<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarterly Period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ______________________
Commission file no. 0-20863
CAPITAL FACTORS HOLDING, INC.
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
FLORIDA 65-0500757
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
120 EAST PALMETTO PARK ROAD, SUITE 500, BOCA RATON, FLORIDA 33432
---------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(561) 368-5011
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports). and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
---------- ---------
As of November 12, 1997 there were 12,303,850 shares of the registrant's Common
Stock outstanding.
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ITEM 1.
PART I. FINANCIAL INFORMATION
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 33,536,885 $ 28,101,237
Restricted cash 10,134,375 6,562,500
Receivables 686,978,558 490,977,592
Unearned discounts (3,674,978) (2,436,301)
Allowance for credit losses (4,128,404) (2,993,534)
------------- -------------
Receivables, net 679,175,176 485,547,757
Property and equipment, net 4,394,122 3,095,157
Other assets 8,856,901 7,260,672
------------- -------------
TOTAL $ 736,097,459 $ 530,567,323
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Due to affiliates $ 7,127,135 $ 1,310,304
Capital Factors variable rate asset backed certificates 275,000,000 175,000,000
Note payable to affiliate 93,034,000 70,131,000
Other borrowings 46,498,095 25,900,000
Due to factoring clients 235,797,961 191,488,668
Other liabilities 7,414,820 4,648,892
------------- -------------
Total liabilities $ 664,872,011 $ 468,478,864
============= =============
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 25,000,000 shares authorized; 12,303,400
issued and outstanding at 9/30/97 and 12,300,000
issued and outstanding at 12/31/96 123,034 123,000
Additional paid-in capital 27,180,798 27,151,932
Retained earnings 43,921,616 34,813,527
------------- -------------
Total stockholders' equity 71,225,448 62,088,459
============= =============
TOTAL $ 736,097,459 $ 530,567,323
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Factoring fees $ 8,115,212 $ 6,898,155 $21,992,616 $18,541,388
Interest income 12,860,812 9,445,097 33,091,669 25,460,552
Letter of credit and other fees 1,174,737 871,416 3,246,126 2,396,221
Other 578,916 430,418 1,606,879 1,079,160
----------- ----------- ----------- -----------
Total revenues 22,729,677 17,645,086 59,937,290 47,477,321
EXPENSES
Interest expense 5,269,495 4,099,800 13,822,754 11,161,660
Interest expense to affiliates 2,183,375 1,176,177 4,986,895 3,594,839
Salaries and benefits 4,691,363 3,669,812 13,863,607 10,331,990
Provision for credit losses 1,600,000 700,000 3,800,000 2,800,000
Occupancy and other office expenses 1,255,654 963,707 3,364,416 2,707,843
Depreciation 249,456 167,895 640,813 475,729
Professional fees 333,690 230,681 1,013,944 679,185
Other 1,026,032 902,611 3,137,031 2,493,449
----------- ----------- ----------- -----------
Total expenses 16,609,065 11,910,683 44,629,460 34,244,695
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 6,120,612 5,734,403 15,307,830 13,232,626
PROVISION FOR INCOME TAXES 2,472,073 2,463,001 6,199,741 5,500,064
----------- ----------- ----------- -----------
NET INCOME $ 3,648,539 $ 3,271,402 $ 9,108,089 $ 7,732,562
=========== =========== =========== ===========
NET INCOME PER SHARE $ 0.30 $ 0.28 $ 0.74 $ 0.73
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,108,089 $ 7,732,562
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 640,813 475,729
Deferred income taxes (1,007,084) (90,636)
Provision for credit losses 3,800,000 2,800,000
Increase in restricted cash (3,571,875) (375,000)
Loss on sale of assets -- 14,495
Due to affiliates 5,816,831 (1,075,438)
Other assets (429,230) (2,400,697)
Other liabilities 2,765,928 1,218,717
------------- -------------
Net cash provided by operating activities 17,123,472 8,299,732
------------- -------------
INVESTING ACTIVITIES:
Loan to clients, net (26,283,717) 6,138,818
Increase in asset based loans (43,069,829) (13,851,998)
Net increase in factoring accounts receivable,
net of due to factoring clients (101,697,677) (85,617,953)
Sales of participations 22,353,358 5,236,296
Payments on participations (4,420,261) (2,741,606)
Purchase of property and equipment (1,886,550) (347,223)
Disposal of property and equipment 26,322 25,033
------------- -------------
Net cash used in investing activities (154,978,354) (91,158,633)
------------- -------------
FINANCING ACTIVITIES:
Issuance of Senior Certificates 100,000,000 --
Restricted proceeds from Senior Certificates -- 10,000,000
Net proceeds from sale of Common Stock -- 17,646,203
Proceeds from exercise of stock options 28,900
Proceeds from borrowing 129,235,095 119,863,000
Payments on borrowing (85,734,000) (56,307,000)
Payments of deferred financing costs (972,230) (857,985)
Amortization of deferred costs 732,765 585,546
------------- -------------
Net cash provided by financing activities 143,290,530 90,929,764
------------- -------------
NET INCREASE IN CASH 5,435,648 8,070,863
CASH, BEGINNING OF PERIOD 28,101,237 20,326,814
------------- -------------
CASH, END OF PERIOD $ 33,536,885 $ 28,397,677
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest $ 17,584,735 $ 13,572,703
============= =============
Cash payments for income taxes $ 61,103 $ 3,142
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE 1: GENERAL
The accompanying unaudited consolidated financial statements of Capital Factors
Holding, Inc. and Subsidiaries (the "Company") have been prepared on a
consistent basis in conformity with the instructions to Form 10-Q and Article 10
of Regulation S-X and therefore do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the financial statements
reflect all adjustments (principally consisting of normal, recurring accruals)
necessary to present fairly the financial condition of the Company as of
September 30, 1997 and December 31, 1996, the results of its operations for the
three and nine month periods ended September 30, 1997 and 1996 and its cash
flows for the nine months ended September 30, 1997 and 1996. All significant
inter-company transactions and balances have been eliminated. The statements are
unaudited except for the Consolidated Statements of Condition as of December 31,
1996.
The accounting policies followed for interim financial reporting are consistent
with the accounting policies set forth in Note 2 to the Consolidated Financial
Statements appearing in the Company's Form 10-K for the year ended December 31,
1996 as filed with the Securities and Exchange Commission.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," is effective for financial statements issued for periods ending after
December 15, 1997. This statement requires a dual presentation of basic and
diluted earnings per share on the face of the income statement. Adoption of this
statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements.. Management has not evaluated the
impact this statement will have on the Company's consolidated financial position
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997. This statement establishes standards for the way that public
companies report selected information about operating segments. Adoption of this
statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
NOTE 2: RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Nonrecourse $373,909,478 $269,812,980
Recourse 181,272,572 157,178,312
------------ ------------
Factored accounts receivables 555,182,050 426,991,292
Loans to factoring clients 52,707,136 27,966,757
Asset based loans 79,089,372 36,019,543
------------ ------------
$686,978,558 $490,977,592
============ ============
</TABLE>
5
<PAGE> 6
The Company also makes advances to factoring clients. Such advance payments,
which are interest earning, are recorded as reductions to the amounts due to the
factoring clients for the purchase of receivables. Average funds employed
(receivables less amounts due to factoring clients) were $362.9 million and
$286.2 million at September 30, 1997 and December 31, 1996, respectively.
Changes in the Company's allowance for credit losses were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
------------------------------------- ------------------------------------
% of % of % of
SEPT. 30, FACTORED SEPT. 30 FACTORED DECEMBER 31, FACTORED
1997 SALES 1996 SALES 1996 SALES
----------- ------ ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $ 2,993,534 $ 2,980,778 $ 2,980,778
Allowance related to acquisition of
TempFunds America, Inc. 100,000 100,000
Provision for credit losses 3,800,000 .16 2,800,000 .15 3,750,000 .14
Charge-offs (3,040,780) .13 (3,381,611) .18 (4,402,745) .17
Recoveries 375,650 .02 477,674 .03 565,501 .02
----------- ----------- -----------
Net charge-offs (2,665,130) .11 (2,903,937) .15 (3,837,244) .14
----------- ---- ----------- ---- ----------- ----
Ending balance $ 4,128,404 $ 2,976,841 $ 2,993,534
=========== =========== ===========
</TABLE>
The Company specifically considered approximately $320,000 and $660,000 of its
client advances impaired at September 30, 1997 and December 31, 1996,
respectively, and has discontinued the accrual of interest income. The allowance
for credit losses related to these impaired loans for the same periods was $0
and approximately $30,000, respectively.
The adequacy of the provision for credit losses recorded by the Company is
assessed by management based in part on the level of net charge-offs relative to
accounts receivable purchased. These statistics are believed to be significant
indicators of inherent losses because the receivables portfolio turns over
approximately seven times each year. Accounts receivable which are past due will
not be written off if, in the opinion of management, collection is likely from
the customer, client or collateral realization, if any. In making this
determination, management considers the quality of the collateral, the
creditworthiness of the customer and client, economic conditions and other
factors which may be relevant. This statistical assessment is supplemented by a
review of the recorded allowance for credit losses at each month end and
relative to total accounts receivable at month end, taking into consideration
specific potential problem accounts, accounts purchased with recourse where
payment has not been made by the Company to its client, and other factors which
may be relevant.
Historically, the provision for credit losses as a percentage of factored sales
and net charge-offs as a percentage of factored sales ranged from 0.11% to 0.30%
and 0.05% to 0.30%, respectively. The provision for credit losses as a
percentage of factored sales increased to 0.16% for the nine months ended
September 30, 1997 from 0.15% for the nine months ended September 30, 1996. Net
charge-offs as a percentage of factored sales decreased from 0.15% for the nine
months ended September 30, 1996 to 0.11% for the nine months ended September 30,
1997. Based on these relationships, and a review of the recorded allowance and
accounts receivable at each period end, management believes the provisions and
allowance to be adequate to absorb known and inherent losses in the accounts
receivable portfolio. Because the assessment of the adequacy of the allowance
and provisions for credit losses involves a significant degree of estimation and
is subject to change, future provisions for credit losses may be greater or less
than actual charge-offs.
