee shall not be so constituted) its authority, or any part thereof, as it deems necessary, appropriate or advisable for proper administration or operation of the Plan. 3.3. Determination of Performance Target. The Committee shall adopt in writing each year, within 90 days of such year, the applicable Performance Target that must be achieved in order to receive Annual Incentive Awards, Shares of Restricted Stock (if applicable) or Performance Units and Performance Shares under the Plan. 3.4. Decisions Binding. All determinations, interpretations, decisions or other actions made or taken by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Committee shall be final, conclusive and binding for all purposes and upon all persons, including without limitation the Company, its stockholders, Directors, Employees, Participants, and Participants' estates and beneficiaries. Article 4. Shares Subject to the Plan and Maximum Awards 4.1. Number of Shares Available for Grants. Subject to adjustment as provided in this Section 4.1 and Section 4.3 herein, the maximum number of Shares with respect to which Awards may be granted to Participants under the Plan shall be 23.8 million of the Company's total outstanding shares of all classes of common stock of the Company, plus (i) the number of Shares pursuant to options that are not granted to participants or are canceled, 5 terminate, expire or lapse for any reason without the issuance of Shares or payment in respect thereof under the terms of The CIT Group, Inc. Transition Option Plan (the "Transition Option Plan"), reduced by (ii) the number of Shares granted pursuant to options under the Transition Option Plan in excess of 5.1 million, if any. Shares issued under the Plan may be either authorized but unissued Shares, treasury Shares or any combination thereof. 4.2. Lapsed Awards. If any Award granted under this Plan is canceled, terminates, expires, or lapses for any reason without the issuance of Shares or payment in respect thereof (with the exceptions of the termination of a Tandem SAR upon exercise of the related Option, or the termination of a related Option upon exercise of the corresponding Tandem SAR), any Shares subject to such Award again shall be available for the grant of an Award under the Plan to the fullest extent permitted under Rule 16b-3 of the Exchange Act and Sections 422 and 162(m) of the Code. 4.3. Adjustments in Authorized Shares. In the event of any change in corporate capitalization, such as a stock split, stock dividend or combination of shares or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368), or any partial or complete liquidation of the Company, an adjustment shall be made in the number and class of Shares which may be delivered under Section 4.1, in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, and in the Awards limits set forth in subsections 4.4 (a), (b), (c), (d) and (e) as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights, provided, however, that the number of Shares subject to any Award shall always be a whole number. 4.4. Maximum Awards. The following rules shall apply to grants of such Awards under the Plan: (a) Annual Incentive Awards: The Annual Incentive Award pool for each Plan Year for Covered Employees shall be the sum of (i) 3% of the consolidated pre-tax earnings of the Company (the "Annual Pool") and (ii) an amount not to exceed $2 million of the remaining portion of the preceding Plan Year's Annual Pool, if any, that was not paid to Covered Employees in the preceding Plan Year ((the "Carryover Amount"), together (the "Total Pool")). The maximum aggregate payout with respect to Annual Incentive Awards granted in any one Plan Year to any one Covered Employee shall not exceed (i) 30% of the Annual Pool plus (ii) one half of the Carryover Amount and in no event shall Covered Employees, as a group, receive Annual Incentive Awards in excess of 100% of the Total Pool for a Plan Year. If such 100% limitation is exceeded, each Covered Employee's Annual Incentive Award shall be reduced pro rata. (b) Stock Options: The maximum aggregate number of Shares that may be granted in the form of Stock Options, pursuant to any Award granted in any one Plan Year to any one single Participant shall be 100% of the maximum number of Shares provided under Section 4.1. 6 (c) SARs: The maximum aggregate number of Shares that may be granted in the form of Stock Appreciation Rights, pursuant to any Award granted in any one Plan Year to any one single Participant shall be 100% of the maximum number of Shares provided under Section 4.1. (d) Restricted Stock: The maximum aggregate grant with respect to Awards of Restricted Stock granted in any one Plan Year to any one Participant shall be 100% of the maximum number of Shares provided under Section 4.1. (e) Performance Shares/Performance Units: The maximum aggregate grant with respect to Awards of Performance Shares or Performance Units granted in any one Plan Year to any one Participant shall be 100% of the maximum number of Shares provided under Section 4.1. Article 5. Eligibility and Participation 5.1. Eligibility. Persons eligible to participate in this Plan include Directors and all Employees of the Company and its Subsidiaries, including Employees who are members of the Board. 5.2. Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees and Directors, those to whom Awards shall be granted and shall determine the nature, amount and terms and conditions of each Award. Article 6. Annual Incentive Awards 6.1. General. Subject to the provisions of the Plan, the Committee may grant Annual Incentive Awards to Participants at any time and from time to time in such amount and upon such terms and conditions as the Committee may determine. 6.2. Determination of Annual Incentive Awards. The Committee shall determine the Annual Incentive Award, if any, subject to the attainment of the Performance Target and the maximum Annual Incentive Award limit specified in Section 4.4, payable to each Participant. As soon as practicable after the close of each Plan Year, the Committee shall determine with respect to each Participant whether and the extent to which any applicable Performance Targets were attained or exceeded. 6.3. Payment of Annual Incentive Awards. Annual Incentive Awards shall be payable to Participants at such time(s) and in cash or in Shares of equivalent value or in some combination thereof, as the Committee shall determine. 6.4. Termination of Employment with the Company. (a) Subject to Section 6.5(b) hereto and the provisions of Article 13, if a Participant's employment with the Company is terminated prior to the payment by the Company of an Annual Incentive Award for any Plan Year, such Award shall be forfeited and shall not be payable to the Participant. 7 (b) In the event of the Participant's death, Disability or Retirement in the Plan Year, the Committee may grant and authorize payment of an Award for such Plan Year to the Participant or, in the event of death, the Participant's beneficiary as designated under Article 11 hereto, in such amount as the Committee in its discretion deems appropriate. 6.5. Nontransferability of Annual Incentive Award. No right to a Annual Incentive Award may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. 6.6. Adjustment. If any Performance Target or other criterion upon which Annual Incentive Awards for any Plan Year or Plan Years is based shall have been affected by special factors (including material changes in accounting policies or practices, material acquisitions or dispositions of property, or other unusual or unplanned items) which in the Committee's judgment should or should not be taken into account, in whole or in part, in the equitable administration of the Plan, the Committee may, for any purpose of the Plan, adjust the Performance Target or criterion for such Plan Year or Plan Years (and subsequent Plan Years, as appropriate) and make credits, payments and reductions accordingly under the Plan; provided, however, that the Committee shall not have the authority to make any such adjustments with respect to Annual Incentive Awards paid to any Participant who is at such time a Covered Employee. Article 7. Stock Options 7.1. Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, provided however, in the case of ISOs, the aggregate Fair Market Value (determined at the time the ISO is granted) of the Shares with respect to which ISOs are exercisable for the first time by any optionee during any calendar year (under all plans of the Company and any Subsidiary) shall not exceed $100,000. 7.2. Award Agreement. Each Option granted shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement also shall specify whether the Option is intended to be an ISO within the meaning of Code Section 422, or an NQSO whose grant is intended not to fall under the provisions of Code Section 422. 7.3. Option Price. The Option Price for each grant of an Option under this Plan shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted except that (i) initial grants of NQSOs made under the Plan concurrent with or contingent upon the consummation of the initial public offering of Shares in 1997 may be granted with an exercise price equal to the initial public offering price of Shares covered by such initial public offering and (ii) and in the case of an ISO granted to a Participant owning (actually or constructively under Code Section 424(d)) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of a Subsidiary, the 8 Option Price shall not be less than one hundred and ten percent (110%) of the Fair Market Value of the Shares on the date of grant. 7.4. Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary date of its grant and no ISO granted to a five percent (5%) shareholder of the Company shall be exercisable later than the fifth anniversary of the date of grant. 7.5. Exercise of Options. Options granted under this Article 7 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each Award or for each Participant. 7.6. Payment. Options granted under this Article 7 shall be exercised by the delivery of notice of exercise to the Company or its designee, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company or its designee in full either (a) in cash or its equivalent, or (b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option price (provided that the Shares which are tendered must have been held by the Participant for at least six (6) months prior to their tender to satisfy the Option Price), or (c) by a combination of (a) and (b). The Committee also may allow cashless exercise as permitted under the Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. Subject to any governing rules or regulations, as soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s); provided, however, that if the Committee permits cashless exercise of Options, a Participant may elect to receive the cash proceeds from the cashless exercise in lieu of Shares. 7.7. Restrictions on Share Transferability. The Committee may impose such restrictions on the transfer of any Shares acquired pursuant to the exercise of an Option granted under this Article 7 as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. 7.8. Termination of Employment with the Company. Subject to the provisions of Article 13, each Each Participant's Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's employment with the Company or any Subsidiary. Such provisions shall be determined in the sole discretion of the Committee, 9 shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Article 7, and may reflect distinctions based on the reasons for termination of employment with the Company. 7.9. Nontransferability of Options. (a) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or in the event of the Participant's legal incapacity, the Participant's legal guardian or representative. (b) Nonqualified Stock Options. No NQSO granted under this Article 7 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution; provided, however, that notwithstanding any provision contained in a Participant's Award Agreement to the contrary, Participants who are executive officers of the Company or Directors, may in the Committee's sole discretion, transfer a NQSO to a member of such Participant's immediate family or to a trust for the benefit of such Participant's immediate family pursuant to the provisions of Revenue Ruling 98-21. Further, except as otherwise provided in a Participant's Award Agreement or with respect to the immediate family member or trust established for the immediate family of an executive officer or Director of the Company, as determined by the Committee, in its sole discretion, all NQSOs granted to a Participant under this Article 7 shall be exercisable during his or her lifetime only by such Participant or in the event of the Participant's legal incapacity, the Participant's legal guardian or representative. Article 8. Stock Appreciation Rights. 8.1. Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SAR. The Committee shall have complete discretion in determining the number of SARs granted to each Participant; and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs. The grant price of a Freestanding SAR shall equal the Fair Market Value of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option. 8.2. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. 10 Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO. 8.3. Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them. 8.4. SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine. 8.5. Term of SARs. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion; provided, however, that such term shall not exceed ten (10) years. 8.6. Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: (a) The difference between the Fair Market Value of a Share on the date of exercise over the grant price by (b) The number of Shares with respect to which the SAR is exercised. At the discretion of a Participant, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof, subject to the availability of Shares to the Company. 8.7. Rule 16b-3 Requirements. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on exercise of an SAR (including, without limitation, the right of the Committee to limit the time of exercise to specified periods) as may be required to satisfy the requirements of any exemption from the liability provisions of Section 16 of the Exchange Act (or any successor rule). 8.8. Termination of Employment with the Company. Subject to the provisions of Article 13, each Each SAR Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant's employment with the Company or a Subsidiary. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with a Participant, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment with the Company. 8.9. Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement, no SAR granted under the Plan may be sold, transferred, 11 pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or in the event of the Participant's legal incapacity, the Participant's legal guardian or representative. Article 9. Restricted Stock 9.1. Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Committee shall determine upon the attainment of the Performance Target, if applicable. As soon as practicable after the close of each Plan Year, the Committee shall determine with respect to each Participant whether and the extent to which any applicable Performance Targets were attained or exceeded. 9.2. Restricted Stock Agreement. Each Restricted Stock Award shall be evidenced by a Restricted Stock Award Agreement that shall specify the restrictions, including restrictions creating a substantial risk of forfeiture, the Period(s) of Restriction, the number of Shares of Restricted Stock granted, and as such other provisions as the Committee shall determine. Restrictions on Restricted Stock shall lapse at such time(s) and in such manner and subject to such conditions as the Committee shall in each instance determine, which need not be the same for each Award or for each Participant. 9.3. Transferability. Except as provided in this Article 9, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Award Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant, or in the event of the Participant's legal incapacity, to the Participant's legal guardian or representative. 9.4. Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, time-based restrictions on vesting following the attainment of the Performance Target, if applicable, and/or restrictions under applicable Federal or state securities laws. The Company or its designee shall retain the certificates representing Shares of Restricted Stock in the Company's possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied. Except as otherwise provided in this Article 9, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the applicable Period of Restriction. 12 9.5. Voting Rights. During the Period of Restriction, Participants holding shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares. 9.6. Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may be credited with regular cash dividends paid with respect to the underlying Shares while they are so held. The Committee may apply any restrictions to the dividends that the Committee deems appropriate. In the event that any dividend constitutes a "derivative security" within the meaning of Rule 16a-1 of the General Rules and Regulations promulgated under the Exchange Act or an "equity security" within the meaning of Section 3(a)(11) of the Exchange Act, such dividend shall be subject to a period of restriction equal to the remaining Period of Restriction applicable to the Restricted Stock with respect to which the dividend has been paid. 9.7. Termination of Employment with the Company. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive unvested Restricted Shares following termination of the Participant's employment with the Company or any Subsidiary. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment with the Company. Article 10. Performance Units and Performance Shares. 10.1. Grant of Performance Units/Shares. Subject to the terms of the Plan, Performance Units and/or Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee upon the attainment of the Performance Target. Each Award of Performance Shares and/or Performance Units shall be evidenced by an Award Agreement that shall specify the initial value of such Performance Shares and/or Performance Units, the Performance Target which payment of such Performance Shares and/or Performance Units depends, the time period during which the Performance Target must be met (the "Performance Period"), the number of Performance Shares and/or Performance Units awarded and such other terms and conditions as the Committee may determine. 10.2. Value of Performance Units/Shares. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. 10.3. Earning of Performance Units/Shares. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive payout on the number and value of Performance Units/Shares earned by the Participant over the Performance Period, to be determined, as a function of the extent to which the corresponding Performance Target has been achieved. As soon as practicable after the close of each Plan Year, the Committee shall determine with respect to each Participant whether and the extent to which any applicable Performance Targets were attained or exceeded. 13 10.4. Payment of Performance Shares/Units. As soon as practicable after the end of a Performance Period, if the applicable Performance Target for that Performance Period have been achieved, the Company shall deliver to a Participant payment for such Participant's Performance Shares and/or Performance Units in an amount determined, as specified in such Participant's Performance Share and/or Unit Award Agreement, on the last day of the Performance Period by reference to the achievement of the applicable Performance Target. The Committee may permit a Participant to elect payment of the aggregate value of such Participant's Performance Shares and/or Performance Units in cash or in Shares of equivalent value or in some combination thereof, subject to the availability of Shares to the Company. If, and to the extent that, dividends with respect to Shares are declared or paid during the Performance Period, the Committee may direct payment of dividend equivalents to a Participant in an amount equal to the dividends that such Participant would receive or have received if such Participant's Performance Shares were Shares; provided, however, that such dividend equivalents shall be subject to the same restrictions as apply to dividends payable with respect to Restricted Stock pursuant to Section 9.4. 10.5. Termination of Employment with the Company. Each Participant's Performance Share and/or Unit Award Agreement shall set forth if, and the extent to which, the Participant shall have the right to receive payment of Performance Shares and/or Performance Units following termination of the Participant's employment with the Company or any Subsidiary. Such terms and conditions shall be determined in the sole discretion of the Committee, need not be uniform among all Performance Share and/or Performance Unit Awards and may reflect distinctions based on the reasons for termination of employment with the Company. 10.6. Nontransferability. Except as otherwise provided in a Participant's Award Agreement, Performance Units/Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant or, in the event of the Participant's legal incapacity, the Participant's legal representative. Article 11. Beneficiary Designation The beneficiary or beneficiaries of the Participant to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit shall be determined under the Company's Group Life Insurance Plan. A Participant under the Plan may, from time to time, name any beneficiary or beneficiaries to receive any benefit in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, including the beneficiary designated under the Company's Group Life Insurance Plan, and will be effective only when filed by the Participant in writing (in such form or manner as may be prescribed by the Committee) with the Company during the Participant's lifetime. In the absence of a valid designation under the Company's Group Life Insurance Plan or otherwise, if no validly designated beneficiary survives the Participant or if each surviving validly designated beneficiary is legally impaired or prohibited from taking, the Participant's beneficiary shall be the Participant's estate. 14 Article 12. Deferrals The Committee may permit or require a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option or SAR, the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals. Article 13. Change of Control 13.1. Vesting Upon a Change of Control. Notwithstanding any provision contained in the Plan to the contrary, upon a Change of Control: (a) Any and all SARs and Options shall become immediately exercisable, and shall remain exercisable throughout their entire term; (b) Any Period of Restriction and restrictions imposed on Restricted Stock, shall lapse; and (c) The Performance Target with respect to all outstanding Awards of Annual Incentive Awards, Restricted Stock, Performance Units and Performance Shares shall be deemed to have been attained. The vesting of all Awards denominated in Shares shall be accelerated as of the date of the Change of Control. 13.2. Termination, Amendment, and Modifications of Change of Control Provisions. Notwithstanding any other provision of this Plan or any Award Agreement provision, the provisions of this Article 13 may not be terminated, amended, or modified on or after the date of Change of Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant's outstanding Awards; provided, however, the Board of Directors, upon recommendation of the Committee, may terminate, amend or modify this Article 13 at any time and from time to time prior to the date of a Change of Control. 15 Article 14. Amendment, Adjustment, and Termination. 14.1. Amendment and Termination. Subject to Section 14.3, the Committee may at any time, and from time to time, in its sole discretion alter, amend, suspend or terminate the Plan in whole or in part for any reason or for no reason; provided, however, that no amendment or other action that requires stockholder approval in order for the Plan to continue to comply with applicable law shall be effective unless such amendment or other action shall be approved by the requisite vote of stockholders of the Company entitled to vote thereon. 14.2. Adjustment of Awards. Subject to Section 14.3, the Committee may make adjustments to Awards and in the terms and conditions of, and the criteria included in, Award Agreements in recognition of (a) unusual or nonrecurring events (including, without limitation, the events described in Section 4.3) affecting the Company or the financial statements of the Company, and/or (b) changes in applicable laws, regulations or accounting principles whenever the Committee determines that such adjustments are appropriate. 14.3. Awards Previously Granted. No alteration, amendment, suspension or termination of the Plan shall adversely affect in any material way any Award previously made under the Plan without the written consent of the affected Participant; provided, however, that the Committee may modify, without a Participant's consent, any Award previously made to a Participant who is a foreign national or employed outside the United States to recognize differences in local law, tax policy or custom. 14.4. Compliance with Code Section 162(m). At all times when Code Section 162(m) is applicable, all Awards granted under this Plan shall comply with the requirements of Code Section 162(m); provided, however, that in the event the Committee determines that such compliance is not desired with respect to any Award of Restricted Stock, compliance with Code Section 162(m) will not be required. In addition, in the event that changes are made to Code Section 162(m) to permit greater flexibility with respect to any Award or Awards available under the Plan, the Committee may, subject to this Article 14, make any adjustments it deems appropriate. Article 15 Withholding. 15.1. Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan. 15.2. Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the statutory total tax (using the Federal Supplemental wage rate, and state or local equivalent as well as any FICA or Medicare taxes) which could be imposed on the transaction. All such elections shall be 16 irrevocable, made in such form as the Committee shall designate, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate. Article 16. Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. Article 17. Legal Construction. 17.1. Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 17.2. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 17.3. Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 17.4. Securities Law Compliance. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 17.5. Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the state of New York. 17.6. Special Compensation. Except as otherwise required by law or as specifically provided in any plan or program maintained by the Company, no payment under the Plan shall be included or taken into account in determining any benefit under any pension, thrift, profit sharing, group insurance, or other benefit plan maintained by the Company. 17.7. Incompetent Payee. If the Committee shall find that any individual to whom any amount is payable under the Plan is found by a court of competent jurisdiction to be unable to care for his affairs because of illness or accident, or is a minor, or has died, then the payment due him or his estate (unless a prior claim thereof has been made by a duly appointed legal representative) may, if the Committee so elects, be paid to his spouse, a child, a relative, an institution maintaining or having custody of such individual, or any other individual deemed by the Committee to be a proper recipient on behalf of such individual otherwise entitled to 17 payment. Any such payment shall constitute a complete discharge of all liability of the Plan thereof. 17.8. Plan Not an Employment Contract. This Plan is not and shall not be deemed to constitute a contract of employment between the Company and any Employee or other individual, nor shall anything herein contained be deemed to give any Employee or other individual any right to be retained in his employer's employ or to in any way limit or restrict his employer's right or power to discharge any Employee or other individual at any time and to treat such Employee without any regard to the effect which such treatment might have upon him as a Participant of the Plan. 18 EX-10.11 5 0005.txt MATERIAL CONTRACTS Exhibit 10.11 THE CIT GROUP, INC. TRANSITION OPTION PLAN Amended and Restated as of July 26, 2000 THE CIT GROUP, INC. TRANSITION OPTION PLAN Amended and Restated as of July 26, 2000 1. PURPOSE This Plan has been established by The CIT Group, Inc. to provide a means by which options to purchase shares of Newcourt Credit Group Inc. common stock under the Newcourt Credit Group Inc. Stock Option Plan may be exchanged pursuant to the terms of the Amended and Restated Agreement and Plan of Reorganization between the Company and Newcourt, dated August 5, 1999 into options to purchase shares of the Company's common stock par value $.01 per share (all capitalized terms shall have the meanings provided below). The Plan became effective as of the Effective Time (as defined below) and has been amended and restated as of July 26, 2000. 2. DEFINITIONS In this Plan, the following terms have the following meanings: "Agreement" means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to a CIT Option. "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. "Board" means the board of directors of the Company. "Change of Control" means a) Any Person becomes the Beneficial Owner, directly or indirectly, of securities representing a majority of the combined voting power of the Company's then outstanding securities generally entitled to vote for the election of members of the Board; or (b) As a result of a cash tender offer, merger or other business combination, sales of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were members of the Board immediately before the Transaction shall cease to constitute a majority of the Board of the Company or of any successor to the Company. "CIT Options" mean options granted under the Plan. "CIT Shares" mean the shares of Class A common stock of the Company par value $.01 per share. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the Compensation Committee of the Board or such other committee appointed by the Board to administer the Plan. "Company" means The CIT Group, Inc., a Delaware corporation, and any successor thereto, or any subsidiary, division or affiliate thereof. "ECP" means The CIT Group, Inc. Long-Term Equity Compensation Plan, amended and restated as of October 26, 1999. "Effective Time" shall have the meaning provided in the Reorganization Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto. "Exchange Ratio" shall have the meaning provided in the Reorganization Agreement. "Fair Market Value" means on any day, with respect to CIT Shares which are (a) listed on a United States securities exchange, the last sales price of such shares on such day on the largest United States securities exchange on which such shares shall have traded on such day, or if such day is not a day on which a United States securities exchange is open for trading, on the immediately preceding day on which such securities exchange was open, (b) not listed on a United States securities exchange but is included in The NASDAQ Stock Market System (including The NASDAQ National Market), the last sales price on such system of such shares on such day, or if such day is not a trading day, on the immediately preceding trading day, (c) neither listed on a United States securities exchange nor included in The NASDAQ Stock Market System, but are listed on the Toronto Stock Exchange (the "TSE"), the last sales price on the TSE of such shares on such day, or if such day is not a day the TSE is open for trading, on the immediately preceding trading day or (d) not listed on a United States securities exchange, not included in The NASDAQ Stock Market System and not listed on the TSE, the fair market value of such shares as determined from time to time by the Board in good faith in its sole discretion. "Grant Date" means the date on which a Newcourt Option is exchanged for a CIT Option pursuant to the terms of the Plan. "Newcourt" means Newcourt Credit Group, Inc., an Ontario corporation. "Newcourt Grant Letter" means the letter from Newcourt to each grantee of a Newcourt Option under the Newcourt Plan setting forth the terms and provisions applicable to a Newcourt Option. "Newcourt Options" mean options granted under the Newcourt Plan. "Newcourt Plan" means the Newcourt Credit Group Inc. Stock Option Plan, dated as of February 18, 1999. "Newcourt Shares" mean shares of common stock of Newcourt. "Option Price" shall have the meaning as set forth in Section 6(c) herein. "Participant" means any person who has been granted a CIT Option under the Plan. "Participant's Successors" shall mean the Participant's estate or the person or persons to whom a CIT Option has been transferred by will or by the laws of descent or distribution. "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as described in Section 13(d) thereof. "Plan" means The CIT Group, Inc. Transition Option Plan, as amended and restated from time to time. "Reorganization Agreement" means the Amended and Restated Agreement and Plan of Reorganization between the Company and Newcourt, dated August 5, 1999. In this Plan, unless the context requires otherwise, references to the male gender include the female gender, words importing in the singular number may be construed to extend to and include the plural number, and words importing the plural number may be construed to extend to and include the singular number. 3. ADMINISTRATION (a) This Plan shall be administered by the Committee. The members of the Committee shall be appointed by the Board. The Board may from time to time remove members from or add members to the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board. (b) Subject to the express provisions of this Plan and the Reorganization Agreement, the Committee shall have the power and authority to grant CIT Options in exchange for Newcourt Options on the terms stated in Section 6 below. (c) The Committee may delegate to one or more of its members or to any other person or persons such ministerial duties as it may deem advisable. The Committee may also delegate to the Chief Executive Officer of the Company the authority, subject to such terms as the Committee shall determine, to perform any and all functions as the Committee may determine. The Committee may also employ attorneys, consultants, accountants or other professional advisors and shall be entitled to rely upon the advice, options or valuations of any such advisors. (d) The interpretation and construction by the Committee of any provisions of this Plan or of any CIT Option granted hereunder and all actions of the Committee shall be final and binding on all parties hereto. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to this Plan or any CIT Option granted hereunder. (e) No member of the Committee, nor the Chief Executive Officer, or any person to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made with respect to this Plan or CIT Options granted hereunder, and each member of the Committee and the Chief Executive Officer shall be fully indemnified and protected by the Company with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and to the extent provided in the Company's Certificate of Incorporation and Bylaws, as amended from time to time, or under any agreement between such member, the Chief Executive Officer and the Company. 