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As Filed with the Securities and Exchange Commission on May 31, 1996
Registration No. 333-2856
AMENDMENT NO. 1
TO
FORM SB-2
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN EQUITIES INCOME FUND, INC.
(Exact name of registrant as specified in charter)
DELAWARE 6159 22-3429295
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Corp. No.) Identification No.)
East 80 Route 4
Paramus, New Jersey 07652
(201) 368-5900
(Address, and telephone number of registrant's principal executive offices)
(Address of principal place of business or intended principal place of business)
David S. Goldberg
Chief Executive Officer
East 80 Route 4
Paramus, New Jersey 07652
(201) 368-5900
(Name, address, and telephone number of agent for service)
With a copy to:
H. Bruce Bronson, Jr., Esq.
Bronson & Migliaccio
287 Bowman Avenue
Purchase, New York 10577
Approximate date of commencement of proposed sale to the public: From time to time
after the Registration Statement becomes effective.
If any of the securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. [ ].
If any of the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest reinvestment plans, check
the following box. [X]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of each class Amount maximum (1) maximum Amount of
of securities to be to be offering aggregate Registration
registered registered price per Note offering price fee
12% Notes $15,000,000 $1,000 $15,000,000 $5,172.41
Total Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .$5,172.41
(1) Stated only for purposes of calculating registration fee.
The Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
AMERICAN EQUITIES INCOME FUND, INC.
Cross Reference Sheet
Item
Number Caption in Form SB-2 Caption in Prospectus
Item 1 Forepart of Registration Cover page of Registration
Statement and Outside Front Statement and Outside Front
Cover Page of the Prospectus Cover Page
Item 2 Inside Front and OUtsid Back Inside Front and Outside Back
Cover Pages of the Prospectus Cover Pages of Prospectus
Item 3 Summary Information and Risk Summary of the Offering, Risk
Factors Factors
Item 4 Use of Proceeds Use of Proceeds
Item 5 Determination of Offering Price Not Applicable
Item 6 Dilution Not Applicable
Item 7 Selling Security Holders Not Applicable
Item 8 Plan of Distribution Plan of Distribution; Summary
of
the Offering
Item 9 Legal Proceedings Business
Item 10 Directors, Executive Officers, Management
Promoters and Control
Persons
Item 11 Security Ownership of Certain Security Ownership of Certain
Beneficial Holders and Beneficial Holders and
Management Management
Item 12 Description of Securities Description of Securities,
Summary of the Offering
Item 13 Interest of Names Experts and Not Applicable
Counsel
Item
Number Caption in Form SB-2 Caption in Prospectus
Item 14 Disclosure of Commission Management
Position on Indemnification for
Securities Act Liabilities
Item 15 Organization within Last Five Certain Relationships and
Related
Years Transactions
Item 16 Description of Business Business
Item 17 Management's Discussion and Plan of Operations
Analysis or Plan of Operations
Item 18 Description of Property Business
Item 19 Certain Relationships and Related Certain Relationships and
Related
Transactions Transactions
Item 20 Market for Common Equity and Not Applicable
Related Stockholder Matters
Item 21 Executive Compensation Management
Item 22 Financial Statements Financial Statements
Item 23 Changes in and Disagreements Not Applicable
with Accountants on Accounting
and Financial Disclosure <PAGE>
Subject to Completion, Dated June __, 1996
PROSPECTUS
AMERICAN EQUITIES INCOME FUND, INC.
$15,000,000
12% Notes, due September 30, 2006
$1,000 Per Note; Minimum to Break Escrow: $500,000
Minimum Purchase: 2 Notes
American Equities Income Fund, Inc., a Delaware corporation (the
"Corporation"), was formed in 1996 as a special purpose corporation wholly-owned by
American Equities Group, Inc. ("AEG") to acquire, service and collect upon accounts
receivable (the "Receivables") originated primarily from small to mid-sized businesses
(the "Obligors"). THE COMPANY IS NOT AN INVESTMENT COMPANY AND IS
NOT SUBJECT TO THE INVESTMENT COMPANY ACT OF 1940 AND THE
COMPANY IS NOT AFFILIATED WITH THE UNITED STATES GOVERNMENT
AND THE NOTES ARE NOT BACKED OR GUARANTEED BY THE
GOVERNMENT.
The Corporation is offering subscriptions for a maximum of up to $15,000,000
aggregate principal amount of its 12% Notes (the "Notes")in denominations of $1,000
each, or any integral multiple thereof (the "Offering"). Investor funds will be held in an
interest bearing Escrow Account at Republic National Bank of New York, NY (the
"Escrow Agent") until a minimum of $500,000 of Notes are sold (the "Minimum
Offering"). The Dealer Manager and its affiliates may purchase Notes in connection
with this offering; however, any such purchases shall not be counted towards the
Minimum Offering amount. In the event the Minimum Offering is not subscribed for
within six (6) months from the effective date of this Prospectus, the Offering will be
terminated and the escrowed funds returned to investors within 10 days, with interest.
The Notes will bear simple interest at the rate of 12% per annum, payable interest
only as described below, with all principal and accrued interest, if any, due on September
30, 2006. Interest is calculated on the basis of a 360-day year (the "Calculation Basis")
but is paid at the option of the investor in one of the following options: (i) 12 equal
monthly installments, (ii) annually or (iii) upon maturity, regardless of the number of
days in each month or year (the "Payment Basis"), with any difference between interest
determined on the Calculation Basis and the Payment Basis paid in the final installment
due under the Notes. The first interest payment for those investors who choose to be
paid monthly shall be paid at the end of the first full month after such investor's
investment in this Offering. Interest shall be due on the first day of the month or year in
arrears or upon maturity, with a 30-day grace period prior to the Notes being in default.
Accrued but unpaid interest will be compounded monthly at the rate of 12% per annum.
A Note Holder may accelerated his Note on the first day of the fifth, sixth, seventh,
eighth and ninth years after issuance of such Note upon six months written notice. The
Notes will be secured by the Receivables acquired with the proceeds of the Offering or
funds obtained from the repayment of such Receivables or any after acquired
Receivables. The Notes are prepayable in whole or in part at any time without premium
or penalty.
The minimum purchase is two (2) Notes; however, the Corporation reserves the
right, in its sole discretion, to offer and sell less than the minimum number of Notes to
any investor. The price and amount of Notes offered by the Corporation has been
established arbitrarily and bears no relationship to its asset value, book value, net worth
or any other established criteria of value. A NOTE HOLDER WILL NOT ACQUIRE
OR OBTAIN ANY BENEFITS WHICH MIGHT ACCRUE THROUGH AN EQUITY
INTEREST IN THE CORPORATION BY A PURCHASE OF NOTES.
THESE ARE SPECULATIVE SECURITIES. This Offering involves a high degree
of risk and should not be made by investors who cannot afford the loss of their
investment. See "RISK FACTORS" beginning on page 11.
-------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Commissions and Proceeds to
Public (1) Concessions (1)(2)(3)(4) Corporation(5)
Per Note $ 1,000 $ 85 $ 915
Total Minimum $ 500,000 $ 42,500 $ 457,500
Total Maximum $15,000,000 $1,275,000 $13,725,000
(Footnotes on following page)
The date of this Prospectus is , 1996
G EQUITY INVESTMENT GROUP, LTD.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS
TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY
STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE. <PAGE>
(1) The Notes are being offered on a "best-efforts" basis through G Equity
Investment Group, Ltd., an affiliate of the Company (the"Dealer Manager"), and
Selected Dealers (collectively referred to as the "Participating Dealers") who are
members of the National Association of Securities Dealers, Inc. (the "NASD"). See
"PLAN OF DISTRIBUTION."
(2) The Corporation has agreed to indemnify the Dealer Manager and Selected Dealers
against certain liabilities, including liabilities under the Securities Act of 1933. See
"PLAN OF DISTRIBUTION."
(3) The Corporation will pay the Dealer Manager a selling commission of up to 7% of
the offering price for all Notes sold, a due diligence and non-accountable expense
allowance of 1%, which may be reallowed to Selected Dealers, and a Dealer Manager
fee of .50%. See "PLAN OF DISTRIBUTION."
(4) This is before deducting other expenses of issuance and distribution payable by the
Corporation in connection with this Offering. The Corporation will pay from the
proceeds of this Offering all of such expenses, currently estimated not to exceed
$300,000, if the Maximum Offering is sold. The Corporation will pay any expenses in
connection with this Offering which exceed $300,000. If the only the Minimum Offering
is sold AEG will pay all expenses of the Offering, estimated to be approximately $75,000.
(5) American Equities Group, Inc. will receive a one-time payment of approximately 5%
of the gross offering proceeds for preparing all of the necessary systems required in
order to set up the operations of the Corporation. See "PLAN OF OPERATIONS
- -Operations and Overhead Expenses."
If the Minimum Offering is sold and if the Corporation does not terminate the
Offering earlier, which in the sole discretion of Management it may, the offering of
Notes will continue until the Corporation raises an aggregate of$15,000,000, provided
that the offering period for all Notes of the Corporation will not exceed 24 months from
the date of this Prospectus.
The Notes are being offered subject to prior sale, withdrawal, cancellation or
modification of the offer, including its structure, terms and conditions, without notice.
The Corporation reserves the right, in its sole discretion, to reject, in whole or in part,
any offer to purchase the Notes. See "PLAN OF DISTRIBUTION."
UNTIL THE TERMINATION OF THIS OFFERING, AND IN ANY EVENT 90
DAYS AFTER THE DATE OF THIS PROSPECTUS AND ANY SUPPLEMENTS,
ALL PARTICIPATING DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES TO WHICH THIS PROSPECTUS RELATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF PARTICIPATING DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the Securities and
Exchange Commission. These securities may not be sold nor may offers to buy be
accepted prior to the time the Registration Statement becomes effective. This
Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the securities laws of
any such state. The Subscription Agreement for the Notes must be executed, and the
Notes may only be delivered in such states. Resale or transfer of the Notes may be
restricted under state law. See "RISK FACTORS - No Market; Limited Transferability
of Notes" and "LACK OF LIQUIDITY OF NOTES."
No dealer, salesman or other person has been authorized in connection with this
Offering to give any information or to make any representations other than those
contained in this Prospectus or in supplements to this Prospectus, or in literature issued
by the Corporation (which literature shall not be deemed to be a part of this
Prospectus). No person associated with this Offering or the Corporation has been
sponsored, recommended, or approved, nor has his abilities or qualifications in any
respect been passed upon by any state or any agency or officer of any state or by the
United States or any agency or officer of the United States. Neither the delivery of this
Prospectus or any Supplement hereto nor any sale hereunder shall under any
circumstances create an implication that there has been no change in the affairs of the
Corporation since the date thereof; however, if any material change in the Corporation's
affairs occurs at any time when this Prospectus is required to be delivered, this
Prospectus will be amended or supplemented.
Prospective Investors are encouraged to read the entire Prospectus, which contains a
complete copy of the form of the Secured Notes, Security Agreement and Indenture of
Trust, and each supplement or amendment thereto, if any. Each prospective Investor is
also encouraged to seek the advice of his or her attorney, tax consultant, business advisor
and financial advisor with respect to the legal and business aspects of this investment
prior to subscribing for the Notes issued by the Corporation.
ADDITIONAL INFORMATION
The Corporation is an SEC reporting company by virtue of the effectiveness of
this Registration Statement under the Securities Act of 1933, as amended. The
Corporation has filed with the Securities and Exchange Commission, Washington, D.C., a
Registration Statement under the Securities Act of 1933 with respect to the securities
offered hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, its amendments and exhibits. For further information pertaining
to the Notes offered hereby, and the Corporation, reference is made to the Registration
Statement, including the exhibits, financial statements and schedules filed therewith or
incorporated by reference as a part thereof. Statements in this Prospectus concerning
the contents of any contract or other document referred to are not necessarily complete.
Where such contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit, to which
reference is hereby made for a full statement of the provisions thereof. The Registration
Statement may be inspected and copied at the Commission's Washington, D.C. office at
450 Fifth Street, N.W., Washington, D.C. 20439 and the Northeast Regional Office and
Midwest Regional Office at the following addresses: 7 World Trade Center, Suite 1300,
New York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661-2511, respectively. The Registration Statement also may be inspected
but not copied at the Commission's Atlanta, Georgia office. Further, copies can be
obtained at prescribed rates from the Washington, D.C. office. Exchange Act reports
may be inspected and copied at the Commission's Washington, D.C. office and Northeast
and Midwest Regional Offices and may be obtained at prescribed rates from the
Commission's Washington, D.C. office.
REPORTS TO NOTE HOLDERS
The Corporation intends to distribute to the Note Holders annual reports containing
financial statements that have been examined and reported on by an independent
certified public accountant. The Corporation may furnish such other reports as the
Board of Directors may deem necessary to inform the Note Holders of major
developments concerning the Corporation. In the event the Corporation is no longer
required to make required filings under the Securities Exchange Act of 1934 it is
anticipated that the Corporation will suspend the filing of such reports. However, the
Corporation will continue to distribute annual reports to Note Holders as well as any
reports required under the Trust Indenture Act of 1939. See "DESCRIPTION OF THE
SECURITIES - Indenture of Trust."
SUITABILITY STANDARDS: WHO CAN INVEST?
Notes will only be sold to a person who makes the required minimum purchase and
represents in writing that he has either: (i) a minimum annual gross income of at least
$30,000 and a net worth of $30,000 (exclusive of home, home furnishings and
automobiles); or (ii) a net worth of $75,000 (exclusive of home, home furnishings and
automobiles); or(iii) that he is purchasing in a fiduciary capacity for a person who (or for
an entity which) meets such conditions. In the case of sales to fiduciary accounts, the
suitability standards must be satisfied by the beneficiary; however, where the fiduciary is
the donor of funds used for investment in the Corporation, the fiduciary and not the
beneficiary must meet the standards set forth above. Certain states may impose higher
suitability standards which an Investor must satisfy.
All Participating Dealers will make reasonable inquiry to assure that there is
compliance with these suitability standards, and the Corporation will not accept
subscriptions from any person who does not represent in the Subscription Agreement
that he meets such standards.
Arizona Investors: Arizona investors must have a minimum annual gross income
of at least $45,000 and a minimum net worth of $45,000 (exclusive of home, home
furnishings and automobiles) or a minimum net worth of$150,000 (exclusive of home,
home furnishings and automobiles).
California Investors: California investors must have a liquid net worth (exclusive of
home, home furnishings and automobiles) of $60,000 plus a minimum annual gross
income of at least $60,000 or a liquid net worth of $225,000 (exclusive of home, home
furnishings and automobiles).
North Carolina Investors: North Carolina investors must have a net worth (exclusive
of home, home furnishings and automobiles) of $60,000 plus a minimum annual gross
income of at least $60,000 or a net worth of $225,000 (exclusive of home, home
furnishings and automobiles).
Wisconsin Investors: Wisconsin investors must have a $45,000 gross income and
$45,000 net worth (exclusive of home, home furnishings and automobiles) or $150,000
net worth.
No transfers will be permitted of less than the minimum permitted purchase, nor may
an investor transfer, fractionalize or subdivide Notes so as to retain less than such
minimum purchase.
The reasons for establishing these standards include the relative lack of liquidity of
Notes and certain risk factors associated with an investment in the Notes. See "RISK
FACTORS."
<PAGE>
TABLE OF CONTENTS
Page
I. PROSPECTUS
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Reports to Note Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Suitability Standards: Who Can Invest?. . . . . . . . . . . . . . . . . . . . 4
Summary of the Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Security Ownership of Certain Beneficial Owners and Management . . . . . . . .32
Plan of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Description of the Securities. . . . . . . . . . . . . . . . . . . . . . . . .34
Tax Aspects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . .41
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Lack of Liquidity of Notes . . . . . . . . . . . . . . . . . . . . . . . . . .43
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-1
II. EXHIBITS
A. Secured Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
B. Security Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
C. Indenture of Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
D. Subscription Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . D-1
E. Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1<PAGE>
SUMMARY OF THE OFFERING
The following summary is qualified in its entirety by the detailed information and
financial statements appearing elsewhere in this Prospectus.
The Corporation
The Corporation was formed under the laws of the State of Delaware in 1996,
with its principal place of business at East 80 Route 4, Suite 202, Paramus, New Jersey
07652, telephone (201) 368-5900. The Corporation, as a special purpose corporation, is
restricted by its certificate of incorporation to acquiring and/or financing accounts
receivables and factoring such receivables through a management agreement with its
parent, American Equities Group, Inc. ("AEG"). The Corporation will not be allowed to
borrow funds, except from AEG, which loans will be subordinated to the debt of the
Note Holders, or engage in any business other than the financing of accounts receivable
and financial services. No funds of the Corporation will be deposited or commingled
with funds of AEG or its affiliates.
The Corporation will engage in the business of factoring accounts receivable.
Factoring is one of the oldest and most innovative methods of financing, possibly the
earliest recorded form of commercial banking, whereby a factor will purchase the
accounts receivable of businesses at a discount from their face value thereby providing
such businesses with immediate cash flow. This financing tool allows a business to put its
accounts receivable to work and allows companies to obtain working capital without
taking on new debt or giving up equity. The result is a streamlining of credit and
collection efforts and an enhanced cash flow. Small businesses are attracted to factoring
due to the fact that many small businesses cannot qualify for traditional bank loans and
factoring provides them with the immediate cash they need to operate and grow without
having to rely on the typical repayment terms of 30, 60, 90 days or longer. As businesses
grow, factoring can serve a vital need of providing cash flow. An increasing number of
smaller to mid-size companies are turning to factoring as a cash management tool.
Large companies routinely factor their invoices to speed up cash flow and smaller
businesses are beginning to take advantage of this financial option.
In factoring, revenues and profits are generated in two primary ways: either as a
factor who actually purchases invoices as an investment, or as a broker who brings
factors and clients together and earns a fee on the transaction. In addition, the factoring
process may be done on a recourse or non-recourse basis. In a recourse transaction, the
factor may charge back uncollected or problem accounts to the Client, thus the Client
assumes the credit risk. In a non-recourse transaction, the factor will assume the credit
risk associated with the debtor's inability to pay the invoice. In a non-recourse
transaction, only certain accounts are charged back to the Client. The Corporation will
not act as a broker and may acquire Receivables on either a recourse or non-recourse
basis.
In a typical factoring transaction, a business owner will receive an advance of 70-75%
against the face value of an invoice. Once the invoice is paid, the business owner will
receive the balance (or reserve) of the invoice amount less a discount for the factor's fee.
This fee is negotiated but usually ranges from 7-10% of the face amount of the
Receivables. The reserve provides the factor with available funds from which to draw its
fees, and furnishes a buffer against defaults by Clients and/or account debtors.
The market for accounts receivable financing in the United States is extensive due to
the extremely conservative lending standards of banks. Consequently, there are many
businesses which require alternative financing. AEG and the Corporation are confident
that through their existing resources and marketing efforts they will generate significant
suitable clients for accounts receivable financing.
The Corporation will purchase accounts receivable (the "Receivables") primarily of
small to medium-sized corporations with sales between $500,000 and $10,000,000
annually. AEG, the Corporation's parent and sole stockholder will originate the
Receivables purchasing them from client companies (the "Clients") and assigning them
without recourse to the Corporation. AEG, as Manager for the Corporation, services
and collects the Receivables. The Corporation's day-to-day affairs shall be performed by
employees of AEG, including, but not limited to, marketing for new business, evaluating
the quality and credit of the Receivables and Client companies, determining which
Receivables are to be purchased, effecting Receivables purchases, collecting upon the
Receivables for the account of the Corporation, effecting the disbursement of funds to
Clients and preparing checks for the Corporation for interest and principal payments on
the Notes and mailing such checks to Note Holders with statements of account.
AEG typically concentrates its purchase of Receivables in the publishing, printing
and general services industries. These are industries that can best utilize the
comprehensive services of AEG which include back office functions such as credit
checks, billing, reporting and collections. The amount AEG has advanced on a typical
pool of receivables is generally collected within 120 days. While the rate of payment by
account debtors may vary, Receivables are typically paid by account debtors between 60
and 90 days. On such basis the annualized return on capital advanced by AEG averages
approximately 40%. AEG's fees are charged on the total value of accounts receivable
presented and advance rates vary. There are no assurances that Receivables purchased
by the Corporation will be collected in 60 to 90 days or average a 40% rate of return.
Based upon the prior performance of investment facilities of which AEG currently serves
as Manager, a Receivable pool can be expected to turn over approximately every 60 to
90 days. See "BUSINESS" and "PLAN OF OPERATIONS - Prior Performance of
Manager in Similar Investments." There is no limit placed in advance on purchasing the
accounts receivable from one company or one those generated by any one obligor,
however, AEG retains the right to not purchase a receivable if it deems the account
debtor excessive for the account of a Client.
The Corporation will typically charge 7% to 10% of the face amount of the
Receivables as a fee and will initially advance 65% to 80% of the face amount of the
Receivables which is collateral for the payment of Receivables. See "BUSINESS -
Acquisition of Receivables." There is no assurance that all transactions will be identical
to the above and fees and advance rates may be increased or reduced depending upon
competition and the relative risk of the Receivables.
The Notes and the Offering
The Corporation is offering subscriptions for a maximum of up to $15,000,000
aggregate principal amount of the Corporation's 12% Promissory Notes (the "Notes") in
denominations of $1,000 each, or any integral multiple thereof, with a minimum
investment of $2,000; however, the Corporation reserves the right, in its sole discretion,
to offer and sell less than the minimum number of Notes to any investor. Investor funds
will be held in an interest bearing Escrow Account at Republic National Bank of New
York, New York, NY (the "Escrow Agent") until a minimum of $500,000 of Notes are
sold (the"Minimum Offering"). In the event the Minimum Offering is not subscribed for
within six (6) months of the effective date of this Prospectus, the Offering will be
terminated and the escrowed funds returned, with interest. The Notes will bear simple
interest at the rate of 12% per annum, payable interest only, as described below, with all
principal and accrued interest, if any, due on September 30, 2006. Interest is calculated
on the basis of a 360-day year(the "Calculation basis") but is paid in one of the following
options: (i) 12 equal monthly installments, (ii) annually or (iii) upon maturity, as chosen
by the investor upon subscription, regardless of the number of days in each month (the
"Payment Basis"), with any difference between interest determined on the Calculation
Basis and the Payment Basis paid in the final installment due under the Notes. Interest
shall be due on the first day of the month or year in arrears, or upon maturity, with a
30-day grace period prior to the Notes being in default. Accrued but unpaid interest will
be compounded monthly at the rate of 12% per annum. The Notes may be accelerated
by the individual Note Holders on the first day of the fifth, sixth, seventh, eighth, and
ninth years after issuance of the Notes upon six months written notice. The Notes will
be secured by a group of Receivables acquired with the proceeds of the Offering or
funds obtained from the repayment of such Receivables or any after acquired
Receivables. The Notes are prepayable in whole or in part at any time without premium
or penalty.
The price and amount of Notes offered by the Corporation has been established
arbitrarily and bears no relationship to its asset value, book value, net worth or any other
established criteria of value. A NOTE HOLDER WILL NOT ACQUIRE OR OBTAIN
ANY BENEFITS WHICH MIGHT ACCRUE THROUGH AN EQUITY INTEREST
IN THE CORPORATION BY A PURCHASE OF NOTES.
Use of Proceeds
The net proceeds of the Offering will be used to acquire accounts receivable and to
pay the Dealer Manager Fee and the Overhead Allowance.
Risk Factors
An investment in the Notes being offered pursuant to this Prospectus involves a
high degree of risk and should not be made by investors who cannot afford the loss of
their entire investment. Accordingly, it is urged that each potential investor consult with
personal legal, tax and financial advisors before making this investment. Such Risk
Factors include:
. No operating history; Reliance on Experience of Management. The Corporation
is a newly organized corporation which will be dependent upon the management
expertise of the Manager and its officers and directors.
. No Market; Limited Liquidity of the Notes. There is no market for the Notes
and one is not expected to develop. Accordingly, Investors should purchase Notes only
as a long-term investment.
. Sources of Payments on the Notes. Interest and Principal on the Notes will be
derived primarily from cash flow generated by the Receivables.
. No Rating of the Notes. The Notes will not be rated by any rating agency.
. Non-Self-Amortizing Loan. The Notes do not provide for the amortization of
principal prior to maturity.
. Conflicts of Interest. Officers and Directors of the Corporation are officers and
directors of AEG and other similar corporations which engage in the factoring of
accounts receivable.
. Uncertainty of Tax Treatment. The Corporation is thinly capitalized and
therefore the debt evidenced by the Notes could be deemed a capital contribution.
Tax Aspects
Interest payments under the Notes will be treated as ordinary income. Income or
loss on the disposition of the Notes will be treated as a capital gain or loss.
Selected Financial Information
April 30, 1996
Assets $40,000
Liabilities 0
Stockholders Equity $40,000
As of April 30, 1996, the Corporation had not engaged in any activities and had no
revenues. The Corporation has not paid any cash dividends on its common shares.
Plan of Distribution
The Notes are being offered by G Equity Investment Group, Ltd., an affiliate of the
Corporation, on a best efforts/all or none basis as to the Minimum ($500,000) and a best
efforts basis as to the Maximum ($15,000,000). <PAGE>
RISK FACTORS
A purchase of the Notes issued by the Corporation involves various risk factors,
including, but not limited to, those set forth below. Prospective investors should consider
these risk factors before making a decision to purchase the Notes.
1. No Market; Limited Transferability of Notes. No public or other market
for the Notes exists and there can be no assurance that one may develop in the future.
Because the Notes are subject to certain restrictions on their transfer and because there
is a lack of a market for the Notes, investors should purchase the Notes only as a
long-term investment, as they may not be able to liquidate their investment in the Notes
in the event of an emergency or for any other reason.
2. Limited Sources of Payment on the Notes. The sole sources of payment of
interest on the Notes will be cash flow generated by the Receivables which are security
for the Notes, capital contributions or loans of the sole shareholder or its Affiliates, or
operational borrowings obtained from AEG. The sole sources of repayment of principal
and accrued interest on the Notes at the end of their term will be a refinancing of the
Notes, a sale of the Receivables which are pledged as security for the Notes, proceeds
from the repayment of the Receivables not used to acquire additional Receivables, or
loans or capital contributions from the sole shareholder or its Affiliates. There is no
present intention or potential for a loan or capital contribution between the Corporation
and its shareholder or Affiliates. In addition, the Corporation reserves the right to sell
additional notes or equity interests in a public offering or an offering exempt from
registration under federal and state securities laws to provide additional financing for the
Corporation. If sufficient funds are not available from any of such sources, the
repayment of all or part of the interest or principal on the Notes may be delayed or
never by made. See Exhibit A - Secured Note, Exhibit B - Security Document, and
Exhibit C - Indenture of Trust."
In addition, as Investors may choose the frequency of their interest payments, Note
Holders who choose to receive interest payments annually or upon maturity face greater
risks of non-payment of interest than Note Holders who receive monthly interest
payments because the ability of the Corporation to pay interest annually or at maturity is
dependent upon the Corporation's cash flow at such time and its ability to collect the
Receivables at a profit. The Corporation intends to make monthly interest payments to
Notes Holders even if it appears likely that payments to be made annually or upon
maturity may not be able to be made. Accordingly, such monthly interest payments may
deprive the Corporation of its ability to make annual other scheduled payments of
interest when due.
There is no sinking fund for payment of principal or interest on the Notes.
3. Notes Secured by the Receivables. The source of collateral for the Notes is
the Receivables. Although the Note Holders have been granted a security interest for
the Notes, if such security interest were not perfected, the Note Holders would not have
a priority claim on the Receivables and would, in effect, be treated as any unsecured
creditor of the Corporation. Upon an Event of Default under the Notes, if the Note
Holders did not have a priority claim on the Collateral through perfection of their
security interest, their ability to sell the Receivables and use the proceeds to repay the
Notes would be adversely affected as other unsecured creditors would have an equal
claim to the Receivables and Note Holders could suffer a partial or total loss of principal
and unpaid interest on the Notes. The Note Holders security interest in the Receivables
will be perfected by filing UCC-1 financing statements on all of the assets of the
Corporation.
4. Effect of a Default on Receivables. In the event there is a default on
Receivables, the Corporation will first offset the defaulted amount against the deferred
portion of the purchase price of all Receivables acquired from the Client. If this amount
is inadequate, the Corporation, through AEG, will pursue the Obligor on the
Receivables and any other security that it holds on the Client's assets. There is no
assurance that the market value of the Receivables pledged to secure the Notes will at
any time be equal to or greater than the aggregate principal amount of the Notes then
outstanding, plus accrued interest thereon. Therefore, upon an Event of Default with
respect to such Notes, the proceeds of any sale of such Receivables and the other
collateral may be insufficient to pay in full the principal of and interest on such Notes.
In the event of fraud or misappropriation of funds, the Corporation generally has the
right to pursue certain principals of the Client. Despite the Corporation's and AEG's
best efforts certain Receivables may prove to be uncollectible.
5. No Rating of the Notes. The Notes will not be rated by any rating agency.
The Corporation has not pursued, nor does it intend to pursue, rating of the Notes from
any of the rating agencies. Accordingly, Investors will not have any independent
evaluation of the credit worthiness of the Corporation or its debt securities.
6. Non-Self-Amortizing Loan. The Notes do not provide for the amortization
of any of the principal amount prior to maturity. Such Notes involve greater risks than
loans in which the principal amount is amortized over the term of the loan because the
ability of the Corporation to repay at maturity the outstanding principal amount of such
loans is dependent upon the Corporation's ability to collect the Receivables at a profit.