6
<PAGE> 7
NOTE 3: BORROWINGS
Borrowings are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Variable rate asset backed certificates due 1999 through 2001 $275,000,000 $175,000,000
Variable rate revolving credit line due on demand 93,034,000 70,131,000
Variable rate revolver loan due 1999 36,498,095 15,900,000
7.95% subordinated notes due 2001 10,000,000 10,000,000
------------ ------------
Total borrowings $414,532,095 $271,031,000
============ ============
</TABLE>
NOTE 4: AGREEMENT AND PLAN OF MERGER
On August 12, 1997, Capital Bancorp ("Bancorp") entered into an Agreement and
Plan of Merger (the "Agreement") with Union Planters Corporation ("UPC"). Under
the Agreement, each share of common stock of Bancorp will be exchanged for .8525
of a share of UPC common stock. The Agreement is subject to regulatory approval,
approval by Bancorp's shareholders and the satisfaction of certain normal
contractual closing conditions.
7
<PAGE> 8
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
Introduction
Capital Factors Holding, Inc. ("Holding") is a majority owned subsidiary of
Capital Bank (the "Bank"), a Florida commercial bank. The Bank is a wholly-owned
subsidiary of Capital Bancorp ("Bancorp"). Holding has three wholly-owned
subsidiaries, Capital Factors, Inc. ("Factors"), CF One, Inc. and CF Investor
Corp. Factors has two wholly-owned subsidiaries, CF Funding Corp. and Capital
TempFunds, Inc. Throughout this discussion, Holding, Factors, and their
subsidiaries are collectively referred to as the "Company".
On August 12, 1997, Capital Bancorp ("Bancorp") entered into an Agreement and
Plan of Merger (the "Agreement") with Union Planters Corporation ("UPC"). Under
the Agreement, each share of common stock of Bancorp will be exchanged for .8525
of a share of UPC common stock. The Agreement is subject to regulatory approval,
approval by Bancorp's shareholders and the satisfaction of certain normal
contractual conditions.
The following discussion and analysis presents the significant changes in the
financial condition and results of operations for the periods indicated. In
addition, this Form 10-Q may contain certain "forward-looking statements" which
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning the Company's operations, performance, financial
condition, and growth. For this purpose, any statements contained in the Form
10-Q that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "estimate," or "continue," or the negative or other variation thereof
or comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
such as credit losses, dependence on availability of funding sources, dilution
of receivables, concentration of client base and client customer base,
dependence on management and key personnel, seasonality, and variability of
quarterly results, ability of the Company to continue its growth strategy,
competition, inability to directly collect healthcare receivables from Medicare
and Medicaid, dilution of healthcare receivables, control by majority
shareholder, and regulatory restrictions relating to potential new activities,
Bancorp and Capital Bank litigation, certain of which are beyond the Company's
control, and actual results may differ materially depending on variety of
important factors which are noted herein. The discussion should be read in
conjunction with the consolidated financial statements and notes included in
this report.
The Company provides fee-based services to its clients, including credit
protection, collection and management information services, and also makes
advances to many of its clients. Clients are generally manufacturers of goods or
providers of services in various industries. At the time the Company purchases
the factored receivables, the Company records a receivable and an offsetting
liability "due to factoring client." Advances, which are interest earning and
secured by the client's factored receivables, are recorded by the Company as
reductions to the amounts due to the factoring client for factored receivables.
Cash collections from the client's customers are used to repay the client's
loans. If, as a result of financial inability to pay, a client's customer fails
to pay a receivable that was credit-approved by the Company, the Company will
ultimately bear any loss with respect to such receivable. In the event of
dilution in excess of the unfinanced portion of receivables, where factored
receivables are not fully collected for a reason other than the customer's
financial inability to pay, such as breach of warranty, the Company will in
practice typically need to look to newer receivables of the client for the
collection of the outstanding obligation to the Company and may not be repaid.
In contrast to the Company's purchase of factored receivables, when the Company
makes an asset-based loan, a client assigns its collateral (usually account
receivable and inventory) to the Company. Upon request of the client, the
Company may advance funds to the client as a loan in an amount based upon the
eligible collateral. When funds are advanced to the
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<PAGE> 9
client, a loan receivable balance is created, and cash is disbursed. Although
the Company loans funds to the client based on eligible collateral, the Company
provides no credit protection and, accordingly, does not assume the risk of loss
from a client's customers' inability to pay, although the Company may actually
suffer a loss if all sources of repayment fail, including other collateral and
guarantees, if any. In connection with asset-based loans, instead of a factoring
fee, the Company earns a facility fee. Both factored advances and asset-based
loans bear interest at a rate tied to the prime rate.
The Company operates through four regional offices, and in January 1997, it
opened an office in Atlanta which specializes in asset-based loans. In May 1997,
the Company's corporate headquarters and the Florida regional office re-located
to leased office space in Boca Raton. The Company's operations center remains in
Fort Lauderdale. The Company currently has over 400 clients who generate annual
sales from $500,000 to over $100 million, and services over 100,000 customers of
those clients. The majority of the Company's customers are large national or
regional department store chains or specialty retailers. At September 30, 1997,
the largest amount due from any one customer, a national department store chain,
was approximately $31.6 million.
The Company's factored sales volume can be affected in several ways, including
new clients, client retention or losses, inflation and other economic
conditions. Additionally, fluctuations in the sales dollar volume of the
Company's clients, both positive and negative, have a direct impact on the
Company's factored sales volume and factoring fees. In this regard, the Company
has historically experienced seasonal fluctuations in its factored sales volume
and factoring fees as a result of the seasonality of the sales of certain of the
Company's clients, especially those in the apparel industry, who typically ship
more goods during the four-month period of August through November in order to
fill increased customer orders in anticipation of "back to school" and the
ensuing holiday season. The Company realized approximately 40% of its annual
factored sales volume during this 4-month period in 1996 and 1995.
Management believes that one of the essential tools in maintaining and managing
growth of the Company is the monitoring of certain key financial ratios. The
Company monitors the key components of its income statement data, such as
factoring fees, net interest income, other income, provision for credit losses
and operating expenses, as a percentage of its factored sales volume. These key
ratios allow the Company to monitor its performance in achieving its goals of
(i) obtaining higher gross margins on factoring fee income, (ii) increasing fee
income as a percentage of cash employed, (iii) reducing credit losses, (iv)
controlling costs, and (v) maximizing return to its investors. Management also
monitors both accounts receivable turnover and the aging of customers' accounts
receivable, with particular emphasis on amounts greater than 60 days past due.
Monitoring Asset Quality and Credit Losses
The monitoring of asset quality is a routine function performed by management to
control credit losses. Monitoring asset quality involves the periodic review,
sometimes daily, of such pertinent financial statistics as the aging of the
accounts receivable portfolio, accounts receivable turnover, dilution and
charge-offs. The Company's allowance for credit losses is determined after
evaluating the receivables portfolio, current market conditions, changes in the
nature and volume of the portfolio, past loss experience and other pertinent
factors.
9
<PAGE> 10
Set forth below are those ratios and statistics utilized by management in
monitoring asset quality for the nine months ended September 30, 1997 and
September 30, 1996:
<TABLE>
<CAPTION>
As of September 30,
1997 1996
-------------- --------------
(Unaudited, Dollars in Thousands)
<S> <C> <C>
Provision for credit losses $ 3,800 $ 2,800
Charge-offs net of recoveries 2,665 2,904
Allowance for credit losses-specific 626 461
Allowance for credit losses-general 3,502 2,516
-------------- --------------
Total allowance for credit losses $ 4,128 $ 2,977
Accounts receivable turnover in days 54 51
Accounts receivable past due more
than 60 days as a percentage of factored receivables 8.83% 7.63%
Accounts receivable past due more
than 90 days as a percentage of factored receivables 5.60% 4.80%
Credit-approved accounts receivable past due more
than 60 days as a percentage of credit approved
receivables(1) 4.22% 2.13%
Credit-approved accounts receivable past due more
than 90 days as a percentage of credit approved
receivables(1) 1.87% 1.70%
Net charge-offs to factored sales 0.11% 0.15%
Average receivables $ 549,365 $ 411,848
Provision for credit losses as a
percentage of factored sales 0.16% 0.15%
Provision for credit losses as a
percentage of average receivables 0.92%(6) 0.91%(6)
Net charge-offs as a percentage of
average receivables 0.65%(6) 0.94%(6)
Non-accruing advances $ 320 $ 701
Non-accruing advances as a percentage
of receivables 0.05% 0.14%
Average funds employed(2) $ 362,900 $ 274,800
Provision for credit losses as a percentage of average funds
employed(2)(3) 1.40%(6) 1.36%(6)
Net charge-offs as a percentage of
average funds employed(2) (4) 0.98%(6) 1.41%(6)
Non-accruing advances as a percentage
of funds employed(2)(5) 0.07% 0.22%(6)
</TABLE>
(1) Management considers the aging of credit-approved receivables a more
meaningful measure of exposure to credit risk than the aging of total
receivables. The Company guarantees payment of receivables which it credit
approves if the receivable was not paid based solely on the customers
financial inability to pay.
(2) Funds employed are receivables less amounts due to factoring clients.
(3) Computed by dividing provision for credit losses by average funds employed
for each period presented. The provision for credit losses as a percentage
of average funds advanced for each of the periods presented was lower than
the provision for credit losses as a percentage of average funds employed.
