U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-25714
THE AEGIS CONSUMER FUNDING GROUP, INC.
Delaware 22-3008867
(State of Incorporation) (I.R.S. Employer Identification No.)
525 Washington Blvd.
Jersey City, NJ 07310
(Address of principal executive offices)
Telephone number: (201)418-7300
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of class Name of exchange on which registered
-------------- ------------------------------------
Common Stock, The Nasdaq National Market
$.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates on September 12, 1996 (based upon the average of the high and low
sales prices of such stock as of such date) was approximately $.
As of September 12, 1997, 17,677,212 shares of the Registrant's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for the Annual Meeting of Stockholders to be
held in November 1997 (the "Proxy Statement") is incorporated by reference in
Part III of this Form 10-K to the extent stated herein. Except with respect to
information specifically incorporated by reference in this Form 10-K, the Proxy
Statement is not deemed to be filed as a part hereof.
<PAGE>
PART I
Item 1: Business.
General
The Aegis Consumer Funding Group, Inc. is a specialty consumer finance company
engaged in acquiring, securitizing and servicing automobile retail installment
contracts ("finance contracts") originated by factory authorized new car dealers
("Dealers") in connection with the sale of late-model used and to a lesser
extent, new cars to consumers with sub-prime credit. The Company targets the
higher quality segment of the sub-prime credit market, acquiring finance
contracts primarily on used cars that, on average, are 1.7 years old with an
original balance of $12,400 and a term of 55 months as of June 30, 1997. The
Company has acquired $1.25 billion of automobile finance contracts through June
30, 1997, $1.03 billion of which have been securitized in twenty offerings of
asset-backed securities.
The Company was organized in 1989 to participate in the growing market for
securitization of various consumer and other receivables. Following a
quasi-reorganization in March 1992, the Company focused its business on the
acquisition and securitization of high-yield consumer-based receivables. Upon
acquiring The Clearing House Corporation (renamed "Aegis Auto Finance, Inc.") in
June 1993, the Company began funding sub-prime automobile finance contracts.
Since its inception, the Company has completed over twenty private placement
securitizations of consumer and other receivables, including sub-prime
automobile finance contracts as well as medical equipment leases, loans
originated under the federal Department of Housing and Urban Development's home
improvement loans program ("HUD Title I Loans") and mutual fund fee receivables.
Beginning in 1994, the Company focused its business exclusively on the
automobile finance business.
The Company's strategy is to actively manage credit risk while increasing the
volume of finance contracts acquired, securitized and serviced. Key elements of
the Company's strategy are:
Active Credit Risk Management. The Company focuses its credit risk management on
all aspects of the Company's underwriting, securitization and servicing, with
emphasis on collections, of finance contracts. The Company has a credit
committee comprised of senior management that continually evaluates the
underwriting process, Dealer performance, collection efficiency and portfolio
performance. The Company's quality control department reviews, on a sample
basis, finance contracts, supporting documentation and compliance with
underwriting standards. The Company believes that effective credit risk
management will build institutional investor demand for the Company's
securitized finance contracts.
Consistent Underwriting Standards. Through training, proprietary technology and
intensive management review, the Company strives to maintain consistent
underwriting standards at its three regional processing centers. These standards
are designed both to achieve a low level of delinquencies and charge-offs and to
qualify the Company's finance contracts for securitization. The Company's credit
approval system monitors multiple evaluation criteria, and performs in excess of
100 internal data integrity checks before the Company approves a finance
contract for acquisition.
Limited Loss Exposure. To reduce its potential losses on defaulted finance
contracts, the Company insures each finance contract it acquires against damage
to the financed vehicle through a vender's comprehensive single interest
physical damage insurance policy (the "VSI Policy"). In addition, the Company
purchases credit default insurance with respect to most of the finance contracts
it acquires, which limits the Company's exposure to no more than 8.0% of the
aggregate principal balance of the finance contracts covered. Moreover, the
Company limits loan-to-value ratios and applies a purchase price discount to the
finance
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contracts it acquires.
Servicing. In January 1997, the Company's wholly owned subsidiary, Systems &
Services Technologies, Inc. ("SST") began its operations as a loan servicing
company designed to service loans acquired by the Company as well as various
other types of marginal loans originated by third parties. The Company believes
that performing all the servicing functions within the organization will improve
the overall performance of automobile receivables acquired by the Company.
[EXPAND ON]
Experienced Management and State-of-the-Art Technology. The Company has
assembled a management team of experienced personnel who have backgrounds in
finance and capital markets, systems development, the automobile industry and
securitizations of a variety of receivables. The combined experience of the
Company's management has enabled it to develop internally its proprietary
AutoMate (finance contract acquisition) and PRIM (Product Reporting and
Information Management) computer systems and databases to effectively manage
each stage in the financing cycle.
Funding and Liquidity through Securitization. The Company uses warehouse
facilities to provide funds for the acquisition of automobile finance contracts
and securitization transactions, to reduce the impact of interest rate
fluctuations and to reduce its cost of capital relative to traditional sources
of corporate debt financing. Through June 30, 1997, the Company had securitized
$1.03 billion of automobile finance contracts in twenty-one offerings of
asset-backed securities, nine of which were rated A+ and one of which was rated
A, in each case by Duff & Phelps Credit Rating Co. ("Duff & Phelps"), and eight
pools aggregating approximately $425.8 million which were not rated. In March
1997, the Company secured a $1.0 billion purchase facility (the "Purchase
Facility") which was one of the components of a multi-structured finance
facility (the "Facility"). The Purchase Facility contains a commitment for the
purchase of $350.0 million of subordinated Class B trust certificates which will
support the issuance by the Company of $650.0 million of senior Class A trust
certificates. The Purchase Facility is supported by a $75.0 million warehouse
line. As of June 30, 1997, the Company sold $252.9 million of Class A trust
certificates and $136.2 of Class B trust certificates for an aggregate amount of
$389.0 million under the Purchase Facility. In addition, in December 1995, the
Company entered into a commitment to sell $175 million of sub-prime automobile
finance contracts to be resold as asset-backed securities (the "Owner Trust
Facility"), of which the Class A Notes are rated AAA by Standard & Poor's
Ratings Services ("Standard & Poor's") and Aaa by Moody's Investor Services,
Inc. ("Moody's"). As of June 30, 1997, the Company had sold approximately $148.4
million, of automobile finance contracts into the Owner Trust Facility. The
Company also has a commitment from Greenwich Capital Markets to purchase and
securitize up to $533.0 million of the Company's finance contract acquisitions
(the "Securitization Facility") until the commitment is filled, subject to
customary conditions. Three securitizations aggregating $307.0 million which
were rated A+ by Duff & Phelps were completed as of June 30, 1997, pursuant to
the Securitization Facility.
Nationwide Diversification with Centralized Operations. The Company currently
acquires finance contracts in 28 states and operates two regional processing
centers. In May 1997, the Company closed its pocessing center in Irvine,
California as part of its effort to further centralize its operations. The
Company believes that its centralized operations are a more efficient method of
processing finance contracts than operating numerous local facilities. The
Company seeks to mitigate the risk of loss due to regional economic downturns
and to reduce dependency on a limited number of local markets by maintaining a
geographically diverse finance contract portfolio. While the Company establishes
and maintains relationships with dealers through sales representatives located
in the geographic markets served by the Company, all of the Company's day-to-day
operations are centralized at the Company's processing centers in Jersey City,
New Jersey and Marietta, Georgia. This structure allows the Company to closely
monitor its underwriting operations and eliminates the expenses associated with
full-service branch or regional offices.
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Distinctive Financing Program. The Company believes that a significant
competitive advantage is the financing flexibility it provides to its Dealer
base. The Company focuses primarily on the consumer's ability to pay and
secondarily on the value of the collateral in making credit decisions. The
Company responds to credit applications by determining monthly payment amounts
that consumers can afford, rather than limiting its approval to a specific
automobile, providing Dealers the flexibility to offer their customers a wide
range of automobiles. The Company's principal financing program is one whereby
the customer is able to purchase the vehicle without a cash down payment and the
Dealer has minimal recourse on the sale. To mitigate its risk in the transaction
the Company acquires finance contracts generally at a 10% discount and limits
its advance rate to no more than 100% (exclusive of Company sponsored
warranties) of manufacturer's suggested retail price ("MSRP") or Kelly Blue Book
Guide ("Kelley Blue Book") retail value.
Superior Dealer Service. By providing prompt service, consistent credit
decisions and a reliable source of financing for sub-prime consumers, the
Company hopes to expand its Dealer base and increase the volume of finance
contracts acquired from each Dealer. The Company typically responds to credit
applications within three hours, and generally pays the Dealer within 24 hours
of receipt of complete finance contract documentation.
The Company has experienced substantial growth since its entry into the
automobile finance business in 1993. During the quarter ended March 31, 1997,
the Company's finance contracts acquisitions decreased substantially. The
decrease in loan acquisitions was a reflection of the Company's change in
underwriting guidelines which were implemented in the March 1997 quarter. The
Company anticipates maintaining its acquisition levels at approximately $40.0 to
$45.0 million per month while it continues to focus on decreasing its loss
ratios and costs to acquire finance contracts. The following table represents
the Companys quarterly acquisitions and securitizations of sub-prime automobile
finance contracts since its inception:
<TABLE>
<CAPTION>
Number of Amount
Dealers at Number Amount of Finance
End of Number of of Finance of Finance Contracts
Quarter Ended Quarter(1) States(2) Contracts Contracts Securitized
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ------------- ---------- --------- --------- --------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
September 30, 1993 200 8 282 $3.1 $7.5
December 31, 1993 250 8 263 2.9 --
March 31, 1994 300 9 880 9.8 --
June 30, 1994 375 14 1,539 18.0 18.5
September 30, 1994 550 15 1,723 20.7 23.3
December 31, 1994 900 20 1,583 19.2 21.0
March 31, 1995 1,000 22 2,688 32.8 21.0
June 30, 1995 1,300 25 4,901 59.6 54.0
September 30, 1995 1,600 30 5,943 72.6 67.6
December 31,1995 2,000 31 8,190 100.6 85.4
March 31, 1996 2,500 31 10,569 128.8 130.1
June 30, 1996 2,900 32 12,037 149.6 149.3
September 30, 1996 3,300 30 15,401 190.8 173.3
December 31,1996 3,700 31 14,584 179.9 4.9
March 31, 1997 3,900 29 8,992 110.6 238.7
June 30, 1997 4,200 31 8,745 110.5 150.3
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------
(1) Approximate number of Dealers based upon signed agreements with Dealers
from whom the Company will accept finance contract applications.
(2) Based upon those states in which the Company acquired finance contracts
during the related period.
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Industry Background/Competition
The sub-prime credit market is comprised of consumers who are deemed to be
relatively high credit risks due to various factors, including, among other
things, previous credit problems, the absence or limited extent of their prior
credit history or limited financial resources. The sub-prime consumer automobile
finance market is highly fragmented, consisting of many national, regional and
local competitors. Historically, traditional financing sources (commercial
banks, savings and loan associations, credit unions, captive finance companies
and consumer lenders), many of which have significantly greater resources than
the Company and may be able to offer more attractive finance contract
acquisition prices to Dealers, have not consistently served this market.
However, such traditional financing sources have been increasing their presence
in this market. The Company believes that increased regulatory oversight and
capital requirements imposed by market conditions and governmental agencies have
limited the activities of many banks and savings and loan associations in the
sub-prime credit market. As a result, the sub-prime credit market is primarily
serviced by smaller finance organizations that solicit business when and as
their capital resources permit. The Company believes no one of its competitors
or group of competitors has a dominant presence in the market. The Company's
strategy is designed to capitalize on the market's lack of a major national
financing source.
Finance Contract Profile
The following tables provide information regarding the automobile finance
contracts acquired and leases originated by the Company during the periods
indicated. The Company commenced lease originations in April 1994 and ceased
originations in the first quarter of its 1996 fiscal year.
<TABLE>
<CAPTION>
Finance Contract Acquisitions
Year Ended
----------------------------------------------------------------------------------
June 30, 1993 June 30,1994 June 30,1995 June 30, 1996 June 30, 1997
------------- ------------ ------------ ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Original Balance ........................... $ 12,181 $ 33,738 $ 132,282 $ 451,536 $ 591,841
Number acquired ............................ 1,148 2,964 10,895 36,739 47,722
Average Original balance ................... $ 10.6 $ 11.4 $ 12.1 $ 12.3 12.4
Average discount on contracts
acquired ................................... 8.1% 10.0% 9.9% 10.0% 10.0%
Current balance(1) ......................... $ 620 $ 6,320 $ 49,348 $ 283,263 532,232
Average Balance Outstanding(1) ............. $ 2.6 $ 5.1 $ 7.8 $ 9.7 $ 11.5
Weighted Average Original Term
(in months)(1) ............................. 56.9 56.1 55.6 54.5 54.5
Weighted Average Remaining Term
(in months)(1) ............................. 14.6 21.5 31.3 39.7 49.4
Weighted Average Annual
Percentage Rate(1) ......................... 20.6% 20.1% 20.1% 20.0% 20.4%
Percentage New Cars(1) ..................... 35.3% 18.0% 13.0% 7.1% 4.0%
Percentage Used Cars(1) .................... 64.7% 82.0% 87.0% 92.9% 96.0%
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------------
(1) As of June 30, 1997
<TABLE>
<CAPTION>
Lease Portfolio
Year Ended
-------------------------------------------
June 30,1994 June 30,1995 June 30, 1996
------------ ------------ -------------
(dollars in thousands)
<S> <C> <C> <C>
Original Balance ...................... $ 1,571 $ 29,905 $ 436
Number originated ..................... 92 1,914 25
Average Original balance .............. $ 17.1 $ 15.6 $ 17.4
Average discount on contracts
originated ............................ 6.7% 7.1% 7.2%
Current balance(1) .................... $ 543 $ 14,540 $ 271
Average Balance Outstanding(1) ........ $ 8.0 $ 8.7 $ 11.8
Weighted Average Original Term
(in months)(1) ........................ 57.6 55.6 56.2
Weighted Average Remaining Term
(in months)(1) ........................ 28.8 33.8 37.8
Weighted Average Annual
Percentage Rate(1) .................... 15.9% 16.5% 17.0%
Percentage New Cars(1) ................ 60.9% 16.8% 4.3%
Percentage Used Cars(1) ............... 39.1% 83.2% 95.7%
</TABLE>
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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------------
(1)As of June 30, 1997
Credit Evaluation and Procedures
Underwriting. The Company's automobile finance contract acquisition program is
designed to acquire automobile finance contracts originated through
factory-authorized new car Dealers, while offering them an opportunity to
increase vehicle sales to consumers who typically do not qualify for traditional
financing. As of June 30, 1997, the Company had entered into agreements with
approximately 4,200 Dealers, located in 31 States, from which the Company
accepts finance contract applications.