7. Limitations on Enforceability. The enforceability of the Notes is subject to
laws relating to bankruptcy, insolvency and other laws affecting the enforceability of
creditors' rights generally. There is no assurance that any of these laws will not operate
to impair the enforceability of the Notes.
8. Prepayment of Notes. The Corporation may repay the Notes in whole or
in part at any time without penalty. In the event of such repayment of the Notes,
Investors may not receive the cumulative return that they may have originally expected.
9. Loss on Notes. If a Note Holder suffers a loss on his Notes, it may be treated
as a capital loss rather than an ordinary loss, which may affect the manner in which such
loss may be utilized for tax purposes.
10. No Interest in the Corporation; No Voting Rights. A NOTE HOLDER
WILL NOT ACQUIRE OR OBTAIN ANY BENEFITS WHICH MIGHT ACCRUE
THROUGH AN EQUITY INTEREST IN THE CORPORATION BY A PURCHASE
OF NOTES. Note Holders have no voting rights and no right or power to take part in
the management of the Corporation or AEG. Accordingly, no person should purchase
any of the Notes offered hereby unless he is willing to entrust all aspects of the
management and control of the business of the Corporation to AEG, its officers,
directors and employees. See "MANAGEMENT."
11. Competition for Acquisition of Receivables. In connection with the
acquisition of Receivables, the Corporation may encounter significant competition from
persons or entities which may have objectives similar in whole or in part to those of the
Corporation. Many of such competitors may be substantially better financed and have
reputations and public awareness of their operations which are more widely known and
accepted. The pressure of such competition may require that the Corporation pay more
for Receivables it acquires or to acquire Receivables of lesser quality, which could reduce
or eliminate payments to Note Holders.
12. Regulation. The Corporation is duly qualified to do business in the State
of New Jersey. To the best of the Corporation's knowledge, there are no state laws
affecting lending and factoring of accounts receivable which would adversely affect the
business of the Corporation. The Corporation and AEG will obtain licenses wherever
necessary prior to engaging in business in order to factor receivables. In the event that
the Corporation is required to obtain a license to factor accounts receivable in any state,
there is no assurance that the Corporation will be able to acquire such a license. Such a
license requirement would also limit the number of Receivables that the Corporation
could acquire.
13. General Risks. a. Lack of Diversity of Receivables The
Corporation will be funded with the proceeds from the sale of the Notes. In the event
the Corporation sells less than the $15,000,000 of Notes offered hereunder, the
Corporation may only be able to acquire a limited number and less diversified portfolio
of Receivables as collateral, and Note Holders may have an increased risk of loss.
b. Investment of Proceeds The success of the Corporation, in large part,
depends on its ability to keep its assets continuously invested in Receivables. The
Corporation intends to have between 50% and 90% of its assets invested in Receivables
at any given time. The Corporation may be unable to keep the maximum anticipated
percentage of its assets so invested, which may result in lower rates of return from the
investment of its assets in other permitted investments.
c. Reliance on and Experience of Management; Broad Discretion of Management
The Corporation's day-to-day affairs, including, but not limited to, evaluating the
Receivables, determining which Receivables are to be purchased, effecting Receivable
purchases, collecting and turning over to the Corporation for direct deposit into the
Corporation's bank account the payments on the Receivable and pursuing remedies for
defaulted Receivables and making payments due on the Notes to Note Holders from
funds provided by the Corporation, will be administered entirely through and decisions
with respect thereto will be made exclusively by AEG. See "BUSINESS - American
Equities Group, Inc. as Manager." The Corporation's actions will be limited to receiving
the proceeds of this Offering, releasing such proceeds for investment in Receivables at
the direction of AEG, depositing Receivable payments processed by AEG, releasing
funds for payments to Note Holders by AEG and for payments due AEG under a
Management Agreement and executing those contracts, commitments and agreements to
which the Corporation is a party not executed on its behalf by AEG as Manager.
See"BUSINESS - American Equities Group, Inc. as Manager." The officers and
directors of the Corporation are also officers and directors of the Affiliated
Corporations, including AEG. The success of the Corporation will, to a large extent,
depend on the quality of the services provided by AEG, its management and employees,
particularly as it relates to evaluating the merits of proposed investments. The loss of
services of any one or more of Messrs. Goldstick, Goldberg or Socha could have a
materially adverse effect on the Company's operations and prospects. There is no
key-man insurance on any management of the Corporation or AEG.
d. Competition by the Corporation with Affiliated Corporations for Management
Services; Conflicts of Interest. The officers and directors of the Corporation are also
officers and directors of the Affiliated Corporations and are expected to become officers
and directors of similar corporations which may be formed in the future. Management
of the Corporation and management and employees of AEG will devote only so much of
their time to the business of the Corporation as in their judgment is reasonably required.
Management of the Corporation and management and employees of AEG may have
conflicts of interest in allocating management time, services and functions between this
Corporation, the Affiliated Corporations, and any future entities which they may
organize, as well as other business ventures in which they are involved. Furthermore,
there may be competition among the various entities for certain receivables. AEG has
attempted to minimize these problems by rotating the purchase of receivables based
upon availability of funds. See, "BUSINESS - Acquisition of Receivables." Management
of the Corporation and management of AEG believe that they have sufficient staff
personnel to be fully capable of discharging their responsibilities to all entities they have
organized.
e. Unidentified Investments The uncertainty and risk of an investment in the
Notes is increased to the extent that investors are unable to evaluate for themselves the
economic merit of the Receivables. Although the Corporation is currently seeking
suitable Receivables, no agreement or understanding has been reached for any specific
Receivables. Investors must depend solely upon the ability of Management with respect
to the selection of Receivables. See "MANAGEMENT" and "PLAN OF OPERATIONS
- - Prior Performance of Manager in Similar Investments" for a description of the
experience of Management and its affiliates with similar investment vehicles. There can
be no assurance that the Corporation will be successful in using all of the proceeds of
the Offering to acquire Receivables. The inability of the Corporation to find suitable
Receivables to acquire with the proceeds of this Offering may result in delays in
investment of such proceeds and in the receipt by investors of a return, if any, from such
investments.
f. Investment Company Act of 1940 Due to the nature of the Corporation's
business, the Corporation is not an "Investment Company" as defined under the
Investment Company Act of 1940 and therefore is not be subject to regulation under the
Investment Company Act of 1940. AEG's officers and employees will monitor the
purchase of Receivables and the investment of those portions of proceeds of this
Offering not immediately used, or from time to time not used, in the purchase of
Receivable so that the Corporation does not come within the definition of an investment
company under such Act. As a result, the Corporation may have to forego certain
investments which would produce a more favorable return to the Corporation. See
"BUSINESS - Monitor of Corporation Investments." In the unlikely event that the
Corporation were required to register as an investment company, such registration and
compliance under such act would have an adverse effect on the current operations of the
Corporation.
14. Securities Law Liabilities. Management of the Corporation and its
affiliates have in the past and may in the future organize offerings of similar investment
programs. Such programs were not and may not be registered or qualified under federal
or state securities laws. There is no assurance that Management and its affiliates may
not incur liabilities in the future or as a result of such activities, in which event they may
not be able to carry out the management functions assumed with respect to the
Corporation, and the capital of the Corporation might also be adversely affected. To the
knowledge of Management of the Corporation there are no existing claims pending
under any federal or state securities laws that could have a materially adverse affect on
the business of the Corporation.
15. Limited Diversification of Business. The Corporation's business will not be
diversified in that it will own only accounts receivable. In the event of an economic
recession in areas in which the makers of the Receivables are located, the Corporation's
ability to realize income from its operations may be adversely affected, which may affect
the Corporation's ability to make distributions to Note Holders. The Corporation does
not anticipate limiting its acquisition of Receivables to specific geographical areas of the
United States.
16. No Operating History. The Corporation has no significant operations as of
the date of this Prospectus. The success of the Corporation and its ability to make
payments to the Note Holders is dependent upon the extent to which the Corporation is
able to acquire and successfully collect accounts receivable to the extent of advances on
such receivables. However, other affiliated investment vehicles with similar businesses
have not experienced any significant delays in the making of interest payments to the
investors of such investment vehicles. This is due to the fact that the Corporation books
its fee up front upon the initial advance of funds and therefore immediately has funds
available for the payment of interest. There is no assurance that the Corporation will be
able to acquire and to collect on all or a majority of the Receivables, if any, or provide
sufficient proceeds to make payments to Note Holders.
17. Determination of Offering Price of Notes. The price and amount of Notes
offered by the Corporation has been established arbitrarily and bears no relationship to
its asset value, book value, net worth or any other established criteria of value or to the
earning potential of the Corporation or the Notes.
18. Competition by the Corporation with Other Entities for Management Services.
The Corporation will not have independent management and will rely on the officers and
directors of AEG and their affiliates for the operation of the Corporation. Management
and its affiliates will devote only so much of their time to the business of the
Corporation as in their judgment is reasonably required. Management and its affiliates
will have conflicts of interest in allocating management time, services and functions
between this Corporation and any future entities which they may organize, as well as
other business ventures in which they are involved. Management and its affiliates believe
that they have sufficient staff personnel to be fully capable of discharging their
responsibilities to all entities they have organized.
All overhead costs, including those of employees available to work on the business
of the Corporation will be borne by AEG with the exception of costs of legal,
accounting, filing fees and taxes. See, "PLAN OF OPERATIONS - Operations and
Overhead Expenses."
19. Competition by the Corporation with Other Affiliated Corporations.
Management may engage of its own account, or for the account of others, including
other public or private entities, in other business ventures, and neither the Corporation
nor the Note Holders shall be entitled to any interest therein. Management has in the
past and may form in the future other entities, some of which may have the same
investment objectives as the Corporation.
20. Increase in Trustee Reimbursement Upon the Occurrence of an Event of
Default. The Indenture of Trust provides that, in addition to the fee of $2,000 per
year to be paid to the Trustee, upon the occurrence of an Event of Default as defined in
the Indenture of Trust or the Security Agreements, the Trustee will receive an additional
fee of $150 per hour for time incurred in rendering his duties as Trustee. If such an
Event of Default occurs, there is no assurance that the Trustee will not be required to
expend a significant amount of time in exercising his duties as Trustee, and the resulting
compensation paid to the Trustee will reduce funds available to satisfy the Notes.
21. Officers and Directors Maintain Control of the Company. Following
completion of this Offering, the current officers and directors of the Company will
indirectly own in the aggregate 100% of the Corporation's outstanding Common Stock.
As a result, the current officers and directors of the Corporation are in a position to
have complete control over the outcome of all matters on which stockholders are entitled
to vote, including the election of directors. See"PRINCIPAL STOCKHOLDERS."
22. Uncertainty of Tax Treatment of the Notes. The Corporation currently has
a capitalization of $40,000. The Internal Revenue Service has taken the position in the
past that debt of a thinly capitalized Corporation may be considered as a capital
contribution not giving rise to a deduction for interest expense by the debtor. See "TAX
ASPECTS - Thinly Capitalized Corporation." Such a determination could have a
materially adverse effect on the profitability of the Corporation and its ability to pay
interest and principal when due.
(The balance of this page has been intentionally left blank)<PAGE>
USE OF PROCEEDS
The net proceeds which the Corporation will receive from the sale of the Notes
offered hereby, after deduction of sales commissions and all expenses of the Offering,
will be approximately $13,500,000 if the Maximum number of Notes are sold, or $450,000
if the Minimum number of Notes are sold. The Corporation intends to utilize the net
proceeds of the Offering as follows:
$500,000 $15,000,000
Minimum(2) Maximum %
Acquisition of Receivables $432,500 $12,750,500 94.5
Overhead Allowance(1) $25,000 $750,000 5.5
$457,500 $13,500,000 100.00%
(1) AEG will receive this fee for all operating and overhead costs and expenses
including personnel, providing accounting systems, computer systems and collection. See
"BUSINESS - Operations and Overhead Expenses."
(2) In the event that only the Minimum is sold, AEG will pay all expenses associated
with this Offering, other than offering Commissions and fees.
CAPITALIZATION
The following table sets forth the capitalization of the Corporation at March 31,
1996, and as adjusted to give effect to the issuance of the maximum and minimum
amounts of Notes offered hereby. This table should be read in conjunction with the
Corporation's financial statements and the notes thereto included elsewhere in this
Prospectus.
March 31, 1996
As adjusted to As adjusted to
reflect Maximum reflect Minimum
Actual Offering Offering
Long-Term Debt $ - $15,000,000 $500,000
Common Stock, $1.00 par value;
authorized 1,000 shares;
1,000 shares issued
and outstanding $1,000 $1,000 $1,000
Additional Paid in Capital $39,000 $39,000 $39,000
Total Stockholder's equity $40,000 $40,000 $40,000
Total Capitalization $40,000 $15,040,000 $540,000<PAGE>
BUSINESS
General
The Corporation was formed on March 11, 1996 to be a special purpose corporation
in financial services and to acquire and factor receivables. The Corporation is a wholly
owned subsidiary of American Equities Group, Inc. ("AEG"), a New York corporation
formed on June 17, 1992 to act as a general partner of partnerships and acquire and
factor receivables, lend funds to businesses, engage in leasing transactions and act as a
financial intermediary and manager for its special purpose subsidiaries. AEG is general
partner of one partnership and the parent corporation of six special purpose corporations
and may sponsor other partnerships or special purpose corporations in the future. AEG
also has entered into management agreements with its six special purpose subsidiaries to
provide services similar to the services it will be providing to the Corporation.
The Corporation will engage in the business of factoring accounts receivable.
Factoring is one of the oldest and most innovative methods of financing, possibly the
earliest recorded form of commercial banking, whereby a factor will purchase the
accounts receivable of businesses at a discount from their face value thereby providing
such businesses with immediate cash flow. This financing tool allows a business to put its
accounts receivable to work and allows companies to obtain working capital without
taking on new debt or giving up equity. The result is a streamlining of credit and
collection efforts and an enhanced cash flow. Small businesses are attracted to factoring
due to the fact that many small businesses cannot qualify for traditional bank loans and
factoring provides them with the immediate cash they need to operate and grow without
having to rely on the typical repayment terms of 30, 60, 90 days or longer. As businesses
grow, factoring can serve a vital need of providing cash flow. An increasing number of
smaller to mid-size companies are turning to factoring as a cash management tool.
Large companies routinely factor their invoices to speed up cash flow and smaller
businesses are beginning to take advantage of this financial option.
The Corporation believes that there is a great demand for financing through the
factoring of receivables in the United States due to the increased regulation of banks and
the tightening of lending criteria, which the Corporation and AEG expect will continue
for the next several years. Accordingly, the Corporation believes that many small and
medium sized companies are precluded from borrowing from traditional banks and
financial institutions due to their net worth, size, industry type or years in business; even
though their receivables may be of high quality. For example, a small manufacturing
corporation may sell its products to a fortune 500 corporation which would pay the seller
on 30 or 60 day terms. This receivable may be a high quality receivable which is
desirable from a credit standpoint regardless of the financial condition of the firm that
generated it. AEG's target market is companies requiring cash flow for expansion
purposes that do not have the ability to borrow from banks due to size or the number of
years in business.
Industry Overview
The factoring business has become highly fragmented over the past decade largely
due to the economic expansion of the mid-1980's and the subsequent commercial credit
crunch a few years later. It is estimated that the amount of accounts receivable factored
in the United States exceeds $62 billion annually. Most of this volume (approximately
$50 billion in 1993) reflects the activity of the 13 largest factoring companies. 60% of
the factoring companies in the United States today account for approximately 3% of the
total factoring volume. These companies typically factor less than $50 million annually.
During the past fifteen years factoring has become more readily available to small
and medium-sized businesses than traditional bank lending. To obtain bank financing
today, companies generally need to (i) produce audited financial statements
demonstrating profitable operations, (ii) possess a strong collateral basis including
equipment, real estate and other hard assets, and (iii) maintain a debt/equity ratio of 2:1
or better, depending on the industry.
Many growing enterprises fail to meet bank criteria. By contrast, a commercial
business becomes a reasonable factoring prospect so long as it can demonstrate (i) that is
has an unencumbered portfolio of accounts receivable payable by credit worthy account
debtors, (ii) that it has the margins necessary to absorb the factoring fees, and (iii) that
factoring will, in fact, improve the company's cash position and enable it to accommodate
increased sales.
In addition to providing funds for growth and expansion, factoring also provides a
practical transition tool for restructuring long-term financial arrangements, such as
unfavorable or overly restrictive bank relationships. Furthermore, numerous young
businesses rely on factoring to help them reach the point where they become viable
candidates for less expensive bank financing or equity financing.
American Equities Group, Inc. as Manager
The Corporation will purchase Receivables primarily of small to medium-sized
corporations with sales between $500,000 and $10,000,000 annually. AEG, as Manager,
will originate the Receivables purchasing them from client companies (the "Clients") and
assigning them to the Corporation. AEG, as Manager for the Corporation, will also
service and collect the Receivables. The Corporation's day-to-day affairs, including but
not limited to, marketing its accounts receivables program to new business, evaluating
the quality and credit of the Receivables and Clients and their account debtors,
determining which Receivables are to be purchased, effecting Receivables purchases,
collecting upon the Receivables for the account of the Corporation, effecting the
disbursement of funds to Clients and preparing checks for the Corporation for interest
and principal payments on the Notes and mailing such checks to Note Holders with
statements of account, will be performed by employees of AEG. Typically, Receivables
are purchased only after investigation of the credit worthiness of the company selling the
receivable and the company that is obligated on the Receivable, combined with the
subjective assessment by AEG'spersonnel. In making such investigation, AEG, as
Manager for the Corporation, considers many factors such as the type of business that
generated the Receivable and the risk of loss based upon potential non-performance.
AEG primarily acquires verifiable Receivables where all events have occurred necessary
for the Receivable to become an obligation of a company not subject to rejection of
goods or other circumstances. See, "Acquisition of Receivables" below.
Marketing
AEG markets its accounts receivable program through direct mail campaigns,
industry publications and newspaper advertisements as well as referrals from existing
clients, accountants, attorneys and other professionals. AEG will acquire accounts
receivable related to most industries; however, AEG has developed a niche market in
acquiring accounts receivables from periodicals. Such Receivables are typically those of
national advertisers with substantial credit worthiness. AEG has developed a reputation
in this industry and has many industry contacts and relationships which refer business to
AEG.
Acquisition of Receivables
AEG typically concentrates its purchase of Receivables in publishing, printing and
general services industries. These are industries that can best utilize the comprehensive
services of AEG which include back office functions such as credit checks, billing,
reporting and collections. AEG, as Manager, has established certain criteria for
determining if a potential Client's Receivables meet AEG's investment goals. This
criteria consists of many qualitative and quantitative factors that AEG will consider and
review in each case. These factors have been designed based on professional practices
and the current and overall returns historically sought by AEG in structuring and
purchasing Receivables similar to those to be purchased and assigned to the Corporation.
Management may from time to time reevaluate and modify such criteria.
Typically, AEG will review the financial viability of the entity desiring to finance
receivables or borrow funds based upon its receivables. AEG will utilize TRW, Dunn &
Bradstreet or other services to determine whether or not the Client is in a position to
factor its receivables and to assess the credit worthiness of Client's account debtors. In
addition to the standard underwriting practice, UCC searches will be conducted to
determine whether or not the Client had previously pledged its receivables, as well as to
determine if any tax liens or judgments are outstanding against the Client. AEG reviews
a prospective Client's aged receivables report, operating reports, history of the firm and
confers with the prospective Client's major customers to determine quality of the
Receivables and establish collection procedures. AEG has established credit systems to
assure that acquired Receivables are valid obligations which are not in dispute. Such
systems include a sign off and confirmation forms of goods delivered and/or services
rendered, shipping verification and order checking. In some instances AEG pays
vendors, such as printers in the magazine industry, directly to ensure that the funds are
properly utilized and the product is completed and ready to be shipped or sold.
Qualitative Factors
The major qualitative factors included in the Corporation's guidelines for acquiring
Receivables are the account debtor's prior payment performance, the current financial
position of the Client and the generator of the Receivables, the Client's current market
position, an assessment of the Client's management and the general fit of the
Receivables with the Corporations's target profile.
Payment Performance of Account Debtor's. One of the most important criteria
used by AEG in determining the desirability of the Client's Receivables is the prior
payment history of its account debtors. In the case of a new account debtor with which
AEG is not acquainted with, AEG requires aged receivables reports of accounts
receivable in order to determine past payment record of the account debtor. If only
limited information is available regarding the aging of an account debtor's payment
record, this fact may affect the final advance rate which AEG feels appropriate based on
the risk involved.
Current Financial Position. Historic and current operating performance will be
important when considering the acquisition of Receivables. The Corporation analyzes
the profitability of the Client by reviewing its profit and loss statements, tax returns,
supplier contracts, receivables aging and other necessary documentation along with
in-depth personal interviews with the principals of the company. One of the most
important aspects of this review is the ability of the Client to properly produce and/or
deliver the product or service represented by the Receivable. In addition, the Client
should be able to demonstrate that it enjoys sufficient margins to absorb the factoring
fees, that factoring will enable it to expand sales or reduce expenses and that factoring
will enhance its overall financial position. The Corporation anticipates that in most cases
Clients will have positive cash flow from operations and will be profitable or nearly
profitable.
Current Market Position. Market opportunity for a Client is also an important
factor in the acquisition of Receivables. A potential Client should exhibit a substantial
opportunity for growth in its revenues through (1) favorable growth characteristics of the
markets its serves, (2) expanding into new markets or (3) growing its revenues through
capturing greater market share within a particular market. A Client must be able to
demonstrate that it can produce and deliver its products or services that it sells in a
timely fashion.
Management. The Client's management team is another crucial factor impacting
the acquisition of Receivables. The Corporation will seek potential clients having
management teams with integrity that possess the experience and skill required to
accomplish the Client's near term objectives. The management team's commitment to a
Client is also critical to success. The Corporation will expect that a Client's management
will own or have the right to acquire a significant ownership position in the Client or
have some other benefits package that rewards management based upon performance.
The Corporation also looks to see if management of a potential Client has committed
substantial personal financial resources to the Client.
General Fit with Corporation's Target Profile. AEG's general target profile is a
business that desires to finance its accounts receivable to generate cash flow in order to
grow and/or expand its business. The prospective business must demonstrate the ability
to utilize the proceeds of factoring accounts receivable to the benefit of such growth or
expansion. Current cash flow should be positive or the prospect must demonstrate that
with the enhancement of account receivable financing the company'scash flow will be
positive. AEG desires companies with sales volume of between $500,000 to $10,000,000.
Generally, if the management of AEG believes that the services it would provide a Client
would enhance the growth of that Client and the Client demonstrates that it could
deliver qualified accounts receivable and provide its good and services to its clientele as
per its agreements, and its management team appears to be sound, then AEG would
consider financing that business.
If at any time after AEG enters into a contract with a company that company
experiences adverse financial difficulties, then AEG has the right to terminate its
agreement and not continue financing the receivables of that Client. Additionally, if a
Client has breached any of its obligations to AEG including, but not limited to, providing
AEG with a valid account receivable for services rendered or goods delivered, AEG has
the right to terminate the agreement. Furthermore, AEG has the right to purchase but
not advance funds on any invoice presented which might be questionable or not
credit-worthy at the discretion of AEG.
Another factor that AEG considers when evaluating a potential Client is whether the
Client can show that it can successfully address such problems as outstanding trade debt
within a reasonably short period of time. AEG also looks at a Client's long-term debt
obligations. Such debt will not necessarily preclude a factoring relationship so long as
AEG can effectively negotiate its priority security position with other creditors.
Quantitative Factors
The quantitative factors included in the Corporation's criteria are (1) Receivable
concentration limits, (2) restrictions regarding purchasing receivables from companies
involving Affiliates and (3) the prior payment performance of a Client's account debtors.
Receivables Concentration. AEG will generally direct its purchasing efforts
toward small and medium sized companies that have credit worthy Receivables with
good payment histories. Generally AEG will purchase between $50,000 and $500,000 of
Receivables from any particular Client in any given month. AEG will not be limited in
the amount of Receivables that it may purchase from any one Client, however, AEG has
the right not to acquire or advance funds on any accounts receivable it deems a
concentration risk. Typically, if an account debtor represents more than 15% of the total
outstanding accounts receivable of a Client's portfolio, such accounts receivable will be
scrutinized prior to acquisition to avoid concentration problems. The Corporation may
concentrate in the purchasing of Receivables from companies in particular industries
such as the publishing, printing or general service industries.
Purchase of Receivables from Affiliates. AEG will not purchase Receivables
from any company which is affiliated with it, the Corporation or any affiliate of AEG or
the Corporation.
Past Performance of Account Debtors. Typically, AEG requires aging reports of
accounts receivable in order to determine past payment record of the account debtor.
AEG reserves the right not to acquire any Receivable it deems unacceptable. This
would include any account over 90 days past due or a recurring account showing a
history of late payments or multiple disputes.
Assuming the Client meets AEG's and the Corporation's standards, the Corporation
will acquire, factor or lend against the Receivables. The Corporation will enter into a
purchase or factoring agreement (the "Contract") with the Client which will typically
provide that all of the Client's receivables would be pledged or sold to the Corporation
for a cash advance payment of 65% to 80% of their face amount with the balance (the
"Deferred Portion") being due to the Client upon collection. Such advance rate, as well
as the fee to be charged, are negotiated and determined based upon the relative risk of
the Receivables. For instance, for Receivables purchased from a Client whose account
debtors have a history of slow payment or multiple disputes, AEG may provide for an
advance rate of only 50-60% of the face amount of the Receivables in order to ensure
that it collects its fee.
The Contract provides terms and conditions of the purchase including charge backs,
representations, term and a penalty charge for early termination. The Contract also
contains a trust provision that is executed by the principals of the Client and which
provides that any funds wrongfully collected by the Client will be held in trust for the
Corporation.
AEG has developed a system for placing Receivables with its different pools of
capital which it will apply to the funds raised by the Corporation in this Offering. Each
pool managed by AEG acquires definitive receivables on a rotating basis based upon
availability of funds. All pools and Receivables are accounted for in AEG's financial
accounting programs which were developed by AEG. Each fund has separate bank
accounts and funds are not commingled for any purpose. AEG, in managing the pools,
maintains corporate separateness for each affiliated entity in order to afford the
maximum amount of protection to investors.
The Corporation will typically charge 7% to 10% of the face amount of the
Receivables as a fee and will initially advance 65% to 80% of the face amount of the
Receivables. The Corporation will have the right to offset against the deferred portion
for any Receivables paid for and not collected including the Corporation's fees.
Additionally, the Client would be a guarantor for any advances made (plus the fee due
the Corporation). The Corporation and AEG will share the fees charged, 50% to the
Corporation and 50% to AEG. AEG will pay all overhead, expenses, and salaries from
its portion of the fees as relates to the ongoing business; except for legal, accounting,
filing fees, taxes and other administrative expenses related to the Corporation. AEG will
defer its fee if funds are insufficient to pay interest and/or principal as it comes due.
The portion of the Corporation's net revenues not paid to the Note Holders, if any, is
generally retained by the Corporation and utilized to acquire additional accounts
receivable. Dividends to the parent corporation, AEG, may only be paid to the extent of
such retained amounts; provided, that after the payment of any dividends the
Corporation's basis in its Receivables plus cash on hand (less any liabilities) exceeds the
face amount of all Notes outstanding.
Receivables are typically due upon delivery of good and services and are considered
late after thirty (30) days). If an account debtor has outstanding invoices more than 90
days, AEG will not advance funds on that newly presented invoice. No pre-defined
credit limit is established for any one account debtor. Credit limits for account debtors
are dealt with on a per amount basis and is determined by the credit-worthiness of that
particular account debtor, its history with AEG, its history with its service or product
provided, the total amount of outstanding invoices and the amount of those invoices
compared to the total amount of Receivables outstanding of the Client. Receivables
generally vary in size from $1.00 to $25,000, with an average of approximately $5,000.
AEG and/or the Corporation may in some cases pay a portion of their fees to third
parties as finder's fees for locating receivables for purchase. This is a common practice
in the industry as a method of securing business.
Monitoring the Receivables
Once the accounts receivable department of AEG has approved a batch of
Receivables as to their credit-worthiness and completeness and those Receivables are
subsequently purchased, they are entered into AEG's monitoring system and the
collection department reviews aging of all accounts receivable owned by AEG on a
weekly basis. There is currently a staff of six (6) employees including one manager of
that department. The staff calls on all account debtors over 30 days past due to
determine if any problems exist or when payments will be made. Statements are sent to
all account debtors monthly and summary statements showing account debtor aging is
shown to each Client monthly.
Customer Service
AEG also provides customer service to its Clients. Such value-added services include
such critical accounts receivable support as customer credit analysis and approval, invoice
handling, collection, posting, accounting and reporting. For many businesses, the desire
to obtain these services actually drives the decision to factor. AEG generates computer
records on each account Receivable pool and aging of such pools of receivables which
can be accessed and reported on to Clients. These reports allow AEG's Clients to
monitor collections activity and cash flow. In addition, AEG acts as a back office for
many of its Clients overseeing their billing and collection efforts, in effect acting as their
credit, billing and collection departments.
AEG's services also help a Client determine which companies it should extend credit
to based upon financial information AEG can access as well as payout history from those
companies. AEG has nine employees dedicated to customer service.