(4) Computed by dividing net charge-offs by average funds employed for each
period presented. Net charge-offs as a percentage of average advances for
each of the periods presented was lower than net charge-offs as a
percentage of average funds employed.
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<PAGE> 11
(5) Computed by dividing non-accruing advances by funds employed at the end of
each respective period indicated. Non-accruing advances as a percentage of
advances during each period presented was lower than non-accruing advances
as a percentage of funds employed.
(6) Computed on an annualized basis.
The Company regularly reviews its outstanding accounts receivable and other
extensions of credit, such as advances to clients, to determine the adequacy of
its allowance for credit losses. Factors such as the level of related credit
balances of clients and the impact of economic conditions on the
creditworthiness of the Company's clients and the client's customers are given
significant consideration in determining the adequacy of the Company's allowance
for credit losses. The Company's methodology for calculating its reserve for
doubtful accounts has remained consistent for the periods shown above, and
includes a specific and general component. Specific reserves are established for
receivables and client advances which the Company's management deems to be
wholly or partially uncollectible. The general reserve represents 0.75% of those
receivables (other than healthcare receivables and asset-based loans, which have
a lower general reserve) that are not specifically reserved for but for which
the Company has provided credit guarantees.
The provision for credit losses as a percentage of factored sales increased to
0.16% for the nine months ended September 30, 1997 from 0.15% for the nine
months ended September 30, 1996. The provision for credit losses as a percentage
of average receivables and the provision for credit losses as a percentage of
average funds employed increased to 0.92% and 1.40%, respectively, for the nine
months ended September 30, 1997, from 0.91% and 1.36%, respectively, for the
nine months ended September 30, 1996, reflecting a higher net charge-off rate.
Net charge-offs as a percentage of factored sales decreased from 0.15% for the
period ended September 30, 1996 to 0.11% for the period ended September 30,
1997. Charge offs included a $1,350,000 write-off resulting from a client's
bankruptcy filing in the first quarter and $1,471,000 in customer bad debts. In
1996, the Company charged off $1.1 million in customer bad debts, including a
charge-off of $600,000 related to the bankruptcy of a large Northeastern
regional chain store customer. Net charge-offs as a percentage of average
receivables and net charge-offs as a percentage of average funds employed
decreased 0.29% and 0.43%, respectively, for the nine months ended September 30,
1997 as compared to the same period in 1996. Net charge-offs as a percentage of
factored sales ranged from 0.05% to 0.30% in the 1992-1996 period.
Non-accruing advances as a percentage of funds employed have historically
remained below 1.00% and at September 30, 1997 and September 30 1996 were 0.07%
and 0.22%, respectively. Non-accruing advances as a percentage of receivables
was 0.05% at September 30, 1997 and 0.14% at September 30, 1996. Management
believes that non-accruing advance fluctuations below 1.0% are a normal part of
the Company's ongoing business and are not significant.
Credit-approved accounts receivable past due more than 60 days as a percentage
of credit-approved factored receivables and credit-approved accounts receivable
past due more than 90 days as a percentage of credit-approved factored
receivables equaled 4.22% and 1.87%, respectively, at September 30, 1997 as
compared to 2.13% and 1.70%, respectively, at September 30, 1996. The increase
in the 60 day delinquency ratio is primarily related to certain clients who have
experienced operational problems with EDI transmissions with some major retail
chain stores which has led to an extended payment cycle on such receivables. The
60 day delinquency ratio was also adversely affected by the bankruptcy of a
large Midwestern chain store, for which the Company has certain first loss
deductible arrangements with its clients. Accounts receivable past due more than
60 days as a percentage of total factored receivables and accounts receivable
past due more than 90 days as a percentage of total factored receivables equaled
8.83% and 5.60%, respectively, for the nine month period ended September 30,
1997 as compared to 7.63% and 4.80%, respectively, for the six month period
ended September 30, 1996.
Financial Condition - September 30, 1997 as compared to December 31, 1996
Total assets increased to $736.1 million at September 30, 1997 from $530.6
million at December 31, 1996. The $205.5 million increase was due primarily to a
$193.7 million dollar increase in net receivables. The Company's accounts
receivable balance typically peaks prior to the holiday season due to increased
customer orders.
Factored accounts receivables increased $128.2 million primarily as a result of
increased factored sales. The Company's factored accounts receivable are due
from clients' customers geographically located throughout the United States,
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<PAGE> 12
principally retailers, manufacturers and distributors. Asset based loans, which
represent loans provided to clients principally collateralized by accounts
receivable, increased $43.1 million from $36.0 million at December 31, 1996 to
$79.1 million at September 30, 1997.
The increase in assets was principally funded by an increase in the debt
outstanding under the Company's variable rate asset backed certificates, the
Securitized Financings and its $50 million revolving credit facility with an
unaffiliated bank. Outstanding debt under the Securitized Financings increased
to $275.0 million at September 30, 1997 from $175.0 million at December 31, 1996
due to the Company's issuance and full funding of a fourth series of variable
rate asset-backed certificates (the "Variable Funding Certificates"). Unlike the
previously issued certificates which were fixed as to principal amount, the
Variable Funding Certificates provide for a monthly settlement of principal,
which may increase or decrease the outstanding amount. Under this series, the
senior Variable Funding Certificates bear interest at LIBOR plus 0.75% and the
senior subordinated Variable Funding Certificates bear interest at LIBOR plus
1.50%, 6.41% and 7.16%, respectively, at September 30, 1997. (See Liquidity and
Capital Resources). At September 30, 1997 and December 31, 1996, the Company had
$36.5 million and $15.9 million, respectively, outstanding under its $50 million
facility, which bears interest at LIBOR plus 2.15%. This increase in debt was
collateralized by increased asset-based loans and healthcare receivables.
Stockholders' equity increased approximately $9.1 million during the first nine
months of 1997 as a result of net income earned by the Company and the exercise
of 3,400 employee stock options.
Results of Operations - Three Months Ended September 30, 1997 Compared to Three
Months Ended September 30, 1996.
Net income increased 11.5% to approximately $3.6 million for the three month
period ended September 30, 1997 from approximately $3.3 million for the
comparable period in 1996 due to an increase in operating revenues which were
partially offset by a $900,000 increase in the quarterly provision for credit
losses, and increases in operating expenses, including compensation accruals
required in connection with the company's stock option plan. Operating revenues
increased from approximately $12.4 million for the three month period ended
September 30, 1996 to approximately $15.3 million for the comparable period in
1997, a 23.5% increase. These increases were primarily a result of a 23.2%
increase in the Company's factored sales volume from $708.9 million to $873.4
million for the three month period ended September 30, 1997 and September 30,
1997, respectively, and the resulting increase in interest income and factoring
fees. The factored sales volume increases were attributable to increased
customer orders in anticipation of the ensuing holiday season and continued
growth of the Company's four regional factoring offices.
Factoring fee income increased to approximately $8.1 million for the three month
period ended September 30, 1997 as compared to approximately $6.9 million for
the three month period ended September 30, 1996. Factoring fee income as a
percentage of factored sales for the three month periods decreased from 0.97% in
1996 to 0.93% in 1997. This decline was the result of lower factoring fees
charged to high volume clients. The Company typically receives lower factoring
fees from high volume clients because, among other reasons, high volume clients
do not have the same servicing needs as smaller clients, requiring less labor
intensive services to be performed by the Company and because there is increased
competition for such clients' business.
Net interest income (interest income less interest expense) increased to
approximately $5.4 million for the three months ended September 30, 1997 from
approximately $4.2 million for the comparable period in 1996, a 29.7% increase,
principally as a result of an increase of $88.1 million in average outstanding
funds employed for the three months ended September 30, 1997 as compared to the
same period in the prior year. Net interest income was also favorably impacted
by continued interest expense reductions achieved through the use of financing
programs with lower interest rates. On April 30, 1997, the Company issued the
Variable Funding Certificates which provide for a monthly settlement of
principal, which may increase or decrease the outstanding amount. This fourth
series of variable rate asset backed certificates includes the issuance of
$95.25 million of senior Variable Funding Certificates and $4.75 million of
senior subordinated Variable Funding Certificates. The Variable Funding
Certificates were fully funded at $95.25 million and $4.75 million,
respectively, at September 30, 1997 bearing interest at LIBOR plus 0.75% and
1.50%, respectively, (6.41% and 7.16%, respectively, at
12
<PAGE> 13
September 30, 1997). The Company entered into a $50,000,000 revolving loan
agreement bearing interest at LIBOR plus 2.15% in April 1996 with an
unaffiliated bank. Average borrowings from the revolving loan during the three
month period ended September 30, 1997 equaled approximately $29.9 million and
had an effective interest rate of 8.1% for the three month period. Additionally,
the Company, through its wholly-owned subsidiary, CF One, issued $10,000,000 in
subordinated notes in May 1996, bearing a fixed annual interest rate of 7.95%.
The funds raised through the above transactions were used to reduce higher
interest debt (8.5% at September 30, 1997) outstanding under the debt facility
with Capital Bank.
Letter of credit and other fee income increased to approximately $1,175,000 for
the three months ended September 30, 1997 from $871,000 for the three months
ended September 30, 1996, a 34.8% increase. Letter of credit fees increased
approximately 46.0% or $136,000 during the three month period while other fee
income increased by approximately $168,000 due to the increased, over advance
fees, factoring volume and asset based lending activities.
The provision for credit losses increased to $1,600,000 for the three months
ended September 30, 1997 from $700,000 for the three months ended September 30,
1996. Provisions for credit losses as a percentage of factored sales increased
to 0.18% for the three months ended September 30, 1997 as compared to 0.10% for
the comparable period in 1996 (see "Monitoring Asset Quality and Credit
Losses").
