<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ALTIVA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
ALTIVA LOGO
February 11, 2000
Dear Stockholder:
We invite you to attend the 2000 Annual Meeting of Stockholders of Altiva
Financial Corporation to be held at 10:00 a.m., Eastern Standard Time, on
Thursday, March 9, 2000 at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia 30303. The matters to be considered at the meeting are
described in the formal Notice and Proxy Statement on the following pages.
The Company has been experiencing a cash shortage since November 1999. In
order to improve our liquidity situation, we have been actively seeking new
financing and attempting to refinance some of our currently outstanding debt. To
this end, the Company has reached agreements in principle regarding (1) the
raising of additional cash through the issuance of $14,000,000 principal amount
of 12% Secured Convertible Senior Notes due 2006 (the "Secured Notes") to Value
Partners, Ltd. ("Value Partners") and (2) the refinancing of the Company's
outstanding 12 1/2% Subordinated Notes Due 2001 (the "Subordinated Notes").
Proposals Two and Three in the attached Proxy Statement relate to the
issuance of shares of our common stock, par value $.01 (the "Common Stock") in
connection with the issuance of the Secured Notes to Value Partners, Ltd. and
the current holders of the Subordinated Notes. If the stockholders approve
Proposals Two and Three
- the Company may issue shares of Common Stock to Value Partners and T.
Rowe Price Recovery Fund II, L.P. (through a participation interest in
the Secured Notes) which, when added to their existing holdings, will
cause them to own approximately 62% of the shares of Common Stock
issuable and outstanding after consummation of the transactions described
in Proposals Two and Three; and
- the Company may issue shares of Common Stock to the current holders of
the Subordinated Notes equivalent to 22.5% of the shares of Common Stock
issuable and outstanding after consummation of the transactions described
in Proposals Two and Three.
If the transactions described in Proposals Two and Three are approved and
the maximum amount of Common Stock issued, the current holders of the
outstanding Common Stock will hold shares representing 14.2% of the outstanding
Common Stock.
Whether or not you plan to attend in person, it is important that your
shares be represented at the Annual Meeting. The Board of Directors recommends
that Stockholders vote FOR each of the matters described in the Proxy Statement
to be presented at the Annual Meeting. PLEASE DATE AND SIGN YOUR PROXY CARD AND
RETURN IT IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE. Thank you.
Sincerely,
(Champ Meyercord)
Champ Meyercord
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
ALTIVA FINANCIAL CORPORATION
1000 PARKWOOD CIRCLE, SUITE 600
ATLANTA, GEORGIA 30339
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
To the Stockholders of Altiva Financial Corporation:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders or any
adjournment or postponement thereof (the "Annual Meeting") of Altiva Financial
Corporation, a Delaware corporation (the "Company"), will be held at 10:00 a.m.,
Eastern Standard Time, on March 9, 2000 at the offices of King & Spalding, 191
Peachtree Street, Atlanta, Georgia 30303 for the following purposes, all of
which are set forth more completely in the accompanying proxy statement:
(1) To elect 5 directors to serve until the next annual meeting of
stockholders or until their successors have been duly elected and
qualified;
(2) To vote on a proposal to ratify and approve the proposed issuance
of shares of the Company's common stock, par value $.01 (the "Common
Stock"), upon conversion of the Company's 12% Secured Convertible Senior
Notes due 2006 to be issued to Value Partners, Ltd;
(3) To vote on a proposal to issue shares of Common Stock in partial
exchange for the Company's outstanding 12 1/2% Subordinated Notes due 2001;
(4) To vote on a proposal to ratify and approve amendments to the
Company's 1999 Incentive Stock Plan; and
(5) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on January 17, 2000
as the record date for determining those Stockholders entitled to notice of, and
to vote at, the Annual Meeting.
You are cordially invited to attend the Annual Meeting in person. EVEN IF
YOU PLAN TO ATTEND IN PERSON, YOU ARE REQUESTED TO DATE, SIGN AND RETURN THE
ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE. You may revoke your proxy at any
time prior to its use.
By Order of the Board of Directors
(Champ Meyercord)
Champ Meyercord
Chairman of the Board and
Chief Executive Officer
Atlanta, Georgia
February 11, 2000
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE.
<PAGE> 4
ALTIVA FINANCIAL CORPORATION
---------------------
PROXY STATEMENT
---------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Altiva Financial Corporation,
a Delaware corporation (the "Company"), for use at the 2000 Annual Meeting of
Stockholders of the Company or any adjournment or postponement thereof (the
"Annual Meeting"). The Annual Meeting will be held at 10:00 a.m., Eastern
Standard Time, on March 9, 2000 at the offices of King & Spalding, 191 Peachtree
Street, Atlanta, Georgia 30303.
This Proxy Statement, the Notice of Annual Meeting, the proxy card and the
Company's Annual Report to Stockholders were mailed to Stockholders of the
Company on or about February 11, 2000.
PROPOSALS TWO AND THREE -- ISSUANCE OF COMMON STOCK
Proposals Two and Three both relate to the issuance of shares of the
Company's common stock, par value $.01 ("Common Stock") in connection with the
Company's attempts to improve its liquidity situation.
During the period from August 31, 1999 to December 31, 1999, our cash and
cash equivalents decreased from $10.5 million to $336,000. This decrease was
attributable to operating performance being less than forecast during the
period. In order to improve the Company's liquidity situation the Company is
seeking to issue to Value Partners, Ltd. ("Value Partners") $14,000,000
principal amount of 12% Secured Convertible Senior Notes due 2006 (the "Secured
Notes"). If the stockholders approve Proposal Two and Proposal Three, the
$14,000,000 principal amount of Secured Notes will be convertible, at the
holders' option, into 14,284,363 shares of Common Stock which will represent 50%
of the Common Stock issuable and outstanding after consummation of the
transaction described in Proposal Two and Three. This amount when aggregated
with the Common Stock owned or issuable to Value Partners and T. Rowe Price
Recovery Fund II, L.P. ("T. Rowe Price") who is purchasing a participation
interest in the Secured Notes and will receive shares of Common Stock upon their
conversion will represent approximately 62% of the Common Stock issuable and
outstanding after consummation of the transaction described in Proposal Two and
Three.
In addition, if the stockholders approve Proposal Three, the Company will
issue to the current holders of its 12 1/2% Subordinated Notes due 2001 (the
"Subordinated Notes"), a maximum of 6,428,000 shares of Common Stock, which
would represent 22.5% of the Common Stock issuable and outstanding after
consummation of the transactions described in Proposals Two and Three.
RECORD DATE
Only stockholders of record at the close of business on January 17, 2000
(the "Record Date") are entitled to vote at the Annual Meeting.
SHARES OUTSTANDING AND VOTING RIGHTS
As of the Record Date, there were 4,062,697 shares of the Common Stock of
the Company, par value $.01 (the "Common Stock"), outstanding and entitled to
vote. Each share of Common Stock entitles the holder to one vote on all matters
presented at the Annual Meeting.
PROXY PROCEDURE
Proxies properly executed and returned in a timely manner will be voted at
the Annual Meeting in accordance with the directions noted thereon. If no
direction is indicated, proxies will be voted FOR the election of the nominees
named herein as directors, FOR the other proposals set forth herein, and in
accordance with the judgment of the persons acting under the proxies on any
other matters presented for a vote. Any Stockholder giving a proxy has the power
to revoke it at any time before it is voted, either in person
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<PAGE> 5
at the Annual Meeting, by written notice to the Secretary of the Company or by
delivery of a later-dated proxy.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspector(s) of elections appointed for the meeting and will be counted in
determining whether or not a quorum is present. A proxy submitted by a
stockholder may indicate that all or a portion of the shares represented by such
proxy are not being voted by such stockholder with respect to a particular
matter ("non-voted shares"). This could occur, for example, when a broker is not
permitted to vote shares held in "street name" on certain matters in the absence
of instructions from the beneficial owner of the shares. Non-voted shares with
respect to a particular matter will not be considered shares present and
entitled to vote on such matter, although such shares will be counted for
purposes of determining the presence of a quorum. Shares voting to abstain as to
a particular matter, and directions to "withhold authority" to vote for
directors, will not be considered non-voted shares and will be considered
present and entitled to vote with respect to such matter.
VOTING REQUIREMENTS
Provided that a quorum is present at the Annual Meeting, the affirmative
vote of a plurality of the votes cast by the shares present in person or by
proxy will be required to elect each director. The proposals to ratify the
amendments to the Company's 1999 Incentive Stock Plan and to approve the
contemplated issuance of shares of Common Stock, (1) to Value Partners upon
conversion of the Secured Notes to be issued to Value Partners and (2) to
holders of the Company's 12% Secured Convertible Senior Notes due 2006 (the
"Exchange Notes") acquired in partial exchange for the Subordinated Notes
require the affirmative vote of the majority of the shares represented and
entitled to vote at the meeting. Non-voted shares will have no effect on the
proposal to elect directors or the proposals to amend the Plan and the proposals
to issue Common Stock to Value Partners or the holders of the Exchange Notes.
ABSTENTIONS WITH RESPECT TO A PROPOSAL ARE COUNTED FOR PURPOSES OF ESTABLISHING
A QUORUM. IF A QUORUM IS PRESENT, ABSTENTIONS (I) WILL HAVE THE EFFECT OF A VOTE
"AGAINST" THE PROPOSALS AND THE PROPOSAL TO APPROVE THE ISSUANCE OF COMMON STOCK
TO VALUE PARTNERS AND THE HOLDERS OF THE EXCHANGE NOTES AND TO AMEND THE
COMPANY'S 1999 INCENTIVE STOCK PLAN AND (II) WILL HAVE NO EFFECT ON THE ELECTION
OF DIRECTORS.
COSTS OF SOLICITATION
Proxies will be solicited by the Board through use of the mails. Proxies
may also be solicited by directors, officers and other employees of the Company,
either personally, by mail, by telephone or otherwise, but such persons will not
be compensated for such services. Brokerage firms, banks, fiduciaries, voting
trustees or other nominees will be requested to forward the soliciting material
to each beneficial owner of stock held of record by them.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
GENERAL
The Company's board of directors has fixed the number of directors at ten.
Stockholders annually elect directors to serve until the next Annual Meeting of
Stockholders or until their successors have been duly elected and qualified.
Stockholders are being asked to elect five directors to serve until the annual
meeting in 2001 or until their successors have been duly elected and qualified.
The following is a brief description of the business experience of each
nominee for at least the past five years.
Edward B. "Champ" Meyercord has been Chairman and Chief Executive Officer
of the Company since July 1998 and, prior thereto, he was a special consultant
to the Company from May 1998 to July 1998. From 1994 to 1998, Mr. Meyercord was
a senior investment banker with Greenwich Capital Markets, most recently as a
co-head of the Mortgage and Asset Backed Finance Group. In addition to his
involvement with asset
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<PAGE> 6
backed securities, Mr. Meyercord was involved in the development of financing
vehicles for specialty finance companies. Greenwich Capital Markets has
performed investment banking services for the Company since 1994. Prior to 1994,
Mr. Meyercord was a co-managing partner of Hillcrest Partners, a private
investment bank specializing in mergers and acquisitions for financial
institutions. Mr. Meyercord is a member of the Board of Directors of The
National Home Equity Mortgage Association.
Spencer I. Browne has been a Director of the Company since consummation of
the initial public offering in November 1996. For more than five years prior to
September 1996, Mr. Browne held various executive and management positions with
several publicly traded companies engaged in businesses related to the
residential and commercial mortgage loan industry. From August 1988 until
September 1996, Mr. Browne served as President, Chief Executive Officer and a
Director of Asset Investors Corporation ("AIC"), a New York Stock Exchange
("NYSE") traded company he co-founded in 1986. He also served as President,
Chief Executive Officer and a Director of Commercial Assets, Inc., an American
Stock Exchange traded company affiliated with AIC, from its formation in October
1993 until September 1996. In addition, from June 1990 until March 1996, Mr.
Browne served as President and a Director of M.D.C. Holdings, Inc., a NYSE
traded company and the parent company of a major home builder in Colorado.
Hubert M. Stiles, Jr. Mr. Stiles has been a Director of the Company since
July 1998. Since September 1996, Mr. Stiles has been a money manager for and
President of T. Rowe Price Recovery Fund II Associates, L.L.C. Mr. Stiles has
been Vice President of T. Rowe Price Associates, Inc. and a money manager for
and President of T. Rowe Price Recovery Fund Associates, Inc. since May 1988.
David J. Vida, Jr. Mr. Vida has been a Director of the Company since June
1998. Since July 1996, Mr. Vida has been President of City Mortgage Services, a
division of City National Bank. Mr. Vida served as Chief Financial Officer of
Prime Financial Corp. from June 1994 until June 1996. From January 1992 to June
1994, Mr. Vida was a Senior Accountant for KPMG Peat Marwick LLP.
John D. Williamson, Jr. has been a Director of the Company since September
1998. Since January 1997, Mr. Williamson has been engaged in the corporate
practice of law and as a consultant. From 1983 to January 1997, Mr. Williamson
worked in various capacities at Transport Life Insurance Company (a subsidiary
of Travelers Group, Inc.) including Chief Executive Officer, Vice Chairman of
the Board, and Chairman of the Board.
Each of these nominees has indicated a willingness to serve on the board of
directors of the Company.
VOTE REQUIRED
The five nominees who receive the greatest number of votes cast for the
election of directors shall become directors at the conclusion of the tabulation
of votes.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL FOR THE NOMINEES SET FORTH
ABOVE. PROXY CARDS THAT ARE SIGNED AND RETURNED WILL BE SO VOTED UNLESS CONTRARY
INSTRUCTIONS ARE INDICATED ON THE PROXY CARD.
PROPOSAL NUMBER TWO
ISSUANCE OF COMMON STOCK UPON CONVERSION OF THE SECURED NOTES
GENERAL
In order to raise capital to fund its operating and capital expenditures on
an ongoing basis, the Company intends to issue to Value Partners $14.0 million
principal amount of Secured Notes.
THE STOCKHOLDERS ARE BEING ASKED TO VOTE TO APPROVE THE ISSUANCE OF COMMON
STOCK UPON CONVERSION OF THE SECURED NOTES AT THE DISCRETION OF THE HOLDERS OF
THE SECURED NOTES.
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<PAGE> 7
The tables below show (1) the current ownership structure of the Company
and (2) what the ownership structure of the Company will look like if the
stockholders approve Proposals Two and Three and, as a result, (a) the
$14,000,000 principal amount of Secured Notes become convertible into 14,284,363
shares of Common Stock at a Conversion Price (as defined below under --
Conversion Price of $0.98 per share and (b) the holders of the Exchange Notes
(as defined below under Proposal Three) receive the maximum 6,428,000 shares of
Common Stock issuable in the Exchange (as defined below in Proposal Three).
<TABLE>
<CAPTION>
NUMBER PERCENT OF
CURRENT OWNERSHIP: OF SHARES VOTING POWER
- ------------------ --------- ------------
<S> <C> <C>
Current Holders of Common Stock............................. 4,062,697 51.9%
Holders of Convertible Preferred Stock (1).................. 3,760,636 48.1%
</TABLE>
- ---------------
(1) Assumes conversion of all outstanding Convertible Preferred Stock.
<TABLE>
<CAPTION>
NUMBER PERCENT OF
PROPOSED OWNERSHIP: OF SHARES VOTING POWER(1)
- ------------------- ---------- ---------------
<S> <C> <C>
Current Holders of Common Stock............................. 4,062,697 14.2%
Holders of Convertible Preferred Stock (2).................. 3,760,636 13.2%
Holders of Secured Notes (3)................................ 14,284,363 50.0%
Holders of Exchange Notes (4)............................... 6,428,000 22.5%
</TABLE>
- ---------------
(1) Does not include shares issuable upon the exercise of outstanding options or
shares issuable pursuant to options which can be granted under the Plan if
Proposal Four is approved. Assumes approval of Proposals Two and Three and
full conversion of the Secured Notes.
(2) Assumes conversion of all outstanding Convertible Preferred Stock.
(3) Assumes approval of Proposal Two and conversion of all Secured Notes.
(4) Assumes approval of Proposal Three and issuance of Common Stock to holders
of the Exchange Notes.
Assuming stockholder approval of this proposal and Proposal Number Two, the
Secured Notes will be convertible into an estimated maximum of 14,284,363 shares
of Common Stock. If the stockholders approve this Proposal Two but do not
approve Proposal Three, the Secured Notes will be convertible into approximately
7,823,333 shares of Common Stock, which would represent 50% of the Common Stock
outstanding or issuable upon conversion of the Company's Series A Convertible
Preferred Stock ("Convertible Preferred Stock"). Under this scenario, assuming
full conversion of the outstanding Convertible Preferred Stock and the Secured
Notes, the current holders of Common Stock would hold 26.0% of the outstanding
Common Stock, the current holders of the Company's outstanding Convertible
Preferred Stock would hold 24.0% of the outstanding Common Stock and the holders
of the Secured Notes would hold 50.0% of the outstanding Common Stock.
VOTING CONTROL AFTER CONVERSION
The proposed initial purchaser of the Secured Notes is Value Partners.
Pursuant to a participation agreement, Value Partners intends to sell a
participation interest in approximately $5.5 million of the Secured Notes to T.
Rowe Price. Upon full conversion of the Secured Notes, it is expected that T.
Rowe Price will acquire 5,611,714 shares of Common Stock to be issued with
respect to the Secured Notes due to its participation interest in the Secured
Notes.