The Corporation will not engage in any business other than as set forth above and
AEG, as Manager, will ensure that the Corporation incurs no liabilities. AEG will
handle all administrative matters and employ the necessary personnel. All receivables
acquired by the Corporation will either be owned by the Corporation or subject to
UCC-1 Financing Statements filed against the Client in favor of the Corporation.
Although AEG may sponsor other special purpose corporations or partnerships in the
future or raise funds and acquire receivables itself, all transactions will remain strictly
segregated.
There is no assurance that all transactions will be identical to the above and fees
may be reduced or raised depending upon competition and the relative risk of the
receivables.
The following chart illustrates a typical account receivable financing transaction:
[Description of Chart to follow:]
On day 1, ABC Corp., a fully contracted Client, presents invoices or accounts
receivable valued at $100,000 (25 customers each owing ABC $4,000). AEG advances
78% or $78,000 to the Client Book Account and charges a total fee of $10,000 or 10% of
the net invoice value of the pool. AEG then deducts $8,000 or 80% of its fee
immediately. AEG remits $70,000 or 70% of the total net invoice value directly to the
Client.
By day 30, AEG collects 40% of the net invoice value ($40,000). By day 60, AEG
has successfully collected 80% of the net invoice value ($80,000) and captures the
remaining 20% of its fee ($2,000). At this point, AEG has collected all of the money it
has advanced to the Client and 100% of its fee.
By day 70, AEG collects the remaining $20,000 of outstanding Receivables and
remits the money to the Client. AEG has no collected all of the Receivables in the pool
and the pool is closed.<PAGE>
Perfection of Security Interest
AEG acquires the Receivables from its Clients pursuant to an Accounts Receivable
Purchase Contract (the "Purchase Contract"). This Purchase Contract includes UCC-1
financing statements which are typically filed on all the Receivables of a Client and in
some instances other assets of Client. AEG will then assign Receivables to the
Corporation and the funds to acquire the Receivables will be paid directly from the
Corporation to the Client. If a search indicates the existence of UCC-1 financing
statements covering a Client's Receivables, AEG will not enter into a Purchase Contract
without first obtaining subordinations, terminations and/or releases from the appropriate
secured parties. Depending upon the perceived risk relating to the payment of the
Receivables and the availability of the Client's assets, such payment may be secured by
the factored Receivables only, all of the Client's accounts receivable, whether factored or
not, or by the Client's accounts receivable and other business assets. In some cases,
AEG will also require the personal guarantees of the Client's principals as additional
collateral.
AEG will assign all of its right, title and interest in such Receivables to the
Corporation. Because of the ongoing nature of the acquisition and collection on
Receivables, the Corporation will not file UCC-1 financing statements delineating the
Corporation as an assignee, but rather a written assignment will be executed between
AEG and the Corporation specifically identifying the assigned Receivables. The
Corporation then generally files a d/b/a with a name similar to the Client's name
pursuant to the Purchase Contract and all funds remitted on the purchased Receivables
are paid directly to the Corporation. Accordingly, funds are never commingled with
AEG. Nevertheless, if the security interests in collecting of receivables are not properly
perfected or assigned or if Receivables cannot be separately identified, it is possible that
a court could find that the Note Holders were general unsecured creditors of the
Corporation and/or AEG.
Collections
In the event receivables are not paid when due, the Corporation will embark on a
strong collection effort through its staff of collectors. The first stage of collection
involves letters and telephone calls to the non-paying account debtor. If AEG is
unsuccessful in collecting, it utilizes law firms and national collection organizations.
AEG has established relationships with several national law firms that specialize in
collecting delinquent receivables and AEG will aggressively collect all such receivables.
Under 10% of all accounts receivable go to outside collection agencies. The results of
sending Receivables to collection agencies generally do not effect AEG, and should not
effect the investors if this Offering, due to the fact that any defaults on accounts
receivable are charged against the reserves after AEG has collected its fee.
Banking
The Corporation will maintain its banking accounts at a major money center bank.
Currently the Corporation's bank sends a courier to AEG each day for deposit of funds.
Pending acquisition of Receivables, funds are kept in checking accounts which are
both interest bearing and non-interest bearing.
Reports and Investor Services
The Corporation and/or AEG will provide the Corporation's investors with unaudited
quarterly balance sheets and activity reports and annual audited financial statements as
soon as possible after the end of the respective quarter or year.
AEG, as Manager for the Corporation, will prepare all interest payment checks and
handle all investor inquiries including change of ownership requests. In addition to
financial statements, periodic reports will also be generated.
Employees
As of the date of this Prospectus, there were twenty (20) employees of AEG
available to work on the business of the Corporation, three (3) of whom are
management and seventeen (17) of whom are administration. The loss of the services of
management could materially adversely affect the business of the Corporation.
The staff of the accounts receivable management department consists of four (4) full
time personnel including the manager of the department. The staff will make
evaluations as to credit, history and completeness and present these findings to the
manager who must approve the batch of invoices prior to submitting the request for
funding to senior management. Once the request for funding has been submitted to
senior management additional review takes place and requires sign off of the President
and CEO of AEG. This review consists of an overall assessment of the Client's status
which is supplied on a form submitted to senior management known as a "Request for
Funding" form. This form will show the details of that particular batch of Receivables
including total Receivables presented, total Receivables approved, an explanation for any
differences and a recommendation for funding or not and a breakdown of the fees that
would be sent to the Client. Furthermore, the Client's total account summary, including
total Receivables, total reserve and total exposure to the Client is documented. Once
the President and CEO approve the transaction, the form is forwarded to AEG's
accounting department. The accounting department consists of four (4) full time
personnel including the controller who is the manager of that department. The
accounting department, with the approval of the controller, will arrange for the
advancing of funds to the Client and will arrange for the proper accounting of the
transaction in the Corporation's general ledger system.
Legal Proceedings
Neither the Corporation nor AEG is currently a party to any material litigation, nor
to the knowledge of management, is there any material litigation threatened or
contemplated against the Corporation or AEG.
Real Property
The Corporation shares office space with AEG. AEG believes that the facility is
adequate for its immediate and near-term needs and does not anticipate the need for
significant expansion in the near future. <PAGE>
MANAGEMENT
The Corporation is wholly-owned by AEG. The Corporation's business will be
managed by AEG and the Corporation's officers and directors. The following persons
are the officers, directors and shareholders of AEG and officer and directors of the
Corporation:
Name Age Position
Phillip C. Goldstick 65 Director and Chairman
David S. Goldberg 35 CEO, Secretary, Treasurer and
Director
Stephen A. Socha 42 President and Director
Set forth below is a brief background of the executive officers and directors of the
Corporation:
Phillip C. Goldstick has served as a Director and Chairman of the Board for
the Corporation since its inception and of AEG since 1992. Since 1975, Mr. Goldstick
has served, and continues to serve, as the Chairman of G Equity Investment Group, Ltd.,
an NASD Broker-Dealer and the underwriter of this Offering. Mr. Goldstick is also the
Senior Partner of the Law Firm of Phillip C. Goldstick & Associates, Ltd., located in
Chicago, Illinois. Mr. Goldstick received a bachelors degree from the University of
Illinois (1953) and his law degree from DePaul University (1956). Formerly, Mr.
Goldstick was a member of the Illinois General Assembly, Chairman of the Gateway
National Bank of Chicago, and President for the Calumet Area Industrial Commission.
During his over thirty years of practicing real estate, tax and corporate law, Mr.
Goldstick has been an owner or general partner in numerous real estate and business
ventures. Currently, Mr. Goldstick also serves as a Director of the University of Illinois
Foundation where he is Chairman of the Budget Committee and serves as a member of
the Investment Policy Committee. He is also a member of the Cook County, Illinois
Economic Development Advisory Committee.
David S. Goldberg, has served as CEO, Secretary, Treasurer and a Director of the
Corporation since its inception and of AEG since 1992. In addition, Mr. Goldberg has
served as the President of Genesis Ventures Limited since 1992 which Corporation acts
as consultant to companies seeking financial and marketing advice. Mr. Goldberg
advises and consults with corporate clients in the areas of financial management, finance,
corporate structure, marketing strategies, and corporate fund raising. Over the past 12
years, Mr. Goldberg and his affiliates have successfully arranged for over $250 million of
equity financing for corporations, limited partnerships, trusts, and individuals in
businesses ranging from real estate, cable television, equipment leasing, energy
development and medical technology. Most of this activity was accomplished through
Capital Planning Equity Corp. Mr. Goldberg was the President and sole shareholder of
Capital Planning Equity Corp. from 1985 to 1990 and provided underwriting and loan
placement services on behalf of, or for the benefit of, lending institutions, sponsors of
private loan placements, corporations and individuals. Mr. Goldberg was President of
Paramount Financial Group, Inc. from 1989 through April 1993, where he was
responsible for the raising of over $20 million in investor capital for the purpose of
developing affordable housing. Prior to his involvement with Paramount, from 1981 to
1985. Mr. Goldberg founded Capital Planning Services Inc., a financial planning firm
and registered investment advisor. Mr. Goldberg is President and a registered principal
of G Equity Investment Group, Ltd., a NASD member firm headquartered in Chicago,
IL which is serving as lead underwriter of this Offering.
Mr. Goldberg, who resides in Paramus, New Jersey, received his B.S. degree in
management from Fairleigh Dickinson University.
Stephen A. Socha, has served as the President of the Corporation since inception and
of AEG since January 1, 1994. Mr. Socha has a wide range of experience in the finance
and publishing fields, specializing in areas of administration, financial management and
marketing. From 1982 to 1985 Mr. Socha directed international sales for Expoconsul
International, and from 1985 to 1988 served as Vice President and Publisher of CDM
Communications, the founders of Performance Sailing and America's Cup Challenge
magazines. From 1988 to 1989 Mr. Socha was Executive Vice President of Cornwall
Group, which specialized in technical conferences and has served as a consultant to a
variety of trade and consumer publications. In 1989, after serving as consultant on
several major projects for Magazine Capital (a division of American Factor Group) he
joined Magazine Capital as Vice President in charge of publications. Over a four year
term, Mr. Socha managed the existing portfolio of accounts receivable of over $5,000,000
and designed and operated a new division called the small magazine group. During Mr.
Socha's term, sales for the small magazine group grew to over $13,000,000 per year. Mr.
Socha has served as a speaker and session chairman at the New York Folio Show and
has contributed articles to several industry trade magazines. Mr. Socha graduated with a
B.A. from Glassboro State College and also completed graduate courses in the area of
management and finance.
The Corporation does not pay salaries to Management. All management receive
salaries only from AEG.
Prior Performance
The officers and directors of the Corporation are also officers and director of AEG
and as such have been involved in a number of Affiliates with similar investment
strategies. AEG in 1994 completed an offering of $1,000,000 of its preferred stock and
limited partnership interests in a partnership for which it acts as general partner. AEG
has been utilizing the funds from such offering (initial closing was November 1, 1993) to
acquire receivables. AEG has also closed upon offerings whereby its special purpose
corporations, American Equities SPP Series 1000, Ltd., American Equities Special
Purpose Corporation, American Equities SPP Series 2000, Ltd., American Equities SPP
Series 3000, Ltd., and American Equities SPP Series 4000, Ltd. raised $2,000,000,
$725,000, $2,000,000, and $1,355,000 and $1,900,000, respectively, for the acquisition and
financing of receivables. See "PLAN OF OPERATIONS - Prior Performance of
Manager in Similar Investments."
Limitation on Liability and Indemnification Matters
The Corporation has adopted provisions in its Articles of Incorporation that
eliminate the personal liability of its directors for monetary damages arising from a
breach of their fiduciary duties under certain circumstances to the fullest extent
permitted by Delaware law and authorize the Corporation to indemnify its directors and
officers to the fullest extent permitted by Delaware law. Such limitation of liability does
not eliminate the duty of care or affect the availability of equitable remedies such as
injunctive relief or rescission. The Corporation's by-laws provide that the Corporation
shall indemnify its directors and officers to the fullest extent permitted by Delaware law,
including circumstances in which indemnification is otherwise discretionary under
Delaware law.
At present, there is no pending litigation or proceeding involving a director, officer,
employee or agent of the Corporation where indemnification will be required or
permitted. The Corporation is not aware of any threatened litigation or proceeding
which may result in a claim for such indemnification.
Notwithstanding the foregoing indemnification provisions of the Corporation's
Articles of Incorporation and Bylaws, the Corporation has been informed that it is the
opinion of the Securities and Exchange Commission that indemnification for liabilities
arising under the Securities Act is against public policy and is therefore
unenforceable.
(The balance of this page has been intentionally left blank)<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information as of the date of this Prospectus with respect
to any persons known to the Corporation to be the beneficial owner of more than 5% of
the Corporation's Common Stock and of the Common Stock owned by all directors and
all directors and officers of the Corporation as a group. Because the Notes do not
constitute and are not convertible into equity of the Corporation, the percentage of
ownership set forth below will not vary as a result of this Offering.
Name and Address
of Beneficial Share of Common Stock Percentage of Outstanding
Owner(1) Title of Class Beneficially Owned Common Stock Owned
American Equities
Group, Inc. Common 1,000 100%
Phillip C. Goldstick(2) Common 360 36%20
N. Clark Street
Chicago, IL 60602
David S. Goldberg(3) Common 360.5 36%
Stephen A. Socha(4) Common 80 8%
Officers and Directors Common 800.5 80%
as a group
(three persons)(1)(2)(3)(4)
(1) The address of AEG and Messrs. Goldberg and Socha and of AEG is East 80, Route
4, Paramus, NJ 07652.
(2) Represents the indirect ownership in the corporation of the Phillip C. Goldstick
Revocable Trust U/A Dtd. 8/2/89 through the ownership of an aggregate of 4,500 shares
of AEG common stock.
(3) Represents the indirect ownership in the corporation of the David S. Goldberg
Family Trust, an affiliate of David S. Goldberg, through the ownership of an aggregate
of 4,500 shares of AEG common stock and the ownership of 6.25 shares of AEG
preferred stock, which is convertible into a like number of shares of AEG common stock.
(4) Represents the indirect ownership in the corporation of Mr. Socha through the
ownership of an aggregate of 1,000 shares of AEG common stock.
The Corporation is wholly-owned by AEG and the Corporation has the same
directors and officers as AEG.
Other than as set forth above, the Corporation is not aware of any other
shareholders who beneficially own, individually or as a group, 5% or more of the
outstanding shares of Common Stock of the Corporation.
PLAN OF OPERATIONS
The Corporation intends to acquire accounts receivable principally from companies
in the publishing, printing and general service industries. Based upon the prior
performance of the Manager in similar investments, an Investor can expect that
approximately 50% of the purchased Receivables will come from companies engaged in
the publishing business, approximately 30% of the purchased Receivables will come from
companies engaged in the printing business and approximately 20% of the purchased
Receivables will come from companies engaged in general services businesses.
Operations and Overhead Expenses
AEG will pay all operational and overhead expenses of the Corporation out of its
portion of the fees earned in the factoring of the Receivables, which fee will typically
equal 7% to 10% of the face amount of the Receivables being factored. The
Corporation and AEG will share the fees charged, 50% to the Corporation and 50% to
AEG. Such costs and expenses to be paid by AEG will include personnel costs,
including employee salaries, associated with the identification, evaluation, purchasing,
monitoring and collection of Receivables; the use of AEG's accounting and computer
systems; expenses incurred for administrating Investor accounts and other administrative
services and providing managerial assistance to the Corporation. Any costs and expenses
which exceed the amount of fees generated by the factoring of the Corporation's
Receivables shall be paid by AEG out of its own funds.
AEG shall also receive approximately 5% of the gross proceeds of this Offering as an
Overhead Allowance. AEG will receive this one-time fee for preparing all of the
necessary systems required in order to provide the Corporation with a turn-key
management program which will eliminate the traditional start-up time of a new
company. AEG has invested a significant amount of time and money to properly staff
the various departments that will require such increased staffing if and when the
Corporation sells the Minimum amount of the Offering. In addition, AEG has arranged
for the necessary computer systems, banking systems, servicing, collection and tracking
operations, credit review facilities, investor services systems, accounting procedures and
has procured the necessary office space in order to affectively service and manage the
Corporation's funds and Receivables that it acquires. Furthermore, AEG has initiated a
national marketing effort to arrange for business to be available to the Corporation once
it has raised the Minimum Offering.
In addition, the Dealer Manager, an affiliate of the Corporation and AEG, will
receive (i) sales commissions of up to 7% of the Offering price, a due diligence and
non-accountable expense of 1% of the Offering price and a Dealer Manager fee of .5%
of the Offering price. Assuming that the Maximum Offering is sold, such fees and
commissions would equal $1,050,000, $150,000 and $75,000, respectively. See "PLAN OF
DISTRIBUTION."
Prior Performance of Manager in Similar Investments. AEG, through a
combination of a limited partnership and special purpose corporations, has completed six
(6) private offerings of securities aggregating $10,021,750. AEG has been utilizing the
funds from such offerings to acquire accounts receivables on its on behalf and on behalf
of its Affiliates. AEG serves as manager for each of these investment vehicles. To date,
investors in these offerings have received interest payments aggregating $540,000 or an
average 10% annual return on their investments. No scheduled interest payments have
been missed in connection with any of these offerings and AEG does not foresee any
difficulties in the meeting of any scheduled payment of principal or interest with respect
to any of these offerings. There are no known trends, events or uncertainties that are
reasonably likely to materially impact the Corporation's short-term and long-term
liquidity or results of operations. The default rate for all Receivables acquired by AEG
is under 10% of such total amount of Receivables. However, none of such defaults have
resulted in loss to AEG or any of its Affiliates as such defaults are charged against the
Client's reserve after AEG receives its fee.
The Corporation believes it will be able to satisfy its cash requirements for the
foreseeable future if it does not expand its business by acquiring additional Receivables.
If the Corporation desires to acquire additional Receivables beyond those which can be
acquired with the proceeds of this Offering, it will need to raise additional funds in the
following twelve months. There is no assurance the Corporation will seek or secure
additional funds to acquire additional Receivables. Management does not believe that
investors in this Offering will be adversely affected if the Corporation is not able to
expand its business by acquiring additional Receivables.
DESCRIPTION OF THE SECURITIES
General
Up to $15,000,000 aggregate principal amount (ranging to a Minimum of
$500,000 aggregate principal amount) of the Corporation's ten-year promissory notes
(the "Notes") is being offered to qualified investors in denominations of $1,000 or any
integral multiple thereof, with a minimum investment of $2,000. The Notes will bear
interest at the rate of 12% per annum. Interest is payable monthly or annually in arrears
or upon maturity with the payments due on the first day of the each month or year.
Principal is payable in one payment upon maturity of the Notes. (A form of Secured
Note is attached hereto as Exhibit A.) The Corporation is not required to establish a
sinking fund; however, the Corporation will use its best efforts to reserve sufficient funds
for payment of the Notes on maturity by liquidating its portfolio of Receivables.
Acceleration at Option of Note Holder
On the first day of January of each of the fifth, sixth, seventh, eighth and ninth years
after issuance of a Note, a Note Holder, upon six (6) months prior written notice, may
accelerate his Note and receive payment of principal and accrued interest at that time.
Prepayment
The Notes may be prepaid at any time at the option of the Corporation.
Subordination
Pursuant to the Note, the Corporation is representing to the investors that there
presently is no indebtedness senior or equal to that of the Notes. In addition, the
Corporation further represents that it will not incur any debt which is senior or equal to
the Note Holders, other than ordinary and necessary expenses of operations.
Restrictions as to Dividends and Certain Other Payments
The Corporation has agreed not to pay dividends, or make distributions on its stock
or purchase, redeem, or otherwise acquire or retire any of its stock if (a) an Event of
Default exists under any of the Notes or (b) it would reasonably appear that after any
such action the Corporation would not have sufficient funds to avoid an Event of Default
within six (6) months of such action.
Merger and Consolidation
Under the terms of the Notes, the Corporation may consolidate or merge with or
into any other entity or any other entity may consolidate or merge into the Corporation
and the Corporation may sell or transfer all or substantially all of its property and assets
to another entity, or another entity may sell or transfer all or substantially all of its
property and assets to the Corporation, provided that (i) such action is duly authorized
by the Corporation and its shareholders by the required actions thereto, (ii) the entity (if
other than the Corporation, formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such property and assets shall be a
corporation, partnership or trust, shall be organized and validly existing under the laws of
the United States and any state thereof and shall expressly assume payment of the
principal of, premium, if any, and interest on the Notes, and (iii) there shall not
immediately thereafter be an Event of Default under the Notes.
Events of Default
Events of Default under the terms of the Notes include among other things (i) the
Corporation fails to make payment of principal or interest for a period of more than 30
days after the due date; (ii) the Corporation makes an assignment for the benefit of
creditors, commences (as the debtor) any case in bankruptcy under Title 11 of the
United States Code ("Bankruptcy"), commences (as the debtor) any proceedings under
any other insolvency or receivership law or files a petition or answer seeking
reorganization or an arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute
or files an answer admitting the material allegations of a petition filed against it in any
proceeding under any such law or any corporate action is taken for the purpose of
effecting any of the foregoing; (iii) A case in Bankruptcy or any proceeding under any
insolvency or receivership law is commenced against the Corporation (as the debtor in
such case or proceeding) and a court having jurisdiction in the premises enters an order
for relief against the Corporation in such case or proceeding, or such case or proceeding
is consented to by the Corporation or remains undismissed for 40 days, or the
Corporation consents to or admits the material allegations against it in any case or
proceeding; or (iv) a trustee, receiver, agent or custodian (however named) is appointed
or authorized to take charge of substantially all of the property of the Corporation for
the purpose of enforcing a lien against such property for the benefit of creditors.
Security Agreement
The Notes will be secured by a security interest in the Receivables acquired with the
proceeds of the Offering. This interest will be subject to the provisions of a Security
Agreement and Collateral Assignment between the Corporation and the Trustee for the
benefit of Note Holders. A copy of the Security Agreement is attached hereto as Exhibit
B.
Indenture of Trust
An Indenture of Trust will be entered into between the Corporation and the Trustee
for the benefit of Note Holders. The trustee will accept title to the Security Agreement
on behalf of the Note Holders. The description of the Indenture of Trust set forth below
and references to Note Holders will be determined based on the Notes issued to Note
Holders. The duties of the Trustee are to hold the Security Agreement, to perform
certain obligations in the event of a default in the payment of the principal and interest
on the Notes, and to execute and deliver to the Corporation partial or full satisfaction of
the Security Agreement upon partial or full repayment of the Notes.
Sheldon Drobny will serve as the Trustee under the Indenture of Trust. Mr.
Drobny is a partner of the accounting firm of Adler Drobny Fisher, 95 Revere Drive,
Northbrook, Illinois 60062. Mr. Drobny is a certified public accountant with 30 years of
experience in investment banking, merchant banking, corporate finance and company
valuation. Pursuant to the terms of the Indenture of Trust, Mr. Drobny will receive a
fee of $2,000 per year plus reimbursement of actual expenses. In addition, upon the
occurrence of an Event of Default under the Trust Agreement or the Security
Agreement, the Trustee shall receive a fee of $150 per hour for time incurred in
rendering his duties as Trustee.
Events of Default
Subject to the following limitations, the following constitute Events of Default under
the Indenture of Trust:
(1) The Corporation receives written notice from a Note Holder of a default in the
payment of principal or interest on any Note when the same becomes due and payable;
(2) The Corporation fails to comply with any of its other agreements in the Notes,
the Security Agreement, or the Indenture and the default continues for the period and
after the notice specified below; or
(3) Pursuant to or within the meaning of any Bankruptcy Law;
(a) the Corporation commences a voluntary case,
(b) the Corporation consents to the entry of an order for relief against it in any
involuntary case or a court of competent jurisdiction enters an order or
decree for relief against the Corporation in an involuntary case,
(c) the Corporation consents to the appointment of a Receiver of it or for any
substantial part of its property or a court of competent jurisdiction enters an
order or decree for the appointment of a Receiver of the Corporation or for
any substantial part of its property,
(d) the Corporation makes a general assignment for the benefit of its creditors,
or fails generally to pay its debts as they become due; or
(e) a court of competent jurisdiction orders the liquidation of the Corporation,
and the order or decree remains unstayed and in effect for 90 days.
The term "Bankruptcy Law" means Title 11, United States Code, or any similar
federal or state law for the relief of debtors. The term "Receiver" means any receiver,
trustee, assignee, liquidator, or similar official under any Bankruptcy Law.
A default under section (2) above is not an Event of Default until the Trustee or the
Holders of at least a majority in principal amount of the Notes notify the Corporation of
the default and the Corporation does not cure the default within 90 days after receipt of
the notice. The notice must specify the default, demand that it be remedied, and state
that the notice is a "Notice of Default."
If an Event of Default occurs and is continuing either the Trustee or the Holders of
any Note, by written notice to the Corporation and, if applicable, the Trustee, may
declare the principal of and accrued interest on all the Notes to be due and payable
immediately. The Trustee may then pursue any available remedy by proceeding at law
or in equity to collect the payment of principal and interest on the Notes or to enforce
the performance of any provision of the Notes, the Security Agreement or the Indenture.
The Holders of a majority in principal amount of the Notes may direct the time, method,
and place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. The Trustee, however, may refuse to
follow any direction that conflicts with law or the Indenture, that is unduly prejudicial to
the rights of other Note Holders, or that may involve the Trustee in personal liability.
Rights of Note Holders
The Holders of not less than 75% in Notes at the time outstanding may consent on
behalf of the Holders of all such Notes to the postponement of any interest payment for
a period not exceeding three years from its due date. This is an exception to the rights
of each Note Holder provided under Section 316(b) of the Trust Indenture Act of 1939
(the "TIA").
Each Note Holder has the right to receive payment of principal and interest on or
after the respective due dates of the Notes and institute suit to enforce such payment on
or after the respective due dates, as provided for by Section 316(b) of the TIA. Waiver
of such right may not occur except upon the individual consent of each Note Holder.
This right provided for by Section 316(b) of the TIA applies notwithstanding any other
provision of the Indenture.
The Holders of a majority of the Notes may consent to the waiver of any past default
and its consequences, except a default in payment of principal and interest under Section
316(b) of the TIA.
A Note Holder may not use the Indenture to prejudice the rights of another Note
Holder or to obtain a preference or priority over the other Note Holder.
Priority of Payments under the Indenture
If the Trustee collects any money pursuant to the Indenture, it shall pay out the
money in the following order: (1) to the Trustee for amounts due under the Indenture;
(2) to Note Holders for amounts due and unpaid on the Notes for interest, then
principal, ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal and interest; and (3) to the Corporation.
Communication with other Note Holders
Note Holders may communicate with other Note Holders by sending the Trustee a
written application by any three or more Note Holders stating that the applicants desire
to communicate with other Note Holders with respect to their rights under the Indenture
or under the Notes, and accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit. Note Holders must also
provide reasonable proof that each such applicant has owned a Note for a period of at
least six months preceding the date of such application. The Trustee shall, at its
election, either (1) afford to such applicants access to all information so furnished to or
received by the Trustee, or (2) inform such applicants as to the approximate number of
Note Holders and as to the approximate cost of mailing to such Note Holders the form
of proxy or other communication, if any, specified in such application. If the Trustee
shall elect not to afford to such applicants access to such information, the Trustee shall,
upon the written request of such applicants, mail to all such Note Holders copies of the
form of proxy or other communication which is specified in such request, after a tender
to the Trustee of the material to be mailed and of payment, or provision for payment, of
the reasonable expenses of such mailing.
If in the opinion of the Trustee such mailing would be contrary to the best interests
of the Note Holders or would be in violation of applicable law, the Trustee shall mail to
such applicants, and file with the SEC together with a copy of the material to be mailed,
a written statement to that effect. Such written statement shall specify the basis of such
opinion. After opportunity for hearing upon the objections specified in the written
statement so filed, the SEC will then decide if such materials may be lawfully sent to
such Note Holders.
Reports by Trustee
The Trustee shall provide to the Note Holders such reports as may be required
pursuant to the provisions of TIA Section 313(a) or (b) within the time periods provided
for in such sections. A copy of each report at the time of its mailing to Note Holders
shall be filed with the SEC and each stock exchange on which the Notes are listed, if
any.
Indemnification
The Corporation shall indemnify the Trustee against any loss or liability incurred by
it. The Trustee shall notify the Corporation promptly of any claim for which it may seek
indemnity. The Trustee shall defend the claims and the Corporation will reimburse
Trustee, either directly or from funds subject to this Trust Agreement, for reasonable
legal expenses. The Corporation need not pay for any settlement made without its
consent. Notwithstanding the foregoing, the Corporation need not reimburse any
expense or indemnify against any loss or liability incurred by the Trustee through
negligence or bad faith.
Resignation or Termination of Trustee
The Trustee may resign by so notifying the Corporation, but such resignation shall
not be effective until 60 days after such notification. The Holders of a majority in
principal amount of the Notes may remove the Trustee by so notifying the removed
Trustee and may appoint a successor Trustee with the Corporation's consent. The
Corporation may remove the Trustee under certain circumstances. If the Trustee resigns
or is removed or if a vacancy exists in the office of Trustee for any reason, the
Corporation shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the
retiring Trustee and to the Corporation. Immediately after that, the retiring Trustee
shall transfer all property held by it as Trustee to the successor Trustee, the resignation
or removal of the retiring Trustee shall become effective, and the successor Trustee shall
have the rights, powers, and duties of the Trustee under the Indenture. A successor
Trustee shall give notice of its succession to each Note Holder as provided in Section
7.02 of the Indenture.