Operating expenses increased from $5,935,000 to $7,556,000 for the three month
period ended September 30, 1997 as compared to the three months ended September
30, 1996. This $1.6 million or 27.3% increase is primarily the result of the
move of the corporate headquarters to Boca Raton, expansion in the regional
offices and the healthcare division, start-up costs in the Atlanta office,
expenses related to Capital TempFunds, Inc., which was acquired in August 1996
and compensation expense related to the compensatory nature of the Company'
stock option plan. The compensation accrual, which is tied to increases in the
market value of the Company's stock was $226,000 ($0.01 per share) for the
quarter ended September 30, 1997.
Results of Operations - Nine months Ended September 30, 1997 Compared to Nine
months Ended September 30, 1996.
Net income increased 17.8% to approximately $9.1 million for the nine months
ended September 30, 1997 from approximately $7.7 million for the comparable
period in 1996 due primarily to an increase in operating revenues. Operating
revenues (total revenues less interest expense) increased from approximately
$32.7 million for the nine month period ended September 30, 1996 to
approximately $41.1 million for the comparable period in 1997, a 25.7% increase.
These increases were primarily a result of a 24.5% increase in the Company's
factored sales volume from $1.9 billion to $2.3 billion for the nine month
period ended September 30, 1996 and September 30, 1997, respectively, and the
resulting increase in interest income and factoring fees. The factored sales
volume increases were attributable to increased customer orders in anticipation
of the ensuing holiday season and continued growth of the Company's client base,
in all four regional offices.
Factoring fee income increased 18.9% to approximately $22.0 million for the nine
month period ended September 30, 1997 as compared to approximately $18.5 million
for the nine month period ended September 30, 1996 as a result of a 24.5%
increase in factored sales. Factoring fee income as a percentage of factored
sales for the nine month periods decreased from .98% in 1996 to 0.94% in 1997.
This decrease was due to lower factoring commission rates charged due to
competitive pricing on larger clients.
Net interest income (interest income less interest expense) increased to
approximately $14.3 million for the nine months ended September 30, 1997 from
approximately $10.7 million for the comparable period in 1996, a 33.4% increase.
The increase was principally as a result of the $17.6 million of net proceeds
raised by the Company's issuance of common stock in July 1996 and the issuance
of a fourth series of variable rate asset-backed certificates on April 30, 1997
of which $95.25 million of the senior Variable Funding Certificates and $4.75
million of the senior subordinated Variable Funding Certificates were fully
funded and outstanding at September 30, 1997 bearing interest at LIBOR plus
0.75% and LIBOR plus 1.50% respectively, (6.41% and 7.16%, respectively, at
September 30, 1997). The proceeds from both transactions
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<PAGE> 14
were used to reduce the debt outstanding under a debt facility with Capital
Bank. The interest rate on the Capital Bank facility was 8.5% at September 30,
1997. Additionally, the Company entered into a $50.0 million revolving loan
agreement bearing interest at LIBOR plus 2.15% in April 1996 with an
unaffiliated bank. Average borrowings from the revolving loan during the nine
month period ended September 30, 1997 equaled approximately $24.4 million and
had an effective interest rate of 8.05% for the nine month period. Interest
income also increased due to an increase of $88.1 million in average outstanding
funds employed for nine months ended September 30, 1997 as compared to the same
period in the prior year.
Letter of credit and other fee income increased to approximately $3,246,000 for
the nine months ended September 30, 1997 from $2,396,000 for the nine months
ended September 30, 1996, a 35.5% increase. Letter of credit fees increased
approximately 42.8% or $370,000 and overadvance fees increased 100.5% or
$336,000 during the nine month period. Overadvances represent loans to clients
in excess of the factored accounts receivable, substantially all of which are
collateralized by assets other than receivables. Other fee income, such as wire
and audit fees, increased by approximately $144,000 due to the increased
factoring volume and asset-based lending activities.
The provision for credit losses equaled $3.8 million for the nine month period
ended September 30, 1997 and $2.8 million for the nine month period ended
September 30, 1996. Of the year to date provision, $1,350,000 related to amounts
charged-off and reserves established due to a client's bankruptcy filing during
the first quarter. The remainder of the 1997 provision relates primarily to
customer accounts receivable, with net charge-offs of $2.7 million compared to
$2.9 million in the third quarter of 1996. Provisions for credit losses as a
percentage of factored sales increased to 0.16% for the nine month period ended
September 30, 1997 as compared to 0.15% for the comparable period in 1996,
reflecting a slightly higher net charge-off rate for the quarter (see
"Monitoring Asset Quality and Credit Losses").
Operating expenses increased from $16.7 million to $22.0 million for the nine
month period ended September 30, 1997 as compared to the nine month period ended
September 30, 1996. This $5.3 million or 32.0% increase is primarily the result
of the move of the Company's corporate headquarters to Boca Raton, expansion in
the regional offices and the healthcare division, start-up costs in the Atlanta
office, expenses related to Capital TempFunds, Inc. which was acquired in August
1996 and compensation expense related to the compensatory nature of the
Company's stock option plan. The compensation accrual, which is tied to
increases in the market value of the Company's stock, was $748,000, ($0.04 per
share) for the nine month period ended September 30, 1997.
Liquidity and Capital Resources
The Company's principal source of funding is its asset securitization program,
the Securitized Financings. This funding is supplemented by the Company's line
of credit with the Bank and a revolving credit facility with an unaffiliated
bank.
The trust created in connection with the Securitized Financings (the "Trust")
had issued three series of asset-backed certificates (each, a "Certificate")
aggregating $175 million, including $100 million in June 1994, $25 million in
December 1994 and $50 million in July 1995. All of the Certificates were issued
to life insurance companies. Initially, the Certificates were rated "AA" by Duff
& Phelps Credit Rating Company and "A" by Fitch Investors Services, Inc.
Approximately one year after its initial rating, Fitch Investor Services, Inc.
upgraded its rating of the Certificates to "AA". The scheduled maturity date of
the Certificates corresponding to each series is December 1999 ($100 million),
June 2000 ($25 million), and January 2001 ($50 million), respectively. The
Certificates issued under each series bear interest at LIBOR plus 1.25% (6.91%
at September 30, 1997, excluding annualized transaction costs of 0.39%).
Interest is payable monthly. However, an early amortization event will occur if
the Company fails to satisfy certain financial covenants. The principal
financial covenants contained in the Securitized Financing agreements that the
Company must satisfy include, (i) consolidated net worth in excess of $18.5
million, (ii) tangible equity ratio of at least 6% (iii) accounts receivable
non-payment percentage of no more than 18%, (iv) 60-day accounts receivable
percentage of no more than 10% of total accounts receivable, (v) 90-day accounts
receivable percentage of no more than 4.5% of total accounts receivable, (vi)
weighted average factoring fee of at least 0.75%, (vii) weighted average
accounts receivable
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<PAGE> 15
turnover of less than 70 days, (viii) accounts receivable dilution of no more
than 11%, (ix) accounts receivable payment ratio for three consecutive periods
of more than 40%, (x) aggregate amount of subordinated certificates of no more
than 25% of senior certificates, (xi) subordinated certificates equal to or
greater than 7% of total certificates and (xii) value of accounts receivable
transferred to the Trust, of no less than 135% of aggregate certificates. In
addition, there are other covenants relating to the collateral, including
required capital levels, maximum dilution and delinquency ratios and minimum
subordination levels. The Company is in material compliance with these and all
other covenants contained in the Securitized Financing agreements. The Company
may continue to use the Securitized Financings for funding, provided eligible
advances are available for transfer to the Trust.
On April 30, 1997 the Trust issued a fourth series of variable rate asset-backed
certificates (the "Variable Funding Certificates") in connection with the
Securitized Financings. Unlike the previously issued Certificates which were
fixed as to principal amount, the Variable Funding Certificates provide for a
monthly settlement of principal, which may increase or decrease the outstanding
amount. The fourth series includes the issuance of $95.25 million of senior
Variable Funding Certificates and $4.75 million of senior subordinated Variable
Funding Certificates. The Certificates were rated "AAA" and "A", respectively by
Duff & Phelps Credit Rating Company and "AA" and "BBB", respectively by Fitch
Investors Services Inc. At September 30, 1997 $95.25 million and $4.75 million,
respectively, of such certificates were outstanding. Management believes that
this type of Certificate will provide a more efficient means of funding the
seasonal fluctuations in the Company's overall funding requirements. Under this
series, the senior Variable Funding Certificates bear interest at LIBOR plus
0.75% and the senior subordinated Variable Funding Certificates bear interest at
LIBOR plus 1.50% (6.41% and 7.16%, respectively, at September 30, 1997,
excluding annualized transaction costs of 0.24%). In connection with any
additional secured indebtedness to be incurred by the Company, the Securitized
Financings require that all additional secured lenders enter into an
intercreditor agreement with the holders of the Certificates and the trustee of
the Trust. The Securitized Financings permit future purchases to the extent that
the Company generates eligible Advances. Generally, all of the client advances
made by the Company, with the exception of these made by its healthcare
division, as well as certain asset-based loans, are eligible for transfer to the
Trust. As of September 30, 1997, the Company had transferred to the Trust client
advances aggregating nearly $350.9 million.
In connection with this transaction, the Company formed a new wholly-owned
subsidiary, CF Investor Corp. CF Investor Corp., through a limited liability
corporation, CF Two, LLC., acquired the junior subordinated certificate issued
by the Trust.
