<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the quarterly period ended September 30, 1996.
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 No 0-21075
FIRST ENTERPRISE FINANCIAL GROUP, INC.
--------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3688499
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Davis Street, Suite 1005, Evanston, Illinois 60201
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 866-8665
________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last report
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $.01 par value, 5,265,335 shares outstanding as of October 31,
1996.
<PAGE> 2
FIRST ENTERPRISE FINANCIAL GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. FINANCIAL STATEMENTS
Balance Sheets........................................ 3
Statements of Income.................................. 4
Statements of Cash Flows.............................. 5
Notes to Financial Statements......................... 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......... 11
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................... 19
Item 2. CHANGES IN SECURITIES................................. 19
Item 3. DEFAULTS UPON SENIOR SECURITIES....................... 19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...................................... 19
Item 5. OTHER INFORMATION..................................... 19
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................... 19
SIGNATURES............................................ 20
INDEX OF EXHIBITS..................................... 21
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST ENTERPRISE FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash................................................................................... $ 1,437,825 $ 1,703,320
Restricted cash........................................................................ 4,203,895 --
Finance receivables:
Net principal balance.............................................................. 97,114,910 59,495,368
Unamortized contract acquisition discount.......................................... -- --
Unearned insurance commissions..................................................... (50,128) (189,737)
------------ ------------
Automobile finance receivables..................................................... 97,064,782 59,305,631
Allowance for credit losses........................................................ (8,024,609) (5,010,919)
------------ ------------
89,040,173 54,294,712
Property and equipment - at cost....................................................... 1,098,641 881,713
Repossessed assets..................................................................... 820,775 542,841
Deferred tax asset..................................................................... 1,176,000 --
Other assets........................................................................... 2,597,625 988,194
------------ ------------
TOTAL ASSETS................................................................... $ 100,374,934 $ 58,410,780
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Senior debt............................................................................ $ 35,061,000 $ 43,267,000
Notes payble - securitized pool........................................................ 41,055,443 --
Subordinated debt...................................................................... -- 8,354,541
Accounts payable - dealers............................................................. 2,474,764 1,937,710
Other accounts payable and accrued expenses............................................ 2,737,099 1,577,189
Other liabilities...................................................................... 494,208 460,271
------------ ------------
Total liabilities.............................................................. 81,822,514 55,596,711
Common stock warrants.................................................................. -- 649,300
Stockholders' equity:
Common stock, $.01 par value; 20,000,000
shares authorized; 5,265,335 and 2,062,080 shares issued
and outstanding at September 30, 1996 and December 31, 1995, respectively....... 52,653 20,621
Class B common stock, $.01 par value, non-
voting; 2,262,080 shares authorized;
917,625 issued and outstanding at
December 31, 1995............................................................... -- 9,176
Additional paid-in capital......................................................... 13,707,431 1,201,718
Retained earnings ................................................................. 4,792,336 1,328,405
Guaranteed loans of stockholders................................................... -- (395,151)
------------ ------------
Total stockholders' equity..................................................... 18,552,420 2,164,769
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY............................................................ $ 100,374,934 $ 58,410,780
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE> 4
FIRST ENTERPRISE FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Finance charges and interest............................ $4,787,957 $2,352,315 $ 11,803,661 $6,587,758
Interest expense........................................ 1,574,699 929,375 4,464,920 2,748,903
------------ ------------ ------------- ------------
Net interest income............................. 3,213,258 1,422,940 7,338,741 3,838,855
Provision for credit losses............................. 325,000 -- 950,000 --
------------ ------------ ------------- ------------
Net interest income after provision
for credit losses.............................. 2,888,258 1,422,940 6,388,741 3,838,855
Other income:
Servicing income.................................... 1,423,007 943,219 3,990,495 2,364,886
Insurance commissions............................... 997,793 405,178 2,405,560 1,014,161
Fees and other income............................... 435,224 217,176 1,111,509 427,536
Gain on sale of finance receivables................. -- -- 524,343 --
------------ ------------ ------------- ------------
Total other income.............................. 2,856,024 1,565,573 8,031,907 3,806,583
------------ ------------ ------------- ------------
Income before operating expenses................ 5,744,282 2,988,513 14,420,648 7,645,438
Operating expenses:
Salaries and employee benefits...................... 2,265,202 1,359,887 6,203,214 3,640,409
Rent expense........................................ 140,798 94,244 370,334 252,861
Depreciation and amortization....................... 93,882 61,498 262,438 174,062
Professional services............................... 222,399 156,519 476,866 319,943
Other expenses...................................... 947,502 526,992 2,470,376 1,334,864
------------ ------------ ------------- ------------
Total operating expenses........................ 3,669,783 2,199,140 9,783,228 5,722,139
------------ ------------ ------------- ------------
Income before income taxes and
extraordinary item.............................. 2,074,499 789,373 4,637,420 1,923,299
Income taxes............................................ 922,000 15,000 1,940,000 45,000
Deferred income tax effect of
S corporation termination........................... -- -- (267,000) --
------------ ------------ ------------- ------------
Net income before extraordinary item............ $1,152,499 $774,373 $ 2,964,420 $1,878,299
------------ ------------ ------------- ------------
Extraordinary item from early extinguishment
of debt, net of income taxes........................ 149,789 -- 149,789 --
------------ ------------ ------------- ------------
Net income...................................... 1,002,710 774,373 2,814,631 1,878,299
============ ============ ============= ============
Pro forma net income per share.......................... $0.20 $0.13 $0.58 $0.33
============ ============ ============= ============
Pro forma weighted average number of common
and common equivalent shares outstanding............ 5,693,504 5,399,837 5,693,504 5,323,139
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
FIRST ENTERPRISE FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $2,814,631 $1,878,299
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization..................... 407,897 241,107
Provision for credit losses....................... 950,000 --
Deferred income taxes............................. (909,000) --
Deferred income tax effect of
S corporation termination....................... (267,000) --
Gain on sale of finance receivables............... (524,343) --
Accretion of contract acquisition
discount........................................ -- (127,797)
Changes in assets and liabilities:
Restricted cash................................... (4,203,895) --
Repossessed assets................................ (277,934) (87,983)
Other assets...................................... (1,085,088) (438,833)
Accounts payable and
accrued expenses................................ 1,115,476 1,192,145
Income taxes payable.............................. 1,423,488 --
Other liabilities................................. 429,088 (258,429)
----------- -----------
Total adjustments............................... (2,941,311) 520,210
----------- -----------
Net cash provided by (used in)
operating activities............................ (126,680) 2,398,509
Cash flows from investing activitites:
Automobile installment contracts
purchased......................................... (89,694,110) (49,453,539)
Proceeds from sale of automobile
installment contracts............................. 31,665,399 24,777,933
Principal collections on automobile
installment contracts............................. 22,333,250 15,615,860
Principal collections on timeshare
receivables....................................... -- 266,323
Capital expenditures................................ (479,366) (449,297)
----------- -----------
Net cash used in
investing activities............................ (36,174,827) (9,242,720)
</TABLE>
5
<PAGE> 6
FIRST ENTERPRISE FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from financing activities:
Borrowings under senior debt.......................................................... $80,635,000 $34,695,000
Payments on senior debt............................................................... (88,841,000) (31,119,000)
Proceeds from issuance of securitized notes........................................... 45,087,652 --
Payments on securitized notes......................................................... (4,032,209) --
Proceeds from issuance of subordinated debt........................................... 4,500,000
Payments on subordinated debt......................................................... (8,500,000)
Proceeds from issuance of
common stock........................................................................ 11,686,569 180,605
Payments on repurchase of
common stock........................................................................ -- (6,666)
Dividends paid........................................................................ -- (1,193,841)
----------- -----------
Net cash provided by
financing activities.............................................................. 36,036,012 7,056,098
----------- -----------
INCREASE (DECREASE)
IN CASH...........................................................................