If a successor Trustee does not take office within 60 days after the retiring Trustee
resigns or is removed, the retiring Trustee, the Corporation, or the Holders of a majority
in principal amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 3.11 of the Indenture, any Note Holder
may petition any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
TAX ASPECTS
The following paragraphs summarize the material federal income tax aspects of
purchasing the Notes. The Investors may rely upon the tax opinion of counsel to the
Corporation attached hereto as Exhibit E-1 and the following discussion relating to the
tax treatment of an investment on the Corporation, HOWEVER, EACH INVESTOR IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISER FOR MORE
DETAILED INFORMATION WITH RESPECT TO THE FEDERAL AND STATE
TAX CONSEQUENCES OF AN INVESTMENT IN THE CORPORATION.
Thinly Capitalized Corporation
The Corporation currently has a capitalization of $40,000. See the financial
statements included elsewhere in this Prospectus. The Internal Revenue Service has
taken the position in the past that debt of a thinly capitalized Corporation may be
considered as a capital contribution not giving rise to a deduction for interest expense by
the debtor. The case law on this issue is diverse and inconsistent in application. The
courts list numerous factors in determining whether or not a debt is true debt or a
contribution to capital, some of which are as follows: (1) the names given to the
certificates evidencing the indebtedness; (2) the presence or absence of a maturity date;
(3) the source of the payments; (4) the right to enforce the payment of principal and
interest; (5) participation in management; (6) a status equal to or inferior to that of
regular corporate creditors; (7) the intent of the parties; (8) "thin" or adequate
capitalization; (9) identity of interest between creditor and stockholder; (10) payment of
interest only out of "dividend" money; (11) the ability of the corporation to obtain loans
from outside lending institutions;(12) the extent to which the initial advances were used
to acquire capital; and (13) the failure of the debtor to pay on the due date or to seek a
postponement.
Interest Payments
Interest payments under the Notes will be treated as ordinary interest income and
taken into account under a Note Holder's general method of accounting (e.g., cash or
accrual). A trust has not been created for tax purposes and each Note Holder will
receive Form 1099 for his share of interest income from the Corporation.
Disposition of Notes
In the event of a sale or other taxable disposition of a Note prior to the stated
maturity date, gain is measured by the excess of the net proceeds of the sale or other
disposition over the Note Holder's adjusted tax basis. Any gain on sale will be capital
gain if the Note is held as a capital asset.
Loss will be recognized upon disposition of a Note in exchange for an amount less
than the Note Holder's adjusted basis in the Note. If the Note is held as a capital asset,
the deductibility of such loss may be limited by the rules contained in the Internal
Revenue Code of 1986, as amended (the "Code") relating to restrictions upon the
deductibility of capital loss. In addition, a sale to a related party could result in
limitations upon the deductibility of loss under Code Section 267. For Note Holders
other than initial Note Holders, gain recognized upon the maturity or earlier disposition
of a Note may be affected by the provisions of the Code governing market discount.
Possible Withholding
Payments of interest made by the Corporation on a Note and proceeds from the sale
of the Note to or through certain brokers may be subject to a back-up withholding tax at
a rate of 20%, unless the Note Holder complies with certain reporting and/or
certification procedures. All amounts withheld on such payments will be allowable as a
credit against the Note Holder's federal income tax liability.
The Corporation will make arrangements to provide each initial Note Holder with a
Form W-9 (or a substitute Form W-9) on which Note Holders can provide information
required by the Code in order to avoid the back-up withholding provisions.
Special considerations which may apply to any Note Holder who is not a United
States citizen or resident are not discussed in this Prospectus.
Unrelated Business Taxable Income
Section 501 of the Code provides that qualified pension, profit-sharing, and stock
bonus plans are exempt from federal income tax. This exemption also extends to
charitable, educational and other organization. However, Section 511 of the Code
imposes federal income tax on any "unrelated business taxable income" of organizations
exempt under Section 501.
Sections 512 and 513 of the Code define the phrase "unrelated business taxable
income" (or UBTI) as net income earned by an otherwise exempt organization from the
regular conduct of an unrelated trade or business. Section 512 generally excludes
interest income from the definition of unrelated business taxable income. Assuming that
a Note Holder does not incur any indebtedness with respect to its acquisition of a Note,
the interest on the Note will not be treated as unrelated business taxable income. Note
Holders should consult their own tax advisors on this matter.
ERISA Conditions
If an investor intends to purchase Notes through a pension, profit-sharing, or other
plan governed by Title I of the Employee Retirement Income Security Act of 1974
("ERISA"), the fiduciaries of such plan must consider: (a) whether the investment is
permitted under the governing instrument for the plan and is an appropriate investment
for the plan; (b) whether the investment satisfies the diversification requirements of
Section 404(a)(1)(C) of ERISA; (c) whether the investment is prudent; and (d) whether
the investment is for the exclusive purpose of providing benefits to participants.
Fiduciaries should also be aware that ERISA requires that assets of a plan be revalued at
least once each plan year, and that valuation of the Notes may be difficult because of the
lack of a resale market.
Section 406 of ERISA provides that the fiduciary of a plan governed by ERISA may
not cause the plan to become involved in a "prohibited transaction." Similarly, Section
4975 of the Code imposes taxes on "prohibited transactions" involving pension plans,
IRAs and Keogh plans. A "prohibited transaction" includes a transaction in which a plan
lends money to a "party in interest." A "party in interest" is broadly defined to include
parties such as plan fiduciaries, plan beneficiaries, person providing services to the plan,
and businesses, affiliates and relatives of such parties. An example of a "prohibited
transaction" would be if an individual purchased Notes through his pension,
profit-sharing or other plan when the individual also owned an equity interest in the
Corporation. Additionally, if a plan purchased Notes when the plan fiduciary owned an
interest in the Corporation, this purchase could also be considered a "prohibited
transaction." Section 4975 of the Code may impose a tax on such "prohibited
transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May , 1996, the corporation entered into a Management Agreement (the
"Management Agreement") with its parent corporation American Equities Group, Inc.
("AEG"). Under the Management Agreement, AEG originates Receivables by
purchasing them from client companies and assigning them to the Corporation. AEG
also services and collects the Receivables on behalf of the Corporation. The Corporation
will typically charge a fee of 7% to 10% of the face amount of the receivables. Under
the Management Agreement the Corporation and AEG have agreed to share such fee
50% to the Corporation and 50% to AEG. See "BUSINESS - Acquisition of
Receivables." The officers and directors of the Corporation are officers and directors of
AEG.
On May , 1996 the Corporation entered into a Dealer Management Agreement
with G Equity Investment Group, Inc. (the "Dealer Manager"), whereby the Dealer
Manager agreed to offer for sale a maximum of $15,000,000 of Notes at $1,000 per Note
on a "best-efforts basis." Under the Dealer Management Agreement, the Corporation
has agreed to pay to the Dealer Manager (i) sales commissions of 7% of the gross
proceeds from the sale of each Note, (ii) a non-accountable expense fee equal to 1% of
the gross proceeds of the sale of each Note and (iii) .50% of the gross proceeds of the
sale of each Note as a Dealer Manager fee. David S. Goldberg, the Corporation's Chief
Executive Officer and a director, is the President and a registered principal of the Dealer
Manager and Philip C. Goldstick, the Corporation's Chairman of the Board, is the
Chairman of the Board of the Dealer Manager.
The Corporation is the wholly-owned subsidiary of AEG. The capital stock AEG is
owned directly and indirectly by Messrs. Goldstick, Goldberg, and Socha and such
individuals are the sole officers and directors of AEG. In connection with this Offering
AEG will be paid a 5% Overhead Allowance (up to $750,000 if the Maximum Offering is
sold). See "PLAN OF OPERATIONS -Operations and Overhead Expenses." In
addition, all fees and discounts earned by the Corporation will be shared 50% to AEG,
as Manager, and 50% to the Corporation pursuant to the Management Agreement. As
officers and directors of AEG. Messrs. Goldstick, Goldberg and Socha will indirectly
benefit from such payments.
Messrs. Goldstick and Goldberg are also principals of the Dealer Manager. In
connection with this Offering, the Dealer Manager will receive (i) commissions equal to
7% of the amount of securities sold in this Offering (up to $1,050,000), (ii) a due
diligence and non-accountable expense allowance equal to 1% of the amount of
securities sold in this Offering (up to $100,000), which may be reallowed to Selected
Dealers and (iii) a Dealer Manager Fee equal to .5% of the amount of securities sold in
this Offering (up to $75,000). See "PLAN OF DISTRIBUTION." As principals of the
Dealer Manager Messrs. Goldstick and Goldberg will indirectly benefit from such
payments.
The Corporation shall make no loans to its officers, directors or stockholders and is
forbidden to receive loans from any person or entity other than AEG. The Corporation
has adopted a policy that all future transactions with affiliates of the Corporation are to
be on terms no less favorable than could be obtained from unaffiliated third parties and
must be approved by a majority of the Board of Directors, including a majority of
disinterested directors.
PLAN OF DISTRIBUTION
Distribution will be made on a "best-efforts" basis by G Equity Investment Group,
Ltd. (the "Dealer Manager") and Selected Dealers that are members of the NASD
(jointly referred to as the "Participating Dealers").
Participating Dealers will execute Selling Agency Agreements with the Corporation;
however, such Participating Dealers will be under no obligation to sell any or all of the
Notes offered hereby. The Division of Corporation Finance of the U.S. Securities and
Exchange Commission has taken the position that any broker/dealer that sells Notes in
the Offering may be deemed an underwriter as defined in Section 2(11) of the Securities
Act of 1933, as amended. The Corporation has currently entered into a Dealer Manager
Agreement. There is no assurance that, even if any Participating Dealers sell the Notes
offered hereby, a court of competent jurisdiction or arbitration panel would deem any
such Participating Dealer to be an underwriter as so defined.
The Dealer Manager will receive a sales commission of up to 7% of the Offering
price for all Notes sold, a due diligence and non-accountable expense allowance of 1%,
which may be reallowed to Selected Dealers, and a Dealer Manager fee of .50%.
It should be noted that the Dealer Manager, G Equity Investment Group, Ltd., is
Affiliated with the Corporation. Mr. Goldberg, the CEO and a director of the
corporation, is also the President and a registered principal of the Dealer Manager and
Mr. Goldstick, the Chairman of the Board of the Corporation, is the Chairman of the
Board of the Dealer Manager. Accordingly, this Offering is being made pursuant to the
provisions of Schedule E to the NASD Bylaws. __________________________ will act as
a "qualified independent underwriter," as that term is defined in Schedule E, and as such,
will assume the responsibilities of acting as such in pricing the Offering and in
conducting due diligence.
The Notes are being offered subject to prior sale, withdrawal, cancellation or
modification of the offer, including its structure, terms and conditions, without notice.
The Corporation reserves the right, in its sole discretion, to reject, in whole or in part,
any offer to purchase the Notes.
The Corporation intends to sell the Notes in this Offering only in the states in which
the Offering is qualified. An offer to purchase may only be made and the purchase of
the Notes may only be negotiated and consummated in such states. The Subscription
Agreement for the Notes must be executed, and the Notes may only be delivered in,
such states. Resale or transfer of the Notes may be restricted under state law. See
"RISK FACTORS - No Market of Notes" and "LACK OF LIQUIDITY OF NOTES"
below.
The Notes are being offered on a best efforts/all or none basis as to the Minimum
($500,000) and a best efforts basis as to the Maximum ($15,000,000). If the Corporation
does not terminate the Offering earlier, which in the sole discretion of Management it
may, the Offering of Notes will continue until the Corporation raises an aggregate of
$15,000,000, provided that the offering period for all of Notes of the Corporation will
not exceed 24 months from the date of this Prospectus.
Each Participating Dealer has agreed in accordance with the provisions of SEC Rule
15c2-4 to cause all funds received for the sale of Notes to be promptly deposited with
the Corporation upon the receipt of the executed Subscription Agreement and related
funds by the Participating Dealer by or before noon of the next business day following
the sale of said Notes.
The Dealer Manager Agreement provides for reciprocal indemnification between the
Corporation and the Dealer Manager against certain liabilities in connection with the
Registration Statement of which this Prospectus is a part, including liabilities under the
Securities Act. To the extent this section may purport to provide exculpation from
possible liabilities under the federal securities laws, it is the opinion of the Securities and
Exchange Commission that such indemnification is against public policy and is therefore
unenforceable.
LACK OF LIQUIDITY OF NOTES
The Notes will be registered with the Securities and Exchange Commission and the
States of California, Connecticut, Colorado, Florida, Georgia, Illinois, [Missouri], New
Jersey, New York, Virginia and Wisconsin. The Notes may be registered or exempt
from registration in other states. NO PUBLIC OR OTHER MARKET FOR THE
NOTES EXISTS AND THERE CAN BE NO ASSURANCE THAT ONE MAY
DEVELOP IN THE FUTURE. Accordingly, the Notes should be purchased only as an
investment to be held to the end of the term of the Notes because Note Holders may
not be able to liquidate their investment in the event of any emergency or for any other
reason. See "RISK FACTORS- No Market; Limited Transferability of Notes."
LEGAL MATTERS
The validity of the Notes offered hereby and the tax considerations of an investment
in the Notes will be passed upon by Bronson & Migliaccio, 287 Bowman Avenue,
Purchase, NY 10577, as counsel to the Corporation. The statements under the heading
"TAX ASPECTS" have been reviewed by Bronson & Migliaccio and have been included
herein, to the extent such statements constitute matters of law, in reliance upon the
authority of said firm as an expert thereon.
EXPERTS
The financial statements and related schedules of the Corporation included in this
Prospectus and in the Registration Statement have been audited by Rothenberg &
Company, independent certified public accountants, 1979 Marcus Avenue, Lake Success,
NY 11042; (516) 437-3800, to the extent and for the periods set forth in their reports
appearing elsewhere herein and in the Registration Statement, and are included in
reliance upon such reports given upon the authority of said firm as experts in auditing
and accounting. The Corporation may engage Rothenberg & Corporation as its auditors
to prepare the annual audited reports and review the quarterly reports.
ADDITIONAL INFORMATION
This Prospectus contains summaries of various provisions of the documents
relating to the Corporation. The summaries do not purport to be complete and are
qualified in their entirety by reference to the full texts of the actual documents. Copies
of certain of these documents are attached as Exhibits to this Prospectus and other
documents not included as exhibits to this Prospectus have been filed as exhibits to the
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission, of which this Prospectus is a part.
GLOSSARY OF TERMS
The following terms used in this Prospectus shall (unless the context otherwise
requires) have the following respective meanings:
Acceptance: The acceptance by the Corporation of a prospective investor's subscription.
AEG: American Equities Group, Inc., the parent company of the Corporation.
Affiliate: (i) any person directly or indirectly controlling, controlled by or under
common control with another person, (ii) a person owning or controlling 10 percent or
more of the outstanding voting securities of such other person or (iii) if such other
person is an officer, director or partner or any Corporation for which such person acts in
any such capacity.
Clients: Companies from which the Corporation acquires Receivables.
Contract: The form of Accounts Receivable Purchase Agreement utilized by AEG to
acquire Receivables.
Code: The Internal Revenue Code of 1986, as amended.
Corporation: American Equities Income Fund, Inc., a Delaware corporation.
Counsel: Bronson & Migliaccio, a New York law firm.
Dealer Manager: G Equity Investment Group, Ltd.
Event of Default: Event of Default means an event of default on the Notes as set forth
in the Notes.
Federal Securities Act: Securities Act of 1933, as amended.
Investors: Investors in this Offering of the Corporation.
IRS: Internal Revenue Service.
Maximum Offering: Means the sale of up to fifteen thousand (15,000) Notes at
$1,000 each for an aggregate of $15,000,000.
Minimum Offering: Means the sale of up to five hundred (500) Notes at $1,000 each for
an aggregate of $500,000.
Note Holders: The Investors who purchase Notes.
Notes: The $15,000,000 of ten year Promissory Notes bearing interest at the rate of 12%
per annum to be issued by the Corporation.
Obligors: Those companies liable for payment of the Receivables.
Offering Termination Date: The earlier of the sale of the Maximum.
Parent Corporation: American Equities Group, Inc., a New York corporation, the
parent company of the Corporation.
Participating Dealers: The Dealer Manager and Selected Dealers.
Purchase Contract: The standard accounts receivable purchase contract utilized by AEG
and the Corporation to acquire Receivables.
Receivables: Accounts Receivable generated in the normal course of commerce.
Selected Dealers: Those NASD broker-dealers that execute a Selected Dealers
Agreement.
Subscription Documents: The Subscription Agreement and the subscriber's check for
$1,000 per Unit purchased.
Unit: A principal ten-year promissory note bearing interest at the rate of 12% per
annum.
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
$ Paramus, New Jersey
, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to
(hereinafter, together with any holder hereof, called "Holder") at
or at such other place as the Holder may from time to time designate in writing, the
principal sum of Dollars ($ ), on , together
with simple interest thereon at the rate of 12% per annum payable interest only monthly
[or annually in arrears or upon maturity]. Interest is calculated on the basis of a 360-day
year (the "Calculation Basis") but is paid in 12 equal monthly installments, annually or
upon maturity, regardless of the number of days in each month (the "Payment Basis"),
with any difference between interest determined on the Calculation Basis and the
Payment Basis paid in the final installment due under the Note. The entire outstanding
principal balance and accrued interest, if any, shall be due on September 30, 2006.
Interest shall accrue on the Notes at the rate of 12% per annum which shall be
compounded annually.
This Note is one of an issue of 15,000 Notes ("Notes") of the undersigned in an
aggregate principal amount not to exceed Fifteen Million Dollars ($15,000,000.00) and is
subject to an Indenture of Trust by and between the undersigned and Sheldon Drobny as
Trustee ("Trustee"). Reference is hereby made to the Indenture of Trust for a
description of the rights, limitations, obligations and immunities of the undersigned, the
holders of the Notes and the Trustee. This Note may only be deemed to be in default
and the Holder may only exercise any available rights and remedies thereon upon the
occurrence of an Event of Default as defined in the Security Agreement and the
Indenture of Trust.
This Note and the instruments securing it have been executed and delivered in, and
their terms and provisions are to be governed and construed by the laws of the State of
New Jersey. The indebtedness evidenced by this Note is not subordinated to any other
indebtedness of the undersigned nor will the undersigned incur any indebtedness senior
to the indebtedness evidenced hereby.
This Note may be prepaid in whole or in part at any time without penalty. On the
first day of January of each of the fifth, sixth, seventh, eighth and ninth years, the Note
Holders, upon six (6) months prior written notice, may accelerate the Notes and receive
payment of principal and accrued interest at the time.
This Note is secured by a Security Agreement described in the Registration Statement
of the undersigned dated as of the day of , 1996, executed by the
undersigned in favor of the Trustee on behalf of the holders of the Notes.
If an Event of Default, as defined in the Indenture of Trust or Security Agreement,
shall have occurred and be continuing, the principal hereof may be declared due and
payable in manner, with the effect, and subject to the conditions provided in the
Indenture of Trust or Security Agreement.
Time is of the essence of this Note and in case this Note is collected by law or
through an attorney at law, or under advice therefrom, the undersigned agrees to pay all
costs of collection, including reasonable attorney's fees. Reasonable attorney's fees are
defined to include, but not be limited to, all fees incurred in all matters of collection and
enforcement, construction and interpretation, before, during and after suit, trail
proceedings and appeals, as well as appearances in and connected with any bankruptcy
proceedings or creditors' reorganization or similar proceedings.
The undersigned has agreed not to pay dividends, or make distributions on its stock
or purchase, redeem, or otherwise acquire or retire any of its stock if (a) an Event of
Default exists under any of the Notes or (b) it would reasonably appear that after any
such action the undersigned would not have sufficient funds to avoid an Event of Default
within six (6) months of such action.
The undersigned may consolidate or merge with or into any other entity or any other
entity may consolidate or merge into the undersigned and the undersigned may sell or
transfer all or substantially all of its property and assets to another entity, or another
entity may sell or transfer all or substantially all of its property and assets to the
undersigned, provided that (i) such action is duly authorized by the undersigned and its
shareholders by the required actions thereto, (ii) the entity (if other than the
undersigned), formed by or resulting from any such consolidation or merger or which
shall have received the transfer of such property and assets shall be a corporation,
partnership or trust, shall be organized and validly existing under the laws of the United
States and any state thereof and shall expressly assume payment of the principal of,
premium, if any, and interest on the Notes, and (iii) there shall not immediately
thereafter be an Event of Default under the Notes.
All persons now or at any time liable, whether primarily or secondarily, for the
payment of the indebtedness hereby evidenced, for themselves, their heirs, legal
representatives, successors and assigns respectively, hereby (a) expressly waive
presentment, demand for payment, notice of dishonor, protest, notice of nonpayment or
protest, and diligence in collection; (b) consent that the time of all payments or any part
thereof may be extended, rearranged, renewed or postponed by the Holder hereof and
further consent that the collateral security or any part thereof may be released,
exchanged, added to or substituted for releasing, affecting or limiting their respective
liability or the lien of any security instrument; and (c) agree that the Holder, in order to
enforce payment of this Note, shall not be required first to institute any suit or to
exhaust any of its remedies against the Maker or any other person or party to become
liable hereunder.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed on
the day and year first above written.
AMERICAN EQUITIES INCOME FUND, INC.,
a Delaware corporation
By:
David S. Goldberg, Chairman and CEO<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This SECURITY AGREEMENT (hereinafter called this "Agreement") is made and
entered as of , 1996, by and between AMERICAN EQUITIES INCOME
FUND, INC., a Delaware corporation, located at East 80 Route 4, Suite 202, Paramus,
New Jersey 07652 (hereinafter called "Debtor"), and SHELDON DROBNY, as Trustee
("Trustee") on behalf of those persons listed on Schedule A (hereinafter collectively
called "Secured Party").
W I T N E S S E T H:
In consideration of the covenants and conditions stated in this Agreement, the parties
agree as follows:
1. Indebtedness Secured.
This Agreement and the Security Interest secure the payment of certain Secured
Notes issued and executed by Debtor, pursuant to the Indenture of Trust (the
"Indenture") dated even date herewith by and between Debtor and Trustee and made
payable to the holders of such Secured Notes in the aggregate principal sum of up to
$15,000,000.00 (hereinafter collectively called the "Note"), together with all other
indebtedness of every kind or nature owing by Debtor to Secured Party, whether now
existing or hereafter incurred, direct or indirect, absolute or contingent, and whether the
indebtedness is from time to time reduced and thereafter increased or entirely
extinguished and thereafter reincurred, and including any sums advanced and any costs
and expenses incurred by Secured Party pursuant to this Agreement, the Note or any
other note or evidence of indebtedness (all of such is herein sometimes referred to as
the "Indebtedness").
2. Security Interest.
For value received, Debtor hereby grants to Secured Party a security interest (the
"Security Interest") in and to all of the following: any and all accounts receivable (the
"Receivables") acquired with the funds constituting the Indebtedness or with funds
received from the repayment of said Receivables or any replacement Receivables,
including all rights to receive payments thereunder and security interest in and
instruments of title to the Receivables, whether now owned or hereafter acquired, all
funds in the following bank account ; all proceeds of the offering
pursuant to the Registration Statement of Debtor declared effective by the Securities and
Exchange Commission on , 1996 (the "Registration Statement"); and in all
products thereof and all cash and non-cash proceeds of any of the foregoing, in any
form, including, without limitation, proceeds of insurance policies from the loss thereof,
all titles to the Receivables and all assignment of liens, all Receivables, assignments or
other documents and instruments located in a separate, segregated, locked fireproof file
cabinet marked "American Equities Income Fund, Inc. - Secured Notes" (the
"Collateral"); provided, however, that the security interest granted hereunder is subject to
the conditions and limitations set forth in the Registration Statement.
3. Representation and Warranties of Debtor.
Debtor represents and warrants and so long as any portion of the Indebtedness
remains unpaid, shall be deemed continuously to represent and warrant that:
3.1. Debtor is the owner of the Collateral free and clear of all security interests or
other encumbrances and claims of any kind or nature in favor of any third persons, and
Secured Party has a first, perfected security interest in all of the Collateral;
3.2. Debtor is authorized to enter into this Agreement and into the transactions
contemplated hereby and evidenced by the Note;
3.3. The Collateral is used or bought for use solely in business operations, and all
of the relevant Collateral will remain personal property regardless of the manner in
which any of it may be affixed to real property.
4. Covenants of Debtor.
Debtor covenants that so long as any Indebtedness remains unpaid, Debtor:
4.1. Will defend the Collateral against the claims and demands of all other parties,
except purchasers of inventory in the ordinary course of business;
4.2. Will keep the Collateral free and clear from all security interests, liens and
other encumbrances and claims of any kind or nature in favor of any third persons,
except the Security Interest; and Debtor will not pledge the Collateral as security for any
debts or obligations other than the Notes;
4.3. Will not sell, pledge, transfer, assign deliver, or otherwise dispose of any
Collateral or any interest therein, except that until the occurrence of an Event of Default
(as defined in paragraph 6.1 of this Agreement) it may deal with the Collateral, including
taking any aforementioned action, as described in the Registration Statement;
4.4. Will keep in accordance with generally accepted accounting principles,
consistently applied, accurate and complete records concerning the Collateral; will mark
such records and, upon request of the Secured Party made from time to time, the
Collateral to give notice of the Security Interest; and will, upon request made from time
to time, permit the Secured Party or its agents to inspect the Collateral and the Debtor's
records concerning the Collateral and to audit and make abstracts of such records or any
of the Debtor's books, ledgers, reports, correspondence and other records;
4.5. Upon demand will deliver to the Trustee any instruments, documents of title
and chattel paper representing or relating to the Collateral or any part thereof, and all
schedules, invoices, shipping, or delivery receipts, together with any required
endorsement or assignment and all other documents representing or relating to
purchases or other acquisitions or sales or other dispositions of the Collateral and the
proceeds thereof and any and all other schedules, documents, and statements.
4.6. Will notify the Secured Party in writing at least thirty (30) days in advance of
any change in the Debtor's address specified on the first page of this Agreement, of any
change in the location or of any additional locations at which the Collateral is kept, of
any change in the address at which records concerning the Collateral are kept and of any
change in the location of the Debtor's residence, chief executive office or principal place
of business;
4.7. Will execute and deliver to the Secured Party such financing statements and
other documents requested by the Secured Party and take such other action as described
in the Registration Statement and subject to the limitations set forth herein, to perfect,
protect or continue the perfection of the Security Interest and effect the purposes of this
Agreement;
4.8. Will pay or cause to be paid when due all taxes, assessments and other
charges of every kind and nature which may be levied or assessed upon or against the
transaction contemplated hereby or the Collateral;
4.9. Will deliver the Collateral to the Trustee pursuant to the Trust Indenture
between the Corporation, and Trustee on behalf of the Secured Party of even date
herewith;
4.10. Will not make any distributions to shareholders or payments to affiliates
except as set forth in the Registration Statement;
4.11. Will use the Collateral only for the purposes set forth in the Registration
Statement and will not commingle the Collateral constituting cash with funds of any
person or entity other than Debtor;
4.12. Upon an Event of Default, will deliver any Collateral in the form of
funds in Debtor's bank account to the Trustee and will surrender control of said accounts
to the Trustee;
4.13. Will keep all funds which constitute the Collateral in the following
segregated Bank Account , and will not commingle any other funds with funds in
said account; and
4.14. Will execute and deliver to the Trustee the Collateral Assignments as
required by the Secured Party.
<PAGE>
5. Verification of Collateral.
Secured Party shall have the right to verify the existence and value of the Collateral in
any manner and through any medium which Secured Party may consider appropriate,
and Debtor shall furnish such assistance and information and perform such acts as
Secured Party may require in connection therewith.
6. Default.
6.1. Events of Default. Subject to the following limitations, an Event of default
occurs if:
a. the Debtor receives written notice from a Secured Party of a default in the
payment of interest on any Note when the same becomes due and payable;
b. the Debtor receives written notice from a Secured Party of a default in the
payment of the principal of any Note when the same becomes due and payable;
c. the Debtor fails to comply with any of its other agreements in the Notes, this
Agreement or the Indenture of Trust and the default continues for the period and after
the notice specified below;
d. the Debtor pursuant to or within the meaning of any Bankruptcy Law;
(1) commences a voluntary case,
(2) consents to the entry of an order for relief against it in any involuntary
case,
(3) consents to the appointment of a Receiver of it or for any substantial part
of its property,
(4) makes a general assignment for the benefit of its creditors, or
(5) fails generally to pay its debts as they become due, or
e. a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(1) is for relief against the Debtor in any involuntary case,
(2) appoints a Receiver of the Debtor or for any substantial part of its
property, or
(3) orders the liquidation of the Debtor,
and the order or decree remains unstayed and in effect for 90 days.
The term "Bankruptcy Law" means Title 11, United States Code, or any similar
federal or state law for the relief of debtors. The term "Receiver" means any receiver,
trustee, assignee, liquidator, or similar official under any Bankruptcy Law.
A default under section (c) is not an Event of Default until the Secured Party holding
at least a majority in principal amount of the Notes notifies the Debtor of the default
and the Debtor does not cure the default within 90 days after receipt of the notice. The
notice must specify the default, demand that it be remedied, and state that the notice is
a "Notice of Default."