The Company continually strives to improve upon the effective evaluation of
credit risk, consistency in its credit decisions, the timely communication of
credit decisions and its reliability as a funding source. The Company has
developed, and is constantly refining, the "in house" processing systems and
controls specifically designed to support its evaluation process. The Company
utilizes these systems and controls to assess each applicant's ability to repay
the amounts due on the finance contract and the adequacy of the financed vehicle
as collateral. In addition, the Company utilizes these systems to achieve
consistent credit decisions and to reduce the elapsed time between receipt of a
credit application from a Dealer and the Company's response to the Dealer. The
Company requires each Dealer submitting a finance contract for acquisition to
provide certain information to the Company, including a completed signed finance
contract application that lists the applicant's assets, liabilities, income,
credit and employment history as well as other personal information. The Company
does not currently utilize credit scoring in its underwriting process. The
Company is currently developing its credit scorecard which is scheduled to be
tested in the second quarter of its fiscal year ended June 30, 1998 with full
implementation expected to occur in the third quarter ending March 31, 1998. The
Company evaluates the applicants' ability to pay by verifying their residence,
employment and income and by considering the relationship of their monthly
income to monthly auto payment and monthly income to monthly debt burden,
including expenses relating to the finance contract under consideration and
expenses relating to automobile insurance. The Company also engages in a
comprehensive evaluation of at least one credit bureau report from an
independent credit bureau. The credit report typically contains information on
matters such as historical payment experience, credit history with merchants and
lenders, installment debt payments, defaults and bankruptcies, if any. The
purpose of this credit review is to eliminate individuals whose credit quality
is deteriorating or suggests too great a probability of default or whose credit
experience is too limited for the Company to assess the probability of
performance. The Company's underwriting guidelines and processes have remained
fairly consistent throughout its history of acquiring automobile finance
contracts.
Based upon its review of information extracted from the credit bureau reports
and the credit application, the Company may either (i) approve the credit
application; (ii) approve the credit application with conditions; or (iii)
decline the application. The credit analyst documents the decision and the
Dealer is notified by facsimile transmission, typically within three hours of
receipt by the Company of the credit application. In the fiscal years ended June
30, 1995, 1996 and 1997, the Company approved 41.8%, 41.3% and 36.9%,
respectively, and funded 12.8%, 10.6% and 9.8%, respectively, of the credit
applications received by it from Dealers.
Upon submission by the Dealer of the finance contract and related documentation,
the Company undertakes a series of processes and procedures that are designed
to: (i) substantiate the accuracy of information critical to the Company's
original credit decision; (ii) verify that the finance contract submitted by the
Dealer
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complies with both the conditions under which the credit approval was granted
and the Company's transaction structure criteria, including any requirements for
obtaining credit default insurance and (iii) confirm that the documentation
complies with the Company's loss management requirements. These processes and
procedures include the verification of collateral, borrower references and
insurance prior to funding the finance contract. This verification process in
many instances requires submission of supporting documentation and is performed
solely by Company personnel.
The Company has designed its finance programs to limit the loss exposure on each
transaction. The Company seeks to control loss exposure by: (i) determining
whether the applicant meets the Company's underwriting criteria, particularly
whether the applicant has sufficient disposable income to meet such applicant's
existing obligations and the obligations resulting from the proposed
transaction; (ii) limiting the credit it is willing to extend based upon its
assessment of the applicant's ability to meet payment obligations and value of
the underlying collateral; (iii) requiring that physical damage insurance naming
the Company as loss payee be maintained at all times by the obligor to protect
the Company's financial interest (if such insurance lapses, the Company is
nonetheless covered under the Company's vehicle single interest insurance
policy); (iv) acquiring a security interest in the vehicle financed; and (v)
obtaining credit default insurance with respect to most of its finance
contracts. The degree of exposure in any transaction is a function of: (a) the
creditworthiness of the applicant; (b) the extent of credit granted compared to
the value of the underlying collateral; (c) the possibility of physical damage
to, or the loss of the collateral; and (d) the potential for any legal
impediment to the collection of the obligation or the repossession of the
collateral. The Company determines the value of collateral based upon the MSRP
if new, or the Kelley Blue Book Guide. The Company has a general policy of not
extending credit exceeding 100% (exclusive of Company sponsored warranties, not
to exceed an additional $1,500) of either the MSRP or the Kelley Blue Book
retail value for a finance contract. While the Company does not require a down
payment for finance contracts it acquires, a significant percentage of consumers
elect to make a down payment. In the fiscal year ended June 30, 1997, 4.0% of
the finance contracts acquired by the Company were new car finance contracts and
96.0% were used car finance contracts.
Upon acquiring a finance contract, the Company acquires a security interest in
the vehicle financed. The finance contracts acquired by the Company during the
fiscal year ended June 30, 1995, averaged approximately $12,143 and had a
weighted average interest rate of approximately 20.2%. Finance contracts
acquired during the fiscal year ended June 30, 1996, averaged approximately
$12,290 and had a weighted average interest rate of approximately 20.1%. Finance
contracts acquired during the fiscal year ended June 30, 1997, averaged
approximately $12,402 and had a weighted average interest rate of approximately
20.4%. All finance contracts acquired by the Company are fully amortizing (on
the simple interest method) and provide for equal payments over the term of the
contract (averaging 54 months). The portions of such payments allocable to
principal and interest are, for payoff and deficiency purposes, determined in
accordance with the law of the state in which the finance contract was acquired.
During the period the Company was actively funding leases, upon the funding of a
lease, the Company acquired title to the leased vehicle. Leases originated
during the fiscal year ended June 30, 1995 averaged approximately $15,624, had a
weighted average interest rate of approximately 16.6% and an average term of 55
months. During the year ended June 30, 1996, the Company originated $436,000 of
leases. Leases originated during the year ended June 30, 1996 averaged
approximately $17,436, had a weighted average interest rate of approximately
17.1% and an average term of 57 months. All leases originated by the Company are
amortized to the estimated wholesale residual value using the direct financing
method and provide for equal payment over the term of the contract. In the
quarter ended September 30, 1995, the Company ceased funding leases and has
redirected all its efforts to acquiring finance contracts.
Dealers typically send credit applications to several financing sources. After
reviewing the credit application, each financing source will notify the Dealer
whether it is willing to acquire the finance contract
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and, if so, under what conditions. If more than one finance source has offered
to acquire the finance contract, the Dealer typically will select the source
based on an analysis of the "buy rate," or the interest rate, discount fees,
finance contract amounts and other terms and conditions stipulated by the
financing source. The Company believes that its ability to process finance
contract applications and respond to Dealers quickly and efficiently increases
its chances of being selected by Dealers to acquire auto finance contracts as
long as the Company's rates are competitive. The Company currently acquires
finance contracts at a discount of 10% from Dealers. Upon acquiring a finance
contract, the Company issues a check to the Dealer, and instructs the servicer
to issue a "welcome" letter to the obligor, which advises the obligor of certain
payment procedures.
Auditing. The Company's quality control department seeks to minimize errors and
variances in underwriting procedures by internally auditing or "re-underwriting"
approximately 10% of all funded finance contracts. The quality control staff
performs each of the underwriting and auditing functions on such finance
contracts that were performed prior to the finance contracts being approved and
funded. Commonalities and variances in the application of underwriting criteria
and processes are then communicated to senior management and underwriting
personnel and used as a training tool.
Dealer Network
The Company has developed its Dealer base through a team of commissioned field
sales representatives employed by the Company. Although the sales
representatives have not worked for the Company for a substantial period of
time, they have an average of [5.5] years experience in the automobile business.
These sales representatives work under the supervision of a national sales
manager who has 12 years experience in the automobile business (including over
three years with the Company). The Company's sales representatives are assigned
to designated territories and are paid on a volume incentive basis with respect
to each finance contract acquired.
In addition to commissioned sales representatives, the Company has also engaged
three independent exclusive marketing brokers who earn flat fees per finance
contract acquired in their designated territory. All of the Company's business
generated in such territories is the result of introductions by the independent
marketing brokers. In the fiscal year ended June 30, 1997, approximately $136.7
million of finance contracts (approximately 23.1% of all finance contracts
acquired during such period), were acquired from Dealers in Florida and Alabama
and approximately $35.7 million of all finance contracts acquired in such period
(approximately 6.0%) were acquired from Dealers in Louisiana and Mississippi
introduced by such independent marketing brokers. In the fiscal year ended June
30, 1996, approximately $97.0 million of finance contracts and $300,000 of
leases, (approximately 21.5% and 68.8%, respectively, of all finance contracts
acquired and leases originated during such period), were acquired or originated
from Dealers in Florida and Alabama and approximately $37.6 million of all
finance contracts acquired in such period (approximately 8.3%) were acquired
from Dealers in Louisiana and Mississippi introduced by such independent
marketing brokers. In the fiscal year ended June 30, 1995, approximately $32.1
million, of finance contracts and leases (approximately 20.7%, of all finance
contracts acquired and leases originated during such period), were originated by
Dealers in Florida and approximately $25.4 million, of all finance contracts
acquired in the fiscal year ended June 30, 1995 (approximately 16.4%), were
originated by Dealers in Louisiana introduced by such independent marketing
brokers.
The Company continues to explore new marketing strategies in an effort to expand
and enhance its Dealer base and finance contract acquisition volume. The Company
offers three finance contract programs to Dealers: (i) its zero down-payment
program (which accounted for over 90% of the Company's finance contract
acquisitions in the fiscal years ended June 30, 1995, 1996, and 1997; (ii) a
military program; and (iii) a reduced income program (limited to an 85% advance
rate versus 100%). Recently, the Company implemented an extended warranty
program with approved warranty service contract carriers. The warranty
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program allows the cost of an extended warranty to be funded above the Company's
typical 100% of MSRP or Kelly Blue Book retail value (within certain limits). In
return for each extended warranty purchased, the Company receives a fee. Should
the extended warranty be cancelled or the finance contract not go to term, the
Company will receive a rebate of the unused premium financed.
The Company markets its programs solely to factory authorized new car dealers,
typically with used vehicle sales operations. The Company targets factory
authorized new car dealers for a number of reasons. The Company believes that
factory authorized new car dealers generally have higher quality inventory than
independent dealers and tend to attract customers with more desirable credit
performance characteristics. Management of the Company also believes that
factory authorized dealers are generally backed by greater capital levels as
compared to independent dealers and are generally subject to periodic audits by
their respective manufacturers.
The Company's field sales representatives identify and target Dealers that have
established, or are considering establishing, customer solicitation programs
designed to attract sub-prime credit consumers. Each field sales representative
typically is responsible for pursuing and maintaining relationships with [75] to
[125] Dealers. The Company's field sales representatives train the Dealer's
personnel in the Company's finance programs. This training is continuous since
dealerships generally experience a relatively high degree of personnel turnover.
The training provided by the Company is designed to assist the Dealer in
identifying consumers who will qualify for financing by the Company and
structuring transactions that meet the Company's requirements. Approved Dealers
enter into a non-exclusive written Dealer agreement with the Company (a "Dealer
Agreement"). The Dealer Agreements generally provide that finance contracts are
sold by the Dealer to the Company "without recourse" to the Dealer, except in
limited circumstances including, among others, that: (i) the financed vehicle is
not properly registered or titled showing the Company as first lienholder; (ii)
the full down payment specified in the contract, if any, was not received by the
Dealer; (iii) certain representations and warranties by the Dealer regarding the
finance contract, the financed vehicle, the finance contract process and manner
of sale are breached or untrue; or (iv) the Dealer has failed to comply with
applicable federal and state consumer laws. The Company currently acquires
finance contracts at a discount of 10% from Dealers.