Cash at beginning of period............................................................. 1,703,320 714,445
----------- -----------
Cash at end of period................................................................... $1,437,825 $ 926,332
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................................................ $4,578,808 $ 2,569,930
Income taxes........................................................................ 1,364,437 34,100
Supplemental schedule of non-cash financing activities:
Increase in additional paid-in capital resulting from tax benefit
in conjunction with the exercise of common stock warrants........................... $ 842,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
FIRST ENTERPRISE FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
First Enterprise Financial Group, Inc., which operates under the name
First Enterprise Acceptance Company (the "Company"), is a specialty finance
company engaged primarily in purchasing and servicing installment sales
contracts originated by automobile dealers for financing the sale of used
automobiles, vans and light trucks.
The unaudited interim consolidated financial statements of the Company, in
the opinion of management, reflect all necessary adjustments, consisting only
of normal recurring adjustments, for a fair presentation of results as of the
dates and for the interim periods covered by the financial statements. The
results for the interim periods are not necessarily indicative of the results
of operations to be expected for the entire year.
The unaudited interim consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and reporting
practices. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission; however the Company believes the
disclosures are adequate to make the information not misleading. The unaudited
interim consolidated financial statements contained herein should be read in
conjunction with the audited financial statements and notes there to included
in the Company's prospectus dated July 22, 1996 relating to its initial Public
Offering. On July 22, 1996, the Company completed its initial Public Offering
of 1,886,640 shares of common stock.
INCOME TAXES
Since its inception, the Company was an S Corporation under the Internal
Revenue Code of 1986, as amended. As a result, the income of the Company has
been taxed, for federal and certain state and local income tax purposes,
directly to the Company's stockholders, rather than the Company. The Company
terminated its status as an S Corporation effective January 1, 1996 and, as a
result, the Company is now subject to federal and state corporate income
taxation. For purposes of computing pro-forma net income per share for 1995, a
pro-forma income tax provision was calculated on 1995 net income before income
taxes.
EARNINGS PER SHARE
The pro-forma net income per share computations reflect the issuance of
1,886,640 shares of common stock on July 22, 1996, in connection with the
Company's initial public offering (1,500,000 shares issued at a price of $7
per share and 386,640 shares issued for $520,000 in connection with warrant
exercises). The pro-forma computations also reflect the issuance of 282,996
shares of common stock on August 20, 1996, at a price of $7 per share in
connection with the exercise of the over-allotment option by the Underwriters.
7
<PAGE> 8
FIRST ENTERPRISE FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - FINANCE RECEIVABLES
Finance receivables are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Contractual payments due...................... 131,681,415 $79,422,000
Unearned finance charges...................... (34,566,505) (19,926,632)
----------- -----------
Net principal balance......................... 97,114,910 59,495,368
Unamortized contract acquisition.............. -- --
Unearned insurance commission................. (50,128) (189,737)
----------- -----------
Automobile finance receivables................ 97,064,782 59,305,631
Allowance for credit losses................... (8,024,609) (5,010,919)
----------- -----------
$89,040,173 $54,294,712
=========== ===========
</TABLE>
Automobile finance receivables are accounted for on a discount basis and
generally have terms of 24 to 36 months, with a maximum term 54 months.
A summary of the activity in the unamortized contract acquisition
discounts is as follows for the nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
-------- ---------
<S> <C> <C>
Balance at beginning of year..................... $ -- $228,617
Additions from new business...................... -- --
Accreted into finance charge income.............. -- (127,797)
Transferred to allowance for credit losses....... -- (100,820)
-------- ---------
Balance at end of period......................... $ -- $ --
-------- =========
</TABLE>
A summary of the activity in allowance for credit losses is as follows for
nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
---------- -----------
<S> <C> <C>
Balance at beginning of year................................... $5,010,919 $2,562,723
Additions from new business.................................... 9,035,292 5,373,687
Related to finance receivables sold............................ (2,946,826) (2,196,776)
Finance receivables charged off, net of recoveries............. (4,024,776) (2,052,834)
Transfer from unamortized contract
Acquisition Discount...................................... -- 100,820
Provision for credit losses.................................... 950,000 --
---------- -----------
Balance at end of period....................................... $8,024,609 $3,787,620
========== ===========
</TABLE>
8
<PAGE> 9
FIRST ENTERPRISE FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - FINANCE RECEIVABLES - CONTINUED
Servicing Income
Contractual servicing income on sold receivables is recognized over the
life of the related receivables as a percentage of receivables outstanding.
Bonus servicing fees are recognized when earned and are based on the difference
between the yield received by the Company and the sum of the Company's 3%
contractual servicing fee, the yield due to the purchaser and the addition or
reduction necessary to maintain the purchaser's reserve at the required level.
Gain or loss on sale of finance receivables is determined by the difference
between sales proceeds and the cost of the finance receivables and adjusted for
the difference, if any, between the estimated future servicing revenues and
normal servicing costs ("excess servicing rights"). The excess servicing
rights, if any, are capitalized and amortized over the expected repayment life
of the sold finance receivables.
NOTE C - SENIOR DEBT AND SUBORDINATED DEBT
Senior debt and subordinated debt consist of the following at:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
--------
<S> <C>
Senior Debt:
$62,000,000, senior secured Credit Facility, due June 1, 1997,
with interest at the reference rate as defined in the agreement,
plus 1.0%, which was 9.25% at September 30, 1996................. $35,061,000
===========
</TABLE>
Borrowings under the Credit Facility are collateralized by all finance
receivables not subject to the securitized pool and certain other assets. The
agreement requires the maintenance of certain financial covenants which
include, among others, ratio of debt to net worth and ratio of reserves to the
finance receivable portfolio. The Company was in compliance with all financial
covenants at September 30, 1996.
Effective October 1, 1996, the Company has renegotiated its Credit
Facility, increasing the commitment to $85 million from $62 million and
reducing the interest rate to prime plus 25 basis points with an option of 250
basis points over LIBOR.
9
<PAGE> 10
FIRST ENTERPRISE FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - NOTES PAYABLE - SECURITIZED POOL
The Company has entered into a letter of intent with a placement agent for
the issuance of up to $200 million of securitized notes through a wholly-owned
subsidiary. On June 18, 1996, the Company completed a $45.1 million debt
financing consisting of 6.84% fixed rate automobile securitized notes. The
notes were issued by First Enterprise Securitization Corporation, a
wholly-owned special purpose subsidiary of First Enterprise Financial Group,
Inc. The proceeds received by the Company were used to repay indebtedness
under the Credit Facility. Principal and interest on the notes are payable
monthly from collections and recoveries on the pool of finance receivables.
Financial Security Assurance Inc. ("FSA") issued a financial guaranty insurance
policy for the benefit of the noteholders.
The Company is required to establish and maintain cash reserve and
collection accounts with a trustee with respect to the securitized pool of
finance receivables ("restricted cash"). The amounts set aside would be used
to supplement certain shortfalls in payments, if any, to investors. These
balances are subject to an increase up to a maximum amount as specified in the
securitization indenture and are invested in certain instruments as permitted
by the trust agreement. To the extent balances on deposit exceed specified
levels, distributions are made to the Company and, at the termination of the
transaction, any remaining amounts on deposit are distributed to the Company.
The indenture requires the Company to maintain specified delinquency and credit
loss ratios. The Company was in compliance with these covenants at September
30, 1996.
NOTE E - STOCK OPTIONS
The following table summarized the Company's stock option plans for the
nine months ended September 30, 1996.
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------------- --------------
<S> <C> <C>
Option outstanding at December 31, 1995................ 610,891 $1.13 - 1.36
Option changes
Granted................................................ 23,000 7.00
Exercised.............................................. (115,988) 1.13 - 1.36
-------------
Options outstanding at September 30, 1996.............. 517,903 $1.13 - 7.00
=============
</TABLE>
The Company intends to continue to apply the provisions of Accounting
Principles Board Option No. 25, "Accounting for Stock Issued to Employees", in
the computation of employee compensation expense. The Company will provide pro
forma net income and income per share disclosures as if the fair value based
accounting method in Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation," had been used to account for
stock-based employee compensation expense.