In addition to the Common Stock which may be issued to Value Partners upon
the conversion of the Secured Notes, Value Partners currently holds Convertible
Preferred Stock and Subordinated Notes which are expected to be exchanged for
Exchange Notes and Common Stock. If the stockholders approve the conversion into
Common Stock of the Secured Notes sold to Value Partners as well as the issuance
of Common Stock to the holders of the Exchange Notes, and if the Secured Notes
are fully converted by Value Partners, Value Partners will have shares of Common
Stock representing approximately 40.3% of the outstanding Common Stock as shown
in the table below. In addition, based on the number of shares of Common Stock
currently owned by T. Rowe Price and the number of shares which may be acquired
by T. Rowe Price as a result of its participation interest in the Secured Notes,
upon conversion of the Secured
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Notes, T. Rowe Price will have shares of Common Stock representing approximately
22.0% of the outstanding Common Stock of the Company as shown in the table
below. Combined, Value Partners and T. Rowe Price will hold shares of Common
Stock representing approximately 62.2% of the outstanding Common Stock of the
Company calculated as follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OWNED
NATURE OF COMMON STOCK OWNERSHIP SHARES (AS CONVERTED) AFTER CONVERSION(1)
- -------------------------------- --------------------- -------------------
<S> <C> <C>
Value Partners
Issuable on conversion of Convertible Preferred
Stock............................................... 1,466,666 5.1%
Issuable on conversion of Secured Notes(2)............ 8,672,640 30.3%
Owned as result of Exchange...................... 1,360,833 4.8%
T. Rowe Price
Currently held........................................ 675,569 2.4%
Issuable on conversion of Secured Notes(2)............ 5,611,714 19.6%
---------- ----
Total............................................ 17,828,243 62.2%
========== ====
</TABLE>
- ---------------
(1) Based on: (1) 4,062,697 shares of Common Stock outstanding as of the Record
Date; (2) 3,760,636 shares of Common Stock issuable upon the conversion of
Convertible Preferred Stock outstanding as of the Record Date; (3) a maximum
of 6,428,000 shares issuable in the Exchange; and (4) 14,284,363 shares
issuable to holders of the Secured Notes.
(2) Represents shares issuable upon conversion of the Secured Notes. Pursuant to
the participation agreement, T. Rowe Price, or its successor or assign, will
acquire 5,611,714 of such shares upon conversion of the Secured Notes.
Consideration to be paid by Value Partners for the Secured Notes will
consist of (1) $4.3 million in cash and (2) the exchange of $9.7 million
principal amount of currently outstanding 12% Secured Convertible Notes (the
"Convertible Notes") previously issued to Value Partners in August and December
1999 and February 2000.
ISSUANCE OF THE CONVERTIBLE NOTES
In July 1999, the Company acquired all of the outstanding capital stock of
The Money Centre, Inc. ("Money Centre"), a mortgage-lending platform based in
Charlotte, North Carolina. The purchase price consisted of three components (1)
cash, (2) shares of Common Stock and (3) future, performance-based payments. The
cash component of the purchase price was financed through the sale of $7.0
million principal amount of Convertible Notes to Value Partners. Value Partners
subsequently sold a participation interest in $2.0 million principal amount of
the Convertible Notes to T. Rowe Price, of which Hubert M. Stiles, Jr., a member
of the Company's Board, is president of the managing general partner, T. Rowe
Price Recovery Fund II Associates, L.L.C.
The Convertible Notes were initially secured by a pledge of certain
mortgage related securities, along with the future proceeds generated by these
securities, and certain payment rights retained by the Company after the Company
had securitized certain loans it generated in 1996, 1997 and 1998 (the "Original
Collateral").
As described in detail under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in the Annual Report to Stockholders on Form 10-K distributed
along with this Proxy Statement, the Company experienced a cash shortage during
November and December 1998, which has continued into calendar year 2000. See
"Additional Information" below. As a result, the Company was required to raise
additional cash in order to fund its operating and capital expenses. On December
13, 1999, the Company and Value Partners reached an agreement in principle for
the issuance of an additional $7.0 million in debt to Value Partners.
Subsequently, the parties agreed that the additional debt would take the form of
the $14.0 million principal amount Secured Note which would
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<PAGE> 9
represent the additional $7.0 million of cash being raised as well as the
exchange of the outstanding $7.0 million Convertible Notes.
In order to meet the Company's short term financing needs, Value Partners
agreed on December 13, December 31, 1999 and February 2, 2000 to purchase an
aggregate of $2.7 million principal amount of Convertible Notes. These
Convertible Notes were also secured by the Original Collateral, and
additionally, $2.45 million of these Convertible Notes were also secured by a
pledge by Altiva of the capital stock of Money Centre.
TERMS OF THE SECURED NOTES
The parties intend to enter into a definitive agreement regarding the
issuance to Value Partners of the $14.0 million principal amount of Secured
Notes. The Secured Notes will be issued in exchange for (1) the outstanding
principal amount of the Convertible Notes and (2) $4.3 million in cash. Pursuant
to a participation agreement, T. Rowe Price will purchase a participation
interest in $5.5 million principal amount of the Secured Notes.
Conversion. If the stockholders approve the issuance of Common Stock upon
the conversion of the Secured Notes and in connection with the Exchange, the
Secured Notes will become convertible at a Conversion Price of $0.98. In order
to prevent dilution of the percentage of the outstanding Common Stock into which
the Secured Notes will be convertible, the Conversion Price will be adjusted
accordingly if, among other things:
- the Company pays a dividend in Common Stock or securities convertible
into Common Stock;
- the Company issues rights or warrants to all holders of outstanding
Common Stock;
- the Company completes a forward or reverse stock split of its outstanding
Common Stock;
- the Company engages in a self-tender offer; or
- the shareholders approve the Exchange (as described below under Proposal
Three).
Conversion Price. Upon issuance, the Secured Notes will be convertible at
the rate of one share of Common Stock for each $1.78 of outstanding principal
amount of Secured Notes (the "Conversion Price"). If the stockholders approve
the Exchange, the Conversion Price will automatically be reduced to one share
for each $0.98 of principal amount of Secured Notes. As such, the $14,000,000
principal amount of the Secured Notes would become convertible into an aggregate
of 14,284,363 shares of Common Stock.
The Common Stock currently trades on the Nasdaq SmallCap Market under the
symbol "ATVA." Since November 30, 1999, the end of the Company's last fiscal
quarter, the closing price for the Common Stock has ranged from a low of $0.93
per share to a high of $2.50 per share. The last reported closing price prior to
the mailing of this Proxy Statement was $2.00 per share on February 7, 2000.
Relationship to Exchange Notes. The Secured Notes and the Exchange Notes
will be deemed to constitute one class of notes of the Company for purposes of
amending their terms and the terms of the Company's obligations with respect to
the Secured Notes and the Exchange Notes and shall be equal or pari passu in
rights of payment of principal, premiums (if any) and interest. Except for
provisions regarding convertibility, the material terms of the Secured Notes and
the Exchange Notes shall be identical. The holders of the Secured Notes and the
Exchange Notes will vote as a single class for purposes of amending, modifying
or waiving the provisions of the Secured Notes and the Exchange Notes.
Security. The Secured Notes are secured in their entirety by the Original
Collateral and the capital stock of Money Centre. The security interest of the
holders of the Secured Notes in the Original Collateral and the capital stock of
Money Centre will be equal or pari passu to the security interest of the QIB
Exchange Holders (as defined below under Proposal Three) while the security
interest of the holders of the Secured Notes in the capital stock of Money
Centre will be junior to that of the Non-QIB Exchange Holders (as defined below
under Proposal Three). The Non-QIB Exchange Holders will not be entitled to any
priority in
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<PAGE> 10
right of payment of principal, interest or premium as a result of their senior
security interest in the capital stock of Money Centre.
Effect of the Exchange. If the Exchange is approved by the stockholders,
the Conversion Price for the Secured Notes will be automatically reduced to
allow the outstanding principal amount of the Secured Notes to be converted into
a number of shares of Common Stock equal to the sum of (1) the number of shares
of Common Stock outstanding immediately before the Exchange, (2) the number of
shares of Common Stock issuable pursuant to the Exchange (approximately
6,428,000), (3) the number of shares of Common Stock issuable upon conversion of
the Company's outstanding Series A Convertible Preferred Stock, and (4) the
number of shares of Common Stock remaining to be issued by the Company with
respect to stock options with an exercise price less than the market price of
the Common Stock on the date a portion of the outstanding principal of the
Exchange Notes automatically converts into Common Stock (the "Fully-Diluted
Shares"). This adjustment of the Conversion Price will result in the Secured
Notes becoming convertible into approximately 14,284,363 shares of Common Stock.
Based on (i) the 4,062,697 shares of Common Stock outstanding on the Record
Date, (ii) the maximum of 6,428,000 shares of Common Stock issuable in
connection with the Exchange, and (iii) the 3,793,666 shares of Common Stock
issuable upon conversion of the 56,905 outstanding shares of the Company's
Series A Convertible Preferred Stock outstanding on the Record Date, and
assuming that there will be no in-the-money options outstanding to acquire
shares of Common Stock on the date a portion of the Exchange Notes are
mandatorily converted into Common Stock, upon the mandatory conversion to Common
Stock of a portion of the Exchange Notes, the Conversion Price would be reduced
from $1.78 to $.98, which would enable the holders of the Secured Notes to
acquire an aggregate of approximately 14,284,363 shares of Common Stock, which
would represent 50% of the Fully Diluted Shares.
FAILURE TO OBTAIN STOCKHOLDER APPROVAL
In the event that either the issuance of Common Stock with respect to the
Exchange or the issuance of Common Stock with respect to the Secured Notes is
not approved by the stockholders, the holders of the Secured Notes will have the
right (1) to require the Company to repurchase all of the outstanding Secured
Notes for cash in the amount of 112% of the principal amount of the Secured
Notes outstanding and (2) to receive additional interest which increases monthly
at the rate of 1% per annum up to a maximum interest rate of 18%, until such
time as stockholder approval is obtained. Based on the Company's current
liquidity situation and forecasts, the Company expects that it would be unable
to repurchase the Secured Notes at the required 112% premium or to pay any
required additional interest with respect to the Secured Notes should the
stockholders fail to approve the issuance of Common Stock with respect to the
Exchange or the issuance of Common Stock with respect to the Secured Notes.
VOTE REQUIRED
Assuming the presence of a quorum at the Annual Meeting, the affirmative
vote of the holders representing a majority of the shares present at the Annual
Meeting, either in person or by proxy, will be required to approve the issuance
of Common Stock upon the conversion of the Secured Notes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO ISSUE UP TO
14,284,363 SHARES OF COMMON STOCK TO THE HOLDERS OF THE SECURED NOTES UPON THE
CONVERSION OF THE SECURED NOTES. PROXY CARDS THAT ARE SIGNED AND RETURNED WILL
BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE PROXY CARD.
8
<PAGE> 11
PROPOSAL NUMBER THREE
ISSUANCE OF COMMON STOCK IN THE EXCHANGE
GENERAL
The Company will conduct an exchange offer (the "Exchange") under which
holders of the Company's Subordinated Notes will be given the opportunity to
exchange their Subordinated Notes for Exchange Notes and Common Stock. THE
STOCKHOLDERS ARE BEING ASKED TO APPROVE THE ISSUANCE OF COMMON STOCK IN THE
EXCHANGE.
If all of the current holders of the Subordinated Notes participate in the
Exchange and the stockholders approve the issuance of Common Stock in the
Exchange, the Company expects to issue 6,428,000 shares of Common Stock to such
holders as partial consideration for the tendering of their Subordinated Notes.
The proposed ownership chart contained in "Proposal Two -- General" above, shows
that this 6,428,000 shares of Common Stock will represent 22.5% of the
Fully-Diluted Shares, which assumes conversion of outstanding Convertible
Preferred Stock and stockholder approval of the conversion of the Secured Notes
and full conversion of the Secured Notes, while the current holders of the
Common Stock will own 14.2% of such outstanding Common Stock.
ISSUANCE OF COMMON STOCK
The issuance of Common Stock to the holders of the Exchange Notes issued in
the Exchange will be accomplished either through (1) the outright issuance of
Common Stock to holders of the Subordinated Notes who tender their Subordinated
Notes or (2) a conversion feature contained in the Exchange Notes whereby a
certain portion of the principal amount of the Exchange Notes will automatically
convert into Common Stock upon stockholder approval of the issuance of Common
Stock to the holders of Exchange Notes received in the Exchange. If the Company
and the representatives of the current holders of the Subordinated Notes elect
to issue the Common Stock through an automatic conversion of the Exchange Notes,
the Exchange Notes will be convertible into Common Stock at the rate of one
share of Common Stock for each $1.00 of principal outstanding up to a maximum of
6,428,000 shares of Common Stock.
As noted above under "Proposal Two -- Terms of the Secured
Notes -- Conversion Price" the Common Stock currently trades on the Nasdaq
SmallCap Market under the symbol "ATVA." Since November 30, 1999, the end of the
Company's last fiscal quarter, the closing price for the Common Stock has ranged
from a low of $0.93 per share to a high of $2.50 per share. The last reported
closing price prior to the mailing of this Proxy Statement was $2.00 per share
on February 7, 2000.
REASONS FOR THE EXCHANGE
Due to the liquidity difficulties experienced by the Company since November
and December 1999, which are explained in detail under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" in the Annual Report to
Stockholders distributed along with this Proxy Statement, the Company lacked the
funds necessary to make a scheduled December interest payment with respect to
the approximately $30.5 million outstanding principal amount of Subordinated
Notes. See "Additional Information" below. As a result of this situation, the
Company began negotiations with the holders of the Subordinated Notes in order
to discuss a refinancing of the Subordinated Notes.
TERMS OF THE EXCHANGE NOTES
The Company will offer to enter into an exchange agreement with the holders
of up to 100% of the principal amount of Subordinated Notes to exchange their
Subordinated Notes for Exchange Notes and Common Stock, and it is anticipated
that the holder of not less than approximately 97% of the principal amount of
the Subordinated Notes will participate in the Exchange. For a discussion of the
relationship
9
<PAGE> 12
between the Exchange Notes and the Secured Notes, see "Proposal Two -- Terms of
the Secured Notes -- Relationship to Exchange Notes."
Differences from Subordinated Notes. Other than convertibility features of
the Secured Notes, the main differences between the Exchange Notes and the
Subordinated Notes will be:
- the Company will not be required to make any interest payments with
respect to the Exchange Notes until August 2001;
- extension of the maturity date of the Exchange Notes until December 31,
2006; and
- the security interests created in favor of the holders of the Exchange
Notes.
Security. With regard to security interests, the Exchange Notes held by
persons or entities that are Qualified Institutional Buyers, as defined under
the federal securities laws (the "QIB Exchange Holders"), will be secured by a
pledge by the Company of the Original Collateral and a subordinated interest in
the capital stock of Money Centre. The security interest of the QIB Exchange
Holders in the collateral will be equal or pari passu to the security interest
in the same collateral which will be created with respect to the Secured Notes.
The Exchange Notes held by persons or entities that are not QIB Exchange Holders
(the "Non-QIB Exchange Holders") will be secured solely by a pledge of the
capital stock of Money Centre because such holders are not eligible to share in
the proceeds from the Original Collateral. This pledge of the capital stock of
the Money Centre to the Non-QIB Exchange Holders will be senior to the pledges
of the Money Centre Stock to both the QIB Exchange Holders and Value Partners.
The Non-QIB Exchange Holders will not be entitled to any priority in right of
payment of principal, interest or premium as a result of their senior security
interest in the capital stock of Money Centre. Moreover, in the event that
recovery from the capital stock of Money Centre is inadequate to permit a pro
rata recovery in favor of the Non-QIB Exchange Holders, their recovery may be
less than that of the QIB Exchange Holders and the holder of the Secured Notes.
FAILURE TO OBTAIN STOCKHOLDER APPROVAL.
In the event that either the issuance of Common Stock with respect to the
Exchange or the issuance of Common Stock with respect to the Secured Notes is
not approved by the stockholders, the holders of the Exchange Notes will have
the right (1) to require the Company to repurchase all of the outstanding
Exchange Notes for cash in the amount of 112% of the principal amount of the
Exchange Notes outstanding and (2) to receive additional interest which
increases monthly at the rate of 1% per annum up to a maximum interest rate of
18% until such time as stockholder approval is obtained. Based on the Company's
current liquidity situation and forecasts, the Company expects that it would be
unable to repurchase the Exchange Notes at the required 112% premium or to pay
any additional interest with respect to the Exchange Notes should the
stockholders fail to approve the issuance of Common Stock with respect to the
Exchange or the issuance of Common Stock with respect to the Secured Notes.
VOTE REQUIRED
Assuming the presence of a quorum at the Annual Meeting, the affirmative
vote of the holders representing a majority of the shares present at the Annual
Meeting, either in person or by proxy, will be required to approve the issuance
of Common Stock upon the conversion of the Exchange Notes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
ISSUANCE OF COMMON STOCK IN THE EXCHANGE. PROXY CARDS THAT ARE SIGNED AND
RETURNED WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE
PROXY CARD.
10
<PAGE> 13
PROPOSAL NUMBER FOUR
AMENDMENTS TO THE ALTIVA FINANCIAL CORPORATION 1999 INCENTIVE STOCK PLAN
GENERAL
On January 24, 2000, the Board approved the Amended and Restated Altiva
Financial Corporation 1999 Incentive Stock Plan (the "Plan"). A copy of the
Plan, as amended, is attached hereto as Annex A. The Board unanimously
recommends that the stockholders vote for approval and adoption of the amended
and restated Plan. The effective date of the amended and restated Plan shall be
the date of such stockholder approval. The effective date of the Plan prior to
amendment and restatement was January 12, 1999, the date of its initial adoption
by the board of directors. The Plan will remain in effect until January 12,
2009. The purpose behind the proposed amendment of the Plan is to enable the
Company to continue to provide attractive incentives for its employees and
non-employee directors. In addition, the Company has decided to increase the
number of shares issuable pursuant to the Plan in order to reserve a sufficient
amount of shares for the Company to provide competitive incentives.
PROPOSED AMENDMENTS TO THE PLAN
The amended and restated Plan increases by 1,950,000 the number of shares
of Common Stock available for use under the Plan. Under the amended and restated
Plan, no key employee in any calendar year may be granted a stock option
(including a stock option granted in exchange for the cancellation of an
outstanding stock option previously granted under the Plan or any other stock
option plan of the Company) to purchase more than 2,000,000 shares of Common
Stock or a stock appreciation right with respect to more than 2,000,000 shares
of Common Stock, unless the committee of the Board administering the Plan (the
"Committee") determines that a grant of a greater number of shares of Common
Stock for a specific key employee in a specific calendar year is in the best
interests of the Company.
Under the amended and restated Plan, the Committee has the right to grant
new stock options in exchange for the cancellation of outstanding stock options
granted under the Plan or any other Company stock option plan that have a higher
or lower option price than the new stock options. The amended and restated Plan
provides that the option price of stock options granted to key employees or
outside directors may be no less than the fair market value of a share of Common
Stock on the date of grant, and the amended and restated Plan eliminates the
$15.00 floor on the option price and SAR Value under the Plan.