4. ELIGIBILITY CIT Options under this Plan shall be granted in accordance with Section 6 to each individual who was granted one or more Newcourt Options under the Newcourt Plan. Such individuals are Participants under the Plan. 5. SHARES SUBJECT TO PLAN AND MAXIMUM SHARES TO PARTICIPANTS (a) Subject to adjustment in accordance with the provisions of this Section 5 and Section 7 of this Plan, the maximum number of CIT Shares for which CIT Options may be granted under this Plan shall be 5.1 million. The CIT Shares subject to this Plan shall be authorized but unissued CIT Shares, treasury CIT Shares or any combination thereof. (b) If, pursuant to the terms of the Reorganization Agreement, the number of CIT Shares underlying the CIT Options required to be issued in exchange for Newcourt Options outstanding as of the Effective Time exceeds the number of CIT Shares set forth in Section 5(a), the maximum number of CIT Shares under the Plan shall be increased to the amount necessary so that CIT Options can be exchanged for all Newcourt Options outstanding as of the Effective Time; provided that the number of CIT Shares available for award under the ECP is reduced by the number of CIT Shares that Section 5(a) is increased. (c) With respect to CIT Shares underlying CIT Options that are not required to be issued in exchange for Newcourt Options outstanding as of the Effective Time or any CIT Options that are canceled, terminate, expire or lapse for any reason without the issuance of CIT Shares or payment in respect thereof, shall be available for grant under the ECP. (d) The maximum aggregate number of CIT Shares that may be granted in the form of CIT Options granted in any one fiscal year to any one Participant shall be 1 million. 6. TERMS AND CONDITIONS OF CIT OPTIONS In accordance with Section 1.6 of the Reorganization Agreement, CIT Options granted to a Participant pursuant to this Plan shall be in exchange for and shall constitute a release of any and all rights to each Newcourt Option granted to such Participant under the Newcourt Plan. The CIT Options shall be authorized by the Committee under terms and conditions approved by the Committee and shall be evidenced by Agreements in such form as the Committee shall from time to time approve, which such Agreements shall contain or shall be subject to the following terms and conditions, whether or not such terms and conditions are specifically included therein: (a) Number of Shares. Each CIT Option shall state the number of CIT Shares to which it pertains. The number of CIT Shares subject to each CIT Option shall be equal to the number of Newcourt Shares subject to the Newcourt Option exchanged therefor multiplied by the Exchange Ratio, rounded down to the nearest whole CIT Share. (b) Grant Date. Each CIT Option shall state the Grant Date which shall be the Effective Time. (c) Option Price. The Option Price shall be the option price of the Newcourt Option exchanged therefor divided by the Exchange Ratio, increased to the nearest whole cent. (d) Medium and Time of Payment. With respect to a CIT Option, or portion thereof, the Option Price shall be payable on the exercise of the CIT Option and shall be paid in cash or its equivalent, or such other means satisfactory to the Committee. (e) Term. All CIT Options granted under this Plan, to the extent not previously exercised, shall terminate in accordance with the provisions of the Participant's Agreement; provided, however, that no CIT Option shall be exercisable later than the tenth anniversary of the date of the original grant of the Newcourt Option. (f) Exercisability. All CIT Options shall become vested and exercisable in accordance with the vesting schedule applicable to the Newcourt Options granted under the Newcourt Plan pursuant to the Newcourt Grant Letter, provided, however, that the Committee may, in its discretion, accelerate the vesting of CIT Options. The Committee shall set forth the accelerated vesting provisions, if any, in the Participant's Agreement. (g) Registration Obligation. The Company shall use its best efforts to cause there to be effective as of a date as soon as practicable after the Effective Time, a registration statement on Form S-8 (or any successor form) or another appropriate form, with respect to the CIT Shares subject to CIT Options, and shall use its best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as CIT Options relating to CIT Shares remain outstanding. (h) Effect of Death. A Participant's Successors may exercise the CIT Options that were held by the Participant on the date of the Participant's death upon proof satisfactory to the Company of their authority. The Participant or the Participant's Successors must exercise any such CIT Option within the period of time set forth in the Participant's Agreement and in any event prior to the date on which the CIT Option expires as provided by Section 6(e) of this Plan. Such exercise shall be subject to the terms and conditions of this Plan. (i) Nonassignability of CIT Option Rights. No CIT Option shall be assignable or transferable by the Participant except by will or by the laws of descent and distribution unless prior written consent of the Committee is given. During the lifetime of the Participant, the CIT Option shall be exercisable only by the Participant. (j) Rights as Shareholder. Neither a Participant nor a Participant's Successors shall have rights as a shareholder of the Company with respect to any CIT Shares subject to a CIT Option until the date of issuance of a stock certificate to him or her for such CIT Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 7 hereof. 7. ANTI-DILUTION PROVISIONS The number of CIT Shares deliverable upon the exercise of a CIT Option shall be subject to adjustment in the events and in the manner following: (a) In the event of any subdivision or subdivisions of the CIT Shares of the Company as such CIT Shares are constituted on the Grant Date, at any time while such CIT Option is in effect into a greater number of CIT Shares, the Company will thereafter deliver at the time of purchase of CIT Shares pursuant to a CIT Option, in addition to the number of CIT Shares in respect of which the right to purchase is then being exercised, such additional number of CIT Shares as result from said subdivision or subdivisions without the Participant making any additional payment or giving any other consideration therefor. (b) In the event of any consolidation or consolidations of the CIT Shares of the Company as such CIT Shares are constituted on the Grant Date, at any time while such CIT Option is in effect, into a lesser number of CIT Shares, the Company will thereafter deliver and the Participant shall accept, at the time of purchase of CIT Shares hereunder, in lieu of the number of CIT Shares in respect of which the right to purchase is then being exercised, the lesser number of CIT Shares as result from such consolidation or consolidations. (c) In the event of any change of the CIT Shares of the Company as such CIT Shares are constituted on the Grant Date, at any time while such CIT Option is in effect, the Company will thereafter deliver at the time of purchase of CIT Shares hereunder the number of CIT Shares of the appropriate class resulting from such change as the Participant would have been entitled to receive in respect of the number of CIT Shares so purchased had the right to purchase been exercised before such change. (d) In the event of any capital reorganization, reclassification or change of outstanding CIT Shares of the Company or in the event of any consolidation, merger or amalgamation of the Company with or into any other company or in the event of any sale of the property of the Company as or substantially as an entity at any time while any CIT Option is in effect, the Participant shall thereafter have the right to purchase and receive, in lieu of the CIT Shares immediately theretofore purchasable and receivable upon the exercise of such CIT Option, the kind and amount of shares and other securities and property receivable upon such capital reorganization, reclassification, change, consolidation, merger, amalgamation or sale which the holder of a number of CIT Shares equal to the number of CIT Shares immediately theretofore purchasable and receivable upon the exercise of such CIT Option would have received as a result of such reorganization, reclassification, change, consolidation, merger, amalgamation or sale. The subdivision or consolidation of CIT Shares at any time outstanding into a greater or lesser number of CIT Shares shall not be deemed to be a capital reorganization or a reclassification of the capital of the Company for the purposes of this Section 7(d). (e) The adjustments provided for in this Section 7 are cumulative. (f) The Company shall not be required to issue fractional shares in satisfaction of its obligations hereunder. Any fractional interest in a CIT Share that would, except for the provisions of this Section 7(f) be deliverable upon the exercise of any CIT Option shall be cancelled and not be deliverable by the Company. 8. CHANGE OF CONTROL Notwithstanding any provision contained in the Plan to the contrary, upon a Change of Control, all CIT Options granted under the Plan shall become immediately vested and exercisable. 9. AMENDMENT AND TERMINATION The Committee may at any time, and from time to time, in its sole discretion alter, amend, suspend or terminate the Plan in whole or in part for any reason or for no reason; provided, however, that no amendment or other action that requires stockholder approval for the Plan to continue to comply with applicable law shall be effective unless such amendment or other action shall be approved by the requisite vote of stockholders of the Company entitled to vote thereon. Any amendment or termination of this Plan shall not, without the written consent of the Participant, affect such Participant's rights under any CIT Option theretofore granted to such Participant. 10. TAX WITHHOLDING The Company shall have the right to require a Participant or a Participant's Successors to remit to the Company an amount sufficient to satisfy Federal, state and local withholding tax requirements, if any, or to deduct from all payments under this Plan amounts sufficient to satisfy all withholding tax requirements. Whenever payments under this Plan are to be made to a Participant in cash, such payments shall be net of any amounts sufficient to satisfy all Federal, state and local withholding tax requirements. The Committee may, in its sole discretion, permit a Participant to satisfy his or her tax withholding obligation either by (i) surrendering CIT Shares owned by such Participant, or (ii) having the Company withhold from CIT Shares otherwise deliverable to such Participant. CIT Shares surrendered or withheld shall be valued at their Fair Market Value as of the date on which income is required to be recognized for income tax purposes. 11. NOTICES (a) Any payment, notice, statement, certificate or other instrument required or permitted to be given to a Participant or any person claiming or deriving any rights through him shall be given by: (i) delivering it personally to the Participant or to the person claiming or deriving rights through him, as the case may be, or (ii) mailing it postage paid (provided that the postal service is then in operation) or delivering it to the address which is maintained for the Participant in the Company's personnel records. (b) Any payment, notice, statement, certificate or instrument required or permitted to be given to the Company or its designee shall be given by mailing it postage prepaid (provided that the postal service is then in operation) or delivering it to the Company or its designee at the following address or such other address as the Committee may determine: The CIT Group, Inc. 650 CIT Drive Livingston, New Jersey 07039 Attention: Human Resources Department (c) Any payment, notice, statement, certificate or other instrument referred to in (a) or (b) above, if delivered, shall be deemed to have been given or delivered on the date on which it was delivered or, if mailed (provided that the postal service is then in operation), shall be deemed to have been given or delivered on the second business day following the date on which it was mailed. 12. COMPLIANCE WITH SECTION 162(m) OF THE CODE The grant of CIT Options under the Plan is intended to comply with Section 162(m) of the Code to the extent that the Option Price of such CIT Options is greater than or equal to the Fair Market Value of CIT Shares on the Grant Date. 13. MISCELLANEOUS (a) The granting of a CIT Option shall impose no obligation upon the Participant to exercise such CIT Option. (b) The Committee shall have the power to make such rules and regulations for the administration of this Plan, and to interpret the provisions hereof and of such rules and regulations, as it shall in its sole discretion determine to be appropriate. (c) The determination by the Committee of any question which may arise as to the interpretation or implementation of the Plan or any of the CIT Options granted hereunder shall be final and binding on all Participants and other persons claiming or deriving rights through any of them. (d) The Plan shall inure to the benefit of and be binding upon the Company, its successors and assigns. The interest of any Participant under the Plan or in any CIT Option shall not be transferable or alienable by him either by pledge, assignment or in any other manner whatsoever and, during his lifetime, shall be vested only in him, but shall thereafter inure to the benefit of and be binding upon the legal personal representatives of the Participant. (e) The Company's obligation to issue CIT Shares in accordance with the terms of this Plan and any CIT Options granted hereunder is subject to compliance with the laws, rules and regulations of all public agencies and authorities applicable to the issuance and distribution of such CIT Shares and to the listing of such CIT Shares on any stock exchange on which any of the CIT Shares of the Company may be listed. As a condition of participating in the Plan, each Participant agrees to comply with all such laws, rules and regulations and agrees to furnish to the Company all information and undertakings as may be required to permit compliance with such laws, rules and regulations. (f) Subject to the terms of Section 1.6 of the Reorganization Agreement, no Participant or other person shall have any claim or right to be granted CIT Options under the Plan. Neither the Plan nor any action taken thereunder shall interfere with the right of the employer of a Participant to terminate that Participant's employment or relationship with the Company at any time. Neither any period of notice nor any payment in lieu thereof upon termination of employment or relationship with the Company shall be considered as extending the period of employment or relationship with the Company for the purposes of the Plan. 14. GOVERNING LAW To the extent not preempted by Federal law, this Plan, and all Agreements hereunder, shall be construed in accordance with and governed by the laws of the State of New York. 15. EFFECTIVE DATE This Plan shall become effective as of the Effective Time; provided that the shareholders of the Company approve of the issuance of CIT Shares pursuant to the Reorganization Agreement. EX-10.12 6 0006.txt AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER BY AND BETWEEN TYCO ACQUISITION CORP. XIX (NV) AND THE CIT GROUP, INC. INCLUDING GUARANTEE OF TYCO INTERNATIONAL LTD. March 12, 2001 TABLE OF CONTENTS ARTICLE I THE MERGER..................................................7 Section 1.01 The Merger..................................................7 Section 1.02 Effective Time..............................................7 Section 1.03 Effect of the Merger........................................7 Section 1.04 Articles of Incorporation; By-laws..........................7 Section 1.05 Directors and Officers......................................8 Section 1.06 Effect on Securities, Etc...................................8 Section 1.07 Exchange of Shares..........................................9 Section 1.08 Stock Transfer Books.......................................11 Section 1.09 No Further Ownership Rights in Company Common Stock........11 Section 1.10 Lost, Stolen or Destroyed Certificates.....................11 Section 1.11 Tax Consequences...........................................12 Section 1.12 Taking of Necessary Action; Further Action.................12 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............12 Section 2.01 Organization and Qualification; Subsidiaries...............12 Section 2.02 Certificate of Incorporation and By-laws...................13 Section 2.03 Capitalization.............................................13 Section 2.04 Authority Relative to This Agreement.......................14 Section 2.05 Material Contracts; No Conflict; Required Filings and Consents....................................15 Section 2.06 Compliance; Permits........................................17 Section 2.07 SEC Filings; Financial Statements; Regulatory Filings......17 Section 2.08 Absence of Certain Changes or Events.......................18 Section 2.09 No Undisclosed Liabilities; Certain Assets.................19 Section 2.10 Absence of Litigation......................................19 Section 2.11 Employee Benefit Plans; Employment Agreements..............20 Section 2.12 Employment and Labor Matters...............................24 Section 2.13 Registration Statement; Proxy Statement/Prospectus.........25 Section 2.14 Restrictions on Business Activities; Agreement with Regulatory Agencies...............................25 Section 2.15 Properties.................................................26 Section 2.16 Taxes......................................................26 Section 2.17 Environmental Matters......................................27 Section 2.18 Brokers....................................................29 Section 2.19 Intellectual Property......................................29 Section 2.20 Interested Party Transactions..............................31 Section 2.21 Insurance..................................................31 Section 2.22 Interest Rate and Foreign Exchange Contracts...............31 Section 2.23 Compliance With The Foreign Corrupt Practices Act..........31 Section 2.24 Opinion of Financial Advisor...............................31 ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR.................32 Section 3.01 Organization and Qualification; Subsidiaries...............32 -i- Section 3.02 Capitalization.............................................32 Section 3.03 Authority Relative to this Agreement.......................33 Section 3.04 No Conflicts; Required Filings and Consents................33 Section 3.05 Compliance; Permits........................................34 Section 3.06 SEC Filings; Financial Statements..........................35 Section 3.07 Absence of Certain Changes or Events.......................35 Section 3.08 No Undisclosed Liabilities.................................36 Section 3.09 Absence of Litigation......................................36 Section 3.10 Registration Statement; Proxy Statement/Prospectus.........36 Section 3.11 Restrictions on Business Activities........................37 Section 3.12 Taxes......................................................37 Section 3.13 Environmental Matters......................................38 Section 3.14 Brokers....................................................38 Section 3.15 Ownership of Acquiror......................................39 Section 3.16 No Prior Activities........................................39 Section 3.17 No Vote Required...........................................39 ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER.....................39 Section 4.01 Conduct of Business by the Company.........................39 Section 4.02 No Solicitation............................................42 Section 4.03 Conduct of Business by Guarantor...........................43 ARTICLE V ADDITIONAL AGREEMENTS......................................44 Section 5.01 Proxy Statement/Prospectus; Registration Statement.........44 Section 5.02 Company Stockholders Meeting...............................46 Section 5.03 Access to Information; Confidentiality.....................46 Section 5.04 Consents; Approvals........................................47 Section 5.05 Agreements with Respect to Affiliates......................47 Section 5.06 Indemnification and Insurance..............................48 Section 5.07 Notification of Certain Matters............................49 Section 5.08 Further Action/Tax Treatment...............................49 Section 5.09 Public Announcements.......................................50 Section 5.10 Guarantor Common Shares....................................50 Section 5.11 Stock Options and ESPP.....................................50 Section 5.12 Certain Employee Benefits..................................51 Section 5.13 Accountants Letters........................................53 Section 5.14 Compliance with State Property Transfer Statutes...........53 Section 5.15 Conveyance Taxes...........................................53 Section 5.16 Exchangeco Shares..........................................53 ARTICLE VI CONDITIONS TO THE MERGER...................................54 Section 6.01 Conditions to Obligation of Each Party to Effect the Merger...................................54 Section 6.02 Additional Conditions to Obligations of Acquiror...........55 Section 6.03 Additional Conditions to Obligation of the Company.........56 -ii- ARTICLE VII TERMINATION................................................57 Section 7.01 Termination................................................57 Section 7.02 Effect of Termination......................................58 Section 7.03 Fees and Expenses..........................................58 ARTICLE VIII GENERAL PROVISIONS.........................................60 Section 8.01 Effectiveness of Representations, Warranties and Agreements........................................60 Section 8.02 Notices....................................................60 Section 8.03 Certain Definitions........................................62 Section 8.04 Amendment..................................................63 Section 8.05 Waiver.....................................................63 Section 8.06 Headings; Intepretation....................................63 Section 8.07 Severability...............................................64 Section 8.08 Entire Agreement...........................................64 Section 8.09 Assignment.................................................64 Section 8.10 Parties in Interest........................................64 Section 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative......64 Section 8.12 Governing Law; Jurisdiction................................65 Section 8.13 Counterparts...............................................65 Section 8.14 Waiver of Jury Trial.......................................65 Section 8.15 Performance of Guarantee...................................65 -iii- AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into as of March 12, 2001, between Tyco Acquisition Corp. XIX (NV) ("Acquiror"), a Nevada corporation and a direct, wholly-owned subsidiary of Tyco International Ltd., a Bermuda company ("Guarantor"), and The CIT Group, Inc., a Delaware corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Boards of Directors of Acquiror and the Company have each determined that it is advisable and in the best interests of their respective stockholders, and consistent with and in furtherance of their respective business strategies and goals, for Guarantor to acquire the Company through the merger of the Company with and into Acquiror upon the terms and subject to the conditions set forth herein; WHEREAS, in furtherance of such combination, the Boards of Directors of Acquiror and the Company have each approved and adopted this Agreement providing for the merger (the "Merger") of the Company with and into Acquiror in accordance with the applicable provisions of the Nevada General Corporation Law (the "NGCL") and the Delaware General Corporation Law (the "DGCL") and upon the terms and subject to the conditions set forth herein; WHEREAS, Acquiror and the Company intend that (i) the Merger shall constitute a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended and the regulations promulgated thereunder (the "Code"), (ii) by approving resolutions authorizing this Agreement, to adopt this Agreement as a plan of reorganization within the meaning of Sections 354 and 361 of the Code and (iii) that the transactions contemplated by this Agreement be undertaken pursuant to such plan; WHEREAS, pursuant to the Merger, each outstanding share of the Company's common stock, par value $0.01 per share (the "Company Common Stock" and each such share, a "Share"), shall be converted into the right to receive the Merger Consideration (as defined in Section 1.07(b)), upon the terms and subject to the conditions set forth herein; WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition to the Company's willingness to enter into this Agreement, Guarantor has agreed fully and unconditionally to guarantee the representations, warranties, covenants, agreements and other obligations of Acquiror in this Agreement (the "Guarantee"); and WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition to Acquiror's willingness to enter into the Agreement, Acquiror has entered into a stock purchase agreement (the "Stock Purchase Agreement") with The Dai-Ichi Kangyo Bank, Ltd. (the "Stockholder"), which is the owner of approximately 26.8% of the outstanding Shares, pursuant to which the Stockholder has agreed to sell, and Acquiror has agreed to purchase, all of such Stockholder's Shares in accordance with the terms thereof; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Acquiror and the Company hereby agree as follows: Definitions: "Acquiror" is defined in the preamble. "Acquisition Proposal" is defined in Section 4.02(a)(i). "Adjusted Option" is defined in Section 5.11(a). "affiliates" is defined in Section 8.03(a). "Affiliate Plan" is defined in Section 2.11(a). "Agreement" is defined in the preamble. "Alternative Transaction" is defined in Section 4.02(a). "Alternative Transaction Condition" is defined in Section 7.03(b). "Articles of Merger" as defined in Section 1.02(a). "2000 Balance Sheet" is defined in Section 2.09(a)(i). "Benefits Continuation Period" is defined in Section 5.12(a). "business day" is defined in Section 8.03(b). "Certificate of Merger" is defined in Section 1.02(b). "Certificates" is defined in Section 1.06(f). "COBRA" is defined in Section 2.11(b)(i). "Code" is defined in the recitals. "Company" is defined in the preamble. "Company Affiliate Agreement" is defined Section 5.05. "Company Affiliate Letter" is defined in Section 5.05. "Company Charter Documents" is defined in Section 2.02. "Company Common Stock" is defined in the recitals. "Company Disclosure Schedule" is defined in Section 2.01. -2- "Company Employee" is defined in Section 5.12(a). "Company Employee Plans" is defined in Section 2.11(a). "Company ESPP" is defined in Section 1.06(c). "Company Financial Advisor" is defined in Section 2.18. "Company Financing Agreement" is defined in Section 2.06(a). "Company Intellectual Property Assets" is defined in Section 2.19(a). "Company Permits" is defined in Section 2.06(b). "Company Preferred Stock" is defined in Section 2.03. "Company SEC Documents" is defined in Section 2.03. "Company Stock Options" is defined in Section 1.06(c). "Company Stock Option Plans" is defined in Section 1.06(c). "Company Stockholders Meeting" is defined in Section 2.04(c)(iii). "Confidentiality Agreement" is defined in section 5.03(a). "control" is defined in Section 8.03(c). "Covered Persons" is defined in Section 5.06(c). "Defined Benefit Plan" is defined in Section 2.11(e). "DGCL" is defined in the recitals. "D&O Insurance" is defined in Section 5.06(d). "DOL" is defined in Section 2.11(a). "dollars" or "$" is defined in Section 8.03(d). "Effective Time" is defined in Section 1.02. "Environmental Claim" is defined in Section 2.17(e)(i). "Environmental Health and Safety Laws" is defined in Section 2.05(c)(i). "Environmental Laws" is defined in Section 2.17(e)(ii). "ERISA" is defined in Section 2.11(a). -3- "Exchange Act" is defined in Section 2.05(a)(iii). "Exchange Agent" is defined in Section 1.07(a). "Exchange Ratio" is defined in Section 1.06(a)(i). "Exchangeco" is defined in Section 1.06(a)(ii). "Exchangeco Documents" is defined in Section 1.06(a)(ii). "Exchangeco Shares" is defined in Section 1.06(a)(ii). "Expenses" is defined in Section 7.03(b). "Fee" is defined in Section 7.03(b). "GAAP" is defined in Section 2.07(b). "Governmental Authority" is defined in Section 2.05(c). "Guarantee" is defined in the recitals. "Guarantor" is defined in the preamble. "2000 Guarantor Balance Sheet" is defined in Section 3.08(i). "Guarantor Charter Documents" is defined in Section 3.01(a). "Guarantor Common Shares" is defined in Section 1.06(a)(i). "Guarantor Permits" is defined in Section 3.05. "Guarantor Preference Shares" is defined in Section 3.02(a). "Guarantor SEC Documents" is defined in Section 3.05. "HSR Act" is defined in Section 2.05(c)(i). "Indemnified Parties" is defined in section 5.06(b). "Intellectual Property Assets" is defined in Section 2.19(a). "IRS" is defined in Section 2.11(b)(vi). "ISO" is defined in Section 2.11(c)(i). "knowledge" is defined in Section 8.03(e). "Material Adverse Effect" is defined in Section 8.03(f). -4- "Material Agreement" is defined in Section 3.04(b). "Materials of Environmental Concern" is defined in Section 2.17(e)(iii). "Merger" is defined in the recitals. "Merger Consideration" is defined in Section 1.07(b). "NGCL" is defined in the recitals. "Non-U.S. Monopoly Laws" is defined in Section 2.05(c). "NYSE" is defined in Section 1.06(f). "Ordinary Course Finance Agreements" is defined in Section 2.03. "PBGC" is defined in Section 2.11(b)(ix). "PCBs" is defined in Section 2.17(d). "person" is defined in Section 8.03(g). "Post-1997 Company SEC Documents" is defined in Section 2.07(a). "Post-1998 Guarantor SEC Documents" is defined in Section 3.06(a). "Proxy Statement/Prospectus" is defined in Section 2.13(a)(ii). "Registration Statement" is defined in Section 3.10(a)(i). "Regulatory Agency" is defined in Section 2.07(c). "Regulatory Agreement" is defined in Section 2.14(b). "Regulatory Approvals" is defined in Section 2.05(c)(ii). "SEC" is defined in Section 2.03. "Securities Act" is defined in Section 2.05(c)(i). "Share" is defined in the recitals. "significant subsidiary" is defined in Section 8.03(h). "Special Voting Stock" is defined in Section 1.06(a)(iii). "Stock Purchase Agreement" is defined in the recitals. "Stockholder" is defined in the recitals. -5- "subsidiary" or "subsidiaries" is defined in Section 8.03(i). "Subsidiary Documents" is defined in Section 2.02. "Surviving Corporation" is defined in Section 1.01. "Tax" is defined in Section 2.16(b). "Tax Return" is defined in Section 2.16(b). "Terminating Breach" is defined in Section 7.01(h). "Terminating Change" is defined in Section 7.01(g). "Terminating Misrepresentation" is defined in Section 7.01(f). "Third Party" is defined in Section 4.02(a). "Third Party Intellectual Property Assets" is defined in Section 2.19(c). -6- ARTICLE I THE MERGER Section 1.01 The Merger. At the Effective Time, and subject to and upon the terms and conditions of this Agreement, the NGCL and the DGCL, the Company shall be merged with and into Acquiror, the separate corporate existence of the Company shall cease, and Acquiror shall continue as the surviving corporation (hereinafter sometimes referred to as the "Surviving Corporation"). Section 1.02 Effective Time. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 7.01, as promptly as practicable (and in any event within two business days) after the satisfaction or waiver of the conditions set forth in Article VI, the parties hereto shall cause the Merger to be consummated by (a) filing articles of merger as contemplated by the NGCL (the "Articles of Merger") and (b) filing a properly executed agreement or certificate of merger as contemplated by the DGCL (the "Certificate of Merger"), each, together with any required related certificates, with the Secretaries of State of the States of Nevada and Delaware, as appropriate, in such forms as required by, and executed in accordance with the relevant provisions of, the NGCL and the DGCL, respectively. The Merger shall become effective at the time of the later to occur of such filings or at such later time, which will be as soon as reasonably practicable, specified in the Articles of Merger and the Certificate of Merger (the "Effective Time"). Prior to such filing, a closing shall be held at the offices of Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, NY, unless another time or place is agreed to in writing by the parties hereto, for the purpose of confirming the satisfaction or waiver, as the case may be, of the conditions set forth in Article VI. Section 1.03 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Articles of Merger, the Certificate of Merger and the applicable provisions of the NGCL and the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Acquiror shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Acquiror shall become the debts, liabilities and duties of the Surviving Corporation. Section 1.04 Articles of Incorporation; By-laws. (a) Subject to Section 5.06, at the Effective Time, the Articles of Incorporation of the Acquiror, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation (other than that the name of the Surviving Corporation reflected in such Articles of Incorporation shall be The CIT Group, Inc.) until thereafter amended as provided by law and such Articles of Incorporation of the Surviving Corporation. (b) Subject to Section 5.06, at the Effective Time, the By-laws of Acquiror, as in effect immediately prior to the Effective Time, shall be the By-laws of the Surviving Corporation until thereafter amended. -7- Section 1.05 Directors and Officers. The directors of Acquiror immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and By-laws of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified. Section 1.06 Effect on Securities, Etc. At the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, the Company or the holders of any securities of the Company: (a) Conversion of Securities. (i) Each Share issued and outstanding immediately prior to the Effective Time (excluding any Shares to be canceled pursuant to Section 1.06(b)) shall be converted, subject to Sections 1.06 (e) and (f), into the right to receive from Acquiror 0.6907 (such fraction, the "Exchange Ratio") of a fully paid and nonassessable common share of Guarantor, par value U.S. $0.20 per share (the "Guarantor Common Shares"). (ii) Each share in the non-voting class of exchangeable shares (the "Exchangeco Shares") of CIT Exchangeco Inc., a wholly-owned subsidiary of the Company formed under the laws of the province of Nova Scotia ("Exchangeco"), shall remain outstanding, and the provisions attaching thereto, the Exchangeable Share Support Agreement in respect thereof, dated November 15, 1999, between the Company, 3026192 Nova Scotia Company and Exchangeco and the Voting and Exchange Trust Agreement in respect thereof, dated November 15, 1999, between the Company, Exchangeco and Montreal Trust Company of Canada (collectively, the "Exchangeco Documents"), shall each be modified as required pursuant to the terms thereof to provide that, from and after the Effective Time, each Exchangeco Share shall be exchangeable, subject to Sections 1.06(e) and (f), for a fraction of a Guarantor Common Share equal to the Exchange Ratio, and the foregoing fraction of a Guarantor Common Share shall be substituted for shares of Company Common Stock for all other purposes under the Exchangeco Documents. (iii) The Special Voting Stock of the Company (the "Special Voting Stock") shall be converted into a special voting preference share of Guarantor, having the designations, powers, preferences, rights, qualifications and limitations substantially similar to the designations, powers, preferences, rights, qualifications and limitations of the Special Voting Stock. (b) Cancellation. Each Share held in the treasury of the Company and each Share owned by Guarantor, Acquiror or any direct or indirect, wholly-owned subsidiary of the Company or Guarantor immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, be canceled and retired without payment of any consideration therefor and cease to exist. (c) Stock Options; Employee Stock Purchase Plan. At the Effective Time, all options ("Company Stock Options") to purchase Company Common Stock then outstanding, whether under the Company's Long-Term Equity Compensation Plan, the Company's Transition -8- Option Plan or otherwise (together, the "Company Stock Option Plans"), shall be treated in accordance with Section 5.11 of this Agreement. Rights to purchase shares of Company Common Stock outstanding under any employee stock purchase or restricted stock plan or any similar U.S. or non-U.S. plan (collectively, the "Company ESPP") shall be treated as set forth in Section 5.11 of this Agreement. Any rights to purchase Company Common Stock under the Company's 401(k) plans shall be treated as set forth in Section 5.12 of this Agreement. (d) Capital Stock of Acquiror. Each share of common stock, $0.01 par value per share, of Acquiror issued and outstanding immediately prior to the Effective Time shall constitute one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation. Following the Effective Time, each certificate evidencing ownership of shares of Acquiror common stock shall evidence ownership of such shares of capital stock of the Surviving Corporation. (e) Adjustments to Exchange Ratio, Etc. If, during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of capital stock of Guarantor or the Company shall occur, including by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or any stock dividend thereon with a record date during such period, the Exchange Ratio, the Merger Consideration and any other amounts payable pursuant to the Merger or otherwise pursuant to this Agreement shall be appropriately adjusted. (f) Fractional Shares. No certificates or scrip representing less than one Guarantor Common Share shall be issued in exchange for Shares or Exchangeco Shares upon the surrender for exchange of a certificate which immediately prior to the Effective Time represented outstanding Shares (the "Certificates") or upon surrender for exchange of a certificate representing Exchangeco Shares. In lieu of any such fractional share, each holder of Shares or Exchangeco Shares who would otherwise have been entitled to a fraction of a Guarantor Common Share upon surrender of Shares or Exchangeco Shares for exchange shall be paid upon such surrender (and after taking into account all certificates surrendered by such holder) cash (without interest) in an amount equal to such fraction multiplied by the closing price of the Guarantor Common Shares on the New York Stock Exchange (the "NYSE"), as reported by Bloomberg Financial Markets (or if such service is unavailable, a service providing similar information selected by Acquiror and the Company) on the trading day immediately preceding the date of the Effective Time, in the case of the Shares, or the trading day immediately preceding the date of surrender, in the case of the Exchangeco Shares. Section 1.07 Exchange of Shares. (a) Exchange Agent. Acquiror shall cause to be supplied to or for such bank or trust company as shall be designated by Acquiror and shall be reasonably acceptable to the Company (the "Exchange Agent"), in trust for the benefit of the holders of Company Common Stock, as needed for exchange and payment in accordance with this Section 1.07 through the Exchange Agent, certificates evidencing the Guarantor Common Shares issuable pursuant to Section 1.06(a), the cash to be paid in lieu of fractional shares in exchange for outstanding Shares pursuant to Section 1.06(f) and the cash or other property in respect of any dividends or other distributions payable pursuant to Section 1.07(c). -9- (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, Acquiror will cause the Exchange Agent to mail to each holder of record of Certificates (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Acquiror may reasonably specify) and (ii) instructions to effect the surrender of the Certificates in exchange for the certificates evidencing Guarantor Common Shares and cash in lieu of fractional shares. Upon surrender of a Certificate for cancellation to the Exchange Agent together with such letter of transmittal, duly executed, and such other customary documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor solely (A) certificates evidencing that number of whole Guarantor Common Shares which such holder has the right to receive in accordance with Section 1.06(a) in respect of the Shares formerly evidenced by such Certificate and (B) cash in respect of fractional shares as provided in Section 1.06(f) (the Guarantor Common Shares and cash in respect of fractional shares being referred to, collectively, as the "Merger Consideration"), except that Shares held at the Effective Time in book-entry form shall be exchanged for Merger Consideration in accordance with the customary procedures of the Depository Trust Company. The holder of each Certificate, upon its exchange for Guarantor Common Shares, shall also receive any dividends or other distributions to which such holder is entitled pursuant to Section 1.07(c). Certificates surrendered shall forthwith be canceled following the Effective Time. In the event of a transfer of ownership of Shares which is not registered in the transfer records of the Company as of the Effective Time, the Merger Consideration, dividends and distributions may be issued and paid in accordance with this Article I to a transferee if the Certificate evidencing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer pursuant to this Section 1.07(b) and by evidence that any applicable stock transfer taxes have been paid. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented Shares will be deemed from and after the Effective Time, for all corporate purposes, other than the payment of dividends or other distributions, to evidence the ownership of the number of full Guarantor Common Shares, and cash in respect of fractional shares, into which such Shares shall have been so converted. (c) Distributions with Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to Guarantor Common Shares with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the Guarantor Common Shares such holder is entitled to receive until the holder of such Certificate shall surrender such Certificate in accordance with the provisions of Section 1.07(b). Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole Guarantor Common Shares issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole Guarantor Common Shares. (d) Transfers of Ownership. If any certificate for Guarantor Common Shares is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the person requesting -10- such exchange shall have paid to Acquiror or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for Guarantor Common Shares in any name other than that of the registered holder of the Certificate surrendered, or establish to the satisfaction of Acquiror or any agent designated by it that such tax has been paid or is not payable. (e) Escheat. Neither Acquiror nor the Company nor any of their respective affiliates shall be liable to any holder of Company Common Stock for any Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (f) Withholding Rights. The Exchange Agent shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of Company Common Stock, and from any cash dividends or other distributions that the holder is entitled to receive under Section 1.07(c), such amounts as the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or non-United States tax law. To the extent that amounts are so withheld by the Exchange Agent, such portion of the Merger Consideration and other such amounts payable under Section 1.07(c) that are withheld shall be treated for all purposes of this Agreement as having been received by the holder of the Shares in respect of which such deduction and withholding was made by the Exchange Agent. (g) Undistributed Certificates. Any portion of the certificates evidencing the Guarantor Common Shares, the cash to be paid in lieu of fractional shares and the cash or other property in respect of dividends or other distributions supplied to the Exchange Agent which remains undistributed to the holders of the Certificates for one year after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any holders of the Certificates who have not theretofore complied with this Section 1.07 shall thereafter look only to the Surviving Corporation for payment of their claim for Merger Consideration and any dividends or distributions with respect to Guarantor Common Shares. Section 1.08 Stock Transfer Books. At the close of business on the date of the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers of the Company Common Stock thereafter on the records of the Company. Section 1.09 No Further Ownership Rights in Company Common Stock. The Merger Consideration delivered upon the surrender for exchange of Shares in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such Shares, and there shall be no further registration of transfers on the records of the Surviving Corporation of Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. Section 1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the -11- holder thereof, such Merger Consideration and any dividends or other distributions as may be required pursuant to this Article I; provided, however, that the Surviving Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Guarantor, the Surviving Corporation or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. Section 1.11 Tax Consequences. The parties hereto intend that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Code. The parties hereto hereby adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. Section 1.12 Taking of Necessary Action; Further Action. Each of Acquiror and the Company will take, and cause their affiliates to take, all such reasonable and lawful actions as may be necessary or appropriate in order to effectuate the Merger and the other transactions contemplated by this Agreement in accordance with this Agreement as promptly as possible. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Acquiror, the officers and directors of the Company and Acquiror immediately prior to the Effective Time are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Acquiror as follows: Section 2.01 Organization and Qualification; Subsidiaries. Each of the Company and its subsidiaries is an entity duly organized, validly existing and (to the extent the concept of good standing exists in the applicable jurisdiction) in good standing under the laws of the jurisdiction of its organization and has the requisite corporate or other power and authority necessary to own, lease and operate the properties it purports to own, operate or lease and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power or authority would not reasonably be expected to have a Material Adverse Effect. Each of the Company and its subsidiaries is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not reasonably be expected to have a Material Adverse Effect. A list of all subsidiaries of the Company together with the jurisdiction of organization of each such subsidiary and the percentage of each such subsidiary's outstanding capital stock owned by the Company or another subsidiary of the Company (in the case of any non-U.S. subsidiaries, without giving effect to any qualifying share ownerships of less than 1%) is contained in Section 2.01 of the written disclosure schedule previously delivered by the -12- Company to Acquiror (the "Company Disclosure Schedule"). Except as set forth in Section 2.01 of the Company Disclosure Schedule or the Company SEC Documents, neither the Company nor any of its subsidiaries directly or indirectly owns any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity (other than its wholly-owned subsidiaries), with respect to which interest the Company or a subsidiary has invested (and currently owns) or is required to invest $10,000,000 or more, excluding securities in any publicly-traded company held for investment by the Company and comprising less than five-percent of the outstanding stock of such company. Section 2.02 Certificate of Incorporation and By-laws. The Company has heretofore made available to Acquiror a complete and correct copy of its Amended and Restated Certificate of Incorporation and Amended and Restated By-laws, each as amended to date (the "Company Charter Documents"), and will make available to Acquiror, as promptly as practicable, the Certificate of Incorporation and By-laws (or equivalent organizational documents) of each of its subsidiaries reasonably requested by Acquiror (the "Subsidiary Documents"). All such Company Charter Documents and Subsidiary Documents are in full force and effect, except in the case of Subsidiary Documents where the failure to be in full force and effect would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries is in violation of any of the provisions of its Certificate of Incorporation or By-laws or equivalent organizational documents, except for violations of the documents which do not and are not reasonably likely to materially interfere with the operations of such entity. Section 2.03 Capitalization. The authorized capital stock of the Company consists of 1,210,000,000 shares of the Company Common Stock and 50,000,000 shares of Preferred Stock, $0.01 par value per share (the "Company Preferred Stock"), of which one (1) share has been designated as Special Voting Stock. As of March 12, 2001, (i) 250,649,657 shares of the Company Common Stock were issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable (excluding treasury shares which are issued but not outstanding, all of which are not entitled to vote) and none of which were issued in violation of preemptive or similar rights, (ii) no shares of the Company Common Stock were held by subsidiaries of the Company, (iii) one share of Company Special Voting Stock was issued and outstanding, duly authorized, validly issued, fully paid and nonassessable, (iv) 11,248,111 Exchangeco Shares (which are the capital stock of Exchangeco) were issued and outstanding all of which are duly authorized, validly issued, fully paid and nonassessable, (v) 11,248,111 shares of the Company Common Stock were reserved for the exchange of the Exchangeco Shares, (vi) 23,276,689 shares of the Company Common Stock were reserved for existing grants and 5,623,311 shares were reserved for future grants pursuant to the Company Option Plans, and (vii) 639,525 shares of the Company Common Stock were reserved and available for future issuance pursuant to the Company ESPP and the Company's 401(k) plans. Other than the Special Voting Stock, there are no outstanding shares of Company Preferred Stock. Except as set forth in Section 2.03 of the Company Disclosure Schedule, no change in such capitalization has occurred since March 12, 2001, except for changes resulting from the exercise or termination of Company Stock Options or for purchases pursuant to the Company ESPP or the Company's 401(k) plans or the conversion of Exchangeco Shares. Except as set forth in Section 2.01, this Section 2.03 or Section 2.11 or in Section 2.03 or Section 2.11 of the Company Disclosure -13- Schedule or the Company SEC Documents, there are no options, warrants or other rights, agreements, arrangements or commitments of any character (including, without limitation, registration rights) binding on the Company or any of its subsidiaries relating to the issued or unissued capital stock of the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries, directly or indirectly, to issue, sell or register any shares of capital stock of, or other equity interests in, the Company or any of its subsidiaries. All shares of the Company Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, shall be duly authorized, validly issued, fully-paid and nonassessable. Except as set forth in Section 2.03 of the Company Disclosure Schedule or the reports, schedules, forms, statements, registration statements, proxy statements and other documents filed by the Company with the Securities and Exchange Commission ("SEC") since December 31, 1999 and prior to the date of this Agreement, including those incorporated therein by reference prior to the date of this Agreement (the "Company SEC Documents"), there are no obligations, contingent or otherwise, of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of the Company Common Stock or the capital stock of any subsidiary. Except as set forth in Section 2.03 of the Company Disclosure Schedule or the Company SEC Documents, there are no obligations, contingent or otherwise, of the Company or any of its subsidiaries to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any such subsidiary or any other entity other than financing or lending arrangements of the Company or any of its subsidiaries as a lender or a financing provider entered into in the ordinary course of business (the "Ordinary Course Finance Agreements") and guarantees of bank obligations of subsidiaries entered into in the ordinary course of business. Except as set forth in Section 2.01 or 2.03 of the Company Disclosure Schedule, all of the outstanding shares of capital stock (other than directors' qualifying shares) of each of the Company's subsidiaries are duly authorized, validly issued, fully paid and nonassessable, and all such shares (other than directors' qualifying shares and a de minimis number of shares owned by employees of such subsidiaries) are owned by the Company or another subsidiary free and clear of all security interests, liens, claims, pledges, agreements, limitations in the Company's voting rights, charges or other encumbrances of any nature whatsoever. Section 2.04 Authority Relative to This Agreement. (a) The Company has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than the adoption of this Agreement by the Company's stockholders in accordance with the DGCL and the Company Charter Documents and the Exchangeco Documents and the filing and recording of appropriate merger documents as required by the NGCL and the DGCL). (b) The provisions of Section 203 of the DGCL will not apply to the Merger. -14- (c) As of the date hereof, the Board of Directors of the Company has (i) determined that it is advisable and in the best interest of the Company's stockholders for the Company to enter into this Agreement and to consummate the Merger upon the terms and subject to the conditions of this Agreement, (ii) adopted this Agreement in accordance with the applicable provisions of the DGCL and (iii) recommended the adoption of this Agreement by holders of the Company Common Stock and directed that this Agreement be submitted for consideration by the Company's stockholders at the meeting of the stockholders of the Company to consider the Merger Agreement (the "Company Stockholders Meeting"). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Guarantor and Acquiror of this Agreement and the Guarantee hereof, as applicable, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. Section 2.05 Material Contracts; No Conflict; Required Filings and Consents. (a) Subject to the following sentence, Section 2.05(a) of the Company Disclosure Schedule includes, as of the date hereof, a list of (i) other than intercompany and Ordinary Course Finance Agreements, all loan agreements, indentures, mortgages, pledges, conditional sale or title retention agreements, security agreements, guaranties, standby letters of credit (to which the Company or any subsidiary is the responsible party), equipment leases or lease purchase agreements, each in an amount equal to or exceeding $25,000,000 to which the Company or any of its subsidiaries is a party or by which any of them is bound; (ii) all contracts, agreements, commitments or other understandings or arrangements to which the Company or any of its subsidiaries is a party or by which any of them or any of their respective properties or assets are bound or affected, but excluding Ordinary Course Finance Agreements and contracts, agreements, commitments or other understandings or arrangements entered into in the ordinary course of business and involving, in the case of any such contract, agreement, commitment, or other understanding or arrangement, individual payments or receipts by the Company or any of its subsidiaries of less than $25,000,000 over the term of such contract, commitment, agreement, or other understanding or arrangement; and (iii) all agreements which are required to be filed as "material contracts" with the SEC pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the SEC's rules and regulations thereunder (the "Exchange Act") but have not been so filed with the SEC. With regard to agreements for licensing or royalty arrangements, the threshold referred to in clause (ii) of the preceding sentence shall be measured on an annual basis. (b) Except as set forth in Section 2.05(b) of the Company Disclosure Schedule, the execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, (i) conflict with or violate the Company Charter Documents, (ii) conflict with or violate the Subsidiary Documents or any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its or any of their respective properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Company's or any of its subsidiaries' rights or alter the rights or obligations of any third party under, or give to others any rights of, or cause any, termination, amendment, redemption, acceleration or cancellation of, or result in the creation of a lien or encumbrance on (including a right to purchase) any of the properties or assets of the Company or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, credit -15- facility, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties is bound or affected, except, in the case of clause (ii) or (iii), for any such conflicts, violations, breaches, defaults or other occurrences that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (c) The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require the Company or any of its subsidiaries to make or seek any consent, approval, authorization or permit of, or filing with or notification to, any governmental, administrative or regulatory authority, U.S. and non-U.S. (each, a "Governmental Authority"), except (i) (I) for applicable requirements, if any, of the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder (the "Securities Act"), (II) the Exchange Act, (III) for applicable requirements, if any, under state securities laws and of the securities commissions or similar regulatory authorities in the provinces and territories of Canada, (IV) the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"), (V) the Toronto Stock Exchange and the NYSE; (VI) filings and consents under any applicable non-United States laws intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade ("Non-U.S. Monopoly Laws"), including, without limitation, filings and consents under the Canadian Competition Act, as amended, and/or with the Canadian Competition Bureau; (VII) filings and consents as may be required under any environmental, health or safety law or regulation pertaining to any notification, disclosure or required approval triggered by the Merger or the transactions contemplated by this Agreement ("Environmental, Health and Safety Laws"); and (VIII) the filing and recordation of appropriate merger or other documents as required by the NGCL and the DGCL, (ii) (I) for the filing of applications and notices, as applicable, with the U.S. federal and state regulatory authorities governing banking, consumer and commercial finance, mortgage lending and insurance, (II) the filing of applications and notices, as applicable, with federal housing related authorities, and the approval of such applications by such authorities, and (III) the filing of applications and notices, as applicable, with foreign governmental authorities (including, without limitation, in Canada and Japan) regulating banking, consumer and commercial finance, mortgage lending and insurance in the foreign jurisdictions in which the Company operates its business or to which it is otherwise subject, and the approval of such applications by such authorities (all of the foregoing in this clause (ii), collectively, the "Regulatory Approvals") (iii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or materially delay consummation of the Merger, or otherwise prevent or materially delay the Company from performing its material obligations under this Agreement, or would not otherwise reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, or (iv) as to which any necessary consents, approvals, authorizations, permits, filings or notifications have heretofore been obtained or filed, as the case may be, by the Company. All material Regulatory Approvals which, to the knowledge of the Company, are applicable to the Merger and the transactions contemplated hereby and thereby are set forth in Section 2.05(c) of the Company Disclosure Schedule. As of the date hereof, the Company knows of no reason why all Regulatory Approvals should not be timely obtained. -16- Section 2.06 Compliance; Permits. (a) Except as set forth in Section 2.06(a) of the Company Disclosure Schedule or the Company SEC Documents, neither the Company nor any of its subsidiaries is (or has been as a result of which it could reasonably be expected now or in the future to have material liability) in conflict with, or in breach, default or violation of, (i) any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its or any of their respective properties is bound or affected, (ii) any note, bond, debenture, indenture, credit agreement or facility or commercial paper facility pursuant to which the Company or any of its subsidiaries has or may incur indebtedness for borrowed money (a "Company Financing Agreement") or any security, pledge, mortgage or trust agreement or arrangement in respect of any Company Financing Agreement or (iii) any other contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties is bound or affected (including any note, bond, debenture, indenture, credit agreement or facility or commercial paper facility not included in clause (ii) above or any security, pledge, mortgage or trust agreement or arrangement in respect of any of the foregoing), except for any such conflicts, defaults or violations which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (b) Except as set forth in Section 2.06(b) of the Company Disclosure Schedule or the Company SEC Documents, the Company and its subsidiaries hold all permits, licenses, easements, variances, exemptions, consents, certificates, orders and approvals from governmental authorities which are material to the operation of the business of the Company and its subsidiaries, taken as a whole, as it is now being conducted (collectively, the "Company Permits"), except where the failure to hold such Company Permits would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. The Company and its subsidiaries are in compliance with the terms of the Company Permits, and have not failed to comply therewith as a result of which they would reasonably be expected to have liability now or in the future, except as described in the Company SEC Documents or where the failure to so comply would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 2.07 SEC Filings; Financial Statements; Regulatory Filings. (a) Except as set forth in Section 2.07 of the Company Disclosure Schedule, the Company has filed all reports, schedules, forms, statements and other documents (including all exhibits to the Company SEC Documents) required to be filed with the SEC since December 31, 1997 (the "Post-1997 Company SEC Documents"). Except as disclosed in Section 2.07 of the Company Disclosure Schedule or the Company SEC Documents, such reports, schedules, forms, statements and other documents (i) complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as set forth in Section 2.07 of the Company Disclosure Schedule, none of the Company's subsidiaries is required to file any forms, reports or other documents with the SEC. To the Company's -17- knowledge, no investigation by the SEC with respect to the Company or any of its subsidiaries is pending or threatened, except as disclosed in the Company SEC Documents. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Post-1997 Company SEC Documents was prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or in the Post-1997 Company SEC Documents), and each fairly presents in all material respects the consolidated financial position of the Company and its subsidiaries at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that for purposes of the foregoing representation, the unaudited interim financial statements (i) shall be read in conjunction with the Company's consolidated financial statements contained in the Company's 1999 Annual Report on Form 10-K, and (ii) were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. (c) Except as set forth in Section 2.07 of the Company Disclosure Schedule, the Company and each of its subsidiaries have timely filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 1997, with (i) the Board of Governors of the Federal Reserve System, (ii) the Federal Deposit Insurance Corporation, (iii) any U.S. state banking commission, any other non-U.S. state regulatory authorities or any comparable regulatory authorities and (iv) any self-regulatory organization (each, a "Regulatory Agency"), and have paid all material fees and assessments due and payable in connection therewith. Except for normal examinations conducted by a Regulatory Agency in the regular course of the business of the Company and its subsidiaries, and except as set forth in Section 2.07(c) of the Company Disclosure Schedule, no Regulatory Agency has initiated any proceeding or investigation or, to the knowledge of the Company, threatened any investigation into the business or operations of the Company or any of its subsidiaries since December 31, 1997, except for such proceedings or investigations which would not, reasonably be expected individually or in the aggregate, to have a Material Adverse Effect. Section 2.08 Absence of Certain Changes or Events. Except as set forth in Section 2.08 of the Company Disclosure Schedule or the Company SEC Documents, since September 30, 2000, the Company has conducted its business in the ordinary course and there has not occurred: (i) any changes, effects or circumstances , including any damage to, destruction or loss of any asset of the Company (whether or not covered by insurance) constituting, individually or in the aggregate, a Material Adverse Effect; (ii) any amendments or changes in the Company Charter Documents; (iii) any material changes to any Company Employee Plans or other employee benefit arrangements or agreements, including the establishment of any new such plans, arrangements or agreements or the extension of coverage under any such plans, arrangements or agreements to new groups of employees or other individuals; (iv) any material change by the Company in its accounting methods, principles or practices (other than as required by GAAP subsequent to the date of this Agreement); or (v) other than in the ordinary course of business, any sale of a material amount of assets of the Company. Certain recent financial results are as represented in Section 2.08 of the Company Disclosure Schedule. -18- Section 2.09 No Undisclosed Liabilities; Certain Assets. (a) Except as set forth in Section 2.09 of the Company Disclosure Schedule or the Company SEC Documents, neither the Company nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise), except liabilities (i) in the aggregate adequately provided for in the Company's unaudited balance sheet (including any related notes thereto) as of September 30, 2000, included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 (the "2000 Balance Sheet"), (ii) incurred in the ordinary course of business and not required under GAAP to be reflected on the 2000 Balance Sheet, (iii) incurred since September 30, 2000 in the ordinary course of business, (iv) incurred in connection with this Agreement or the Merger or the other transactions contemplated hereby or (v) which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (b) The allowances for loan, credit and lease losses contained in the financial statements contained in the Company SEC Documents were reasonably established in accordance with good business judgment and industry practice and with past practices and experiences of the Company and its subsidiaries, and the reserve for credit losses shown on the 2000 Balance Sheet is adequate in all material respects to provide for possible losses on loans, leases and credit commitments outstanding as of the date of such balance sheet. (c) Except as may be set forth in Section 2.09(c) of the Company Disclosure Schedule or with respect to which adequate reserves are reflected in the financial statements contained in the Company SEC Documents, (i) the loans, credit commitments and leases shown on the Company financial statements contained in the Company SEC Documents or which were entered into after the date of the 2000 Balance Sheet were or will be made in all material respects in the ordinary course of business in accordance with good business judgment and industry practice and are not or will not be subject to any material defenses, setoffs or counterclaims, including without limitation any such as are afforded by usury, truth-in-lending or similar laws, except as may be provided by bankruptcy, insolvency or similar laws governing the remedies of creditors or by general principles of equity as to the enforcement of equitable remedies, (ii) the notes, leases or other evidences of indebtedness or obligation evidencing such loans, credit commitments and leases and all forms of pledges, mortgages and other collateral documents and security agreements are and will be, in all material respects, valid, true and genuine and what they purport to be, adequate to evidence the rights and obligations of the parties and enforceable in accordance with their terms and (iii) the Company and its subsidiaries have complied and will, prior to the Effective Time, comply with all laws and regulations relating to such loans, credit commitments and leases (including without limitation any usury, truth-in-lending