6.2. Rights and Remedies Upon Default. If an Event of Default occurs and is
continuing, any Secured Party, by written notice to the Debtor, may declare the principal
of and accrued interest on all the Notes to be due and payable immediately. After a
declaration such principal and interest shall be due and payable immediately.
If an Event of Default occurs and is continuing, any Secured Party may pursue any
available remedy by proceeding at law or in equity to collect the payment of principal
and interest on the Notes or to enforce the performance of any provision of the Notes or
this Agreement.
6.3. Notice. Debtor agrees that any notice by Secured Party of the sale, lease
or other disposition of the Collateral or any other intended action hereunder, whether
required by the Uniform Commercial Code or otherwise, shall constitute reasonable
notice to Debtor if the notice is mailed by regular or certified mail, postage prepaid, at
least ten (10) days before the date of any public sale, lease or other disposition of the
Collateral, or the time after which any private sale, lease or other disposition of the
Collateral is to take place, to Debtor's address as specified in this Agreement or to any
other address which Debtor has notified Secured Party in writing as the address to which
notices shall be given to Debtor.
6.4. Costs. Debtor shall pay all costs and expenses incurred by Secured Party
in enforcing this Agreement, realizing upon any Collateral and collecting any
Indebtedness. Costs and expenses will include but not be limited to all reasonable
attorneys' and paralegals' fees and expenses.
6.5. Deficiency. In the event that the proceeds of the Collateral are
insufficient to satisfy the entire unpaid Indebtedness, Debtor will be responsible for the
deficiency and shall pay the same upon demand. Secured Party will account to Debtor
for any proceeds of the Collateral in excess of the Indebtedness and the costs and
expenses referred to in Section 6.4.
7. Miscellaneous.
7.1. Perfection of Security Interest. Debtor authorizes Secured Party at
Debtor's expense to file any financing statement or statements relating to the Collateral
(with or without Debtor's signature thereon), and to take any other action deemed
necessary or appropriate by Secured Party to perfect and to continue perfection of the
Security Interest. Debtor hereby irrevocably appoints Secured Party as its
attorney-in-fact to execute financing statements in Debtor's name and to perform all
other acts which Secured Party deems necessary or appropriate to perfect and protect
the Security Interest. Such appointment is binding and coupled with an interest. Upon
request of Secured Party before or after the occurrence of an Event of Default, Debtor
agrees to give Secured Party possession of any Collateral, possession of which is, in
Secured Party's opinion, necessary or desirable to perfect or continue perfection or
priority of the Security Interest. A photocopy of this Agreement is sufficient as a
financing statement and may be filed as such if Secured Party so elects.
7.2. Continuing Agreement. This Agreement is a continuing agreement with
respect to the subject matter hereof and shall remain in full force and effect until all of
the Indebtedness now or hereafter contracted for or created or existing and any
extensions or renewals of the Indebtedness together with all interest thereon has been
paid in full.
7.3. Right to Proceeds. Secured Party may demand, collect, and sue for all
proceeds of the Collateral (either in Debtor's or Secured Party's name at the latter's
option) with the right to enforce, compromise, settle, or satisfy any claim. Debtor hereby
irrevocably appoints Secured Party as Debtor's attorney-in-fact to endorse, by writing or
stamp, Debtor's name on all checks, commercial paper, and other instruments pertaining
to the proceeds. Such appointment is binding and coupled with an interest. Debtor also
authorizes Secured Party to collect and apply against the Indebtedness any refund of
insurance premiums or any insurance proceeds payable on account of the loss of or
damage to any of the Collateral and hereby irrevocably appoints Secured Party as
Debtor's attorney-in-fact to endorse, by writing or stamp, any check or draft representing
such proceeds or refund. Such appointment is binding and coupled with an interest.
Before or after an Event of Default, Secured Party may notify any party obligated to pay
proceeds of the Collateral of the existence of the Security Interest and may also direct
them to pay all such proceeds to Secured Party.
7.4. Property in Secured Party's Possession. As further security for the
repayment of the Indebtedness, Debtor grants to Secured Party a security interest in all
property of Debtor which is or may hereafter be in Secured Party's possession in any
capacity, including all monies owed or to be owed by Secured Party to Debtor; and with
respect to all of such property, Secured Party shall have the same rights as it has with
respect to the Collateral.
7.5. Set-Off. Without limiting any other right of secured Party, whenever
Secured Party has the right to declare any Indebtedness to be immediately due and
payable, Secured Party may set off against the Indebtedness all monies then owed to
Debtor by Secured Party in any capacity whether due or not.
7.6. Failure to Perform; Reimbursement. Upon Debtor's failure to perform
any of its duties hereunder, Secured Party may, but it shall not be obligated to, perform
any of such duties and Debtor shall forthwith upon demand reimburse Secured Party for
any expense incurred by Secured Party in doing so with interest thereof at a rate equal to
the lesser of eighteen percent (18%) per annum or the maximum rate permitted by
applicable law.
7.7. Non-Waiver. No delay or omission by Secured Party in exercising any
right or remedy hereunder or with respect to any Indebtedness shall operate as a waiver
of that or any other right or remedy, and no single or partial exercise of any right or
remedy shall preclude Secured Party from any other or future exercise of the right or
remedy or the exercise of any other right or remedy. Secured Party may agree to a cure
of any default by Debtor in any reasonable manner without waiving any other prior or
subsequent default by Debtor.
7.8. Third Parties. Secured Party shall have no obligation to take, and Debtor
shall have the sole responsibility for taking, any steps to preserve rights against all prior
parties to any document of title, general intangible, instrument or chattel paper in
Secured Party's possession as Collateral or proceeds of the Collateral.
7.9. Waiver of Notice of Dishonor and Protest, Etc. Debtor waives dishonor,
protest, presentment, demand for payment, notice of dishonor and notice of protest of
any instrument at any time held by Secured Party with respect of which Debtor is in any
way liable and waives notice of any other action by Secured Party.
7.10. Assignments. Debtor's right and obligations under this Agreement
are not assignable in whole or in part by operation of law or otherwise. Secured Party
may assign its rights and obligations under this Agreement, in whole or in part, without
notice to or consent of Debtor and all of such rights shall be enforceable by Secured
Party's successors and assigns.
7.11. Definitions; Multiple Parties; Section Headings. The term "person"
when referred to herein shall mean an individual, partnership, corporation or any other
legal entity. If more than one Debtor executes this Agreement, the term "Debtor"
includes each of the Debtors as well as all of them, and their obligations under this
Agreement shall be joint and several. Whenever the context so requires, the neuter
gender includes the feminine and masculine and the singular number includes the plural.
Unless otherwise defined herein or the context requires otherwise, terms used herein
shall have the same meaning as defined in the Uniform Commercial Code as enacted by
the State of New Jersey. Section headings are used herein for convenience only and do
not alter or limit the meaning of the language contained in each section.
7.12. Amendment; Waiver. This Agreement may not be modified or
amended nor shall any provision of it be waived except by a written instrument signed by
Debtor and by Secured Party.
7.13. Choice of Law; Waiver of Jury Trial. This Agreement has been
delivered in the State of New Jersey and shall be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with the internal laws (as
opposed to the conflicts of law provisions) of the State of New Jersey. Debtor and
Secured Party hereby waive any right to a trial by jury in any action to enforce or defend
any matter arising from or related to (i) this Agreement; (ii) any Note; or (iii) any
documents or agreements evidencing or relating to this Agreement or any Note. Debtor
agrees that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in any other jurisdiction by suit on the judgment or in any other
manner provided by law. Nothing in this paragraph shall affect or impair Secured Party's
right to serve legal process in any manner permitted by law, or Secured Party's right to
bring any action or proceeding against Debtor, or the property of Debtor, in the courts
of any other jurisdiction.
7.14. Expenses. Debtor shall pay all costs and expenses relating to this
Agreement and the Indebtedness, including but not limited to, filing and recording fees,
documentary stamps including, without limitation, New Jersey documentary stamps (if
any), and Secured Party's attorney's fees and expenses.
7.15. Notice. Except as otherwise provided herein, any notice required
hereunder shall be in writing and shall be deemed to have been validly served, given or
delivered upon deposit in the United States certified or registered mails, with proper
postage prepaid, addressed to the party to be notified as follows:
a. If to Secured Party at: Sheldon Drobny
c/o Adler, Drobny & Fischer, P.C.
95 Revere Drive, Suite A
Northbrook, IL 60062-1585
b. If to Debtor at: American Equities Income Fund, Inc.
East 80 Route 4, Suite 202
Paramus, NJ 07652
or to such other address as each party may designate for itself by like notice.
7.16. Severability. If any provision of this Agreement is prohibited by, or is
unlawful or unenforceable under, any applicable law of any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such prohibition without
invalidating the remaining provisions hereof; provided, however, that any such
prohibition in any jurisdiction shall not invalidate such provision in any other jurisdiction.
7.17. Reliance by Secured Party. All covenants, agreements,
representations and warranties made herein by Debtor shall, notwithstanding any
investigation by Secured Party, be deemed to be material to and to have been relied
upon by Secured Party.
7.18. Entire Agreement. This Agreement, the Note and the other
instruments, agreements and documents contemplated hereby contain the entire
agreement between Secured Party and Debtor with respect to the subject matter hereof
and supersedes and cancels any prior understanding and agreement between Secured
Party and Debtor with respect thereto.
7.19. Binding Effect. Subject to the provisions of paragraph 7.10, this
Agreement shall be binding upon the heirs, personal representatives, successors and
assigns of Debtor and shall inure to the benefit of the successors and assigns of Secured
Party.
7.20. Time. Time is of the essence in this Agreement.
7.21. Attorney's Fees. The parties hereby agree that in the event any of
the terms and conditions contained in this Agreement, including the indemnification
provisions contained herein, must be enforced by reason of any past, existing or future
delinquency of payment, of failure of observance or of performance by any of the parties
hereto, in each such instance, the defaulting party shall be liable for reasonable collection
and/or legal fees, trial and appellate levels, any expenses and legal fees incurred,
including time spent in supervision of paralegal work and paralegal time, and any other
expenses and costs incurred in connection with the enforcement of any available remedy.
7.22. Capacity. The Secured Party is entering into this Agreement solely in
its capacity as Trustee under the Indenture and shall be entitled to the privileges,
immunities and protections afforded it thereunder in any actions taken by it as Secured
Party hereunder.
IN WITNESS WHEREOF, the parties have executed this Security Agreement the
day and year first above written.
DEBTOR:
AMERICAN EQUITIES INCOME FUND, INC.
By:
David S. Goldberg, Chairman and CEO
SECURED PARTY:
By:
Sheldon Drobny,
Trustee
<PAGE>
SCHEDULE A
Collective List of Persons
Constituting the Secured Party
<PAGE>
EXHIBIT C
INDENTURE OF TRUST
This Indenture of Trust is dated as of the day of , 1996, by and
between AMERICAN EQUITIES INCOME FUND, INC., a Delaware corporation (the
"Company"), and , a trust company (the
"Trustee").
Each party agrees as follow for the benefit of the other party and for the equal and
ratable benefit of the Holders of the Company's Secured Notes due on September 30,
2006.
NOW, THEREFORE, for valuable consideration, the receipt, adequacy, and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
Definitions and Incorporation by Reference
Section 1.01 Definitions.
"Collateral" means the collateral as described in the Security Documents.
"Company" means the party named as such in this Indenture until a successor replaces
it and thereafter means the successor.
"Default" means any event which is, or after notice or lapse of time or both would be,
an Event of Default.
"Holder" or "Note Holders" means the person in whose name a Note is registered on
the Registrar's books.
"Indenture" means this Indenture of Trust, as amended or supplemented from time to
time.
"Notes" means the Secured Notes of the Company issued pursuant to this Indenture.
"Officer" means the Chairman of the Board, the CEO, the President, any Vice
President, the Treasurer, or the Secretary of the Company.
"Officer's Certificate" means a certificate signed by an Officer or by an Assistant
Treasurer or Assistant Secretary of the Company.
"SEC" means the Securities and Exchange Commission.
"Security Agreement" means the Security Agreement which provides that the assets
described in Exhibit "B" hereto are pledged as security for the Notes.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77 aaa, et seq.) as
in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a successor replaces
it and thereafter means the successor.
"Trust Officer" means any officer or assistant officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
Section 1.02 Other Definitions.
Term Defined in Section
"Bankruptcy Law" 5.01
"Legal Holiday" 7.09
"Paying Agent" 2.03
"Registrar" 2.03
"Receiver" 5.01
Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following TIA
terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"Indenture Securities" means the Notes.
"Indenture Security Holder" means a Note Holder.
"Indenture to be Qualified" means this Indenture.
"Obligor" on the Indenture Securities means the Company.
All other TIA terms used in this Indenture that are defined by the TIA, defined by
TIA reference to another statute, or defined by SEC rule have the meanings assigned to
them.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(a) a term the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles;
(c) "or" is not exclusive; and
(d) words in the singular include the plural, and in the plural include the singular.
ARTICLE 2
The Securities
Section 2.01 Form and Dating.
The Notes shall be substantially in the form of Exhibit "A" attached hereto. The
Notes may have notations, legends, or endorsements required by law or usage. The
Company shall approve the form of the Notes and any notation, legend, or endorsement
on them. Each Note shall be dated the date of its issuance.
Section 2.02 Execution and Authentication.
An Officer shall sign and authenticate the Notes. Execution of the Notes is permitted
by the manual or facsimile signature of the obligor and authentication may be made by
manual signature. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture. If an Officer who signed a Note no longer holds
that office at a later date, the Note shall be valid nevertheless.
The aggregate principal amount of Notes outstanding at any time may not exceed
$15,000,000. Note dominations of $2,000 or any multiple thereof are authorized.
Section 2.03 Registration and Payment.
The Company shall act as Registrar and Paying Agent for purposes of registration or
transfer of the Notes. The Company shall keep a register of the Notes and of their
transfer and exchange. Notes shall be presented to the Company for payment.
Section 2.04 Note Holder Lists.
The Trustee shall preserve the most recent list provided to it by the Company of the
names and addresses of Note Holders. At the end of each month during the offering to
the end of each six months after the close of the offering, the Company shall furnish to
the Trustee and at such other times as the Trustee may request in writing a list in such
form and as of such date of the names and addresses of Note Holders. The Trustee may
conclusively rely on such list.
Section 2.05 Registration, Transfer, and Exchange.
When a Note is presented to the Registrar or a Co-registrar with a request to register
transfer, the Registrar shall register the transfer as requested if the requirements of the
Delaware Uniform Commercial Code are met. To permit transfer and exchanges of the
type provided for in Section 6.05, an Officer shall authenticate Notes at the registrar's
request. The Company may charge a reasonable fee for any transfer, but not for any
exchange pursuant to Section 6.05.
ARTICLE 3
Trustee
Section 3.01 Acceptance of Trust.
The Trustee hereby accepts the appointment as Trustee under the terms and
conditions hereof.
Section 3.02 Duties of Trustee.
(a) Upon the occurrence of an Event of Default, the Trustee shall hold the
Collateral under the Security Agreement in trust for the benefit of the Note Holders and
exercise any rights granted to it under the Security Agreement.
(b) If an Event of Default has occurred and is continuing, the Trustee shall exercise
its rights and powers and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his own
affairs.
(c) Except during the continuance of an Event of Default.
(1) The Trustee shall perform only those duties that are specifically set forth in
this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may conclusively rely, as
to the truth of the statements and the correctness of the statements expressed therein,
upon certificates and opinions furnished to the Trustee and confirming to the
requirements of this Indenture.
(d) The Trustee may not be relieved from liability for his own negligent action, his
own negligent failure to act, or his own willful misconduct, except that:
(1) This paragraph does not limit the effect of Paragraph (c) of this Section.
(2) The Trustee shall not be liable for any error of judgment made in good faith
unless it is proved that the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it takes or omits to
take in good faith in accordance with a direction received by it pursuant to Section 5.05.
(e) Every provision of this Indenture that in any way relates to the Trustee is subject
to Paragraphs (b), (c),and (d) of this Section.
(f) The Trustee may refuse to perform any duty or exercise any right or power unless
it receives indemnity satisfactory to it against any loss, liability, or expense.
(g) The Trustee shall not be liable for interest on any money received by it except as
otherwise agreed with the Company.
(h) The Trustee shall execute and deliver to the Company the satisfactions of
Security Documents as provided for in Section 4.01(b).
(i) The Trustee is authorized and directed to enter into the Security Agreement on
behalf of the Note Holders solely in its capacity as Trustee under the Indenture.
Section 3.03 Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine and to have
been signed or presented by the proper person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officer's
Certificate or an opinion of counsel. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on the Officer's Certificate or opinion.
The Trustee may consult with counsel and any advice or opinion of counsel shall be full
and complete protection in respect of any action taken or not taken by it hereunder in
reliance upon such advice or opinion of counsel.
(c) The Trustee may act through agents and attorneys and shall not be responsible
for the misconduct or negligence of any agent or attorney appointed with due care.
(d) The Trustee shall not liable for any action it takes or omits to take in good faith
which it believes to be authorized or within its rights or powers.
(e) The Trustee shall have no duty or obligation to monitor the actions of any
services of the Collateral under the Security Documents or act as successor servicer for
such Collateral.
Section 3.04 Trustee`s Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this Indenture,
the Security Agreement or the Notes. The recitals contained herein and in the Notes
shall be taken as statements of the Company and the Trustee assumes no responsibility
for their correctness. The Trustee shall not be accountable for the Company's use of
the proceeds from the Notes, and it shall not be responsible for any statement in the
Notes or in any prospectus used in the sale of the Notes.
Section 3.05 Individual Rights of Trustee, Etc.
The Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Company with the same rights it would have if
it were not Trustee. Any Paying Agent, Registrar, or Co-registrar may do the same with
like rights. The Trustee, however, must comply with Sections 3.11 and 3.12.
Section 3.06 Notice of Defaults.
If an Event of Default occurs and is continuing and if it is known to the Trustee, the
Trustee shall mail as provided in Section 7.02 notice of the Event of Default to the Note
Holders within 90 days after it occurs. Except in the case of a default in payment of any
Note, the Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the interests of the
Note Holders.
Section 3.07 Reports by Trustee to Holders.
If required under the provisions of TIA Section 313(a), within 60 days after each
December 31st beginning with the December 31st following the date of this Indenture,
the Trustee shall provide to the Note Holders specified in TIA Section 313(c) a brief
report dated as of such December 31st that complies with TIA Section 313(a). The
Trustee also shall comply with TIA Section 313(b).
Within the time period provided for in TIA Section 313(b), the Trustee shall provide
to thoseNote Holders specified in TIA Section 313(c) the brief reports required by TIA
Section 313(b).
A copy of each report at the time of its mailing to Note Holders shall be filed with
the SEC and each stock exchange on which the Securities are listed. The Company shall
notify the Trustee if the Securities are listed on any stock exchange.
Section 3.08. Compensation and Indemnity.
The Company agrees:
(a) to pay the Trustee from time to time reasonable compensation for all services
rendered by it hereunder (which compensation shall not be limited by a provision of law
in regard to the compensation of the trustee of an express trust);
(b) to reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee (including the reasonable
compensation, disbursements and expenses of its agents and counsel), except any such
expenses of disbursements as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless against any loss, cost,
liability, claim or expense incurred without negligence or bad faith on its part related to
or arising out of the acceptance of and administration of the duties of the Trustee
hereunder, including, without limitation, the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder. The Company shall reimburse the Trustee upon its request
for any legal expenses in connection with the foregoing.
To secure the Company's payment obligations in this Section, the Trustee shall have a
lien prior to the Notes on all money or property held or collected by the Trustee. The
obligations of the Company in this Section shall survive the discharge of this Indenture
or resignation or removal of the Trustee.
Section 3.09 Replacement of Trustee.
The Trustee may resign by so notifying the Company, but such resignation shall not
be effective until the date set forth in this Section 3.09 below. The Holders of a majority
in principal amount of the Notes may remove the Trustee by so notifying the removed
Trustee and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 3.11;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or other public officer takes charge of the Trustee or its property; or
(d) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for
any reason, the Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the
retiring Trustee and to the Company. Immediately after that the retiring Trustee shall
transfer all property held by it as Trustee to the successor Trustee, the resignation or
removal of the retiring Trustee shall become effective, and the successor Trustee shall
have the rights, powers, and duties of the Trustee under this Indenture. A successor
Trustee shall give notice of its succession to each Note Holder as provided in Section
7.02.
If a successor Trustee does not take office within 60 days after the retiring Trustee
resigns or is removed, the retiring Trustee, the Company, or the Holders of a majority in
principal amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 3.11, any Note Holder may petition any
court of competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
Section 3.10 Successor Trustee by Merger, Etc.
If the Trustee consolidates with, mergers or converts into, or transfers all or
substantially all of its corporate trust business to another corporation, the resulting,
surviving, or transferee corporation without any further act shall be the successor
Trustee.
Section 3.11 Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements of TIA
Section 310(a)(1). The Trustee shall have a combined capital and surplus of at least
$150,000 as set forth in its most recent published annual report of condition. The
Trustee shall comply with TIA Section 310(b).
Section 3.12 Preferential Collection of Claims Against Corporation.
The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship
listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be
subject to TIA Section 311(a) to the extent indicated therein.
Section 3.13 Co-Trustee.
At any time for the purpose of meeting any legal requirements of any jurisdiction,
including in case of the exercise of any rights or remedies of the Trustee upon an Event
of Default hereunder, the Company and the Trustee acting jointly shall have the power
to appoint an additional institution or individual as a separate or co-trustee and to vest
in such separate or co-trustee such powers, duties, obligations and rights as the Trustee
and the Company may consider necessary or desirable. If the Company shall not join in
such appointment within fifteen days after receipt of a request of the Trustee to do so,
or if an Event of Default shall have occurred and be continuing, the Trustee alone shall
have the power to make such appointment.
Upon the appointment of a separate or co-trustee, all rights, powers, duties and
obligations conferred or imposed upon the Trustee may be exercised and performed by
the Trustee and such separate or co-trustee jointly except to the extent that under any
law in any jurisdiction in which any act or acts are to be performed the Trustee shall not
be permitted or qualified to perform such act or acts in which event such act or acts shall
be exercised and performed by the separate or co-trustee at the written direction of the
Trustee.
ARTICLE 4
Covenants
Section 4.01 Payment of Notes.
(a) The Company shall promptly pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes.
(b) Simultaneously with the mailing of monthly interest payments to the Note
Holders, the Company shall deliver to the Trustee an Officer's Certificate stating that
such payment has been made. The same procedure shall be followed with respect to the
payment of the principal on the Notes. Upon the receipt by the Trustee of an Officer's
Certificate that any Notes have been paid in full and compliance with the requirements
of TIA Section 314(d), the Trustee shall execute and deliver to the Company a partial
satisfaction of the Security Agreement in recordable form furnished to it by the
Company, which the Company may record in the Public Records and upon such delivery
to the Trustee of an Officer's Certificate that all Notes have been paid in full and
compliance with the requirements of TIA Section 314(d) (together will all accrued
interest), the Trustee shall execute and deliver to the Company a full satisfaction of the
Security Agreement to the extent furnished to it by the Company and the Trustee and
the Company shall be relieved of all further obligations hereunder except as provided in
Section 3.08 hereof.
Section 4.02 Compliance Certificate.
The Company shall deliver to the Trustee within 120 days after the end of each fiscal
year of the Company an Officer's Certificate stating whether or not the signers know of
any default by the Company in performing its covenants in Article 4. If they do know of
such default, the Officer's Certificate shall describe the default. The Officer's Certificate
need not comply with Section 7.06. The first Officer's Certificate shall be delivered to
the Trustee by
.
Section 4.03 SEC Reports.
The Company shall file with the Trustee within 15 days after it files them with the
SEC copies of the annual reports and of the information, documents, and other reports
(for copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. The Company also shall
comply with the other provisions of TIA Section 314(a).
ARTICLE 5
Defaults and Remedies
Section 5.01 Events of Default.
Subject to the limitations set forth in this Article 5, an Event of Default occurs if:
(1) the Company receives written notice from a Note Holder of a default in the
payment of interest on any Note when the same becomes due and payable;
(2) the Company receives written notice from a Note Holder of a default in the
payment of the principal of any Note when the same becomes due and payable;
(3) the Company fails to comply with any of its other agreements in the Notes, the
Security Agreement, or this Indenture and the default continues for the period and after
the notice specified below;
(4) the Company pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in any involuntary case,
(c) consents to the appointment of a Receiver of it or for any substantial part of
its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) fails generally to pay its debts as they become due; or
(5) a court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that:
(a) is for relief against the Company in an involuntary case,
(b) appoints a Receiver of the Company or for any substantial part of its
property, or
(c) orders the liquidation of the Company, and the order or decree remains
unstayed and in effect for 90 days.
The term "Bankruptcy Law" means Title 11, United States Code, or any similar
federal or state law for the relief of debtors. The term "Receiver" means any receiver,
trustee, assignee, liquidator, or similar official under any Bankruptcy Law.
A default under section (3) is not an Event of Default until the Trustee or the
Holders of at least a majority in principal amount of the Notes notify the Company of
the default and the Company does not cure the default within 90 days after receipt of
the notice. The notice must specify the default, demand that it be remedied, and state
that the notice is a "Notice of Default."
Section 5.02 Acceleration.
If an Event of Default occurs and is continuing either: (a) the Trustee, by written
notice to the Company or (b) the Holder of any Note, by written notice to the Company
and the Trustee, may declare the principal of and accrued interest on all the Notes to be
due and payable immediately. After a declaration such principal and interest shall be
due and payable immediately.
Section 5.03 Other Remedies; Limitation.
Subject to the provisions of the preceding paragraph, if an Event of Default occurs
and is continuing, the Trustee or any Note Holder with respect to an Event of Default
under Sections 5.01(1) and (2) may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal and interest on the Notes or to enforce the
performance of any provision of the Notes, the Security Agreement or this Indenture.
Notwithstanding anything to the contrary in this Agreement, the Trustee is required
to proceed against and liquidate all Collateral before looking to any other assets of the
Debtor.
Section 5.04 Postponement of Interest Payment; Waiver of Defaults.
The Holders of not less than 75 per centrum in Notes at the time outstanding may
consent on behalf of the holders of such Notes to the postponement of any interest
payment for a period not exceeding three years from its due date. This is an exception
to the rights of Note Holders under Section 316(b) of the TIA. The Holders of a
majority of the Notes may consent to the waiver of any past default and its
consequences, except a default in payment of principal and interest or any other waiver
prohibited under Section 6.02.
Section 5.05 Control by Majority.
The Holders of a majority in principal amount of the Notes may direct the time,
method, and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it. The Trustee, however, may refuse to
follow any direction that conflicts with law or this Indenture, that is unduly prejudicial to
the rights of other Note Holders, or that may involve the Trustee in personal liability.
Section 5.06 Limitation on Suits.
A Note Holder may not use this Indenture to prejudice the rights of another Note
Holder or to obtain a preference or priority over the other Note Holders.
A Note Holder may not institute any suit, if and to the extent that the institution or
prosecution thereof or the entry of judgment therein would, under applicable law, result
in the surrender, impairment, waiver, or loss of the lien of the Indenture upon any
property subject to such lien.
Section 5.07 Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay out the money
in the following order:
First: to the Trustee for amount due under Section 3.08;
Second: to Note Holders for amounts due and unpaid on the Notes for interest,
the principal, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal and interest; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to the Note
Holders.
ARTICLE 6
Amendments, Supplements, and Waivers
Section 6.01 Without Consent of Holders.
The Company may amend or supplement this Indenture or the Notes without notice
to or consent of any Note Holder to cure any ambiguity, omission, defect, or
inconsistency; or to make any change that does not adversely affect the rights of any
Note Holder.
Section 6.02 With Consent of Holders.
The Company may amend or supplement this Indenture, the Security Agreement, or
the Notes without notice to any Note Holder but with the written consent of the Holders
of not less than a majority in principal amount of the Notes. The Holders of a majority
in principal amount of the Notes may waive compliance by the Company with any
provision of this Indenture, the Security Agreement, or the Notes without notice to any
Note Holder. Without the consent of each Note Holder affected, however, an
amendment, supplement, or waiver, except the waiver pursuant to Section 5.04, may not:
(1) reduce the amount of Notes whose Holders must consent to an amendment,
supplement or waiver;
(2) reduce the rate or extend the time for payment of interest on any Note;
(3) reduce the principal of or extend the fixed maturity of any Note;
(4) make any Note payable in money other than that stated in the Note;
(5) waive a default on payment of principal or of interest on any Note; or
(6) impair the right to institute suit to enforce payments due on any Note on or after
the respective due dates.
Section 6.03 Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture, the Security Agreement, or the
Notes shall comply with the TIA as then in effect.
Section 6.04 Revocation and Effect of Consents.
A consent to an amendment, supplement, or waiver by a Holder of a Note shall bind
the Holder and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. Any such Holder or subsequent Holder, however, may revoke the
consent as to his Note or portion of the Note. The Trustee must receive the notice of
revocation before the date the amendment, supplement, or waiver becomes effective.
After an amendment, supplement, or waiver becomes effective, it shall bind every
Note Holder unless it makes a change described in Sections 6.02(2) through (5). In that
case the amendment, supplement, or waiver shall bind each Holder of a Note who has
consented to it and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the consenting Holder's Note.
Section 6.05 Notation on or Exchange of Securities.