VOTE REQUIRED
Assuming the presence of a quorum at the Annual Meeting, the affirmative
vote of the holders representing a majority of the shares present at the Annual
Meeting, either in person or by proxy, will be required to approve the
amendments to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE
PLAN. PROXY CARDS THAT ARE SIGNED AND RETURNED WILL BE SO VOTED UNLESS CONTRARY
INSTRUCTIONS ARE INDICATED ON THE PROXY CARD.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND
COMMITTEES OF THE BOARD OF DIRECTORS
COMMITTEES AND MEETINGS OF THE BOARD
The board of directors has delegated certain functions to the following
standing committees:
Audit Committee. The Audit Committee's functions include recommending to
the board the engagement of the Company's independent certified public
accountants, reviewing with the accountants the plan and results of their
auditor the Company's financial statements and determining the independence of
the accountants. The Audit Committee held SIX meetings in fiscal 1999. The Audit
Committee is currently composed of Messrs. Stiles, Browne and Vida.
11
<PAGE> 14
Compensation Committee. The Compensation Committee has the authority to
approve the compensation of the Company's executive officers. The Compensation
Committee held THREE meetings in fiscal 1999. Currently, the Compensation
Committee consists of Messrs. Williamson and Browne.
Nominating Committee. The Company currently does not maintain a nominating
committee.
Plan Committee. The Plan Committee was established in January 1999 to
administer the Company's 1999 Incentive Stock Plan. The Plan Committee is
currently composed of Messrs. Stiles and Williamson. The Plan Committee met two
times during fiscal 1999.
During fiscal 1999, the Board of Directors held a total of 12 meetings. All
directors attended at least 75% of all Board and committee meetings during
fiscal 1999.
DIRECTORS FEES
The Company reimburses all directors for their expenses in connection with
their activities as directors of the Company. Directors of the Company who are
also employees of the Company do not receive additional compensation for their
services as directors. Members of the Board of Directors of the Company who are
not employees of the Company receive an annual retainer fee of $30,000.
Directors are also reimbursed for their expenses incurred in attending meetings
of the board of directors and its committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, Messrs. John D. Williamson, Jr. and Spencer I. Browne
served as members of the Compensation Committee. Mr. Browne was a consultant of
the Company during fiscal 1999, for which he was paid $80,000.
12
<PAGE> 15
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth, as of January 17, 2000, information with
respect to the beneficial ownership of the Common Stock by (1) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock, (2) each director of the Company, (3) each of the Named
Executive Officers, and (4) all directors and executive officers of the Company
as a group. Unless otherwise noted, the Company believes that all persons named
in the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OWNERSHIP(2)
- --------------------------------------- ------------------ -------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Champ Meyercord(3).......................................... 163,120 3.9
J. Richard Walker........................................... -- *
Spencer I. Browne(4)........................................ 70,976 1.7
Hubert M. Stiles, Jr.(5)(6)................................. 675,569 16.6
David J. Vida, Jr.(6)....................................... 1,666 *
John D. Williamson, Jr.(6).................................. 14,185 *
All executive officers and directors of the Company as a
group (6 persons)......................................... 856,842 20.0
OTHER LARGE STOCKHOLDERS:
Value Partners, Ltd.(7)..................................... 1,474,550 26.9
City National Bank(8)....................................... 1,333,336 24.7
Sovereign Bancorp(9)........................................ 1,333,336 24.7
Friedman, Billings, Ramsey Group, Inc.(10).................. 974,245 21.6
Emanuel J. Friedman(10)(11)................................. 666,666 16.4
T. Rowe Price Recovery Fund II, L.P.(5)..................... 675,569 16.6
First Fidelity Bancorp, Inc.(12)............................ 333,335 7.6
Merrill Lynch Phoenix Fund, Inc.(13)........................ 300,000 7.4
Premium Total Return Fund(14)............................... 266,667 6.6
</TABLE>
- ---------------
* Less than 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this prospectus
upon the exercise of options and warrants. Each beneficial owner's
percentage ownership is determined by assuming that options and warrants
that are held by such person (but not those held by any other person) and
that are exercisable within 60 days from the date of this prospectus have
been exercised. Unless otherwise stated, the address for each of the
following persons is 1000 Parkwood Circle, 6th Floor, Atlanta, Georgia
30339.
(2) Based on 4,062,697 shares of common stock outstanding as of January 17,
2000, and, where applicable, the conversion of the stock equivalents held
by a particular holder or group but no other holders.
(3) Includes 160,620 shares issuable upon the exercise of currently outstanding
options.
(4) Includes 67,250 shares issuable upon the exercise of currently outstanding
options.
(5) The address of Mr. Stiles and T. Rowe Price Recovery Fund II, L.P. is 100
East Pratt Street, Baltimore, Maryland 21202. Represents shares
beneficially owned by T. Rowe Price Recovery Fund II, L.P., T. Rowe Price
Recovery Fund II Associates, L.L.C. and T. Rowe Price Associates, Inc. (of
which Mr. Stiles is a vice president). Mr. Stiles disclaims beneficial
ownership of these shares. Based on a Schedule 13G filed with the SEC on
July 10, 1998. Includes 3,151 shares currently issuable pursuant to the
conversion of Convertible Notes in which T. Rowe Price Recovery Fund II,
L.P. has a participation interest. Does not include shares of Common Stock
issuable if the stockholders approve Proposals Two and Three. See "Proposal
Number Two -- Voting Control After Conversion."
(6) Includes 1,666 shares issuable upon the exercise of currently outstanding
options.
(7) The address of Value Partners, Ltd. is 4514 Cole Avenue, Suite 808, Dallas,
Texas 75205. Represents shares issuable upon the conversion of 22,000
shares of Preferred Stock and 11,027 shares currently issuable upon the
conversion of Convertible Notes owned by Value Partners, Ltd. Does not
include
13
<PAGE> 16
shares of Common Stock issuable if the stockholders approve Proposals Two
and Three. See "Proposal Number Two -- Voting Control After Conversion."
(8) City National Bank's address is 25 Gatewater Road, Charleston, West
Virginia 25313. Represents (i) 666,670 shares issuable upon conversion of
Preferred Stock and (ii) 666,666 shares issuable upon exercise of currently
outstanding options.
(9) Sovereign Bancorp's address is 1130 Berkshire Boulevard, P.O. Box 12646,
Reading, Pennsylvania 19612. Represents (i) 666,670 shares issuable upon
conversion of Preferred Stock and (ii) 666,666 shares issuable upon
exercise of currently outstanding options.
(10) The address of Friedman, Billings, Ramsey Group, Inc. ("FBRG") is 1001 19th
Street North, Arlington, Virginia 22209. As of March 31, 1999, FBRG,
through its two wholly-owned subsidiaries Friedman, Billings, Ramsey
Investment Management, Inc. ("Investment Management") and Orkney Holdings,
Inc. ("Orkney"), had sole voting and dispositive power with respect to
535,910 shares of Common Stock. This number does not include 666,666 shares
of Common Stock owned by Emanuel J. Friedman, as to which FBRG disclaims
beneficial ownership. Investment Management serves as general partner and
discretionary investment manager for FBR Ashton, L.P. ("Ashton") which, as
of March 31, 1999, owned 4,450 shares of Preferred Stock (which are
convertible into 296,668 shares of Common Stock). Investment Management
also serves as discretionary manager for FBR Opportunity Fund, Ltd.
("Opportunity Fund") which, as of March 31, 1999, owned 90,680 shares of
Common Stock. Orkney is a wholly-owned subsidiary of FBRG which, as of
March 31, 1999, owned 445,230 shares of Common Stock and 2,125 shares of
Preferred Stock (which are convertible into an aggregate of 141,667 shares
of Common Stock). Each of FBRG, Ashton, Investment Management, Opportunity
Fund and Orkney disclaims beneficial ownership of the shares of Common
Stock owned by the other four entities. In addition, Emanuel J. Friedman,
Eric F. Billings and W. Russell Ramsey are each control persons with
respect to FBRG.
(11) Mr. Friedman's address is 1001 19th Street, Arlington, Virginia 22209.
Excludes 535,910 shares beneficially owned by FBRG, as to which Mr.
Friedman disclaims beneficial ownership. Mr. Friedman has notified the
Company that, until the earlier of (i) the first date on which he, together
with FBR and its affiliates, holds shares of Common Stock representing less
than 20% of the total issued and outstanding Common Stock or (ii) the date
on which he deposits his shares of Common Stock in a voting trust to be
voted by an unaffiliated third party, he waives the right to vote his
shares of Common Stock.
(12) The address of First Fidelity Bancorp, Inc. is 2601 Main Street, Suite 100,
Irvine, California 72614. Represents shares issuable upon conversion of
Preferred Stock.
(13) The address of Merrill Lynch Phoenix Fund, Inc. is 4 New York Plaza, 11(th)
Floor, c/o Chase Manhattan Bank, New York, New York.
(14) Represents shares issuable upon the conversion of Preferred Stock.
14
<PAGE> 17
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation earned by the Company's chief executive officer and the
other executive officer as of August 31, 1999 whose annual salary and bonus
during fiscal 1999 exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION NUMBER OF
FISCAL --------------------- OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) GRANTED(2) COMPENSATION(3)
- --------------------------- ------ -------- ---------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Champ Meyercord(4)....... 1999 $306,627 $ 250,000 $ -- -- $ --
Chairman of the 1998 63,462 -- -- 481,859
Board and Chief 1997 -- -- -- -- --
Executive Officer
J. Richard Walker(5)..... 1999 $183,333 -- $ 1,000 50,000 --
Executive Vice 1998 -- -- -- -- --
Chief Financial 1997 -- -- -- -- --
Officer
Wm. Paul Ralser(6)....... 1999 $264,423 -- $ 1,547 -- --
President and Chief 1998 -- -- -- -- --
Operating Officer 1997 -- -- -- -- --
James L. Belter(7)....... 1999 $ 58,333 $120,000(8) $ 2,519 -- --
Executive Vice 1998 212,519 100,000(8) 9,919 135,868
President and 1997 180,003 100,000(8) 15,896 10,000 --
Treasurer
</TABLE>
- ---------------
(1) Other annual compensation consisted of car allowances, contributions to
401(k) plans and moving expenses.
(2) See "-- Employment Agreements" and "-- Company Stock Option Plans" below.
(3) All other compensation consisted of funds received from the Company to
repurchase outstanding SARs and stock options.
(4) Mr. Meyercord became Chief Executive Officer of the Company in July 1998.
(5) Mr. Walker became Executive Vice President and Chief Financial Officer of
the Company in October 1998.
(6) Mr. Ralser began employment with the Company on September 1, 1998 and
resigned from the Company on July 31, 1999.
(7) Mr. Belter resigned from the Company on November 30, 1998.
(8) Bonuses paid to Mr. Belter during fiscal years 1996 and 1997 were
discretionary bonuses determined by the Board of Directors. The bonus paid
during fiscal 1998 was paid pursuant to an employment contract entered into
with Mr. Belter in August 1997.
15
<PAGE> 18
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended August 31, 1999 to the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION POTENTIAL
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE REALIZABLE VALUE
- ---- ---------- ---------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Champ Meyercord.................... -- -- -- --
Chairman of the
Board and Chief
Executive Officer
James L. Belter.................... -- -- -- --
Executive Vice
President and
Treasurer (1)
J. Richard Walker.................. 50,000 12.7% $15.00 1/12/09 $250,000
Executive Vice
President and Chief
Financial Officer
</TABLE>
- ---------------
(1) Mr. Belter resigned from the Company on November 30, 1998.
AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning unexercised
stock options held by the Named Executive Officers as of August 31, 1999. No
stock options were exercised by the Named Executive Officers during the fiscal
year ended August 31, 1999. See "-- Company Stock Option Plans."
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS HELD AT HELD AT
AUGUST 31, 1999 AUGUST 31, 1999(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Champ Meyercord................................. 160,620 321,239 $ -- --
J. Richard Walker............................... -- 50,000 -- --
</TABLE>
- ---------------
(1) The closing sales price of the Company's common stock as reported on the
Nasdaq Small Cap Market on August 31, 1999 was $4.50, as adjusted to reflect
the one-for-ten reverse stock split. All options held by Messrs. Belter,
Meyercord and Walker as of August 31, 1999 were granted at exercise prices
in excess of such market price.
EMPLOYMENT AGREEMENTS
On June 23, 1998, the Company entered into an employment agreement with
Champ Meyercord pursuant to which Mr. Meyercord became the Chairman of the Board
and Chief Executive Officer of the Company. The Company and Mr. Meyercord
elected to renegotiate the original employment agreement and entered into a new
employment agreement (the "Meyercord Agreement") on February 12, 1999. The
initial term of the Meyercord Agreement terminates on December 31, 2001 and the
agreement will continue on a year-to-year basis unless terminated by either
party. The Meyercord Agreement provides for an initial annual base salary of
$300,000. Mr. Meyercord received a $250,000 bonus in 1999, the minimum amount
due to him pursuant to the Meyercord Agreement. For each subsequent calendar
year during the term of the agreement, Mr. Meyercord shall be entitled to
receive bonuses pursuant to a management incentive compensation plan for senior
management to be established by the Company. Pursuant to the Meyercord Agreement
Mr. Meyercord
16
<PAGE> 19
was granted options to purchase 481,859 shares of common stock upon approval by
the Company's stockholders of the 1999 Plan.
Upon termination of the agreement for "cause," Mr. Meyercord will be
entitled to receive his base salary through the effective date of termination
and any determined but unpaid incentive compensation for any bonus period ending
on or before the date of termination. In the event of his termination by the
Company "without cause" or his voluntary termination on six months notice, Mr.
Meyercord will be entitled to (1) any unpaid base salary through the date of
termination, (2) accrued but unpaid incentive compensation, if any, for the
bonus period ending on or before the date of termination, (3) the continuation
of any benefits through the expiration of the Meyercord Agreement and (4) the
payment, through the date of expiration of the Meyercord Agreement, of his base
salary and incentive compensation (in an amount equal to the incentive
compensation paid to Mr. Meyercord for the calendar year immediately preceding
termination). In the event of a change of control of the Company accompanied
within two years by either (1) termination of Mr. Meyercord's employment by the
Company "without cause" or (2) Mr. Meyercord's voluntarily termination for "good
reason," Mr. Meyercord will be entitled to the amounts receivable upon a
termination "without cause." In addition, upon a change of control any vested
stock options granted to Mr. Meyercord will accelerate and become immediately
vested. The Meyercord Agreement contains a non-competition provision that
generally prohibits Mr. Meyercord from competing with the Company during his
employment by the Company and for the lesser of the two-year period following
the termination of his employment for any reason or the period of time during
which Mr. Meyercord is entitled to continuing payments from the Company due to a
termination of the Meyercord Agreement due to disability, voluntary termination,
termination "without cause" or change of control of the Company.
On September 1, 1999, the Company entered into an employment agreement with
J. Richard Walker, employing Mr. Walker as Executive Vice President and Chief
Financial Officer of the Company. The initial term of the employment agreement
(the "Walker Agreement") terminates on August 31, 2001 and the agreement will
continue on a year-to-year basis unless terminated by either party. The Walker
Agreement provides an initial annual base salary of $200,000. For each fiscal
year during the term of the agreement, Mr. Walker shall be entitled to receive
bonuses pursuant to a management incentive compensation plan to be established
by the Company. Pursuant to the terms of the Company's stock option plan and the
agreement, Mr. Walker is eligible to receive options to purchase shares of stock
at the discretion of the Company's stock option plan committee.
Upon termination of the agreement for "cause," Mr. Walker will be entitled
to receive his base salary through the effective date of termination and any
determined but unpaid incentive compensation for any bonus period ending on or
before the date of termination. In the event of his termination by the Company
"without cause" or termination by Mr. Walker for "good reason" on six months
notice, Mr. Walker will be entitled to (1) any unpaid base salary through the
date of termination, (2) accrued but unpaid incentive compensation, if any, for
the bonus period ending on or before the date of termination, (3) the
continuation of any benefits through the expiration of the Walker agreement, and
(4) the payment, through the date of expiration of the Walker Agreement, of his
base salary and incentive compensation (in amount equal to the incentive
compensation paid to Mr. Walker for the calendar year immediately preceding
termination). In the event of a change of control of the Company accompanied
within two years by either (1) termination of Mr. Walker's employment by the
Company "without cause" or (2) Mr. Walker's voluntary termination for "good
reason", Mr. Walker will be entitle to the amounts receivable upon a termination
"without cause". In addition, upon a change of control any vested stock options
granted to Mr. Walker will accelerate and become immediately vested. The Walker
Agreement contains a non-competitive provision that generally prohibits Mr.
Walker from competing with the Company during his employment by the Company and
for the one-year period following the termination of his employment for any
reason.
During fiscal 1999, James Belter, the Company's Executive Vice President
and Chief Financial Officer until November 30, 1998, was employed pursuant to an
employment agreement entered into in August 1997. The employment agreement
provided that Mr. Belter was entitled to receive discretionary performance
bonuses based on factors determined by the Committee and the board of directors
in accordance with the
17
<PAGE> 20
Company's executive bonus pool program. Notwithstanding the foregoing, Mr.
Belter was guaranteed to receive a bonus of $100,000 for each of the first two
years of his employment agreement.
REPORT ON EXECUTIVE COMPENSATION
Pursuant to the rules of the Securities and Exchange Commission, the
Compensation Committee of the board of directors of the Company (the
"Compensation Committee") is required to provide a report explaining the
rationale and considerations that led to fundamental compensation decisions
affecting the Company's executive officers, including the Named Executive
Officers, during the past fiscal year. Set forth below is the report of the
board of directors who were involved in compensation decisions during the 1999
fiscal year regarding such compensation policies.
THIS REPORT SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS INFORMATION STATEMENT INTO ANY FILING
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED
FILED UNDER SUCH ACTS.