or similar laws) or to the extent, if any, there has not been such compliance, such failure to comply both (x) is not material to the Company and (y) will not materially interfere with the timely collection of any material amount of such loans or the timely enforcement of the rights to payment of the Company or any subsidiary with respect to any material amount of such credit commitments or leases. Section 2.10 Absence of Litigation. Except as set forth in Section 2.10 or Section 2.19(c) of the Company Disclosure Schedule or the Company SEC Documents or arising out of the transactions contemplated by this Agreement, there are no claims, actions, suits, -19- arbitrations, proceedings or investigations pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries, or any properties or rights of the Company or any of its subsidiaries, before any court, arbitrator or Governmental Authority, that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 2.11 Employee Benefit Plans; Employment Agreements. (a) "Company Employee Plans" shall mean all "employee pension benefit plans" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), all "employee welfare benefit plans" (as defined in Section 3(1) of ERISA), all non-U.S. non-statutory plans and all other U.S. and non-U.S. non-statutory bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar fringe or employee benefit plans, programs or arrangements (including those which contain change of control provisions or pending change of control provisions), and any employment, executive compensation or severance agreements (including those which contain change of control provisions or pending change of control provisions), written or otherwise, as amended, modified or supplemented, currently in effect or currently being maintained or administered for the benefit of, or relating to, any former or current employee, officer, director or consultant (or any of their beneficiaries) of the Company or a subsidiary of the Company. The term "Affiliate Plan" shall mean any other such plan, program or arrangement with respect to which the Company or any subsidiary of the Company has or could reasonably be expected to have any liability, either as a member of a controlled group of corporations or trades or businesses as defined under Section 414 of the Code and comparable provisions of ERISA, or by contractual arrangement. Section 2.11(a) of the Company Disclosure Schedule lists each Company Employee Plan and each Affiliate Plan. The Company shall indicate on such Company Disclosure Schedule each material plan which contains a change of control provision. With respect to each Company Employee Plan listed in Section 2.11(a) of the Company Disclosure Schedule, the Company has provided or made available to Acquiror, or will provide or make available as soon as practicable, but in no event later than thirty (30) days after the date hereof copies of (i) each such written Company Employee Plan (or a written description in English of any Company Employee Plan which is not written and, with respect to Company Employee Plans which are non-statutory defined benefit or defined contribution pension plans covering fifty (50) or more participants, a written description in English of any such plan that is written in a language other than English) and any related trust agreement, insurance and other contract (including a policy), the most recently prepared summary plan description, summary of material modifications the substance of which is not already incorporated in the corresponding summary plan description, and communications distributed to plan participants that could reasonably be expected to materially modify the terms of any Company Employee Plan, whether through information actually conveyed in the communication or a failure to convey information, (ii) the three most recent annual reports on Form 5500 series (or equivalent filing with respect to non-U.S. plans), with accompanying schedules and attachments, filed with respect to each U.S. or non-U.S. non-statutory Company Employee Plan required to make such a filing, (iii) the most recent actuarial valuation, if any, for each Company Employee Plan and Affiliate Plan subject to Title IV of ERISA and all non-U.S. pension and post-retirement welfare plans, or, with respect to any non-U.S., non-statutory defined benefit or defined contribution plan for which a current valuation report is not reasonably available within thirty (30) days of the date hereof, reasonable access to an actuary or other professional with knowledge of such plan's liabilities and funding level within such 30-day -20- period, (iv) the latest reports which have been filed with the Department of Labor ("DOL") to satisfy the alternative method of compliance for pension plans for certain selected employees pursuant to DOL regulation Section 2520.104-23 and (v) the most recent favorable determination letters issued for each Company Employee Plan and related trust which is intended to be qualified under Section 401(a) of the Code (and, if an application for such determination is pending, a copy of the application for such determination). (b) Except as set forth in Section 2.11(b) of the Company Disclosure Schedule, (i) none of the Company Employee Plans or Affiliate Plans promises or provides medical or other welfare benefits to any director, officer, employee or consultant (or any of their beneficiaries) after their service with the Company or its subsidiary or affiliate terminates, other than as required by Section 4980B of the Code, Part 6 of Subtitle B of Title I of ERISA ("COBRA"), or any similar state laws; (ii) none of the Company Employee Plans or Affiliate Plans is a "multiemployer plan" as such term is defined in Section 3(37) of ERISA and no non-U.S. Company Employee Plan is a multiemployer plan and no Company Employee Plan or Affiliate Plan has incurred any withdrawal liability that remains unsatisfied and the transactions contemplated herein will not result in the assessment of any withdrawal liability; (iii) neither the Company, any of its subsidiaries nor, to the knowledge of the Company, any other party in interest (as defined in Section 3(14) of ERISA) or disqualified person (as defined in Section 4975 of the Code) has engaged in a transaction with respect to any Company Employee Plan or Affiliate Plan which could subject the Company or any subsidiary, directly or indirectly, to a tax, penalty or other liability for prohibited transactions under ERISA or Section 4975 of the Code which would reasonably be expected to have a Material Adverse Effect; (iv) neither the Company nor any of its executives, nor to the Company's knowledge, any other fiduciary of any of the Company Employee Plans has breached any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA that would reasonably be expected to have a Material Adverse Effect; (v) all Company Employee Plans and, to the knowledge of the Company, all Affiliate Plans have been established and maintained in accordance with their terms and have been operated in compliance in all material respects with the requirements of applicable law except as would not reasonably be expected to result in a Material Adverse Effect (including, but not limited to, to the extent applicable, the notification and other requirements of COBRA, the Health Insurance Portability and Accountability Act of 1996, the Newborns' and Mothers' Health Protection Act of 1996, the Mental Health Parity Act of 1996, and the Women's Health and Cancer Rights Act of 1998); (vi) each Company Employee Plan which is intended to be qualified under Section 401(a) of the Code is the subject of a favorable determination letter from the Internal Revenue Service (the "IRS"), and nothing has occurred which may reasonably be expected to impair such determination, taking into account available correction programs; (vii) all contributions required to be made with respect to any Company Employee Plan (whether pursuant to the terms of such plan, Section 412 of the Code, any collective bargaining agreement, insurance contract or policy, or otherwise) have been made on or before their due dates (including any extensions thereof) or were not materially delayed beyond their due dates and all appropriate correcting actions were taken with respect to such delay; (viii) with respect to each Company Employee Plan and Affiliate Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the 30-day notice requirement has been waived under the regulations to Section 4043 of ERISA) has occurred with respect to which the Company or one of its subsidiaries has any outstanding liability and no Company action has occurred that resulted or will result in any liability for any non-U.S. Company Employee Plan; -21- (ix) none among the Company or any subsidiary thereof has incurred (or could reasonably be expected to incur) any liability that remains unsatisfied, or reasonably expects to incur any liability, under Title IV of ERISA with respect to either a Company Employee Plan or an Affiliate Plan including, without limitation, with respect to an event described in Section 4062, 4063 or 4041 of ERISA (other than liability for premium payments to the Pension Benefit Guaranty Corporation (the "PBGC") arising in the ordinary course); (x) other than routine claims for benefits made in the ordinary course of the operation of the Company Employee Plans, except as would not reasonably be expected to result in a Material Adverse Effect there are no pending or to the Company's knowledge threatened, claims, investigations or causes of action with respect to any U.S. or non-U.S. non-statutory Company Employee Plan or Affiliate Plan, whether made by a participant or beneficiary of such a plan, a governmental agency or otherwise, against the Company or any subsidiary of the Company, any Company director, officer or employee, any Company Employee Plan, or Affiliate Plan or any fiduciary of a Company Employee Plan or Affiliate Plan; and (xi) to the best of the Company's knowledge, each Company Employee Plan that provides for the provision of post-termination or post-retirement welfare benefits may by its terms be amended or terminated at any time subject to applicable law. (c) The Company shall provide, no later than thirty (30) days after the date hereof, a true and complete list of each current or former employee, consultant, officer or director of the Company or any of its subsidiaries who holds (i) any option to purchase Company Common Stock as of the date hereof, together with the number of shares of Company Common Stock subject to such option, the exercise price of such option (to the extent determined as of the date hereof), whether such option is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code (an "ISO"), and the expiration date of such option; (ii) any shares of Company Common Stock that are restricted or subject to performance-based vesting; and (iii) any other award or right (including share units), directly or indirectly, to receive Company Common Stock (or any other unit of Company equity) or any amount payable by reference to Company Common Stock (or any other unit of Company equity), other than under tax-qualified or tax-conditioned plans, together with the number of shares of Company Common Stock (or any other unit of Company equity) subject to such right. (d) To the extent not already included and so labeled in Section 2.11(a) or such other section of the Company Disclosure Schedule as is specifically referenced in Section 2.11(d) of the Company Disclosure Schedule, no later than thirty (30) days from the date hereof the Company shall provide a true and complete (i) list of all material outstanding agreements with any consultants who provide services to the Company or any of its subsidiaries; (ii) list of all material agreements with respect to the services of independent contractors or leased employees who provide services to the Company or any of its subsidiaries, whether or not they participate in any of the Company Employee Plans; (iii) description of any situation in which a material portion of the workforce of a component of the Company or its subsidiaries, whether such component is a subsidiary, unit, work location, line of business or otherwise, is composed of non-common law employees, whether consultants, independent contractors or otherwise, which description shall include, if applicable, representative samples of agreements with such non-common law employees; and (iv) list of all worker council agreements of the Company or any of its subsidiaries with or relating to its employees. Section 2.11(d) of the Company -22- Disclosure Schedule shall indicate which, if any, of such agreements includes a change in control provision. (e) Except as set forth in Section 2.11(e) of the Company Disclosure Schedule: (i) the PBGC has not instituted proceedings to terminate any Company Employee Plan or, to the knowledge of the Company, an Affiliate Plan, that is subject to Title IV of ERISA (each, a "Defined Benefit Plan"); (ii) no Defined Benefit Plan has an accumulated or waived funding deficiency within the meaning of Section 412 of the Code, nor have any extensions of any amortization period within the meaning of Section 412 of the Code or Section 302 of ERISA been applied for with respect thereto; (iii) since the date of the most recent actuarial report prepared by each such plan's actuary with respect to that plan's most recently completed fiscal year, to the knowledge of the Company, nothing has occurred that would materially adversely affect the funding status of such plan; (iv) all applicable premiums required to be paid to the PBGC with respect to the Defined Benefit Plans have been paid; and (v) no facts or circumstances exist with respect to any Defined Benefit Plan which would give rise to a material lien on the assets of the Company under Section 4068 of ERISA or otherwise; provided that neither clause (iii) nor clause (iv) shall apply to any event or occurrence that would not reasonably be expected to have a Material Adverse Effect. (f) Since December 31, 1999, neither the Company nor any of its subsidiaries has announced, proposed or agreed to any increase in benefits under any Company Employee Plan (or to the creation or implementation of new benefits or new plans), any change in employee coverage which would increase the expense of maintaining any Company Employee Plan, or the grant of any Company Stock Options or other equity based awards or benefits that has not been disclosed to Guarantor (with copies of any relevant documents provided to Guarantor) no later than thirty (30) days from the date hereof. (g) Except as set forth in this Agreement or as set forth in Section 2.11 of the Company Disclosure Schedule, the consummation of the transactions contemplated by this Agreement, either alone or in combination with another event, will not (i) result in any payment (including, without limitation, severance, unemployment compensation, golden parachute or bonus payments or otherwise) becoming due to any current or former director, officer, employee or consultant of the Company, (ii) result in any increase in the amount of compensation or benefits payable in respect of any director, officer, employee or consultant of the Company, or (iii) accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any director, officer, employee or consultant of the Company. (h) Except as set forth in Section 2.11(h) of the Company Disclosure Schedule and as would not reasonably be expected to have a Material Adverse Effect, to the knowledge of the Company, each non-U.S. Company Employee Plan has been maintained in compliance with its terms and with the requirements prescribed by any and all applicable laws (including any special provisions relating to registered or qualified plans with which such non-U.S. Company Employee Plan is intended to qualify), has been maintained in good standing with applicable regulatory authorities and has sufficient assets (in a trust or other separate fund) to satisfy all of its liabilities. Except as set forth on Section 2.11(h) of the Company Disclosure Schedule, since the date of the most recent actuarial report prepared by each such plan's actuary with respect to that plan's most recently completed fiscal year, nothing has occurred that would materially -23- adversely affect the funding status of such plan other than the effects of general market conditions. (i) Except as set forth in Section 2.11(i) of the Company Disclosure Schedule and as would not reasonably be expected to have a Material Adverse Effect, there are no complaints, charges or claims against the Company or any of its subsidiaries pending or threatened to be brought by or filed with any governmental authority based on, arising out of, in connection with or otherwise relating to the classification of any individual by the Company as an independent contractor or "leased employee" (within the meaning of Section 414(n) of the Code) rather than as an employee, and to the knowledge of the Company no conditions exist under which the Company or any of its subsidiaries could incur any such liability. (j) Except as set forth in Section 2.11(j) of the Company Disclosure Schedule, each Company Employee Plan that provides for deferred compensation and is not qualified under Section 401(a) of the Code is fully funded through a rabbi trust, insurance policy or otherwise. Section 2.12 Employment and Labor Matters. Except as set forth in Section 2.11(b) or Section 2.12 of the Company Disclosure Schedule or the Company SEC Documents: (a) Each of the Company and its subsidiaries is in compliance, and has not failed to be in compliance as a result of which it could reasonably be expected now or in the future to have liability, with all applicable U.S. and non-U.S. laws, agreements and contracts relating to employment practices, terms and conditions of employment, and the employment of former, current, and prospective employees, independent contractors and "leased employees" (within the meaning of Section 414(n) of the Code) of the Company or any of its subsidiaries including all such U.S. and non-U.S. laws, agreements and contracts relating to wages, hours, collective bargaining, employment discrimination, immigration, disability, civil rights, human rights, fair labor standards, occupational safety and health, workers' compensation, pay equity, wrongful discharge and violation of the potential rights of such former, current, and prospective employees, independent contractors and leased employees, and has timely prepared and filed all appropriate forms (including Immigration and Naturalization Service Form I-9) required by any relevant Governmental Authority, except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (b) There is no litigation, suit, action, proceeding or investigation pending or, to the knowledge of the Company, threatened between the Company or any of its subsidiaries and any of their respective employees which in each case would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (c) Neither the Company nor any of its subsidiaries is a party to any U.S. or non-U.S. collective bargaining agreement or other labor union contract applicable to persons employed by the Company or its subsidiaries, nor, to the knowledge of the Company, are there any activities or proceedings of any labor union to organize any employees of the Company or any of its subsidiaries. -24- (d) Neither the Company nor any of its subsidiaries is in breach of any U.S. or non-U.S. collective bargaining agreement or labor union contract, or has any knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any employees of the Company or any of its subsidiaries. Section 2.13 Registration Statement; Proxy Statement/Prospectus. (a) Subject to the accuracy of the representations of Acquiror in Section 3.10: (i) the information supplied by the Company for inclusion in the Registration Statement shall not at the time the Registration Statement is declared effective by the SEC contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and (ii) the information supplied by the Company for inclusion in the proxy statement/prospectus to be sent to the stockholders of the Company in connection with the Company Stockholders Meeting (such proxy statement/prospectus as amended or supplemented is referred to herein as the "Proxy Statement/Prospectus") will not, on the date the Proxy Statement/Prospectus (or any amendment thereof or supplement thereto) is filed with the SEC or first mailed to stockholders or at the time of the Company Stockholders Meeting, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein not false or misleading, or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Company Stockholders Meeting which has become false or misleading. (b) If at any time prior to the Effective Time any event relating to the Company or any of its respective affiliates, officers or directors should be discovered by the Company which should be set forth in an amendment to the Registration Statement or a supplement to the Proxy Statement/Prospectus, the Company shall promptly inform Acquiror. (c) The Proxy Statement/Prospectus shall comply in all material respects with the requirements of the Securities Act and the Exchange Act. (d) Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Guarantor or Acquiror which is contained or incorporated by reference in, or furnished in connection with the preparation of, the Proxy Statement/Prospectus. Section 2.14 Restrictions on Business Activities; Agreement with Regulatory Agencies. (a) Except for this Agreement or as set forth in Section 2.14(a) of the Company Disclosure Schedule or the Company SEC Documents, to the Company's knowledge, there is no agreement, judgment, injunction, order or decree binding upon the Company or any of its subsidiaries which has or would reasonably be expected to have the effect of prohibiting or impairing the conduct of business by the Company or any of its subsidiaries, or restricting any transactions (including payment of dividends and distributions) between the Company and its -25- subsidiaries, except for any prohibition or impairment as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (b) Except as set forth in Section 2.14(b) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries is subject to any cease-and-desist or other order issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of (each, whether or not listed in Section 2.14(b) of the Company Disclosure Schedule, a "Regulatory Agreement"), any Regulatory Agency or other Governmental Authority that restricts the conduct of its business or that in any manner relates to its capital adequacy, its credit policies, its management or its business. None of the Company or any of its subsidiaries has been advised by any Regulatory Agency or other Governmental Authority that it is considering issuing or requesting any Regulatory Agreement. Section 2.15 Properties. (a) Except as set forth in Sections 2.15(a) or 2.19(b) of the Company Disclosure Schedule or the Company SEC Documents, the Company and each of its subsidiaries have good title to all of their owned real properties and other owned assets used in their current operations, free and clear of all liens, charges and encumbrances, except (i) liens for taxes not yet due and payable, (ii) such liens or other imperfections of title, if any, as do not materially interfere with the present use of the property affected thereby or which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, and (iii) liens which secure indebtedness reflected in the 2000 Balance Sheet and identified as such in the Company SEC Documents; and all leases pursuant to which the Company or any of its subsidiaries lease from others material amounts of real or personal property, are in good standing, valid and effective in accordance with their respective terms, and there is not, to the knowledge of the Company, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default), except where the lack of such good standing, validity and effectiveness or the existence of such default or event of default would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (b) Except as set forth in Section 2.15(b) of the Company Disclosure Schedule or the Company SEC Documents, (i) all buildings, structures, fixtures and other improvements located on and affixed to the real properties of the Company and its subsidiaries are structurally sound, are in good operating condition and repair, ordinary wear and tear excepted, are free from latent and patent defects, and are adequate for the uses to which they are being put and (ii) each item of tangible personal property of the Company and its subsidiaries is in good operating condition and repair, ordinary wear and tear excepted, is free from latent and patent defects and is suitable for immediate use in the ordinary course of business, except, in each case, as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. Section 2.16 Taxes. Except as set forth in Section 2.16 of the Company Disclosure Schedule or as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect: -26- (a) The Company and each of its subsidiaries has timely and accurately filed, or caused to be timely and accurately filed, all Tax Returns required to be filed by it, and has paid, collected or withheld, or caused to be paid, collected or withheld, all Taxes required to be paid, collected or withheld, other than such Taxes for which adequate reserves in the 2000 Balance Sheet have been established or which are being contested in good faith. Except as set forth in Section 2.16(a) of the Company Disclosure Schedule, there are no claims or assessments pending against the Company or any of its subsidiaries for any alleged deficiency in any Tax, there are no pending or, to the knowledge of the Company, threatened audits or investigations for or relating to any liability in respect of any Taxes, and the Company has not been notified in writing of any proposed Tax claims or assessments against the Company or any of its subsidiaries (other than in each case, claims or assessments for which adequate reserves in the 2000 Balance Sheet have been established or which are being contested in good faith). Neither the Company nor any of its subsidiaries has executed any waivers or extensions of any applicable statute of limitations to assess any Taxes. There are no outstanding requests by the Company or any of its subsidiaries for any extension of time within which to file any Tax Return or within which to pay Taxes shown to be due on any Tax Return. To the best knowledge of the Company, there are no liens for Taxes on the assets of the Company or any of its subsidiaries except for statutory liens for current Taxes not yet due and payable. A list of all outstanding powers of attorney enabling any party to represent the Company or any of its subsidiaries with respect to Taxes will be provided to Acquiror as soon as practicable, but in no event later than thirty (30) days after the date hereof. Other than with respect to the Company and its subsidiaries, neither the Company nor any of its subsidiaries is liable for Taxes of any other Person, or is currently under any contractual obligation to indemnify any person with respect to Taxes (except for customary agreements to indemnify lenders or security holders in respect of Taxes and except for provisions in agreements for the divestiture of subsidiaries, assets or business lines of the Company or its subsidiaries that require the Company or its subsidiaries (as applicable) to indemnify a purchaser or purchase group for amounts of Taxes of the Company or its subsidiaries (as applicable) in the nature of sales or similar Taxes incurred as a consequence of any such divestiture transactions), or is a party to any tax sharing agreement or any other agreement providing for payments by the Company or any of its subsidiaries with respect to Taxes. (b) For purposes of this Agreement, the term "Tax" shall mean any United States federal, national, state, provincial, local or other jurisdictional income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, estimated, alternative or add-on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge imposed by any Governmental Authority, together with any interest or penalty imposed thereon. The term "Tax Return" shall mean a report, return or other information (including any attached schedules or any amendments to such report, return or other information) required to be supplied to or filed with a Governmental Authority with respect to any Tax, including an information return, claim for refund, amended return or declaration of estimated Tax. Section 2.17 Environmental Matters. (a) Except as set forth in Section 2.17(a) of the Company Disclosure Schedule or in the Company SEC Documents or as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, the operations and properties of the Company and its subsidiaries are in compliance with the -27- Environmental Laws, which compliance includes the possession by the Company and its subsidiaries of all permits and governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof. (b) Except as set forth in Section 2.17(b) of the Company Disclosure Schedule or in the Company SEC Documents or as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, there are no Environmental Claims, including claims based on "arranger liability," pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed. (c) Except as set forth in Section 2.17(c) of the Company Disclosure Schedule or in the Company SEC Documents, there are no past or present actions, circumstances, conditions, events or incidents, including the release, emission, discharge, presence or disposal of any Materials of Environmental Concern, that are reasonably likely to form the basis of any Environmental Claim against the Company or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries have retained or assumed, except for such Environmental Claims that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (d) Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or as set forth in Section 2.17(d) of the Company Disclosure Schedule or the Company SEC Documents, (i) there are no off-site locations where the Company or any of its subsidiaries has stored, disposed or arranged for the disposal of Materials of Environmental Concern which have been listed on the National Priority List, CERCLIS, or state Superfund site list, and the Company and its subsidiaries have not been notified that any of them is a potentially responsible party at any such location; (ii) there are no underground storage tanks located on property owned or leased by the Company or any of its subsidiaries; (iii) there is no friable asbestos containing material contained in or forming part of any building, building component, structure or office space owned, leased or operated by the Company or any of its subsidiaries; and (iv) there are no polychlorinated biphenyls ("PCBs") or PCB-containing items contained in or forming part of any building, building component, structure or office space owned, leased or operated by the Company or any of its subsidiaries. (e) For purposes of this Agreement: (i) "Environmental Claim" means any claim, action, cause of action, investigation or notice (in each case in writing or, if not in writing, to the knowledge of the Company) by any person or entity alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from the presence, release or threat of release into the environment, of any Material of Environmental Concern at any location, whether or not owned or operated by the Company or any of its subsidiaries. (ii) "Environmental Laws" means, as they exist on the date hereof, all applicable United States federal, state, local and non-United States laws, regulations, codes and -28- ordinances, relating to pollution or protection of human health (as relating to the environment or the workplace) and the environment (including ambient air, surface water, ground water, land surface or sub-surface strata), including laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern, including, but not limited to Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq., the Clean Air Act, 42 U.S.C. ss. 7401 et seq., the Clean Water Act, 33 U.S.C. ss. 1251 et seq., each as may have been amended or supplemented, and any applicable environmental transfer statutes or laws. (iii) "Materials of Environmental Concern" means chemicals, pollutants, contaminants, hazardous materials, hazardous substances and hazardous wastes, medical waste, toxic substances, petroleum and petroleum products and by-products, asbestos-containing materials, PCBs, and any other chemicals, pollutants, substances or wastes, in each case regulated under any Environmental Law. Section 2.18 Brokers. No broker, finder or investment banker, other than Credit Suisse First Boston Corporation (the "Company Financial Advisor"), the fees and expenses of which will be paid by the Company, is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The Company has heretofore furnished to Acquiror a complete and correct copy of all agreements between the Company and the Company Financial Advisor pursuant to which such firm would be entitled to any payment relating to the transactions contemplated hereunder. Section 2.19 Intellectual Property (a) As used herein, the term "Intellectual Property Assets" shall mean all worldwide intellectual property rights, including, without limitation, patents, trademarks, service marks, copyrights, and registrations and applications therefor, licenses, trade names, Internet domain names, know-how, trade secrets, computer software programs and development tools and proprietary information, technologies and processes, and all documentation and media describing or relating to the above, in any format, whether hard copy or machine-readable only. As used herein, "Company Intellectual Property Assets" shall mean the Intellectual Property Assets used or owned by the Company or any of its subsidiaries. (b) Except as set forth in Section 2.19(b) of the Company Disclosure Schedule, the Company and/or each of its subsidiaries owns, or is licensed or otherwise possesses legally enforceable rights to use, all the Company Intellectual Property Assets that are used in the business of the Company and its subsidiaries as currently conducted, without infringing or violating the rights of others. (c) Except as disclosed in Section 2.19(c) of the Company Disclosure Schedule, no material claims (i) are currently pending or, to the knowledge of the Company, are threatened by any person with respect to the Company Intellectual Property Assets, or (ii) are -29- currently pending or, to the knowledge of the Company, threatened by any person with respect to the Intellectual Property Assets of a third party (the "Third Party Intellectual Property Assets") to the extent arising out of any manufacture, importation, offer for sale, reproduction or distribution of, or of products or methods covered by, such Third Party Intellectual Property Assets by or through the Company or any of its subsidiaries. (d) Except as disclosed in Section 2.19(d) of the Company Disclosure Schedule, to the knowledge of the Company, there are no valid grounds for any bona fide claim to the effect that the offer for sale, sale, licensing or use of any product, system or method now used, offered for sale, sold or licensed or proposed for use, offer for sale, sale, or license by or for the Company or any of its subsidiaries infringes any Third Party Intellectual Property Assets. (e) A list of (i) all patents and patent applications owned by the Company and/or each of its subsidiaries worldwide; (ii) all trademark and service mark registrations and all trademark and service mark