If an amendment, supplement, or waiver changes the terms of a Note, the Company
may require the Holder of the Note to deliver it to the Company. The Company may
place an appropriate notation on the Note about the changed terms and return it to the
Holder. Alternatively, if the Company so determines, the Company in exchange for the
Note shall issue and the Company shall authenticate a new Note that reflects the
changed terms.
Section 6.06 Trustee to Sign Amendments, Etc.
The Trustee shall sign any amendment, supplement, or waiver authorized pursuant to
this Article if the amendment, supplement, or waiver does not adversely affect the rights
of the Trustee. If it does, the Trustee may but need not sign it.
The Trustee may rely upon an Officer's Certificate and an opinion of counsel as
conclusive evidence that any amendment, supplement or waiver complies with the
provisions of this Indenture.
ARTICLE 7
Miscellaneous
Section 7.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts with another provision
which is required to be included in this Indenture by the TIA, the required provision
shall control.
Section 7.02 Notices.
Any notice or communication shall be sufficiently given if in writing and delivered in
person or mailed by first-class mail addressed as follows:
If to the Company: American Equities Income Fund, Inc.
East 80 Route 4, Suite 202
Paramus, NJ 07652
If to the Trustee:
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication to Note Holders shall be sufficiently given if mailed by
first-class mail to each Registered Note Holder.
Any notice or communication mailed to a Note Holder shall be mailed to him at his
address as it appears on the lists or registration books of the Registrar and shall be
sufficiently given to him if so mailed within the time prescribed.
Failure to give notice or communication to a Note Holder or any defect in it shall not
affect its sufficiency with respect to other Note Holders. If a notice or communication is
mailed, it is duly given, whether or not the Note Holder receives or reads it.
Section 7.03 Communication by Holders with Other Holders.
Within five business days after the receipt by the Trustee of a written application by
any three or more Note Holders stating that the applicants desire to communicate with
other Note Holders with respect to their rights under this Indenture or under the Notes,
and accompanied by a copy of the form of proxy or other communication which such
applicants propose to transmit, and by reasonable proof that each such applicant has
owned a Note for a period of at least six months preceding the date of such application,
the Trustee shall, at its election, either (1) afford to such applicants access to all
information so furnished to or received by the Trustee, or (2) inform such applicants as
to the approximate number of Note Holders according to the most recent information so
furnished to or received by the Trustee, and as to the approximate cost of mailing to
such Note Holders the form of proxy or other communication, if any, specified in such
application. If the Trustee shall elect not to afford to such applicants access to such
information, the Trustee shall, upon the written request of such applicants, mail to all
such Note Holders copies of the form of proxy or other communication which is
specified in such request, with reasonable promptness after a tender to the Trustee of
the material to be mailed and of payment, or provision for payment, of the reasonable
expenses of such mailing, unless within five days after such tender, the Trustee shall mail
to such applicants, and file with the SEC together with a copy of the material to be
mailed, a written statement to the effect that, in the opinion of Trustee, such mailing
would be contrary to the best interests of the Note Holders or would be in violation of
applicable law. Such written statement shall specify the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statement so filed,
the SEC may, and if demanded by the Trustee or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of them. If
the SEC shall enter an order refusing to sustain any of such objections, or if, after the
entry of an order sustaining one or more of such objections, the SEC shall find, after
notice and opportunity for hearing, that all objections so sustained have been met, and
shall enter an order so declaring, the Trustee shall mail copies of such material to all
such Note Holders with reasonable promptness after the entry of such order and the
renewal of such tender.
Section 7.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee an Officer's Certificate
stating that, in the opinion of the signers, all conditions precedent, if any, provided for in
this Indenture relating to the proposed action have been complied with.
Section 7.05 Certificates of Fair Value.
The Company shall furnish to the Trustee a certificate or opinion of an appraiser or
other expert as to the fair value of any property or securities to be released from the lien
of the Security Agreement, which certificate or opinion shall state that in the opinion of
the person making the same the proposed release will not impair the security under the
Security Agreement in contravention of the provisions thereof, and requiring further that
such certificate or opinion shall be made by an independent appraiser, or other expert, if
the fair value of such property or securities and of all other property or securities
released since the commencement of the then current calendar year, as set forth in the
certificates or opinions required by this Section 7.05, is 10% or more of the aggregate
principal amount of the Notes at the time outstanding; but such a certificate or opinion
of an independent appraiser or other expert shall not be required in the case of any
release of property or securities, if the fair value thereof as set forth in the certificate or
opinion required by this paragraph is less than $25,000 or less than 1% of the aggregate
principal amount of the Notes at the time outstanding.
Any such certificate or opinion may be made by an officer or employee of the
Company who is duly authorized to make such certificate or opinion by the Company
from time to time except in cases in which this Section requires that such certificate or
opinion be made by an independent person, in which case, the certificate of opinions
shall be made by an independent appraiser, or other expert selected or approved by the
Trustee in the exercise of reasonable care. The Trustee shall not be liable for any such
expense or for the actions or omissions of such independent appraiser or other expert.
Section 7.06 Statements Required in Certificate and Opinion.
Each certificate or opinion with respect to compliance with a condition or covenants
in this Indenture shall include:
(1) a statement the person making such certificate has read such covenant or
condition;
(2) a brief statement as to the nature and scope of the examination or investigation
upon which the statements contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such person, such condition
or covenant has been complied with.
Section 7.07 When Treasury Securities Disregarded.
In determining whether the Holders of the required principal amount of Notes have
concurred in any direction, waiver, or consent, Notes owned by the Company or by any
person directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such direction,
waiver, or consent, only Notes which the Trustee knows are so owned shall be
disregarded. Also, subject to the foregoing, only Notes outstanding at the time shall be
considered in any such determination.
Section 7.08 Action by Note Holders.
Whenever in this Indenture it is provided that the Holders of a specified percentage
in aggregate principal amount of the Notes may take any action (including the making of
any demand or request, the giving of any notice, consent, or waiver, or the taking of any
other action), the fact that at the time of taking any such action the Holders of such
specified percentage have joined therein may be evidenced by any instrument or any
number of instruments of similar tenor executed by Note Holders in person or by agent
or proxy appointed in writing.
Section 7.09 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday, a legal holiday, or a day on which banking
institutions are not required to be open. If a payment date is a Legal Holiday at a place
of payment, payment may be made at that place on the next succeeding day that is not a
Legal Holiday, and no interest shall accrue for the intervening period.
Section 7.10 Governing Law.
This Indenture, the Security Documents, and the Notes shall be governed by the laws
of the State of New Jersey provided the duties and responsibilities of the Trustee shall
be construed under the laws of the jurisdiction of its organization or incorporation
applied without giving effect to any conflicts-of-law principles.
Section 7.11 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan, or debt
agreement of the Company. Any such indenture, loan, or debt agreement may not be
used to interpret this Indenture.
Section 7.12 No Recourse Against Others.
All liability of any director, officer, employee, or stockholder, as such, of the
Company is waived and released.
Section 7.13 Successors.
All agreements of the Company in this Indenture, the Security Documents, and the
Notes shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
Section 7.14 Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each signed copy shall
be an original, but all of them together represent the same agreement.
IN WITNESS WHEREOF, the parties have signed this Indenture as of the day and
year first above written.
COMPANY:
AMERICAN EQUITIES INCOME FUND, INC.,
a Delaware corporation
By:
David S. Goldberg,
Chairman and CEO
TRUSTEE:
STATE OF )
)ss.:
COUNTY OF )
The foregoing Indenture of Trust was acknowledged before me this day of
, 199 , by David S. Goldberg, as Chairman and CEO of AMERICAN
EQUITIES INCOME FUND, INC., a Delaware corporation, on behalf of the
corporation. He [is personally known to me] [has produced as
identification] and [did] [did not] take an oath.
Notary Public
My Commission Expires: Print Name:
STATE OF )
)ss.:
COUNTY OF )
The foregoing Indenture of Trust was acknowledged before me this day of
, 199 , by , as Trustee of AMERICAN EQUITIES
INCOME FUND, INC. He [is personally known to me] [has produced
as identification] and [did] [did not] take an oath.
Notary Public
My Commission Expires: Print Name:<PAGE>
AMERICAN EQUITIES INCOME FUND, INC.
INVESTOR QUESTIONNAIRE
__ INITIAL SUBSCRIPTION
__ ADDITIONAL INVESTMENT: Account Number Previously Assigned
______________________________________________________________________________
INVESTMENT
I desire to purchase ___________ Units for a total investment of $__________________in
American Equities Income Fund, Inc.
MAKE CHECKS PAYABLE TO: Republic National Bank - AEIF
______________________________________________________________________________
SUBSCRIBER INFORMATION: Please print name(s) in which Units are to be
acquired. All checks and correspondence will go
to this address unless another address is listed in the Investor Mailing or Direct Deposit
Address sections.
Name (1st)____________________________________ Mailing address (if different)
Name (2nd)____________________________________ Name ________________________
Address ______________________________________ Address ______________________
City _________________________________________ City _________________________
State_________________ Zip Code______________ State________ Zip Code __________
Custodian Account No._______________ Daytime Telephone Number (___) - ___ -____
Occupation_______________________________________________
___ U.S. Citizen ___ Resident Alien ___ Foreign Resident
Country___________________________
___ Check if the Subscriber is a U.S. citizen residing outside the U.S. State in which
taxes are paid_______________
ALL SUBSCRIBERS: State of Residence of Subscriber/ (required)
___________________
Enter the taxpayer identification number below. For most individual taxpayers, it is their
Social Security number. Note: If the
purchase is in more than one name, the number should be that of the first person listed.
For IRA s, Keoghs, and qualified plans,
enter both the Social Security number and the taxpayer identification number for that
plan.
Taxpayer ID #___-___________ and/or Social Security # ________-________-________
DIRECT DEPOSIT ADDRESS: Investors requesting direct deposit of distribution
checks to another financial institution or
mutual fund, please complete below. In no event will the Company or Affiliates be
responsible for any adverse consequences of
direct deposit. IRA accounts must have a custodian.
Company/Custodian___________________________________________________________
Account No.___________________________________________________________________
Address_______________________________________________________________________
City _________________________ State__________ Zip Code______-_______________
FORM OF OWNERSHIP: (Select only one)
__ INDIVIDUAL __ JOINT TENANTS WITH
RIGHT OF SURVIVORSHIP- all parties must sign
__ HUSBAND AND WIFE, AS COMMUNITY PROPERTY- __ A MARRIED
PERSON/SEPARATE PROPERTY - one signature required
two signatures required __ KEOGH (H.R.10)-trustee signature
required
__ TENANTS IN COMMON __ CUSTODIAN-custodian
signature required
__ TENANTS BY THE ENTIRETY-two signatures required __ PARTNERSHIP
(authorization required)
__ CORPORATIONS __ NON-PROFIT
ORGANIZATION
__ S-Corporation __ PENSION PLAN-trustee
signature(s) required
__ C-Corporation __ PROFIT SHARING
PLAN-trustee signature(s) required
__ IRA- custodian signature required __ CUSTODIAN
UGMA-STATE of _______ - custodian signature required
__ SEP- custodian signature required __ CUSTODIAN UTMA-STATE of
_______ - custodian signature required
__ TAXABLE TRUST __ ESTATE-Personal Representative
signature required
__ TAX-EXEMPT TRUST __ REVOCABLE GRANTOR
TRUST-grantor signature required
__ IRREVOCABLE TRUST - trustee signature required
BROKER/DEALER REGISTERED REPRESENTATIVE INFORMATION (To be
completed by Registered Representative.)
PLEASE PRINT
Broker/Dealer Firm
Name:________________________________________________________________________
_______________________________________________
Name of Selling
Representative:________________________________________________________________
___________________________________________________
Representative's
Office:________________________________________________________________________
__________________________________________________
(Street) (City)
(State) (Zip) (Office Phone)
Sales Representative Signature:
______________________________________________________________________
INTEREST DISTRIBUTION: Please check the method below which describes your
desired plan of interest distribution.
__ Monthly beginning on the first day of the fourth month from the date of issuance of
the Notes.
__ Annually on the 31st day of December, of each year the Notes are outstanding,
compounded on a monthly basis.
__ Upon Maturity - interest may be compounded on monthly basis and paid with
principal at maturity.
SUBSCRIBER SIGNATURES: (The undersigned has the authority to enter into this
subscription agreement on behalf of the person(s) or entity registered above.
I (We) certify under penalty of perjury that this is my (our) correct Social Security
Number (or Tax Identification Number) and that interest income on this
account should be reported on this number. I acknowledge and agree to the statement
on the reverse side hereof.)
X__________________________________________ Date___________
X_____________________________________ Date___________
Authorized Signature of 1st Subscriber
Authorized Signature of 2nd Subscriber
COMPANY S ACCEPTANCE (To be completed only by an authorized representative
of the Company.)
The Foregoing subscription accepted this_____________________________________day
of ________________________________, 19_____________.
______________________________________________
Authorized Representative of the Company
SUBSCRIPTION AGREEMENT
AMERICAN EQUITIES INCOME FUND, INC.
The undersigned hereby subscribes to acquire Units in American Equities Income
Fund, Inc. (the
"Company") pursuant to the terms set forth in the Company's Prospectus dated
_________________ (the
"Prospectus").
By signing and returning this Subscription Agreement, you are acknowledging that:
- You have received a copy of the Prospectus of American Equities Income Fund,
Inc. and you have assented to all the terms and conditions of the Company's
Fund Agreement.
- You are at least 21 years old and reside in the state indicated by you on the reverse
side of this Subscription Agreement.
- You confirm that you have either (i) annual gross income of at least $35,000 and a
net worth of at least $50,000(exclusive of home, home furnishings and
automobiles) or (ii) a net worth of at least $75,000 (exclusive of home, home
furnishings, and automobiles).
- You confirm that you satisfy the particular suitability standard of your state
residence as set forth in the Prospectus under "SUITABILITY STANDARDS -
WHO CAN INVEST?"
<PAGE>
EXHIBIT E
May , 1996
American Equities Income Fund, Inc.
c/o American Equities Group, Inc.
East 80 Route 4, Suite 202
Paramus, NJ 07652
Gentlemen:
We have acted as legal counsel in connection with the organization of, and offering of
promissory notes (the "Notes") in denominations of $1,000 each in American Equities
Income Fund, Inc., a Delaware corporation. You have asked us to advise you with
respect to certain tax issues relating to the Company.
For purposes of this letter, any capitalized term not otherwise defined herein shall
have the meaning given to it in the Registration Statement, as defined below. For
purposes of this letter, we have examined the following documents:
(a) A copy of the Company's Registration Statement on Form SB-2, as amended,
as filed with the Securities and Exchange Commission on March 28, 1996 (the
"Registration Statement").
(b) Copy of the Certificate of Incorporation of the Company as filed with the
Secretary of State of Delaware on March 11, 1996 (the "Certificate of Incorporation")
and amendments thereto.
(c) Copies of the By-laws, Resolutions and Stock Ledger of the Company (the
Corporate Books and Records") as of the date hereof.
(d) A Representation Certificate of the Chief Executive Officer of the Company.
Please be advised that we have relied upon all representations made and factual
matters stated in the foregoing documents and have not assumed any responsibility for
making any independent investigation or verification of (i) any factual matter stated in or
represented by any of the foregoing documents or (ii) any other factual matter, except to
obtain, where we deemed appropriate, written representations or certificates (including
the Representation Certificate referenced above) of officers of the Company or other
persons.
In rendering our advice, we have examined the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the existing and proposed
Treasury Regulations interpreting the pertinent provisions of the Code, the existing
published rulings by the Internal Revenue Service (the "Service"), reported judicial and
administrative decisions, present administrative practices and other relevant authorities
and interpretations, all through the date hereof, which we consider appropriate for
purposes of this letter. Because all of such Code provisions, regulations, rulings,
decisions and other interpretations are subject to change, our conclusions are specifically
based upon the Code provisions, regulations, rulings, decisions and other interpretations
as in effect on the date of this letter.
In giving this opinion, we have considered and followed the guidelines of Formal
Opinion 346 (revised) of the American Bar Association Standing Committee on Ethics
and Professional Responsibility, issued January 29, 1982, as well as the regulations
governing practice before the Service, issued by the U.S. Department of the Treasury on
February 23, 1984.
Our opinion is expressly conditioned upon both the initial and the continuing
fulfillment at all times during the existence of the Company of the following
requirements stated in certain Regulations and Revenue Procedures published by the
Service: (1) the Company is organized and will be operated at all times during its
existence in accordance with state statutes concerning corporate powers and corporate
actions; and (2) the Company will not undertake any action inconsistent with the
representations made to us as of the date of this letter.
ASSUMPTIONS
For purposes of this letter, we have assumed the following:
(a) The Company is organized as a C corporation and has only one authorized
class of stock;
(b) All Note holders will be either citizens or residents of the United States;
(c) No Note holder will have an interest in the Company or its assets other than
pursuant to the Notes acquired; and
(d) Certain other assumptions set forth in the section of the Registration
Statement captioned "Tax Aspect" are true as of the date of this letter.
OPINION
Based upon and subject to the qualifications set forth in this letter, we advise you
as follows:
1. Subject to the assumptions, qualifications and limitations set forth in this letter
and in the section of the Registration Statement captioned "Tax Aspects," it is more
likely than not that the Company would prevail on the merits of each material Federal
tax issue (other than those Federal tax issues which involve inherently factual questions,
as to which we express no conclusion), if challenged and litigated before a court of
competent jurisdiction, to the same extent as concluded in the section of the Registration
Statement captioned "Income Tax Considerations."
2. The issue of whether or not the Company's Notes issued to investors would be
categorized as debt or equity under the Code and Regulations is basically a factual issue
on which the courts have differed. There are no simple tests for the resolution of
debt-equity questions. The Courts have stated that each debt-equity case must be judged
on its own unique fact situation. Tomlinson v. The 1661 Corporation, 377 F.2d 291 (5th
Cir. 1967). Some of the determining factors as to whether an investment would be
considered debt or equity utilized by the courts are as follows:
(1) the names given to the certificates evidencing the indebtedness; (2) the
presence or absence of a maturity date; (3) the source of the payments; (4) the right to
enforce the payment of principal and interest; (5) participation in management; (6) a
status equal to or inferior to that of regular corporate creditors; (7) the intent of the
parties; (8) 'thin' or adequate capitalization; (9) identity of interest between creditor and
stockholder; (10) payment of interest only out of 'dividend' money; (11) the ability of the
corporation to obtain loans from outside lending institutions. Montclair, Inc. v.
Commissioner, 318 F.2d 38 (5th Cir. 1963)); (12) the extent to which the initial advances
were used to acquire capital (Janeway v. Commissioner, 147 F.2d 602 (2d Cir. 1945);
and (13) the failure of the debtor to pay on the due date or to seek a postponement
(Commissioner v. Meridian & Thirteenth Realty Co., 132 F.2d 182 (7th Cir. 1942).
Applying these tests to the Company we note that the "certificates" to be received by
the investors are recourse promissory notes, payable by the Company (payment is
expected to be made from revenues), the Notes may be enforced as valid promissory
note obligations, the investors have no participation in management, the investors will be
senior debtors and the Company will have no other debt (other than junior and
subordinate debt arising in the ordinary course of business such as minor accruals or
trade payables), the Company will have an equity capitalization of at least .2% of the
amount of debt which should increase over time as the Company makes profits, the
creditors are not stockholders and are unrelated to the stockholders, interest is payable
from all sources not just funds available for dividends, the Company is forbidden by its
Certificate of Incorporation from obtaining commercial loans for its business purposes,
the proceeds of the Notes will not be used to acquire capital assets and whether or not
the debtor will seek a postponement of the due date of the obligation can not be
presently determined.
The courts have emphasized the concept of "thin capitalization" as strong evidence of
a capital contribution where (1) the debt to equity ratio was high, (2) the parties
understand that it would go higher and (3) substantial portions of these funds were used
for the purchase of capital assets and for meeting expenses needed to commence
operations. United States v. Henderson, 5 Cir. 1967, 375 F.2d 40. Thin capitalization is
also of significance when combined with subordination to other indebtedness. Rowan v.
United States, 219 F. 2d 55 (5th Cir. 1955). In the case of the Company the debt to
equity ratio is high; however, it is expected to decrease overtime and these funds will be
predominately utilized to factor or finance accounts receivable and not for the
acquisition of capital assets or for meeting expenses, which will be borne by the
Company's parent American Equities Group., Inc. ("AEG").
Section 385 of the Internal Revenue Code which was promulgated in an attempt to
add some certainty to this area, states that The regulations prescribed under this
Section shall set forth factors which are to be taken into account in determining
with respect to a particular factual situation whether a debtor creditor relationship
exists or a corporation-shareholder relationship exists. The factors so set forth
in the regulations may include, among other factors: 1) whether there is a written
unconditional promise to pay on demand or on a specified date a sum certain in
money in return for an adequate consideration in money or money's worth, and to
pay a fixed rate of interest, 2) whether there is subordination to or
preference over any indebtedness of the corporation, 3) the ratio of debt to
equity of the corporation, 4) whether there is convertability into the stock of the
corporation, and 5) the relationship between holdings of stock in the
corporation and holdings of the interest in question. Applying these tests to the
Company: (1) there is a written unconditional promise to payevidenced by the
promissory note; (2) there is no subordination of the debt; (3) the ratio of debtto equity
is very high; however, based upon AEG's obligation to fund operating costs and
thefinancial forecasts which demonstrate an ability of the Company to pay, the equity is
sufficient tooperate the Company; (4) the debt is not convertible to stock; and (5) the
debt holders will notbe stockholders, officers or directors of the Company. The service
promulgated regulations under this Section in 1980 which regulations werewithdrawn in
1983 and at the present time there are no viable regulations implementing CodeSection
385. Accordingly, the Code offers little additional guidance on this issue. In the event
the Notes are characterized as equity by the service, the Company'sdeduction for interest
paid on the Notes would be disallowed. Accordingly, the funds availableto the Company
to be utilized for its business purposes would be lower than forecasted and itsprofits less
than forecasted. Based upon the application of the tests above, and assuming that the
financial forecastsare substantially achieved, it is our view that it is more likely than not
that the Notes will betreated as debt for tax purposes.
CONCLUSION The Federal income tax consequences to the Company cannot be
predicted with absolutecertainty. No assurance can be given that the interpretation of
current law will not be changedby the courts, or that the Service will not alter its present
views with regard to any of the mattersdiscussed herein, nor can any assurance be given
that the Service will not audit or question thetreatment given to the various items on the
Company's Federal income tax returns. However, itis our opinion that it is more likely
than not that the material Federal income tax aspects asdiscussed will be realized as the
Company has anticipated. Finally, it must be recognized that thisopinion represents our
views as to the interpretation of existing law and can in no way be takenas an assurance
that the Service will agree with these views. This letter is limited to those issues
discussed in this letter. This letter is not intended tobe, and should not be, relied upon
by persons other than the Company. This letter may not bequoted in whole or in part or
otherwise used in a reference to any document to be filed with anygovernmental or other
administrative agency or other person without our prior written consent,except that we
have consented to the form of this letter being included as an exhibit to theRegistration
Statement. Very truly yours, BRONSON &
MIGLIACCIO <PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant specifically provides that no
director of the Registrant shall be personally liable to the Registrant or any of its
shareholders for damages for any breach of duty in such capacity except if a judgment or
other final adjudication adverse to him establishes that his acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of the law, or that he
personally gained in fact a financial profit or other advantage to which he was not legally
entitled, or that his acts violated specific provisions of the Delaware General Corporation
Law.
The Dealer Manager Agreement contains, among other things, provisions whereby the
Dealer Manager agrees to indemnify the Corporation, each officer and director of the
Corporation who has signed the Registration Statement and each person who controls
the Corporation within the meaning of Section 15 of the Securities Act of 1933, as
amended, against any losses, liabilities, claims or damages arising out of alleged untrue
statements or alleged omissions of material facts with respect to information furnished to
the Corporation by the Dealer Manager for use in the Registration Statement or
Prospectus. See Item 28 "Undertakings."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions and other fees paid to the underwriter) which will be paid by the Registrant
in connection with the issuance and distribution of the securities being registered.
Registration fee . . . . . . . . . . . . . . . . . . . . . .$ 5,174.41
NASD filing fee. . . . . . . . . . . . . . . . . . . . . . . 2,000.00
Blue sky fees and expenses (including legal and filing fees) 25,000.00
Printing expenses. . . . . . . . . . . . . . . . . . . . . . 40,000.00
Legal fees and expenses (other than Blue sky). . . . . . . . . 125,000.00
Accounting fees and expenses . . . . . . . . . . . . . . . . . 100,000.00
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . 2,825.59
Total. . . . . . . . . . . . . . . . . . . . . . . . $300,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the last three years, the Corporation has made no sales of unregistered
securities other than the issuance of 1,000 shares of common stock to AEG for an
aggregate of $40,000 in connection with its organization. <PAGE>
ITEM 27. EXHIBITS AND FINANCIAL SCHEDULES.
A. Exhibits.
NUMBER DESCRIPTION OF EXHIBIT
1.1 Form of Dealer Manager Agreement between the Corporation and G Equity
Investment Group, Inc.
1.2 Form of Selected Dealers Agreement, by and among the Corporation and the
Selected Dealers.(2)
3.1 Certificate of Incorporation of the Corporation.(2)
3.2 By-Laws of the Corporation.(2)
4.1 Form of Secured Promissory Note.(1)
4.2 Form of Security Agreement by and between the Corporation and Sheldon
Drobny ("Drobny").(1)
4.3 Form of Indenture of Trust, by and between the Corporation and Drobny.(1)
4.4 Form of Escrow Agreement by and between the Corporation and Republic
National Bank of New York, NY.(2)
5.1 Opinion of Bronson & Migliaccio, counsel to the Corporation.(2)
8.1 Opinion of Bronson & Migliaccio, counsel to the Corporation, relating to certain
tax issues.(1)
10.1 Management Agreement, dated as of May __, 1996, by and among the
Corporation and AEG.(2)
10.2 Form of Short Term Receivables Purchase Agreement utilized by AEG to
acquire Receivables.
10.3 Form of Short Term Issue Purchase Agreement utilized by AEG to acquire
receivables.
23.1 Consent of Rothenberg & Corporation.
23.2 Consent of Bronson & Migliaccio, contained in Exhibit 5.1.(2)
25 Form T-2, Statement of Eligibility under the Trust Indenture Act of 1939 of an
Individual Designated to Act as Trustee.
- ---------------
(1) Incorporated by reference, filed as an exhibit to the Corporation's Prospectus filed as
a part of this Registration Statement.
(2) Incorporated by reference, filed as an exhibit to the Corporation's Registration
Statement as filed with the Securities and Exchange Commission on March 29,
1996.
ITEM 28. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the Securities
Act;
(2) To reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; and
(3) To include any additional or changed material information with respect
to the plan of distribution not previously disclosed in the registration
statement;
(b) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(c) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
2. Insofar as indemnification for liabilities arising under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
3. The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof. <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements for filing
on Form SB-2 and has fully caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Paramus, State of New
Jersey, on the 31st day of May, 1996.
AMERICAN EQUITIES INCOME FUND, INC.
By: DAVID S. GOLDBERG
David S. Goldberg, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the dates
indicated. AMERICAN EQUITIES INCOME FUND, INC. and each of the persons
whose signature appears below hereby constitutes and appoints DAVID S. GOLDBERG
AND STEPHEN A. SOCHA and each of them singly, such person's true and lawful
attorneys-in-fact, with full power to them and each of them to sign for such person and
in such person's name, in the capacities indicated below, any and all amendments to this
Registration statement, hereby ratifying and confirming such person's signature as it may
be signed by said attorney-in-fact to any and all amendments to said Registration
Statement.
SIGNATURE TITLE DATE
Phillip C. Goldstick Chairman of the Board May 31, 1996
and Director
David S. Goldberg Chief Executive Officer, Secretary May 31, 1996
Treasurer and Director
Stephen A. Socha President and Director May 31, 1996
</TABLE>
<TABLE>
<S><C>
AMERICAN EQUITIES GROUP, INC.