The primary elements of the Company's compensation program are base salary,
performance-based bonuses, deferred compensation and stock option plans designed
to provide long-term incentives. The board of directors' general philosophy with
respect to the compensation of the Company's executive officers (including the
Named Executive Officers) is to offer competitive compensation programs designed
to attract and retain key executives who are critical to the long-term success
of the Company and to recognize an individual's personal performance and
contribution to the Company, as well as the Company's overall performance. More
specifically, factors considered in determining compensation, to the extent
applicable, includes the recommendations of the Chairman of the Board and Chief
Executive Officer, specific accomplishments of the executive officers, the
Company's historical and projected performance and success in reaching
performance goals and projections, and the Company's sales of loans, earnings
and financial condition.
The Company attempts to provide incentives to its executive officers to
remain with the Company and to improve performance through the grant of stock
options. Stock options allow executive officers to share, to some extent, in
stockholders' return on equity. All Company options vest in staggered amounts
over a period of years. Determinations as to the number of options to grant to
an executive officer are made by the board of directors.
As of July 1, 1998, Champ Meyercord was elected Chairman and Chief
Executive Officer. On June 23, 1998, the Company entered into the Meyercord
Agreement with Mr. Meyercord, which was amended on February 12, 1999, pursuant
to which Mr. Meyercord serves as Chairman of the Board and Chief Executive
Officer of the Company. The initial term of the agreement terminates on December
31, 2001 and the agreement will continue on a year-to-year basis unless
terminated by either party. The agreement provides for an initial annual base
salary of $300,000. During the remaining term of the Meyercord Agreement, Mr.
Meyercord shall be entitled to receive bonuses pursuant to a management
incentive compensation plan for senior management to be established by the
Company. During fiscal year 1999, the Meyercord Agreement provided for a bonus
that was paid in the minimum amount of $250,000 to Mr. Meyercord. Pursuant to
the Meyercord Agreement, Mr. Meyercord was granted an option to purchase
4,818,591 shares of common stock at an exercise price of $15.00 (as adjusted to
reflect the Company's March 1999 reverse stock split).
Section 162(m) of the Code generally disallows a public company's deduction
for compensation to any one employee in excess of $1.0 million per year unless
the compensation is pursuant to a plan approved by the public company's
stockholders. None of the Named Executive Officers received annual cash
compensation in excess of the $1.0 million provided by Section 162(m) during
fiscal 1999.
By the committee:
Spencer I. Browne
John D. Williamson, Jr.
18
<PAGE> 21
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's common stock, based on the market price of the common
stock, with the cumulative total return of companies in the Nasdaq Market Index
and a peer group index (the "Peer Group Index") comprised of certain companies
whose business is comparable to the Company's. The companies reflected in the
Peer Group Index are Aames Financial Corporation, Advanta Corporation (class A
and class B common stock), BNC Mortgage, Inc., ContiFinancial Corporation, Delta
Financial Corporation, First Alliance Corporation, FirstPlus Financial Group,
Inc., Long Beach Financial Corporation, New Century Financial Corporation and
United Companies Financial Corporation.
Altiva Performance Graph
<TABLE>
<CAPTION>
ALTIVA FINANCIAL
CORPORATION NASDAQ MARKET INDEX PEER GROUP INDEX
---------------- ------------------- ----------------
<S> <C> <C> <C>
11/19/96 100.000 100.000 100.000
02/28/97 130.000 103.874 101.459
08/29/97 104.444 126.465 95.738
02/27/98 28.889 141.171 70.209
08/31/98 13.611 118.194 42.002
02/26/99 5.278 180.297 15.977
08/31/99 4.000 216.676 19.178
</TABLE>
- ---------------
* Assumes $100 invested in the Company's common stock as of November 19, 1996,
and the investment of the same amount as of November 19, 1996 for the Nasdaq
Market Index and the Peer Group Index . The graph above assumes the
reinvestment of all dividends; however, the Company did not issue any
dividends on its common stock during the period covered by the graph. Returns
for the Company are not necessarily indicative of future performance.
THIS GRAPH SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS INFORMATION STATEMENT INTO ANY FILING
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED
FILED UNDER SUCH ACTS.
19
<PAGE> 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Listed below are transactions the Company has entered into with its
affiliates in the past three years. An "affiliate" generally is a person or
entity that is (1) "controlled by the Company," such as an officer of the
Company, (2) that "controls the Company" such as a director of a company, and in
the case of the Company, Mego Financial Corp. ("Mego Financial") the Company's
former parent; or (3) entities under "common control" with a company. PEC, a
subsidiary of Mego Financial, is an affiliate of Mego Financial because it is
"controlled by" Mego Financial, and is an affiliate of the Company, because the
directors that controlled the Company until the completion of the Company's
recapitalization also controlled Mego Financial.
PURCHASE OF PARTICIPATION INTEREST IN SECURED NOTES BY T. ROWE PRICE RECOVERY
FUND II, L.P.
T. Rowe Price Recovery Fund II, L.P. purchased from Value Partners a $2.0
million participation interest in the Convertible Notes. The managing general
partner of T. Rowe Price Recovery Fund II, L.P. is T. Rowe Price Recovery Fund
II Associates, L.L.C. of which Hubert M. Stiles, Jr., a member of the Board, is
president.
RELATIONSHIP WITH GREENWICH
Champ Meyercord, the Company's Chairman of the Board and Chief Executive
Officer, was formerly a senior investment banker at Greenwich Capital
Markets("Greenwich"). In October 1996, Greenwich agreed to purchase from the
Company $2.0 billion of loans over a five year period. The Company has sold
Greenwich approximately $800 million in loans from the inception of the
agreement. The agreement with Greenwich was terminated in June 1998 and the
Company has no further obligation under the agreement. In April 1997, the
Company entered into a pledge and security agreement with Greenwich for an $11.0
million revolving credit facility. The amount that can be borrowed under the
agreement was increased to $15.0 million in June 1997 and $25.0 million in July
1997. This facility is secured by a pledge of certain of the Company's interest
only and residual class certificates relating to securitizations carried as
mortgage related securities on the Company's Statements of Financial Condition,
payable to the Company pursuant to its securitization agreements. The agreement,
which was originally scheduled to mature in December 1998, was extended until
December 1999, and all amounts outstanding under the agreement have now been
repaid by the Company.
TAX SHARING AND INDEMNITY AGREEMENT
For taxable periods up to the date of the spin-off of the Company by Mego
Financial, the Company's results of operations were includable in the tax
returns filed by Mego Financials affiliated group for federal income tax
purposes. Under a tax allocation and indemnity agreement with Mego Financial,
the Company recorded a liability to Mego Financial for federal income taxes
calculated on a separate company basis. Under a prior tax sharing arrangement
with Mego Financial, the Company recorded a liability to Mego Financial for
federal income taxes applied to the Company's financial statement income after
giving consideration to applicable income tax law and statutory rates. In
addition, both the agreement and the arrangement provided that the Company and
Mego Financial each will indemnify the other under certain circumstances. The
Company no longer files consolidated returns with Mego Financial's affiliated
group. The Company believes that all obligations under the tax sharing agreement
have been satisfied.
MANAGEMENT SERVICES AGREEMENT WITH PEC
Until the recapitalization, PEC, a subsidiary of Mego Financial, supplied
the Company on an as-needed basis with certain executive, accounting, legal,
management information, data processing, human resources, advertising services
and promotional personnel. The Company paid management fees to PEC in an amount
equal to the direct and indirect expenses of PEC related to the services
supplied by its employees to the Company, including an allocable portion of the
salaries and expenses of these employees based upon the percentage of time these
employees spent performing services for the Company. This arrangement was
formalized on September 1, 1996 by execution of a management agreement (the
"Management Agreement"), in which PEC agreed to provide management services to
the Company for an aggregate annual fee of
20
<PAGE> 23
approximately $967,000. Effective January 1, 1998, the annual fee payable by the
Company under the Management Agreement was reduced to $528,000. The Management
Agreement was terminated on June 29, 1998 and no fees have been paid to PEC
pursuant to the Management Agreement since that date. For the years ended August
31, 1997 and 1998, approximately $967,000 and $617,000, respectively, of the
salaries and expenses of these employees of PEC were attributable to and paid by
the Company in connection with services supplied by these employees to the
Company.
SUB-SERVICING AGREEMENT WITH PEC
Prior to September 1, 1996, PEC sub-serviced the Company's loans pursuant
to which it paid servicing fees of 50 basis points on the principal balance of
loans serviced per year. For the years ended August 31, 1997, 1998 and 1999, the
Company paid sub-servicing fees to PEC of approximately $1.9 million, $2.1
million and $0, respectively. The Company entered into a servicing agreement
with PEC (the "Servicing Agreement"), effective as of September 1, 1996,
providing for the payment of servicing fees of 50 basis points on the principal
balance of loans serviced per year. For the years ended August 31, 1997 and
1998, the Company incurred interest expense in the amount of $16,000 and $0,
respectively, related to fees payable to PEC for these services. The interest
rates were based on PEC's average cost of funds and equaled 10.48% in 1997.
Effective September 1, 1997, the servicing fees were reduced to 40 basis points
per year and effective January 1, 1998, the servicing fees were further reduced
to 35 basis points per year. The Servicing Agreement has been terminated as the
mortgage servicing rights were transferred to City National Bank.
FUNDING AND GUARANTEES BY MEGO FINANCIAL
In order to fund the Company's past operations and growth, and in
conjunction with filing consolidated returns, the Company borrowed money from
Mego Financial. As of August 31, 1997, 1998 and 1999, the amount of debt owed to
Mego Financial was $9.7 million, $0 and $0, respectively. Prior to the initial
public offering, Mego Financial had guaranteed the Company's obligations under
the Company's credit agreements and an office lease. The guarantees of the
Company's credit agreements were released on the completion of the initial
public offering. The Company did not pay any compensation to Mego Financial for
such guarantees. In November 1996, Greenwich agreed to purchase from the Company
$2.0 billion of loans over a five year period. Pursuant to the agreement, Mego
Financial issued to Greenwich four-year warrants to purchase 1.0 million shares
of Mego Financial's Common Stock. The value of the warrants, estimated at $3.0
million (0.15% of the commitment amount) as of the commitment date (the "Warrant
Value") plus a $150,000 fee has been written off as the commitment for the
purchase of loans has been terminated. On August 29, 1997, the Company and Mego
Financial entered into a payment agreement (the "Payment Agreement") for the
Company's repayment after the spin-off of (1) a portion of the debt owed by the
Company to Mego Financial as of May 31, 1997 and (2) debt owed by the Company to
Mego Financial as of August 31, 1997. Upon consummation of the sale of the Old
Notes in October 1997, $3.9 million was paid in accordance with the Payment
Agreement. In April 1998, the Company and Mego Financial entered into an
agreement (the "1998 Agreement") superseding the Payment Agreement. Pursuant to
the 1998 Agreement, the parties agreed to reduce the amounts owed to Mego
Financial and agreed to pay such amounts upon the occurrence of certain events.
In connection with the Recapitalization, the Company paid PEC $1.6 million to
satisfy fully all amounts owed to Mego Financial pursuant to the Payment
Agreement and the 1998 Agreement, and the 1998 Agreement was terminated.
RELATIONSHIPS WITH FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
Friedman, Billings, Ramsey & Co, Inc. ("FBR") a subsidiary of FBRG served
as placement agent for the private placements pursuant to a placement agreement
(the "Placement Agreement"). Under the terms of the Placement Agreement, the
Company paid FBR a fee 160,000 shares of Common Stock equal to 6.0% of the gross
proceeds received by the Company from the sale of the shares of Common Stock and
Preferred Stock in the Recapitalization. The gross proceeds did not include
$10.0 million of Common Stock acquired by an affiliate of FBR. In addition, the
Company has agreed, pursuant to the Placement Agreement, to indemnify
21
<PAGE> 24
FBR against certain liabilities, including liabilities under the Securities Act,
and other liabilities incurred in connection with the recapitalization.
In addition, FBR was a managing underwriter for the Company's initial
public offering and the Company's public offering of the Current Notes, and was
the purchaser of Current Notes. FBR received compensation for such services and
the Company agreed to indemnify FBR against certain liabilities, including
liabilities under the Securities Act, and other liabilities arising in
connection with such offerings. In addition, FBR has in the past provided
certain investment banking services to the Company and affiliates of the
Company.
During fiscal 1998, the Company paid FBR 1.6 million shares of common stock
for its investment services in conjunction with the Recapitalization.
Additionally, the Company has reimbursed FBR for out of pocket expenses totaling
approximately $250,000 and paid FBR a cash fee of $416,667 in connection with
the recapitalization. The Company paid FBR $100,000 for its investment services
provided in connection with the purchase of the Las Vegas production platform.
THE RECAPITALIZATION
The Company completed a recapitalization on July 1, 1998, which provided
the Company with approximately $84.5 million of new equity. City National Bank
and Sovereign Bancorp, each purchased 10,000 shares of the Company's Preferred
Stock at a price of $1,000 per share. In addition, City National Bank and
Sovereign Bancorp were each granted an option, which expires in December 2000,
to acquire 666,667 shares of Common Stock at a price of $15.00 per share. City
National Bank and Sovereign Bancorp each has a right of first refusal to
purchase the Company in the event the Company's Board of Directors determines to
sell the Company. In addition, City National Bank and Sovereign Bancorp each
were granted the right to appoint one member to the Company's Board of Directors
and have the right to appoint an additional board member if they exercise their
option to purchase additional shares of Common Stock. Upon completion of the
recapitalization, David J. Vida, Jr. was appointed to the Board of Directors at
the request of City National Bank. Sovereign Bancorp has not exercised its right
to appoint a board member but has exercised its right to have a representative
attend each board meeting. In addition to the transactions described above, part
of the recapitalization, the Company and each of Sovereign Bancorp and City
Holding Company, the parent company of City National Bank, entered into the
following agreements: (1) Sovereign Bancorp agreed to provide the Company up to
$90.0 million in borrowings under a warehouse line to fund its loan production
prior the sale of the loans (this amount has subsequently been reduced to $25.0
million); (2) Sovereign Bancorp agreed to purchase up to $100.0 million of the
Company's loans per quarter and has a right of first refusal to purchase all
other loans produced by the Company; (3) City National Bank purchased the
Company's existing mortgage servicing rights; and (4) City Mortgage Services
agreed to service all of the Company's mortgage loans held for sale and loans
sold on a servicing retained basis by the Company.
22
<PAGE> 25
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Company. Such
persons are required by the Commission to furnish the Company with copies of all
Section 16(a) forms that are filed.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, for the fiscal year ended August 31, 1997, all Section
16(a) filing requirements applicable to its directors, executive officers and
greater than ten-percent beneficial owners were properly filed except: The Form
5's for the officers and directors of the Company as of the fiscal year ended
August 31, 1998 were not filed until October 26, 1998; the Form 3 for John D.
Williamson, Jr. was not filed until November 5, 1998; and the Form 3 for J.
Richard Walker was not filed until January 11, 1999.
FINANCIAL AND OTHER INFORMATION
The Company's Annual Report on Form 10-K for the fiscal year ended August
31, 1999 is being furnished with this Proxy Statement to stockholders of record
as of January 17, 2000.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, a firm of independent public accountants, has been
appointed the Company's independent public accountants for fiscal year ending
August 31, 2000. The appointment of auditors is approved annually by the board
of directors. The decision of the Board is based on the recommendation of the
Audit Committee. A representative of Deloitte & Touche will be present at the
meeting, either in person or telephonically. Such representative will have the
opportunity to make a statement and will be available to respond to questions.
STOCKHOLDERS PROPOSALS
Any stockholder of the Company who wishes to present a proposal at the 2001
annual meeting of stockholders of the Company, and who wishes to have such
proposal included in the Company's proxy statement and form of proxy for that
meeting, must deliver a copy of such proposal to the Company at its principal
executive offices at 1000 Parkwood Circle, Suite 600, Atlanta, Georgia 30339,
Attention: Corporate Secretary, no later than November 2, 2000; however, if next
year's annual meeting of stockholders is held on a date more than 30 days before
or after the 2000 annual meeting of stockholders, any stockholder who wishes to
have a proposal included in the Company's proxy statement for that meeting must
deliver a copy of the proposal to the Company at a reasonable time before the
proxy solicitation is made. The Company reserves the right to decline to include
in the Company's proxy statement any stockholder's proposal which does not
comply with the rules of the Securities and Exchange Commission for inclusion
therein.
23
<PAGE> 26
ADDITIONAL INFORMATION
The following pages contain certain information about the Company with
respect to the Company's fiscal quarter ended November 30, 1999.