The Company utilizes a $50.0 million revolving credit facility with an
unaffiliated bank which closed in April 1996 for $40.0 million and subsequently
increased to $50.0 million in August 1997. The indebtedness under this facility
is secured by advances not transferred to the Trust or eligible for transfer to
the Trust, most of which were made by the Company's healthcare division or were
asset-based loans, as well as all of the equipment used by the Company in its
operations. In order for this facility to be fully funded, the Company would
have to pledge an amount in excess of $55.6 million in advances. The
indebtedness under this facility may not exceed 90% of the value of the advances
pledged by the Company as collateral for such indebtedness. At September 30,
1997, the Company had outstanding borrowings of $36.5 million. The indebtedness
under this revolving facility bears interest at a rate of LIBOR plus 2.15%
(7.81% at September 30, 1997), payable monthly. The indebtedness under this
facility matures upon termination in March 1999, although it will be
automatically renewed for additional one year periods unless the Company or the
lender terminates it. This facility contains certain financial covenants and
ratios, including those relating to the Company's debt to net worth (no less
than 1 to 1), profitability ($5.2 million of annual consolidated net income) and
positive net cash flows (more than $1 per quarter). Funds borrowed under this
facility were used by the Company to pay down indebtedness under the Company's
line of credit with the Bank, and to fund certain of the Company's healthcare
financing activities and asset-based lending activities.
The Company also has a $150.0 million unsecured revolving line of credit with
Capital Bank, pursuant to which the Company had outstanding borrowings of
approximately $93.0 million at September 30, 1997. Amounts borrowed under this
facility are subject to the Banks overall statutory limitation on investments in
and advances to subsidiaries of 10% of assets. Based on the statutory
limitation, the maximum amount which could be outstanding under this line was
approximately $141.0 million at September 30, 1997. Indebtedness under this
facility bears interest at the prime rate, as
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<PAGE> 16
published in The Wall Street Journal (8.5% at September 30, 1997), is subject to
annual review by the Bank each June and is due on demand. The Facility has been
in place since 1985 and historically has been renewed for one-year periods in
June of each year. Interest is payable monthly. The Company generally has used
the Facility with the Bank to make advances to its clients.
In May 1996, CF One sold $10 million of subordinated notes (the "CF One Notes"),
which are collateralized by subordinated certificates that were issued in
connection with the Company's Securitized Financings. The CF One Notes, which
are due and payable in July 2001, bear interest at an annual fixed rate of 7.95%
and are rated "BBB" by both Duff & Phelps Credit Rating Company and Fitch
Investors Services, Inc. The principal purpose for the issuance of the CF One
Notes was to allow CF One to obtain additional financing by taking advantage of
the favorable financing terms resulting from an increase in the value of the
subordinated certificates held by CF One which are collateralized by assets held
by the Trust. The increase in the value of the subordinated certificates held by
CF One was the result of the favorable performance of the receivables and other
assets held in the Trust's portfolio.
In addition to the continued availability of the above financing, the Company's
future liquidity will continue to be dependent upon its ability to collect the
accounts receivable purchased from its clients. Of the Company's approximately
$687 million of customer accounts receivable outstanding at September 30, 1997,
approximately $303.8 million of customer receivables balances exceeded $1
million. These customers are primarily large national or regional department
store chains or specialty retailers. At September 30, 1997, the largest amount
due from any one customer, a national chain store, was approximately $31.6
million. In addition, the Company's accounts receivable turned over in an
average of 54 days and 51 days during the nine months ended September 30, 1997
and 1996, respectively.
The Company had no material commitments for capital expenditures as of September
30, 1997. Management believes that it has the corporate infrastructure in place
to support its earnings growth for the foreseeable future. Management also
believes that funds available under the Company's current credit facilities
(assuming such facilities are renewed or replaced with similar facilities) and
cash flow from operations will be sufficient to satisfy the Company's working
capital requirements for the next 12 months. The impact on liquidity
requirements as it relates to the Union Planters Agreement has not yet been
determined.
New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," is effective for financial statements issued for periods ending after
December 15, 1997. This statement requires a dual presentation of basic and
diluted earnings per share on the face of the income statement. Adoption of this
statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements.. Management has not evaluated the
impact this statement will have on the Company's consolidated financial position
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997. This statement establishes standards for the way that public
companies report selected information about operating segments. Adoption of this
statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
Effects of Inflation
The Company believes that inflation has not had a material impact on its results
of operations.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company
From time to time, the Company has been a party to lawsuits and claims,
including lender liability claims, which management considers incidental to
normal operations. The Company was a party to one lawsuit that was dismissed
after trial. The plaintiff appealed the dismissal. The Court of Appeals affirmed
the dismissal and the Company awaits the finality of this judgment.
Bancorp and Capital Bank Litigation and Regulatory Matters
Bancorp and Capital Bank are currently parties to two related litigation
matters, neither of which involves the Company:
NATHAN J. ESFORMES, STANLEY I. WORTON, M.D., AND LEONARD WIEN EACH AS INDIVIDUAL
SHAREHOLDERS OF CAPITAL BANCORP AND ON BEHALF OF ALL OTHER SIMILARLY SITUATED
SHAREHOLDERS VS. ABEL HOLTZ, FANA HOLTZ, DANIEL M. HOLTZ, JAVIER J. HOLTZ,
CAPITAL BANK, CAPITAL BANCORP, RUSSELL W. GALBUT, HUGH F. CULVERHOUSE, JR.,
CRAIG L. PLATT, JEFFREY H. PORTER, LEON J. SIMKINS AND ALEX HALBERSTEIN, Circuit
Court for the 11th Judicial District in and for Dade County, Florida, Case No.
95-02515.
STANLEY I. WORTON, M.D. AND NATHAN ESFORMES VS. ABEL HOLTZ, FANA HOLTZ, DANIEL
M. HOLTZ, JAVIER J. HOLTZ, CAPITAL BANCORP, RUSSELL W. GALBUT, HUGH F.
CULVERHOUSE, JR., CRAIG L. PLATT, JEFFREY H. PORTER AND LEON J. SIMKINS, Circuit
Court for the 11th Judicial District in and for Dade County, Florida, Case No.
95-02520-CA-09.
On October 29, 1997, Bancorp announced that, subject to the satisfaction of
certain conditions, there has been a settlement of such litigation matters,
which involved, among other things, certain allegations against Able Holtz, the
former chairman of the board, chief executive officer and president of Bancorp
and Capital Bank and former chairman of the board for the Company, and members
of his family who are currently directors and/or officers of the Company,
Bancorp and Capital Bank. In entering into a settlement agreement, no party
admitted any wrongdoing.
Under the terms of the settlement agreement, Abel Holtz will surrender 140,000
shares of Bancorp Common Stock to Bancorp for cancellation. In addition, Bancorp
will pay $8.5 million to the plaintiff's counsel in the lawsuits as a compromise
resolution of all of the plaintiffs' claims for legal fees and costs. The
settlement also provides for the dismissal of the two lawsuits with prejudice
and the release of certain irrevocable proxies that previously had been granted
on shares of Bancorp Common Stock owned by the plaintiffs. Such plaintiffs have
agreed to vote their shares in favor of the pending merger between Bancorp and
Union Planters Corporation.
In addition, the parties have agreed to stay their appeals of the denial of the
change-in-control application filed by Fana Holtz, Daniel Holtz and Javier Holtz
to acquire and/or maintain a controlling interest in Capital Bank. Upon
consummation of the merger with Union Planters Corporation, the parties will
file a motion to dismiss their respective appeals of such denial as moot.
The settlement, which has been approved by the court, is subject to the lack of
any objection by the relevant bank regulatory authorities and approval of the
merger between Bancorp and Union Planters Corporation by the shareholders of
Bancorp. A special meeting of the shareholders of Capital for consideration of
the merger is scheduled to be held on November 24, 1997.
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<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 - First Consolidated Amendment to Loan and Security Agreement,
by and between Capital Factors, Inc. and Fleet Capital Corporation, dated
as of August 29, 1997.
Exhibit 11.1 - Statement re: Calculation of Earnings Per Share
Exhibit 27.1 - Financial Data Schedule
(b) No Current Reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1997 By: /s/ DENNIS A. MCDERMOTT
------------------------
DENNIS A. MCDERMOTT
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
<PAGE> 1
Exhibit 10.1
FIRST CONSOLIDATED AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST CONSOLIDATED AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made and entered into this 29th day of August, 1997, by and
between CAPITAL FACTORS, INC., a Florida corporation (hereinafter referred to as
"Borrower") with its chief executive office and principal place of business at
120 East Palmetto Park Road, 5th Floor, Boca Raton, Florida 33432, and FLEET
CAPITAL CORPORATION, a Rhode Island corporation (hereinafter referred to as
"Fleet"), successor-by-merger to Fleet Capital Corporation, a Connecticut
corporation ("Old Fleet") with an office at 300 Galleria Parkway, N.W., Suite
800, Atlanta, Georgia 30339.
RECITALS:
---------
Old Fleet and Borrower entered into a certain Loan and Security
Agreement dated as of March 4, 1996 (the "Loan Agreement"), pursuant to which
Old Fleet made certain revolving credit loans to Borrower.
Effective May 1, 1996, Old Fleet merged into Fleet Credit Corporation,
a Rhode Island corporation ("Fleet Credit"), with Fleet Credit being the
surviving corporation and having changed its name to "Fleet Capital
Corporation."
Fleet and Borrower have amended the Loan Agreement pursuant to a
certain First Amendment to Loan and Security Agreement dated July 15, 1996,
between Borrower and Fleet (the "Prior Amendment").
The parties desire to further amend the Loan Agreement as hereinafter
set forth, with the amendments provided for herein to supersede and replace the
Prior Amendment in its entirety.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. DEFINITIONS. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in the
Loan Agreement.
2. AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is hereby amended as
follows:
(a) By deleting the address for Borrower in the fourth and
fifth lines of the initial paragraph on page 1 thereof and by
substituting therefor "120 East Palmetto Park Road, 5th Floor, Boca
Raton Florida 33432," which, as of May 12, 1997, shall be the chief
executive office and principal place of business.
(b) By deleting the phrase "in effect for such day" in the
third line of Section 2.1.1 thereof.