applications, material common law trademarks, material trade dress and material slogans, and all trade names owned by the Company and/or each of its subsidiaries worldwide; (iii) all copyright registrations and copyright applications owned by the Company and/or each of its subsidiaries worldwide; (iv) all Internet domain name registrations owned by the Company and/or its subsidiaries worldwide; and (v) to the Company's knowledge, all licenses of the Company and/or each of its subsidiaries in which the Company and/or each of its subsidiaries is (A) a licensor with respect to any of the patents, trademarks, service marks, trade names, copyrights or Internet domain names which are material to the Company or (B) a licensee of any other person's patents, trade names, trademarks, service marks, copyrights or Internet domain names material to the Company except for any licenses of software programs that are commercially available "off the shelf" will be provided to Acquiror as soon as practicable, but in no event later than thirty (30) days after the date hereof. (f) Except as set forth in Section 2.19(f) of the Company Disclosure Schedule, the Company and/or each of its subsidiaries has made all necessary filings and recordations to protect and maintain its interest in the patents, patent applications, trademark and service mark registrations, trademark and service mark applications, copyright registrations and copyright applications, Internet domain names and licenses used or owned by the Company or its subsidiaries, except where the failure to so protect or maintain would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (g) To the knowledge of the Company, except as set forth in Section 2.19(f) or 2.19(g) of the Company Disclosure Schedule or the Company SEC Documents: (i) each patent, trademark, service mark and copyright application and registration of the Company and/or each of its subsidiaries is valid, subsisting of record in the Company of such subsidiary, and enforceable and (ii) each material license of the Company Intellectual Property Assets and of any Third Party Intellectual Property Assets used or owned by the Company or its subsidiaries is valid, subsisting in the Company or its subsidiaries, and enforceable. (h) Except as set forth in Section 2.19(h) of the Company Disclosure Schedule, to the knowledge of the Company, there is no unauthorized use, infringement or misappropriation of any of the Company's Intellectual Property Assets by any third party, -30- including any employee, former employee, independent contractor or consultant of the Company or any of its subsidiaries. Section 2.20 Interested Party Transactions. Except as set forth in Section 2.20 of the Company Disclosure Schedule or the Company SEC Documents or for events as to which the amounts involved do not, in the aggregate, exceed $300,000, since the Company's proxy statement dated March 30, 2000, no event has occurred that would be required to be reported as a Certain Relationship or Related Transaction pursuant to Item 404 of Regulation S-K promulgated by the SEC. Section 2.21 Insurance. A list of all material fire and casualty, general liability, business interruption, product liability and sprinkler and water damage insurance policies maintained by the Company or any of its subsidiaries will be provided to Acquiror as soon as practicable, but in no event later than thirty (30) days after the date hereof. Except as set forth in Section 2.21 of the Company Disclosure Schedule, all such policies are with reputable insurance carriers and provide coverage amounts which the Company reasonably believes are both adequate for all normal risks incident to the current business of the Company and its subsidiaries and their respective properties and assets, and appropriate for the businesses currently conducted by the Company, except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 2.22 Interest Rate and Foreign Exchange Contracts. All interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements and foreign exchange contracts to hedge its investments in foreign subsidiaries, whether entered into for the account of the Company or one of its subsidiaries, were entered into in the ordinary course of business and, to the Company's knowledge, in accordance with prudent business and applicable rules, regulations and policies of any Governmental Authority and with counterparties believed to be financially responsible at the time, and are valid and binding obligations of the Company or one of its subsidiaries enforceable in accordance with their terms (except as may be limited by bankruptcy' insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies), and are in full force and effect. The Company and each of its subsidiaries have duly performed in all material respect all of their material obligations thereunder to the extent that such obligations to perform have accrued, and, to the Company's knowledge, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder. Section 2.23 Compliance With The Foreign Corrupt Practices Act. Since December 31, 1997, none of the Company nor any of its subsidiaries has committed a material violation of the United States Foreign Corrupt Practices Act or any law, rule or regulation of any other jurisdiction to the same effect. Section 2.24 Opinion of Financial Advisor. The Board of Directors of the Company has been advised by the Company Financial Advisor to the effect that in its opinion, as of the date of this Agreement, the Exchange Ratio is fair from a financial point of view to the holders of the Shares, other than the Stockholder. -31- ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR Acquiror hereby represents and warrants to the Company as follows: Section 3.01 Organization and Qualification; Subsidiaries. (a) Each of Guarantor and Acquiror is duly incorporated, validly existing and in good standing (to the extent the concept of good standing exists in the applicable jurisdiction) under the laws of its jurisdiction of incorporation and has the requisite corporate power and authority necessary to own, lease and operate the properties it purports to own, lease and operate and to carry on its business as now conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not reasonably be expected to have a Material Adverse Effect. Each of Guarantor and Acquiror is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities make such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Acquiror has heretofore made available to the Company true and complete copies of Guarantor's Memorandum of Association and Bye-Laws, as amended to date (the "Guarantor Charter Documents"). (b) Each subsidiary of Guarantor is an entity duly organized, validly existing and in good standing (to the extent the concept of good standing exists in the applicable jurisdiction) under the laws of its jurisdiction of organization, has the requisite corporate or other power and authority necessary to own, lease and operate the properties it purports to own, lease and operate and to carry on its business as now conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not reasonably be expected to have a Material Adverse Effect. Each subsidiary of Guarantor is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified or in good standing would not reasonably be expected to have a Material Adverse Effect. All of Guarantor's significant subsidiaries and their respective jurisdictions of incorporation are included in the subsidiary list contained in Guarantor's Annual Report on Form 10-K for the fiscal year ended September 30, 2000. Section 3.02 Capitalization. (a) The authorized capital stock of Guarantor consists of 2,500,000,000 Guarantor Common Shares and 125,000,000 Preference Shares, par value $1.00 per share ("Guarantor Preference Shares"). As of January 26, 2001, (i) 1,752,275,000 Guarantor Common Shares were issued and outstanding, all of which are duly authorized, validly issued, fully paid and non-assessable and none of which were issued in violation of preemptive or similar rights, (ii) no Guarantor Preference Shares were outstanding and (iii) no more than 14,000,000 Guarantor Common Shares and no Guarantor Preference Shares were held by subsidiaries of Guarantor. As of December 31, 2000, no more than 180,000,000 Guarantor Common Shares were reserved for issuance upon exercise of stock options issued under Guarantor's stock option plans. -32- (b) Except (i) as set forth in Section 3.02(a), (ii) for changes since December 31, 2000 resulting from the exercise of stock options, (iii) for (I) Liquid Yield Option Notes (LYONS) issued by Guarantor or its subsidiary and reflected in the notes to Guarantor's consolidated financial statements included in Guarantor's 2000 Form 10-K and (II) the zero coupon convertible debentures of a subsidiary of Guarantor reported in Guarantor's Current Report on Form 8-K filed February 9, 2001, and changes resulting from the exchange thereof, (iv) for other rights to acquire immaterial (individually or in the aggregate) amounts of Guarantor Common Shares and changes resulting from the exercise thereof, (v) for changes resulting from the grant of stock based compensation to directors or employees or (vi) for changes resulting from the issuance of stock in connection with a merger or other acquisition or business combination or an underwritten public offering or from the issuance of convertible or exchangeable debt securities in an underwritten public offering or in an offering pursuant to Rule 144A under the Securities Act, in each case determined by Guarantor's Board of Directors to be in the best interests of Guarantor and its shareholders and undertaken in compliance with Section 4.03(b), as applicable, there are no outstanding (x) shares of capital stock or voting securities of Guarantor, (y) securities of Guarantor convertible into or exchangeable for shares of capital stock or voting securities of Guarantor or (z) options or other rights to acquire from Guarantor or other obligation of Guarantor to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of Guarantor. There are no outstanding obligations of Guarantor or any of its subsidiaries to repurchase, redeem or otherwise acquire any of its equity securities. (c) The Guarantor Common Shares to be delivered as Merger Consideration have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will have been validly issued and will be fully paid and nonassessable, and the issuance thereof is not subject to any preemptive or other similar right. Section 3.03 Authority Relative to this Agreement. (a) The execution, delivery and performance by Guarantor and Acquiror of this Agreement, and the execution, delivery and performance by Guarantor of the Guarantee and the consummation by Guarantor and Acquiror of the transactions contemplated hereby and thereby, as applicable, are within the respective corporate powers of Guarantor and Acquiror and have been duly authorized by all necessary corporate action. This Agreement has been duly and validly executed and delivered and constitutes a valid and binding agreement of Acquiror, enforceable against it in accordance with its terms. The Guarantee has been duly and validly executed and delivered and constitutes a valid and binding agreement of Guarantor enforceable against it in accordance with its terms. (b) At a meeting duly called and held, or by written consent in lieu of a meeting, the Board of Directors of Acquiror has (i) unanimously determined that this Agreement and the transactions contemplated hereby are fair to and in the best interests of Acquiror and its shareholders and (ii) unanimously approved this Agreement and the transactions contemplated hereby. At a meeting duly called and held, Guarantor's Board of Directors has approved the Guarantee and the transactions contemplated thereby and the issuance of the Guarantor Common Shares to be delivered to the Company's stockholders in connection with the Merger. Section 3.04 No Conflicts; Required Filings and Consents. (a) The execution, delivery and performance by Acquiror of this Agreement, the execution, delivery and -33- performance by Guarantor of the Guarantee and the consummation by Guarantor and Acquiror of the Merger and the other transactions contemplated hereby and thereby, as applicable, require no action by or in respect of, or filing with, any Governmental Authority, other than (i) the filing and recordation of appropriate merger and other documents as required by the NGCL and the DGCL, (ii) compliance with any applicable requirements of the HSR Act and applicable Non-U.S. Monopoly Laws, (iii) compliance with any applicable requirements of the Securities Act, the Exchange Act, any applicable state securities laws, the Toronto Stock Exchange, the NYSE, the Bermuda Stock Exchange and the London Stock Exchange, (iv) compliance with Environmental Health and Safety Laws (v) the Regulatory Approvals and (vi) any actions or filings the absence of which would not be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect or materially impair the ability of Acquiror to consummate the Merger and the other transactions contemplated by this Agreement or the ability of Guarantor to fulfill its obligations under the Guarantee. As of the date hereof, Acquiror does not know of any reason why all Regulatory Approvals should not be timely obtained. (b) The execution, delivery and performance by Acquiror of this Agreement, the execution, delivery and performance by Guarantor of the Guarantee and the consummation by Guarantor and Acquiror of the transactions contemplated hereby and thereby, as applicable, do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the Guarantor Charter Documents or the Articles of Incorporation or By-laws of Acquiror (or equivalent organizational documents), (ii) assuming compliance with the matters referred to in Section 3.04(a), contravene, conflict with or result in a violation or breach of any provision of any law, rule, regulation, judgment, injunction, order or decree applicable to Guarantor or any of its subsidiaries, (iii) require any consent or other action by any person under, constitute a default under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which Guarantor or any of its subsidiaries is entitled under any provision of any Material Agreement or instrument binding upon Guarantor or any of its subsidiaries or any material license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of the Acquiror and its subsidiaries; provided that, for purposes of this Subsection 3.04(b)(iii), "Material Agreement" shall mean any agreement identified in Guarantor's Annual Report on Form 10-K for the fiscal year ended September 30, 2000 or any agreement entered into since September 30, 2000 that would be required to be so identified in Guarantor's Annual Report on Form 10-K for the fiscal year ended September 30, 2001 or with respect to which the failure to obtain such consent or take such action, or the occurrence of such default, termination, cancellation, acceleration, change or loss, would reasonably be expected to have a Material Adverse Effect, or (iv) result in the creation or imposition of any encumbrance on any material asset of Guarantor or any of its subsidiaries. Section 3.05 Compliance; Permits. Except as set forth in the reports, schedules, forms, statements and other documents (the "Guarantor SEC Documents") filed by the Guarantor with the SEC since September 30, 2000 and prior to the date of this Agreement, neither Guarantor nor any of its subsidiaries is in conflict with, or in default or violation of, (i) any law, rule, regulation, order, judgment or decree applicable to Guarantor or any of its subsidiaries or by which its or any of their respective properties is bound or affected or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Guarantor or any of its subsidiaries is a party or by which -34- Guarantor or any of its subsidiaries or its or any of their respective properties is bound or affected, except for any such conflicts, defaults or violations which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Except as set forth in the Guarantor SEC Documents, the Guarantor and its subsidiaries hold all permits, licenses, easements, variances, exemptions, consents, certificates, orders and approvals from governmental authorities which are material to the operation of the business of the Guarantor and its subsidiaries, taken as a whole, as it is now being conducted (collectively, the "Guarantor Permits"), except where the failure to hold such Guarantor Permits would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. The Guarantor and its subsidiaries are in compliance with the terms of the Guarantor Permits, and have not failed to comply therewith as a result of which they would reasonably be expected to have liability now or in the future, except as described in the Guarantor SEC Documents or where the failure to so comply would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 3.06 SEC Filings; Financial Statements. (a) Guarantor has filed with the SEC all reports, schedules, forms, statements and other documents (including all exhibits thereto) required to be filed with the SEC since September 30, 1998 (the "Post-1998 Guarantor SEC Documents"). Except as set forth in the Guarantor SEC Documents, such reports, schedules, forms statements and other documents were prepared in all material respects in accordance with the applicable requirements of the Securities Act or the Exchange Act, as the case may be; and did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. With the exception of TyCom Ltd., none of the Guarantor's subsidiaries is required to file with the SEC periodic reports pursuant to the Exchange Act. To Acquiror's knowledge, no investigation by the SEC with respect to Guarantor or any of its subsidiaries is pending or threatened. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Post-1998 Guarantor SEC Documents were prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or in the Post-1998 Guarantor SEC Documents), and each fairly presents in all material respects, the consolidated financial position of Guarantor and its consolidated subsidiaries as at the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated, except that for purposes of the foregoing representation, the unaudited interim financial statements (i) shall be read in conjunction with the Guarantor's consolidated financial statements contained in the Guarantor's 2000 Annual Report on Form 10-K, and (ii) were or are subject to normal and recurring year end adjustments which were not or are not expected to be material in amount. Section 3.07 Absence of Certain Changes or Events. Except as set forth in the Guarantor SEC Documents, since September 30, 2000, the business of Guarantor and its subsidiaries has been conducted in the ordinary course and there has not occurred: (i) any changes, effects or circumstances, including any damage to, destruction or loss of any asset of the Company (whether or not covered by insurance) constituting, individually or in the -35- aggregate, a Material Adverse Effect; (ii) any amendments or changes in the Guarantor Charter Documents, except as contemplated by Section 4.03(a); (iii) any material change by Guarantor in its accounting methods, principles or practices (other than as required by GAAP subsequent to the date of this Agreement); or (iv) any sale of a material amount of assets of Guarantor, except in the ordinary course of business. Section 3.08 No Undisclosed Liabilities. Except as set forth in the Guarantor SEC Documents, neither Guarantor nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise), except liabilities (i) in the aggregate adequately provided for in Guarantor's balance sheet (including any related notes thereto) as of September 30, 2000 included in Guarantor's 2000 Form 10-K for the fiscal period ended September 30, 2000 (the "2000 Guarantor Balance Sheet"), (ii) incurred in the ordinary course of business and not required under GAAP to be reflected on the 2000 Guarantor Balance Sheet, (iii) incurred since September 30, 2000 in the ordinary course of business, (iv) incurred in connection with this Agreement, or the Merger or the other transactions contemplated hereby, or (v) which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 3.09 Absence of Litigation. Except as set forth in the Guarantor SEC Documents or arising out of the transactions contemplated by this Agreement, there are no claims, actions, suits, proceedings or investigations pending or, to the knowledge of Guarantor, threatened against Guarantor or any of its subsidiaries, or any properties or rights of Guarantor or any of its subsidiaries, before any court, arbitrator or Governmental Authority, that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 3.10 Registration Statement; Proxy Statement/Prospectus. (a) Subject to the accuracy of the representations of the Company in Section 2.13: (i) the registration statement on Form S-4 (or on such other form as shall be appropriate) (as it may be amended, the "Registration Statement"), pursuant to which the Guarantor Common Shares to be delivered to the stockholders of the Company by Acquiror in connection with the Merger will be registered with the SEC, shall not, at the respective times the Registration Statement (including any amendments or supplements thereto) is filed with the SEC or is declared effective by the SEC, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements included therein not misleading; and (ii) the information supplied by Guarantor or Acquiror for inclusion in the Proxy Statement/Prospectus will not, on the date the Proxy Statement/Prospectus (or any amendment thereof or supplement thereto) is filed with the SEC or first mailed to stockholders or at the time of the Company Stockholders Meeting, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein not false or misleading, or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Company Stockholders Meeting which has become false or misleading. -36- (b) If at any time prior to the Effective Time any event relating to Acquiror or any of its affiliates, officers or directors should be discovered by Acquiror which should be set forth in an amendment to the Registration Statement or a supplement to the Proxy Statement/Prospectus, Acquiror will promptly inform the Company. (c) The Registration Statement and the Proxy Statement/Prospectus shall comply in all material respects with the requirements of all applicable laws, including the Securities Act and the Exchange Act and the rules and regulations thereunder. (d) Notwithstanding the foregoing, Acquiror makes no representation or warranty with respect to any information supplied by the Company which is contained or incorporated by reference in, or furnished in connection with the preparation of, the Registration Statement or the Proxy Statement/Prospectus. Section 3.11 Restrictions on Business Activities. Except for this Agreement or as set forth in the Guarantor SEC Documents, to the Guarantor's knowledge, there is no agreement, judgment, injunction, order or decree binding upon the Guarantor or any of its subsidiaries which has or would reasonably be expected to have the effect of prohibiting or impairing the conduct of business by the Guarantor or any of its subsidiaries, or restricting any transactions (including payment of dividends and distributions) between the Guarantor and its subsidiaries, except for any prohibition or impairment as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Section 3.12 Taxes. Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect: (a) Guarantor and each of its subsidiaries has timely and accurately filed, or caused to be timely and accurately filed, all Tax Returns required to be filed by it, and has paid, collected or withheld, or caused to be paid, collected or withheld, all Taxes required to be paid, collected or withheld, other than such Taxes for which adequate reserves in the 2000 Guarantor Balance Sheet have been established or which are being contested in good faith. There are no claims or assessments pending against the Company or any of its subsidiaries for any alleged deficiency in any Tax, there are no pending or, to the knowledge of the Guarantor, threatened audits or investigations for or relating to any liability in respect of any Taxes, and the Guarantor has not been notified in writing of any proposed Tax claims or assessments against the Guarantor or any of its subsidiaries (other than in each case, claims or assessments for which adequate reserves in the 2000 Guarantor Balance Sheet have been established or which are being contested in good faith). Neither the Guarantor nor any of its subsidiaries has executed any waivers or extensions of any applicable statute of limitations to assess any Taxes. There are no outstanding requests by the Guarantor or any of its subsidiaries for any extension of time within which to file any Tax Return or within which to pay any Taxes shown to be due on any Tax Return. To the best knowledge of the Guarantor, there are no liens for Taxes on the assets of the Guarantor or any of its subsidiaries except for statutory liens for current Taxes not yet due and payable. Other than with respect to the Guarantor and its subsidiaries, neither the Guarantor nor any of its subsidiaries is liable for Taxes of any other person, or is currently under any contractual obligation to indemnify any person with respect to Taxes (except for customary agreements to indemnify lenders or security holders in respect of Taxes and except for provisions in agreements -37- for the divestiture of subsidiaries, assets or business lines of the Guarantor or its subsidiaries that require the Guarantor or its subsidiaries (as applicable) to indemnify a purchaser or purchase group for amounts of Taxes of the Guarantor or its subsidiaries (as applicable) in the nature of sales or similar Taxes incurred as a consequence of any such divestiture transactions), or is a party to any tax sharing agreement or any other agreement providing for payments by the Guarantor or any of its subsidiaries with respect to Taxes. Section 3.13 Environmental Matters. (a) Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, the operations and properties of the Guarantor and its subsidiaries are in compliance with the Environmental Laws, which compliance includes the possession by the Guarantor and its subsidiaries of all permits and governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof. (b) Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, there are no Environmental Claims, including claims based on "arranger liability," pending or, to the knowledge of the Guarantor, threatened against the Guarantor or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Guarantor or any of its subsidiaries has retained or assumed. (c) Except as set forth in the Guarantor SEC Documents, there are no past or present actions, circumstances, conditions, events or incidents, including the release, emission, discharge, presence or disposal of any Materials of Environmental Concern, that are reasonably likely to form the basis of any Environmental Claim against the Guarantor or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Guarantor or any of its subsidiaries have retained or assumed, except for such Environmental Claims that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (d) Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or as set forth in the Guarantor SEC Documents, (i) there are no off-site locations where the Guarantor or any of its subsidiaries has stored, disposed or arranged for the disposal of Materials of Environmental Concern which have been listed on the National Priority List, CERCLIS, or state Superfund site list, and the Guarantor and its subsidiaries have not been notified that any of them is a potentially responsible party at any such location; (ii) there are no underground storage tanks located on property owned or leased by the Guarantor or any of its subsidiaries; (iii) there is no friable asbestos containing material contained in or forming part of any building, building component, structure or office space owned, leased or operated by the Guarantor or any of its subsidiaries; and (iv) there are no PCBs or PCB-containing items contained in or forming part of any building, building component, structure or office space owned, leased or operated by the Guarantor or any of its subsidiaries. Section 3.14 Brokers. Except for Lehman Brothers and Goldman, Sachs & Co., the fees and expenses of which will be paid by Acquiror, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Acquiror or Guarantor who might be entitled to any fee or commission from Acquiror, Guarantor -38- or any of their respective affiliates in connection with the transactions contemplated by this Agreement. Section 3.15 Ownership of Acquiror. Acquiror is a direct, wholly-owned subsidiary of Guarantor. Section 3.16 No Prior Activities. (a) Acquiror was formed solely for the purpose of engaging in the transactions contemplated by this Agreement. (b) Except for obligations or liabilities incurred by Acquiror in connection with its incorporation or organization and the transactions contemplated by this Agreement and except for this Agreement and any other agreements or arrangements contemplated by this Agreement, Acquiror has not incurred, directly or indirectly, through any subsidiary or affiliate, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any person. Section 3.17 No Vote Required. No vote of the shareholders of Guarantor is required by law, Guarantor's Charter Documents or otherwise in order for Acquiror to consummate the Merger and the other transactions contemplated hereby, as applicable. ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER Section 4.01 Conduct of Business by the Company. The Company covenants and agrees that, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, unless Acquiror shall otherwise agree in writing, and except as set forth in Section 4.01 of the Company Disclosure Schedule, the Company shall conduct its business and shall cause the businesses of its subsidiaries to be conducted only in, and the Company and its subsidiaries shall not take any action except in, the ordinary course of business and in a manner consistent with past practice; and the Company shall use reasonable commercial efforts, subject to the terms of this Agreement, to preserve substantially intact the business organization of the Company and its subsidiaries, to keep available the services of the present officers, employees and consultants of the Company and its subsidiaries and to preserve the present relationships of the Company and its subsidiaries with customers, suppliers and other persons with which the Company or any of its subsidiaries has significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement, neither the Company nor any of its subsidiaries shall, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, and except as set forth in Section 4.01 of the Company Disclosure Schedule, directly or indirectly do, or propose to do, any of the following without the prior written consent of Acquiror, which, in the case of clauses (c), (d)(iv), (e), (f), (h) or (i), will not be unreasonably withheld or delayed: (a) amend or otherwise change the Company Charter Documents; (b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, -39- warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest) in the Company, any of its subsidiaries or affiliates (except for the issuance of shares of Company Common Stock issuable pursuant to Company Stock Options outstanding on the date hereof or pursuant to the Company Employee Plans set forth in Section 4.01(b) of the Company Disclosure Schedule or in exchange for the Exchangeco Shares); (c) sell, pledge, dispose of or encumber any assets of the Company or any of its subsidiaries (except for (i) sales of assets in the ordinary course of business and in a manner consistent with past practice, (ii) dispositions of obsolete or worthless assets, and (iii) sales of immaterial assets not in excess of $20 million in the aggregate); (d) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except that a wholly-owned subsidiary of the Company may declare and pay a dividend to its parent that is not a cross-border dividend and except that the Company may declare and pay prior to the Effective Time quarterly cash dividends of up to $0.10 per Share and equivalent dividends on the Exchangeco Shares consistent with past practice, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iii) except (A) as contemplated by this Agreement, (B) as required by the terms of any security as in effect on the date hereof and set forth in Section 4.01(d) of the Company Disclosure Schedule and (C) to the extent necessary to effect withholding to meet minimum tax withholding obligations or pay the exercise price in connection with the exercise of any Company Stock Option, amend the terms or change the period of exercisability of, purchase, repurchase, redeem or otherwise acquire, or permit any subsidiary to amend the terms or change the period of exercisability of, purchase, repurchase, redeem or otherwise acquire, any of its securities or any securities of its subsidiaries, including, without limitation, shares of Company Common Stock or Exchangeco Shares, or any option, warrant or right, directly or indirectly, to acquire any such securities, or propose to do any of the foregoing, (iv) settle, pay or discharge any claim, suit or other action brought or threatened against the Company with respect to or arising out of a stockholder equity interest in the Company, or (v) make any cross-border capital contributions to a subsidiary; (e) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership, limited liability company or other business organization or division thereof; (ii) incur any indebtedness for borrowed money, except for (x) aggregate borrowings and reborrowings under the Company's or any of its subsidiaries' medium term note and commercial paper programs (but not under the credit facilities used to support the commercial paper program) and (y) other borrowing, not in excess of $500 million in the aggregate; (iii) issue any debt securities or assume, guarantee (other than guarantees of the Company's subsidiaries entered into in the ordinary course of business and except as required by any agreement in effect as of the date hereof and identified in Section 4.01(e) of the Company Disclosure Schedule) or endorse, or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances, except in the ordinary course of business consistent with past practice (but not loans or advances to employees of the Company to fund the exercise price of Company Stock Options or otherwise to purchase shares of the Company Common Stock); or (iv) authorize any capital expenditures or purchases of fixed assets -40- (other than assets acquired to be leased) which are, in the aggregate, in excess of $15 million over the next 12 month period; or (v) enter into or materially amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 4.01(e); (f) (i) increase the compensation or severance payable or to become payable to its directors, officers, employees or consultants, except for increases in salary or wages of employees of the Company or its subsidiaries, including in connection with promotions, in accordance with past practices; or (ii) grant any severance or termination pay to (except to make payments required to be made under obligations existing on the date hereof in accordance with the terms of such obligations), or enter into or amend any employment or severance agreement, with any current or prospective employee of the Company or any of its