The following table indicates, for the states in which the Company acquired
finance contracts in the fiscal years ended June 30, 1993, 1994, 1995, 1996 and
1997, the total number of factory-authorized Dealers in such states, the number
of Dealers from which the Company has acquired finance contracts and the finance
contract acquisition volume of the Company in dollars for such periods.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------------------------
June 30, 1993 June 30, 1994 June 30,1995
---------------------- ---------------------- ----------------------
(dollars in thousands)
Factory- Finance Finance Finance
Authorized Originating Contract Originating Contract Originating Contract
State Dealers(1) Dealers Volume Dealers Dealers Dealers Volume
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama ...... 370 3 $ 92 5 $ 689 2 $ 286
Arizona ...... 205 9 450 8 883 13 1,451
California ... 1,705 149 6,948 69 1,772 23 539
Colorado ..... 270 -- -- -- -- 2 47
Connecticut .. 340 -- -- -- -- 10 869
Florida ...... 935 -- -- 59 5,947 149 18,955
Georgia ...... 590 37 4,259 84 12,357 107 16,900
Illinois ..... 1,155 -- -- -- -- -- --
Indiana ...... 625 -- -- -- -- 28 1,994
Kansas ....... 335 -- -- -- -- -- --
Kentucky ..... 350 -- -- -- -- -- --
Louisiana .... 335 -- -- 4 91 67 25,402
Maryland ..... 590 -- -- 1 12 4 516
Michigan ..... -- -- -- -- -- -- --
Missouri ..... 555 -- -- 3 85 3 31
Mississippi .. 245 -- -- -- -- 3 226
Nevada ....... 90 6 127 2 20 16 1,457
New Jersey ... 700 7 130 57 4,267 66 4,576
New Mexico ... 135 2 32 -- -- 3 149
New York ..... 1,350 -- -- -- -- 45 3,250
North Carolina 700 1 21 8 5,227 51 28,928
Ohio ......... 1,070 -- -- -- -- 40 2,220
Pennsylvania . 1,410 -- -- 16 1,049 51 5,260
South Carolina 325 2 48 13 1,127 26 3,868
Tennessee .... 420 1 16 -- -- 14 1,223
Texas ........ 1,329 -- -- -- -- 47 6,181
Virginia ..... 580 1 22 2 -- 19 1,930
West Virginia 220 -- -- -- 212 21 5,699
Other ........ 560 1 36 -- -- 10 337
-------- -------- -------- -------- -------- -------- --------
17,494 219 $ 12,181 331 $ 33,738 820 $132,294
======== ======== ======== ======== ======== ======== ========
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
June 30, 1996 June 30, 1997
---------------------- -----------------------
(dollars in thousands)
Finance Finance
Originating Contract Originating Contract
State Dealers Volume Dealer Volume
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Alabama ...... 21 $ 3,609 118 $ 44,838
Arizona ...... 21 1,843 36 6,317
California ... 7 385 4 182
Colorado ..... 28 1,381 15 626
Connecticut .. 5 4,453 1 1,106
Florida ...... 291 93,472 334 91,812
Georgia ...... 164 64,933 227 86,245
Illinois ..... 58 2,839 49 4,513
Indiana ...... 44 5,694 48 7,552
Kansas ....... 27 2,444 36 11,987
Kentucky ..... 40 3,426 55 5,725
Louisiana .... 96 30,355 91 20,201
Maryland ..... 22 2,355 49 4,357
Michigan ..... -- -- 78 6,366
Missouri ..... 54 6,108 100 14,546
Mississippi .. 33 7,233 62 15,462
Nevada ....... 20 4,744 23 3,346
New Jersey ... 75 8,934 73 5,631
New Mexico ... 16 1,756 21 2,617
New York ..... 116 10,009 110 7,235
North Carolina 103 68,459 142 67,869
Ohio ......... 65 10,215 101 17,811
Pennsylvania . 101 13,252 121 13,360
South Carolina 55 9,301 94 14,348
Tennessee .... 62 10,161 103 22,263
Texas ........ 227 57,902 263 69,317
Virginia ..... 85 10,816 120 17,145
West Virginia 54 14,585 64 28,459
Other ........ 26 872 11 605
-------- -------- -------- --------
1,916 $451,536 2,549 $591,841
======== ======== ======== ========
</TABLE>
9
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------------
(1) Source: National Automobile Dealers Association (data as of January 1,
1996).
During the fiscal year ended June 30, 1997, no single dealer accounted for more
than 1.0% of the finance contracts acquired, and no group of Dealers under
Common control accounted for more than 2.3% of the finance contracts acquired
for the fiscal year ended June 30, 1997. During the fiscal year ended June 30,
1996, no single Dealer accounted for more than 1.5% of the finance contracts
acquired, and only one group of Dealers under common control accounted for
approximately 5.1% of the finance contracts acquired for the fiscal year ended
June 30, 1996. During the fiscal years ended June 30, 1994 and 1995, City
Chevrolet Automotive Company, in Charlotte, North Carolina, accounted for
approximately 12.6% and 4.5%, respectively, of the finance contracts acquired
and leases originated by the Company during such periods, and Dealers in the
Hendrick Automotive Group, including City Chevrolet Automotive Company,
accounted for approximately 16.5% and 12.5%, respectively, of the finance
contracts and leases acquired or originated during those periods. No other
Dealer accounted for more than 5.0% and 3.0% of the finance contracts acquired
in the fiscal years ended June 30, 1994 and 1995, respectively.
Warehouse Credit Facilities
The Company currently operates primarily under a $75.0 million warehouse
facility for financing new acquisitions of automobile finance contract
receivables which is provided by III Finance Ltd. In addition to the above
facility, the Company's leases are financed under a warehouse facility that no
loner provides for new financing since the Company has not originated leases
since its September 1995 quarter. At June 30, 1997, the Company had $65.1
million available under its finance contract warehouse facility and had $7.6
million outstanding under its lease facility. Under the terms of these
facilities, the loss of certain executive officers of the Company in their
present capacities with the Company and /or certain of its subsidiaries would
constitute an event of default, provided the loss was not for cause as defined
in their respective employment agreements. To the extent the Company would be
unable to secure alternative sources of funding, the loss of these facilities
could have an adverse impact on the Company's finance contract acquisition
activities.
Securitization Program
The periodic securitization of finance contracts is an integral part of the
Company's automobile finance program. Securitizations enable the Company to
reliquify and redeploy its capital resources and warehouse credit facilities for
the purchase of additional finance contracts. Through June 30, 1997, the Company
completed twenty-one privately placed automobile finance contract
securitizations of approximately $1.03 billion of automobile finance contracts.
Nine of such securitizations were rated A+ by Duff & Phelps. In March 1997, the
Company secured a $1.0 billion purchase facility (the "Purchase Facility") which
was one of the components of a multi-structured finance facility (the
"Facility"). The Purchase Facility contains a commitment for the purchase of
$350.0 million of subordinated Class B trust certificates which will support the
issuance by the Company of $650.0 million of senior Class A trust certificates.
The Purchase Facility is supported by a $75.0 million warehouse line. As of June
30, 1997, the Company sold $252.9 million of Class
10
<PAGE>
A trust certificates and $136.2 of Class B trust certificates for an aggregate
amount of $389.0 million under the Purchase Facility. In addition, in December
1995, the Company entered into a commitment to sell $175 million of sub-prime
automobile finance contracts to be resold as asset-backed securities, which was
rated AAA by Standard & Poor's and Aaa by Moody's. As of June 30, 1997, the
Company sold approximately $148.4 million of automobile finance contracts into
this facility. In October 1996, it was determined that the finance contracts
underlying the securities were not performing in accordance with levels required
under Owners Trust Agreement. This event terminated the Company's remaining
commitment of $26.6 million. In May 1996, the Company obtained a firm commitment
from Greenwich Capital to purchase and securitize up to $533.0 million of the
Company's finance contract acquisitions until the commitment is filled, subject
to customary conditions. Three securitizations aggregating $307.0 million which
were rated A+ by Duff & Phelps were completed as of June 30, 1997, pursuant to
this commitment.
In its securitization transactions, the Company sells pools of finance contracts
to a special purpose subsidiary, which then sells the receivables to a trust in
exchange for certificates ("Certificates") representing either a 100% undivided
interest in, or secured obligations of, the trust. The Certificates are then
sold to investors who receive principal and a stated pass-through rate of
interest on the Certificate amount outstanding. The Company may also retain or
sell an indirect interest in the transferred receivables that is subordinate to
the interest of the Certificate holders. The retained interest entitles the
holder to receive the residual cash flows from the trust after payment to
investors, absorption of losses, if any, that arise in respect of the
securitized finance contracts and payment of the other expenses and obligations
of the trust. The Company is continually exploring other structures of
securitization which can meet the changing needs of the financial and capital
markets.
Upon each securitization, the Company recognizes the sale of finance contracts
and records a gain or loss in an amount which takes into account the amounts
expected to be received as a result of its retained interest, net of acquisition
discounts and other deferred origination costs. The Company values each retained
interest by calculating the net present value of its expected residual cash
distributions from the trust. The calculation of the gain or loss and of the
retained interest arising from the securitizations embody prepayment,
delinquency, default, recovery and interest rate assumptions that the Company
believes are reasonable and consistent with assumptions that other market
participants would use for similar financial instruments, and are discounted
assuming an interest rate that the Company believes a third party purchaser of
such financial instrument would demand. If actual experience differs from these
assumptions, additional gains or losses to the Company would result. During the
fiscal year ended June 30, 1997, the Company's actual experience significantly
differed from its original assumptions utilized in recognizing the initial gain
on securitization transactions. These differences resulted in additional losses
of approximately [$31.0] million in the fiscal year ended June 30, 1997. The
Company also recognized losses of approximately $7.5 million in the year ended
June 30, 1996. At June 30, 1997, the Company held retained interests from the
securitization of receivables which were carried at an aggregate of value
[$70.2] million which are pledged to secure borrowings of [$29.8] million.
If the Company were unable to securitize finance contracts in a financial
reporting period, the Company would incur a significant decline in total
revenues and net income or report a loss for such period. If the Company were
unable to securitize its receivables and did not have sufficient credit
available, either under its warehouse credit facilities or from other sources,
the Company would have to sell portions of its portfolio directly to investors
or curtail its finance contract acquisition activities.
Servicing
In January 1997, the Company's wholly owned subsidiary, SST, began its
operations and hence servicing the Company's finance contracts acquired. While
SST was in its start up phase , the Company phased in its servicing of finance
contracts by SST from January 1997 through March 1997. In may of 1997, the
Company,
11
<PAGE>
transferred the servicing rights of an additional [$653.0] million of finance
contracts to SST. SST is now servicing ____% of the Company's total remaining
finance contracts acquired. The balance of the Company's finance contracts and
lease portfolio is serviced by its initial servicer, American Lenders
Facilities, Inc. (a wholly owned subsidiary of CIGNA Corporation ("ALFI")). The
Company paid a fee of $5.00 per contract to transfer the servicing to SST. SST
operates out of a renovated [ ______ ] square foot building in St. Joseph,
Missouri.
The servicer accounts for and posts all payments received and provides certain
financial reporting with respect to the Company's automobile finance
receivables. The servicer's computer system provides its personnel with daily
access to all information contained in the customer's contract and application,
including the amount of the contract, maturity, interest rate, vehicle and
reference information and payment history. Furthermore, the Company is provided
with daily access to the servicer's data through downloading to the Company's
PRIM computer system, described below.
In April 1996, the Company renewed its sub-servicing agreement with its
third-party servicer, providing for the transfer of specific collection
functions to the Company. Through this arrangement, the Company assumed
responsibility for all consumer contact with respect to all leases and finance
contracts acquired that were included in the Company's December 1994
securitization transaction and all finance contracts acquired thereafter. In
addition, the Company assumed responsibility for liquidation activities on its
entire finance contract purchase program at such time. The Company receives a
fee from the third-party servicer for performing these functions. Due to the
transfer of servicing to SST, the Company is currently the sub-servicer of
approximately [$ _____ ] million or _______ %, including its lease portfolio if
ts outstanding automobile finance receivables. The Company, as sub-servicer,
monitors the payment of the receivables, investigates delinquencies,
communicates with the consumer to obtain timely payments, when necessary
(through sub-contractors) repossesses and disposes of the financed vehicle and
generally polices the receivable and its related collateral. If payment is not
received within one day of its due date, the Company takes action by either
mailing a written notice to the consumer or contacting the consumer by
telephone. It is the Company's policy generally to work with the consumer to
permit the consumer to keep the vehicle and continue payments. The Company
believes that this policy is in the best interest of the Company, the
participating Dealer and the consumer, as it builds goodwill and long term
customer relationships and increases the possibility of the ongoing
collectibility of the amount due. If a consumer misses a second monthly payment
and is delinquent in his or her payment by more than 35 days and the Company has
satisfactory reason to believe the consumer will not pay, the Company will
initiate the necessary steps to repossess the vehicle. If the value received as
a result of repossession and subsequent sale is materially less than the
remaining balance on the receivable, the Company will seek to hold the consumer
liable for the deficiency. The Company utilizes third party collection agencies
to pursue such deficiency balances.
Delinquency Control And Collection Strategy
The Company (including SST) and, with respect to a limited number of accounts,
ALFI, reviews any account that reaches 31 days of delinquency to assess the
collection efforts to date and to refine, if appropriate, the collection
strategy. The Company does not allow finance contracts to be re-written but
allows finance contracts to be extended in certain limited circumstances. The
Servicer and the Company generally will design a collection strategy that
includes a specific deadline within which the obligation must be collected.
Accounts that have not been collected during such period are again reviewed,
and, unless there are specific circumstances which warrant further collection
efforts, the account is assigned to independent bonded agencies for
repossession. Repossessed vehicles are generally resold by the Servicer or the
Company in its capacity as sub-servicer through wholesale auctions which are
attended principally by Dealers. Such auctions typically result in an average
recovery of [57.4%] of the outstanding finance contract balance or approximately
[ ____ %] of the Kelley Blue Book wholesale value.