24
<PAGE> 27
ALTIVA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
NOVEMBER 30,
AUGUST 31, 1999
1999 (UNAUDITED)
---------- ------------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 10,475 $ 11,341
Cash deposits, restricted................................... 3,004 3,309
Loans held for sale, net of valuation allowance of $3,462
and $1,841................................................ 54,844 53,166
Mortgage related securities, at fair value.................. 31,757 31,827
Other receivables........................................... 5,260 1,711
Property and equipment, net of accumulated depreciation of
$1,793 and $2,021......................................... 3,068 2,865
Prepaid debt expenses....................................... 2,207 1,979
Deferred federal income tax asset........................... 11,229 12,549
Deferred state income tax asset............................. 1,053 1,250
Goodwill.................................................... 11,463 11,256
Other assets................................................ 1,026 1,355
--------- ---------
Total assets...................................... $ 135,386 $ 132,608
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse line............................................ $ 61,513 $ 61,533
Secured revolving credit lines............................ 1,685 --
Notes and contracts payable............................... 12,292 12,120
Accounts payable and accrued liabilities.................. 8,054 9,630
Subordinated debt......................................... 30,724 30,698
--------- ---------
Total liabilities................................. 114,268 113,981
--------- ---------
Stockholders' equity:
Convertible Preferred Stock, $.01 par value per share
(Authorized -- 5,000,000 shares; issued and
outstanding -- 62,500 at August 31, 1999 and 57,825
November 30, 1999)..................................... 1 1
Common Stock, $.01 par value per share
(Authorized -- 400,000,000 shares; issued and
outstanding -- 3,656,426 at August 31, 1999 and
3,968,108 at November 30, 1999)........................ 37 40
Additional paid-in capital................................ 125,412 125,409
Accumulated deficit....................................... (104,332) (106,823)
--------- ---------
Total stockholders' equity........................ 21,118 18,627
--------- ---------
Total liabilities and stockholders' equity........ $ 135,386 $ 132,608
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
25
<PAGE> 28
ALTIVA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30,
-------------------------
1998 1999
----------- -----------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
REVENUE:
Gain on sale of loans..................................... $ 172 $ 4,241
Net unrealized gain (loss) on mortgage related
securities............................................. 270 (624)
Loan servicing income, net................................ 240 96
Interest income........................................... 1,602 3,176
Less: interest expense.................................... (1,764) (3,227)
---------- ----------
Net interest (expense)................................. (162) (51)
---------- ----------
Total revenues.................................... 520 3,662
---------- ----------
COST AND EXPENSES:
Net provision for credit losses........................... 43 --
Depreciation and amortization............................. 215 434
Other interest............................................ 42 27
General and administrative:
Payroll and benefits................................... 1,979 4,399
Supplies and postage................................... 71 256
Rent and lease expenses................................ 359 539
Professional services.................................. 964 522
Insurance.............................................. 185 191
Sub-servicing fees..................................... 22 38
Taxes and licensing fees............................... 62 61
Communications......................................... 119 209
Bank and wire fees..................................... 137 68
Travel and entertainment............................... 109 273
Other.................................................. 175 624
---------- ----------
Total costs and expenses.......................... 4,482 7,641
---------- ----------
(LOSS) BEFORE INCOME TAXES.................................. (3,962) (3,979)
INCOME TAX (BENEFIT)........................................ (1,468) (1,488)
---------- ----------
NET (LOSS).................................................. $ (2,494) $ (2,491)
========== ==========
EARNINGS PER COMMON SHARE:
Basic:
Net (loss)................................................ $ (0.82) $ (0.66)
========== ==========
Weighted-average number of common shares.................. 3,056,667 3,801,824
========== ==========
Diluted:
Net (loss)................................................ $ (0.82) $ (0.66)
========== ==========
Weighted-average number of common shares and
assumed conversions....................................... 3,056,667 3,801,824
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
26
<PAGE> 29
ALTIVA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
----------------------
1998 1999
--------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)................................................ $ (2,494) $ (2,491)
-------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Loans originated for sale, net of loan fees............ (15,434) (97,150)
Proceeds from sale of loans............................ 12,977 96,873
Payments on loans held for sale........................ 816 3,577
Lower of cost or market adjustment..................... (6,315) (1,622)
Net provisions (benefit) for estimated credit losses... 43 --
Market valuation of mortgage related securities........ -- 434
Accretion of residual interest on mortgage related
securities............................................ (244) (744)
Payments on mortgage related securities................ 147 240
Amortization of mortgage servicing rights.............. 7 --
Proceeds from sale of mortgage servicing rights........ 76 --
Depreciation and amortization expense.................. 215 434
Additions to prepaid debt expense...................... (64) --
Amortization of prepaid debt expense................... 229 228
Changes in operating assets and liabilities:
Cash deposits, restricted............................ 702 (305)
Deferred income taxes (benefit)...................... (1,468) (1,517)
Other assets, net.................................... (1,342) 3,220
Accounts payable and accrued liabilities............. (8,012) 1,576
-------- ---------
Total adjustments................................. (17,667) 5,244
-------- ---------
Net cash used in operating activities............. (20,161) 2,753
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (44) (24)
-------- ---------
Net cash used in investing activities..................... (44) (24)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on notes and contracts payable..... 14,873 122,622
Payments on notes and contracts payable..................... (170) (124,459)
Payments on subordinated debt............................... (867) --
Amortization of premium on subordinated debt................ (25) (26)
-------- ---------
Net cash provided by financing activities................. 13,811 (1,863)
-------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (6,394) 866
-------- ---------
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............ 36,404 10,475
-------- ---------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. $ 30,010 $ 11,341
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ 290 $ 1,701
======== =========
State income taxes..................................... $ 55 $ --
======== =========
</TABLE>
See notes to condensed consolidated financial statements.
27
<PAGE> 30
ALTIVA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
$.01 PAR VALUE $.01 PAR VALUE ADDITIONAL EARNINGS
------------------ --------------------- PAID-IN ---------
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ -------- --------- -------- ---------- --------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1999....... 62,500 $ 1 3,656,426 $ 37 $125,412 $(104,332) $21,118
Conversion of Preferred to Common
Stock.......................... (4,675) 311,682 3 (3)
Net loss for the three months
ended November 30, 1999........ -- (2,491) (2,491)
------ -------- --------- -------- -------- --------- -------
Balance at November 30, 1999..... 57,825 $ 1 3,968,108 $ 40 $125,409 $(106,823) $18,627
====== ======== ========= ======== ======== ========= =======
</TABLE>
See notes to condensed consolidated financial statements.
28
<PAGE> 31
ALTIVA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1999
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, when read in conjunction with the audited
Financial Statements for the years ended August 31, 1998 and 1999 contained in
Form 10-K of Altiva Financial Corporation (the "Company") filed with the
Securities and Exchange Commission for the fiscal year ended August 31, 1999,
the accompanying unaudited Condensed Consolidated Financial Statements contains
all of the information necessary to present fairly the financial condition of
the Company at November 30, 1999, the results of its operations for the three
months ended November 30, 1998 and 1999, the change in stockholders' equity for
the three months ended November 30, 1999 and the cash flows for the three months
ended November 30, 1998 and 1999. Certain reclassifications have been made to
conform prior periods with the current period presentation.
The preparation of financial statements, in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of management, all material adjustments, which are normal and recurring
in nature, necessary for the fair presentation of these statements have been
included herein. The results of operations for the three months ended November
30, 1999 are not necessarily indicative of the results to be expected for the
full year.
The Company records gain on sale of loans as required by Statement of
Financial Accounting Standards No. 125 ("SFAS 125") which, among other things,
requires management to estimate the fair value of certain mortgage related
securities and servicing assets utilizing future prepayment and loss
assumptions. Such assumptions will differ from actual results and the
differences could be material. Management utilizes assumptions based on a
variety of factors including historical trends, consultation with its financial
advisors and assumptions utilized by its peers. Historical trends may not be an
indication of future results, which may be affected by changes in interest
rates, credit quality, availability of alternative financing options and general
economic conditions. The application of SFAS 125 is required for all entities
with certain mortgage banking activities including originators and sellers of
mortgage loans. Management believes that its assumptions are similar to those
utilized by other subprime mortgage loan originators.
Capitalized terms not defined herein are defined in the Company's audited
Financial Statements that are contained in the Form 10-K/A of Mego Mortgage
Corporation, the Company's former name, filed with the Securities and Exchange
Commission for the fiscal year ended August 31, 1998 and the Form 10-K of Altiva
Financial Corporation for the fiscal year ended August 31, 1999.
2. RECENT EVENTS
On December 16, 1999, the Company announced the signing of a commitment
letter regarding the issuance of an additional $7.0 million of 12% Secured
Convertible Notes due 2006 (the "Secured Notes") and the restructuring of the
majority of the Company's $30.5 million subordinated notes due December 2001
(the "Subordinated Debentures"). The proposed restructuring includes the
issuance of new convertible notes due 2006 in the principal amount of
approximately $13 million in the aggregate, together with the issuance of Common
Stock equivalent to 22 1/2% of the fully diluted shares outstanding. As of
January 7, 2000, the Company has already sold $2.0 million principal amount of
additional Secured Notes which the Company believes provide sufficient liquidity
to pay its operating and capital expenditures through January 21, 2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations section contains certain forward-looking statements
and information relating to the Company that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. Such forward-looking statements include, without limitation, the
Company's expectation and estimates as to the Company's business operations,
including the introduction of new loan programs and products and future
financial performance, including growth in revenues and net income and cash
flows. In addition, included herein the words "anticipates," "believes,"
"estimates," "expects," "plans," "intends" and similar expressions, as they
relate to the Company or its management, are intended to identify forward-
looking statements. Such statements reflect the current views of the Company's
management with respect to future events and are subject to certain risks,
uncertainties and assumptions. Also, the Company specifically advises readers
that the factors listed under the caption "Liquidity and Capital Resources"
could cause actual results to differ materially from those expressed in any
forward-looking statement. Important factors currently known to management that
could cause actual results to differ materially from those in forward-looking
statements are set forth in "-- Recent Developments," below and in the safe
harbor compliance statement for forward looking statements included as Exhibit
99.1 to the Form 10-Q for the period ended November 30, 1999. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated or expected.
The following discussion and analysis should be read in conjunction with
the Condensed Financial Statements, including the notes thereto, contained
elsewhere herein and in the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1999.
GENERAL
Altiva Financial Corporation, (the "Company") is a specialized consumer
finance company that makes sub-prime residential mortgage loans for the purpose
of debt consolidation or creating liquidity from the borrower's home equity
secured by deeds of trust. The Company sells these consumer loans to other
financial institutions. The Company's borrowers generally do not qualify for
traditional "A" credit mortgage loans. Typically, their credit histories, income
or other factors do not conform to the lending criteria of government-chartered
agencies (including GNMA, FHMA, FHLMC) that traditional lenders rely on in
evaluating whether to make loans to potential borrowers.
The Company's current loan products are first mortgage loans and home
equity loans ("Home Equity loans") typically secured by first liens, and in some
cases by second liens, on the borrower's residence. In making Home Equity loans,
the Company relies primarily on the appraised values of the borrower's
residences. The Company determines the loan amount based on the appraised values
and the creditworthiness of the borrowers.
In prior years, the Company also made high loan-to-value loans ("Equity +
loans") based on the borrowers' credit. These loans typically were secured by
second liens on the borrowers' primary residences. The Company exited the home
improvement and Equity + loan markets because these loans failed to meet
targeted returns and after-market liquidity.
The Company's loans are produced by its wholesale and retail origination
platforms. The wholesale platform represents the Company's largest source of
loan production. Through its wholesale platform, the Company funds loans
originated through a nationwide network of licensed mortgage brokers. The
wholesale platform conducts operations from Atlanta, Georgia and Charlotte,
North Carolina. The Company has one wholly-owned operating subsidiary, The Money
Centre, Inc. headquartered in Charlotte, North Carolina.
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<PAGE> 33
The Company's marketing strategies are typical of those used in retail
production including: telemarketing, direct mail, television and radio
advertising, third-party loan programs and consumer trade shows. A Company
website is currently under construction and may be used to provide consumer loan
applications and information to the public about the Company's products and
services. The retail production platforms are located in Las Vegas, Nevada and
Charlotte, North Carolina.
LOAN PRODUCTION
The following table sets forth certain data regarding loans produced by the
Company during the three months ended November 30, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
----------------------------------
1998 1999
--------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Principal balance of loans produced:
Wholesale:
Title I........................................ $ 4 0.0% $ -- 0.0%
Equity + loans................................. 2,942 17.8 -- 0.0
Home equity.................................... 11,584 70.2 79,903 79.5
------- ----- -------- -----
Total wholesale........................... 14,530 88.0 79,903 79.5
------- ----- -------- -----
Retail:
Equity + loans................................. 1,965 11.9 -- 0.0
Home equity.................................... 23 0.1 20,582 20.5
------- ----- -------- -----
Total retail.............................. 1,988 12.0 20,582 20.5
------- ----- -------- -----
Total principal amount of loans
produced................................ $16,518 100.0% $100,485 100.0%
======= ===== ======== =====
</TABLE>
LOAN SALES
Sales of loans in securitization transactions had historically been the
main source of the Company's revenue and income. In a securitization
transaction, a specific group of the Company's mortgage loans having similar
characteristics, (loan type and loan amounts) were pooled for sale.
The gain on sale of loans can vary for several reasons, including the
relative amounts of Equity +, Home Equity and Title I Loans, each of which type
of loan has different (i) estimated prepayment rates, (ii) weighted-average
interest rates, (iii) weighted-average maturities and (iv) estimated future
default rates. Typically, the gain on sale of loans through securitizations is
higher than on whole loan sales; however, engaging in securitizations requires
an up-front cash expenditure and can have an adverse effect on a company's
financial condition due to unanticipated write downs in the value of the
residual securities retained by the company which may be caused by, among other
things, unanticipated changes in prepayment and default rates assumed by the
company. The Company entered into no securitizations during the three months
ended November 30, 1998 and 1999.
As the holder of residual securities issued in securitizations, the Company
is entitled to receive certain excess cash flows. These excess cash flows are
calculated as the difference between (a) principal and interest paid by
borrowers and (b) the sum of (i) pass-through interest and principal to be paid
to the holders of the regular securities and interest only securities, (ii)
trustee fees, (iii) third-party credit enhancement fees, (iv) servicing fees and
(v) estimated loan pool losses. The Company's right to receive the excess cash
flows is subject to the satisfaction of certain reserve or
over-collateralization requirements that are specific to each securitization and
are used as a means of credit enhancement.
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The following table sets forth the principal amount of loans sold and
related gain (loss) on sale for the three months ended November 30, 1998 and
1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
----------------------
1998 1999
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Principal Amount of Loans Sold(1):
Title I................................................... $ 810 $ --
Equity +.................................................. 12,143 2,382
Home Equity............................................... 24 94,491
------- -------
Total............................................. $12,977 $96,873
======= =======
Gain on sale of loans....................................... $ 172 $ 4,241
======= =======
Net unrealized gain (loss) on mortgage related securities... $ 270 $ (624)
======= =======
Gain on sale of loans as a percentage of principal balance
of loans sold............................................. 2.0% 4.4%
======= =======
Gain on sale of loans plus net unrealized loss on mortgage
related securities as a percentage of principal balance
of loans sold............................................. 5.2% 3.7%
======= =======
</TABLE>
- ---------------
(1) Includes approximately $4.5 million principal amount of repurchased loans
sold in the three months ended November 30, 1998.
As part of its current business strategy, the Company is no longer pursuing
securitization transactions but is instead, selling its whole loans produced.
LOAN DELINQUENCIES
The following table sets forth the Equity + and Home Equity loan
delinquencies as of the dates indicated.
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1999 1999
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Home Equity and Equity + data(1):
31-60 days past due....................................... 7.23% 4.24%
61-90 days past due....................................... 2.24 7.21
91 days and over past due................................. 13.50 11.88
Total past due.................................... 22.97 23.33
</TABLE>
- ---------------
(1) Represents the dollar amount of delinquent loans as a percentage of the
total dollar amount of loan.
RESULTS OF OPERATIONS
Three Months Ended November 30, 1999 Compared to Three Months Ended November
30, 1998
In the last eight months of fiscal 1998 and the first months of fiscal
1999, the Company focused on (1) liquidating its loan portfolio for cash to
reduce its indebtedness while it explored alternatives to raise new capital and
(2) initiating new strategic initiatives to return the Company to profitability.
The Company did not begin to produce significant loan volume until July 1999.
Such volume was attributable to production by The Money Centre, Inc. which was
acquired by the Company in July 1999. As a result, the Company does not believe
that its results for the three months ended November 1999, are comparable to the
Company's results for the three months ended November 1998.
Total Revenues. Total revenues increased $3.1 million to $3.7 million
during the three months ended November 30, 1999 from $520,000 during the three
months ended November 30, 1998. The increase was attributable to loan production
by The Money Centre, Inc.
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<PAGE> 35
Gain on sale of loans increased $4.1 million to $4.2 million during the
three months ended November 30, 1999 from $172,000 during the three months ended
November 30, 1998. The increase was primarily the result of an increase in the
volume of loans sold in the three months ended November 30, 1999 compared to the
three months ended November 30, 1998.
Net unrealized gain (loss) on mortgage related securities decreased to a
loss of $624,000 during the three months ended November 30, 1999 from a gain of
$270,000 during the three months ended November 30, 1998, a change of $894,000.
This decrease is due to a mark to market adjustment made by the Company in
November 1999.
Loan servicing income, net, decreased $144,000 to $96,000 during the three
months ended November 30, 1999 from $240,000 during the three months ended
November 30, 1998. This decrease was a result of the reduction in loan
prepayment penalties earned during the three months ended November 30, 1999.
Interest expense, net of interest income, decreased $111,000, from a net
expense of $162,000 to a net expense of $51,000 during the three months ended
November 30, 1999. The decrease was primarily the result of increased interest
income on loans produced by The Money Centre, Inc., partially offset by
increased interest expense on the warehouse lines due to increased loan
origination volume.
Total General and Administrative Expenses. General and administrative
expenses increased $3.0 million to $7.2 million for the three months ended
November 30, 1999 from $4.2 million for the three months ended November 30,
1998. The increase is a result of the inclusion of the expenses incurred at the
Las Vegas platform and The Money Centre, Inc. platform, acquired by the Company
during second and fourth quarters of fiscal 1999, respectively. The general and
administrative expenses decreased $1.9 million for the Atlanta platform to $2.3
million for the three months ended November 30, 1999, due to the cost reduction
implemented by management. The total consolidated general and administrative
expenses include $579,000 for the Las Vegas platform and $4.2 million for The
Money Centre, Inc. during the same period.
Payroll and benefits expense increased $2.4 million to $4.4 million for the
three months ended November 30, 1999 from $2.0 million for the three months
ended November 30, 1998. This increase can be attributed to an increase in staff
due to the acquisition of The Money Centre, Inc.
Supplies and postage expense increased $185,000 to $256,000 during the
three months ending November 30, 1999 from $71,000 during the three months ended
November 30, 1998. This increase can be attributed to the increase in business
between the two periods due to the acquisition of The Money Centre, Inc.
Professional services expense decreased $442,000 to $522,000 during the
three months ended November 30, 1999 from $964,000 during the three months ended
November 30, 1998. This decrease is attributed to reduced expenditures of
contractual services and a decrease in legal and audit fees.
During the three months ending November 30, 1999, travel and entertainment
expenses increased $164,000, from $109,000 during the three months ending
November 30, 1998, to $273,000 during the three months ended November 30, 1999.
This increase can be attributed to the travel necessary for operational
management of the Las Vegas and The Money Centre, Inc. platforms.
Net Loss. As a result of the foregoing, the Company did not have a
significant change in the loss reported during the three months ended November
30, 1999 as compared with the three months ended November 30, 1998. This can be
attributed to the increase in the net revenues offset by the increase in the
total general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $11.3 million at November 30, 1999 compared
to $10.5 million at August 31, 1999. The Company's principal cash requirements
arise from loan production and payments of operating and interest expenses.