NOTE F - SUBSEQUENT EVENTS
On October 7, 1996, at the direction of the Board of Directors, the
Company made the S Corporation Distribution payment in the amount of $2,069,811
to the stockholders of record as of December 29, 1995.
10
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial
condition of the Company at September 30, 1996 as compared with December 31,
1995 and the results of operations for the nine months ended September 30, 1996
and 1995. The financial information provided below has been rounded in order
to simplify its presentation. The ratios and percentages provided below are
calculated using the detailed financial information contained in the unaudited
interim consolidated financial statements, the notes thereto and the financial
data elsewhere in this report.
RECENT DEVELOPMENTS
On July 22, 1996, the Company completed its initial public offering of
1,886,640 shares of common stock (1,500,000 shares issued at a price of $7 per
share and 386,640 shared issued for $520,000 in connection with warrant
exercises). Net proceeds from the offering were used to retire the
subordinated debt and repay borrowings under the Credit Facility.
On August 20, 1996, the Underwriters exercised their 30 day over-allotment
option to purchase 282,996 additional shares of common stock at a price of $7
per share. Net proceeds from the exercise were used to repay borrowings under
the Credit Facility.
Effective October 1, 1996, the Company has renegotiated its Credit
Facility, increasing the commitment to $85 million from $62 million and
reducing the interest rate to prime plus 25 basis points with an option of 250
basis points over LIBOR.
On October 7, 1996, at the direction of the Board of Directors, the
Company made the S Corporation Distribution payment in the amount of $2,069,811
to the stockholders of record as of December 29, 1995.
GENERAL
The Company is a specialty finance company engaged primarily in purchasing
and servicing installment contracts originated by dealers in the sale of
automobiles. The Company derives most of its revenue from (i) finance charges
earned on the installment contracts, (ii) contractual servicing fees and bonus
servicing fees resulting from the sales of certain receivables and (iii) fees
and commissions derived from the sale of ancillary products. The following
table summarizes the Company's sources of revenues,
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1996 1995
---------- ----------
<S> <C> <C>
Finance charges from installment contracts.................... 59.5% 63.2%
Interest income from timeshare receivables.................... -- 0.2
Servicing income.............................................. 20.1 22.8
Other fees and commissions.................................... 17.8 13.8
Gain on sale of installment contracts......................... 2.6 --
------ ------
Total......................................................... 100.0% 100.0%
====== ======
</TABLE>
Installment contracts are generally purchased from dealers at a discount
from the principal amount financed by consumers which is non-refundable to
dealers ("non-refundable contract acquisition discount"). The amount of the
non-refundable contract acquisition discount is negotiated between the dealers
and the branch managers based on several factors, including the
creditworthiness of the consumers, the value and condition of the automobiles
and the relationship between the amount to be financed and the automobile's
value. The non-refundable contract acquisition discount represents both a
credit allowance and a yield enhancement, with the portion necessary to absorb
credit losses allocated to the allowance for credit losses. The remaining
portion of the
11
<PAGE> 12
non-refundable contract acquisition discount, if any, is allocated to the
unamortized contract acquisition discount and is accreted into finance charge
income over the estimated life of the installment contracts using the
sum-of-the-months'-digits method which approximates the interest method.
Since August 1995, all of the Company's non-refundable contract acquisition
discount has been allocated to the allowance for credit losses.
For the three and nine months ended September 30, 1996, the weighted
average non-refundable contract acquisition discount was approximately 9.9% and
10.1%, respectively. For the three and nine months ended September 30, 1995,
the weighted average non-refundable contract acquisition discount was
approximately 10.7% and 10.9%, respectively.
12
<PAGE> 13
RESULTS OF OPERATIONS:
The following table sets forth certain financial data relating to the Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
------------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PORTFOLIO DATA:
Total Portfolio (1)................................. $133,570 $68,662 $133,570 $68,662
Average Total Portfolio (1)......................... 126,495 64,434 108,877 54,330
Average Owned Portfolio (2)......................... 86,836 37,528 69,694 36,914
Average indebtedness (3)............................ 70,548 31,642 59,474 31,587
Number of installment contracts purchased........... 3,578 2,344 11,902 7,072
Installment contracts purchased..................... 27,443 16,742 89,694 49,454
OPERATING DATA:
Owned Portfolio yield (4)........................... 21.94% 24.86% 22.62% 23.86%
Cost of borrowed funds (3).......................... 8.88% 11.66% 10.03% 11.64%
Net interest spread................................. 13.05% 13.20% 12.60% 12.23%
Net interest margin (5)............................. 14.72% 15.04% 14.07% 13.90%
Allowance for credit losses as a
percentage of Owned Portfolio...................... 8.26% 8.63% 8.26% 8.63%
Net charge-offs in the Owned Portfolio as a
percentage of average Owned Portfolio.............. 6.90% 7.96% 7.70% 7.42%
Net charge-offs in the Total Portfolio as a
percentage of average Total Portfolio.............. 6.41% 6.45% 6.62% 6.24%
Operating expenses as a percentage of
average Total Portfolio............................ 11.54% 13.54% 12.00% 14.08%
Number of branch offices............................ 33 23 33 23
Number of dealers................................... 1,133 578 1,133 578
</TABLE>
(1) The Total Portfolio represents the principal amount of contracts owned
and/or serviced by the Company. Averages were computed using the
beginning and ending balances for each month during the periods presented.
(2) The Owned Portfolio represents theprincipal amount of contracts owned by
the Company. Averages were computed using the beginning and ending
balances for each month during the periods presented.
(3) Average indebtedness represents the average dollar balance of borrowings
outstanding under the Credit Facility, subordinated notes and notes
payable - securitized pool throughout the period presented. Cost of
borrowed funds represents interest expense as a percentage of average
indebtedness. Averages were computed using the daily outstanding
balances.
(4) Represents automobile finance charge income as a percentage of the
average Owned Portfolio.
(5) Represents net interest income as a percentage of the average Owned
Portfolio.
13
<PAGE> 14
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net Interest Income
Finance charges and interest increased $5.2 million, or 79.2%, from $6.6
million for the nine months ended September 30, 1995 to $11.8 million for the
nine months ended September 30, 1996. The growth in finance charges and
interest resulted from an increase in the Owned Portfolio due to an increase in
the number of installment contracts purchased. While installment contracts
purchased increased $40.2 million, or 81.4%, from $49.5 million for the nine
months ended September 30, 1995 to $89.7 million for the nine months ended
September 30, 1996, the average Owned Portfolio increased $32.8 million, or
88.8%, from $36.9 million to $69.7 million over the corresponding periods.
This is due do the fact that the Company sold $34.7 million and $27.5 million
in contracts during the nine months ended September 30, 1996 and 1995,
respectively.
The Company opened eight branch offices during the nine months ended
September 30, 1996, increasing to 33 the total number of its branch offices.
At September 30, 1995, the Company operated 23 branch offices.
The average Owned Portfolio yield decreased from 23.9% for the nine months
ended September 30, 1995 to 22.6% for the nine months ended September 30, 1996.
The decrease is attributable to the following factors (i) no income from the
accretion of unamortized contract acquisition discount for the nine months
ended September 30, 1996 and (ii) the increase in forced placed collateral
protection insurance ("CPI"), for which the Company does not charge interest,
as a percentage of the Owned Portfolio.
Interest expense increased $1.7 million from $2.8 million for the nine
months ended September 30, 1995 to $4.5 million for the nine months ended
September 30, 1996. The increase in interest expense resulted from an increase
in borrowings under the Credit Facility and the issuance of additional
subordinated debt in September 1995. Average indebtedness increased $27.9
million, or 88.3%, from $31.6 million for the nine months ended September 30,
1995 to $59.5 million for the nine months ended September 30, 1996. The
average cost of borrowed funds decreased from 11.64% for the nine months ended
September 30, 1995 to 10.03% for the nine months ended September 30, 1996. The
decrease in average cost of borrowed funds was due primarily to the retirement
of subordinated debt as a result of the initial public offering and to a lesser
extent, a decrease in the rate paid on the Credit Facility. Proceeds from the
July 22, 1996 initial public offering were used to repay $4.0 million in
subordinated debt bearing interest at 13.5% and $4.5 million in subordinated
debt bearing interest at 13%. In addition to the interest rate on the
subordinated debt, the Company amortized both the fees associated with the
subordinated debt and the discount related to the detachable warrants attached
to the subordinated debt. For the nine months ended September 30, 1995, the
weighted average rate on the Credit Facility was 9.86% and for the nine months
ended September 30, 1996 the weighted average rate on the Credit Facility was
9.28%. Net interest income increased $3.5 million, or 91.2% from $3.8 million
for the nine months ended September 30, 1995 to $7.3 million for the nine
months ended September 30, 1996.