12
<PAGE>
For financial reporting purposes, the Company recognizes losses based on the
aging profile of delinquent finance contracts. For purposes of reporting
charge-off ratios, the Company reports both gross and net losses when all
potential recoveries on a defaulted receivable have been realized. For the
fiscal years ended June 30, 1995, 1996, and 1997, the Company's net loss ratio,
based on the average outstanding finance contracts, including those finance
contracts sold in securitization transactions, was 0.8%, 1.2% and 4.7%,
respectively. Net losses reflect all recoveries including proceeds for the sale
of the repossessed vehicles, risk default and other insurance proceeds, net of
related repossession and disposition costs. As of June 30, 1997, the Company had
2,212 vehicles in repossession inventory with an outstanding finance contract
balance of $25.5 million (3.5% of the average outstanding finance contract
balance) and 4,879 finance contracts with an outstanding finance contract
balance of $33.3 million (4.5% of the average outstanding finance contract
balance) which were liquidated at auction and awaiting other recoveries. In
accordance with the Company's reporting policy, the losses relating to these
finance contracts will be reflected in the charge off ratios reported in future
reporting periods.
A majority of the Company's portfolio of finance contracts are insured for
credit default (see discussion below) ("RDI"). The Company, since its inception,
has insured its portfolio under this type of insurance; however, the structure
of the policy has differed over this time frame. Its initial policy provided for
a cash reserve deposit thereby decreasing the Company's net loss experience.
Over time, in an effort to preserve cash, the Company structured its RDI policy
to incorporate a self insured retention ("SIR"). This structure remains in force
today. The SIR results in increased net losses due to the Company's
responsibility for the first six to ten percent of losses, depending upon the
policy in which the respective contract is insured under. As a result, the
Company has reported an increase in its net loss experience. Upon receipt of all
anticipated recoveries, the Company charges off any remaining balance on a
receivable-by-receivable review.
Management Information Systems
The Company believes that high levels of automation are essential both for its
efficient operations and to maintain its competitive position. The Company has
spent in excess of $4.0 million developing and maintaining the AutoMate,
LeaseMate and PRIM (Product Reporting and Information Management) computer
systems and databases and its servicing platform at SST. AutoMate is the
acquisition software for finance contracts and LeaseMate is the origination
software for leases. They are on-line, real-time systems employing advanced
database management techniques. In addition to accumulating all relevant
borrower and asset information, AutoMate and LeaseMate automatically request and
receive credit reports from credit bureaus, create and merge all Dealer,
borrower or lessee and internal documentation, automatically fax the appropriate
documents to their destinations and prompt underwriting personnel through
verification phone calls. An electronic copy of all documentation is kept
on-line for an extended period of time and off-line indefinetely. Prior to
funding, AutoMate and LeaseMate perform over 100 data integrity, underwriting
guideline and numerical accuracy checks. [Need expansion for SST Servicing
Software from Matthew Burns]
Insurance
Each finance contract requires the borrower to obtain comprehensive and
collision insurance with respect to the related financed vehicle with the
Company named as a loss payee. The Company relies on a written representation
from the selling Dealer and independently verifies that a borrower in fact has
such insurance in effect when it purchases contracts. Each finance contract
acquired by the Company is covered from the time of purchase by the VSI Policy.
The VSI Policy has been issued to the Company by Guaranty National Insurance
("Guaranty National").
Physical Damage and Loss Coverage. The Company initially relies on the
requirement, set in its underwriting criteria, that each consumer maintain
adequate levels of physical damage loss coverage on the respective financed
vehicles. The servicer, either ALFI or SST, tracks the physical damage insurance
of
13
<PAGE>
consumers, and contacts consumers in the event of a lapse in coverage or
inadequate documentation. In addition as of [ ______ ] 1997, the Company's VSI
carrier implemented a insurance tracking system in order to ascertain that the
consumer is maintaining the appropriate insurance coverage on their vehicles. If
the consumer has lapsed their insurance, a policy is offered to the consumer at
$ ____ . Moreover, the Servicer is obligated, subject to certain conditions and
exclusions, to assist the processing of claims under the VSI Policy. Guaranty
National will insure each financed vehicle securing a contract against: (i) all
risk of physical loss or damage from any external cause to financed vehicles
which the Company holds as collateral; (ii) any direct loss which the Company
may sustain by unintentionally failing to record or file the instrument
evidencing each contract with the proper public officer or public office, or by
failing to cause the proper public officer or public office to show the
Company's encumbrance thereon, if such instrument is a certificate of title;
(iii) any direct loss sustained during the term of the VSI Policy by reason of
the inability of the Company to locate the consumer or the related financed
vehicle, or by reason of confiscation of the financed vehicle by a public
officer or public office; and (iv) all risk of physical loss or damage from any
external cause to a repossessed financed vehicle for a period of 60 days while
such financed vehicle is (subject to certain exceptions) held by or being
repossessed by the Company.
The physical damage provisions of the VSI Policy generally provide coverage for
losses sustained on the value of the financed vehicle securing a finance
contract, but in no event is the coverage to exceed: (i) the cost to repair or
replace the financed vehicle with material of like kind and quality; (ii) the
actual cash value of the financed vehicle at the date of loss, less its salvage
value; (iii) the unpaid balance of the contract; (iv) $50,000 per financed
vehicle; or (v) the lesser of the amounts due the Company under clauses (i)
through (iv) above, less any amounts due under all other valid insurance on the
damaged financed vehicle less its salvage value. No assurance can be given that
the insurance will cover the amount financed with respect to a financed vehicle.
There is no aggregate limitation or other form of cap on the number of claims
under the VSI Policy. Coverage on a financed vehicle is for the term of the
related contract and is noncancellable. The VSI Policy requires that, prior to
filing a claim, a reasonable attempt be made to repossess the financed vehicle
and, in the case of claims on skip losses, every professional effort be made to
locate the financed vehicle and the related borrower.
Credit Default Insurance. In addition to physical damage and loss coverage, the
Company obtains credit default insurance policies for certain receivables it
acquires. Generally, these policies are obtained for each securitized pool of
receivables and as a result, benefit that pool's trustee and certificate
holders. The insurance provides indemnification for certain losses incurred due
to a deficiency balance following the repossession and resale of financed
vehicles securing defaulted finance contracts eligible for coverage. Coverage
under these credit default policies is strictly conditioned upon the Company's
maintaining and adhering to the credit underwriting criteria set forth in each
policy. Under these policies, losses on each eligible contract are calculated in
an amount equal to the Net Payoff Balance (as defined below) less the sum of (i)
the Actual Cash Value (as defined below) of the financed vehicle plus (ii) the
total amount recoverable from all other applicable insurance, including refunds
from cancelable add-on products. The maximum coverage under these policies is
$15,000 per contract.
From the time it commenced purchasing finance contracts until August 31, 1995,
the Company relied upon a series of credit default insurance policies purchased
through Agricultural Excess and Surplus Insurance Company ("AESIC") which were
guaranteed by AESIC's parent, Great American Insurance Company. Each of these
policies required that Aegis make a deposit of certain moneys to segregated
accounts from which losses incurred under a policy would be paid. Once the funds
in an account have been depleted by
14
<PAGE>
losses incurred under a policy, AESIC would directly reimburse the insured.
Since August 1995, the Company has relied upon a series of credit default
insurance policies purchased through The Connecticut Indemnity Company
("Connecticut Indemnity" ) or Empire Fire and Marine [a subsidiary of the
Zurich] ("Empire"). Unlike the insurance provided by AESIC, these policies do
not require the Company to deposit moneys to segregated accounts to pay losses.
Instead, each of the Connecticut Indemnity policies provide that the Company
bear losses until such loss exceeds 8% or 10% of the aggregate amount insured
under that policy. Connecticut Indemnity or Empire is obligated to pay all
losses in excess of this amount to the insured.
Credit default insurance was purchased for each of the finance contracts sold to
a securitization trust with the exception of Aegis Auto Receivables Trust 1995-3
for which credit default insurance was purchased for only $31.8 million of the
$60 million of finance contracts sold to that trust. Furthermore, none of the
$148.4 million finance contracts contributed to Aegis Auto Owners Trust 1995
have the benefit of credit default insurance. The Aegis Auto Owners Trust 1995
did not require this type of insurance since the principal balance owed to the
certificate holders is insured by MBIA.
"Actual Cash Value," for the purposes of credit default insurance, means gross
proceeds from the sale of the repossessed automobile securing the finance
contract. Under certain circumstances, this amount could be modified to reflect
the greater of (i) gross proceeds from sale and (ii) the wholesale market value
at the time of the loss as determined by an automobile guide provided by the
insurer applicable to the region in which the financed vehicle is sold.
"Net Payoff Balance," for the purposes of credit default insurance, means the
outstanding principal balance as of the default date plus late fees and
corresponding interest no more than 90 days after the date of default. In no
event shall Net Payoff Balance include non-approved fees, taxes, penalties or
assessments included in the original instrument, or repossession, disposition,
collection, remarketing expenses and fees or taxes incurred.
Regulation
The Company acts as a sales finance company in [38 states] and is licensed
and/or registered in each state where it is required to be licensed. The Company
is subject to varying degrees of regulation and periodic examination in such
states. In addition, numerous federal and state consumer protection laws impose
requirements upon the origination and collection of consumer receivables. The
laws of some states impose finance charge ceilings and other restrictions on
consumer transactions and may require certain contract disclosures in addition
to those required under federal law. These requirements impose specific
statutory liabilities upon creditors who fail to comply with their provisions.
In addition, certain of these laws make an assignee of such finance contract
liable to the obligor thereon for any violations by the assignor. The Company
verifies the accuracy of disclosure for each receivable that it purchases;
however, the Company, as an assignee of finance contracts, may be unable to
enforce some of its finance contracts or may be subject to liability to the
obligors under some of its finance contracts if such finance contracts do not
comply with such laws.
The Company is subject to numerous federal laws, including the Truth in Lending
Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act and the
rules and regulations promulgated thereunder, and certain rules of the Federal
Trade Commission. These laws require the Company to provide certain disclosures
to applicants, prohibit misleading advertising and protect against
discriminatory financing or unfair credit practices. The Truth in Lending Act
and Regulation Z promulgated thereunder require disclosure of, among other
things, the terms of repayment, the amount financed, the total finance charge
and the annual
15
<PAGE>
percentage rate charged on each automobile finance contract. The Equal Credit
Opportunity Act prohibits creditors from discriminating against finance contract
applicants (including finance contract obligors) on the basis of race, color,
religion, national origin, sex, age or marital status or on the basis that
income is derived from public assistance. Under the Equal Credit Opportunity Act
and Regulation B promulgated thereunder, creditors are required to make certain
disclosures regarding consumer rights and advise consumers whose credit
applications are not approved of the reasons for the rejection. The Fair Credit
Reporting Act requires the Company to provide certain information to consumers
whose credit applications are not approved on the basis of a report obtained
from a consumer reporting agency. The rules of the Federal Trade Commission
limit the types of property a creditor may accept as collateral to secure a
consumer finance contract and its holder in due course rules provide for the
preservation of the consumer's claims and defenses when a consumer obligation is
assigned to a subject holder. With respect to used vehicles specifically, the
Federal Trade Commission's Rule on Sale of Used Vehicles requires that all
sellers of used vehicles prepare, complete and display a Buyer's Guide which
explains any applicable warranty coverage for such vehicles. In addition to
limiting the types of property which may be taken as collateral, the Credit
Practices Rule of the Federal Trade Commission imposes additional restrictions
on finance contract provisions and credit practices.
Certain of the states in which the Company operates prohibit Dealers from
charging a finance charge in excess of statutory maximum rates. Finance charges
include interest and any cash sale differential. The Company's agreements and
other communications with Dealers stress the importance of Dealers' compliance
with all applicable laws. The Company's contractual agreements with Dealers
obligate Dealers to comply with all applicable laws, and provide that each
Dealer must indemnify the Company for any violation of law relating to a finance
contract acquired from the Dealer. Every obligor (as part of the standard
financing documentation) currently acknowledges by signing the retail
installment contract that the obligor is aware, and approves, of the Dealer's
intended sale of the finance contract at a discount to the Company. To the best
of the Company's knowledge, the obligor was not quoted a lower price for a cash
purchase. Further, it is the Company's policy to terminate its relationship with
any Dealer where the Company becomes aware of such incidents perpetrated either
with the knowledge or tacit assent of the Dealer or by more than one salesperson
at a particular Dealer. [As of June 30, 1997, no Dealer had been so terminated.]
[To the knowledge of the Company, no action has been brought or is currently
threatened or contemplated against the Company alleging that Dealers regularly
charge cash sale differentials.] Nevertheless, if it were determined that a
material number of finance contracts acquired by the Company involved violations
by Dealers of applicable laws and regulations, the Company's financial position
could be materially adversely affected and a widespread pattern of violation by
Dealers could have a material adverse effect on the Company's future prospects.
In the event of default by an obligor on a finance contract, the Company is
entitled to exercise the remedies of secured party under the Uniform Commercial
Code ("UCC"). The UCC remedies of a secured party include the right to
repossession by self-help means, unless such means would constitute a breach of
the peace. Unless the obligor voluntarily surrenders a vehicle, self-help
repossession by an independent repossession specialist engaged by the Company is
usually employed by the Company when an obligor defaults. Self-help repossession
is accomplished by retaking possession of the vehicle. If a breach of the peace
is likely to occur, or if applicable state law so requires, the Company must
obtain a court order from the appropriate state court and repossess the vehicle
in accordance with that order. None of the states in which the Company presently
does business, except for Louisiana, has any law that would require the Company,
in the absence of a probable breach of the peace, to obtain a court order before
it attempts to repossess a vehicle.
In most jurisdictions, the UCC and other state laws require the secured party to
provide the obligor with reasonable notice of the date, time, and place of any
public sale or the date after which any private sale of the collateral may be
held. Unless the obligor waives his or her rights after default, the obligor in
most circumstances would have the right to redeem the collateral prior to actual
sale by paying the secured party
16
<PAGE>
all unpaid installments of the receivable (less any required discount for
prepayment) plus reasonable expenses for repossessing, holding, and preparing
the collateral for disposition and arranging for its sale, plus in some
jurisdictions, reasonable attorneys' fees, or, in some states, by payment of
past-due installments. Repossessed vehicles are generally resold by the Company
through wholesale auctions which are attended principally by dealers.