subsidiaries, except for new hire employees in the ordinary course of business whose annual salary does not exceed $200,000 and whose severance benefits do not exceed one times annual salary (base and bonus); or (iii) establish, adopt, enter into or amend any collective bargaining agreement, Company Employee Plan, including, without limitation, any plan that provides for the payment of bonuses or incentive compensation, trust, fund, policy or arrangement for the benefit of any current or former directors, officers, employees or consultants or any of their beneficiaries, except, in each case, as may be required by law; (g) take any action to change accounting policies or procedures (including, without limitation, procedures with respect to revenue recognition, payments of accounts payable and collection of accounts receivable) except as required by a change in GAAP or the interpretations thereof occurring after the date hereof; (h) make any tax election or settle or compromise any United States federal, state, local or non-United States tax liability; (i) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise) in excess of $10 million in the aggregate, other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in the financial statements contained in the Company SEC Documents or incurred in the ordinary course of business and consistent with past practice; (j) materially restructure or materially change its gap position, through purchases, sales, hedges, swaps, caps or collars or otherwise or the manner in which any current hedges are classified or reported; or (k) take, or agree in writing or otherwise to take, any of the actions described in Sections 4.01(a) through (j) above, or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue or incorrect or prevent the Company from performing or cause the Company not to perform its covenants hereunder or cause any condition to the Company's obligations to consummate the transactions contemplated hereby set forth in Article VI not to be satisfied. -41- Section 4.02 No Solicitation. (a) The Company shall not, directly or indirectly through any officer, director, employee, representative or agent of the Company or any of its subsidiaries (including any investment banker, attorney or accountant retained by it or any of its subsidiaries), (i) solicit or encourage the initiation of (including by way of furnishing information) any inquiries or proposals regarding any merger, sale of assets, sale of shares of capital stock (including, without limitation, by way of a tender offer) or similar transactions involving the Company or any subsidiaries of the Company that if consummated would constitute an Alternative Transaction (as defined below) (any of the foregoing inquiries or proposals being referred to herein as an "Acquisition Proposal"), (ii) have any discussion with or provide any confidential information or data to any third party that would encourage, facilitate or further an Acquisition Proposal, or engage in any negotiations concerning an Acquisition Proposal, or knowingly facilitate any effort or attempt to make or implement an Acquisition Proposal, (iii) approve or recommend, or propose publicly to approve or recommend, any Acquisition Proposal or (iv) approve or recommend, or propose to approve or recommend, or execute or enter into, any letter of intent, agreement in principle, merger agreement, acquisition agreement, option agreement or other similar agreement or propose publicly or agree to do any of the foregoing related to any Acquisition Proposal. For purposes of this Agreement, "Alternative Transaction" means any of (w) a transaction pursuant to which any person (or group of persons) other than Acquiror or its affiliates (a "Third Party") acquires or would acquire more than 20% of the outstanding shares of any class of equity securities of the Company, whether from the Company or pursuant to a tender offer or exchange offer or otherwise, (x) a merger or other business combination involving the Company pursuant to which any Third Party acquires or would acquire more than 20% of the outstanding equity securities of the Company or the entity surviving such merger or business combination, (y) any transaction pursuant to which any Third Party acquires or would acquire control of assets (including for this purpose the outstanding equity securities of subsidiaries of the Company and securities of the entity surviving any merger or business combination including any of the Company's subsidiaries) of the Company, or any of its subsidiaries having a fair market value (as determined by the Board of Directors of the Company in good faith) equal to more than 20% of the fair market value of all the assets of the Company and its subsidiaries, taken as a whole, immediately prior to such transaction, or (z) any other consolidation, business combination, recapitalization or similar transaction involving the Company or any significant subsidiary of the Company, other than the transactions contemplated by this Agreement; provided, however, that the term Alternative Transaction shall not include any acquisition of securities by a broker dealer in connection with a bona fide public offering of such securities. (b) The Company shall notify Acquiror promptly (but in no event later than 24 hours) after receipt of any Acquisition Proposal, or any modification of or amendment to any Acquisition Proposal, or any request for nonpublic information relating to the Company or any of its subsidiaries in connection with an Acquisition Proposal or for access to the properties, books or records of the Company or any subsidiary by any person or entity that informs the Board of Directors of the Company or such subsidiary that it is considering making, or has made, an Acquisition Proposal. Such notice to Acquiror shall be made orally and in writing, and shall -42- indicate the identity of the person making the Acquisition Proposal or intending to make an Acquisition Proposal or requesting non-public information or access to the books and records of the Company, the terms of any such Acquisition Proposal or modification or amendment to an Acquisition Proposal. The Company shall keep Acquiror fully informed, on a current basis, of any material changes in the status and any material changes or modifications in the material terms of any such Acquisition Proposal, indication or request. (c) Neither the Company nor the Board of Directors of the Company shall withdraw or modify, or publicly propose to withdraw or modify, in a manner adverse to Acquiror, the approval by such Board of Directors of this Agreement or the Merger. (d) The Company and the Board of Directors of the Company shall not enter into any agreement with respect to, or otherwise approve or recommend, or propose to approve or recommend, any Acquisition Proposal or Alternative Transaction, unless this Agreement has been terminated in accordance with its terms. (e) Nothing contained in this Section 4.02, Section 5.01(c) or Section 5.02 shall prohibit the Company from taking and disclosing to its stockholders a position required by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to its stockholders required by applicable law, rule or regulation, by the NYSE or the Toronto Stock Exchange or from providing information to, or engaging in discussions with, third parties to the extent that providing such information or engaging in such discussions is expressly required by applicable Delaware law and the Board of Directors of the Company has received a written opinion of independent counsel of nationally recognized standing that such action is so expressly required. (f) The Company shall immediately cease and cause to be terminated any existing discussions or negotiations with any persons (other than Acquiror) conducted heretofore with respect to any of the foregoing. The Company agrees not to release any third party from the confidentiality and standstill provisions of any agreement to which the Company is a party, other than agreements with the Company's customers and suppliers entered into in the ordinary course of business. (g) The Company shall ensure that the officers and directors of the Company and the Company subsidiaries and any investment banker or other advisor or representative retained by the Company, or providing services to the Company, in connection with the transactions contemplated hereby are aware of the restrictions described in this Section 4.02. It is understood that any violation of the restrictions set forth in this Section 4.02 by any officer or director of the Company or the Company subsidiaries and any investment banker, attorney or other advisor or representative of the Company shall be deemed to be a breach of this Section 4.02 by the Company. Section 4.03 Conduct of Business by Guarantor. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, Acquiror covenants and agrees that, unless the Company shall otherwise agree in writing, Acquiror shall take all action necessary so that (i) Guarantor shall conduct its business, and cause the businesses of its subsidiaries to be conducted, in the ordinary course of -43- business and consistent with past practice, including actions taken by Guarantor or its subsidiaries in contemplation of consummation of the Merger or other business acquisitions otherwise in compliance with this Agreement, and (ii) Guarantor shall not directly or indirectly do, or propose to do, any of the following without the prior written consent of the Company: (a) amend or otherwise change the Guarantor Charter Documents, except as contemplated by this Agreement or as proposed in Guarantor's proxy statement for its 2001 annual general meeting of shareholders filed with the SEC on January 29, 2001; (b) acquire or agree to acquire, by merging or consolidating with, by purchasing an equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets of any other person, or dispose of any assets, which, in any such case, would, or would reasonably be expected to, materially delay or prevent the consummation of the Merger and the other transactions contemplated by this Agreement; (c) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except that a wholly owned subsidiary of Guarantor may declare and pay a dividend to its parent, and except that Guarantor may declare and pay quarterly cash dividends on the Guarantor Common Shares of up to $0.0125 per share consistent with past practice; (d) take any action to change its accounting policies or procedures (including, without limitation, procedures with respect to revenue recognition, payments of accounts payable and collection of accounts receivable), except as required by a change in GAAP occurring after the date hereof; or (e) take or agree in writing or otherwise to take any of the actions described in Sections 4.03(a) through (d) above, or any action that would make any of the representations or warranties of Acquiror contained in this Agreement untrue or incorrect or prevent Acquiror from performing or cause Acquiror not to perform its covenants hereunder or cause any condition to Acquiror's obligations to consummate the transactions contemplated hereby set forth in Article VI not to be satisfied. ARTICLE V ADDITIONAL AGREEMENTS Section 5.01 Proxy Statement/Prospectus; Registration Statement. (a) As promptly as reasonably practicable after the execution of this Agreement, the Company shall, and Acquiror shall cause Guarantor to, prepare and file with the SEC, preliminary proxy materials which shall constitute the Proxy Statement/Prospectus and, if the parties so agree at the time, the Registration Statement. As promptly as reasonably practicable after comments are received from the SEC thereon and after the furnishing by the Company and Guarantor of all information required to be contained therein, the Company shall, and Acquiror shall, and shall cause Guarantor to, file with the SEC, the definitive Proxy -44- Statement/Prospectus and the Registration Statement (or, if the Registration Statement has been previously filed, an amendment thereto) relating to the adoption of this Agreement by the Company's stockholders as set forth in Section 2.04(c) and the other transactions contemplated hereby, and to the payment of the Merger Consideration in the form of Guarantor Common Shares pursuant to this Agreement, and shall use all reasonable efforts to cause the Registration Statement to become effective, and the Company shall mail the Proxy Statement/Prospectus to its stockholders as soon thereafter as reasonably practicable. Acquiror shall also cause Guarantor to take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified or to file a general consent to service of process) required to be taken under the applicable state securities laws in connection with the issuance of Guarantor Common Shares in connection with the Merger, and the Company shall furnish to Guarantor all information concerning the Company and the holders of capital stock of the Company as may be reasonably requested in connection with any such action and the preparation, filing and distribution of the Proxy Statement/Prospectus. No filing of, or amendment or supplement to, or correspondence to the SEC or its staff with respect to the Proxy Statement/Prospectus will be made by the Company or Guarantor, without providing the other party a reasonable opportunity to review and comment thereon. Acquiror will advise the Company, promptly after Guarantor receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the Guarantor Common Shares issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Registration Statement or comments thereon and responses thereto or requests by the SEC for additional information. The Company will advise Acquiror, promptly after it receives notice thereof, of any request by the SEC for the amendment of the Proxy Statement/Prospectus or comments thereon and responses thereto or requests by the SEC for additional information. If at any time prior to the Effective Time any information relating to the Company or Acquiror, or any of their respective affiliates, officers or directors, should be discovered by the Company or Acquiror which should be set forth in an amendment or supplement to either of the Registration Statement or the Proxy Statement/Prospectus so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other parties hereto and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the stockholders of the Company. (b) Acquiror shall cause Guarantor to include as an exhibit to the Registration Statement tax opinions of PricewaterhouseCoopers LLP and Wachtell, Lipton Rosen & Katz, in form and substance reasonably satisfactory to Acquiror and to the Company, on the basis of customary facts, representations, warranties, covenants and assumptions set forth or referred to in such opinions, that the Merger will be treated for United States federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code that is not subject to Section 367(a)(1) of the Code pursuant to Treasury Regulation Section 1.367(a)-(3)(c) (other than with respect to Company stockholders who are or will be "five-percent transferee shareholders" -45- within the meaning of Treasury Regulation Section 1.367(a)-3(c)(5)(ii) and do not enter into five-year gain recognition agreements in the form provided in Treasury Regulation Section 1.367(a)-8), and that each of Guarantor, Acquiror and the Company will be a party to the reorganization within the meaning of Section 368(b) of the Code. (c) The Proxy Statement/Prospectus shall include the recommendation of the Board of Directors of the Company in favor of adoption of this Agreement. Section 5.02 Company Stockholders Meeting. The Company shall establish a record date for, duly call, give notice of, convene and hold the Company Stockholders Meeting as promptly as practicable for the purpose of voting upon the adoption of this Agreement, and the Company shall use all reasonable efforts to cause the Proxy Statement/Prospectus to be mailed to the Company's stockholders and to hold the Company Stockholders Meeting as promptly as practicable after the Registration Statement is declared effective under the Securities Act. The Company shall solicit from its stockholders proxies in favor of adoption of this Agreement and shall take all other reasonable action necessary or advisable to secure the vote or consent of stockholders in favor of such adoption. Acquiror shall cause Guarantor to vote any shares of Company Common Stock with respect to which Guarantor or any Guarantor subsidiary has beneficial ownership or other voting authority (including proxy authority) to be voted in favor of adoption of this Agreement. Section 5.03 Access to Information; Confidentiality. (a) Upon reasonable notice, the Company shall (and shall cause its subsidiaries and joint venture partners to), during the period after the execution and delivery of this Agreement and prior to the Effective Time, (i) afford to the officers, employees, accountants, counsel, investment bankers, valuation consultants and other representatives of Acquiror full and complete access to the properties, books, records and contracts and agreements of the Company, its subsidiaries and joint ventures, (ii) furnish promptly to Acquiror all information concerning the business, properties, prospects, assets (tangible and intangible), liabilities, financial statements, ratings, regulatory compliance, risk management, books, records, contracts, agreements, commitments and personnel of the Company, its subsidiaries and joint ventures as Acquiror may request, and (iii) make available to Acquiror the appropriate officers, employees, consultants and other individuals of the Company, its subsidiaries and joint ventures (including attorneys, accountants, actuaries, investment bankers and other professionals) for discussion of the Company's business, properties, prospects, assets (tangible and intangible), liabilities, financial statements, ratings, regulatory compliance, risk management, books, records, contracts, agreements, commitments and personnel as Acquiror may request. Such information shall be kept confidential in accordance with the terms of the confidentiality agreement, dated February 19, 2001 (the "Confidentiality Agreement"), between an affiliate of Guarantor and the Company. (b) Upon reasonable notice, the Acquiror shall, and shall cause Guarantor to, during the period after the execution and delivery of this Agreement and prior to the Effective Time, (i) afford to the officers, accountants, counsel, investment bankers and other representatives of the Company reasonable access to the properties of Guarantor and its subsidiaries, (ii) furnish promptly to Acquiror all information concerning the business, properties and prospects of Guarantor and its subsidiaries as the Company may reasonably request, and (iii) -46- make available to the Company the appropriate individuals of Guarantor and its subsidiaries (including attorneys, accountants and other professionals) for discussion of Guarantors business, properties and prospects as the Company may reasonably request. Such information shall be kept confidential in accordance with the terms of the Confidentiality Agreement. Section 5.04 Consents; Approvals. (a) Subject to Section 5.08, the Company and Acquiror shall each use its reasonable best efforts (and Acquiror shall cause Guarantor to use its reasonable best efforts) to obtain and to cooperate with each other in order to obtain all consents, waivers, approvals, authorizations or orders (including, without limitation, all United States and non-United States governmental and regulatory rulings and approvals), and the Company and Acquiror shall make (and Acquiror shall cause Guarantor to make) as promptly as reasonably practicable all filings (including, without limitation, all filings with United States and non-United States governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by the Company and Acquiror and the consummation by them of the transactions contemplated hereby. The Company and Acquiror shall furnish (and Acquiror shall cause Guarantor to furnish) all information required to be included in the Proxy Statement/Prospectus and the Registration Statement, or for any application or other filing to be made pursuant to the rules and regulations of any United States or non-United States governmental body in connection with the transactions contemplated by this Agreement. (b) The Company shall, and Acquiror shall and shall cause Guarantor to, notify the other promptly upon the receipt of any comments from the SEC or its staff or any other government officials in connection with any filing made pursuant hereto and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Registration Statement, the Proxy Statement/Prospectus or any other filings or for additional information and will supply the other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Registration Statement, the Proxy Statement/Prospectus, the Merger or any other filing. The Company shall, and Acquiror shall and shall cause Guarantor to, cause all documents that it is responsible for filing with the SEC or other regulatory authorities under Section 5.01 and this Section 5.04 to comply in all material respects with all applicable requirements of law and the rules and regulations promulgated thereunder. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Registration Statement, the Proxy Statement/Prospectus or any other filing, the Company will, or Acquiror will cause Guarantor to, as the case may be, promptly inform the other of such occurrence and cooperate in filing with the SEC or its staff or any other government officials and/or mailing to stockholders of the Company, such amendment or supplement. Section 5.05 Agreements with Respect to Affiliates. The Company shall deliver to Acquiror, prior to the date the Registration Statement becomes effective under the Securities Act, a letter (the "Company Affiliate Letter") identifying all persons who are anticipated to be "affiliates" of the Company for purposes of Rule 145 under the Securities Act at the time of the Company Stockholders Meeting. The Company shall use its reasonable best efforts to cause each person who is identified as an "affiliate" in the Company Affiliate Letter to deliver to -47- Acquiror prior to the date of the Company Stockholders Meeting a written agreement (a "Company Affiliate Agreement") in connection with restrictions on affiliates under Rule 145 in a form mutually agreeable to the Company and Acquiror. Section 5.06 Indemnification and Insurance. (a) The Certificate of Incorporation and By-laws of the Surviving Corporation shall contain the provisions with respect to indemnification set forth in the Company Charter Documents, which provisions shall not be amended, modified or otherwise repealed for a period of six years from the Effective Time in any manner that would adversely affect the rights thereunder as of the Effective Time of individuals who at the Effective Time were directors or officers of the Company, unless such modification is required after the Effective Time by law and then only to the minimum extent required by such law. (b) The Surviving Corporation shall, to the fullest extent permitted under applicable law indemnify and hold harmless, each present and former director or officer of the Company or any of its subsidiaries (collectively, the "Indemnified Parties") against any costs or expenses (including attorneys' fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, (x) arising out of or pertaining to the transactions contemplated by this Agreement or (y) otherwise with respect to any acts or omissions occurring at or prior to the Effective Time, to the same extent as provided in the Company Charter Documents or any applicable contract or agreement as in effect on the date hereof, in each case for a period of six years after the Effective Time. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) any counsel retained by the Indemnified Parties for any period after the Effective Time shall be reasonably satisfactory to the Surviving Corporation, (ii) after the Effective Time, the Surviving Corporation shall pay the reasonable fees and expenses of such counsel, promptly after statements therefor are received, provided that the Indemnified Parties shall be required to reimburse the Surviving Corporation for such payments in the circumstances and to the extent required by the Company Charter Documents, any applicable contract or agreement with such Indemnified Party or applicable law, and (iii) the Surviving Corporation will cooperate in the defense of any such matter; provided, however, that the Surviving Corporation shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld); and provided further that, in the event that any claim or claims for indemnification are asserted or made within such six-year period, all rights to indemnification in respect of any such claim or claims shall continue until the final disposition of any and all such claims. The Indemnified Parties as a group may retain only one law firm to represent them in each applicable jurisdiction with respect to any single action unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties, in which case each Indemnified Person with respect to whom such a conflict exists (or group of such Indemnified Persons who among them have no such conflict) may retain one separate law firm in each applicable jurisdiction. (c) The Surviving Corporation shall honor and fulfill in all respects the obligations of the Company pursuant to indemnification agreements and employment agreements (the parties under such agreements being referred to as the "Covered Persons") with the -48- Company's directors and officers existing at or before the Effective Time, provided such agreements do not violate Section 4.01(f). (d) In addition, Acquiror will provide, or cause the Guarantor to provide, for a period of not less than six years after the Effective Time, the Company's current directors and officers (as defined to mean those persons insured under such policy) with an insurance and indemnification policy that provides coverage for events occurring at or prior to the Effective Time (the "D&O Insurance") that is no less favorable than the existing policy or, if substantially equivalent insurance coverage is unavailable, the best available coverage; provided, however, that Guarantor and the Surviving Corporation shall not be required to pay an annual premium for the D&O Insurance in excess of 200% of the annual premium currently paid by the Company for such insurance, but in such case shall purchase as much such coverage as possible for such amount. (e) This Section shall survive the consummation of the Merger at the Effective Time, is intended to benefit the Company, the Surviving Corporation, the Indemnified Parties and the Covered Persons, shall be binding on all successors and assigns of the Surviving Corporation and shall be enforceable by the Indemnified Parties and the Covered Persons. Section 5.07 Notification of Certain Matters. The Company shall give prompt notice to Acquiror, and Acquiror shall give prompt notice to the Company, of (i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would reasonably be expected to cause any representation or warranty contained in this Agreement to be materially untrue or inaccurate, or (ii) any failure of the Company or Acquiror, as the case may be, materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice; and provided further that failure to give such notice shall not be treated as a breach of covenant for the purposes of Section 7.01(h) unless and except to the extent that the failure to give such notice results in material prejudice to the other party. Section 5.08 Further Action/Tax Treatment. (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable efforts to, and Acquiror shall cause Guarantor to use all reasonable efforts to, take, or cause to be taken, all actions and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings, and otherwise to satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement. The foregoing covenant shall not include the obligation by Guarantor to agree to divest, abandon, license, hold separate or take similar action with respect to any assets (tangible or intangible) which are, or impose any liability which is, material to Guarantor or the Company or material as compared against the aggregate Merger Consideration. (b) Each of Acquiror and the Company shall, and Acquiror shall cause Guarantor to, use its reasonable best efforts to cause the Merger to qualify, and will not (both -49- before and after the Effective Time) take any actions, or fail to take any action, which could reasonably be expected to prevent the Merger from qualifying, as a reorganization under the provisions of Section 368(a) of the Code that is not subject to Section 367(a)(1) of the Code pursuant to Treasury Regulation Section 1.367(a)-(3)(c) (other than with respect to Company stockholders who are or will be "five-percent transferee shareholders" within the meaning of Treasury Regulation Section 1.367(a)-3(c)(5)(ii) and do not enter into five-year gain recognition agreements in the form provided in Treasury Regulation Section 1.367(a)-8). The parties hereto acknowledge that the actions contemplated by the Stock Purchase Agreement are not prohibited by the preceding sentence. Acquiror shall, and shall cause Guarantor to, comply with the reporting requirements of Treasury Regulation Section 1.367(a)-3(c)(6) and report, to the extent reporting is required by the Code or the regulations thereunder, the Merger for income tax purposes as a reorganization within the meaning of Section 368 of the Code. Each of Acquiror and the Company shall make, and shall cause their affiliates to make, such representations, warranties and covenants as shall be requested reasonably in the circumstances by PricewaterhouseCoopers LLP and Wachtell, Lipton, Rosen & Katz in order for such firms to render their opinions referred to in Section 5.01(b). Section 5.09 Public Announcements. Acquiror and the Company shall consult with each other before issuing (and in the case of Acquiror, before Guarantor issues) any press release or making any written public statement with respect to the Merger or this Agreement and shall not issue any such press release or make any such public statement without the prior consent of the other party, which shall not be unreasonably withheld; provided, however, that either party may, without the prior consent of the other, issue such press release or make such public statement as may upon the advice of counsel be required by law or the applicable rules and regulations of the SEC (including, without limitation, Rules 165 and 425 under the Securities Act and Rule 14a-12 under the Exchange Act), NYSE or the Toronto Stock Exchange if it has used all reasonable efforts to consult with the other party. Section 5.10 Guarantor Common Shares. (a) Acquiror shall obtain from Guarantor, and shall cause Guarantor to issue to Acquiror, the Guarantor Common Shares to be delivered by Acquiror to the holders of Company Common Stock in the Merger. (b) Acquiror shall cause Guarantor to use its best efforts to cause the Guarantor Common Shares to be delivered by Acquiror to the holders of Company Common Stock in the Merger to be listed, upon official notice of issuance, on the NYSE prior to the Effective Time. (c) Acquiror shall cause Guarantor on a timely basis to take any action required to be taken under non-U.S. securities laws in connection with the issuance of Guarantor Common Shares in the Merger. Section 5.11 Stock Options and ESPP. (a) At the Effective Time, and subject to the last sentence of this Section 5.11(a), Acquiror shall take all necessary action to provide that each outstanding Company Stock -50- Option will continue to have, and be subject to, the same terms and conditions set forth in the relevant Company stock option plan and applicable award agreement (and separation agreement, if applicable), or other relevant instrument or agreement, immediately prior to the Effective Time (except as provided in the last sentence of this Section 5.11(a)), except that, (i) each Company Stock Option will be exercisable for that number of whole Guarantor Common Shares equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such the Company Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded to the nearest whole number of Guarantor Common Shares and (ii) the per share exercise price for the Guarantor Common Shares issuable upon exercise of such Company Stock Option will be equal to the quotient determined by dividing the exercise price per share of the Company Common Stock at which such Company Stock option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded to the nearest whole cent (each such Company Stock Option, as modified, an "Adjusted Option"). With respect to any Company Stock Option that is an "incentive stock option" as defined under Section 422(b) of the Code, the adjustment procedures set forth in this Section 5.11 shall be implemented in compliance with the provisions of Section 424(a) of the Code (such that each applicable Adjusted Option shall continue to retain its qualification as an "incentive stock option" under the Code). All Company Stock Options, to the extent not vested and exercisable at the Effective Time, shall become immediately vested and exercisable at the Effective Time. (b) Acquiror will cause Guarantor to take all corporate action necessary to reserve for issuance a sufficient number of Guarantor Common Shares for delivery upon exercise of the Adjusted Options and, if and to the extent necessary to deliver to holders of Adjusted Options upon the exercise of such options, Guarantor Common Shares registered pursuant to the Securities Act and listed on the NYSE. At the Effective Time, Acquiror will cause Guarantor to have a sufficient number of Guarantor Common Shares issuable upon exercise of the Adjusted Options registered pursuant to the Securities Act and listed on the NYSE. (c) Beginning on the date hereof, the Company shall not establish any new employee stock purchase plan or extend the availability of the Company ESPP to any groups or categories of employees not previously included in the Company ESPP, or, in either case, implement any decisions to do the same, whether or not such decisions have been communicated to employees. The Company shall take such action as is necessary to end the then current offering period under the Company ESPP prior to the Effective Time and to terminate such plan as of the Effective Time. All shares of Company Common Stock under the Company ESPP shall be treated as all other shares of Company Common Stock. Section 5.12 Certain Employee Benefits. (a) From the Effective Time through the first anniversary thereof (the "Benefits Continuation Period"), the Surviving Corporation shall continue to maintain the employee benefit plans, programs and arrangements set forth on Section 5.12(a) of the Company Disclosure Schedule, for the benefit of each employee of the Company or any subsidiary of the Company who is an employee at the Effective Time or becomes an employee during the Benefits Continuation Period (a "Company Employee"), and including for the applicable beneficiaries of such Company Employees under such plans, programs or arrangements, without termination, modification or amendment effective during the Benefits Continuation Period (other than as may -51- be required under applicable law). Notwithstanding anything in this Agreement that may be to the contrary, the Company's Executive Retirement Plan (including the Company's new Executive Retirement Plan) shall be maintained by the Surviving Corporation indefinitely