The net interest margin on the Owned Portfolio increased from 13.9% for
the nine months ended September 30, 1995 to 14.1% for the nine months ended
September 30, 1996, due to the lower average cost of borrowed funds, offset
slightly by the decrease in average Owned Portfolio yield as discussed above.
Provision for Credit Losses
For the nine months ended September 30, 1996, the Company made a provision
for credit losses of $950,000. There was no provision for credit losses for
the nine months ended September 30, 1995. The provision for credit losses
contributed to maintaining the allowance for credit losses as a percentage of
the Owned Portfolio at 8.3% as of September 30, 1996 as compared to 8.6% as of
September 30, 1995. See "Credit Loss Experience."
14
<PAGE> 15
Other Income
Other income increased $4.2 million, or 111%, from $3.8 million for the
nine months ended September 30, 1995 to $8.0 million for the nine months ended
September 30, 1996. The increase in other income was primarily due to
increases in servicing income derived from installment contracts sold, the sale
of ancillary products and the recognition of a gain on the sale of installment
contracts.
Servicing income increased $1.6 million, or 68.7%, from $2.4 million for
the nine months ended September 30, 1995 to $4.0 million for the nine months
ended September 30, 1996. The increase in servicing income was due to the sale
of $34.7 million in installment contracts during the nine months ended
September 30, 1996 compared to the sale of $27.5 million in installment
contracts during the nine months ended September 30, 1995. Further, the
average balance of sold contracts increased $21.8 million from $17.4 million
for the nine months ended September 30, 1995 to $39.2 million for the nine
months ended September 30, 1996.
Income from insurance commissions increased $1.4 million from $1.0 million
for the nine months ended September 30, 1995 to $2.4 million for the nine
months ended September 30, 1996. The increase was attributable to the
increased sales of insurance products in connection with the increase in the
volume of installment contracts purchased and the introduction of certain new
insurance products in late 1995.
For the nine months ended September 30, 1996, the Company recognized a
gain on the sale of $34.7 million of installment contracts in the amount of
$524,000. The gain on the sales of installment contracts was determined by the
difference between sales proceeds and the cost of the installment contracts
adjusted for the present value of the excess servicing rights. The excess
servicing rights were capitalized and are being amortized over the expected
life of the related installment contracts in direct proportion to the reduction
in the related pool of installment contracts sold.
Operating Expenses
Operating expenses increased $4.1 million, or 71.0%, from $5.7 million for
the nine months ended September 30, 1995 to $9.8 million for the nine months
ended September 30, 1996. The increase in operating expenses was due to
increases in salaries and employee benefits, rent and other expenses relating
to the opening of new branch offices as well as the addition of administrative
personnel at the Evanston, Illinois and Enterprise, Alabama offices. Salaries
and employee benefits increased $2.6 millions, or 70.4%, from $3.6 million for
the nine months ended September 30, 1995 to $6.2 million for the nine months
ended September 30, 1996. Although operating expenses increased for the nine
months ended September 30, 1996 compared to the nine months ended September 30,
1995, the Total Portfolio grew at a faster rate than the increases in operating
expenses. As a result, operating expenses as a percentage of the average Total
Portfolio decreased from 14.1% for the nine months ended September 30, 1995 to
12.0% for the nine months ended September 30, 1996.
Income Taxes
Income taxes increased $1.9 million from $45,000 for the nine months ended
September 30, 1995 to $2.0 million for the nine months ended September 30,
1996. The increase is due to the Company terminating its status as an S
Corporation effective on January 1, 1996. As a result, the Company is now
subject to federal and certain state and local income taxes.
Upon termination of the S Corporation status, and in compliance with SFAS
No. 109, the Company recognized a deferred tax benefit of $267,000 for the nine
months ended September 30, 1996.
Extraordinary Item
In conjunction with the initial public offering, the Company recognized an
extraordinary charge against income of approximately $150,000, net of taxes of
$96,000, related to the early retirement of subordinated debt. There was no
such extraordinary item for the nine months ended September 30, 1995.
15
<PAGE> 16
Net Income
Net income increased $936,000, or 49.8%, from $1.9 million for the nine
months ended September 30, 1995 to $2.8 million for the nine months ended
September 30, 1996. The increase in net income was primarily attributable to
the growth in the Total Portfolio and related factors as discussed above, as
well as the income tax benefit resulting from the termination of the S
Corporation status.
CREDIT LOSS EXPERIENCE
The Company maintains an allowance for credit losses at a level management
believes adequate to absorb potential losses in the Owned Portfolio. The
adequacy of the allowance for credit losses is evaluated by management on an
ongoing basis through historical credit loss experience, delinquencies, the
value of the underlying collateral, the level of the finance contract portfolio
and general economic conditions and trends. An account is charged off against
the allowance for credit losses at the earliest of the time the account's
collateral is repossessed, the account is 120 days or more past due or the
account is otherwise deemed to be uncollectible.
The Total Portfolio is grouped into pools on a chronological basis
(quarterly beginning in 1995) for purposes of evaluating trends and loss
experience on a more detailed basis. If management determines that the
allowance for credit losses is not adequate to provide for potential losses of
an individual pool, amounts will be transferred, to the extent available, from
the unamortized contract acquisition discounts for that pool to the allowance
for credit losses. Any remaining shortfall in the allowance for credit losses
would be provided through a charge against income.
Based upon historical analysis and expected future trends, management
changed the allocation of the non-refundable contract acquisition discount to
the allowance for credit losses, such that all non-refundable contract
acquisition discount was allocated entirely to the allowance for credit losses
during 1995. Additionally, after reviewing the adequacy of the allowance for
credit losses, the remaining balance of the unamortized contract acquisition
discount was transferred to the allowance for credit losses on August 1, 1995.
For the nine months ended September 30, 1996, the Company increased its
allowance for credit losses by $950,000 through a charge against income based
upon continued historical analysis, particularly evaluation of the earliest
pools. Management will continue to monitor this allocation and may, if
appropriate, in the future allocate portions of the non-refundable acquisition
discount to unamortized contract acquisition discount.
16
<PAGE> 17
DELINQUENCY EXPERIENCE
A payment is considered past due if the customer fails to make any full
payment on or before the due date as specified by the terms of the installment
contract. The Company typically contacts delinquent customers within one to
two days after the due date.
The following table summarizes the Company's delinquency experience for
accounts with payments 60 days or more past due on a dollar basis for the Total
Portfolio and Owned Portfolio. The delinquency experience data excludes
automobiles which have been repossessed.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996 1995
---------- ----------
<S> <C> <C>
TOTAL PORTFOLIO:
Installment contracts, gross $177,175 $89,853
Past due accounts, gross:
60 to 89 days 1,331 538
90 days or more 900 115
-------- -------
Total 60 days or more $ 2,231 $ 653
======== =======
Contracts with payments 60 days or more past due as a
percentage of total installment contracts, gross 1.26% 0.73%
======== ======
OWNED PORTFOLIO:
Installment contracts, gross $131,680 $ 58,156
Past due accounts, gross:
60 to 89 days 849 255
90 days or more 508 52
-------- --------
Total 60 days or more $ 1,357 $ 307
======== ========
Contracts with payments 60 days or more past due as a
percentage of total installment contracts, gross 1.03% 0.53%
</TABLE> ======== =======
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations, branch office openings and the
growth of the Total Portfolio through six principal sources of funds: (i)
payments received under installment contracts, (ii) borrowings under the Credit
Facility, (iii) proceeds from the issuance of subordinated notes, (iv) proceeds
from the sale of installment contracts, (v) proceeds from an asset
securitization transaction and (vi) proceeds from the liquidation of timeshare
receivables.