The Company, through one of its operating subsidiaries, is licensed by the
Federal Housing Administration ("FHA") of the U.S. Department of Housing and
Urban Development as an issuer of securities collateralized by HUD Title I
Loans. As such, the Company is subject to certain regulations, including
requirements for the maintenance of certain minimum levels of capitalization,
and is subject to periodic examination by the FHA.
The Company believes it is in compliance with all material regulations
applicable to it.
Employees
As of August 31, 1997, the Company and its subsidiaries employed 550 persons,
including five in senior management and 280 in finance contract acquisition and
administrative support and 265 persons in finance contract servicing, including
2 in senior management. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that its relationship with
its employees is satisfactory.
Item 2: Properties.
Properties and Facilities
The Company's headquarters are located in approximately 30,000 square feet of
leased space at 525 Washington Boulevard, Jersey City, New Jersey. The lease for
such facility expires in August 2005. The Company's headquarters contain the
Company's executive offices as well as those related to automobile finance
contract acquisitions. The Company also has leases for office space in Irvine,
California (expiring April 1999); Marietta, Georgia (expiring June 2005); and
Merriam, Kansas (expiring December 1999) aggregating approximately [50,800]
square feet. Such facilities are used for finance contract acquisitions, systems
technology, sub-servicing and sales support. The Company, through its subsidiary
SST, owns a _____ square foot building in St. Joseph, Missouri. Such facility is
used for its servicing operations. The building was purchased for $_______ and
has a outstanding mortgage of $_______ million.
Item 3: Legal Proceedings.
Litigation
[On April 28, 1996, Star Holdings, Inc. d/b/a The Sloane Organization filed a
complaint against the Company in the United States District Court for the
Southern District of New York, captioned Star Holdings, Inc. d/b/a The Sloane
Organization vs. Aegis Consumer Funding Group Inc., alleging that it was
entitled to certain fees under a finder's agreement entered into with the
Company on January 2, 1996. The amounts alleged to be due were in connection
with the Company's private placement of $92 million of asset-backed securities
through Greenwich Capital Markets, Inc. ("Greenwich Capital") in March 1996. On
July 3, 1996, Star amended its complaint (as so amended, the "Amended
Complaint") to claim fees under the finder's agreement and under the same common
law principles cited in the original complaint, as well as additional theories
asserted in the Amended Complaint in connection with the series of financing
arrangements entered into by the Company and Greenwich Capital and in connection
with a potential sale of common stock of the Company beneficially owned by
Patrick Bennett to a purchaser allegedly introduced to Mr. Bennett by Star. The
Amended
17
<PAGE>
Complaint seeks damages of at least $15.8 million, punitive damages of at least
$525,000, reimbursement of expenses for $20,000, declaratory relief, costs,
administrative fees and such other relief as the court deems appropriate. On
July 15, 1996 the Plaintiff filed a motion (the "Attachment Motion") to attach
the Company's assets based on allegations that the Company is dissipating its
assets. The Company has filed responsive papers to the Attachment Motion.
Additionally, the Company has filed a Motion to Dismiss most of the counts in
the Amended Complaint. Star has filed a response to the Company's Motion seeking
summary judgment on the Amended Complaint. The Company believes it has
meritorious defenses to the allegations in the Complaint, the Amended Complaint,
the Attachment Motion and the Motion for Summary Judgment and intends to defend
the matter vigorously.]
[On May 2, 1996, a purported class action lawsuit on behalf of Josephine
Thornton and other individuals, captioned Josephine C. Thornton, et al., on
behalf of themselves and all others similarly situated vs. Bennett Finance Inc.
et al., was filed in the New York Supreme Court for New York County against
Bennett Finance Inc. and various other persons and entities alleged to have been
affiliated with or employed by The Bennett Funding Group, Inc. ("Bennett
Funding") and Bennett Management and Development Corp. ("Bennett Management").
Other entities, including the Company, were named as defendants because they
were allegedly alter egos and agents for Patrick Bennett, Michael Bennett, their
parents and certain other named individual defendants. It is further alleged
that, as such alter egos and agents, the corporate defendants, including the
Company, engaged in common law fraud, negligent misrepresentations, deceptive
acts or practices, sale of unregistered securities and breaches of fiduciary
duty in connection with the financing activities of Bennett Funding and Bennett
Management. Plaintiffs in this action seek an accounting, unspecified
compensatory and punitive damages, injunctive relief, costs, attorneys' fees and
such other relief as the court deems appropriate. The Company believes that the
allegations as set forth in the complaint are without merit and intends to
defend the matter vigorously.]
The Company is also subject to various legal proceedings and claims that arise
in the ordinary course of business. The Company believes that the amount of any
ultimate liability with respect to these actions, including the actions
described above, in the aggregate or individually will not materially affect the
results of operations, cash flows or financial position of the Company.
Item 4: Submission of Matters to a Vote of Security Holders.
There were no submissions of matters to a vote of security holders.
PART II
Item 5: Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is quoted on the Nasdaq National Market ("NNM") under
the symbol "ACAR". The following table sets forth, for the periods indicated,
the high and low per share sales prices for the Common Stock as reported on the
NNM.
Price of Common Stock
---------------------
High Low
---- ---
Fiscal year ended June 30, 1995:
Quarter ended June 30, 1995 ( from April 6, 1995) $8 1/4 $7 1/4
Fiscal year ended June 30, 1996:
Quarter ended September 30, 1995 $8 3/8 $7
Quarter ended December 31, 1995 8 3/4 7
Quarter ended March 31, 1996 7 1/2 5 5/8
Quarter ended June 30, 1996 6 5/8 5
Fiscal year ended June 30, 1997:
Quarter ended September 30, 1996 $5 3/4 $3 7/8
Quarter ended December 31, 1996 5 1/2 2 3/8
Quarter ended March 31, 1997 3 1/2 31/32
Quarter ended June 30, 1997 1 11/32 5/8
18
<PAGE>
As of August 29, 1997, there were approximately[ 3,000] holders of record of the
Company's Common Stock.
The Company's capital stock consists of 30,000,000 authorized shares of common
stock, par value $.01 per share, of which, as of August 29, 1997, 17,677,217
shares were issued and outstanding; and 2,000,000 authorized shares of preferred
stock, par value $.10 per share, of which, as of August 29, 1997, 1,100 shares
were authorized as Series C with 920 shares issued and 306 shares were
outstanding and 21, 350 shares were authorized as Series D with no shares issued
not outstanding.
The Company has not paid any dividends on its common stock. The payment of
dividends, if any, in the future is within the discretion of the Board of
Directors and will depend on the Company's earnings, its capital requirements
and financial condition. It is the current intention of the Board of Directors
to retain all earnings, if any, for use in the Company's business operations,
and accordingly, the Board of Directors does not expect to declare or pay any
dividends in the foreseeable future.
The transfer agent and registrar for the Company's Common Stock is FCTC Transfer
Services, 111 Wood Avenue South, Suite 206, Iselin, NJ 08830.
19
<PAGE>
Item 6: Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Auto Finance Revenues
Gains (losses) from securitization transactions $ -- $ 2,876(1) $ 9,523 $ 32,429 ($ 9,439)
Interest Income -- 1,321 6,710 13,406 26,259
Fees and commissions 438 2,294 259 274 138
Other income -- -- 230 113 1,141
--------- --------- --------- --------- ---------
Total auto business revenues 438 6,491 16,722 46,222 18,099
Other business revenues(2) 5,926 4,686 1,088 106 --
--------- --------- --------- --------- ---------
Total revenues 6,364 11,177 17,810 46,328 18,099
--------- --------- --------- --------- ---------
Operating Expenses
Salaries and other employee costs 2,701 3,568 3,897 8,266 14,325
Interest expense -- 968 4,794 10,091 16,486
Provision for credit losses -- 287 941 3,505 9,427
Other operating expenses 3,016 3,599 4,511 6,898 12,790
--------- --------- --------- --------- ---------
Total operating expenses 5,717 8,422 14,143 28,760 53,028
--------- --------- --------- --------- ---------
Charge for release of Escrowed Shares (3) -- -- 879 807 --
--------- --------- --------- --------- ---------
Operating income (loss) 647 2,755 3,042 16,761 (34,929)
--------- --------- --------- --------- ---------
Provision for (recovery of) income taxes 334 1,352 1,768 7,472 (8,427)
--------- --------- --------- --------- ---------
Net income (loss) $ 313 $ 1,403 $ 1,274 $ 9,289 ($ 26,502)
========= ========= ========= ========= =========
Net income (loss) available for common stockholders $ 313 $ 1,178 $ 1,079 $ 9,018 ($ 26,694)
========= ========= ========= ========= =========
Portfolio Data:
Number of finance contracts acquired 1,148 2,964 10,895 36,739 47,722
Amount of finance contracts acquired $ 12,181 $ 33,738 $ 132,294 $ 451,536 $ 591,841
Weighted average size of finance contracts acquired $ 10.6 $ 11.4 $ 12.1 $ 12.3 $ 12.4
Weighted average interest rate of finance contracts
acquired 20.6% 20.1% 20.2% 20.1% 20.4%
Finance contract portfolio securitized $ 4,289 $ 26,043 $ 119,251 $ 432,410 $ 567,181
Repossession Inventory:
Number of vehicles 9 30 78 698 2,212
Defaulted principal balance $ 99 $ 322 $ 840 $ 7,861 $ 25,500
Finance Contracts liquidated awaiting other recoveries:
Number of vehicles 11 25 30 1,552 4,879
Defaulted principal balance $ 53 $ 124 $ 122 $ 9,212 $ 33,348
Gross charge-off ratio(4)(5) 0.4% 2.1% 3.4% 2.4% 6.7%
Net charge-off ratio(4)(6) N/M 0.2% 0.8% 1.2% 4.7%
Number of leases originated(7) -- 92 1,914 25 --
Amount of leases originated(7) $ -- $ 1,571 $ 29,025 $ 436 $ --
Weighted average interest rate of leases
originated(7) N/A 15.8% 16.6% 17.1% --
Operating Data:
Finance contract portfolio outstanding(8) $ 11,156 $ 38,844 $ 146,557 $ 500,694 $ 813,055
Delinquency (>30 days) ratio(9) 3.8% 0.7% 6.5% 9.0% 12.0%
Loans in repossession or bankruptcy(10) 1.9% 2.7% 2.3% 4.2% 8.5%
--------- --------- --------- --------- ---------
Total delinquencies 5.7% 3.4% 8.8% 13.2% 20.5%
========= ========= ========= ========= =========
Number of states N/M 14 25 32 31
Number of Dealers N/M 375 1,200 2,900 4,200
Number of sales representatives N/M 8 24 49 38
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 495 $ 981 $ 5,971 $ 3,091 $ 4,485
Automobile finance receivables, net -- 15,788 39,784 41,058 33,572
Retained interests in securitized receivables 1,243 4,434 23,985 70,243 51,330
Total assets 4,442 23,527 84,737 121,452 101,799
Warehouse credit facilities -- 15,260 48,162 37,154 17,407
Notes payable -- -- 12,956 29,897 38,409
Subordinated debentures -- -- -- -- 24,032
Stockholders' equity 2,677 4,083 15,697 33,991 7,423
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -----------
(1) Includes approximately $678,000 in gains realized from related parties in
connection with securitization transactions.
(2) Other business revenues represents revenues from the Company's
non-automobile finance related activities.
(3) Represents a charge for release of 113,386 shares in 1995 and 150,118
shares in 1996 of Common Stock placed in escrow by the executive officers
of the Company in connection with the Company's initial public offering of
Common Stock.
(4) The Company records both gross and net losses when all potential recoveries
on a defaulted finance contract have been realized.
(5) The gross charge-off ratio is calculated as losses after the proceeds from
repossessed vehicle sales, service contract rebates, consumer insurance and
VSI insurance; net of repossession and liquidation costs, as a percentage
of average outstanding principal balance of the finance contract portfolio
outstanding as of each period end.
(6) The net charge-off ratio equals the aggregate balance of finance contracts
liquidated (including those previously sold in securitized transactions)
plus repossession and liquidation expenses, less all recoveries from the
sale of the collateral, risk default and other insurance proceeds or
otherwise, as a percentage of average outstanding principal balance of the
finance contract portfolio as of each period end.
(7) The Company ceased funding leases in the first quarter of its 1996 fiscal
year.
(8) Principal balance of all finance contracts acquired, including those
previously sold in securitized transactions and excluding those which are
in repossession and no longer eligible for reinstatement as of each period
end.
(9) Percentage based on outstanding principal balance.
(10) Includes finance contracts in bankruptcy, authorized for repossession and
in repossession and still eligible for reinstatement.
N/M not meaningful.