As of December 31, 1999, the Company's cash and cash equivalents were
$336,000. During the period from November 30, 1999 to December 31, 1999, the
Company's cash and cash equivalents decreased from
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<PAGE> 36
$11.3 million to $336,000. This decrease was attributable to $9.1 million in
transit on payment of the warehouse lines at November 30, 1999 and to operating
performance being less than forecast during the period.
In order to improve its liquidity situation, the Company has obtained
commitments from the holders of $28 million principal amount of its outstanding
Subordinated Debentures to exchange such outstanding Subordinated Debentures for
$12.0 million principal amount of new 12% Secured Notes due August 2006 (the
"Exchange Notes") and for the equivalent of 22 1/2% of the Company's outstanding
Common Stock based on the number of fully-diluted shares of Common Stock
(excluding out-of-the money options). In addition, the holders of such
Subordinated Debentures have agreed to waive the payment of approximately $2.0
million of accrued interest payable to them in December 1999 under the terms of
the Indenture governing the Subordinated Debentures. Under the terms of the
Exchange Notes, no interest will be payable to the noteholders by Altiva until
June 15, 2001, although interest will accrue from the date of issuance.
Completion of the exchange is contingent on the finalization of documentation
related to the exchange, and the issuance of Common Stock to the current holder
of Subordinated Debentures may require the approval of the Company's
stockholders under the rules of the Nasdaq Stock Market. Altiva expects that the
discount in the principal amount of notes outstanding and the waiver of the
interest payment will result in the reduction of the Company's projected cash
expenditure by $3.4 million over the next twelve months. In addition, the
Company has received a commitment from Value Partners, Ltd. ("Value Partners")
to purchase an additional $7.0 million principal amount of Secured Notes. As of
January 7, 2000, Value Partners had purchased $2.0 million principal amount of
these Secured Notes. Consummation of this sale of the remaining Secured Notes is
subject to the execution of additional mutually agreed upon amendments to the
Secured Note Purchase Agreement between the parties and other related
agreements.
Assuming completion of both the exchange and the issuance of the additional
Secured Notes, the Company expects to have sufficient cash and cash equivalents
to fully fund its operations and meet its obligations until August 2000. On an
ongoing basis, the Company expects to generate additional liquidity through
increased production and controlling expenses.
There can be no assurances that the exchange of the Subordinated Debentures
and the issuance of the additional Secured Notes will be consummated. A failure
to consummate these transactions may cause defaults with respect to the
Company's outstanding indebtedness or lead the Company to become insolvent. In
addition, there is no guarantee that the Company will not suffer additional
unforeseen events that will cause further liquidity shortages.
The Company currently has three significant sources of financing and
liquidity: (1) a warehouse line of $25.0 million with Sovereign Bancorp (the
"Sovereign Warehouse Line"); (2) a warehouse line of $25 million with First
Collateral; and (3) sales of loans in the institutional whole loan market. A
fourth source of financing and liquidity during the three months period ended
November 30, 1999 was the warehouse line of $30 million with Centura Bank. This
warehouse line expired November 30, 1999 and was not renewed. The Company has
sufficient remaining facilities to fund its production through the current
period.
The Company's liquidity and capital resources are impacted by certain
material covenant restrictions existing in the Indenture governing the Company's
outstanding 12 1/2% senior subordinated notes due 2001(the "New Notes"). These
covenants include limitations on the Company's ability to incur certain types of
additional indebtedness, grant liens on its assets and to enter into
extraordinary corporate transactions. The Company may not incur certain
additional indebtedness if, on the date of such incurrence and after giving
effect thereto, the Consolidated Leverage Ratio (as defined therein) would
exceed 1.5:1, subject to certain exceptions. At November 30, 1999, the
Consolidated Leverage Ratio was 1.84:1.
The Sovereign Warehouse Line had an original termination date of December
29, 1998 and was renewable, at Sovereign's option, in six-month intervals for up
to five years. During December 1998, the Sovereign Warehouse Line was renewed at
$50.0 million and was reduced to $25.0 million on March 31, 1999 through
December 31,1999. The Sovereign Warehouse Line may be increased with certain
consents and contains pricing/fees which vary by product and the dollar amount
outstanding. The Sovereign Warehouse Line is secured by specific loans held for
sale and includes certain material covenants including maintaining
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<PAGE> 37
books and records, providing financial statements and reports, maintaining its
properties, maintaining adequate insurance and fidelity bond coverage and
providing timely notice of material proceedings. As of November 30, 1999, the
Company had approximately $22.4 million outstanding under the Sovereign
Warehouse Line.
The Money Centre, Inc. utilizes three warehouse lines with Centura, First
Collateral Bank and the Sovereign Warehouse Line. The Centura Bank facility
provided for a warehouse line of up to $30 million, accrues interest at prime
rate + .5% to 1.75%, depending on the age of the loan, and expired on November
30, 1999 and was not renewed. The First Collateral facility provides for a
warehouse line of credit of up to $25.0 million, accrues interest at LIBOR +
2.25% and Prime + 3.75% for loans aged greater than 60 days. The Company is
currently negotiating an extension on the First Collateral warehouse line. There
have been no restrictions on the use of this facility during these negotiations.
The facilities are secured by specific loans held for sale and includes certain
material covenants including maintaining books and records, providing financial
statements and reports, maintaining its properties, maintaining adequate
insurance and fidelity bond coverage and providing timely notice of material
proceedings. The outstanding balance for First Collateral Bank facilities as of
November 30, 1999 totaled $23.4 million.
In April 1997, the Company entered into a pledge and security agreement
with Greenwich Capital Financial Products for a $25.0 million revolving credit
facility. This facility is secured by a pledge of certain of the Company's
interest only and residual class certificates relating to securitizations
carried as mortgage related securities on the Company's Statements of Financial
Condition, payable to the Company pursuant to its securitization agreements. The
agreement, which was originally scheduled to mature in December 1998, was
extended until December 1999. On December 2, 1998, the Company obtained an
amendment to the agreement whereby the financial institution waived its right to
declare an event of default of borrower due to the Company's failure to comply
with the minimum required net worth and the debt to net worth ratio as of August
31, 1998. Additionally, the minimum net worth test was amended such that the
Company is required to maintain a net worth equal to or greater than 75% of the
Company's net worth as of the end of the preceding fiscal quarter. In addition,
the Company agreed to pay down the outstanding borrowings from $10.0 million at
August 31, 1998 to $6.0 million at December 31, 1998 and subsequently agreed to
pay the remaining $6.0 million in equal monthly payments during calendar 1999.
All remaining amounts outstanding under the agreement were paid off in November
1999.
In October 1997, the Company entered into a credit agreement with Textron
Financial which converted into a term loan in May 1998 with monthly amortization
derived from the cash flow generated from the respective mortgage related
securities pledged as collateral. This term loan bears interest at the prime
rate plus 2.5%, and matures in October 2002. The credit agreement includes
certain material covenants, which includes restrictions relating to
extraordinary corporate transactions, maintenance of adequate insurance and
complying with certain financial tests. These tests include complying with a
minimal consolidated adjusted tangible net worth and that the consolidated
adjusted leverage ratio shall not exceed 3:1. As of August 31, 1998, the
Company's consolidated adjusted tangible net worth was $54.1 million below the
minimum required and the consolidated adjusted leverage ratio was 0.53:1. On
December 9, 1998, the parties agreed to temporarily amend the borrowing base
definition for the period from September 30, 1998 through April 30, 1999 by
increasing the borrowing base from 50% to 55%. On May 1, 1999, the borrowing
base returned to 50%. The minimum consolidated tangible net worth covenant was
also adjusted, commencing retroactively, as of September 30, 1998 and the
Company agreed to paydown the line by approximately $405,000 (the amount
exceeding the applicable maximum amount of tranche credit) and pay an
accommodation fee of $10,000. As of November 30, 1999, the Company's
consolidated adjusted tangible net worth was $17.3 million above the minimum
required and the consolidated adjusted leverage ratio was 2.308:1.
In August 1999, the Company sold $7.0 million of principal amount of
Convertible Secured Notes. The proceeds were used to acquire The Money Centre,
Inc. The facility is secured by a pledge of certain of the Company's mortgage
related securities. The loan balance under this agreement bears interest at 12%
and matures in August 2006. Interest for this loan is to be paid semi-annually.
The credit agreement includes certain material covenants. These covenants
include restrictions relating to the security, maintenance and existing credit
and servicing agreements. The holders of the notes may, per the provisions
therein, convert to
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<PAGE> 38
Common Stock at a specified conversion price if such right is granted at the
next annual shareholder meeting. The Company may also, per the provisions of the
agreement, redeem the notes prior to maturity.
Net cash used in the Company's operating activities for the three months
ended November 30, 1998 and 1999 was $20.2 million and $2.8 million,
respectively. During the three months ended November 30, 1998 and 1999, net cash
provided (used) by financing activities amounted to $13.8 million and $(1.9)
million, respectively.
SEASONALITY
The Company's production of residential mortgages is seasonal to the extent
that borrowers use the proceeds for home improvement contract work. The
Company's production of loans for this purpose tends to build during the spring
and early summer months, particularly where the proceeds are used for pool
installations. This change in seasons also precipitates the need for new siding,
window and insulation contracts. Production declines dramatically from the
holiday season (November and December) through the winter months. While the
Company does not have substantial experience making loans to borrowers who
intend to use the proceeds to purchase a residence, management believes that the
market for such loans will follow the home sale cycle, higher in the spring
through early fall than during the remainder of the year.
YEAR 2000 ISSUE
The Company previously recognized the material nature of the business
issues surrounding computer processing of dates into and beyond the Year 2000
and began taking corrective action. Management believes the Company has
completed all of the activities within its control to ensure that the Company's
systems are Year 2000 compliant and the Company has experienced no interruptions
to normal operations due to the start of the Year 2000.
The Company's Year 2000 readiness costs were approximately $99,000 to
purchase or upgrade its own hardware/software. The Company does not currently
expect to apply any further funds to address Year 2000 issues.
As of January 13, 2000, the Company has not experienced any material
disruptions of its internal computer systems or software applications and has
not experienced any problems with the computer systems or software applications
of its third party vendors, suppliers or service providers. The Company will
continue to monitor these third parties to determine the impact, if any, on the
business of the Company and the actions the Company must take, if any, in the
event of non-compliance by any of these third parties. Based upon the Company's
assessment of compliance by third parties, there appears to be no material
business risk posed by any such non-compliance.
Although the Company's Year 2000 rollover did not present any material
business disruption, there are some remaining Year 2000 related risks, including
risks due to the fact that the Year 2000 is a leap year. Management believes
that appropriate actions has been taken to address these remaining Year 2000
issues and contingency plans are in place to minimize the financial impact to
the Company. Management, however, cannot be certain that Year 2000 issues will
not have a material adverse impact on the Company, since it is early in the Year
2000.
RECENT DEVELOPMENTS
The Company is currently experiencing a liquidity shortage
During the period from August 31, 1999 to December 31, 1999, our cash and
cash equivalents decreased from $10.5 million to $336,000. This decrease was
attributable to operating performance being less than forecast during the
period. As a result of the decrease, the Company sold $2.0 million principal
amount of Secured Notes in December 1999 and January 2000 to Value Partners. The
proceeds of such notes will be sufficient to fund the Company's operational and
capital expenditures until January 21, 2000.
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<PAGE> 39
In order to improve its liquidity situation, the Company has obtained
commitments from the holders of $28 million principal amount of its outstanding
Subordinated Debentures to exchange such outstanding Subordinated Debentures for
$12.0 million principal amount of new Exchange Notes and for the equivalent of
22 1/2% of the Company's outstanding Common Stock based on the number of
fully-diluted shares of Common Stock (excluding out-of-the money options). In
addition, the holders of such Subordinated Debentures have agreed to waive the
payment of approximately $2.0 million of accrued interest payable to them in
December 1999 under the terms of the Indenture governing the Subordinated
Debentures. Under the terms of the Exchange Notes, no interest will be payable
to the noteholders by the Company until June 15, 2001, although interest will
accrue from the date of issuance. Completion of the exchange is contingent on
the finalization of documentation related to the exchange, and the issuance of
Common Stock to the current holder of Subordinated Debentures may require the
approval of the Company's stockholders under the rules of the Nasdaq Stock
Market. The Company expects that the discount in the principal amount of notes
outstanding and the waiver of the interest payment will result in the reduction
of the Company's projected cash expenditure by $3.4 million over the next twelve
months.
Assuming completion of both the exchange and the issuance of the additional
Secured Notes, the Company expects to have sufficient cash and cash equivalents
to fully fund its operations and meet its obligations until August 2000. On an
ongoing basis, the Company expects to generate additional liquidity through
increased production and controlling expenses.
There can be no assurances that the exchange of the Subordinated Debentures
and the issuance of the additional Secured Notes will be consummated. A failure
to consummate these transactions may cause defaults with respect to the
Company's outstanding indebtedness or lead the Company to become insolvent. In
addition, there is no guarantee that the Company will not suffer additional
unforeseen events that will cause further liquidity shortages.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's various business activities generate liquidity, market and
credit risk:
- Liquidity risk is the possibility of being unable to meet all present and
future financial obligations in a timely manner.
- Market risk is the possibility that changes in future market rates or
prices will make the Company's positions less valuable.
- Credit risk is the possibility of loss from a customer's failure to
perform according to the terms of the transaction.
Compensation for assuming these risks is reflected in interest income and
fee income. Although the Company is exposed to credit loss in the event of
non-performance by the borrowers, this exposure is managed through credit
approvals, review and monitoring procedures and to the extent possible,
restricting the period during which unpaid balances are allowed to accumulate.
As of November 30, 1999 the net fair value of all financial instruments
held by the Company with exposure to interest rate risk was approximately $31.8
million. The potential decrease in fair value resulting from a hypothetical 5%
increase in interest rates would be approximately $23.8 million.
37
<PAGE> 40
There are certain shortcomings inherent to the Company's sensitivity
analysis. The model assumes interest rate changes are instantaneous parallel
shifts in the yield curve. In reality, changes are rarely instantaneous.
Although certain assets and liabilities may have similar maturities or periods
to repricing, they may not react in line with changes in market interest rates.
Also, the interest rates on certain types of assets and liabilities may
fluctuate with changes in market interest rates while interest rates on other
types of assets may lag behind changes in market rates. Prepayments on the
Company's mortgage related instruments are directly affected by a change in
interest rates. However, in the event of a change in interest rates, actual loan
prepayments may deviate significantly from the Company's assumptions. Further,
certain assets, such as adjustable rate loans, have features, such as annual and
lifetime caps that restrict changing the interest rates both on a short-term
basis and over the life of the asset. Finally, the ability of certain borrowers
to make scheduled payments on their adjustable rate loans may decrease in the
event of an interest rate increase.
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
By Order of the board of directors,
(Champ Meyercord)
Champ Meyercord
Chairman and Chief Executive Officer
February 11, 2000
38
<PAGE> 41
ANNEX A
AMENDED AND RESTATED
ALTIVA FINANCIAL CORPORATION
1999 INCENTIVE STOCK PLAN
<PAGE> 42
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Section 1. BACKGROUND AND PURPOSE.............................................. A-1
Section 2. DEFINITIONS......................................................... A-1
2.1 Affiliate................................................... A-1
2.2 Altiva...................................................... A-1
2.3 Board....................................................... A-1
2.4 Change in Control........................................... A-1
2.5 Code........................................................ A-1
2.6 Committee................................................... A-1
2.7 Director.................................................... A-1
2.8 Fair Market Value........................................... A-1
2.9 ISO......................................................... A-2
2.10 Key Employee................................................ A-2
2.11 1933 Act.................................................... A-2
2.12 1934 Act.................................................... A-2
2.13 Non-ISO..................................................... A-2
2.14 Option...................................................... A-2
2.15 Option Certificate.......................................... A-2
2.16 Option Price................................................ A-2
2.17 Parent...................................................... A-2
2.18 Plan........................................................ A-2
2.19 Restricted Stock............................................ A-2
2.20 Restricted Stock Certificate................................ A-2
2.21 Rule 16b-3.................................................. A-2
2.22 Stock....................................................... A-2
2.23 SAR Value................................................... A-2
2.24 Stock Appreciation Right.................................... A-2
2.25 Stock Appreciation Right Certificate........................ A-2
2.26 Subsidiary.................................................. A-2
2.27 Ten Percent Shareholder..................................... A-2
Section 3. SHARES RESERVED UNDER PLAN.......................................... A-3
Section 4. EFFECTIVE DATE...................................................... A-3
Section 5. COMMITTEE........................................................... A-3
Section 6. ELIGIBILITY AND ANNUAL GRANT CAPS................................... A-3
Section 7. OPTIONS............................................................. A-3
7.1 Committee Action............................................ A-3
7.2 $100,000 Limit.............................................. A-4
7.3 Grants to Directors......................................... A-4
7.4 Option Price................................................ A-4
7.5 Exercise Period............................................. A-5
Section 8. STOCK APPRECIATION RIGHTS........................................... A-5
8.1 Committee Action............................................ A-5
8.2 Terms and Conditions........................................ A-5
(a) Stock Appreciation Right Certificate.................... A-5
(b) Option Certificate...................................... A-5
8.3 Exercise.................................................... A-5
Section 9. RESTRICTED STOCK.................................................... A-6
9.1 Committee Action............................................ A-6
</TABLE>
i
<PAGE> 43
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
9.2 Effective Date.............................................. A-6
9.3 Conditions.................................................. A-6
(a) Conditions to Issuance of Stock......................... A-6
(b) Forfeiture Conditions................................... A-6
9.4 Dividends and Voting Rights................................. A-6
9.5 Satisfaction of Forfeiture Conditions; Provision for Income
and Excise Taxes............................................ A-6
9.6 Section 162(m).............................................. A-7
9.7 Grants to Directors......................................... A-7
(a) General Rule............................................ A-7
(b) Election................................................ A-7
(c) Transferability......................................... A-7
(d) Transition Rule......................................... A-7
Section 10. NONTRANSFERABILITY.................................................. A-7
Section 11. SECURITIES REGISTRATION............................................. A-8
Section 12. LIFE OF PLAN........................................................ A-8
Section 13. ADJUSTMENT.......................................................... A-8
13.1 Capital Structure........................................... A-8
13.2 Mergers..................................................... A-8
13.3 Fractional Shares........................................... A-9
Section 14. SALE, MERGER OR CHANGE IN CONTROL................................... A-9
Section 15. AMENDMENT OR TERMINATION............................................ A-9
Section 16. MISCELLANEOUS....................................................... A-9
16.1 Shareholder Rights.......................................... A-9
16.2 No Contract of Employment................................... A-10
16.3 Withholding................................................. A-10
16.4 Construction................................................ A-10
16.5 Other Conditions............................................ A-10
16.6 Rule 16b-3.................................................. A-10
16.7 Loans....................................................... A-10
</TABLE>
ii
<PAGE> 44
SECTION 1
BACKGROUND AND PURPOSE
The purpose of this Plan is to promote the interest of Altiva by
authorizing the Committee to grant Options to Key Employees and Directors and to
grant Restricted Stock and Stock Appreciation Rights to Key Employees in order
(1) to attract and retain Key Employees and Directors, (2) to provide an
additional incentive to each Key Employee or Director to work to increase the
value of Stock and (3) to provide each Key Employee or Director with a stake in
the future of Altiva which corresponds to the stake of each of Altiva's
stockholders.