(c) By deleting Section 2.6 thereof in its entirety and by
substituting therefor the following:
<PAGE> 2
2.6. AUDIT AND APPRAISAL FEES. Borrower shall
reimburse Lender for all reasonable costs and expenses
incurred by Lender in connection with audits and appraisals of
Borrower's books and records, the Transaction Documents and
such other matters as Lender shall deem reasonable and
appropriate.
(d) By adding the following to the end of Section 3.1.1:
Unless Lender, in the exercise of its sole and absolute
discretion, shall otherwise agree, Lender shall not be obligated to
fund Revolver Loans more than once per calendar month, to the extent
such funding would be based upon the amount of Qualified Borrower
Advances owing to Borrower by a Designated Obligor whose Borrower
Advances were not previously included in the Borrowing Base and such
funding would occur subsequent to Lender's receipt during the then
current calendar month of SCHEDULE 1 to the Securitization Agreement
then in Trustee's possession pursuant to the terms of the Intercreditor
Agreement.
(e) By deleting clause (i) of Section 8.1.12 thereof and by
substituting therefor the following:
(i) For Borrower's operations relating to Healthcare Advances
on or before July 31, 1996
(f) By deleting Section 8.2.17 thereof in its entirety and by
substituting therefor the following:
-2-
<PAGE> 3
8.2.17. SALE OF PARTICIPATIONS. Sell or transfer a
participation in any Borrower Advance or the Transaction
Documents relating thereto, except to the extent that each of
the following conditions has been fully satisfied: (i) no
Default or Event of Default exists at the time of or would
result from the conveyance, assignment, transfer or sale of a
participation in such Borrower Advance; (ii) Borrower gives
Lender at least 5 days prior written notice of Borrower's
intent to convey, assign, transfer or sell a participation in
any Borrower Advance (in which notice Borrower shall specify
the identity of the proposed participant and terms of the
participation); (iii) no Out-of-Formula Condition exists at
the time or would result from such sale or transfer of a
participation in a Borrower Advance unless such Out-of-Formula
Condition is eliminated at the time of such sale or transfer
by payment to Lender, in immediately available funds, of the
purchase price that Borrower receives from the purchaser of
such participation, and (iv) the participation or other
interest sold or transferred in any Borrower Advance does not
provide for payment thereof on a preferred or priority basis
or provide for a priority right to the distribution of
proceeds of collateral or other security for the Borrower
Advance, but, rather, is to be paid on a pro rata basis in
relation to Borrower's interest in the Borrower Advance.
(g) By deleting the notice addresses for Borrower set forth in
Section 11.8 thereof in their entirety and by substituting therefor the
following:
If to Borrower: Capital Factors, Inc.
120 East Palmetto Park Road
5th Floor
Boca Raton, Florida 33432
ATTENTION: President
Facsimile No.: (561) 368-6687
With a copy to: Capital Factors, Inc.
120 East Palmetto Park Road
5th Floor
Boca Raton, Florida 33432
ATTENTION: Michael G. Levine,
Vice President and
Corporate Counsel
Facsimile No.: (561) 347-9916
(h) By adding the following new definitions to APPENDIX A
thereto in proper alphabetical sequence:
BOARD OF GOVERNORS - the Board of Governors of the Federal
Reserve Board.
-3-
<PAGE> 4
DESIGNATION SCHEDULE - a Designated Obligor Designation
Schedule in the form of EXHIBIT E hereto, which shall be completed by
Borrower and submitted to Lender with respect to each Obligor (i) that
Borrower requests Lender to consider as a Designated Obligor and (ii)
whose Borrower Advances Borrower requests Lender to consider as
Qualified Borrower Advances.
FLEET BANK POSTED LIBOR RATE - for any day of the week, the
rate of interest determined by Bank to be the average (rounded upward
to the nearest 1/16th of 1%) of the rates at which deposits in
immediately available Dollars are being offered or quoted by major
banks selected by Bank in the London interbank market for a 30-day term
at any time during the Business Day that is the second Business Day
immediately preceding such day of the week; and, if no such offers or
quotes are generally available, a rate determined by Bank in its
reasonable judgment that would be applicable if such offers or quotes
were generally available.
REGULATION D - Regulation D of the Board of Governors.
STATUTORY RESERVES - on any date, the percentage (expressed as
a decimal) established by the Board of Governors which is the then
stated maximum rate for all reserves (including, but not limited to,
any emergency, supplemental or other marginal reserve requirements)
applicable to any member bank of the Federal Reserve System in respect
to Eurocurrency Liabilities (or any successor category of liabilities
under Regulation D). Such reserve percentage shall include, without
limitation, those imposed pursuant to said Regulation D. The Statutory
Reserve shall be adjusted automatically on and as of the effective date
of any change in such percentage.
(i) By deleting the definition of "Availability Reserve" in APPENDIX A
thereto and by substituting therefor the following:
AVAILABILITY RESERVE - on any date of determination thereof,
an amount equal to the sum of: (i) any amounts which Borrower is
obligated to pay pursuant to the provisions of the Loan Documents but
does not pay when due and which Lender elects to pay pursuant to any of
the Loan Documents for the account of Borrower; (ii) if Lender in its
sole and absolute discretion so elects, an amount equal to $4,000,000;
(iii) for so long as any Event of Default exists, such additional
reserves as Lender in its sole and absolute discretion may elect to
impose from time to time, without waiving any such Event of Default or
Lender's entitlement to accelerate the maturity of the Obligations as a
consequence thereof; and (iv) all amounts of past due rent or other
charges owing by Borrower to any landlord of any premises leased and
occupied by Borrower.
-4-
<PAGE> 5
(j) By deleting the definition of "Borrowing Base" in APPENDIX
A thereto and by substituting therefor the following:
BORROWING BASE - on any date of determination thereof, an
amount equal to the lesser of:
(i) $50,000,000; or
(ii) an amount equal to:
(a) 90% of the Net Amount of Qualified
Borrower Advances outstanding at such date;
MINUS
(b) the Availability Reserve.
(k) By deleting the definition of "Designated Obligor" in
APPENDIX A thereto and by substituting therefor the following:
DESIGNATED OBLIGOR - each Obligor identified on EXHIBIT C to
the Agreement, as the same may be amended, modified or supplemented
from time to time, or any Obligor hereafter indicated as a Designated
Obligor pursuant to a Designation Schedule or other written agreement
between Borrower and Lender.
(l) By deleting the definition of "LIBOR Rate" in APPENDIX A
thereto and by substituting therefor the following:
LIBOR RATE - an interest rate per annum equal to the quotient
of (a) the Fleet Bank Posted LIBOR Rate in effect for such date divided
by (b) a percentage (expressed as a decimal) equal to 100% minus
Statutory Reserves.
(m) By deleting the word "subordinated" in the second line of
the definition of "Liquidity" in APPENDIX A thereto and by substituting
therefor the word "substituted."
(n) By deleting the definition of "Qualified Borrower
Advances" in APPENDIX A thereto and by substituting therefor the
following:
QUALIFIED BORROWER ADVANCE - a Borrower Advance made in the
ordinary course of Borrower's business which is payable in Dollars and
which Lender, in its customary credit judgment, deems to be a Qualified
Borrower Advance. Without limiting the generality of the foregoing, no
-5-
<PAGE> 6
Borrower Advance shall be a Qualified Borrower Advance if and to the
extent that: (i) Borrower is not the legal and beneficial owner of the
Borrower Advance; (ii) if Lender so elects, in the exercise of its sole
discretion, the aggregate outstanding balance of Borrower Advances to a
Designated Obligor exceeds $5,000,000 or such greater amount as Lender,
in its sole discretion, may establish, to the extent of such excess;
(iii) the amount thereof is not based upon a Designated Obligor
Borrowing Base; (iv) a Designated Obligor Overadvance exists, but such
Borrower Advance shall be ineligible only to the extent of such
Designated Obligor Overadvance; (v) to the extent that a part of the
amount of the Borrower Advance is based upon the amount or Value of the
eligible Accounts and the eligible Inventory of a Designated Obligor,
the amount of the Borrower Advance based upon the Value of such
Designated Obligor's eligible Inventory exceeds the amount of the
Borrower Advance based upon such Designated Obligor's eligible
Accounts, to the extent of such excess; (vi) the amount of the Borrower
Advance to a Designated Obligor based upon the Value of such Designated
Obligor's Inventory exceeds 40% of the Value of such Inventory, to the
extent of such excess; (vii) if the Borrower Advance is a Healthcare
Advance, the amount of the Borrower Advance owing by a Designated
Obligor exceeds an amount equal to the sum of all collections of
Accounts of such Designated Obligor applied in payment of such Borrower
Advance during the immediately preceding 3 calendar months; (viii) it
arises out of an extension of credit by Borrower to a Subsidiary or an
Affiliate of Borrower or to a Person controlled by an Affiliate of
Borrower; (ix) the Designated Obligor is also Borrower's creditor or
the Designated Obligor has disputed liability with respect to any
Borrower Advance or has made any claim with respect to any Borrower
Advance due from such Designated Obligor to Borrower, or the Borrower
Advance otherwise is or may become subject to any right of setoff,
counterclaim or reserve; (x) all or any part of the Borrower Advance
has been or will be written off by Borrower as a loss or designated as
a "non-accrual" or "non-earning" asset; (xi) an Insolvency Proceeding
has been commenced by or against the Designated Obligor or the
Designated Obligor has suspended business or has ceased to be Solvent;
(xii) it arises from an extension of credit to a Designated Obligor
with its principal office, assets or place of business outside the
United States, unless the extension of credit is backed by an
irrevocable letter of credit issued or confirmed by a bank to Lender
and is in form and substance acceptable to Lender, payable in the full
amount of the Borrower Advance in freely convertible Dollars at a place
of payment within the United States; (xiii) the Designated Obligor is
located in New Jersey, Minnesota or any other state imposing similar
conditions on the right of a creditor to collect accounts receivable
unless such Designated Obligor has either qualified to do business in
such state as a foreign corporation or filed a Notice of Business
Activities Report or other required report with the appropriate
officials in those states for the then current year; (xiv) the
Designated Obligor is located in a state in which
-6-
<PAGE> 7
Borrower is deemed to be doing business under the laws of such state
and which denies creditors access to its courts in the absence of
qualification to transact business in such state or of the filing of
any reports with such state, unless Borrower has qualified as a foreign
corporation authorized to transact business in such state or has filed
all required reports; (xv) the Borrower Advance is subject to a Lien
other than a Lien in favor of Borrower; (xvi) the Designated Obligor is
not a duly organized and validly existing corporation, general
partnership, limited partnership or limited liability company; (xvii)
the Designated Obligor is not in good standing under the laws of the
jurisdiction of its creation or is not authorized to do business and in
good standing as a foreign corporation in all other states and
jurisdictions where the character of such Designated Obligor's
properties or the nature of such Designated Obligor's activities make
such qualification necessary; (xviii) the Designated Obligor is not a
party to a legal, valid and binding Transaction Document that provides
that it is binding upon and inures to the benefit of the successors and
assigns of the parties thereto; (xix) Borrower has accelerated the
maturity or demanded payment of, or otherwise commenced the exercise of
its remedies with respect to, the Borrower Advance; (xx) if the
Borrower Advance is a Healthcare Advance, the Payment Rights relating
to such Healthcare Advance is payable by an individual and is not
insured by a private contract of insurance or Medicare or Medicaid; or
(xxi) the Borrower Advance is not made under or memorialized by
Transaction Documents containing terms similar in all material respects
to the Transaction Documents provided by Borrower to Lender and
approved by Lender prior to the Closing Date; or (xxii) any covenant,
representation or warranty contained in the Agreement with respect to
the Borrower Advance has been breached.