QUARTERLY FINANCIAL DATA:
Summarized financial data is as follows (dollars in thousands, except for per
share amounts):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------------
Sept. 30, Dec. 31, March 31, June 30 Sept. 30, Dec. 31, March 31, June 30,
1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 9,158 $ 9,405 $13,064 $ 14,700 $ 13,689 ($22,532) $ 15,607 $ 11,336
-------- -------- ------- -------- -------- -------- -------- --------
Interest expense 2,124 2,459 2,723 2,784 3,014 4,214 6,447 2,812
Other expenses 3,386 3,720 5,824 6,547 5,361 10,759 9,926 10,497
-------- -------- ------- -------- -------- -------- -------- --------
Total expenses 5,511 6,179 8,547 9,331 8,374 14,973 16,372 13,309
-------- -------- ------- -------- -------- -------- -------- --------
Net income (loss) before income
taxes (benefit) 3,647 3,227 4,517 5,369 5,315 (37,505) (765) (1,973)
Provision for income taxes 1,641 1,384 1,988 2,460 2,179 (10,606) -- --
-------- -------- ------- -------- -------- -------- -------- --------
Net income (loss) $ 2,006 $ 1,844 $ 2,529 $ 2,909 $ 3,136 ($26,899) ($ 765) $ 1,973
======== ======== ======= ======== ======== ======== ======== ========
Net income (loss) available to shareholders $ 2,006 $ 1,844 $ 2,529 $ 2,768 $ 3,136 ($26,958) ($ 810) 0
======== ======== ======= ======== ======== ======== ======== ========
Net income (loss) per common share:
Primary $ 0.15 $ 0.13 $ 0.17 $ 0.19 $ 0.19 ($ 1.68) ($ 0.05)
======== ======== ======= ======== ======== ======== ========
Fully Diluted $ 0.14 $ 0.12 $ 0.16 $ 0.18 $ 0.19 ($ 1.68) ($ 0.05)
======== ======== ======= ======== ======== ======== ========
</TABLE>
The quarters ended December 31, 1995, March 31, 1996, June 30, 1996, September
30, 1996, December 31, 1996 and June 30, 1997 included write downs on retained
interests in securitized receivables of $1.5 million, $2.5 million, $3.5
million, $2.0 million, $29.0 million and [$14.0] million, respectively.
21
<PAGE>
The quarter ended June 30, 1996, included a non-cash charge $807,000 from the
release of escrowed shares which was offset by an increase in paid-in-capital.
There was no impact on total stockholders' equity as a result of the escrow
share release and the resultant non-cash charge.
Item 7: Managements Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company relates to fiscal years ended June 30, 1994, 1995 and
1996, and should be read in conjunction with the preceding Selected Financial
Data and the Company's Consolidated Financial Statements and Notes thereto
included elsewhere in this annual report. All references to full years are to
the applicable fiscal year of the Company.
Overview
The Company is a specialty consumer finance company engaged in acquiring,
securitizing and servicing finance contracts originated by Dealers in connection
with the sale of late-model used and, to a lesser extent, new cars to consumers
with sub-prime credit. Since commencing the acquisition of finance contracts in
May 1992, through June 30, 1996, the Company has acquired approximately $ _____
million of finance contracts, of which $_____ million have been securitized in
thirteen offerings of asset-backed securities.
The following table illustrates the Company's finance contract acquisition
volume, total revenue, securitization activity and servicing portfolio during
the past nine fiscal quarters.
<TABLE>
<CAPTION>
For the Quarters Ended
-------------------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31. Mar. 31, June 30, Sept. 30, Dec. 31. Mar. 31, June 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of finance contracts
acquired during period .......... 4,901 5,943 8,190 10,569 12,037 15,401 14,584 8,992 8,745
Average finance contract balance $ 12.2 $ 12.2 $ 12.3 $ 12.2 $ 12.4 $ 12.4 $ 12.3 $ 12.3 $ 12.6
Aggregate value of finance
contracts acquired during period 59,609 72,562 100,582 128,781 149,612 190,843 179,933 110,580 110,485
Gains from securitization
transactions(1)(2) .............. 5,197 6,023 7,424 12,759 10,824 10,349 (578) 5,979
Gains from whole loan sales ..... 40 48 64 111 290 0 0 37
Net interest (expense) income ... 765 866 1,021 546 993 2,139 2,747 2,894
Total revenue ................... 6,111 7,034 6,946 10,341 11,916 10,675 (26,747) 9,161
Finance contracts securitized
during period ................... 54,000 67,630 85,368 130,138 149,274 173,270 4,870 238,693 150,348
Finance contracts sold during
period .......................... 1,000 1,000 1,801 2,752 2,250 0 0 15,000 0
Servicing portfolio(at period
end)(3) ........................ 146,557 197,911 287,481 401,704 500,694 645,551 759,304 783,757 813,055
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---------
(1) Excludes gains from whole loan sales of finance contracts.
(2) The quarters ended December 31, 1995, March 31, 1996 are before write downs
of $3.1 million, $1.5 million and $3.5 million , respectively, taken on
prior retained interests in securitized receivables.
(3) Excludes finance contracts in bankruptcy, authorized for repossession and
in repossession and still eligible for reinstatement.
Revenues
The Company's primary sources of revenues consist of two components: gains
from securitization transactions and interest income.
Gains from Securitization Transactions. The Company warehouses the finance
contracts it acquires and periodically sells them to a trust, which in turn
sells asset-backed securities to investors. By securitizing its finance
contracts, the Company is able to lock in the difference ("gross spread")
between the annual rate of interest paid by the consumer ("APR") on the finance
contracts acquired and the interest rate on the asset-backed securities sold
("certificate rate"). When the Company securitizes its finance contracts, it
records a gain from securitization transactions and establishes an asset
referred to as retained interest in securitized
22
<PAGE>
receivables. Gains from securitization transactions are equal to the retained
interest on the securitized receivables plus the difference between the net
proceeds from the securitization and the cost (including the cost of VSI Policy
and credit default premiums) to the Company of the finance contracts sold. The
retained interest on securitized receivables represents the estimated present
value of the estimated future cash flows to be received by the Company,
discounted at a market-based rate, taking into consideration (i) contractual
obligations of the obligors, (ii) amounts due to the investors in asset-backed
securities, (iii) various costs of the securitizations, including the effects of
hedging transactions, if any, and (iv) adjustments to the cash flows to reflect
estimated prepayments of finance contracts and losses incurred in connection
with defaults. Subsequent to securitization, the Company continues to service
the securitized finance contracts, for which it recognizes servicing fees over
the life of the securitization. Retained interest in securitized receivables
represents the difference between the weighted average finance contract rate
earned and the rate paid on certificates issued to the investors in the
securitization, less servicing fees and other costs over the life of the
securitization. Retained interest in securitized receivables is computed by
taking into account certain assumptions regarding prepayments, defaults,
servicing and other costs. The Company reviews on a quarterly basis the retained
interest in securitized receivables. If actual experience differs from the
Company's assumptions or to the extent that market and economic changes occur
that adversely impact the assumptions utilized in determining the retained
interest in securitized receivables, the Company records a charge against gains
from securitization transactions. The discount rate utilized in determining the
retained interest in securitized receivables and gain from securitization
transactions is based on the Company's estimate of the yield required by a third
party purchaser of such instrument. The Company also bases these assumptions on
the performance characteristics of the Company's finance contract portfolio to
date. The Company's default assumptions are based on estimated repossession
rates, proceeds from the liquidation of repossessed vehicles, proceeds from VSI
Policy coverage and recoveries from the Company's credit default insurance.
Interest Income. Interest income consists of: (i) interest income earned on
finance contracts (ii) interest income earned on leases (the Company ceased
funding leases in the quarter ended September 30, 1995), (iii) servicing fees
net of expenses, (iv) the accretion of finance contract acquisition discounts
net of related capitalized costs and (v) the amortization of capitalized costs
net of origination discounts for leases. Other factors influencing interest
income during a given fiscal period include (a) the annual percentage rate of
the finance contracts acquired, (b) the aggregate principal balance of finance
contracts acquired and funded through the Company's warehouse credit facilities
prior to securitization, and (c) the length of time such finance contracts are
funded by the warehouse credit facilities prior to securitization. Finance
contract acquisition growth has a significant impact on the amount of interest
income earned by the Company.
The following table provides information for each of the Company's rated
securitizations:
<TABLE>
<CAPTION>
Weighted
Remaining Average Weighted
balance at Finance Average
Original June 30, Contract Certificate Current Gross Net
Securitizations Balance 1997 Rate(1) Rate(1) Ratings Spread (1)(2) Spread(1)(3)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---------------------- -------- ------- ------- ------- ------- ------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Aegis Auto Receivables Trust,
Series:
1994-A ............................. $ 18,539 $ 2,595 20.28% 7.74% A(4) 12.54% 8.70%
1994-2 ............................. 23,251 4,722 19.82 8.04 A+(4) 11.78 8.12
1994-3 ............................. 21,000(5) 5,379 19.66 9.46 A+(4) 10.20 6.46
1995-1 ............................. 21,000(5) 6,437 20.41 8.60 A+(4) 11.81 8.46
1995-2 ............................. 54,000(5) 19,381 19.94 7.16 A+(4) 12.78 8.98
1995-3 ............................. 60,000(5) 24,809 20.04 7.09 A+(4) 12.95 10.12
1995-4 ............................. 70,000(5) 32,440 19.88 6.65 BBB+(4) 13.23 10.41
1996-1 ............................. 92,000(5) 49,626 20.13 8.44(6) (7) 11.69 8.89
1996-2 ............................. 105,000(5) 65,912 20.10 8.93(8) (9) 11.17 8.40
1996-3 ............................. 110,000(5) 79,329 20.2 8.82(10) (11) 11.40 8.75
Aegis Auto
Owners Trust ....................... 148,347 90,766 20.14 6.53 (12) 13.61 10.87
</TABLE>
23
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---------
(1) Values as of closing date.
(2) Difference between the Weighted Average APR on finance contracts and the
Weighted Average APR on the trust certificates (the "Weighted Average
Certificate Rate").
(3) Difference between Weighted Average APR on finance contracts and the
Weighted Average Certificate Rate, net of servicing and trustee monthly
fees and annualized issuance costs that include underwriting fees and
hedging gains or losses, if any.
(4) Indicates ratings by Duff & Phelps.
(5) Includes prefunded amounts which were transferred to the related trust by
the end of the quarter for 1995-1, 1995-2, 1995-3, 1995-4, 1996-1, 1996-2,
1996-3 and by the first week of the next quarter for 1994-3.
(6) The Weighted Average Certificate Rate is composed of the following: the
Class A certificate rate is 8.39%, the Class B certificate rate is 7.86%
and the Class C certificate rate is 12.14%.
(7) The 1996-1 Securitization has Class A Notes rated B+ by Duff & Phelps
andBBB by Fitch; Class C Notes rated B by Duff & Phelps and BB by Fitch and
Class C Notes rated C by Duff & Phelps and B- by Fitch.
(8) The Weighted Average Certificate Rate is composed of the following: the
Class A certificate rate is 8.9%, the Class B certificate rate is 8.4% and
the Class C certificate rate is 11.65%.
(9) The 1996-2 Securitization has Class A notes rated B+ by both Duff & Phelps
and BBB- by Fitch; Class C notes rated B by Duff and Phelps and BB- by
Fitch and Class C notes rated C by Duff & Phelps and CCC+ Fitch.
(10) The weighted average Certificate Rate is composed of the following: the
Class A certificate is 8.8%, the Class B certificate is 8.3% and the Class
C certificate is 11.1%.
(11) The 1996-3 Securitization has Class A notes rated BBB- by Duff & Phelps and
B+ by Fitch; Class C notes rated B by Duff & Phelps and BB by Fitch and
Class C notes rated C by Duff & Phelps and B- by Fitch.
(12) The Owner Trust Facility has Class A notes rated AAA by Standard & Poor's
and Aaa by Moody's and Class B certificates rated Ba1 by Moody's.
The following table provides information for each of the Company's
securitizations under its $1.0 Billion Purchase Facility
<TABLE>
<CAPTION>
Weighted
Remaining Average Weighted
balance at Finance Average
Original June 30, Contract Certificate Gross Net
Securitizations Balance 1997 Rate(1) Rate(1) Spread (1)(2) Spread(1)(3)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---------------------- -------- ---- ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1997-1 ........................ 238,693 205,137 20.43 9.5(4) 10.93 8.46
1997-2 ........................ 37,163 35,258 20.67 9.75(5) 10.92 8.48
1997 -3 ....................... 38,475 37,673 20.73 9.53(6) 11.20 8.81
1997-4 ........................ 74,721 74,111 20.40 9.38(7) 11.22 8.62
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------
(1) Values as of closing date.
(2) Difference between the Weighted Average APR on finance contracts and the
Weighted Average APR on the trust certificates (the "Weighted Average
Certificate Rate").
(3) Difference between Weighted Average APR on finance contracts and the
Weighted Average Certificate Rate, net of servicing and trustee monthly.
(4) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.3% and the Class B certicate rate is 13.73%
(5) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.5% and the Class B Certificate rate is 13.9%.
(6) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.25% and the Class B Certificate rate is
13.8%.
(7) The weighted average Certificate Rate is composed of the following: the
Class Acertificate rate is 7.1% and the Class B Certificate Rate is 13.6%.
24
<PAGE>
Results of Operations
Fiscal Year Ended June 30, 1996 Compared To Fiscal Year Ended June 30, 1995
Revenues
Revenues increased to $______ million for the fiscal year ended June 30,
1996 from $_____ million for the fiscal ended June 30, 1995, an increase of
$_____ million or ____%.
Gains from Securitization Transactions. Gains from securitization
transactions increased to $_____ million for the fiscal year ended June 30, 1996
from $____ million for the fiscal year ended June 30, 1995, an increase of $____
million or ______%. The increase in securitized gains was offset by write downs
of $_____ million taken on the retained interests in securitized receivables
from earlier securitizations and a $600,000 valuation allowance on a note
receivable from a then-related party created in a prior sale of a retained
interest. Additionally, the Company's securitization costs increased by
approximately $ ________ as a result of the inherent costs associated with
issuing warrants to Greenwich Capital in connection with the Securitization
Facility. Quarterly, the Company revalues its retained interests in securitized
receivables using actual experience on the respective underlying securitization
trust's finance contract performance. When the actual experience differs from
the original assumptions utilized in the initial valuation in a detrimental
direction, the Company can incur permanent losses in the carrying value of these
assets. During the year ended June 30, 1996, the Company incurred $ ______
million of, what management believes to be, permanent losses on its retained
interests in securitized receivables portfolio. The cause of the permanent
impairment was higher than expected default rates on the underlying finance
contracts. As a result of these increases, current assumptions utilized in
current valuations have been adjusted to reflect the higher default rates.