following the Effective Time, provided that the Surviving Corporation shall not be required to permit new participants to be added to the Executive Retirement Plan after the Effective Time. With respect to any Company Employee Plan listed on Section 2.11(a) of the Company Disclosure Schedule which is not set forth on Section 5.12(a) of the Company Disclosure Schedule, the Surviving Corporation shall provide each Company Employee (and applicable beneficiaries thereof) during the Benefits Continuation Period with employee benefits that are no less favorable in the aggregate than the benefit provided under such Company Employee Plans. In addition to the acceleration of vesting and exercisability of all Company Stock Options provided in the last sentence of Section 5.11(a), all restricted stock, SARs and other equity and equity-based awards granted pursuant to the Company Employee Plans, to the extent not vested (and exercisable, as the case may be) at the Effective Time, shall become immediately fully vested (and exercisable, as the case may be) at the Effective Time. (b) After the Benefits Continuation Period the Surviving Corporation shall provide the Company Employees with employee benefits that are no less favorable in the aggregate to those provided to similarly situated employees of subsidiaries of the Guarantor. For the avoidance of doubt, it is understood that the Surviving Corporation shall have no obligation to provide Company Employees with post-termination welfare or, to the extent not already accrued at the Effective Time or, if applicable, the end of the Benefits Continuation Period, pension benefits, except to the extent required by applicable law or contractual agreement. (c) With respect to the benefits provided pursuant to this Section 5.12, (i) service accrued by Company Employees during employment with the Company and its subsidiaries prior to the Effective Time shall be recognized for eligibility and vesting and, except with respect to defined benefit plans, benefit accrual, (ii) any and all pre-existing condition limitations (to the extent such limitations did not apply to a pre-existing condition under the applicable Company Employee Plan) and eligibility waiting periods under any group health plan shall be waived with respect to such Company Employees and their eligible dependents, and (iii) Company Employees shall be given credit for amounts paid under a Company Employee Plan during the same period for purposes of applying deductibles, co-payments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the employee plans maintained by the Surviving Corporation or the applicable subsidiary of the Guarantor. (d) The Company shall amend its 401(k) savings plans and any other employee benefits plan which permits participants to elect to invest in stock of the Company, where necessary, to preclude any additional purchases of stock of the Company, as of the date two (2) days prior to the Effective Time, and the Company shall communicate this amendment to the participants in such plans. (e) It is expressly agreed that (i) the provisions of Section 5.12 are not intended to be for the benefit of or otherwise enforceable by any third party, including, without limitation, any Company Employees and (ii) except as provided in Section 5.12(a), nothing herein shall prevent the Surviving Corporation or any other subsidiary of Guarantor from -52- amending or modifying any employee benefit plan, program or arrangement in any respect or terminating or modifying the terms and conditions of employment or other service of any particular employee or any other person. (f) Except as set forth in this Section 5.12 and in Section 5.12(f) of the Company Disclosure Schedule, the Surviving Corporation shall not have any obligations under this Agreement with respect to benefits to employees of the Company from and after the Effective Time. Section 5.13 Accountants Letters. Upon reasonable notice from the other, the Company shall use its best efforts to cause KPMG LLP to deliver to Acquiror, and Acquiror shall use its best efforts to cause PricewaterhouseCoopers to deliver to the Company, a letter covering such matters as are reasonably requested by Acquiror or the Company, as the case may be, and as are customarily addressed in accountants' "comfort letters." Section 5.14 Compliance with State Property Transfer Statutes. The Company agrees that it shall use its reasonable commercial efforts to comply promptly with all requirements of applicable state property transfer laws as may be required by the relevant state agency and shall take all action necessary to cause the transactions contemplated hereby to be effected in compliance with applicable state property transfer laws, except where the failure to so comply will not materially affect the right to use or enjoy any applicable property after the Effective Time. The Company, after consultation with Acquiror, shall determine which actions must be taken prior to or after the Effective Time to comply with applicable state property transfer laws. The Company agrees to provide Acquiror with any documents required to be submitted to the relevant state agency prior to submission, and the Company shall not take any action to comply with applicable state property transfer laws without Acquiror's prior consent, which consent shall not be unreasonably withheld or delayed. Acquiror shall provide, and shall cause Guarantor to provide, to the Company any assistance reasonably requested by the Company with respect to such compliance. Section 5.15 Conveyance Taxes. Acquiror and the Company shall cooperate in the preparation, execution and filing of all returns, questionnaires, applications, or other documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes which become payable in connection with the transactions contemplated hereby that are required or permitted to be filed on or before the Effective Time, and the Company shall be responsible for the payment of all such taxes and fees. Section 5.16 Exchangeco Shares. (a) Each of Acquiror and the Company shall take, Acquiror shall cause Guarantor to take, and the Company shall cause Exchangeco to take, all action necessary or desirable to implement the provisions of Section 1.06(a)(ii) with respect to the modification of the Exchangeco Documents following the Effective Time. (b) Acquiror will cause Guarantor to take all corporate action necessary to reserve for issuance a sufficient number of Guarantor Common Shares for delivery upon -53- exchange of the Exchangeco Shares and to deliver to holders of Exchangeco Shares upon the exchange thereof, Guarantor Common Shares registered pursuant to the Securities Act and listed on the NYSE. At the Effective Time, Acquiror will cause Guarantor to have a sufficient number of Guarantor Common Shares issuable upon exchange of the Exchangeco Shares registered pursuant to the Securities Act and listed on the NYSE. (c) Acquiror will cause Guarantor to take and the Company will cause Exchangeco to take all action necessary or desirable to obtain the approval of the Toronto Stock Exchange and the variation of exemptive relief granted by the securities commissions or similar regulatory authorities in all of the provinces and territories in Canada in favor of Exchangeco which may be required in connection with the implementation of the provisions of Section 1.06(a)(ii) with respect to the issuance of the Guarantor Common Shares on the exchange of the Exchangeable Shares and with respect to the modification of the Exchangeco Documents as of the Effective Time. ARTICLE VI CONDITIONS TO THE MERGER Section 6.01 Conditions to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) Effectiveness of the Registration Statement. The Registration Statement shall have been declared effective by the SEC under the Securities Act. No stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and no proceedings for that purpose and no similar proceeding in respect of the Proxy Statement/Prospectus shall have been initiated or threatened by the SEC; (b) Stockholder Adoption. This Agreement shall have been adopted by the requisite vote of the stockholders of the Company; (c) Antitrust. All waiting periods applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated, and all clearances and approvals required to be obtained in respect of the Merger prior to the Effective Time under any Non-U.S. Monopoly Laws shall have been obtained, except where the failure to have obtained any such clearances or approvals with respect to any Non-U.S. Monopoly Laws would not reasonably be expected to have a Material Adverse Effect on the Company or Guarantor; (d) Legal Actions. There shall not have been instituted, pending or threatened any action or proceeding (or any investigation or other inquiry that is reasonably likely to result in such an action or proceeding) by any Governmental Authority or before any Governmental Authority or court of competent jurisdiction, United States or non-United States, that is reasonably likely to result in, nor shall there be in effect, any judgment, decree or order of any Governmental Authority or court of competent jurisdiction or any other legal restraint (i) preventing consummation of the Merger, (ii) prohibiting or limiting Acquiror from exercising all material rights and privileges pertaining to its ownership of the Surviving Corporation or the -54- ownership or operation by Guarantor or any of its subsidiaries of all or a material portion of the business or assets of the Surviving Corporation and its subsidiaries, or (iii) compelling Guarantor or any of its subsidiaries (including the Surviving Corporation and its subsidiaries) to dispose of or hold separate assets which are, or impose any liability which is, material to Guarantor or the Company, or material as compared against the aggregate Merger Consideration, as a result of the Merger or the transactions contemplated by this Agreement. (e) Illegality. No statute, rule, regulation or order shall be enacted, entered, enforced or deemed applicable to the Merger which makes the consummation of the Merger illegal; and (f) Tax Opinions. The Company shall have received a written opinion of Wachtell, Lipton, Rosen & Katz, and Acquiror shall have received a written opinion of PricewaterhouseCoopers LLP, in form and substance reasonably satisfactory to each of them, on the basis of customary representations, warranties, covenants and assumptions set forth or referred to in such opinions, and delivered as of the date of the Effective Time, to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code that is not subject to Section 367(a)(1) of the Code pursuant to Treasury Regulation Section 1.367(a)-(3)(c) (other than with respect to Company stockholders who are or will be "five-percent transferee shareholders" within the meaning of Treasury Regulation Section 1.367(a)-3(c)(5)(ii) and do not enter into five-year gain recognition agreements in the form provided in Treasury Regulation Section 1.367(a)-8), and that each of Guarantor, Acquiror and the Company will be a party to the reorganization within the meaning of Section 368(b) of the Code. Section 6.02 Additional Conditions to Obligations of Acquiror. The obligations of Acquiror to effect the Merger are also subject to the following conditions: (a) Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall be true and correct in all respects (without for this purpose giving effect to qualifications of materiality contained in such representations and warranties) on and as of the Effective Time, with the same force and effect as if made on and as of the Effective Time, except for (i) changes contemplated by this Agreement, (ii) those representations and warranties which address matters only as of a particular date (which shall have been true and correct as of such date, subject to clause (iii)), or (iii) where the failure to be true and correct would not reasonably be expected, individually or in the aggregate with all other such failures, to have a Material Adverse Effect (except the representations and warranties set forth in Section 2.03 and Section 2.09, which shall be true and correct in all material respects), and Acquiror shall have received a certificate of the Company to such effect signed by the Chief Executive Officer or Chief Financial Officer of the Company; (b) Agreements and Covenants. The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and Acquiror shall have received a certificate to such effect signed by the Chief Executive Officer or Chief Financial Officer of the Company; provided, however, that unless the Company knowingly breaches Sections 4.01(k) or 5.07, the Company shall be deemed to have complied with such sections -55- unless the failure to comply with such sections also results in or is with respect to the failure of the condition set forth in Section 6.02(a); and (c) Consents Obtained. All material consents, waivers, approvals, authorizations or orders required to be obtained, and all filings required to be made, by the Company for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby shall have been obtained and made by the Company, except where the failure to receive such consents, waivers, approvals, authorizations or orders or to make such filings would not reasonably be expected, individually or in the aggregate with all other such failures, to have a Material Adverse Effect on the Company or Guarantor. Section 6.03 Additional Conditions to Obligation of the Company. The obligation of the Company to effect the Merger is also subject to the following conditions: (a) Representations and Warranties. The representations and warranties of Acquiror contained in this Agreement shall be true and correct in all respects (without for this purpose giving effect to qualifications of materiality contained in such representations and warranties) on and as of the Effective Time, with the same force and effect as if made on and as of the Effective Time, except for (i) changes contemplated by this Agreement, (ii) those representations and warranties which address matters only as of a particular date (which shall have been true and correct as of such date, subject to clause (iii)), or (iii) where the failure to be true and correct could not reasonably be expected, individually or in the aggregate with all other such failures, to have a Material Adverse Effect, and the Company shall have received a certificate to such effect signed by the President or Chief Financial Officer of Acquiror; (b) Agreements and Covenants. Acquiror shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and the Company shall have received a certificate of Acquiror to such effect signed by the President or Chief Financial Officer of Acquiror; provided, however, that unless Acquiror knowingly breaches Sections 4.03(e) or 5.07, the Acquiror shall be deemed to have complied with such sections unless the failure to comply with such sections also results in or is with respect to the failure of the condition set forth in Section 6.03(a); (c) Consents Obtained. All material consents, waivers, approvals, authorizations or orders required to be obtained, and all filings required to be made, by Acquiror or Guarantor for the authorization, execution and delivery of this Agreement and the Guarantee, as applicable, and the consummation by them of the transactions contemplated hereby and thereby shall have been obtained and made by Acquiror or Guarantor, except where the failure to receive such consents, waivers, approvals, authorizations or orders or to make such filings would not reasonably be expected, individually or in the aggregate with all other such failures, to have a Material Adverse Effect on the Company, Acquiror or Guarantor; and (d) Listing. The Guarantor Common Shares to be delivered by Acquiror in connection with the Merger shall have been authorized for listing on the NYSE upon official notice of issuance. -56- ARTICLE VII TERMINATION Section 7.01 Termination. This Agreement may be terminated at any time prior to the Effective Time, notwithstanding adoption thereof by the stockholders of the Company: (a) by mutual written consent duly authorized by the Boards of Directors of Acquiror and the Company; or (b) by either Acquiror or the Company, if the Merger shall not have been consummated by September 30, 2001 (other than for the reasons set forth in clause (c) below); provided, however, that the right to terminate this Agreement under this Section 7.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Merger to be consummated on or prior to such date; or (c) by either Acquiror or the Company, if the requisite vote of the stockholders of the Company shall not have been obtained by September 30, 2001, or if the stockholders of the Company shall not have adopted this Agreement at the Company Stockholders Meeting; provided, however, that the Company may not terminate pursuant to this clause if the Company has not complied with its obligations under Section 5.02; or (d) by either Acquiror or the Company, if a court of competent jurisdiction or Governmental Authority shall have issued a nonappealable final order, decree or ruling or taken any other nonappealable final action having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger; or (e) by Acquiror, if, whether or not permitted to do so by this Agreement, the Board of Directors of the Company or the Company shall (x) (i) withdraw, modify or change its approval, adoption or recommendation of this Agreement or the Merger in a manner adverse to Acquiror or shall have resolved to do so; (ii) approve or recommend to the stockholders of the Company an Acquisition Proposal or Alternative Transaction; (iii) approve or recommend that the stockholders of the Company tender their shares in any tender or exchange offer that is an Alternative Transaction; or (iv) fail to include the recommendation of the Board of Directors of the Company in favor of approval of this Agreement pursuant to Section 5.01(c) or fail to take the action required by the second sentence of Section 5.02; or (y) take any public position or make any disclosures to the Company's stockholders generally, whether or not permitted pursuant to Section 4.02, which has the effect of any of the foregoing (it being understood and agreed that a communication by the Board of Directors of the Company to the Company's stockholders pursuant to Rule 14d-9(f)(3) of the Exchange Act, or any similar type of communication to the Company's stockholders in connection with the making or amendment of a tender offer or exchange offer, shall not be deemed to constitute a basis for termination under this Section 7.01(e)); or (f) by Acquiror or the Company, if any representation or warranty of the Company or Acquiror, respectively, set forth in this Agreement shall be untrue when made, such -57- that the conditions set forth in Sections 6.02(a) or 6.03(a), as the case may be, would not be satisfied (a "Terminating Misrepresentation"); provided that if such Terminating Misrepresentation is curable prior to September 30, 2001 (or, in the case of the representation referred to in clause (ii) of Section 2.06(a), thirty (30) days after notice thereof by Acquiror to the Company, if earlier) by the Company or Acquiror, as the case may be, through the exercise of its reasonable best efforts and for so long as the Company or Acquiror, as the case may be, continues to exercise such reasonable best efforts, neither Acquiror nor the Company, respectively, may terminate this Agreement under this Section 7.01(f); or (g) by Acquiror, if any representation or warranty of the Company shall have become untrue such that the condition set forth in Section 6.02(a) would not be satisfied, or by the Company, if any representation or warranty of Acquiror shall have become untrue such that the condition set forth in Section 6.03(a) would not be satisfied (in either case, a "Terminating Change"), in either case other than by reason of a Terminating Breach (as hereinafter defined); provided that if any such Terminating Change is curable prior to September 30, 2001 (or, in the case of the representation referred to in clause (ii) of Section 2.06(a), thirty (30) days after notice thereof by Acquiror to the Company, if earlier) by the Company or Acquiror, as the case may be, through the exercise of its reasonable best efforts, and for so long as the Company or Acquiror, as the case may be, continues to exercise such reasonable best efforts, neither Acquiror nor the Company, respectively, may terminate this Agreement under this Section 7.01(g); or (h) by Acquiror or the Company, upon a breach of any covenant or agreement on the part of the Company or Acquiror, respectively, set forth in this Agreement such that the conditions set forth in Sections 6.02(b) or 6.03(b), as the case may be, would not be satisfied (a "Terminating Breach"); provided that, except for any breach of the Company's obligations under Section 4.02, if such Terminating Breach is curable prior to September 30, 2001 by the Company or Acquiror, as the case may be, through the exercise of its reasonable best efforts and for so long as the Company or Acquiror, as the case may be, continues to exercise such reasonable best efforts, neither Acquiror nor the Company, respectively, may terminate this Agreement under this Section 7.01(h). Section 7.02 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 7.01, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto or any of its affiliates, directors, officers or stockholders except that the Company or Acquiror may have liability or obligations as set forth in Section 7.03 and as set forth in or contemplated by Section 8.01 hereof. Notwithstanding the foregoing, nothing herein shall relieve the Company or Acquiror from liability for any willful breach hereof or willful misrepresentation herein (it being understood that (x) the provisions of Section 7.03 do not constitute a sole or exclusive remedy for such willful breach or misrepresentation and (y) the mere existence of a Material Adverse Effect, by itself, shall not constitute such a willful breach). Section 7.03 Fees and Expenses. (a) Except as set forth in this Section 7.03, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not the Merger is consummated; provided, however, that if the Merger is not consummated Acquiror and the Company shall share equally (i) all SEC filing fees and printing expenses incurred in connection -58- with the printing and filing of the Proxy Statement/Prospectus (including any preliminary materials related thereto) and the Registration Statement (including financial statements and exhibits) and any amendments or supplements thereto and (ii) conveyance and similar taxes required to be paid or which Acquiror has agreed should be paid prior to the Effective Time pursuant to Section 5.15. (b) The Company shall pay Guarantor a fee of $325 million (the "Fee") and shall also pay Acquiror's and Guarantor's respective actual, documented and reasonable out-of-pocket expenses relating to the transactions contemplated by this Agreement (including, but not limited to, fees and expenses of counsel and accountants and out-of-pocket expenses (but not fees) of financial advisors) ("Expenses," as applicable to Acquiror, Guarantor or the Company) in a combined amount not to exceed $20 million, upon the first to occur of any of the following events: (i) the termination of this Agreement by Acquiror or the Company pursuant to Section 7.01(c) following the Company Stockholders Meeting at which the stockholders of the Company failed to adopt this Agreement, provided that the Alternative Transaction Condition is satisfied; and (ii) the termination of this Agreement by Acquiror pursuant to Section 7.01(e). The "Alternative Transaction Condition" shall be satisfied in respect of a termination of this Agreement if an Alternative Transaction shall be publicly announced by the Company or any third party during the period beginning on the date of this Agreement and ending twelve (12) months following the date of termination of this Agreement and such transaction shall at any time thereafter be consummated on terms substantially equivalent to or more favorable to the Company or its stockholders than the terms theretofore announced. (c) Upon a termination of this Agreement by Acquiror pursuant to Section 7.01(h), (x) the Company shall pay to Guarantor and Acquiror their respective Expenses relating to the transactions contemplated by this Agreement in a combined amount not to exceed $20 million, and (y) the Company shall pay Guarantor the Fee provided that (I) such Terminating Breach is willful and (II) either (1) the termination is on account of a breach of Section 4.02 or the first sentence of Section 5.02 (and, in the case of a breach of the first sentence of Section 5.02, such breach occurred in response to, or to facilitate, an Acquisition Proposal) or (2) the Alternative Transaction Condition is satisfied. (d) Upon a termination of this Agreement by Acquiror pursuant to Section 7.01(f), the Company shall pay to Guarantor and Acquiror their respective Expenses in a combined amount not to exceed $20 million. (e) Upon a termination of this Agreement by the Company pursuant to Section 7.01(f) or Section 7.01(h), Acquiror shall pay to the Company its Expenses in an amount not to exceed $20 million. (f) The Fee and Expenses payable pursuant to Section 7.03(b) or Section 7.03(c), or the Expenses payable pursuant to Section 7.03(d) or Section 7.03(e), shall be paid within one business day after a demand for payment following the occurrence of the relevant -59- event and, as applicable, the satisfaction of the relevant condition, in each case as described in the aforesaid Sections, as applicable; provided that, in no event shall the Company be required to pay the Fee or any Expenses to Acquiror, nor shall Acquiror be required to pay any Expenses to the Company if, immediately prior to the termination of this Agreement, the entity otherwise entitled to receive such fee and/or expenses was in material breach of its obligations under this Agreement or, in the case of Acquiror, Guarantor was in material breach of the Guarantee. (g) Each of the Company and Acquiror agrees that the payments provided for in this Section 7.03 shall be the sole and exclusive remedy of Acquiror upon a termination of this Agreement by Acquiror pursuant to Section 7.01(c), (e), (f) or (h), and the payments provided for in this Section 7.03 shall be the sole and exclusive remedy of the Company upon a termination of this Agreement by the Company pursuant to Section 7.01(f) or (h), regardless of the circumstances giving rise to such termination; provided, however, that the foregoing shall not apply to any willful breach of this Agreement or any willful misrepresentation hereunder giving rise to such termination. (h) Subject to Section 7.03(g), if a party is entitled to terminate this Agreement pursuant to more than one clause of Section 7.01, such party shall be entitled to receive the Fee and Expenses to which it is entitled as a result of any such termination, provided that in no event shall there be any duplication of payment. ARTICLE VIII GENERAL PROVISIONS Section 8.01 Effectiveness of Representations, Warranties and Agreements. (a)Except as otherwise provided in this Section 8.01, the representations, warranties and agreements of each party hereto shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any other party hereto, any person controlling any such party or any of their officers or directors, whether prior to or after the execution of this Agreement. The representations, warranties and agreements in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Section 7.01, as the case may be, except that the agreements set forth in Article I and Sections 5.06 and 5.08 and any other agreement in this Agreement which contemplates performance after the Effective Time shall survive the Effective Time indefinitely and those set forth in Sections 7.02 and 7.03 and this Article VIII shall survive termination indefinitely. The Confidentiality Agreement shall survive termination of this Agreement in accordance with its terms. (b) Any disclosure made with reference to one or more Sections of the Company Disclosure Schedule shall be deemed disclosed with respect to each other section therein as to which such disclosure is relevant provided that such relevance is reasonably apparent. Disclosure of any matter in the Company Disclosure Schedule shall not be deemed an admission that such matter is material. Section 8.02 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier to the parties at the following addresses or -60- sent by electronic transmission, with confirmation received, to the telecopy numbers specified below (or at such other address or telecopy number for a party as shall be specified by like notice): If to Acquiror: Tyco Acquisition Corp. XIX (NV) c/o Tyco International (US) Inc. One Tyco Park Exeter, NH 03833 Attn: President Telecopy: (603) 778-7700 With a copy (which shall not constitute notice) to: Tyco International (US) Inc. One Tyco Park Exeter, NH 03833 Attn: General Counsel Telecopy: (603) 778-7700 and Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, NY 10022 Attn: Abbe L. Dienstag Telecopy: (212) 715-8000 Telephone: (212) 715-9100 If to the Company: The CIT Group, Inc. 1211 Avenue of the Americas New York, NY 10036 Attn: General Counsel Telecopy: (973) 740-5264 Telephone: (212) 536-1390 With a copy (which shall not constitute notice) to: Schulte Roth & Zabel LLP 919 Third Avenue New York, NY 10022 Attn: Stuart D. Freedman Telecopy: (212) 593-5955 Telephone: (212) 756-2000 -61- and Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, NY 10019 Attn: Edward D. Herlihy Telecopy: (212) 403-2000 Telephone: (212) 403-1000 Section 8.03 Certain Definitions. For purposes of this Agreement, the term: (a) "affiliates", with respect to any person, means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; (b) "business day" means any day other than a day on which banks in New York City are required or authorized to be closed; (c) "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise; (d) "dollars" or "$" means United States dollars; (e) "knowledge" means, with respect to any matter in question, that the executive officers or any employee having primary or substantial oversight responsibility for the matter of the Company, Acquiror or Guarantor, as the case may be, have or at any time had actual knowledge of such matter; (f) "Material Adverse Effect," when used in connection with the Company or any of its subsidiaries or Guarantor or any of its subsidiaries, as the case may be, means any change, effect or circumstance that (i) is materially adverse to the business, assets (including intangible assets), financial condition or results of operations of the Company and its subsidiaries or Guarantor and its subsidiaries, as the case may be, in each case taken as a whole, excluding the effects of changes to the extent related to (A) the United States or global economy or capital markets generally, (B) general changes in conditions in the industries in which the Company or the Guarantor, as the case may be, conduct business or (C) this Agreement, the announcement thereof and the transactions contemplated thereby or (ii) materially adversely affects the ability of the Company or Acquiror and Guarantor, as the case may be, timely to perform the obligations or consummate the transactions contemplated by this Agreement and, in the case of Guarantor, the Guarantee. For purposes of clause (i) of the preceding paragraph, the failure of a representation or warranty to be true and correct, either individually or together with the failure of other representations or warranties to be true and correct, or the failure to perform an obligation, agreement or covenant shall be deemed to have a Material Adverse Effect if (x) the circumstance of the failure of such representation or warranty to be true and correct or the failure -62- to perform such obligation, agreement or covenant, taken together with all such other failures, is materially adverse to the business, assets (including intangible assets), financial condition or results of operations of the Company and its subsidiaries, or of Guarantor and its subsidiaries, as the case may be, in each case taken as a whole, under the standard set forth in the preceding paragraph and as measured against the representations and warranties of such party having been true and correct (in the case of the Company, giving effect to the disclosures in the Company Disclosure Schedule) or the obligations, agreements or covenants of such party having been performed; (g) "person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Exchange Act); (h) "significant subsidiary" has the meaning assigned to such term in Rule 1-02 under SEC Regulation S-X; and (i) "subsidiary" or "subsidiaries" of the Company, the Surviving Corporation, Acquiror, Guarantor or any other person means any corporation, partnership, joint venture or other legal entity of which the Company, the Surviving Corporation, Acquiror, Guarantor or such other person, as the case may be (either alone or through or together with any other subsidiary), owns, directly or indirectly, more than 50% of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. When reference is made in this Agreement to the Company, Acquiror or Guarantor, such reference shall include their respective subsidiaries, as and to the extent the context so requires, whether or not explicitly stated in this Agreement. Section 8.04 Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that, after adoption of this Agreement by the stockholders of the Company, no amendment may be made which by law requires approval by such stockholders without such approval. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. Section 8.05 Waiver. At any time prior to the Effective Time, any party hereto may with respect to any other party hereto (a) extend the time for the performance of any of the obligations or other acts, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, or (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. Section 8.06 Headings; Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Notwithstanding any provision in this Agreement that may be to the contrary, nothing contained herein shall be deemed to require any party hereto or its -63- affiliates to take any action to the extent that such action is prohibited by applicable law or to refrain from taking any action to the extent that such action is required by applicable law. Section 8.07 Severability. (a) If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any material manner adverse to any party. Upon a determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. (b) The Company and Acquiror agree that the Fee provided in Section 7.03(b) is fair and reasonable in the circumstances. If a court of competent jurisdiction shall nonetheless, by a final, nonappealable judgment, determine that the amount of the Fee exceeds the maximum amount permitted by law, then the amount of the Fee shall be reduced to the maximum amount permitted by law in the circumstances, as determined by such court of competent jurisdiction. Section 8.08 Entire Agreement. This Agreement and the Guarantor's guarantee hereof constitute the entire agreement and supersede all prior agreements and undertakings (other than the Confidentiality Agreement, except for Section 10 thereof), both written and oral, among the parties, or any of them, with respect to the subject matters hereof and thereof, except as otherwise expressly provided herein or therein. Section 8.09 Assignment. This Agreement shall not be assigned by operation of law or otherwise, except that all or any of the rights of Acquiror hereunder may be assigned to Guarantor or any direct or indirect wholly-owned subsidiary of Guarantor, provided that no such assignment shall relieve the assigning party of its obligations hereunder. Section 8.10 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, including, without limitation, by way of subrogation, other than Section 5.06 (which is intended to be for the benefit of the Indemnified Parties and Covered Persons and may be enforced by such Indemnified Parties and Covered Persons) and Section 7.03 (which contains provisions intended to be for the benefit of Guarantor and may be enforced by Guarantor). Section 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. -64- Section 8.12 Governing Law; Jurisdiction. (a) This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware applicable to contracts executed and fully performed within the State of Delaware. (b) Each of the parties hereto submits to the exclusive jurisdiction of the federal courts of the United States located in the City of New York, Borough of Manhattan, State of New York, with respect to any claim or cause of action arising out of this Agreement or the transactions contemplated hereby. Section 8.13 Counterparts. This Agreement may be executed in two or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Section 8.14 Waiver of Jury Trial. EACH OF ACQUIROR AND THE COMPANY HEREBY IRREVOCABLY WAIVES (AND IN RESPECT OF ANY DISPUTE IN RESPECT OF THE GUARANTEE, ACQUIROR SHALL CAUSE GUARANTOR TO WAIVE), TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. Section 8.15 Performance of Guarantee. Unless otherwise previously performed, Acquiror shall cause Guarantor to perform all of its obligations under the Guarantee. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -65- IN WITNESS WHEREOF, Acquiror and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. THE CIT GROUP, INC. By:____________________________________________ Name: Albert R. Gamper, Jr. Title: Chairman of the Board of Directors, President and Chief Executive Officer TYCO ACQUISITION CORP. XIX (NV) By:____________________________________________ Name: Jeffrey D. Mattfolk Title: Vice President -66- GUARANTEE Tyco International Ltd. ("Guarantor") irrevocably guarantees each and every representation, warranty, covenant, agreement and other obligation of Acquiror, and/or any of its permitted assigns (and where any such representation or warranty is made to the knowledge of Acquiror, such representation or warranty shall be deemed made to the knowledge of Guarantor), and the full and timely performance of their respective obligations under the provisions of the foregoing Agreement. This is a guarantee of payment and performance, and not of collection, and Guarantor acknowledges and agrees that this guarantee is full and unconditional, and no release or extinguishment of Acquiror's obligations or liabilities (other than in accordance with the terms of the Agreement), whether by decree in any bankruptcy proceeding or otherwise, shall affect the continuing validity and enforceability of this guarantee, as well as any provision requiring or contemplating performance by Guarantor. Guarantor hereby waives, for the benefit of the Company, (i) any right to require the Company as a condition of payment or performance by Guarantor, to proceed against Acquiror or pursue any other remedy whatsoever and (ii) to the fullest extent permitted by law, any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, except to the extent that any such defense is available to Acquiror. Without limiting in any way the foregoing guarantee, Guarantor covenants and agrees to take all actions to enable Acquiror to adhere to each provision of the Agreement which requires an act or omission on the part of Guarantor or any of its subsidiaries to enable Acquiror to comply with its obligations under the Agreement. The provisions of Article VIII of the Agreement are incorporated herein, mutatis mutandis, except that notices and other communications hereunder to Guarantor shall be delivered to Tyco International Ltd., The Zurich Centre, Second Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda, Attn: Chief Corporate Counsel, Telecopy No. (441) 295-9647, Confirm No. (441) 292-8674 (with a copy as provided therefor in Section 8.02). Guarantor understands that the Company is relying on this guarantee in entering into the Agreement and may enforce this guarantee as if Guarantor were a party thereto. TYCO INTERNATIONAL LTD. By: /s/ Mark H. Swartz -------------------------------- Name: Mark H. Swartz Title: Executive Vice President and Chief Financial Officer EX-12 7 0007.txt COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT 12 THE CIT GROUP, INC. AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Years Ended December 31, -------------------------------- Dollars in Millions 2000 1999 1998 -------- -------- -------- Net income .................................................. $ 611.6 $ 389.4 $ 338.8 Provision for income taxes .................................. 373.9 207.6 185.0 -------- -------- -------- Earnings before provision for income taxes .................. 985.5 597.0 523.8 -------- -------- -------- Fixed charges: Interest and debt expenses on indebtedness ................ 2,497.7 1,293.4 1,040.8 Minority interest in subsidiary trust holding solely debentures of the Company ............................... 19.2 19.2 19.2 Interest factor-- one-third of rentals on real and personal properties .............................................. 19.6 10.6 7.9 -------- -------- -------- Total fixed charges ......................................... 2,536.5 1,323.2 1,067.9 -------- -------- -------- Total earnings before provisions for income taxes and fixed charges ............................................ $3,522.0 $1,920.2 $1,591.7 ======== ======== ======== Ratios of Earnings to Fixed Charges ......................... 1.39x 1.45x 1.49x
EX-21 8 0008.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 THE CIT GROUP, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT December 31, 2000 Jurisdiction of Name of Subsidiary Incorporation ------------------ --------------- 1143986 Ontario Limited ............................... Ontario 1145820 Ontario Limited ............................... Ontario 1181922 Ontario Inc. .................................. Ontario 1244773 Ontario Limited ............................... Ontario 1243029 Ontario Inc. .................................. Ontario 1293908 Ontario Limited ............................... Ontario 1302839 Ontario Limited ............................... Ontario 1306437 Ontario Limited ............................... Ontario 1306438 Ontario Limited ............................... Ontario 1319209 Ontario Limited ............................... Ontario 1328327 Ontario Limited ............................... Ontario 1347395 Ontario Limited ............................... Ontario 1355538 Ontario Limited ............................... Ontario 1385224 Ontario Limited ............................... Ontario 2630-3958 Quebec Inc. ................................. Quebec 2705 Parkhill Drive Inc. .............................. Ontario 2705 Parkhill Drive Limited Partnership ............... Ontario 3026192 Nova Scotia Company ........................... Nova Scotia 544211 Alberta Ltd. ................................... Alberta 555565 Alberta Ltd. ................................... Alberta 555566 Alberta Ltd. ................................... Alberta 650 Management Corp. .................................. New Jersey 667825 Alberta Ltd. ................................... Alberta Adams Capital Limited ................................. Barbados Agilent Financial Services, Inc. ...................... Delaware Agilent Financial Services Limited .................... U.K. Agilent Financial Services Ltd. ....................... Ontario Antigua Funding Corporation ........................... Delaware APS Land Developments Inc. ............................ Ontario Arrendadora Capita Corporation de Mexico S.A. de C.V .. Mexico Asset Finance (Bermuda) Limited ....................... Bermuda Assurers Exchange, Inc. ............................... Delaware AT&T Automotive Services, Inc. ........................ Delaware AT&T Capital FSC, Inc. ................................ Barbados ATMOR Holdings, Inc. .................................. Delaware ATMOR Properties Inc. ................................. Delaware Baffin Shipping Co., Inc. ............................. Delaware Banord Limited ........................................ England Barrow Capital Limited ................................ Barbados BDAC Investments, Inc. ................................ Delaware Bering Shipping Co., Inc. ............................. Delaware Boat Dealers Acceptance Company, L.L.C ................ Delaware Bunga Bebaru, Ltd. .................................... Bermuda Business Technology Finance Limited ................... U.K. Capita Credit Consumer Finance Corporation ............ Delaware Capita Corporation .................................... Delaware THE CIT GROUP, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT (Continued) December 31, 2000 Jurisdiction of Name of Subsidiary Incorporation ------------------ --------------- Capita Colombia Holdings Corporation .................. Delaware Capita Corporation CIS, LLC ........................... Russia Capita Global Finance Corporation ..................... Delaware Capita International L.L.C ............................ Delaware Capita Premium Corporation ............................ Delaware Capita Resources, Inc. ................................ Delaware Capita Russia Holdings I Corp. ........................ Delaware Capita Russia Holdings II Corp ........................ Delaware Capita Servicios, S.A. de C.V ......................... Mexico Canadian Income Partners I Limited Partnership ........ Alberta Canadian Income Partners II Limited Partnership ....... Alberta Canadian Income Partners III Limited Partnership ...... Alberta Capital Syndication Corporation ....................... Delaware Caribbean Shipping Co., Inc. .......................... Delaware CCG Capital Limited ................................... Barbados CCG International Finance Corporation ................. Ontario CCG Ireland ........................................... Ireland CCG Limited ........................................... P.E.I. CCG Partners I Limited Partnership .................... Ontario CCG Trust Corporation ................................. Barbados Chessman S.a.r.l ...................................... Luxembourg CICL Caribbean International Capital Limited .......... Barbados CIEL Caribbean International Equipment Ltd. ........... Barbados CIEL International Finance Corporation ................ Ontario CIEL Ltd. ............................................. P.E.I. C.I.T. Brasil Arrendamento Mercantil S.A .............. Brazil C.I.T. Corporation (Maine) ............................ Maine C.I.T. Corporation of the South, Inc. ................. Delaware C.I.T. Financial Management Inc. ...................... Delaware C.I.T. Foreign Sales Corporation One, Ltd. ............ Barbados C.I.T. Leasing Corporation ............................ Delaware C.I.T. Realty Corporation ............................. Delaware CIT Aerospace, Inc. ................................... Delaware CIT Brisk Winds Aircraft Leasing, Limited ............. Ireland CIT Capital Trust I ................................... Delaware CIT Cayman Blue Lagoon Leasing, Ltd. .................. Cayman Islands CIT Cayman Coconut Palm Leasing, Ltd. ................. Cayman Islands CIT Cayman Sandy Keys Leasing, Ltd. ................... Cayman Islands CIT China 1, Inc. ..................................... Delaware CIT China 2, Inc. ..................................... Delaware CIT China 3, Inc. ..................................... Delaware CIT China 4, Inc. ..................................... Delaware CIT China 5, Inc. ..................................... Delaware CIT China 6, Inc. ..................................... Delaware CIT China 7, Inc. ..................................... Delaware CIT Commercial Finance Corporation .................... Delaware CIT Communications Finance Corporation ................ Delaware CIT Credit Group (Alberta) Inc. ....................... Alberta CIT Credit Group Inc. ................................. Ontario THE CIT GROUP, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT (Continued) December 31, 2000 Jurisdiction of Name of Subsidiary Incorporation ------------------ --------------- CIT Emerald Isle Leasing, Limited ..................... Ireland CIT Exchangeco Inc. ................................... Nova Scotia CIT Finance No. 1 (Ireland) Limited ................... Ireland CIT Finance No. 2 (Ireland) Limited ................... Ireland CIT Financial (Hong Kong) Limited ..................... Hong Kong CIT Financial USA Inc. ................................ Delaware CIT FSC Eight, Ltd. ................................... Bermuda CIT FSC Eighteen, Ltd. ................................ Bermuda CIT FSC Eleven, Ltd. .................................. Bermuda CIT FSC Fifteen, Ltd. ................................. Bermuda CIT FSC Five, Ltd. .................................... Bermuda CIT FSC Four, Ltd. .................................... Bermuda CIT FSC Fourteen, Ltd. ................................ Bermuda CIT FSC Nine, Ltd. .................................... Bermuda CIT FSC Nineteen, Ltd. ................................ Bermuda CIT FSC Seven, Ltd. ................................... Bermuda CIT FSC Six, Ltd. ..................................... Bermuda CIT FSC Sixteen, Ltd. ................................. Bermuda CIT FSC Ten, Ltd. ..................................... Bermuda CIT FSC Thirty, Ltd. .................................. Bermuda CIT FSC Three,Ltd ..................................... Bermuda CIT FSC Twelve, Ltd. .................................. Bermuda CIT FSC Twenty, Ltd. .................................. Bermuda CIT FSC Twenty-Eight, Ltd. ............................ Bermuda CIT FSC Twenty-Five, Ltd. ............................. Bermuda CIT FSC Twenty-Four, Ltd. ............................. Bermuda CIT FSC Twenty-Nine, Ltd. ............................. Bermuda CIT FSC Twenty-One, Ltd. .............................. Bermuda CIT FSC Twenty-Three, Ltd. ............................ Bermuda CIT FSC Twenty-Two, Ltd. .............................. Bermuda CIT FSC Twenty-Seven, Ltd. ............................ Bermuda CIT FSC Twenty-Six, Ltd. .............................. Bermuda CIT FSC Two, Ltd. ..................................... Bermuda CIT Holdings (Barbados) SRL ........................... Barbados CIT Holdings BV ....................................... Netherlands CIT Holdings (Ireland) Limited ........................ Ireland CIT Holdings, LLC ..................................... Delaware CIT Ireland Leasing Limited ........................... Ireland CIT Leasing (Bermuda) Ltd. ............................ Bermuda CIT Leasing Two (Bermuda) Ltd. ........................ Bermuda CIT Lending Services Corporation ...................... Delaware CIT Luxembourg Cobblestone Leasing S.a.r.l ............ Luxembourg CIT Malaysia One, Inc. ................................ Malaysia CIT Millbury Inc. ..................................... Delaware CIT OnLine Bank ....................................... Utah CIT Remarco, Inc. ..................................... Delaware CIT Small Business Lending Corporation ................ Delaware CIT STS, Inc. ......................................... Nevada CIT Technologies Corporation .......................... Michigan THE CIT GROUP, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT (Continued) December 31, 2000 Jurisdiction of Name of Subsidiary Incorporation ------------------ --------------- CIT Technologies Inc. ................................. Ontario CIT Technology Financing Services, Inc. ............... Massachusetts CIT Venture Leasing Fund, LLC ......................... Delaware CMG Capital Limited ................................... Barbados CMG International Finance Corporation ................. Ontario CMG Limited ........................................... P.E.I. Crestpointe Financial Corp. ........................... Delaware CSW Leasing, Inc. ..................................... Delaware Cummins Capital Limited ............................... Barbados Danka Equipment Rentals Ltd. .......................... U.K. Dell Credit Company, L.L.C ............................ Delaware Dell Financial Services (Australia) Pty Ltd. .......... Australia Dell Financial Services (New Zealand) Pty Ltd. ........ New Zealand Dell Financial Services Canada Limited ................ Ontario Dental Advantage ...................................... Delaware Durham Capital Limited ................................ Barbados EDCO Insurance Services, Inc. ......................... Delaware Equipment Acceptance Corporation ...................... Delaware Equipment Credit Services, Inc. ....................... Delaware Equipment Dealers Credit Canada Inc. .................. Ontario Equipment Dealers Credit Company, L.L.C ............... Delaware ERF Finance Limited ................................... U.K. ERF Leasing Limited ................................... U.K. ERF Network Rentals Limited ........................... U.K. Erie Capital Limited .................................. Barbados Essex Capital Limited ................................. Barbados FinanciaLinx Corporation .............................. Ontario Frontenac Capital Limited ............................. Barbados Gardner Merchant Rentals Ltd. ......................... U.K. GFSC Aircraft Acquisition Financing Corporation ....... Delaware Global Vendor Services Colombia S.A ................... Colombia Graybar Financial Services, LLC ....................... Delaware Grey Capital Limited .................................. Barbados Groupe Financier Laplante (1997) Inc. ................. Federal Haliburton Capital Limited ............................ Barbados Hamilton Leasing Limited .............................. U.K. Healthgroup Funding Ltd. .............................. Ontario Highland Equity Corporation [1020675 Ontario Ltd.] .... Ontario Highlands Insurance Company Limited ................... Barbados Heleas Capital Corporation ............................ Ontario Hudson Shipping Co., Inc. ............................. Delaware Hunter Leasing Limited ................................ Australia Ironbridge Capital Limited ............................ Barbados Iroquois Capital Limited .............................. Barbados Iroquois Limited ...................................... P.E.I. Ittelson-Beaumont Fund ................................ New York Jam Funding Corp. ..................................... Delaware Joly Capital Limited .................................. Barbados Kanata Capital Limited ................................ Barbados THE CIT GROUP, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT (Continued) December 31, 2000 Jurisdiction of Name of Subsidiary Incorporation ------------------ --------------- Lonsfield Pty. Limited ................................ Australia M.D.P. Services (Alta) Inc. ........................... Alberta M.D.P. Services Inc. .................................. B.C. MCC Capital Limited ................................... Barbados MCC International Finance Corporation ................. Ontario MCC Limited ........................................... P.E.I. Meinhard-Commercial Corporation ....................... New York MGM International Finance Corporation ................. Ontario Midrange Solutions Group, Inc. ........................ Delaware Midwest Properties Holding LLC ........................ Delaware Millenium Leasing Company I, LLC ...................... Delaware Misener Financial Corporation ......................... Ontario Montana OL1 LLC ....................................... Delaware Montana OP1 LLC ....................................... Delaware Montana OPCM1A LLC .................................... Delaware Montana OPCM1B LLC .................................... Delaware Montana OL2 LLC ....................................... Delaware Montana OP2 LLC ....................................... Delaware Montana OPCM2A LLC .................................... Delaware Montana OPCM2B LLC .................................... Delaware NCT Capital Inc. ...................................... Delaware NCT Capital Limited ................................... U.K. NCT Capital Pty Limited ............................... Australia NCT Financial Australia Limited ....................... Australia NCT Funding Company, L.L.C ............................ Delaware NCT Funding Pty Limited ............................... Australia NCT Funding Public Limited Company .................... U.K. NCU Railcar Holdings LLC .............................. Delaware Newcourt A.G. & Co OHG ................................ Germany Newcourt Aerospace Finance, Inc. ...................... Delaware Newcourt Asset Finance International .................. Ireland Newcourt Beteiligungs AG .............................. Germany Newcourt Capital (UK) of Canada Limited ............... U.K. Newcourt Capital Inc. ................................. Ontario Newcourt Capital Pty Ltd. ............................. Australia Newcourt Capital Securities, Inc. ..................... Delaware Newcourt Capital Securities Limited ................... England Newcourt Capital USA Inc. ............................. Delaware Newcourt Credit Group GmbH ............................ Germany Newcourt Credit Group Pty Ltd. ........................ Australia Newcourt Credit Group USA Inc. ........................ Delaware Newcourt Credit Limited ............................... U.K. Newcourt Credit of Canada Services Limited ............ U.K. Newcourt DCC Inc. ..................................... Delaware Newcourt DFS Inc. ..................................... Delaware Newcourt Equipment Receivables Corp. .................. Delaware Newcourt Finance (France) SNC ......................... France Newcourt Financial (Australia) Limited ................ Australia Newcourt Financial (Belgium) NV ....................... Belgium THE CIT GROUP, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT (Continued) December 31, 2000 Jurisdiction of Name of Subsidiary Incorporation ------------------ --------------- Newcourt Financial Beteiligungs AG .................... Germany Newcourt Financial CIS, LLC ........................... Russia Newcourt Financial (New Zealand) Limited .............. New Zealand Newcourt Financial (Singapore) Pte Ltd. ............... Singapore Newcourt Financial (Switzerland) AG ................... Switzerland Newcourt Financial (UK) of Canada Limited ............. U.K. Newcourt Financial (Vendor Services) Limited .......... U.K. Newcourt Financial Holding B.V ........................ Netherlands Newcourt Financial Ireland Limited .................... Ireland Newcourt Financial Italy S.p.A ........................ Italy Newcourt Financial Leasing GmbH ....................... Austria Newcourt Financial Limited ............................ U.K. Newcourt Financial Ltd. of Puerto Rico ................ Delaware Newcourt Financial Nederland B.V ...................... Netherlands Newcourt Financial Polska Sp. zo.o .................... Poland Newcourt Financial Receivables Corp II ................ Delaware Newcourt Financial Receivables Corp I ................. Delaware Newcourt Funding Pty Limited .......................... Australia Newcourt Funding Services, L.L.C ...................... Delaware Newcourt Funds Inc. ................................... Ontario Newcourt Healthcare Finance of Canada Limited ......... U.K. Newcourt Holding Germany GmbH ......................... Germany Newcourt Holdings (France) S.A ........................ France Newcourt Holdings (Singapore) Limited ................. Ontario Newcourt Holdings U.K. Limited ........................ U.K. Newcourt Hungary Financial Servicing Limited .......... Hungary Newcourt Insurance Services, Inc. ..................... Delaware Newcourt Insurance Services, Inc. of Alabama .......... Alabama Newcourt Insurance Services, Inc. of Kentucky ......... Kentucky Newcourt Insurance Services, Inc. of Mississippi ...... Mississippi Newcourt Insurance Services, Inc. of New Mexico ....... New Mexico Newcourt International Inc. ........................... Ontario Newcourt Inventory Finance Corporation ................ Delaware Newcourt Investments Inc. ............................. Ontario Newcourt Investments of Canada (USA) Inc. ............. Delaware Newcourt Leaseco Four Ltd. ............................ Ontario Newcourt Leaseco Three Ltd. ........................... Ontario Newcourt Leasing Colombia S.A., CFC ................... Colombia Newcourt Leasing Limitada ............................. Chile Newcourt Linc Receivables Corporation ................. Delaware Newcourt Location France SAS .......................... France Newcourt NationaLease Inc. ............................ Ontario Newcourt Premium Finance, Inc. ........................ Ohio Newcourt Project Finance, L.L.C ....................... Delaware Newcourt Rail Holdings Inc. ........................... Delaware Newcourt Rail, L.L.C .................................. Delaware Newcourt Receivables Corporation ...................... Delaware Newcourt Receivables Corporation II ................... Delaware Newcourt Securities Inc. .............................. Ontario THE CIT GROUP, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT (Continued) December 31, 2000 Jurisdiction of Name of Subsidiary Incorporation ------------------ --------------- Newcourt Services Barbados SRL ........................ Barbados Newcourt Taiwan Company Limited ....................... Taiwan Newcourt Transportation Finance of Canada Limited ..... U.K. North American Exchange, Inc. ......................... Delaware North Romeo Storage Corporation ....................... Delaware Omni Financial Services of America, Inc. .............. Delaware Owner-Operator Finance Company ........................ Delaware Pasadena Owner Participant L.P. ....................... Delaware Picker Financial Group, L.L.C ......................... Delaware Pol-Gart International Finance Corporation ............ Ontario Professional Capital Inc. ............................. Ontario Promed Leasing Inc. ................................... Quebec Rail Car Leasing Inc. ................................. Delaware RDAC Investments, Inc. ................................ Delaware Recreational Dealers Acceptance Company, L.L.C ........ Delaware Ross Shipping Co., Inc. ............................... Delaware SCL Holding Company ................................... Delaware SHL Financial Services Ltd. ........................... Ontario Sharp Rentals Limited ................................. U.K. Snap-On Credit LLC .................................... Delaware The Capita Corporation de Argentina SA ................ Argentina The Capita Corporation de Brasil Ltda ................. Brazil The Capita Corporation de Mexico S.A. de C.V .......... Mexico The Capita Corporation (Malaysia) Sdn Bhd ............. Malaysia The Capita Corporation (Singapore) Pte Limited ........ Singapore The Capita Credit Corporation ......................... Delaware The Capita Leasing Corporation (BVI) Ltd. ............. British Virgin Islands The CIT Financial Group Canada Ltd. ................... Canada The CIT GP Corporation ................................ Illinois The CIT GP Corporation II ............................. Delaware The CIT GP Corporation III ............................ Delaware The CIT GP Corporation V .............................. Delaware The CIT Group Holdings, Inc. .......................... Delaware The CIT Group Securitization Corporation .............. Delaware The CIT Group Securitization Corporation II ........... Delaware The CIT Group Securitization Corporation III .......... Delaware The CIT Group Securitization Corporation IV ........... Delaware The CIT Group, Inc. ................................... Delaware The CIT Group, Inc. (NJ) .............................. New Jersey The CIT Group/Asset Management, Inc. .................. Delaware The CIT Group/BBC, Inc. ............................... Delaware The CIT Group/BC Securities Investment, Inc. .......... New Jersey The CIT Group/Business Credit, Inc. ................... New York The CIT Group/Capital Finance, Inc. ................... Delaware The CIT Group/Capital Transportation, Inc. ............ Delaware The CIT Group/CmS Securities Investment, Inc. ......... New Jersey The CIT Group/Commercial Services (Asia), Limited ..... Hong Kong The CIT Group/Commercial Services, Inc. ............... New York The CIT Group/Commercial Services, Inc. (Ill.) ........ Delaware THE CIT GROUP, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT (Continued) December 31, 2000 Jurisdiction of Name of Subsidiary Incorporation ------------------ --------------- The CIT Group/Commercial Services, Inc. (VA) .......... Delaware The CIT Group/Consumer Finance, Inc. .................. Delaware The CIT Group/Consumer Finance, Inc.(NY) .............. New York The CIT Group/Consumer Finance, Inc.(TN) .............. New Jersey The CIT Group/Corporate Aviation, Inc. ................ Delaware The CIT Group/CrF Securities Investment, Inc. ......... New Jersey The CIT Group/El Paso Refinery, Inc. .................. Delaware The CIT Group/Equipment Financing, Inc. ............... Delaware The CIT Group/Equity Investments, Inc. ................ New Jersey The CIT Group/Factoring One, Inc. ..................... New York The CIT Group/FM Securities Investment, Inc. .......... New Jersey The CIT Group/LsC Securities Investment, Inc. ......... New Jersey The CIT Group/Sales Financing, Inc. ................... Delaware The CIT Group/Securities Investment, Inc. ............. Delaware The CIT Group/Venture Capital, Inc. ................... New Jersey The Equipment Insurance Company ....................... Vermont Thermo Capital Company, LLC ........................... Delaware Thomas Credit Corporation ............................. Delaware Thomas Credit Corporation Inc. ........................ Ontario Torontosudden Limited ................................. England TCC Funding Company, LLC .............................. Delaware Wajax Finance Ltd. .................................... Ontario Wajax Finance, Inc. ................................... Delaware Wellington Capital Corporation ........................ Barbados Western Star Finance (Australia) Pty Ltd. ............. Australia Western Star Finance Ltd. ............................. Ontario Western Star Finance, Inc. ............................ Delaware Western Star Insurance Services, Inc. ................. Delaware William Iselin & Co., Inc. ............................ New York Worrell Capital Limited ............................... Barbados YMAF Pty Ltd. ......................................... Australia YMCF Inc. ............................................. Ontario EX-23 9 0009.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT To the Stockholders and Board of Directors of The CIT Group, Inc.: We consent to the incorporation by reference in Registration Statements No. 33-85224, No. 333-70249, No. 333-36061, No. 333-22283, No. 333-43323, No. 333-64539, No. 333-64529, No. 333-73255, No. 333-74847, No. 333-34793, No. 333-71361 and No. 333-56172 on Form S-3 and Registration Statements No. 333-50499, No. 333-63497, No. 333-91075, No. 333-91077, No. 333-91079 and No. 333-52966 on Form S-8 of The CIT Group, Inc. of our report dated January 25, 2001, except as to Note 25, which is as of March 13, 2001, relating to the consolidated balance sheets of The CIT Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in the December 31, 2000 Annual Report on Form 10-K of The CIT Group, Inc. KPMG LLP Short Hills, New Jersey March 26, 2001 EX-24 10 0010.txt CONSENT AND POWER OF ATTORNEY Exhibit 24 CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 7th day of March, 2001. /s/ Albert R. Gamper, Jr. ------------------------------------ Albert R. Gamper, Jr. CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 21st day of March, 2001. /s/ Daniel P. Amos ------------------------------------ Daniel P. Amos CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 21st day of March, 2001. /s/ Anthea Disney ------------------------------------ Anthea Disney CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 21st day of March, 2001. /s/ John S. Chen ------------------------------------ John S. Chen CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 12th day of March, 2001. /s/ William A. Farlinger ------------------------------------ William A. Farlinger CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 21st day of March, 2001. ` /s/ Thomas H. Kean ------------------------------------ Thomas H. Kean CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 21st day of March, 2001. /s/ Paul G. Morton ------------------------------------ Paul G. Morton CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 21st day of March, 2001. /s/ Takatsugu Murai ------------------------------------ Takatsugu Murai CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 8th day of March, 2001. /s/ William M. O'Grady ------------------------------------ William M. O'Grady CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 8th day of March, 2001. /s/ Paul N. Roth ------------------------------------ Paul N. Roth CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 21st day of March, 2001. /s/ Peter J. Tobin ------------------------------------ Peter J. Tobin CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 21st day of March, 2001. /s/ Keiji Torii ------------------------------------ Keiji Torii CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 12th day of March, 2001. /s/ Theodore V. Wells, Jr. ------------------------------------ Theodore V. Wells, Jr. CONSENT AND POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of THE CIT GROUP, INC., a Delaware corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K for the year ended December 31, 2000: Hereby acknowledges that the undersigned director of the Company has reviewed and approved copies of the Company's annual report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission; and Hereby authorizes ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, to execute, in the name and on behalf of the Company and on behalf of the Principal Executive Officer or Officers and/or the Principal Accounting Officer and/or any other Officer of the Company, the annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments thereof, with power where appropriate to affix the corporate seal of the Company thereto and to attest to said seal, and to file such report, when so executed, including any exhibits required in connection therewith, with the Securities and Exchange Commission; and Hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN, and JAMES P. SHANAHAN, and each of them with full power to act without the others, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission; and Hereby grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person; and Hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereby. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 10th day of March, 2001. /s/ Alan F. White ------------------------------------ Alan F. White -----END PRIVACY-ENHANCED MESSAGE-----