Net cash flows used in operating activities were $969,000 and net cash
flows provided by operating activities were $2.4 million for the nine months
ended September 30, 1996 and 1995, respectively. The decrease resulted
primarily from increases in restricted cash and other assets, offset by
increases in net earnings.
Net cash flows used in investing activities were $36.2 million and $9.2
million for the nine months ended September 30, 1996 and 1995, respectively.
The increase resulted from cash used to purchase installment contracts.
Net cash flows provided by financing activities were $36.9 million and
$7.1 million for the nine months ended September 30, 1996 and 1995,
respectively. Cash provided by financing activities was used primarily to
support the growth in the total portfolio.
In order to meet its funding needs, the Company will require additional
financing to supplement its expected cash flows from operations, the
anticipated borrowings under its Credit Facility, the net proceeds from its
initial public offering and proceeds from the issuance of the securitized
notes. The Company has entered into a letter of intent with a placement agent
for the issuance of up to $200 million of securitized notes through its
wholly-owned special purpose subsidiary. On June 18, 1996, First Enterprise
Securitization Corporation sold approximately $45.1 million of 6.84% fixed rate
securitized notes in an asset securitization transaction.
On July 22, 1996, the Company completed its initial public offering of
1,886,640 shares of common stock (1,500,000 shares issued at a price of $7 per
share and 386,640 shared issued for $520,000 in connection with warrant
exercises). Net proceeds from the offering were used to retire the
subordinated debt and repay borrowings under the Credit Facility.
On August 20, 1996, the Underwriters exercised their 30 day over-allotment
option to purchase 282,996 additional shares of common stock at a price of $7
per share. Net proceeds from the exercise were used to repay borrowings under
the Credit Facility.
18
<PAGE> 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other Information - Not Applicable
Item 6. (a) Exhibits
3.1 Articles of Incorporation
3.2 By Laws
11. Statement Regarding Computation of Per Share Earnings
(b) Reports on Form 8-K - None
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST ENTERPRISE FINANCIAL GROUP, INC.
Date: 11/8/1996 /s/ Michael P. Harrington
-------------------------- ------------------------------------
Michael P. Harrington
Chairman of the Board,
President and Chief Executive
Officer (Principal Executive Officer)
Date: 11/8/96 /s/ Jan W. Erfert
-------------------------- ------------------------------------
Jan W. Erfert
Vice President and Treasurer
(Principal Accounting and
Financial Officer)
20
<PAGE> 21
INDEX OF EXHIBITS
Exhibit No. Description
3.1 Articles of Incorporation
3.2 By Laws
11. Statement Regarding Computation of Per Share Earnings
21
<PAGE> 1
96588971
File Number 5869-212-3
- Dept-01 RECORDING $35.00
- T 7777 TRAN 6997 08/01/96 11:27:00
- 4890 RH *-96-588971
- COOK COUNTY RECORDER
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
WHEREAS, Articles of Amendment to the Articles of Incorporation of First
Enterprise Financial Group, Inc. Incorporated under the Laws of the State of
Illinois have been filed in the office of the Secretary of State as provided by
the Business Corporation Act of Illinois, in force July 1, A.D. 1984.
Now Therefore, I, George H. Ryan, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
IN TESTIMONY WHEREOF, I hereto set my hand and cause to be affixed the Great
Seal of the State of Illinois, at the City of Springfield, this 26th day of
July A.D. 1996 and of the Independence of the United States the two hundred and
21st
[SEAL OF ILLINOIS LOGO]
/s/ George H. Ryan
---------------------
George H. Ryan
Secretary of State
<PAGE> 2
Form BCA-10.30 ARTICLES OF AMENDMENT
(Rev. Jan. 1995) File # 5869-212-3
- --------------------------------------------------------------------------------
George H. Ryan SUBMIT IN DUPLICATE
Secretary of State This space for use by
Department of Business Services Secretary of State
Springfield, IL 62756
Telephone (217) 782-1832 Date: 07-26-96
Franchise Tax: $
Remit payment in check or money Filing Fee* $25.00
order, payable to "Secretary of State." Penalty: $
Approved:
*The filing fee for articles of
amendment - $25.00
- --------------------------------------------------------------------------------
1. CORPORATE NAME: FIRST ENTERPRISE FINANCIAL GROUP, INC.
------------------------------------------------------------
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on
July 16, 1996 in the manner indicated below. ("X" one box only)
[ ] By a majority of the incorporators, provided no directors were named in
the articles of incorporation and no directors have been elected;
(Note 2)
[ ] By a majority of the board of directors, in accordance with Section
10.10, the corporation having issued no shares as of the time of
adoption of this amendment;
(Note 2)
[ ] By a majority of the board of directors, in accordance with Section
10.15, shares having been issued but shareholder action not being
required for the adoption of the amendment; (Note 3)
[ ] By the shareholders, in accordance with Section 10.20, a resolution of
the board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of incorporation
were voted in favor of the amendment;
(Note 4)
[ ] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed
by shareholders having not less than the minimum number of votes required
by statute and by the articles of incorporation. Shareholders who have
not consented in writing have been given notice in accordance with
Section 7.10;
(Notes 4 & 5)
[X] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed
by all the shareholders entitled to vote on this amendment.
(Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name
below. Use Page 2 for all other amendments.
Article I: The name of the corporation is:
No Change
- -------------------------------------------------------------------------------
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE> 3
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the
number of authorized shares of any class below the number of issued shares
of that class, provided for or effected by this amendment, is as follows:
(If not applicable, insert "No change")
SEE EXHIBIT B ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE.
(a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces
the terms Stated Capital and Paid-in Surplus and is equal to the total of
these accounts) is as follows: (If not applicable, insert "No change")
No Change
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (If not applicable,
insert "No change")
No Change
Before Amendment After Amendment
Paid-in Capital $ $
---------------- ---------------
(COMPLETE EITHER ITEM 6 OR 7 BELOW. ALL SIGNATURES MUST BE IN BLACK INK.)
6. The undersigned corporation has caused this statement to be signed by
its duly authorized officers, each of whom affirms, under penalties of
perjury, that the facts stated herein are true.
Dated July 17, 1996 FIRST ENTERPRISE FINANCIAL GROUP, INC.
---------------------------------------
(Exact Name of Corporation at date of
execution)
attested by /s/ Paul A. Stinneford by /s/ Robert J. Harker
------------------------ ------------------------------------
(Signature of Secretary (Signature of President or Vice
or Assistant Secretary) President)
Robert J. Harker, Vice President
Paul A. Stinneford - ------------------------------------
Secretary (Type or Print Name and Title)
------------------------
(Type or Print Name and
Title)
7. If amendment is authorized pursuant to Section 10.10 by the
incorporators, the incorporators must sign below, and type or print name
and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10
and there are no officers, then a majority of the directors or such
directors as may be designated by the board, must sign below, and type or
print name and title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated 19
----------------, --
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Page 3
<PAGE> 4
EXHIBIT A
---------
WHEREAS, the total number of shares which the Corporation is currently
authorized to issue is as follows:
<TABLE>
<CAPTION>
NUMBER OF
PAR VALUE AUTHORIZED
CLASS SERIES PER SHARE SHARES
- ----- ------ --------- ----------
<S> <C> <C> <C>
Common None $.01 17,937,920
Class B None $.01 2,062,080
Common
</TABLE>
WHEREAS, the undersigned directors and shareholders of this Corporation
have deemed it to be in the best interests of the Corporation to amend the
Articles of Incorporation of the Corporation to provide for (i) the deletion of
the aforesaid Class B authorized shares of Common Stock; (ii) the conversion of
the currently authorized 2,062,080 shares of Class B Common Stock into
2,062,080 authorized shares of Common Stock resulting in an aggregate of
20,000,000 authorized shares of Common Stock; and (iii) the automatic
conversion of the currently issued and outstanding 1,015,569 shares of Class B
Stock on a one-for-one basis into 1,015,569 shares of Common Stock resulting in
an aggregate of 3,077,649 issued and outstanding shares of Common Stock
(collectively referred to hereinafter as the "Amendment Provisions") effective
upon filing Articles of Amendment to the Articles of Incorporation with the
Illinois Secretary of State.