Interest Income. Interest income increased to $_____ million for the fiscal
year ended June 30, 1996 from $ _____ million for the fiscal year ended June 30,
1995, an increase of $ _____ million or ______ %, primarily as a result of the
Company's increased finance contract volume. The Company's weighted monthly
average outstanding balance of finance contracts owned increased to $ _____
million in the fiscal year ended June 30, 1996 from $ ______ million for the
fiscal year ended June 30, 1995, an increase of $ _____ million or ______ %.
Since the Company's weighted average coupon has remained at approximately
______%, the increase in interest income is partially attributable to the
increase in the weighted average outstanding balance of $ ______ million during
the fiscal year ended June 30, 1996 or approximately $ ____ million. (Interest
income is net of servicing fees paid and earned.)
Operating Expenses. Operating expenses increased to $____ million for the fiscal
year ended June 30, 1996 from $_____ million for the fiscal year ended June 30,
1995, an increase of $_____ million or ____%.
Interest Expense. Interest expense increased to $_____ million for the
fiscal year ended June 30, 1996 from $ ____ million for the fiscal year ended
June 30, 1995, an increase of $ _____ million or _______ %, as a result of the
increased financing requirements caused by the Company's increased finance
contract acquisition activity. The increase in interest expense represents
______ % of the total increase in operating expenses and is partially
attributable to the Company's warehouse credit facilities, which are at
fluctuating interest rates that ranged from as low as _______ % to as high as
______ % for the fiscal year ended June 30, 1996 compared to a low of ____% and
a high of ____% for the fiscal year ended June 30, 1995. In addition, the
Company's monthly average outstanding balance on its warehouse credit facility
increased to $_____ million for the fiscal year ended June 30, 1996 from $
_______ million for the fiscal year ended June 30, 1995. The Company also
incurred interest on notes payable at a % interest rate on a monthly average
outstanding balance of $ _______ million for the fiscal year ended June 30, 1996
compared to a monthly outstanding average balance of $ ____ million for the
fiscal year ended June 30, 1995.
Salaries and Other Employee Costs. Salaries and other employee costs
increased to $_____ million for the fiscal year ended June 30, 1996 from $ _____
million for the fiscal year ended June 30, 1995, an increase of $ ____ million
or ______ %, due to an increase in the number of employees to approximately
_____ at June 30, 1996 from approximately 140 employees at June 30, 1995 and
approximately $ ____ million of bonus
25
<PAGE>
expense based on the Company's pre-tax net income for the fiscal year ended June
30, 1996. For the fiscal year ended June 30, 1995, certain members of senior
management elected to forgo bonuses that would have aggregated approximately $
_________ .
Provision for Credit Losses. The provision for credit losses increased to
$_____ million for the fiscal year ended June 30, 1996 from $ _________, for the
fiscal year ended June 30, 1995, an increase of $______ million due to: (i) the
Company's increased acquisition volume of finance contracts; (ii) the Company's
decision to discontinue purchasing credit default insurance on its lease
origination effective January 1995; (iii) the Company's decision, effective
August 1995, to insure on a discretionary basis its finance contract
acquisitions (to the extent finance contracts remain uninsured for default, the
Company's loss ratio is higher); (iv) the increase in delinquent automobile
finance receivables (as discussed below); and (v) the higher amount of finance
contracts and leases owned by the Company at June 30, 1996 ($ _____ million) as
compared to June 30, 1995 ($ ________ million). These changes also resulted in
an increase in the Company's reserve rate as a percentage of total automobile
finance receivables held on the Company's balance sheet (i.e., original balance
net of receivables repaid, sold or charged off) to _____ % in 1996 from ____ %
in 1995. The Company maintains residual value insurance relating to its entire
lease portfolio.
Charge for Release of Escrowed Shares. Charge for release of escrowed
shares decreased to $ ________ for the fiscal year ended June 30, 1996 from $
________ for the fiscal year ended June 30, 1995, a decrease of $ _______ or
____ %. The decrease is a result of the decrease in the Company's quoted market
price of $ _________ at June 30, 1996 from $ _______ at June 30, 1995; the
market price is one of the components for computing the charge. The other
component is the number of shares released. In fiscal 1996, _________ shares of
the remaining escrowed shares were subject to the charge compared to _________
shares of the _________ released in fiscal 1995. All escrowed shares owned by
the executive officers were subject to this charge. As of June 30, 1996, all
escrowed shares are being released, thus the Company will not incur this expense
in future years.
Rent and Electricity, Office Expenses and Communications. Rent and
electricity charges increased to $ _____ million for the fiscal year ended June
30, 1996 from $ ________ for the fiscal year ended June 30, 1995, an increase of
$ ________ or ______ % due to all processing centers being opened or expanded
for the full fiscal year of 1996, whereas in the fiscal year 1995 two of the
Company's processing centers were newly leased in the latter part of the third
quarter. In addition, in the second quarter of fiscal 1996, the Company expanded
its Jersey City Headquarters and in the third quarter of fiscal 1996 the Company
relocated and expanded its collections department located in Irvine, California.
Correspondingly, office expenses increased to $ ________ for the fiscal year
ended June 30, 1996 from $ ________ for the fiscal year ended June 30, 1995, an
increase of $________ or ____% and communication expenses increased to $______
for the fiscal year ended June 30, 1996 from $________ for the fiscal year ended
June 30, 1995, an increase of $________ or ____%. Communication expenses include
expenses relating to receiving and sending electronic data including expenses
relating to obtaining credit reports and other data services, telephone charges,
faxes, the linking of the collections department to the third party servicer and
the linking of all the offices to systems development location in the Merriam,
Kansas facility.
Professional fees. Professional fees, including those paid to related
parties, increased to $ _____ million for the fiscal year ended June 30, 1996
from $ ________ for the fiscal year ended June 30, 1995, an increase of
$________ or _____ % due to the following: (i) an increase in accounting and
auditing fees of approximately $________ primarily as a result of the new
reporting requirements of the Company as a public company for the fiscal year
ended June 30, 1996; (ii) an increase in legal fees of approximately
$___________ primarily as a result of the new reporting requirements of the
Company as a public company for the fiscal year ended June 30, 1996 and as a
result of defending primarily two lawsuits entered into against the Company as
previously discussed; (iii) an increase of approximately $ ________ in directors
fees; and (iv) an increase of approximately $________ in consulting fees (offset
by a decrease in related party consulting fees of $_______ ). During the fiscal
year ended June 30, 1996, the Company engaged public relation firms to assist it
in developing its
26
<PAGE>
marketing strategies in both the sub-prime automobile finance industry and in
the investor community; whereas, these expenses were not incurred for the fiscal
year ended June 30, 1995.
Equipment Rental. Equipment rental increased to $_______ for the fiscal
year ended June 30, 1996 from $ ________ for the fiscal year ended June 30,
1995, an increase of $ ________ or _____ % due to the increase in the number of
employees to _____ at June 30, 1996 from _____ employees at June 30, 1995, the
majority of the new employees require computers, the most significant component
of equipment rental costs.
All Other Operating Expenses. Other operating expenses increased to $_____
million for the fiscal year ended June 30, 1996 from $_____ million for the
fiscal year ended June 30, 1995, an increase of $________ or ____%. This
increase is the result of the following: (i) an increase in travel and
entertainment expense of $_____ due to the Company's expansion into new
territories including seven new states; (ii) an increase in amortization and
depreciation of $ ________ due to increased purchases of fixed assets, including
leasehold improvements to expanded office space and (iii) an increase of
$_______ in other expenses such as insurance, advertising and promotional
expenses, other taxes, such as state privilege taxes and other miscellaneous
taxes and miscellaneous expenses.
Income Taxes. Income taxes increased to $_____ million (an effective tax
rate of _____%) for the fiscal year ended June 30, 1996 from $ ____ million (an
effective tax rate of _____ %) for the fiscal year ended June 30, 1995, an
increase of $ ____ million. The decrease in the Company's effective tax rate of
_____ % is a result of the decrease in the impact of permanent differences
(primarily from the charge for the release of escrowed shares discussed above
that is not tax deductible) between book and taxable income. For the fiscal year
ended June 30, 1996, the impact of the charge for the release of escrowed shares
decreased to ____ % from _____ % for the fiscal year ended June 30, 1995, a
decrease of ____ %, the other significant component is the state and local tax
benefit which decreased to ____ % for the fiscal year ended June 30, 1996 from
____% for the fiscal year ended June 30, 1995, a decrease of ____ %.
Net Income
Net income increased to $______ million for the fiscal year ended June 30,
1996 from $_____ million for the fiscal year ended June 30 , 1995, an increase
of $ _____ million or _____ %. This increase resulted primarily from the
increase in the size of automobile securitization transactions to $ ________
million for the fiscal year ended June 30, 1996 from $ _______ million for the
fiscal year ended June 31, 1995.
Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994
Revenues
Revenues increased to $_____ million for the fiscal year ended June 30,
1995 from $_____ million for the fiscal year ended June 30, 1994, an increase of
$_____ million or ____%.
In the fiscal year ended June 30, 1995, the Company increasingly focused on
its automobile finance business, and its dependence on related party
transactions declined. Revenues from non-automobile related businesses decreased
to $ ____ million for the fiscal year ended June 30, 1995 from $______ million
for the fiscal year ended June 30, 1994, a decrease of $ ____ million or _____
%, or from ____ % of total revenues for the fiscal year ended June 30, 1995 to
_____ % of total revenues for the fiscal year ended June 30, 1994.
Non-automobile related revenues were derived mainly from related party
consulting and other fee based engagements that involved analysis,
administration and securitization of consumer-based receivable portfolios.
Revenues from related party transactions (consisting entirely of non-automobile
related consulting fees) decreased to $________ for the fiscal year ended June
30, 1995 from $ ____ million (consisting of $ ________ of automobile business
revenues and $ ____ million of non-automobile related management and consulting
fees)
27
<PAGE>
for the fiscal year ended June 30, 1994, a decrease of $ ____ million, or from
____ % of total revenues for the fiscal year ended June 30, 1995 to _____ % of
total revenues for the fiscal year ended June 30, 1994.
Revenues from the Company's automobile finance business increased to $_____
million for the fiscal year ended June 30, 1995 from $ ____ million for the
fiscal year ended June 30, 1994, an increase of $_____ million or ______ %. This
increase was primarily attributable to an increase in interest income to $ ____
million for the fiscal year ended June 30, 1995 from $ ____ million for the
fiscal year ended June 30, 1994 and an increase in gains from securitization
transactions to $ ____ million (including no related party revenues) for the
fiscal year ended June 30, 1995 from $ _____ million (including related party
revenues of $ _______ ) for the fiscal year ended June 30, 1994, an increase of
$ ____ million or ______ %. This increase was offset in part by a decrease in
fees and commissions earned to $ ________ for the fiscal year ended June 30,
1995 from $ _____ million for the fiscal year ended June 30, 1994. The increases
in automobile finance revenues are a result of the Company's efforts to focus on
the automobile finance business versus its commission and fee based business.
Revenues from the Company's non-automobile businesses declined to $_____
million for the fiscal year ended June 30, 1995 from $ ____ million for the
fiscal year ended June 30, 1994, a decrease of $______ million or _____ %. This
decrease in revenues from non-automobile businesses resulted from the
significant reduction in the fiscal year ended June 30, 1995 of related party
fees and commissions, gains from non-automobile securitization transactions and
management fee revenues, which had decreased to $ ______________ for the fiscal
year ended June 30, 1995 from $ _____ million for the fiscal year ended June 30,
1994, a decrease of $_____ million representing a ________ % decline in related
party revenues. There was also a decrease in fees and commissions and other
income earned from non-related parties in the non-automobile business to
$___________ for the fiscal year ended June 30, 1995 from $ ________ million for
the fiscal year ended June 30, 1994, a decrease of $________ or ____%. These
decreases are attributable to the Company's efforts and resources being focused
on its automobile business. Other income was derived from trailing revenues
earned from transactions in previous periods and a forfeiture of a good faith
deposit from a terminated transaction, both relating to the Company's HUD Title
I Loan business line.
Gains from securitization transactions. Gains from securitization
transactions increased to $_____ million for the fiscal year ended June 30, 1995
from $_____ million for the fiscal year ended June 30, 1994, an increase of
$_____ million or ____%.
Interest income. Interest income increased to $______ million for the
fiscal year ended June 30, 1995 from $ _______ million for the fiscal year ended
June 30, 1994, an increase of $ _____ million or ____%, primarily as a result of
the Company's increased finance contract volume. The Company's weighted monthly
average outstanding balance of finance contracts owned increased to $ ________
million in the fiscal year ended June 30, 1996 from $ ________ million for the
fiscal year ended June 30, 1995, an increase of $ _______ million or _______ %.
The Company's weighted average coupon is approximately _______ % at June 30,
1995 and thus $______ million of the increase in interest income is attributable
to the increase in the weighted average outstanding balance of $ ________
million. (Interest income is net of servicing fees paid and earned.) In
addition, the Company's leases held increased to a weighted monthly average
outstanding of $_______ million in the fiscal year ended June 30, 1995 from a
weighted monthly average outstanding of $ ________ , an increase of $___________
million. The Company's weighted average interest rate on its lease portfolio at
June 30, 1995 is ________ %, thus the increase in interest on the lease
portfolio represents approximately $ ______ million. The remaining difference of
approximately $_________ is attributable to the Company's weighted average
interest rate on finance contracts increasing to _______ % at June 30, 1995 from
_____ % at June 30, 1994, an increase of _______ % and its weighted average
interest on its leases increasing to ________ % at June 30, 1995 from ______ %
at June 30, 1994, an increase of ____%.