(o) By deleting the word "Code" in the fourth line of the
definition of "Senior Security Interest" in APPENDIX A thereto and by
substituting therefor the phrase "Applicable Law."
(p) By adding to SCHEDULE 7.1.1 thereto, as a jurisdiction in
which Borrower is qualified to do business, a reference to "Georgia."
(q) By deleting the reference to "1799 West Oakland Park
Boulevard, Fort Lauderdale, Florida 33311" under the heading "Chief
Executive Office" in paragraph 1 and under the heading "Borrower
maintains its books and records relating to Accounts and General
Intangibles" in paragraph 2 of SCHEDULE 7.1.6 thereto and by
substituting therefor a reference to "120 East Palmetto Park Road, 5th
Floor, Boca Raton, Florida 33432."
(r) By adding as an additional location under the "Other
Locations" heading in paragraph 1 of SCHEDULE 7.1.6 thereto "the
Atlanta Office located at 2849 Paces Ferry Road, Suite 100, Atlanta,
Georgia 30339."
-7-
<PAGE> 8
(s) By adding the following information under the heading
"Operating Leases" on SCHEDULE 7.1.20 thereto:
Lease of office space located at 2849 Paces Ferry Road, Suite 100,
Atlanta, Georgia 30339
(t) By adding the following to SCHEDULE 8.2.5 thereof:
Security interest in office furniture and fixtures granted in
connection with the lease of office space at 2849 Paces Ferry Road,
Suite 100, Atlanta, Georgia 30339.
(u) All references to Borrower's chief executive office and
principal place of business in the Loan Agreement and in the other Loan
Documents not specifically amended hereby shall be deemed to be: 120
East Palmetto Park Road, 5th Floor, Boca Raton, Florida 33432.
(v) By deleting EXHIBIT C thereto and by substituting therefor
EXHIBIT C to this Amendment.
(w) By adding EXHIBIT E to this Amendment as EXHIBIT E to the
Loan Agreement.
3. RATIFICATION AND REAFFIRMATION. Borrower hereby ratifies and
reaffirms each of the Loan Documents and all of Borrower's covenants, duties and
liabilities thereunder.
4. ACKNOWLEDGMENTS AND STIPULATIONS. Borrower acknowledges and
stipulates that the Loan Agreement and the other Loan Documents executed by
Borrower are legal, valid and binding obligations of Borrower that are
enforceable against Borrower in accordance with the terms thereof; and the Liens
granted by Borrower in the Collateral in favor of Fleet are duly perfected,
first priority Liens.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Fleet, to induce Fleet to enter into this Amendment, that, after giving effect
to the amendments set forth in Section 2 hereof, no Default or Event of Default
exists on the date hereof; the execution, delivery and performance of this
Amendment have been duly authorized by all requisite corporate action on the
part of Borrower and this Amendment has been duly executed and delivered by
Borrower; and all of the representations and warranties made by Borrower in the
Loan Agreement are true and correct on and as of the date hereof.
6. EFFECTIVENESS; GOVERNING LAW. This Amendment shall be effective upon
acceptance by Fleet in Atlanta, Georgia, whereupon the same shall be governed by
and construed in accordance with the internal laws of the State of Georgia.
7. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
-8-
<PAGE> 9
8. NO NOVATION, ETC.. Except as otherwise expressly provided in this
Amendment, nothing herein shall be deemed to amend or modify any provision of
the Loan Agreement, any of the Other Agreements or any of the Security
Documents, each of which shall remain in full force and effect. This Amendment
is not intended to be, nor shall it be construed to create, a novation or accord
and satisfaction, and the Loan Agreement as herein modified shall continue in
full force and effect.
9. COUNTERPARTS; TELECOPIED SIGNATURES. This Amendment may be executed
in any number of counterparts and by different parties to this Agreement on
separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same agreement.
Any signature delivered by a party by facsimile transmission shall be deemed to
be an original signature hereto.
10. FURTHER ASSURANCES. Borrower agrees to take such further actions as
Fleet shall reasonably request from time to time in connection herewith to
evidence the amendments set forth herein to the Loan Agreement.
11. SECTION TITLES. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto.
12. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, THE PARTIES HERETO EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, COUNTERCLAIM OR PROCEEDING ARISING OUT OF OR RELATED TO THIS
AMENDMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal in Atlanta, Georgia, and delivered by their respective
duly authorized officers on the date first written above.
CAPITAL FACTORS, INC.
("Borrower")
By:
---------------------------
DONALD WISDOM,
Senior Vice President
Accepted and agreed to in Atlanta, Georgia, this _____ day of
____________, 1997.
FLEET CAPITAL CORPORATION
("Fleet")
By:
---------------------------
Title:
-------------------------
-9-
<PAGE> 10
CONSENT AND REAFFIRMATION
The undersigned guarantor of the Obligations of Borrower at any time
owing to Fleet hereby: (i) acknowledges receipt of a copy of the foregoing First
Consolidated Amendment to Loan and Security Agreement; (ii) consents to
Borrower's execution and delivery thereof; (iii) agrees to be bound thereby; and
(iv) affirms that nothing contained therein shall modify in any respect
whatsoever its guaranty of the Obligations and reaffirms that such guaranty is
and shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Consent and
Reaffirmation on and as of the date of such First Consolidated Amendment to Loan
and Security Agreement.
CAPITAL FACTORS HOLDING, INC.
By:
--------------------------
JOHN W. KIEFER, President
-10-
<PAGE> 11
CAPITAL FACTORS, INC.
ASSISTANT SECRETARY'S CERTIFICATE
OF
BOARD OF DIRECTORS RESOLUTIONS
I, Michael G. Levine, DO HEREBY CERTIFY, that I am the Assistant
Secretary of Capital Factors, Inc. (the "Corporation"), a corporation duly
organized and existing under and by virtue of the laws of the State of Florida
and am keeper of the records and seal thereof; that the following is a true,
correct and compared copy of the resolutions duly adopted by the unanimous
consent of all members of the Board of Directors of said Corporation effective
as of August 29, 1997; and that said resolutions are still in full force and
effect:
RESOLVED, that the Chairman of the Board, President, any Vice
President, or any other officer or board member of this Corporation (or the
designee of any of them), each be, and each hereby is, authorized and empowered
(either alone or in conjunction with any one or more of the other officers of
the Corporation) to take, from time to time, all or any part of the following
actions on or in behalf of the Corporation: (i) to make, execute and deliver to
Fleet Capital Corporation ("Lender") (1) a First Consolidated Amendment to Loan
and Security Agreement (the "Amendment") providing for the amendment of certain
terms of that certain Loan and Security Agreement dated as of March 4, 1996,
between the Corporation and Lender, as amended (the "Loan Agreement"), and (2)
all other agreements, documents and instruments contemplated by or referred to
in the Amendment or executed by the Corporation in connection therewith; said
Amendment to be substantially in the form presented by Lender with such
additional, modified or revised terms as may be acceptable to any officer or
director of the Corporation, as conclusively evidenced by his or her execution
thereof; and (ii) to carry out, modify, amend or terminate any arrangements or
agreements at any time existing between the Corporation and Lender.
RESOLVED, that any arrangements, agreements, security agreements, or
other instruments or documents referred to or executed pursuant to the Amendment
by John W. Kiefer, any other officer or director of the Corporation, or by an
employee of the Corporation acting pursuant to delegation of authority, may be
attested by such person and may contain such terms and provisions as such person
shall, in his or her sole discretion, determine.
RESOLVED, that the Loan Agreement and each amendment to the Loan
Agreement heretofore executed by any officer or director of the Corporation and
any actions taken under the Loan Agreement as thereby amended are hereby
ratified and approved.
I DO FURTHER CERTIFY that John W. Kiefer is the President of
the Corporation, Donald Wisdom is the Senior Vice President of Corporation and
Michael G. Levine is the Assistant Secretary of the Corporation and each is duly
elected, qualified and acting as such, respectively.