NOW, THEREFORE, BE IT RESOLVED, that the Amendment Provisions be, and
they hereby are, duly adopted by the undersigned shareholders and directors.
RESOLVED, that Item 4, Paragraph 1 of the Articles of Incorporation of
the Corporation be, and it hereby is, amended by striking Paragraph 1 in its
entirety and inserting in lieu thereof the following Paragraph 1:
ITEM 4. PARAGRAPH 1: AUTHORIZED SHARES
The number of shares which the corporation is
authorized to issue by class is:
A-1
<PAGE> 5
<TABLE>
<CAPTION>
PAR VALUE NUMBER OF SHARES
CLASS SERIES PER SHARE AUTHORIZED
- ----- ------ --------- -----------------
<S> <C> <C> <C>
Common None $.01 20,000,000
</TABLE>
FURTHER RESOLVED, that the proper officers of this Corporation be, and
they hereby are, authorized and directed, in the name of and on behalf of this
Corporation, to execute and cause to be filed with the Secretary of State of
Illinois Articles of Amendment to the Articles of Incorporation of this
Corporation, and to execute any such further documents and to carry out any
such further actions as shall be deemed necessary and proper to carry out the
intents and purposes of the foregoing resolutions.
A-2
<PAGE> 6
EXHIBIT B
---------
Effective upon filing these Articles of Amendment to the Articles of
Incorporation, the currently issued and outstanding 1,015,569 shares of Class B
Common Stock will be automatically converted into 1,015,569 shares of Common
Stock which, when added to the currently issued 2,062,080 shares of Common
Stock, results in an aggregate of 3,077,649 issued and outstanding shares of
Common Stock.
B-1
<PAGE> 1
BY-LAWS
OF
FIRST ENTERPRISE FINANCIAL GROUP, INC.
(FORMERLY FEFG, INC.)
ARTICLE I
OFFICES
The corporation shall continuously maintain in the State of Illinois a
registered office and a registered agent whose business office is identical
with such registered office, and may have other offices within or without the
state.
ARTICLE II*
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders
shall be held on the third Tuesday in May of each year commencing in 1997, or
at such time as the board of directors may designate for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday, such meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders
may be called either by the president, by the board of directors or by the
holders of not less than one-fifth of all the outstanding shares of the
corporation entitled to vote, for the purpose or purposes stated in the call of
the meeting.
SECTION 3. PLACE OF MEETING. The board of directors may designate
any place, as the place of meeting for any annual meeting or for any special
meeting called by the board of directors. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be at the
offices of the corporation.
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place,
date, and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than 10 nor more than 60 days before the date of
__________________________________
* As amended by Joint Unanimous Consent of Shareholders and Directors as
of May 1, 1996.
<PAGE> 2
the meeting, or in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets not less than 20 nor more than
60 days before the date of the meeting, either personally or by mail, by or at
the direction of the president, or the secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the shareholder at his or her address as
it appears on the records of the corporation, with postage thereon prepaid.
When a meeting is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders,
or shareholders entitled to receive payment of any dividend, or in order to
make a determination of shareholders for any other proper purpose, the board of
directors of the corporation may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than 60 days and for a meeting of shareholders, not less than 10 days, or in
the case of a merger, consolidation, share exchange, dissolution or sale, lease
or exchange of assets, not less than 20 days before the date of such meeting.
If no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the board of directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. A determination of shareholders shall apply to
any adjournment of the meeting.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
transfer book for shares of the corporation shall make, within 20 days after
the record date for a meeting of shareholders or 10 days before such meeting,
whichever is earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of and the
number of shares held by each, which list, for a period of 10 days prior to
such meeting, shall be kept on file at the registered office of the corporation
and shall be subject to inspection by any shareholder, and to copying at the
shareholder's expense, at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time of
the meeting. The original share ledger or transfer book, or a duplicate
thereof kept in this State, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of shareholders.
SECTION 7. QUORUM. The holders of a majority of the outstanding
shares of the corporation entitled to vote on a matter, represented in person
or by proxy, shall constitute a quorum for consideration of such matter at any
meeting of shareholders, provided that if less than a majority of the
outstanding shares are represented at said meeting, a majority of the shares so
represented may adjourn the meeting at any time without further notice. If a
quorum
2
<PAGE> 3
is present, the affirmative vote of the majority of the shares represented at
the meeting shall be the act of the shareholders, unless the vote of a greater
number or voting by classes is required by the Business Corporation Act, the
articles of incorporation or these by-laws. At any adjourned meeting at which
a quorum shall be present, any business may be transacted which might have been
transacted at the original meeting. Withdrawal of shareholders from any
meeting shall not cause failure of a duly constituted quorum at that meeting.
SECTION 8. PROXIES. Each shareholder may appoint a proxy to vote or
otherwise act for him or her by signing an appointment form and delivering it
to the person so appointed, but no such proxy shall be valid after 11 months
from the date of its execution, unless otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES. Each shareholder entitled to vote in
accordance with the terms of the articles of incorporation, as amended, and in
accordance with the provisions of these by-laws shall be entitled to one vote,
in person or by proxy as provided in SECTION 8 hereof, for each share of stock
entitled to vote held by such shareholder.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by the
corporation in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares entitled to vote at any
given time.
Shares registered in the name of another corporation, domestic or
foreign, may be voted by any officer, agent, proxy or other legal
representative authorized to vote such shares under the law of incorporation of
such corporation.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability, may be voted by his or her administrator,
executor or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor or court
appointed guardian. Shares registered in the name of a trustee may be voted by
him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name if authority to
do so is contained in an appropriate order of the court by which such receiver
was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Any number of shareholders may create a voting trust for the purpose
of conferring upon a trustee or trustees the right to vote or otherwise
represent their shares, for a period not to
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<PAGE> 4
exceed 10 years, by entering into a written voting trust agreement specifying
the terms and conditions of the voting trust, and by transferring their shares
to such trustee or trustees for the purpose of the agreement. Any such trust
agreement shall not become effective until a counterpart of the agreement is
deposited with the corporation at its registered office. The counterpart of
the voting trust agreement so deposited with the corporation shall be subject
to the same right of examination by a shareholder of the corporation, in person
or by agent or attorney, as are the books and records of the corporation, and
shall be subject to examination by any holder of a beneficial interest in the
voting trust, either in person or by agent or attorney, at any reasonable time
for any proper purpose.
Shares of its own stock belonging to this corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but
shares of its own stock held by it in a fiduciary capacity may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
SECTION 11. INSPECTORS. At any meeting of shareholders, the
presiding officer may, or upon the request of any shareholder, shall appoint
one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies; count all votes and report the results; and do such other
acts as are proper to conduct the election and voting with impartiality and
fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or
her or by a majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall
be the report of the inspectors. The report of the inspector or inspectors on
the number of shares represented at the meeting and the results of the voting
shall be prima facie evidence thereof.
SECTION 12. INFORMAL ACTION BY SHAREHOLDERS. Any action required to
be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of the shareholders, may be taken without a meeting and
without a vote, if a consent in writing, setting forth the action so taken
shall be signed (a) if 5 days prior notice of the proposed action is given in
writing to all of the shareholders entitled to vote with respect to the subject
matter hereof, by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voting or (b) by all of the shareholders entitled to vote with respect to
the subject matter thereof.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given in writing to those
shareholders who have not
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<PAGE> 5
consented in writing. In the event that the action which is consented to is
such as would have required the filing of a certificate under any section of
the Business Corporation Act if such action had been voted on by the
shareholders at a meeting thereof, the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of shareholders, that written consent has been given in accordance with
the provisions of SECTION 7.10 of the Business Corporation Act and that written
notice has been given as provided in such SECTION 7.10.