SECTION 2
DEFINITIONS
2.1 Affiliate. means any organization (other than a Subsidiary) that would
be treated as under common control with Altiva under Section 414(c) of the Code
if "50 percent" were substituted for "80 percent" in the income tax regulations
under Section 414(c) of the Code.
2.2 Altiva. means Altiva Financial Corporation (formerly known as Mego
Mortgage Corporation) and any successor to Altiva Financial Corporation.
2.3 Board. means the Board of Directors of Altiva.
2.4 Change in Control. means (1) a "change in control" of Altiva of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A for a proxy statement filed under Section 14(a) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), (2) a "person" (as that term is
used in 14(d)(2) of the 1934 Act) becomes after the effective date of this Plan
the beneficial owner (as defined in Rule 13d-3 under the 1934 Act) directly or
indirectly of securities representing 50% or more of the combined voting power
for election of directors of the then outstanding securities of Altiva, (3) the
individuals who at the beginning of any period of two consecutive years or less
constitute the Board cease for any reason during such period to constitute at
least a majority of the Board, unless the election or nomination for election of
each new member of the Board was approved by vote of at least two-thirds of the
members of the Board then still in office who were members of the Board at the
beginning of such period, (4) the shareholders of Altiva approve any dissolution
or liquidation of Altiva or any sale or disposition of 50% or more of the assets
or business of Altiva or (5) the shareholders of Altiva approve a merger or
consolidation to which Altiva is a party (other than a merger or consolidation
with a wholly-owned subsidiary of Altiva) or a share exchange in which Altiva
shall exchange Altiva shares for shares of another corporation as a result of
which the persons who were shareholders of Altiva immediately before the
effective date of such merger, consolidation or share exchange shall have
beneficial ownership of less than 50% of the combined voting power for election
of directors of the surviving corporation following the effective date of such
merger, consolidation or share exchange.
2.5 Code. means the Internal Revenue Code of 1986, as amended.
2.6 Committee. means a committee of the Board which shall have at least 2
members, each of whom shall be appointed by and shall serve at the pleasure of
the Board and shall come within the definition of a "non-employee director"
under Rule 16b-3 and an "outside director" under Section 162(m) of the Code.
2.7 Director. means any member of the Board who is not an employee of
Altiva or a Parent or Subsidiary or affiliate (as such term is defined in Rule
405 of the 1933 Act) of Altiva.
2.8 Fair Market Value. means (1) the closing price on any date for a share
of Stock as reported by The Wall Street Journal under the quotation system under
which such closing price is reported or, if The Wall Street Journal no longer
reports such closing price, such closing price as reported by a newspaper or
trade journal selected by the Committee or, if no such closing price is
available on such date, (2) such closing price as so reported in accordance with
Section 2.7(1) for the immediately preceding business day, or, if no newspaper
or trade journal reports such closing price or if no such price quotation is
available, (3) the price which the Committee acting in good faith determines
through any reasonable valuation method that a share of
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<PAGE> 45
Stock might change hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or to sell and both having reasonable
knowledge of the relevant facts.
2.9 ISO. means an option granted under this Plan to purchase Stock which
is intended to satisfy the requirements of Section 422 of the Code.
2.10 Key Employee. means an employee of Altiva or any Subsidiary or Parent
or Affiliate designated by the Committee who, in the judgment of the Committee
acting in its absolute discretion, is key directly or indirectly to the success
of Altiva.
2.11 1933 Act. means the Securities Act of 1933, as amended.
2.12 1934 Act. means the Securities Exchange Act of 1934, as amended.
2.13 Non-ISO. means an option granted under this Plan to purchase Stock
which is intended to fail to satisfy the requirements of Section 422 of the
Code.
2.14 Option. means an ISO or a Non-ISO which is granted under Section 7 of
this Plan.
2.15 Option Certificate. means the written certificate which sets forth
the terms and conditions of an Option granted to a Key Employee or Director
under this Plan.
2.16 Option Price. means the price which shall be paid to purchase one
share of Stock upon the exercise of an Option granted under this Plan.
2.17 Parent. means any corporation which is a parent of Altiva within the
meaning of Section 424(e) of the Code.
2.18 Plan. means this Altiva Financial Corporation 1999 Incentive Stock
Plan as originally effective January 12, 1999 and as amended and restated
effective as of the date provided under Section 4, and as may be amended from
time to time thereafter.
2.19 Restricted Stock. means Stock granted to a Key Employee under Section
9 of this Plan.
2.20 Restricted Stock Certificate. means the written certificate which
sets forth the terms and conditions of a Restricted Stock grant to a Key
Employee.
2.21 Rule 16b-3. means the exemption under Rule 16b-3 to Section 16(b) of
the 1934 Act or any successor to such rule.
2.22 Stock. means $.01 par value common stock of Altiva.
2.23 SAR Value. means the value assigned by the Committee to a share of
Stock in connection with the grant of a Stock Appreciation Right under Section
10.
2.24 Stock Appreciation Right. means a right to receive the appreciation
in a share of Stock which is granted under Section 8 of this Plan either as part
of an Option or independent of any Option.
2.25 Stock Appreciation Right Certificate. means the written certificate
which sets forth the terms and conditions of a Stock Appreciation Right which is
granted to a Key Employee independent of an Option.
2.26 Subsidiary. means a corporation which is a subsidiary corporation
(within the meaning of Section 424(f) of the Code) of Altiva.
2.27 Ten Percent Shareholder. means a person who owns (after taking into
account the attribution rules of Section 424(d) of the Code) more than ten
percent of the total combined voting power of all classes of stock of either
Altiva, a Subsidiary or Parent.
A-2
<PAGE> 46
SECTION 3
SHARES RESERVED UNDER PLAN
There shall be 1,950,000 shares of Stock newly reserved for use under this
Plan in addition to the remainder of the 1,200,000 shares of Stock initially
reserved for use under this Plan as originally adopted effective January 12,
1999. Such shares of Stock shall be reserved to the extent that Altiva deems
appropriate from authorized but unissued shares of Stock and from shares of
Stock which have been reacquired by Altiva. Any shares of Stock subject to an
Option which remain unissued after the cancellation, expiration or exchange of
such Option, any shares of Restricted Stock which are forfeited or canceled and
any shares of Stock subject to a Stock Appreciation Right with respect to which
no exercise has been made under Section 8 before the cancellation or expiration
of such Stock Appreciation Right thereafter shall again become available for use
under this Plan, but any shares of Stock used to exercise an Option or to
satisfy a withholding obligation shall not again become available for use under
this Plan.
SECTION 4
EFFECTIVE DATE
The effective date of this Plan as amended and restated shall be the date
the shareholders of Altiva (acting at a duly called meeting of such
shareholders) approve this Plan. The effective date of this Plan prior to such
amendment and restatement was January 12, 1999, the date of its adoption by the
Board.
SECTION 5
COMMITTEE
This Plan shall be administered by the Committee. The Committee acting in
its absolute discretion shall exercise such powers and take such action as
expressly called for under this Plan and, further, the Committee shall have the
power to interpret this Plan and (subject to Section 13, Section 14 and Section
15 and Rule 16b-3) to take such other action in the administration and operation
of this Plan as the Committee deems equitable under the circumstances, which
action shall be binding on Altiva, on each affected Key Employee or Director and
on each other person directly or indirectly affected by such action.
SECTION 6
ELIGIBILITY AND ANNUAL GRANT CAPS
Only Key Employees who are employed by Altiva or a Subsidiary or Parent
shall be eligible for the grant of ISOs under this Plan, and Key Employees and
Directors shall be eligible for the grant of Non-ISOs under this Plan. Only Key
Employees shall be eligible for the grant of Restricted Stock or Stock
Appreciation Rights under this Plan. No Key Employee in any calendar year shall
be granted an Option (including an Option granted in exchange for the
cancellation of (1) an outstanding Option or (2) an outstanding option granted
under any other Altiva stock option plan) to purchase more than 2,000,000 shares
of Stock or a Stock Appreciation Right with respect to more than 2,000,000
shares of Stock, unless the Committee determines that a grant of a greater
number of shares of Stock for a specific Key Employee in a specific calendar
year is in the best interests of Altiva.
SECTION 7
OPTIONS
7.1 Committee Action. The Committee acting in its absolute discretion
shall have the right to grant Options to Key Employees under this Plan from time
to time to purchase shares of Stock and, further, the Committee shall have the
right to grant new Options in exchange for the cancellation of (1) outstanding
Options that have a higher or lower Option Price than the new Options or (2)
outstanding options granted
A-3
<PAGE> 47
under any other Altiva stock option plan that have a higher or lower Option
Price than the new Options. Each grant of an Option to a Key Employee shall be
evidenced by an Option Certificate, and each Option Certificate shall set forth
whether the Option is an ISO or a Non-ISO and shall set forth such other terms
and conditions of such grant as the Committee acting in its absolute discretion
deems consistent with the terms of this Plan; however, if the Committee grants
an ISO and a Non-ISO to a Key Employee on the same date, the right of the Key
Employee to exercise the ISO shall not be conditioned on his or her failure to
exercise the Non-ISO. The Committee shall have the right to grant a Non-ISO and
Restricted Stock to a Key Employee at the same time and to condition the
exercise of the Non-ISO on the forfeiture of the Restricted Stock grant. The
Committee also shall have the right in connection with the grant of one Option
to provide in the related Option Certificate for the automatic grant of one, or
more than one, additional Option, where the grant of the additional Option or
Options would be triggered by the occurrence of such event or such events as the
Committee deems appropriate under the circumstances.
7.2 $100,000 Limit. To the extent that the aggregate Fair Market Value of
Stock (determined as of the date the ISO is granted) with respect to which ISOs
first become exercisable in any calendar year exceeds $100,000, such Options
shall be treated as Non-ISOs. The Fair Market Value of Stock subject to any
other option (determined as of the date such option was granted) which (1)
satisfies the requirements of Section 422 of the Code and (2) is granted to a
Key Employee under a plan maintained by Altiva, a Subsidiary or a Parent
Corporation shall be treated (for purposes of this $100,000 limitation) as if
granted under this Plan. The Committee shall interpret and administer the
limitation set forth in this Section 7.2 in accordance with Section 422(d) of
the Code, and the Committee shall treat this Section 7.2 as in effect only for
those periods for which Section 422(d) of the Code is in effect.
7.3 Grants to Directors. Each Director automatically shall be granted
(without any further action on the part of the Committee) a Non-ISO under this
Plan as of the first day he first serves as a Director to purchase 3,500 shares
of Stock at an Option Price no less than the Fair Market Value of a share of
Stock on the date of such grant. Thereafter, each Director who is serving as
such on the last day of Altiva's fiscal year and who has served as such for more
than one full year automatically shall be granted (without any further action on
the part of the Committee) a Non-ISO under this Plan as of the last day of such
fiscal year to purchase 500 shares of Stock at an Option Price no less than the
Fair Market Value of a share of Stock on the date of such grant. Each Non-ISO
granted under this Plan to a Director shall be evidenced by an Option
Certificate, shall be exercisable in full upon grant and shall expire on the
date set forth in the related Option Certificate or, if earlier, on the tenth
anniversary of the date of the grant of the Non-ISO. A Non-ISO granted to a
Director under this Section 7.3 shall conform in all other respects to the terms
and conditions of a Non-ISO under this Plan, and no Director shall be eligible
to receive an Option under this Plan except as provided in this Section 7.3. A
grant of a Non-ISO to a Director under this Section 7.3 is intended to be
granted in a manner which continues to allow such Director to be a "non-employee
director" within the meaning of Rule 16b-3 and an "outside director" within the
meaning of Section 162(m) of the Code, and all Non-ISOs granted to Directors
under this Section 7.3 shall be construed to effect such intent.
7.4 Option Price. The Option Price for each share of Stock subject to an
Option which is granted to a Key Employee shall be no less than the Fair Market
Value of a share of Stock on the date the Option is granted; provided, however,
if the Option is an ISO granted to a Key Employee who is a Ten Percent
Shareholder, the Option Price for each share of Stock subject to such ISO shall
be no less than 110% of the Fair Market Value of a share of Stock on the date
such ISO is granted. The Option Price shall be payable in full upon the exercise
of any Option, and at the discretion of the Committee an Option Certificate can
provide for the payment of the Option Price either in cash, by check or in Stock
which has been held for at least 6 months and which is acceptable to the
Committee or in any combination of cash, check and such Stock. The Option Price
in addition may be paid through any broker facilitated cashless exercise
procedure acceptable to the Committee or its delegate. Any payment made in Stock
shall be treated as equal to the Fair Market Value of such Stock on the date the
certificate for such Stock is tendered to the Committee or its delegate in a
manner satisfactory to the Committee.
A-4
<PAGE> 48
7.5 Exercise Period. Each Option granted under this Plan to a Key Employee
shall be exercisable in whole or in part at such time or times as set forth in
the related Option Certificate, but no Option Certificate shall make an Option
granted to a Key Employee exercisable on or after the earlier of:
(1) the date such Option is exercised in full, or
(2) the date which is the fifth anniversary of the date the Option is
granted, if the Option is an ISO and the Key Employee is a Ten Percent
Shareholder on the date the Option is granted, or
(3) the date which is the tenth anniversary of the date the Option is
granted, if the Option is (a) a Non-ISO or (b) an ISO which is granted to a
Key Employee who is not a Ten Percent Shareholder on the date the Option is
granted.
An Option Certificate may provide for the exercise of an Option after the
employment of a Key Employee has terminated for any reason whatsoever, including
death or disability.
SECTION 8
STOCK APPRECIATION RIGHTS
8.1 Committee Action. The Committee acting in its absolute discretion
shall have the right to grant a Stock Appreciation Right to a Key Employee under
this Plan from time to time, and each Stock Appreciation Right grant shall be
evidenced by a Stock Appreciation Right Certificate or, if such Stock
Appreciation Right is granted as part of an Option, shall be evidenced by the
Option Certificate for the related Option.
8.2 Terms and Conditions.
(a) Stock Appreciation Right Certificate. If a Stock Appreciation
Right is evidenced by a Stock Appreciation Right Certificate, such
certificate shall set forth the number of shares of Stock to which the Key
Employee has the right to appreciation and the SAR Value of each share of
Stock. Such SAR Value shall be no less than the Fair Market Value of a
share of Stock on the date that the Stock Appreciation Right is granted.
The Stock Appreciation Right Certificate shall set forth such other terms
and conditions for the exercise of the Stock Appreciation Right as the
Committee deems appropriate under the circumstances, but no Stock
Appreciation Right Certificate shall make a Stock Appreciation Right
exercisable on or after the date which is the tenth anniversary of the date
such Stock Appreciation Right is granted.
(b) Option Certificate. If a Stock Appreciation Right is evidenced by
an Option Certificate, the SAR Value for each share of Stock subject to the
Stock Appreciation Right shall be the Option Price for the related Option.
Each such Option Certificate shall provide that the exercise of the Stock
Appreciation Right with respect to any share of Stock shall cancel the Key
Employee's right to exercise his or her Option with respect to such share
and, conversely, that the exercise of the Option with respect to any share
of Stock shall cancel the Key Employee's right to exercise his or her Stock
Appreciation Right with respect to such share. A Stock Appreciation Right
which is granted as part of an Option shall be exercisable only while the
related Option is exercisable. The Option Certificate shall set forth such
other terms and conditions for the exercise of the Stock Appreciation Right
as the Committee deems appropriate under the circumstances.
8.3 Exercise. A Stock Appreciation Right shall be exercisable only when
the Fair Market Value of a share of Stock subject to such Stock Appreciation
Right exceeds the SAR Value for such share, and the payment due on exercise
shall be based on such excess with respect to the number of shares of Stock to
which the exercise relates. A Key Employee upon the exercise of his or her Stock
Appreciation Right shall receive a payment from Altiva in cash or in Stock, or
in a combination of cash and Stock, and any payment in Stock shall be based on
the Fair Market Value of a share of Stock on the date the Stock Appreciation
Right is exercised. The Committee acting in its absolute discretion shall have
the right to determine the form and time of any payment under this Section 8.3.
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<PAGE> 49
SECTION 9
RESTRICTED STOCK
9.1 Committee Action. The Committee acting in its absolute discretion
shall have the right to grant Restricted Stock to Key Employees under this Plan
from time to time and, further, shall have the right to make new Restricted
Stock grants in exchange for the cancellation of an outstanding Restricted Stock
grant to such Key Employee. Each Restricted Stock grant shall be evidenced by a
Restricted Stock Certificate, and each Restricted Stock Certificate shall set
forth the conditions, if any, under which the grant will be effective and the
conditions under which the Key Employee's interest in the underlying Stock will
become nonforfeitable.
9.2 Effective Date. A Restricted Stock grant shall be effective (1) as of
the date set by the Committee when the grant is made or, if the grant is made
subject to one, or more than one, condition, (2) as of the date such conditions
have been timely satisfied.