East 80 Route 4, Suite 202
Paramus, NJ 07652
SHORT TERM RECEIVABLES PURCHASE AGREEMENT
(Date)
Company Name
Street
City, State Zip
Gentlemen:
In order to provide financing for your operations, you hereby agree with American
Equities Group, Inc., a New York corporation (the "Purchaser") that during the term of
this Agreement you will sell to Purchaser, and Purchaser will purchase from you, all
future receivables as you may hereafter create during the term of this Agreement (the
"Receivables"). These purchases shall be on the following terms and conditions:
1. Definitions. The following definitions shall apply to this Agreement:
a) "Book Account" shall mean the account maintained by Purchaser for you
pursuant to Section 8. The Book Account shall be deemed an account for
bookkeeping purposes only and to represent a claim against Purchaser, and
not against any specific assets.
b) "Client Risk Receivable" shall mean a Receivable declared to be a Client
Risk Receivable pursuant to Section 4 or any receivable tendered for
purchase with two prior unpaid invoices or any invoice outstanding more
than 90 days.
c) "Collateral" shall mean those assets owned by you which are subject to
Purchaser's security interest granted in Section 13.
d) "Discount Penalty" shall mean the penalty imposed on you by Section 10(g)
for failure to sell any Receivable in accordance with the terms of this
Agreement.
e) "Disputed Receivable" shall mean a Receivable declared to be a Disputed
Receivable pursuant to Section 5.
f) "Initial Receivable Value" (IRV) shall mean, as to any Receivable, the
price payable by Purchaser as provided in Section 2.
g) "Net Invoice Value" shall mean as to any Receivable, the amount shown
on the original invoice therefore as being payable in cash by the customer
owing the same, net of all commissions, discounts, (and other prompt
payment discounts) and credits granted by you or Purchaser (with your
prior approval) thereon.
h) "Overdraft" shall mean any negative balance in your Book Account.
i) "Permitted Payments shall mean payments to you of Subordinated
Indebtedness permitted by Section 13."
j) "Pool" shall mean all Receivables purchased during a calendar month, plus
a separate Pool for Existing Receivables.
k) "Purchaser Discount" shall mean, as to any Issue, two percent (2%) of the
Net Invoice Value of the Issue Receivables generated by the Issue.
l) Receivable shall mean the commission due you from any sales transactions
less any discounts or offsets.
m) "Residual" shall mean, the amount collected in excess of the Residual
Price.
n) "Residual Price" shall mean, as to any Pool, the sum of (i) the Initial
Receivable Value therefor paid by Purchaser, plus (ii) the Purchaser
Discount for the Pool.
o) "Service Fee" shall mean, as to any Receivable, six percent (6%) of the Net
Invoice Value, paid to Purchaser for production, collection accounting and
administrative services required of it by this Agreement.
p) "Subordinated Indebtedness" shall mean the indebtedness owing by
Purchaser to you at any time, subordinated pursuant to Section 13.
q) "Superior Indebtedness" shall mean the indebtedness owing by Purchaser,
or its designee to which the Subordinated Indebtedness is subordinated
pursuant to Section 13.
r) "Termination Fee" shall mean the fee which may become payable to
Purchaser on termination of this Agreement pursuant to Section 16(c).
2. Purchase of Future and Existing Receivables. You will sell to Purchaser, and
Purchaser will purchase from you, each future and existing bona fide Receivable, upon
presentation of the documents required by Section 3. Each such purchase will be
without recourse to you, except as provided in Section 5. Purchaser shall not be required
to purchase any Receivable if the Receivable, together with the aggregate Net Invoice
Value of all outstanding Receivables theretofore purchased by Purchaser or affiliated
company (other than Client Risk and Disputed Receivables), exceeds $750,000.
The Initial Receivable Value for each Receivable shall be seventy-six percent
(76%) of the Net Invoice Value of the Receivables, from which the Service Fee will be
charged, and which shall be payable upon presentation of the documents required in
Section 3. The Service Fee will be charged from these amounts and they shall be
payable upon presentation of the documentation required in Section 3. You shall be
paid, within two business days prior to the 1st of each month, a Residual for each Pool
equal to collections made by Purchaser through that month on the Receivables in that
Pool in excess of the Residual Price, less all amounts previously paid as Residual
thereon.
All payments of the Initial Receivable Value and Bonus with respect to
Receivables will be made by crediting the amount thereof to your Book Account.
Past receivables will be purchased under the same terms as future receivables.
3. Conditions to Purchase. As to future Receivables, on the day on which each sale
of such Receivables is made to Purchaser, you will deliver to Purchaser (i) an original
invoice for each Receivable, (ii) a receipt for each daily delivery of food, (iii) your
customers statement of Agreement with the invoiced amounts and (iv) any
documentation required by purchaser including, but not limited to a copy of the original
contract to supply services to the customer. The purchase of the Receivables shall be
properly deemed complete on receipt and acceptance of these documents by Purchaser.
Each Receivable, invoice and confirmation submitted to Purchaser shall be in
form specified by Purchaser, and each invoice shall show as the owner of the Receivables
either Purchaser or a "fictitious" name, acceptable to you, which is registered and owned
by Purchaser (the "DBA"). All invoices for Receivables purchased shall be mailed
directly to the customers by Purchaser, and you will promptly notify Purchaser of any
subsequent communication you have with any customer with respect thereto.
4. Client Risk Receivables. As to any Receivable, if you fail to deliver to
Purchaser the documentation required in Section 3 of this Agreement giving rise to the
Receivable or if, when the Receivable is tendered for purchase, it is in excess of 90 days
old or if, prior to the purchase of the Receivable, Purchaser determines, in its
reasonable discretion, that the Receivable will not be collectible due to the poor credit of
the customer owing the same, Purchaser shall have the right to declare the Receivable to
be a Client Risk Receivable and to refuse to pay the Initial Receivable Value.
Notwithstanding the fact that a Receivable is declared a Client Risk Receivable,
Purchaser shall be deemed to have purchased, to hold title to and have the right to
collect it and to charge the Purchaser Discount and Service Fee therefor.
5. Disputed Receivables. As to any Receivable purchased and paid for by
Purchaser for which the customer refuses to pay for any reason whatsoever other than its
ability to pay, Purchaser shall have the right to declare that Receivable to be a Disputed
Receivable and to charge your Book Account with the Residual Price attributable to
such Disputed Receivable. In addition, if Purchaser, in its sole discretion, determines
that a Receivable may be uncollectible due to insufficient performance, it may be
determined to be a Disputed Receivable. Notwithstanding the fact that a Receivable is
declared a Disputed Receivable, Purchaser shall be deemed to have purchased, to hold
title to and have the right to collect it, and to charge the Purchaser Discount and Service
Fee therefor.
6. Prepayments on Receivables. If any account debtor shall prepay any amount
with respect to such service or goods (prior to delivery date), the full amount of such
prepayment may be retained by you. You agree that you will present Purchaser with an
invoice or other documentation acknowledging prepayment of said Receivable showing
$0 balance.
7. Collection of Receivables. Purchaser will undertake collection efforts for all
Receivables and use its best efforts to collect them in accordance with their terms, acting
pursuant to its regular collection practices and normal industry standards. Collections
made by Purchaser on each Receivable shall, after deducting the Initial Receivable Value
attributable thereto, the Purchaser Discount in respect thereof, and the remaining
uncollected portion of the Pool Residual Price to which the Receivable is attributable, be
credited to your Book Account. Purchaser will attempt to resolve promptly any dispute
with the customer relating to payment of any Receivable, but any dispute involving more
than One Hundred Dollars ($100) shall not be resolved without your prior consent.
Purchaser will send to each customer a statement of account monthly as to all
outstanding Receivables owed by that customer, and at the end of each month, Purchaser
will send you an aging of all outstanding Receivables.
8. Book Account. The Book Account is the account to which all monies owing by
Purchaser to you shall be credited and all monies owing by you to Purchaser shall be
charged. All monies owing by either party to the other will be booked to the Book
Account on the day they become due. Purchaser will disburse or reserve for payment
from your Book Account funds in accordance with Section 18 of this Agreement.
Statements of all transactions in your Book Account will be sent to you at the end of
each month. In the event you fail to confirm or dispute such end-of-month position
within the 30-day period, Purchaser's statement of end-of-month position shall be
deemed correct, final and binding upon you.
9. Overdraft. If at any time an Overdraft in your Book Account shall exist, it shall
be payable on demand by Purchaser and may be paid by you at any time without
premium or penalty. Repayment of the Overdraft may also be collected at any time by
Purchaser, without prior notice to you and without your consent, from the proceeds of
the Initial Receivable Value for any Pool or Receivable purchased by Purchaser
hereunder, any Residuals payable by Purchaser to you pursuant to the provisions hereof,
and any other monies coming into Purchaser's possession which belong to you.
Each Overdraft shall bear interest on the outstanding principal amount thereof
for each day it is outstanding until paid in full at the rate of eighteen percent (18%) per
annum. Interest shall be charged to your Book Account daily.
10. Purchaser Charges. In addition to charges heretofore specified, Purchaser will
charge your Book Account, as and when incurred or payable, for the following:
(a) Two Thousand Five Hundred dollars ($2,500) to cover the cost of lien
searches and account expenses.
(b) Purchaser's direct out-of-pocket costs for wire transfers and express
packages mailed to you, mailing costs for customer invoices and
statements and any expenses incurred for accounting or other reports
with respect to Receivables and your Book Account, other than those
required by Sections 7 and 8.
(c) All legal and other expenses incurred by Purchaser in enforcing or
amending this Agreement.
(d) A Discount Penalty equal to the Purchaser Discount and Service Fee on
each Issue and/or Receivable you fail, for any reason (other than
Purchaser's default), to sell to Purchaser in accordance with the
provisions of this Agreement.
(e) Any Termination Fee payable pursuant to Section 16(c) of this
Agreement.
11. Your Additional Obligations. You agree that:
(a) You will immediately notify Purchaser of any Receivable which, to your
knowledge, is disputed by the account debtor or uncollectible for any
reason.
(b) Upon receipt of any oral purchase order by any customer, you will
immediately issue a written confirmation to that customer, in form
satisfactory to Purchaser, and you will use your best efforts to have
the customer countersign and return to you a copy of the confirmation.
Each confirmation shall contain all terms of the agreement between you
and the customer as to price, payment terms and quantity and
specification of the advertising or other goods and services to be
provided by you.
(c) You will provide Purchaser with your annual financial statements within
ninety (90) days after the end of each fiscal year and quarterly financial
statements within forty-five (45) days after the end of each fiscal quarter,
both in detail satisfactory to Purchaser. Purchaser shall have the right to
inspect and make copies of your books and records, at any reasonable
time during business hours, and to verify the accuracy of such statements
and the validity of all Receivables it purchases hereunder.
(d) You will not instruct any customer owing Receivables to make any
payment to you. All checks and other payments you receive from
customers for Receivables will be immediately delivered uncashed to
Purchaser. Each of your principal officers shall sign a trust agreement
with Purchaser in which they personally agree to turn over to Purchaser
all such payments received by them from customers. Purchaser will
charge you a penalty of One Hundred Dollars ($100) for each check or
other payment not turned over promptly to Purchaser in accordance with
the terms of this Section 11(d).
(e) You will preserve and protect Purchaser's rights to all Receivables it
purchases impose no lien or encumbrance thereon, and dispose of no
interest in the same except by sale to Purchaser in accordance with the
terms of this Agreement.
(f) You will execute and deliver to Purchaser a formal letter of assignment
notifying account debtors that they must make all payments to Purchaser
or the agreed DBA name.
(g) You will provide to Purchaser corporate resolutions authorizing the sale
of Receivables and incumbency certificate verifying the undersigned's
position with your corporation.
(h) You will obtain within 30 days a life insurance policy with a company
acceptable to us in the amount of $250,000 on the life of (President's
Name) payable To Purchaser as beneficiary for the term of this
Agreement. The proceeds, if any, from the above noted policy will be
applied to your account.
12. Purchaser's Rights. In addition to all other rights it has hereunder, Purchaser
shall have the following rights:
(a) Any monies collected by Purchaser on account of Receivables may be
commingled by it with its other funds, and such monies shall not be
deemed to constitute a trust fund or special account for your benefit.
(b) Purchaser may offset any monies it owes to you against any monies you
owe to Purchaser, but you shall have no such right of offset.
(c) Purchaser may execute in your name and file, in such places and at such
times as Purchaser shall elect, such financing statements, continuations
and amendments to financing statements and other similar documents
and instruments as Purchaser shall deem necessary to give public notice
of its ownership of the Issues and Receivables purchased by it, and its
security interest in the Collateral granted in Section 14. You hereby
irrevocably make, constitute and appoint Purchaser (and any of its
officers, employees and agents designated by it) as your true and lawful
attorney-in-fact with power to execute and file such documents.
(d) Purchaser may endorse your name on any check, notes, acceptance,
money orders, drafts and other forms of payment or security that may
come into Purchaser's possession relating to payment of the Receivables
it purchases during the term of this Agreement, and send notices to your
customers directing them to make payment to Purchaser of all
outstanding Receivables owing by them and requesting verification by
them of the amounts payable on such Receivables until Purchaser is paid
in full.
(e) Purchaser may assign the Receivables it purchases at any time to any
third party and borrow against them up to the full amount thereof, or
resell any portion of them to any party on any terms and conditions it
chooses. (Name of Company) subordinates all receivables up to the
amount of the Residual Price of the pool in which they are contained.
(f) Purchaser may exercise any and all other rights and remedies available to
it under this Agreement, any other agreement between you and
Purchaser or any affiliates of Purchaser, or otherwise available to
Purchaser at law or in equity, for the purpose of enforcing Purchaser's
rights in the Issues and Receivables it purchases and the performance by
you of your obligations to Purchaser hereunder.
(g) Purchaser may, at any time, purchase any obligation you owe to any third
party for any goods or services for a price mutually determined by that
third party and Purchaser in their sole discretion, and may charge your
Book Account for the full amount you owe on the obligation (in addition
to any carrying charges specified in the invoice or other document
evidencing the obligation) ninety (90) days after the goods or services
provided by the third party have been performed or delivered, or such
earlier date as you may agree.
13. Subordination. You hereby irrevocably subordinate and postpone, and agree not
to demand, sue for, take, accept, or receive (whether voluntarily, involuntarily, by
operation of law, by offset, recoupment, application against any other indebtedness or
otherwise) any payment on any Subordinated Indebtedness, or to accept any security
therefor, until all indebtedness of Purchaser or its designee to any third party, however,
and whenever incurred , whether now or hereafter due, and whether direct or indirect,
primary or secondary, joint or several, contingent or fixed, secured or unsecured, or
evidenced by any instrument in writing (all of which indebtedness including interest and
expenses of collection, is called herein "Superior Indebtedness"), shall have been paid by
Purchaser or its designee in full; provided, that so long as there shall not have occurred
and be continuing any material default under this agreement by you, Purchase shall make
payments to you in respect of the Subordinated Indebtedness, in accordance with the
terms of this agreement (such payments are called herein "Permitted Payments").
Purchaser may, at any time and from time to time, renew or extend the time of
payment of, or grant indulgences or forebear the exercise of rights and remedies in
respect of, any or all of the Superior Indebtedness or any collateral pledged by it as
security for payment You agree to deliver to Purchaser and, pending such delivery, to
hold in trust for Purchaser, any payments (other than Permitted Payments) made or
security given by Purchaser to you. You agree that you will not assign or transfer to any
third party any Subordinated Indebtedness unless such assignment is expressly made
subject to the provisions of this Section 13.
For the benefit of Purchaser, you hereby confirm, acknowledge and represent
that (i) the Subordinated Indebtedness has not been and will not be subordinated to
any other claim against Purchaser during such time as the Superior Indebtedness or any
part thereof remains outstanding and unpaid; (ii) you will sell all Issues and Receivables
unconditionally and irrevocably to Purchaser and, on such sale, they will be the sole
property or Purchaser and you will have no right, title or interest therein except as
otherwise expressly set forth herein; (iii) you will not attempt to exercise any right of
Purchaser to collect such Receivables; and (iv) Purchaser will make no payment and will
give no security to you for or on account of the Subordinated Indebtedness except as
expressly permitted by the terms of this agreement.
14. Security. In the event that Purchaser's interest in the Receivables purchased by
it is deemed by a court of competent jurisdiction to be a security interest instead of a
purchase, then this Agreement shall be deemed to constitute a security agreement under
Article 9 of the New Jersey Uniform Commercial Code and Purchaser shall have all
rights of a secured party thereunder with respect to the Receivables so purchased (the
"Collateral").
As security for payment of any Overdraft and for the performance of your
obligations hereunder, you hereby assign and grant to Purchaser a security interest in the
following assets (hereinafter called "Collateral"): all Account Receivables, including all
books and records pertaining to same, generated by you until such time as (a) this
Agreement is terminated either as specified in Section 16 or by mutual consent; or (b) all
obligations by you to Purchaser, including all termination fees and overdrafts have been
paid, all equipment; all work in process, all trademarks, and all contract rights; all other
general intangibles and additional collateral listed in Exhibit A of the UCC-1 financing
statement accompanying this Agreement.
Purchaser shall have the following rights, in addition to the rights granted to it by
law:
(a) In the event you fail to perform any obligation hereunder after ten (10)
days written notice from Purchaser to do so, Purchaser may (i) notify the
postal authorities to change the address for delivery of your mail to an
address designated by Purchaser; (ii) receive, open, copy and distribute
all mail addressed to you, retaining all mail relating to the Collateral and
forwarding all other mail to you; (iii) enter any and all premises where
any of the Collateral is located and take possession of the Collateral; (iv)
require you, at your expense, to assemble the Collateral and make it
available to Purchaser at a place or places designated by Purchaser; and
(v) sell any or all of the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including your premises) as is
commercially reasonable in the opinion of Purchaser. Should Purchaser
exercise its right to possession, you hereby waive your right, if any, to
cause Purchaser to post a bond or any other type of security. Any
requirement of reasonable notice regarding disposition of the Collateral
by Purchaser shall be conclusively met if given to you at least five (5)
days before the date fixed for a public sale or at least five (5) days
before the date on or after which a private sale or other disposition is to
be made. Purchaser shall be entitled to purchase the Collateral at any
public sale. It is not necessary that the Collateral be present at any sale
by Purchaser hereunder. Any deficiency in the amount you owe
Purchaser which exists after disposition of the Collateral will be paid
immediately by you to Purchaser. Any excess of sale proceeds over the
amounts owing by you to Purchaser shall be returned to you, subject,
however, to applicable law and the rights of the holders of other liens on
the property.
(b) Purchaser may set off, exercise any lien or other right of attachment or
garnishment, and apply any and all moneys, balances, credits, accounts
and deposits at any time owing by Purchaser to or for your account,
against any of your obligations to Purchaser.
(c) Purchaser may assign this security interest at any time to any third party.
(d) Purchaser may exercise any and all other rights and remedies available
under this Agreement, any other agreement between Purchaser and you
or any guarantor, or otherwise available to Purchaser at law or in
equity, to enforce Purchaser's rights in the Collateral and obtain
payment and performance of your obligations to Purchaser.
You hereby agree to insure, preserve and protect the Collateral and any
other property used in the conduct of your business and not sell or
otherwise dispose of the same (except in the ordinary course of business)
without Purchaser's prior written consent.
This security interest shall survive the termination of this Agreement and
shall remain in full force and effect until such time as all obligations
owing by you to Purchaser have been paid in full.
15. Your Representations. You hereby represent and covenant
to Purchaser that:
(a) You are a corporation duly organized and existing under the laws of the
State of (Name of State) and are duly qualified to do business in all
states in which you are currently conducting business.
(b) The person executing and delivering this Agreement on your behalf has
been duly authorized to do so by all requisite corporate authority.
(c) Except to the extent heretofore disclosed in writing to Purchaser, (i) you
have no liens of any kind on any of your assets, and you will not grant
or suffer any such liens hereafter without Purchaser's prior consent; (ii)
you have filed all income, franchise, sales and other federal, state and
local tax returns required to be filed by you to date and have paid all
taxes shown to be due thereon, and you will continue to file all such
returns and to pay all such taxes when due hereafter, and (iii) you have
no outstanding litigation pending or threatened against you (including,
without limitation, any claims or assessments for unpaid taxes), and you
will immediately notify Purchaser of any such litigation commenced or
threatened hereafter.
(d) Your books and records and all your other assets are located at the
address set forth below in this Agreement, and except as otherwise
disclosed to Purchaser, they have never been located at any other
address. Such books, records and other assets will not hereafter be
removed from that address without prior written notice to Purchaser.
(e) You have not entered into any agreements or undertakings of any kind
under which a default will be created by the execution and delivery of
this Agreement or the performance by you of your obligations
hereunder.
16. Term. This Agreement shall commence on the effective date hereof and shall
continue in effect for a period of thirty six (36) months from such date, subject to the
following:
(a) Purchaser may, at any time at its option, sooner terminate this
Agreement in the event (i) you fail to perform any obligation hereunder
(including failure to deliver Receivables for sale to Purchaser on a timely
basis) after ten (10) days written notice from Purchaser to do so; (ii) at
any time, after ten (10) days written notice from Purchaser of the
existence of such statement of facts, more than ten percent (10%) of
outstanding Receivables are Client Risk or Disputed Receivables
pursuant to Section 5 or 6; (iii) any of your creditors tries by legal
process to take any money or other property of yours in the possession
of Purchaser or under its control; (iv) any bankruptcy or insolvency
proceeding is commenced by or against you; (v) any financial or other
information you have given to Purchaser is materially false or misleading
in any way; (vi) you cease to conduct operation on a day-to-day basis;
(vii) in Purchaser's sole good faith opinion there is a material adverse
change in your financial condition and you are given ten (10) days'
written notice from Purchaser of its intent to terminate this Agreement
on such basis; or (viii) Purchaser is unable, after good faith attempts to
do so, to secure funds with which to purchase your Receivables in
accordance with the term of this Agreement.
(b) You hereby acknowledge that, in the event you repudiate your
obligations to Purchaser hereunder or otherwise take action to terminate
this Agreement before its scheduled termination date without the prior
written consent of Purchaser, Purchaser's damages for such repudiation
or unilateral termination will be impossible to ascertain without undue
expense and effort on its part. You therefore agree that, if you take
action to so terminate this Agreement or to so repudiate your
obligations hereunder, Purchaser shall be entitled as liquidated damages,
in addition to any other obligations you may owe Purchaser hereunder,
to a Termination Fee equal to fifty percent (50%) of the Average
Discount per Day during the period from the effective date of this
Agreement through the date of the last purchase of Receivables by
Purchaser hereunder, multiplied by the remaining days to run during the
term of this Agreement. As used herein, "Average Discount per Day"
shall mean one hundred percent (100%) of the aggregate Purchaser
Discount on all Receivables purchased by Purchaser from the date of
this Agreement to such date of last purchase, divided by the number of
calendar days during that period. There will be no Termination Fee
charged pursuant to this Section 16 if you cease operations and your
business is thereafter no longer operated by any party, or if Purchaser
terminates this Agreement pursuant to Section 16(a) for a reason other
than your breach.
(c) On termination of this Agreement at any time and for any reason, you
will immediately pay to Purchaser, on the effective date of such
termination, all amounts owing by you to Purchaser, including any
Discount Penalty or Termination Fee owing, and Purchaser will
immediately pay to you any amount owing by Purchaser to you on such
date and will pay to you, when due, any other payment thereafter owing
by Purchaser pursuant to the provisions of Section 2. The Purchaser
may, at its option, require that you pay to Purchaser the Residual Price
at the time of termination in exchange for all outstanding receivables. If
the Residual Price is not paid at the expiration of this Agreement, this
Agreement will remain in force and its term will automatically be
extended until such time as the Residual Price is paid to Purchaser.
Upon discharge of your obligations hereunder, Purchaser will release its
security interest by filing appropriate UCC-3's and return any
uncollected receivables to you.
17. Miscellaneous Provisions.
(a) This Agreement and the performance of the respective obligations
hereunder by the parties shall not be deemed to create a partnership or
joint venture between the parties nor to obligate Purchaser to pay any of
your vendors or creditors or otherwise to be responsible for the conduct
of your business.
(b) This Agreement represents the entire agreement of the parties with
respect to the subject matter hereof and may not be modified except
with the written consent of both parties. You acknowledge that in
entering into this Agreement you are not relying upon any
representation or statement of fact made by Purchaser which is not
contained herein.
(c) THIS AGREEMENT AND ALL TRANSACTION OCCURRING
HEREUNDER SHALL BE DEEMED MADE IN AND GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW JERSEY, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAW.
(d) YOU HEREBY IRREVOCABLY CONSENT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW
JERSEY, COUNTY OF BERGEN, AND OF ANY FEDERAL
COURT LOCATED IN THE STATE OF NEW JERSEY, AND
AGREE THAT VENUE IN EACH OF SUCH COURTS SHALL BE
DEEMED PROPER IN CONNECTION WITH ANY SUCH ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF PURCHASER TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST YOU IN
ANY OTHER JURISDICTION.
(e) YOU HEREBY WAIVE THE RIGHT TO A JURY TRIAL IN ANY
ACTION ARISING HEREUNDER.
(f) All notices hereunder shall be in writing and shall be deemed property
given on the day they are personally delivered and receipted for, one (1)
day after being sent by overnight mail or express courier, or five (5) days
after being mailed by certified or registered mail, postage prepaid and
return receipt requested, to the party to receive the same at its address
set forth herein or such address as it shall hereafter give by notice made
in accordance with the provisions of this Section 17(f).
(g) The terms hereof shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties. Purchaser shall have the
right to assign its rights and obligations hereunder to any corporation or
other entity controlled by or under common control with it, but this
Agreement may not otherwise be assigned by you or Purchaser without
the other party's consent.
(h) Purchaser shall have the right to assign its rights and obligations
hereunder to any corporation.
(I) You agree to pay all fees and assume all obligations owed to any party
representing you, or acting on your behalf as a finder. Purchaser will
not pay and shall not be responsible for obligations to any party for
finder fees related to this Agreement.
(j) This Agreement may be executed in any number of counterparts with the
same effect as is all parties hereto had all signed the same document.
All counterparts shall be construed together and shall constitute one
agreement.
18. Disbursements. Purchaser will disburse or reserve funds from your Book
Account in accordance with the following schedules:
(a) First, to pay all amounts owed by you to Purchaser, when due.
(b) Second, to remit to you the balance in your Book Account, after
deducting the above charges, on each Friday.
(c) Third, to remit to you on the effective date of termination of this
Agreement, any balance in your Book Account, subject to the provisions
of Section 16.
This Agreement shall be deemed executed and delivered and effective upon its execution
and delivery by the last party to sign the same.
By: Name of Company By: American Equities Group, Inc.
By:________________________ By:______________________________
Name Stephen A. Socha
President President
Date:_________________________ Date:_____________________________
Signed at:
Trust Agreement. Your acknowledgment that you have sold and assigned to
Purchaser all Receivables applicable under the terms of this Agreement and that this
Agreement provides that any checks and other Receivables shall be immediately
transferred to Purchaser uncashed.
You personally agree that you will not, nor to the best of your ability will you allow
any employee, officer or agent to deposit in your bank account, or in any other
depository, any check or other payment for any Advertising Account Receivable assigned
to Purchaser. Your acknowledge that all such checks and other payments are to be held
in trust for Purchaser and will be promptly delivered to Purchaser uncashed.
_______________________________
President
</TABLE>
<TABLE>
<S><C>
AMERICAN EQUITIES GROUP, INC.
East 80 Route 4, Suite 202
Paramus, NJ 07652
SHORT TERM ISSUE PURCHASE AGREEMENT
Date: , 199
Gentlemen:
In order to provide financing for the publishing operations of
("Seller") hereby agrees with American Equities Group, Inc., a New York corporation
(the "Purchaser") that during the term of this Agreement Seller will sell to Purchaser,
and Purchaser will purchase from Seller, all future Issues (defined below) of
magazine and such other periodicals as Seller may hereafter publish during the term of
this Agreement (the "Magazines"), and all Receivables (defined below). These purchases
shall be on the following terms and conditions:
1. Definitions. The following definitions shall apply to this Agreement:
a) "Book Account" shall mean the account maintained by Purchaser for Seller
pursuant to Section 8. The Book Account shall be deemed an account for
bookkeeping purposes only and to represent a claim against Purchaser, and
not against any specific assets.
b) "Client Risk Receivable" shall mean a Receivable declared to be a Client
Risk Receivable pursuant to Section 4 or any Receivable tendered for
purchase with two prior unpaid invoices or any invoice outstanding more than
90 days.
c) "Collateral" shall mean those assets owned by Seller which are subject to
Purchaser's security interest granted in Section 14.
d) "Discount Penalty" shall mean the penalty imposed on Seller by Section
10(d) for failure to sell any Issue or Receivable in accordance with the terms
of this Agreement.
e) "Disputed Receivable" shall mean a Receivable declared to be a Disputed
Receivable pursuant to Section 5.
f) "Initial Receivable Value" shall mean, as to any Issue, the price payable by
Purchaser as provided in Section 2.
g) "Issue" shall mean the finished magazine product.
h) "Purchaser Discount" shall mean, as to any Issue, two percent (2%) of the
Net Invoice Value of the Issue.
i) "Net Invoice Value" shall mean, as to any Receivable, the amount shown on
the original invoice therefor as being payable in cash by the customer owing
the same, net of all commissions, discounts (other than prompt payment
discounts) and credits granted by Seller or Purchaser (with Seller's prior
approval) thereon.
j) "Overdraft" shall mean any negative balance in Seller's Book Account.
k) "Permitted Payment" shall mean payments to Seller of Subordinated
Indebtedness permitted by Section 13.
l) "Proof Date" shall mean, as to any Issue, the date on which Seller returns the
"proofs" for the Issue to Seller's printer.
m) "Receivables" shall mean all accounts receivable generated by Seller,
including all revenue pertaining to display and classified advertisements.
n) "Residual" shall mean the amount collected in excess of the Residual Price.
o) "Residual Price" shall mean, as to any Issue, the sum of (i) the initial
Receivable value therefor paid by Purchaser, plus (ii) the Purchaser Discount
for the Issue.
p) "Service Fee" shall mean, as to any Issue, percent ( %) of the Net
Invoice Value, paid to Purchaser for production, collection, accounting and
administrative services required of Purchaser by this Agreement.
q) "Subordinated Indebtedness" shall mean the indebtedness owing by
Purchaser, or its designee, to Seller at any time, subordinated pursuant to
Section 13.
r) "Superior Indebtedness" shall mean the indebtedness owing by Purchaser, or
its designee, to which the Subordinated Indebtedness is subordinated
pursuant to Section 13.
s) "Tearsheet Date" shall mean, as to any Issue, the day on which the printer
delivers the tearsheets for the Issue to Purchaser.
t) "Termination Fee" shall mean the fee which may become payable to
Purchaser on termination of this Agreement pursuant to Section 16(c).