SECTION 13. VOTING BY BALLOT. Voting on any question or in any
election may be by voice unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business of the corporation shall be
managed by or under the direction of its board of directors. A majority of the
board of directors may establish reasonable compensation for their services and
the services of other officers, irrespective of any personal interest.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of
directors of the corporation shall be seven (7)*. Each director shall hold
office until the next annual meeting of shareholders; or until his successor
shall have been elected and qualified. Directors need not be residents of
Illinois or shareholders of the corporation. The number of directors may be
increased or decreased from time to time by the amendment of this section. No
decrease shall have the effect of shortening the term of any incumbent
director.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this by-law, immediately
after the annual meeting of shareholders. The board of directors may provide,
by resolution, the time and place for holding of additional regular meetings
without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the president or any two
directors. The person or persons authorized to call special meetings of the
board of directors may fix any place as the place for holding any special
meeting of the board of directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given at
least two (2) days previous thereto by written notice to each director at his
business address. If mailed, such
__________________________________
* As amended by Unanimous Written Consent of the Directors as of July
29, 1996.
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<PAGE> 6
notice shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegram company. The attendance of a director at any meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by
these by-laws shall constitute a quorum for transaction of business at any
meeting of the board of directors, provided that if less than a majority of
such number of directors are present at said meeting, a majority of the
directors present may adjourn the meeting at any time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, unless the act of a greater number is required by
statute, these by-laws, or the articles of incorporation.
SECTION 8. VACANCIES. Any vacancy on the board of directors may be
filled by election at the next annual or special meeting of shareholders. A
majority of the board of directors may fill any vacancy prior to such annual or
special meeting of shareholders.
SECTION 9. RESIGNATION AND REMOVAL OF DIRECTORS. A director may
resign at any time upon written notice to the board of directors. A director
may be removed with or without cause, by a majority of shareholders if the
notice of the meeting names the director or directors to be removed at said
meeting.
SECTION 10. INFORMAL ACTION BY DIRECTORS. The authority of the board
of directors may be exercised without a meeting if a consent in writing,
setting forth the action taken, is signed by all of the directors entitled to
vote.
SECTION 11. COMPENSATION. The board of directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers or otherwise notwithstanding any director conflict of
interest. By resolution of the board of directors, the directors may be paid
their expenses, if any, of attendance at each meeting of the board. No such
payment previously mentioned in this section shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 12. PRESUMPTION OF ASSENT. A director of the corporation who
is present at a meeting of the board of directors at which action on any
corporate matter is taken
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shall be conclusively presumed to have assented to the action taken unless his
or her dissent shall be entered in the minutes of the meeting or unless he or
she shall file his or her written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered or certified mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 13. COMMITTEES. A majority of the board of directors may
create one or more committees of two or more members to exercise appropriate
authority of the board of directors. A majority of such committee shall
constitute a quorum for transaction of business. A committee may transact
business without a meeting by unanimous written consent.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a
Chairman of the Board, a President, a Treasurer, and a Secretary, all of whom
shall be elected by the Board of Directors and who shall hold office until
their successors are elected and qualified. In addition, the board of
Directors may elect one or more Vice-Presidents and such Assistant Secretaries
and Assistant Treasurers as they may deem proper. None of the officers (other
than the Chairman of the Board) of the corporation need be directors. The
officers shall be elected at the first meeting of the Board of Directors after
each annual meeting. More than two offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected annually by the board of directors at the first
annual meeting of shareholders. If the election of officers shall not be held
at such meeting, such election shall be held as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any
meeting of the board of directors. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided. Election of an officer shall not of itself create
contract rights.
SECTION 3. REMOVAL. Any officer elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. CHAIRMAN. The Chairman of the Board shall be the
executive officer of the corporation and, subject to the direction of the Board
of Directors, shall formulate policies with respect to the affairs if the
corporation, and shall have general powers of supervision and
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<PAGE> 8
management. He shall preside at all meetings of directors and shareholders of
the corporation and may call meetings of the Board of Directors. The Chairman
of the Board shall also perform such other duties as may be assigned to him by
the Board of Directors.
SECTION 5. PRESIDENT. The President shall be the chief operating
officer of the corporation and, subject to the direction of the Chairman, shall
supervise and direct and be responsible for the direction of the ongoing
business of the corporation. In the absence of the Chairman of the Board of
Directors, the President shall preside at meetings of the stockholders and the
Board of Directors. Except as the Board of Directors shall authorize the
execution thereof in some other manner, the President shall be authorized to
execute bonds, mortgages and other contracts on behalf of the corporation to
cause the corporation's seal to be affixed to any instrument requiring such
seal, and when so affixed such seal shall be attested by the signatures of the
Secretary or Assistant Secretary.
SECTION 6. THE VICE-PRESIDENTS. The Vice-presidents (or in the event
there be more than one vice-president, each of the vice-presidents) shall
assist the president in the discharge of his duties as the president may direct
and shall perform such other duties as from time to time may be assigned to him
by the president or by the board of directors. In the absence of the president
or in the event of his inability or refusal to act, the vice-president (or in
the event there be more than one vice-president, the vice-presidents in the
order designated by the board of directors, or by the president if the board of
directors has not made such a designation, or in the absence of such
designation, then in the order of seniority as vice-president) shall perform
the duties of the president, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the president. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the corporation or a different mode of execution is
expressly prescribed by the board of directors or these by-laws, the
vice-president ( or each of them if there are more than one) may execute for
the corporation certificates for its shares and any contracts, deeds,
mortgages, bonds or other instruments which the board of directors has
authorized to be executed, and he may accomplish such execution either under or
without the seal of the corporation and either individually or with the
secretary, any assistant secretary, or any other officer thereunto authorized
by the board of directors, according to the requirements of the form of the
instrument.
SECTION 7. THE TREASURER. The treasurer shall be the principal
accounting and financial officer of the corporation. He shall : (a) have
charge of and be responsible for the maintenance of adequate books of account
for the corporation; (b) have charge and custody of all funds and securities of
the corporation, and be responsible therefor and for the receipt and
disbursement thereof; and (c) perform all the duties incident to the office of
treasurer and such other duties as from time to time may be assigned to him by
the president or by the board of directors. If required by the board of
directors, the treasurer shall give a bond for the faithful
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<PAGE> 9
discharge of his duties in such sum and with such surety or sureties as the
board of directors may determine.
SECTION 8. THE SECRETARY. The secretary shall: (a) record the
minutes of the shareholders' and of the board of directors' meetings in one or
more books provided for that purpose; (b) see that all notices are duly given
in accordance with the provisions of these by-laws or as required by law; (c)
be custodian of the corporate records and of the seal of the corporation; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder; (e) sign with the president, or
a vice-president, or any other officer thereunto authorized by the board of
directors, certificates for shares of the corporation, the issue of which shall
have been authorized by the board of directors, and any contracts, deeds,
mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed
by the board of directors or these by-laws; (f) have general charge of the
stock transfer books of the corporation; (g) perform all duties incident to the
office of secretary and such other duties as from time to time may be assigned
to him by the president or by the board of directors.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or
by the president or the board of directors. The assistant secretaries may sign
with the president, or a vice-president, or any other officer thereunto
authorized by the board of directors, certificates for shares of the
corporation, the issue of which shall have been authorized by the board of
directors, and any contracts, deeds, mortgages, bonds, or other instruments
which the board of directors has authorized to be executed, according to the
requirements of the form of the instrument, except when a different mode of
execution is expressly prescribed by the board of directors or these by-laws.
The assistant treasurers shall respectively, if required by the board of
directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the board of directors shall determine.
SECTION 10. SALARIES. The salaries of the officers shall be fixed
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the
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<PAGE> 10
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness if issued in
the name of the corporation, shall be signed by such officer or officers, agent
or agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositaries as the board of directors
may select.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 1. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED
SHARES. Shares either shall be represented by certificates or shall be
uncertificated shares.