9.3 Conditions.
(a) Conditions to Issuance of Stock. The Committee acting in its
absolute discretion may make the issuance of Restricted Stock to a Key
Employee subject to the satisfaction of one, or more than one, condition
which the Committee deems appropriate under the circumstances for Key
Employees generally or for a Key Employee in particular, and the related
Restricted Stock Certificate shall set forth each such condition and the
deadline for satisfying each such condition. Stock subject to a Restricted
Stock grant shall be issued in the name of a Key Employee only after each
such condition, if any, has been timely satisfied, and any Stock which is
so issued shall be held by Altiva pending the satisfaction of the
forfeiture conditions, if any, under Section 9.3(b) for the related
Restricted Stock grant.
(b) Forfeiture Conditions. The Committee acting in its absolute
discretion may make Restricted Stock issued in the name of a Key Employee
subject to one, or more than one, objective employment, performance or
other forfeiture condition that the Committee acting in its absolute
discretion deems appropriate under the circumstances for Key Employees
generally or for a Key Employee in particular, including a condition which
results in a forfeiture if a Key Employee exercises a Non-ISO granted in
tandem with his or her Restricted Stock grant, and the related Restricted
Stock Certificate shall set forth each such condition, if any, and the
deadline, if any, for satisfying each such forfeiture condition. A Key
Employee's nonforfeitable interest in the shares of Stock underlying a
Restricted Stock grant shall depend on the extent to which he or she timely
satisfies each such condition. Each share of Stock underlying a Restricted
Stock grant shall be unavailable under Section 3 after such grant is
effective unless such share is forfeited as a result of a failure to timely
satisfy a forfeiture condition, in which event such share of Stock shall
again become available under Section 3 as of the date of such failure.
9.4 Dividends and Voting Rights. If a cash dividend is declared on a share
of Stock underlying a Restricted Stock grant during the period which begins on
the date such grant is effective and ends immediately before the first date that
a Key Employee's interest in such underlying Stock (1) is forfeited completely
or (2) becomes completely nonforfeitable, Altiva shall pay such cash dividend
directly to such Key Employee. If a Stock dividend is declared on such a share
of Stock during such period, such Stock dividend shall be treated as part of the
grant of the related Restricted Stock, and a Key Employee's interest in such
Stock dividend shall be forfeited or shall become nonforfeitable at the same
time as the Stock with respect to which the Stock dividend was paid is forfeited
or becomes nonforfeitable. The disposition of each other form of dividend which
is declared on such a share of Stock during such period shall be made in
accordance with such rules as the Committee shall adopt with respect to each
such dividend. A Key Employee also shall have the right to vote the Stock
underlying his or her Restricted Stock grant during such period.
9.5 Satisfaction of Forfeiture Conditions; Provision for Income and Excise
Taxes. A share of Stock shall cease to be Restricted Stock at such time as a
Key Employee's interest in such Stock becomes nonforfeitable under this Plan,
and the certificate representing such share shall be transferred to the Key
Employee as soon as practicable thereafter. The Committee acting in its absolute
discretion shall have the power to authorize and direct the payment of a cash
bonus (or to provide in the terms of the Restricted Stock
A-6
<PAGE> 50
Certificate for Altiva to make such payment) to a Key Employee to pay all, or
any portion of, his or her federal, state and local income and excise tax
liability which the Committee deems attributable to his or her interest in his
or her Restricted Stock grant becoming nonforfeitable and, further, to pay any
such tax liability attributable to such cash bonus.
9.6 Section 162(m). Except where the Committee deems it in the best
interests of Altiva, the Committee shall use its best efforts to grant
Restricted Stock either (1) subject to at least one condition which can result
in the Restricted Stock qualifying as "performance-based compensation" under
Section 162(m) of the Code if the shareholders of Altiva approve such condition
and the Committee takes such other action as the Committee deems necessary or
appropriate for such grant to so qualify under Section 162(m) or (2) under such
other circumstances as the Committee deems likely to result in an income tax
deduction for the grant.
9.7 Grants to Directors.
(a) General Rule. At least 60% of a Director's compensation for all
services rendered as such in each fiscal quarter for Altiva shall be paid
by Altiva in whole shares of Stock based on the Fair Market Value of such
Stock on the last day of each such fiscal quarter and in cash in lieu of
any fractional share and, absent an effective election under Section 9.7(b)
100% of such compensation shall be paid in whole shares of Stock and in
cash in lieu of any fractional share of Stock.
(b) Election. A Director may elect in a manner satisfactory to the
Committee that any percentage of his or her compensation be paid in whole
shares of Stock, but the percentage elected by the Director cannot be less
than 60% or more than 100%. An election under this Section 9.7(b) shall be
effected for compensation which is otherwise payable in cash after the end
of the fiscal quarter for Altiva in which the election is delivered to the
Committee or its delegate.
(c) Transferability. No shares of Stock transferred to a Director may
be transferred by the Director to any other person while he or she remains
a Director other than by will or by the laws of descent and distribution
without the express consent of the Committee unless the Director serves as
such as a representative of his or her employer, in which event the
Director may assign all his or her rights in such Stock to his or her
employer subject to the general restriction on transfers set forth in this
Section 9.7(c).
(d) Transition Rule. If any Director is due any compensation for
services rendered as such on January 12, 1999, such compensation shall be
paid in whole shares of Stock under this Section 9.7 (and in cash in lieu
of any fractional share) as of the last day of the fiscal quarter for
Altiva which includes January 12, 1999.
SECTION 10
NONTRANSFERABILITY
No Option, Restricted Stock or Stock Appreciation Right shall (absent the
Committee's consent or the application of Section 9.7(c)) be transferable by a
Key Employee or an Director other than by will or by the laws of descent and
distribution, and any Option or Stock Appreciation Right shall (absent the
Committee's consent or the application of Section 9.7(c)) be exercisable during
a Key Employee's or Director's lifetime only by the Key Employee or Director.
The person or persons to whom an Option or Restricted Stock or Stock
Appreciation Right is transferred by will or by the laws of descent and
distribution (or with the Committee's consent) thereafter shall be treated as
the Key Employee or Director.
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SECTION 11
SECURITIES REGISTRATION
Each Option Certificate, Restricted Stock Certificate and Stock
Appreciation Right Certificate shall provide that, upon the receipt of shares of
Stock as a result of the exercise of an Option or a Stock Appreciation Right or
the satisfaction of the forfeiture conditions under a Restricted Stock
Certificate, the Key Employee or Director shall, if so requested by Altiva, hold
such shares of Stock for investment and not with a view of resale or
distribution to the public and, if so requested by Altiva, shall deliver to
Altiva a written statement satisfactory to Altiva to that effect. As for Stock
issued pursuant to this Plan, Altiva at its expense shall take such action as it
deems necessary or appropriate to register the original issuance of such Stock
to a Key Employee or Director under the 1933 Act or under any other applicable
securities laws or to qualify such Stock for an exemption under any such laws
prior to the issuance of such Stock to a Key Employee or Director; however,
Altiva shall have no obligation whatsoever to take any such action in connection
with the transfer, resale or other disposition of such Stock by a Key Employee
or Director.
SECTION 12
LIFE OF PLAN
No Option, Restricted Stock or Stock Appreciation Right shall be granted
under this Plan on or after the earlier of:
(1) January 12, 2009, in which event this Plan otherwise thereafter
shall continue in effect until all outstanding Options and Stock
Appreciation Rights have been exercised in full or no longer are
exercisable and all Restricted Stock grants under this Plan have been
forfeited or the forfeiture conditions, if any, on such Stock have been
satisfied in full, or
(2) the date on which all of the Stock reserved under Section 3 of
this Plan has (as a result of the exercise of Options or Stock Appreciation
Rights granted under this Plan or the satisfaction of the forfeiture
conditions, if any, on Restricted Stock) been issued or no longer is
available for use under this Plan, in which event this Plan also shall
terminate on such date.
SECTION 13
ADJUSTMENT
13.1 Capital Structure. The number, kind or class (or any combination
thereof) of shares of Stock reserved under Section 3 of this Plan, the grant
caps described in Section 6 of this Plan, the number, kind or class (or any
combination thereof) of shares of Stock subject to Options or Stock Appreciation
Rights granted under this Plan and the Option Price of such Options and the SAR
Value of such Stock Appreciation Rights as well as the number, kind or class of
shares of Restricted Stock granted under this Plan shall be adjusted by the
Committee in an equitable manner to reflect any change in the capitalization of
Altiva, including, but not limited to, such changes as stock dividends or stock
splits.
13.2 Mergers. The Committee as part of any corporate transaction described
in Section 424(a) of the Code shall have the right to adjust (in any manner
which the Committee in its discretion deems consistent with Section 424(a) of
the Code) the number, kind or class (or any combination thereof) of shares of
Stock reserved under Section 3 of this Plan and the grant caps described in
Section 6 of this Plan. Furthermore, the Committee as part of any corporate
transaction described in Section 424(a) of the Code shall have the right to
adjust (in any manner which the Committee in its discretion deems consistent
with Section 424(a) of the Code) the number, kind or class (or any combination
thereof) of shares of Stock underlying any Restricted Stock grants previously
made under this Plan and any related grant conditions and forfeiture conditions,
and the number, kind or class (or any combination thereof) of shares subject to
Option and Stock Appreciation Right grants previously made under this Plan and
the related Option Price and SAR Value for each such Option and Stock
Appreciation Right, and, further, shall have the right (in any manner which the
Committee
A-8
<PAGE> 52
in its discretion deems consistent with Section 424(a) of the Code) to make
Restricted Stock, Option and Stock Appreciation Right grants to effect the
assumption of, or the substitution for, restricted stock, option and stock
appreciation right grants previously made by any other corporation to the extent
that such corporate transaction calls for such substitution or assumption of
such restricted stock, option or appreciation right grants.
13.3 Fractional Shares. If any adjustment under this Section 13 would
create a fractional share of Stock or a right to acquire a fractional share of
Stock, such fractional share shall be disregarded and the number of shares of
Stock reserved under this Plan and the number subject to any Options or Stock
Appreciation Right grants and Restricted Stock grants shall be the next lower
number of shares of Stock, rounding all fractions downward. An adjustment made
under this Section 13 by the Board shall be conclusive and binding on all
affected persons and, further, shall not constitute an increase in "the number
of shares of Stock reserved under Section 3" within the meaning of Section 15 of
this Plan.
SECTION 14
SALE, MERGER OR CHANGE IN CONTROL
If on any date Altiva agrees to sell all or substantially all of its assets
or agrees to any merger, consolidation, reorganization, division or other
corporate transaction in which Stock is converted into another security or into
the right to receive securities or property or if a tender offer is made which
could lead to a Change in Control (other than a tender offer by Altiva or an
employee benefit plan established and maintained by Altiva), the Board shall
waive any conditions to the exercise of all then outstanding Options and Stock
Appreciation Rights and waive any then outstanding issuance and forfeiture
conditions on any Restricted Stock and shall have the right to cancel such
Options, Stock Appreciation Rights and Restricted Stock grants after providing
each Key Employee and Director a reasonable opportunity to exercise his or her
Options and Stock Appreciation Rights and to take such other action as necessary
or appropriate to receive the Stock subject to any Restricted Stock grants.
SECTION 15
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent that
the Board deems necessary or appropriate; provided, however, no such amendment
shall be made absent the approval of the shareholders of Altiva required under
Section 422 of the Code (1) to increase the number of shares of Stock reserved
under Section 3 which can be used for ISO grants, or (2) to change the class of
employees eligible for Options which are ISOs. The Board also may suspend the
granting of Options or Stock Appreciation Rights or Restricted Stock under this
Plan at any time and may terminate this Plan at any time; provided, however, the
Board shall not have the right unilaterally to modify, amend or cancel any
Option, Stock Appreciation Right or Restricted Stock granted before such
suspension or termination unless (1) the Key Employee or Director consents in
writing to such modification, amendment or cancellation or (2) there is a
dissolution or liquidation of Altiva or a transaction described in Section 13 or
Section 14 of this Plan.
SECTION 16
MISCELLANEOUS
16.1 Shareholder Rights. No Key Employee or Director shall have any rights
as a shareholder of Altiva as a result of the grant of an Option or a Stock
Appreciation Right granted to him or her under this Plan or his or her exercise
of such Option or Stock Appreciation Right pending the actual delivery of the
Stock subject to such Option to such Key Employee or Director. Subject to
Section 9.4, a Key Employee's rights as a shareholder in the shares of Stock
underlying a Restricted Stock grant which is effective shall be set forth in the
related Restricted Stock Certificate.
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<PAGE> 53
16.2 No Contract of Employment. The grant of an Option or a Stock
Appreciation Right or Restricted Stock to a Key Employee or Director under this
Plan shall not constitute a contract of employment or a right to continue to
serve on the Board and shall not confer on a Key Employee or Director any rights
upon his or her termination of employment or service in addition to those
rights, if any, expressly set forth in the related Option Certificate, Stock
Appreciation Right Certificate, or Restricted Stock Certificate.
16.3 Withholding. Each Option, Stock Appreciation Right and Restricted
Stock grant shall be made subject to the condition that the Key Employee or
Director consents to whatever action the Committee directs to satisfy the
federal and state tax withholding requirements, if any, which the Committee in
its discretion deems applicable to the exercise of such Option or Stock
Appreciation Right or the satisfaction of any forfeiture conditions with respect
to Restricted Stock issued in the name of the Key Employee or Director. The
Committee also shall have the right to provide in an Option Certificate, Stock
Appreciation Right Certificate or a Restricted Stock Certificate that a Key
Employee or Director may elect to satisfy federal and state tax withholding
requirements through a reduction in the cash or the number of shares of Stock
actually transferred to him or to her under this Plan.
16.4 Construction. All references to sections (Section) are to sections
(Section) of this Plan unless otherwise indicated. This Plan shall be construed
under the laws of the State of Georgia. Finally, each term set forth in Section
2 shall have the meaning set forth opposite such term for purposes of this Plan
and, for purposes of such definitions, the singular shall include the plural and
the plural shall include the singular.
16.5 Other Conditions. Each Option Certificate, Stock Appreciation Right
Certificate or Restricted Stock Certificate may require that a Key Employee or
Director (as a condition to the exercise of an Option or a Stock Appreciation
Right or a Restricted Stock grant) enter into any agreement or make such
representations prepared by Altiva, including any agreement which restricts the
transfer of Stock acquired pursuant to the exercise of an Option or a Stock
Appreciation Right or Restricted Stock grant or provides for the repurchase of
such Stock by Altiva under certain circumstances.
16.6 Rule 16b-3. The Committee shall have the right to amend any Option,
Restricted Stock or Stock Appreciation Right grant or to withhold or otherwise
restrict the transfer of any Stock or cash under this Plan to a Key Employee or
Director as the Committee deems appropriate in order to satisfy any condition or
requirement under Rule 16b-3 to the extent Rule 16 of the 1934 Act might be
applicable to such grant or transfer.
16.7 Loans. If approved by the Committee, Altiva may lend money to, or
guarantee loans made by a third party to, any Key Employee to finance the
exercise of any Option granted under this Plan, and the exercise of an Option
with the proceeds of any such loan shall be treated as an exercise for cash
under this Plan. If approved by the Committee, Altiva also may, in accordance
with a Key Employee's instructions, transfer Stock upon the exercise of an
Option directly to a third party in connection with any arrangement made by the
Key Employee for financing the exercise of such Option.
IN WITNESS WHEREOF, Altiva Financial Corporation has caused its duly
authorized officer to execute this Plan to evidence its adoption of this Plan.
ALTIVA FINANCIAL CORPORATION
By: ------------------------
Date: ------------------------
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<PAGE> 54
ALTIVA FINANCIAL CORPORATION
1000 PARKWOOD CIRCLE, SUITE 600
ATLANTA, GEORGIA 30339
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MARCH 9, 2000
The undersigned stockholder of Altiva Financial Corporation, a Delaware
corporation (the "Company"), hereby appoints Edward B. Meyercord and J. Richard
Walker or either of them, the proxy or proxies of the undersigned, each with
full power of substitution, to vote all shares of common stock of the Company
which the undersigned is entitled to vote at the Annual Meeting of the
Stockholders of the Company to be held at 10:00 a.m., Eastern Standard Time, on
March 9, 2000, at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia 30303, and at all adjournments or postponements thereof, with
authority to vote said common stock on the matters set forth on the reverse
side.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER, WHO SHALL BE ENTITLED TO
THE VOTE CORRESPONDING TO EACH SHARE OF COMMON STOCK HELD BY SUCH STOCKHOLDER.
This proxy will be voted as specified. If no specification is made, this proxy
will be voted FOR the first four proposals and in the discretion of the proxies
on any other business properly brought before the meeting. Please mark, date,
sign and return using the enclosed envelope. Your prompt attention will be
appreciated.
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
|SEE REVERSE|
| SIDE |
<PAGE> 55
<TABLE>
<S> <C>
[ X ] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING: FOR AGAINST ABSTAIN
1. To elect five (5) WITHHOLD 2. To approve the issuance [ ] [ ] [ ]
directors to serve FOR AUTHORITY to vote for all nominees of shares of the Company's
until the 2001 [ ] [ ] listed common stock, par value
Annual Meeting of Nominees: Spencer I. Browne, $.01, upon conversion of
Stockholders David J. Vida, Jr., the Company's 12% Secured
Edward B. Meyercord, Convertible Senior Notes
John D. Williamson, Jr., due 2006 to be issued to
Hubert M. Stiles, Jr. Value Partners, Ltd.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL 3. To approve the proposal [ ] [ ] [ ]
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST to issue shares of the
ABOVE.) Company's common stock,
par value $.01, in
partial exchange for the
Company's outstanding
12 1/2% Subordinated Notes
due 2001.
4. To approve amendments to [ ] [ ] [ ]
the Company's 1999 Incentive
Stock Plan.
5. In their judgement, the [ ] [ ] [ ]
proxies are authorized to
vote upon such other
business as may be
properly brought before
the meeting and each
adjournment or
postponement thereof.
</TABLE>
Signature(s) ____________________________ Date ___________________
NOTE: Please sign exactly as your name appears hereon. For
more than one owner as shown above, each should sign. When
signing in a fiduciary or representative capacity, please
give full title. If this Proxy is submitted by a
corporation, it should be executed in the full corporate
name by a duly authorized officer. If a partnership, please
sign in partnership name by authorized person.