2. Purchase of Issues and Existing Receivables. Seller will sell to Purchaser, and
Purchaser will purchase from Seller, each future Issue and Receivables generated
thereby, on the Issue's Proof Date. Purchaser's obligation to acquire any Issue or
portion thereof is contingent upon Purchaser's receipt of the documents required
by Section 3 in its sole discretion. Each such purchase will be without recourse
to Seller, except as provided in Section 5. Purchaser shall not be required to
purchase any Issue if by the results at such purchase, the Net Invoice Value of all
outstanding Receivables purchased by Purchaser or affiliated company (other
than Client Risk and Disputed Receivables), exceeds $400,000.
The Initial Receivable Value for each Issue shall be percent ( %) of its Net
Invoice Value from which the Service Fee will be charged, and which shall be
payable on the Issue's Tearsheet Date. Seller shall be paid, within two business
days of the last business day of each month, a Residual for each Issue equal to
collections made by Purchaser through that month on the Issue in excess of the
Residual Price, less all amounts previously paid as Residual thereon.
All payments of the Initial Receivable Value and Bonus with respect to Issues
will be made by crediting the amount thereof to Seller's Book Account.
3. Conditions to Purchase. As to Issues, on the day on which Seller sends either
the boards or film for production of an Issue to a Purchaser-approved printer,
Seller will deliver to Purchaser job orders covering printing of the Issue, the
postage for its mailing and each other production service needed to complete its
publication, countersigned as correct by the production vendors to whom they are
addressed. On the Tearsheet Date, Seller will deliver to Purchaser an original
invoice for each Receivable generated thereby, the customer's written order (if
any) for the advertisement generating the Receivable and Seller's confirmation of
that order.
There must be an advertisement for each invoice and an invoice for each
advertisement (including each trade and prepaid advertisement). The purchase
of the Issue shall be deemed complete on receipt and acceptance of these
documents by Purchaser.
Each invoice and confirmation submitted to Purchaser shall be in form specified
by Purchaser, and each invoice shall show as the owner of the Receivables either
Purchaser or a "fictitious" name, acceptable to Seller, which is registered and
owned by Purchaser (the "DBA"). All invoices for Receivables purchased shall
be mailed directly to the customers by Purchaser, and Seller will promptly notify
Purchaser of any subsequent communication Seller has with any customer with
respect thereto.
4. Client Risk Receivables. As to any Receivable, if Seller fails to deliver to
Purchaser the customer's written order giving rise to the Receivable or Seller's
confirmation thereof countersigned by the customer, or if, when the Receivable is
tendered for purchase, it is in excess of 90 days old or if, it is a trade
advertisement, or if, prior to the purchase of the Receivable, Purchaser
determines, in its reasonable discretion, that the Receivable will not be collectible
due to the poor credit of the customer owing the same, Purchaser shall have the
right to declare the Receivable to be a Client Risk Receivable and to refuse to
pay the Initial Receivable Value or, if it is a Receivable, to reduce the Initial
Receivable Value of the Issue generating it by the portion thereof attributable to
such Receivable.
Purchaser will use its best efforts to collect Client Risk Receivables pursuant to
Section 7 of this Agreement. No Service Fee or Purchase Discount will be
charged for the collection of Client Risk Receivables so long as they total less
than 5% of the Receivable of which they are a part. Client Risk Receivables
exceeding 5% of the Receivable will be subject to all Service Fees and Purchaser
Discounts.
5. Disputed Receivables. As to any Receivable purchased and paid for by
Purchaser which the customer refuses to pay for any reason whatsoever other
than its ability to pay, Purchaser shall have the right to declare that Receivable to
be a Disputed Receivable and to charge Seller's Book Account with the Residual
Price attributable to such Disputed Receivable. In addition, if Purchaser, in its
good faith and reasonable discretion, determines that a Receivable may be
uncollectible due to insufficient performance, it may be determined to be a
Disputed Receivable.
Notwithstanding the fact that a Receivable is declared a Disputed Receivable,
Purchaser shall be deemed to have purchased, to hold title to and have the right
to collect it, and to charge the Purchaser Discount and Service Fee therefor.
6. Prepayments on Receivables. If any account debtor shall prepay any amount
with respect to such service or goods (prior to delivery date), the full amount of
such prepayment may be retained by Seller. Seller agrees that it will present
Purchaser with an invoice acknowledging prepayment of said Receivable showing
$0 balance.
7. Production of Issues; Collection of Receivables. Upon Purchaser's acceptance of
job orders to Purchaser-approved vendors for an Issue delivered by Seller
pursuant to Section 3, it will buy the Issue subject to such job orders and if
Purchaser chooses, will pay them in accordance with the job order from the first
available funds in Seller's Book Account. Purchaser may confirm to each vendor
to whom a job order has been issued the amount owing to such vendor upon
completion of his performance and the date such payment will be made. In the
event Seller fails to publish timely and deliver any Issue, the Receivables of which
have been purchased by Purchaser, the Purchaser shall have the right to cause
the Issue to be published and delivered utilizing any and all material produced
heretofore by Seller for such Issue and to charge Seller's Book Account for all
costs thereof. Situations involving Disputed Receivables that are resolved will be
credited promptly.
Purchaser will undertake collection efforts for all Receivables and use its best
efforts to collect them in accordance with their terms, acting pursuant to its
regular collection practices and normal industry standards. Collections made by
Purchaser on each Receivable shall, after deducting the Initial Receivable Value
attributable thereto, the Purchaser Discount in respect thereof, and the
remaining uncollected portion of the Issue Residual Price to which the
Receivable is attributable, be credited to Seller's Book Account. Purchaser will
attempt to resolve promptly any dispute with the customer relating to payment of
any Receivable, but any dispute involving more than One Hundred Dollars
($100) shall not be resolved without Seller's prior consent. Purchaser will send to
each customer a statement of account monthly as to all outstanding Receivables
owed by that customer, and at the end of each month, Purchaser will send Seller
an aging of all outstanding Receivables.
8. Book Account. The Book Account is the account to which all monies owing by
Purchaser to Seller shall be credited and all monies owing by Seller to Purchaser
shall be charged. All monies owing by either party to the other will be booked to
the Book Account on the day they become due. Purchaser will disburse or
reserve for payment from Seller's Book Account funds in accordance with
Section 18 of this Agreement. Statements of all transactions in Seller's Book
Account will be sent to Seller at the end of each month. In the event Seller fails
to confirm or dispute such end-of-month position within the 30-day period,
Purchaser's statement of end-of-month position shall be deemed correct, final
and binding upon Seller.
9. Overdraft. If at any time an Overdraft in Seller's Book Account shall exist, it
shall be payable on demand by Purchaser and may be paid by Seller at any time
without premium or penalty. Repayment of the Overdraft may also be collected
at any time by Purchaser, without prior notice to Seller and without Seller's
consent, from the proceeds of the Initial Receivable Value for any Issue or
Receivable purchased by Purchaser hereunder, any Residuals payable by
Purchaser to Seller pursuant to the provisions hereof, and any other monies
coming into Purchaser's possession which belong to Seller.
Each Overdraft (whether arising from a Disputed Receivable or requested loan)
shall bear interest on the outstanding principal amount thereof for each day it is
outstanding until paid in full at the rate of eighteen percent (18%) per annum.
Interest shall be charged to Seller's Book Account daily.
10. Purchaser Charges. In addition to charges heretofore specified, Purchaser will
charge Seller's Book Account, as and when incurred or payable, for the following:
(a) One Thousand Five Hundred Dollars ($1,500) for the expense of Purchaser's
due diligence, lien searches, filings and preparing legal documentation in
connection with the execution and delivery of this Agreement.
(b) Purchaser's direct out-of-pocket costs for wire transfers and expenses mailed
to Seller, and any expenses incurred for accounting or other reports with
respect to Receivables and Seller's Book Account, other than those required
by Sections 7 and 8.
(c) A Discount Penalty equal to the Purchaser Discount and Service Fee on
each Issue and/or Receivable Seller fails, for any reason (other than
Purchaser's default), to sell to Purchaser in accordance with the provisions of
this Agreement.
(d) Any Termination Fee payable pursuant to Section 16(c) of this Agreement.
11. Seller's Additional Obligations. Seller agrees that:
(a) Seller will immediately notify Purchaser of any Receivable which, to Seller's
knowledge, is disputed by the account debtor or uncollectible for any reason.
(b) Upon receipt of any oral purchase order by any customer, Seller will
immediately issue a written confirmation to that customer, in form
satisfactory to Purchaser, and Seller will use its best efforts to have the
customer countersign and return to Seller a copy of the confirmation. Each
confirmation shall contain all terms of the agreement between Seller and the
customer as to price, payment terms and quantity and specification of the
advertising or other goods and services to be provided by Seller.
(c) Seller will provide Purchaser with its annual financial statements within one
hundred-twenty (120) days after the end of each fiscal year and quarterly P
& L as available both in detail satisfactory to Purchaser. Purchaser agrees to
keep all information confidential. Purchaser shall have the right to inspect
and make copies of Seller's books and records, at any reasonable time during
business hours, with written notice at Purchaser's expense, and to verify the
accuracy of such statements and the validity of all Receivables it purchases
hereunder.
(d) Seller will not instruct any customer owing Receivables to make any payment
to Seller. All checks and other payments Seller receives from customers for
Receivables will be immediately delivered uncashed to Purchaser. Each of
Seller's principal officers shall sign a trust agreement with Purchaser in which
they personally agree to turn over to Purchaser all such payments received by
them from customers.
(e) Seller will execute and deliver to Purchaser UCC-1 Financing Statements
acknowledging the ownership by Purchaser of all Issues and Receivables it
purchases.
(f) Seller will preserve and protect Purchaser's rights to all Issues and
Receivables it purchases, impose no lien or encumbrance thereon, and
dispose of no interest in the same except by sale to Purchaser in accordance
with the terms of this Agreement.
(g) Seller will execute and deliver to Purchaser a formal letter of assignment
notifying account debtors that they must make all payments to Purchaser or
the agreed DBA name.
(h) Seller will obtain within 30 days a life insurance policy with a company
acceptable to Purchaser in the amount of $100,000 on the life of Donald
Tuthill payable to Purchaser as beneficiary for the term of this Agreement.
The proceeds, if any, from the above noted policy will be applied to Seller's
account.
(i) Seller hereby grants Purchaser a special power of attorney coupled with an
interest to execute any documents for checks to effect the above.
12. Purchaser's Rights. In addition to all other rights it has hereunder, Purchaser
shall have the following rights:
(a) Any monies collected by Purchaser on account of Receivables will be passed
through a segregated DBA account prior to being commingled by it with its
other funds, and such monies shall not be deemed to constitute a trust fund
or special account for Seller's benefit.
(b) Purchaser may offset any monies it owes to Seller against any monies Seller
owes to Purchaser, but Seller shall have no such right of offset.
(c) Seller agrees to execute in its name and file, in such places and at such times
as Purchaser shall elect, such financing statements, continuations and
amendments to financing statements and other similar documents and
instruments as Purchaser shall deem necessary to give public notice of its
ownership of the Issues and Receivables purchased by it, and its security
interest in the Collateral granted in Section 14. If Seller unreasonably fails
to do so, hereby irrevocably make, constitute and appoint Purchaser (and any
of its officers, employees and agents designated by it) as your true and lawful
attorney-in-fact with power to execute and file such documents.
(d) Purchaser may endorse Seller's name on any check, notes, acceptance,
money orders, drafts and other forms of payment or security that may come
into Purchaser's possession relating to payment of the Receivables it
purchases during the term of this Agreement, and send notices to Seller's
customers directing them to make payment to Purchaser of all outstanding
Receivables owing by them and requesting verification by them of the
amounts payable on such Receivables until Purchaser is paid in full.
(e) Purchaser may assign the Receivables it purchases at any time to any third
party and borrow against them up to the full amount thereof, or resell any
portion of them to any party on any terms and conditions it chooses. Seller
subordinates all Receivables up to the amount of the Residual Price of the
pool in which they are continued.
(f) Purchaser may exercise any and all other rights and remedies available to it
under this Agreement, any other agreement between Seller and Purchaser or
any affiliates of Purchaser, or otherwise available to Purchaser at law or in
equity, for the purpose of enforcing Purchaser's rights in the Issues and
Receivables it purchases and the performance by Seller of Seller's obligations
to Purchaser hereunder.
(g) Purchaser may, at any time, purchase any obligation Seller owes to any third
party for any goods or services for a price mutually determined by that third
party and Purchaser in their sole discretion, and may charge Seller's Book
Account for the amount paid on the ninety (90) days after the goods or
services provided by the third party have been performed or delivered, or
such earlier date as Seller may agree. This section (g) will only apply to any
third party supplier who attempts to halt the normal production and
distribution of Seller's publication.
13. Subordination. Seller hereby irrevocably subordinates and postpones, and agrees
not to demand, sue for, take, accept, or receive (whether voluntarily,
involuntarily, by operation of law, by offset, recoupment, application against any
other indebtedness or otherwise) any payment on any Subordinated
Indebtedness or to accept any security therefor, until all indebtedness of
Purchaser or its designee to any third party, however, and whenever incurred,
whether now or hereafter due, and whether direct or indirect, primary or
secondary, joint or several, contingent or fixed, secured or unsecured, or
evidenced by an instrument in writing (all of which indebtedness, including
interest and expenses of collection, is called herein "Superior Indebtedness"),
shall have been paid to Purchaser, or its designee in full; provided, that so long
as there shall not have occurred and be continuing any material default under
this agreement. Purchaser shall make payments to Seller or for its account in
respect of the Subordinated Indebtedness in accordance with the terms of this
Agreement (such payments are called herein "Permitted Payments").
Purchaser may, at any time and from time to time, renew or extend the time of
payment of, or grant indulgences or forebear the exercise of rights and remedies
in respect of, any or all of the Superior Indebtedness or any collateral pledged by
it as security for payment of the Superior Indebtedness, and you shall nonetheless
remain fully bound by the covenants to this Section 13. Seller agrees to deliver
to Purchaser and, pending such delivery, to hold in trust for Purchaser, any
payments (other than Permitted Payments) made or security given by Purchaser
to Seller. Seller agrees that it will not assign or transfer to any third party any
Subordinated Indebtedness unless such assignment is expressly made subject to
the provisions of this Section 13.
For the benefit of Purchaser, Seller hereby confirms, acknowledges and
represents that (i) the Subordinated Indebtedness has not been and will not be
subordinated to any other claim against Purchaser during such time as the
Superior Indebtedness or any part thereof remains outstanding and unpaid; (ii)
Seller will sell all Issues and Receivables unconditionally and irrevocably to
Purchaser and, on such sale, they will be the sole property of Purchaser and
Seller will have no right, title or interest therein; (iii) Seller will not attempt to
exercise any right of Purchaser to collect such Receivables; and (iv) Purchaser
will make no payment and will give no security to Seller for or on account of the
Subordinated Indebtedness except as expressly permitted by the terms of this
Agreement.
14. Security. In the event that Purchaser's interest in the Receivables purchased by
it is deemed by a court of competent jurisdiction to be a security interest instead
of a purchase, then this Agreement shall be deemed to constitute a security
agreement under Article 9 of the New Jersey Uniform Commercial Code and
Purchaser shall have all rights of a secured party thereunder with respect to the
Receivables so purchased (the "Collateral").
As security for payment of any Overdraft and for the performance of Seller's
obligations hereunder, Seller hereby assigns and grants to Purchaser a security
interest in the following assets (hereinafter called "Collateral"): all Receivables,
including all books and records pertaining to same, generated by you until such
time as (a) this Agreement is terminated either as specified in Section 16 or by
mutual consent; or (b) all obligations by Seller to Purchaser, including all
termination fees and Overdrafts have been paid, any rights to titles to the
Magazines, all lists of subscribers, vendors and advertisers; all work in process, all
trademarks, copyrights and literary property rights, and all contract rights; all
other general intangibles.
Purchaser shall have the following rights, in addition to the rights granted to it by
law:
(a) In the event Seller fails to perform any obligation hereunder after ten (10)
business days written notice from Purchaser to do so, Purchaser may (i)
notify the postal authorities to change the address for delivery of Seller's mail
to an address designated by Purchaser; (ii) receive, open, copy and distribute
all mail addressed to Seller, retaining all mail relating to the Collateral and
forwarding all other mail to Seller; (iii) enter any and all premises where any
of the Collateral is located and take possession of the Collateral; (iv) require
Seller, at Seller's expense, to assemble the Collateral and make it available
to Purchaser at a place or places designated by Purchaser; and (v) sell any or
all of the Collateral at either a public or private sale, or both, by way of one
or more contracts or transactions, for cash or on terms, in such manner and
at such places (including your premises) as is commercially reasonable in the
opinion of Purchaser. Should Purchaser exercise its right to possession,
Seller hereby waives its right, if any, to cause Purchaser to post a bond or any
other type of security. Any requirement of reasonable notice regarding
disposition of the Collateral by Purchaser shall be conclusively met if given to
Seller at least five (5) days before the date fixed for a public sale or at least
five (5) days before the date on or after which a private sale or other
disposition is to be made. Purchaser shall be entitled to purchase the
Collateral at any public sale. It is not necessary that the Collateral be
present at any sale by Purchaser hereunder. Any deficiency in the amount
Seller owes Purchaser which exists after disposition of the Collateral will be
paid immediately by Seller to Purchaser. Any excess of sale proceeds over
the amounts owing by Seller to Purchaser shall be returned to Seller, subject,
however, to applicable law and the rights of the holders of other liens on the
property.
(b) Purchaser may set off, exercise any lien or other right of attachment or
garnishment, and apply any and all moneys, balances, credits, accounts and
deposits at any time owing by Purchaser to or for Seller's account, against
any of Seller's obligations to Purchaser.
(c) Purchaser may assign this security interest at any time to any third party.
(d) Purchaser may exercise any and all other rights and remedies available under
this Agreement, any other agreement between Purchaser and Seller or any
guarantor, or otherwise available to Purchaser at law or in equity, to enforce
Purchaser's rights in the Collateral and obtain payment and performance of
Seller's obligations to Purchaser.
Seller hereby agrees to insure, preserve ad protect the Collateral and any
other property used in the conduct of Seller's business and not sell or
otherwise dispose of the same (except in the ordinary course of business)
without Purchaser's prior written consent.
This security interest shall survive the termination of this Agreement and
shall remain in full force and effect until such time as all obligations owing
by Seller to Purchaser have been paid in full.
15. Seller's Representations. Seller hereby represents and covenants to Purchaser
that:
(a) Seller is a corporation duly organized and existing under the laws of the
State of and is duly qualified to do business in all states in which
Seller is currently conducting business.
(b) The person executing and delivering this Agreement on Seller's behalf has
been duly authorized to do so by all requisite corporate authority.
(c) Except to the extent heretofore disclosed to Purchaser, (i) Seller has no liens
of any kind on any of its assets, and will not grant or suffer any such liens
hereafter without Purchaser's prior consent; (ii) you have filed all income,
franchise, sales and other federal, state and local tax returns required to be
filed by Seller to date and have paid all taxes shown to be due thereon, and
Seller will continue to file all such returns and to pay all such taxes when due
hereafter, and (iii) Seller has no outstanding litigation pending or threatened
against Seller (including, without limitation, any claims or assessments for
unpaid taxes), and Seller will immediately notify Purchaser of any such
litigation commenced or threatened hereafter.
(d) Seller's books and records and all of its other assets are located at the
address set forth below in this Agreement, and except as otherwise disclosed
to Purchaser, they have never been located at any other address. Such books,
records and other assets will not hereafter be removed from that address
without prior written notice to Purchaser.
(e) Seller has not entered into any agreements or undertakings of any kind
under which a default will be created by the execution and delivery of this
Agreement or the performance by Seller of its obligations hereunder.
16. Term. This Agreement shall commence on the effective date hereof and shall
continue in effect for a period of thirty-six (36) months from such date, except
that Seller may cancel this Agreement only at the conclusion of the 18th month
with 90 days prior written notice, subject to the following:
(a) Purchaser may, at any time at its option, sooner terminate this Agreement in
the event (i) Seller fails to perform any obligation hereunder (including
failure to deliver Issues or Receivables for sale to Purchaser on a timely
basis) after ten (10) business days written notice from Purchaser to do so; (ii)
at any time, after ten (10) business days written notice from Purchaser of the
existence of such statement of facts, more than ten percent (10%) of
outstanding Receivables are Client Risk or Disputed Receivables pursuant to
Section 5 or 6; (iii) any of Seller's creditors tries by legal process to take any
money or other property of Seller's in the possession of Purchaser or under
its control; (iv) any bankruptcy or insolvency proceeding is commenced by or
against Seller; (v) any financial or other information you have given to
Purchaser is materially false or misleading in any way; (vi) Seller ceases to
conduct operation on a day-to-day basis; or (vii) in Purchaser's sole good
faith opinion there is a material adverse change in Seller's financial condition
from the date hereof and you are given ten (10) days' written notice from
Purchaser of its intent to terminate this Agreement on such basis.
(b) Seller hereby acknowledges that, in the event Seller repudiates its obligations
to Purchaser hereunder or otherwise takes action to terminate this
Agreement before its scheduled termination date without the prior written
consent of Purchaser, Purchaser's damages for such repudiation or unilateral
termination will be impossible to ascertain without undue expense and effort
on its part. Seller therefore agrees that, if Seller takes action to so terminate
this Agreement or to so repudiate its obligations hereunder, Purchaser shall
be entitled as liquidated damages, in addition to any other obligations Seller
may owe Purchaser hereunder, to a Termination Fee equal to fifty percent
(50%) of the Average Discount per Day during the period from the effective
date of this Agreement through the date of the last purchase of an Issue by
Purchaser hereunder, multiplied by the remaining days to run during the
term of this Agreement. As used herein, "Average Discount per Day" shall
mean one hundred percent (100%) of the aggregate Purchaser Discount and
service fee on all Receivables purchased by Purchaser from the date of this
Agreement to such date of last purchase, divided by the number of calendar
days during that period. There will be no Termination Fee charged pursuant
to this Section 16 if Seller ceases operations and its business is thereafter no
longer operated by any party, or if Purchaser terminates this Agreement
pursuant to Section 16(a) for a reason other than Seller's breach.
(c) On termination of this Agreement at any time and for any reason, Seller will
immediately pay to Purchaser, on the effective date of such termination, all
amounts owing by Seller to Purchaser, including any Discount Penalty or
Termination Fee owing, and Purchaser will immediately pay to Seller any
amount owing by Purchaser to Seller on such date and will pay to Seller,
when due, any other payment thereafter owing by Purchaser pursuant to the
provisions of Section 2. Except for completion of such payments, from and
after the effective date of termination, this Agreement shall no longer be of
any force or effect and neither party shall owe the other party any further
obligations hereunder. Upon discharge of Seller's obligations hereunder,
Purchaser will release its security interest by filing UCC-3 Termination
Statements.
17. Miscellaneous Provisions.
(a) This Agreement and the performance of the respective obligations hereunder
by the parties shall not be deemed to create a partnership or joint venture
between the parties nor to obligate Purchaser to pay any of Seller's vendors
or creditors or otherwise to be responsible for the conduct of Seller's
business.
(b) This Agreement represents the entire agreement of the parties with respect
to the subject matter hereof and may not be modified except with the written
consent of both parties. Seller acknowledges that in entering into this
Agreement Seller is not relying upon any representation or statement of fact
made by Purchaser which is not contained herein.
(c) THIS AGREEMENT AND ALL TRANSACTION OCCURRING
HEREUNDER SHALL BE DEEMED MADE IN AND GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW JERSEY, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICT OF LAW.
(d) SELLER HEREBY IRREVOCABLY CONSENTS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW JERSEY,
COUNTY OF BERGEN, AND OF ANY FEDERAL COURT LOCATED
IN THE STATE OF NEW JERSEY, AND AGREE THAT VENUE IN
EACH OF SUCH COURTS SHALL BE DEEMED PROPER IN
CONNECTION WITH ANY SUCH ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF PURCHASER TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST SELLER IN ANY OTHER JURISDICTION.
(e) SELLER HEREBY WAIVES THE RIGHT TO A JURY TRIAL IN ANY
ACTION ARISING HEREUNDER.
(f) All notices hereunder shall be in writing and shall be deemed properly given
on the day they are personally delivered and receipted for, one (1) day after
being sent by overnight mail or express courier, or five (5) days after being
mailed by certified or registered mail, postage prepaid and return receipt
requested, to the party to receive the same at its address set forth below or
such address as it shall hereafter give by notice made in accordance with the
provisions of this Section.
If to Seller:
If to Purchaser: American Equities Group, Inc.
East 80 Route 4, Suite 202
Paramus, NJ 07652
(g) The terms hereof shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties. Purchaser shall have the right
to assign its rights and obligations hereunder to any corporation or other
entity controlled by or under common control with it, but this Agreement
may not otherwise be assigned by Seller or Purchaser without the other
party's consent.
(h) Seller agrees to pay all fees and assume all obligations owed to any party
representing Seller, or acting on Seller's behalf as a finder. Purchaser will
not pay and shall not be responsible for obligations to any party for finder
fees related to this Agreement.
18. Disbursements. Purchaser will disburse or reserve funds from Seller's Book
Account in accordance with the following schedules:
(a) First, to pay all amounts owed by Seller to Purchaser, when due.
(b) Second, to remit to you the balance in Seller's Book Account, after
deducting the above charges, on each Friday.
(c) Third, to remit to you on the effective date of termination of this
Agreement, any balance in Seller's Book Account, subject to the provisions of
Section 16.
This Agreement shall be deemed executed and delivered and effective upon its execution
and delivery by the last party to sign the same.
By: American Equities Group, Inc.
Agreed: By:
Stephen A. Socha,
Chief Operating Officer
Date: Date:
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On this day of , 1995, before me personally came
, to me known, who, being by me duly sworn, did depose and say that he is
of , the corporation described herein and he executed the foregoing
instrument by the order of board of directors.
Notary Public
</TABLE>
<TABLE>
<S><C>
ROTHENBERG & COMPANY
Certified Public Accountants
1979 Marcus Avenue
Lake Success, N.Y. 11042
TEL NO. (516) 437-3800 AND (212) 986-2626
FAX NO. (516) 437-2235
We consent to the reference to our firm under the caption "Experts" and to the use of
our report dated March 22, 1996, in the Registration Statement (Form SB-2, No.
333-2856) and the related Prospectus of American Equities Income Fund, Inc.
Rothenberg & Company
Lake Success, New York
March 27, 1996
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM T-2
Statement of Eligibility Under
the Trust Indenture Act of 1939 of an Individual
Designated to Act as Trustee
Check if an application to determine eligibility of a
trustee pursuant to Section 305(b)(2) X .
Sheldon Drobny
(Name of Trustee)
Social Security Number
95 Revere Drive, Suite A, Northbrook, Illinois 60062-1585
(Business Address: street, city, state and zip code)
American Equities Income Fund, Inc.
(Exact name of obligor as specified in its charter)
Delaware
(State of other jurisdiction
of incorporation or organization)
22-3429295
(I.R.S. Employer
Identification Number)
East 80 Route 4, Paramus, New Jersey
(Address of principal executive offices)
07652
(Zip code)
12% Secured Promissory Notes
(Title of indenture securities)<PAGE>
Item 1. Affiliation with Obligor.
If the obligor is an affiliate of the Trustee, describe each such affiliation.
None.
Item 2. Trusteeships under other obligations.
If the Trustee is trustee under another Indenture under which any other
securities, or certificates of interest or participation in any other securities, of the obligor
are outstanding, file a copy of such indenture as an exhibit and furnish the following
information:
(a) Title of such other securities under each other indenture.
None.
(b) A brief statement of the facts relied upon by the Trustee for the claim that
no conflicting interest within the meaning of Section 310(b)(1) of the Act arises as a
result of the trusteeship under such other indenture, including a statement as of how the
indenture securities will rank as compared with the securities issued under such other
indenture.
N/A
Item 3. Certain relationships between the Trustee and the Obligor or an underwriter.
If the Trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor, state the nature of
each such connection.
None.
Item 4. Securities of the Obligor owned or held by the Trustee.
As of March 28, 1996 - None.
Item 5. Securities of underwriters owned or held by the Trustee.
As of March 28, 1996 - None.
Item 6. Holdings by the Trustee of voting securities of certain affiliates or principal
holders of voting securities of the Obligor.
As of March 28, 1996 - None.
Item 7. Holdings by the Trustee of any securities of a person owning 50 percent or more
of the voting securities of the Obligor.
As of March 28, 1996 - None.
Item 8. Indebtedness of the Obligor to the Trustee.
None.
Item 9. Defaults by the Obligor.
(a) State whether there is or has been any default with respect to the securities
under this indenture. Explain the nature of any such default.
None.
(b) If the Trustee is a trustee under another indenture under which any other
securities or certificates of interest or participation in other securities, of this obligor
are outstanding, or is trustee for more than one outstanding series of securities, state
whether there has been a default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such default.
None.
Item 10. Affiliations with the underwriters.
If any underwriter is an affiliate of the Trustee, describe each such affiliation.
None.
Item 11. List of Exhibits.
1. Indenture of Trust, by and between the Obligor and the Trustee.
<PAGE>
SIGNATURE
Pursuant to the Trust Indenture Act of 1939, I, Sheldon Drobny, have signed this
statement of eligibility in the City of Northbrook, and State of Illinois, on the 28th day of
March, 1996.
SHELDON DROBNY
Trustee
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