<PAGE> 12
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Seal of
the Corporation, this 29th day of August, 1997.
------------------------------
MICHAEL G. LEVINE,
Assistant Secretary
[CORPORATE SEAL]
I, John W. Kiefer, President of said Corporation, do hereby certify
that the foregoing is a correct copy of the resolutions passed by the Board of
Directors of the Corporation and that Michael G. Levine is Assistant Secretary
of the Corporation and is duly authorized to attest to the passage of said
resolutions.
------------------------------
JOHN W. KIEFER, President
-2-
<PAGE> 13
EXHIBIT C
DESIGNATED OBLIGORS
DESIGNATED OBLIGOR CLIENT NUMBER
------------------ -------------
1. Title Loans of America 2800
2. 21st Capital Corp. 3001
3. ConAm Corp. 3154
4. Duo-Cal Industries, Inc. 3196
5. Performance Funding Corporation 3767
6. Third Party Enterprises, Inc. 3871
7. Vanguard Studios, Inc., a subsidiary 3891
of Henlor, Inc.
8. Healthcare Associates 9025
9. Hillcrest Care Center, Inc. d/b/a 9030
Hillcrest Nursing Home
10. BTNH, Inc. d/b/a/ Delaware Heights 9031
Health Care Center
11. Consolidated Rehabilitation 9145
Services, Inc.
12. Home Care Medical Services, Inc. 9380
13. Newhall Community Hospital, Inc. 9415
14. Newhall Urgent Care, Inc. 9417
15. Laing International Corporation 9450
16. Center for Special Immunology, Inc./ 9101/9120
C.S.I. Miami, Inc.
17. CSI Clinical Laboratories, Inc. 9102/9114
18. CSI of Illinois, Inc. 9103/9115
19. CSICA Corporation 9104/9116
20. CSI Therapeutics, Inc. 9109/9117
21. CSI Therapeutics Managed Care 9101-9118
22. CSI Miami, Inc. 9121
<PAGE> 14
EXHIBIT C CONTINUED
DESIGNATED OBLIGORS
DESIGNATED OBLIGOR CLIENT NUMBER
------------------ -------------
23. CSI Kansas, Inc. 9112/9119
24. PTS Rehab, Inc. 9146/9147
25. Midpoint Service Provider, Inc. 9550
26. R.H. Keller, M.D., P.A. d/b/a 9600
Biodoron
27. TMG Health Services, Inc. 9419
28. JJED Care Industries 9430
29. Hospital Staffing Services, Inc. 9650/9651/9652
30. One Call Medical, LLC 9580
31. Valcour Medical 9680
32. Visiting Nurse Association of Florida 9700/9701/9702
33. Sun Capital, Inc. 7680
34. Williams Rehabilitation Corporation 9800
35. Capital Credit, Inc. 3129
36. Action Tool, Inc. 5040
37. Central Valley General Hospital 9075/9076
38. Girling Healthcare, Inc. 9350/9351/9352
39. Aexcel Short-term 3018
Accounts Receivable -
Backed Securities VII, a
California limited partnership
-2-
<PAGE> 15
EXHIBIT E
DESIGNATED OBLIGOR DESIGNATION
SCHEDULE TO FLEET CAPITAL CORPORATION
This Designated Obligor Designation Schedule is dated
________________, 19__, and issued pursuant to the Loan and Security
Agreement between Fleet Capital Corporation ("Lender") and the
undersigned ("Borrower") dated as of March 4, 1996 (as at any time
amended, the "Loan Agreement"). Capitalized terms used herein, unless
otherwise defined, shall have the meaning set forth in the Loan
Agreement.
Borrower hereby requests that (i) the following named Obligor be
deemed a Designated Obligor and (ii) that Borrower Advances to such
Designated Obligor treated as Qualified Borrower Advances pursuant to the
Loan Agreement :
Obligor's Full Legal Name: _________________________
Obligor's Principal Business Address: _______________________
_______________________
_______________________
Type of Business Entity: _________________________
Closing Date of
Transaction Documents: _________________________
LIEN PERFECTION CHECKLIST
1. UCC Assignment Forms with respect to each UCC-1 financing
statement naming Borrower as secured party executed "in blank"
by Borrower and delivered to Lender? Yes ____ No ____.
2. UCC-3 Amendment to Lender's UCC-1 financing statements to add
Obligor as a Designated Obligor executed by Borrower and
delivered to Lender? Yes ____ No ____.
3. Promissory Note(s) made by Obligor to Borrower's order? Yes
____ No ____.
If yes, has each such Promissory Note been delivered to
Lender? Yes ____ No ____
4. Do any Transaction Documents between Borrower and Obligor or
any other obligor on the Borrower Advances constitute chattel
paper? Yes ____ No ____.
If yes, has each original counterpart of the chattel paper
been delivered to Lender or inscribed with a legend indicating
that it is subject to Lender's Liens? Yes ____ No ____.
<PAGE> 16
5. Any real estate mortgages, trust deeds, security deeds or
other security instruments executed by Obligor or any other
obligor on the Borrower Advances in favor of Borrower?
Yes ____ No ____.
If yes, has a copy of the recorded instrument been delivered
to Lender? Yes ____ No ____.
If yes, has Borrower or any other obligor on the Borrower
Advances executed "in blank" a collateral assignment of such
security instrument and delivered same to Lender?
Yes ____ No ____.
6. Are Transaction Documents between Oblitor or any other obligor
on the Borrower Advances and Borrower stated to be binding on,
and inure to benefit of, the successors and assigns of such
parties?
Yes ____ No ____.
7. Has Borrower sold a participation interest in any of the
Borrower Advances? Yes ____ No ____.
If yes, identity of participant: ____________; amount or
percentage of participation interest: ___________; and type of
participation interest: _______________.
Has participant been made aware in writing that the Borrower
Advances to Obligor are subject to Fleet's Liens? Yes ____ No
____.
8. Has Borrower conveyed any of the Borrower Advances to Obligor
or any Accounts owing by any Person to Obligor to CF Funding,
the Trust or any other Person under or in connection with the
Securitization Documents? Yes ____ No ____.
-2-
<PAGE> 17
Borrower hereby certifies that the information contained herein is
true, correct and accurate; and that, to the best of Borrowers knowledge, no
Default, Event of Default or Out-of-Formula Condition exists on the date hereof.
Upon acceptance hereof by Lender, (notice of which acceptance Borrower
hereby waives), this Designated Obligor Designation Schedule shall be deemed an
amendment of the Loan Agreement for the sole purpose of updating the list of
Designated Obligors set forth on EXHIBIT C to the Loan Agreement. Borrower
authorizes Lender, in its discretion, to replace the current EXHIBIT C to the
Loan Agreement with a substitute EXHIBIT C that reflects the addition of the
Designated Obligor(s) identified in this Designated Obligor Designation
Schedule, but Lender's failure to do so shall not affect in any way the validity
of the Loan Agreement or the amendment of EXHIBIT C thereto that results from
Lender's acceptance hereof.
CAPITAL FACTORS, INC.
By:
----------------------------------
Title:
--------------------------------
Accepted in Atlanta, Georgia, this ___ day of , 19__.
FLEET CAPITAL CORPORATION
By:
----------------------------------
Title:
--------------------------------
-3-
<PAGE> 1
Exhibit 11.1
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996
----------- -----------
<S> <C> <C>
PRIMARY
Weighted average number of common shares outstanding 12,300,482 10,623,358
Common equivalent shares outstanding - options 19,837 0
----------- -----------
Total common and common equivalent shares outstanding 12,320,319 10,623,358
----------- -----------
Net income $ 9,108,089 $ 7,732,562
----------- -----------
Primary earnings per share $ 0.74 $ 0.73
=========== ===========
FULLY DILUTED
Weighted average number of common shares outstanding 12,300,482 10,623,358
Common equivalent shares outstanding - options 337,542 97,744
----------- -----------
Total common and common equivalent shares outstanding 12,638 024 10,721,102
----------- -----------
Net income $ 9,108,089 $ 7,732,562
----------- -----------
Fully diluted earnings per share $ 0.72 $ 0.72
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three months ended September 30,
1997 1996
----------- -----------
<S> <C> <C>
PRIMARY
Weighted average number of common shares outstanding 12,301,430 11,856,522
Common equivalent shares outstanding - options 59,510 0
----------- -----------
Total common and common equivalent shares outstanding 12,360,940 11,856,522
----------- -----------
Net income $ 3,648,539 $ 3,271,402
----------- -----------
Primary earnings per share $ 0.30 $ 0.28
=========== ===========
FULLY DILUTED
Weighted average number of common shares outstanding 12,301,430 11,856,522
Common equivalent shares outstanding - options 337,542 97,744
----------- -----------
Total common and common equivalent shares outstanding 12,638,972 11,954,266
----------- -----------
Net income $ 3,648,539 $ 3,271,402
----------- -----------
Fully diluted earnings per share $ 0.29 $ 0.27
=========== ===========
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 43,671,260
<SECURITIES> 0
<RECEIVABLES> 686,978,558
<ALLOWANCES> (4,128,404)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,394,122
<DEPRECIATION> 640,813
<TOTAL-ASSETS> 736,097,459
<CURRENT-LIABILITIES> 0
<BONDS> 414,532,095
0
0
<COMMON> 123,034
<OTHER-SE> 71,102,414
<TOTAL-LIABILITY-AND-EQUITY> 736,097,459
<SALES> 0
<TOTAL-REVENUES> 59,937,290
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,019,811
<LOSS-PROVISION> 3,800,000
<INTEREST-EXPENSE> 18,809,649
<INCOME-PRETAX> 15,307,830
<INCOME-TAX> 6,199,741
<INCOME-CONTINUING> 9,108,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,108,089
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.72
</TABLE>