Certificates representing shares of the corporation shall be signed by
the appropriate officers and may be sealed with the seal or a facsimile of the
seal of the corporation. If a certificate is countersigned by a transfer agent
or registrar, other than the corporation or its employee, any other signatures
may be facsimile. Each certificate representing shares shall be consecutively
numbered or otherwise identified, and shall also state the name of the person
to whom issued, the number and class of shares (with designation of series, if
any), the date of issue, and that the corporation is organized under Illinois
law. If the corporation is authorized to issue shares of more than one class
or of series within a class, the certificate shall also contain such
information or statement as may be required by law.
Unless prohibited by the articles of incorporation, the board of
directors may provide by resolution that some or all of any class or series of
shares shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until the certificate has been surrendered
to the corporation. Within a reasonable time after the issuance or transfer of
uncertificated shares, the corporation shall send the registered owner thereof
a written notice of all information that would appear on a certificate. Except
as otherwise expressly provided by law, the rights and obligations of the
holders of uncertificated shares shall be identical to those of the holders of
certificates representing shares of the same class and series.
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The name and address of each shareholder, the number and class of
shares held and the date on which the shares were issued shall be entered on
the books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed the owner thereof for all purposes as
regards the corporation.
SECTION 2. LOST CERTIFICATES. If a certificate representing shares
has allegedly been lost or destroyed the board of directors may in its
discretion, except as may be required by law, direct that a new certificate be
issued upon such indemnification and other reasonable requirements as it may
impose.
SECTION 3. TRANSFERS OF SHARES. Transfer of shares of the
corporation shall be recorded on the books of the corporation. Transfer of
shares represented by a certificate, except in the case of a lost or destroyed
certificate, shall be made on surrender for cancellation of the certificate for
such shares. A certificate presented for transfer must be duly endorsed and
accompanied by proper guaranty of signature and other appropriate assurances
that the endorsement is effective. Transfer of an uncertificated share shall
be made on receipt by the corporation of an instruction from the registered
owner or other appropriate person. The instruction shall be in writing or a
communication in such form as may be agreed upon in writing by the corporation.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
ARTICLE VIII
DISTRIBUTIONS
The board of directors may authorize, and the corporation may make,
distributions to its shareholders, subject to any restrictions in its articles
of incorporation or provided by law.
ARTICLE IX
SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and the words "Corporate Seal, Illinois." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced, provided that the affixing of the corporate seal to an
instrument shall not give the instrument additional force or effect, or change
the construction thereof, and the use of the corporate seal is not mandatory.
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ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of
these by-laws or under the provisions of the articles of incorporation or under
the provisions of The Business Corporation Act of the State of Illinois, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at any meeting shall
constitute waiver of notice thereof unless the person at the meeting objects to
the holding of the meeting because proper notice was not given.
ARTICLE XI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination
of any action, suit or proceeding by judgment or settlement, conviction or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
SECTION 2. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of
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such action or suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, provided that no indemnification shall be made with respect to any
claim, issue or matter as to which such person has been adjudged to have been
liable to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
SECTION 3. To the extent that a director, officer, employee or agent
of a corporation has been successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in sections 1 and 2, or
in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
SECTION 4. Any indemnification under sections 1 and 2 shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in sections 1 and 2. Such determination shall be made (a) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (b) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
shareholders.
SECTION 5. Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent to repay such
amount if it shall ultimately be determined that he or she is not entitled to
be indemnified by the corporation as authorized in this article.
SECTION 6. The indemnification and advancement provided by this
article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office.
SECTION 7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of his or her status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of this article.
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SECTION 8. If the corporation has paid indemnity or had advanced
expenses to a director, officer, employee or agent, the corporation shall
report the indemnification or advance in writing to the shareholders with or
before the notice of the next shareholders' meeting.
SECTION 9. For purposes of this Article, references to "the
corporation" shall include, in addition to the surviving corporation, any
merging corporation (including any corporation having merged with a merging
corporation) absorbed in a merger which otherwise would have lawfully been
entitled to indemnify its directors, officers, and employees or agents.
SECTION 10. For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise tax assessed on a person with respect to an employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries. A person who acted in good faith in a manner he
or she reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" as referenced in
this Article.
SECTION 11. The indemnification and advancement of expenses provided
by or granted under this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of that person.
ARTICLE XII
AMENDMENTS
Unless the power to make, alter, amend or repeal the by-laws is
reserved to the shareholders by the articles of incorporation, the by-laws of
the corporation may be made, altered, amended or repealed by the shareholders
or the board of directors, but no by-law adopted by the shareholders may be
altered, amended or repealed by the board of directors if the by-laws so
provide. The by-laws may contain any provisions for the regulation and
management of the affairs of the corporation not inconsistent with the law or
the articles of incorporation.
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ARTICLE XIII
REPAYMENT OF SALARY AND EXPENSE REIMBURSEMENTS
Any payments made to an officer, director, employee, or other agent of
the corporation in the nature of salary, wages, other compensation or expense
reimbursements which shall be disallowed in whole or in part as a deductible
expense by the Internal Revenue Service in any judicial or administrative
proceeding, shall be repaid by such officer, director, employee, or other agent
of the corporation to the full extent of such disallowance. In lieu of payment
by such person or persons, subject to the determination of the Board of
Directors, proportionate amounts may be withheld from his or their future
compensation payments until the amount so owed to the corporation has been
recovered.
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EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE.
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------- -------------------------------
1996 1995 1996 1995
--------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Income before income taxes and
extraordinary item.......................................... $2,074,499 $789,373 $4,637,420 $1,923,299
Pro forma provision for income taxes @ 39%..................... 308,000 750,000
Income taxes................................................... 922,000 1,673,000
Adjustments for reduction in interest
expense and effects of shares
required to pay offering costs,
and debt of $11,527,000..................................... 119,000 195,000 494,000 583,000
--------------- -------------- --------------- -------------
Pro forma net income before extraordinary item................. 1,271,499 676,373 3,458,420 1,756,299
Extraordinary item from early extinguishment of
debt, net of income taxes................................... 149,789 -- 149,789 --
--------------- -------------- --------------- -------------
Pro forma net income........................................... $1,121,710 $676,373 $3,308,631 $1,756,299
=============== ============== =============== =============
Average number of common shares outstanding.................... 3,079,619 2,720,881 3,079,619 2,644,183
Common equivalent shares outstanding........................... 444,249 509,320 444,249 509,320
Shares included in the offering................................ 2,169,636 2,169,636 2,169,636 2,169,636
--------------- -------------- --------------- -------------
Pro forma weighted average number of common
and common equivalent shares outstanding.................... 5,693,504 5,399,837 5,693,504 5,323,139
=============== ============== =============== =============
Pro forma net income per common and common
equivalent shares outstanding before
extraordinary item.......................................... $0.22 $0.13 $0.61 $0.33
Extraordinary item............................................. $0.03 -- $0.03 --
--------------- -------------- --------------- -------------
Pro forma net income per common and common
equivalent shares outstanding............................... $0.20 $0.13 $0.58 $0.33
=============== ============== =============== =============
</TABLE>
NOTE: Net income per share figures will not necessarily add due to rounding
adjustments.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,437,825
<SECURITIES> 0
<RECEIVABLES> 97,064,782
<ALLOWANCES> 8,024,609
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,098,641
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,374,934
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 52,653
0
0
<OTHER-SE> 18,499,767
<TOTAL-LIABILITY-AND-EQUITY> 100,374,934
<SALES> 0
<TOTAL-REVENUES> 19,835,568
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,783,228
<LOSS-PROVISION> 950,000
<INTEREST-EXPENSE> 4,464,920
<INCOME-PRETAX> 4,637,420
<INCOME-TAX> 1,673,000
<INCOME-CONTINUING> 2,964,420
<DISCONTINUED> 0
<EXTRAORDINARY> 149,789
<CHANGES> 0
<NET-INCOME> 2,814,631
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0
</TABLE>