28
<PAGE>
Operating Expenses. Operating expenses increased to $_____ million for the
fiscal year ended June 30, 1995 from $_____ million for the fiscal year ended
June 30, 1994, an increase of $_____ million or ____%.
Interest expense. Interest expense increased to $_____ million for the
fiscal year ended June 30, 1995 from $ ______ million for the fiscal year ended
June 30, 1994, an increase of $ ______ million or ______ % of the total increase
in operating expenses. The increase is a result of the increased financing need
required by the Company's increased finance contract acquisition and lease
origination activity. In addition, the Company's warehouse credit facilities are
at fluctuating interest rates that ranged from a low of _____ % to a high of
_____% for the fiscal year ended June 30, 1995 compared to a low of _______ %
and a high of ________ % for the fiscal year ended June 30, 1994. The Company
also incurred related party interest expense of $ __________ for the fiscal year
ended June 30, 1995 compared to $ __________ for the fiscal year ended June 30,
1994, an increase of $____ or __________ %. The Company repaid its borrowings
under the related party credit facility in April 1995 and has not borrowed under
it subsequently.
Salaries and Other Employee Costs. Salaries and other employee costs
increased to $_____ million for the fiscal year ended June 30, 1995 from $
_______ million for the fiscal year ended June 30, 1994, an increase of $
_________ or _______ % due to the increase in the number of employees to
approximately _________ at June 30, 1995 from approximately __________ at June
30, 1994 (an increase of approximately ______ %) offset by the increased amount
of direct origination costs ultimately capitalized in accordance with relevant
accounting rules incurred to acquire finance contracts and originate leases for
the fiscal year ended June 30, 1995 as compared to the fiscal year ended June
30, 1994. For the fiscal year ended June 30, 1995, certain members of senior
management elected to forgo bonuses that would have aggregated approximately $
_________ , net of income tax effect. Had such bonuses been paid, net income for
the fiscal year ended June 30, 1995 would have been $ ________ million,
_________ % less than reported net income.
Provision for Credit Losses. The provision for credit losses increased to
$_____ for the fiscal year ended June 30, 1995 from $ __________ for the fiscal
year ended June 30, 1994, an increase of $________ or ____% due to the Company's
increased acquisition volume in finance contracts and origination volume in
leases and the Company's decision to discontinue purchasing credit default
insurance on its lease originations effective January 1995. As a result of this
discontinuance, the Company's reserve rate as a percentage of total consumer
receivables held on the Company's balance sheet (i.e., original balance net of
receivables repaid or sold) increased to ________ % for the fiscal year ended
June 30, 1995 from 1.7% for the fiscal year ended June 30, 1994. The Company
maintains residual value insurance relating to its entire lease portfolio.
Charge for Release of Escrowed Shares. Another significant component of the
increase in operating expense was the charge for the release of Escrowed Shares
of $_____ (representing ____% of the total increase) for the fiscal year ended
June 30, 1995 with no comparable charge for the fiscal year ended June 30, 1994.
Rent and Electricity, Office Expenses and Communications. Rent and
electricity charges increased to $616,000 for the fiscal year ended June 30,
1995 from $ __________ for the fiscal year ended June 30, 1994, an increase of $
_________ or ______ % due to an increase in the number of processing centers to
three for the fiscal year ended June 30, 1995 from two for the fiscal year ended
June 30, 1994 and the expansion of the Company's systems and development
facility in Kansas City and its headquarters facility and operation center in
Jersey City. Correspondingly, office expenses increased to $ ___________ for the
fiscal year ended June 30, 1995 from $ ________ for the fiscal year ended June
30, 1994, an increase of $ ______ or _____ % and communication expenses
increased to $ _______ for the fiscal year ended June 30, 1995 from $ ______ for
the fiscal year ended June 30, 1994, an increase of $ ________ or _______ %.
Communication expenses include expenses relating to receiving and sending
electronic data including expenses relating to obtaining credit reports and
other data services, telephone charges, faxes and the linking of all the offices
to systems development location in the Merriam, Kansas City facility.
29
<PAGE>
All Other Operating Expenses. Other operating expenses increased to $_____
for the fiscal year ended June 30, 1995 from $ _________ for the fiscal year
ended June 30, 1994, an increase of $ _________ or _____% (included in other
operating expenses is an increase in equipment rental to $ _______ for the
fiscal year ended June 30, 1995 from $ ___________ or the fiscal year ended June
30, 1994, an increase of $ ______________ ) due to the increase in finance
contract acquisitions and lease originations and an additional operation center
opened in 1995. These increases were offset by the following: (i) a 100%
decrease in a one-time expense of a purchase of a Dealer list and related
support services for the fiscal year ended June 30, 1994 for $ ___________ from
a company in which a significant stockholder of the Company had a significant
beneficial ownership interest; (ii) a decrease in professional fees to
$___________ for the fiscal year ended June 30, 1995 from $ ___________ for the
fiscal year ended June 30, 1994, a decrease of $ _________ or ________ % that
resulted substantially from the termination of a consulting agreement when the
Company completed its initial public offering on April 6, 1995; and (iii) travel
and entertainment expense decreased to $ __________ for the fiscal year ended
June 30, 1995 from $_____ for the fiscal year ended June 30, 1994, a decrease of
$___________ or _________ % due to changes in the composition of the Company's
sales force and due to increases in capitalization of such expenses that are
deemed to be a direct cost of acquisitions and in accordance with relevant
accounting rules.
Income Taxes. Income taxes increased to $_____ million (an effective tax
rate of ____%) for the fiscal year ended June 30, 1995 from $_____ million (an
effective tax rate of _____%) for the fiscal year ended June 30, 1994, an
increase of $________ or ____%. The increase in the Company's effective tax rate
of ____% is primarily due to the non-cash charge of $ ___________ relating to
the release of Escrowed Shares which is not a deductible expense for tax
purposes. This difference caused a _________ % increase in the Company's
effective tax rate. Other factors affecting the Company's effective tax rate
were a decrease in the Company's state taxes, net of federal benefit, to a rate
of __________ % for the fiscal year ended June 30, 1995 from a rate of ____% for
the fiscal year ended June 30, 1994, a net decrease of ________ % and other
factors increasing _________ %. The decrease in state taxes is attributed to the
Company moving its headquarters and northeast operating facility from New York,
New York to Jersey City, New Jersey.
Net Income. Net income decreased to $_____ million for the fiscal year
ended June 30, 1995 from $ ___________ million for the fiscal year ended June
30, 1994, a decrease of $ __________ or ________ %. The net income for the
fiscal year ended June 30, 1995 includes a non-cash charge of $ _____________
for the release of Escrowed Shares (which is not deductible for tax purposes);
excluding this charge, net income for the fiscal year ended June 30, 1995 would
have been $ _________ million, or an increase of $ ______ or ______ % from the
fiscal year ended June 30, 1994. These increases resulted primarily from the
increase in the number and size of automobile securitization transactions to
four such transactions aggregating approximately $ _________ million for the
fiscal year ended June 30, 1995 from one such transaction amounting to
approximately $ _______ million for the fiscal year ended June 30, 1994. For the
fiscal year ended June 30, 1995, certain members of senior management elected to
forgo bonuses to which they were contractually entitled that would have
aggregated $_____ net of income tax effect. Had such bonuses been paid, the
Company's net income would have been $_____ million for the fiscal year ended
June 30, 1995.
Financial Condition
Automobile Finance Receivables, Net. Automobile finance receivables
consists of finance contracts held for sale, finance contracts held for
investment (including vehicles held for repossession) and the Company's lease
portfolio. The Company suspended originating leases in the first quarter of its
1996 fiscal year.
Automobile finance receivables, net of allowance for credit losses,
increased to $_____ million at June 30, 1996 from $ _______ million at June 30,
1995, an increase of $ _____ million or ______ %. Finance
30
<PAGE>
contracts held for sale increased to $ _____ million at June 30, 1996 from $
______ million at June 30, 1995, an increase of $ ______ million or ________ %.
Finance contracts held for investment increased to $ ______ million at June 30,
1996 from $ _______ million at June 30, 1995, an increase of $ ______ million or
______ %. As of June 30, 1996, approximately $ ______ million of finance
contracts held for investment were in the repossession process. The increase in
the finance contracts held for investment was due primarily to the increased
volume of finance contract acquisitions. These increases were offset, in part,
by an increase in the allowance for credit losses to $ _______ million in 1996
from $ _________ in 1995 and a decrease in automobile leases held for investment
to $_____ million at June 30, 1996 from $_____ million at June 30, 1995, a
decrease of $_____ million or ____%, primarily due to normal amortization and
write offs.
The number and principal balance of finance contracts held are largely
dependent upon the timing and size of the Company's securitizations. The Company
plans to securitize finance contracts on a regular quarterly basis.
Retained Interests in Securitized Receivables. The following table provides
historical data regarding the retained interests in securitized receivables for
the periods shown:
Year Ended June 30,
-----------------------------------------------
1994 1995 1996 1997
------- -------- -------- ------
(dollars in thousands)
Beginning balance ........ $ 1,243 $ 4,434 $ 23,985
Additions ................ 6,117 21,347 56,749
Amortization ............. (123) (1,796) (2,991)
Sales .................... (2,803) -- --
Write downs .............. -- -- (7,500)
-------- -------- --------
Ending balance ........... $ 4,434 $ 23,985 $ 70,243
======== ======== ========
Delinquency Experience
The following tables reflect the delinquency experience of all finance contracts
acquired or leases originated, including those sold in whole finance contract
sales or securitizations, by the Company at the dates shown:
<TABLE>
<CAPTION>
Finance Contract Portfolio
June 30,
-------------------------------------------------------------------------------------------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal balance (dollars in thousands)
outstanding(1) $ 38,844 $146,557 $500,694 $813,055
Number of finance
contracts outstanding (1) 3,785 13,345 44,600 75,847
Delinquent loans
31-59 days 195 0.5% $ 7,974 5.4% $ 33,625 6.7% $ 71,008 8.7%
60-89 days 36 0.1% 1,186 0.8% 9,172 1.8% 21,831 2.7%
90 days and over 40 0.1% 410 0.3% 2,054 0.4% 4,781 0.6%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Total 271 0.7% 9,570 6.5% 44,851 8.9% 97,620 12.0%
Finance contracts in repossession
or bankruptcy(2) 1,051 2.7% 3,384 2.3% 21,022 4.2% 69,485 8.6%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Grand Total $ 1,322 3.4% $ 12,954 8.8% $ 65,874 13.1% $167,105 20.6%
======== ========== ======== ========== ======== ========== ======== ==========
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------
(1) Excludes contracts for which notice of intent to liquidate has expired and
those having an outstanding balance less than or equal to $500.
(2) Excludes finance contracts in bankruptcy, authorized for repossession and
in repossession and still eligible for reinstatement.
31
<PAGE>
<TABLE>
<CAPTION>
Lease Contract Portfolio
June 30,
------------------------------------------------------------------------------------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal balance (dollars in thousands)
outstanding $ 1,391 $27,756 $21,261 $10,049
Number of finance
contracts outstanding 82 1,976 1,890 996
Delinquent loans(2)
31-59 days 44 3.1% $ 2,221 8.0% $ 1,976 9.3% 835 8.3%
60-89 days 0 0.0% 688 2.5% 475 2.2% 252 2.5%
90 days and over 0 0.0% 160 0.6% 384 1.8% 363 3.6%
------- --------- ------- --------- ------- --------- ------- ---------
Total $ 44 3.1% 3,069 11.1% 2,834 13.3% 1,450 14.4%
======= ========= ======= ========= ======= ========= ======= =========
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------
(1) The Company began originating leases in April 1994 and ceased funding
leases in the first quarter of its 1996 fiscal year.
(2) Percentages based on outstanding principal balance; includes vehicles in
repossession and/or in bankruptcy.
Credit Loss Experience
An allowance for credit losses is maintained for all finance contracts held
for sale and for all finance contracts held for investment. Management evaluates
the reasonableness of the assumptions employed by reviewing credit loss
experience, delinquencies, repossession trends, the size of the finance contract
portfolio and general economic conditions and trends. If necessary, assumptions
are changed to reflect historical experience to the extent it deviates
materially from that which was assumed.
If a delinquency exists and a default is deemed inevitable or the
collateral is in jeopardy, and in no event later than the 35th day of
delinquency, the Company's collections department will initiate the repossession
of the financed vehicle. Bonded, insured outside repossession agencies are used
to secure involuntary repossessions. In most jurisdictions, notice to the
borrower of the Company's intention to sell the repossessed automobile is
required, whereupon the borrower may exercise certain rights to cure his or her
default or redeem the automobile. Following the expiration of the legally
required notice period, the repossessed vehicle is sold at a wholesale auto
auction, usually within 150 days of the repossession. The Company monitors
vehicles set for auction, and procures an appraisal under the VSI Policy prior
to sale. Liquidation proceeds are applied to the borrower's outstanding
obligation under the finance contract and loss deficiency claims under the VSI
Policy and credit default insurance policy are then filed. The Company reports
the remaining deficiency as a net charge-off against the allowance for credit
losses for automobile finance receivables owned by the Company. For finance
contracts held in securitization trusts, charge-offs are accounted for in
accordance with the underlying pooling and servicing agreements.
Because of the Company's limited operating history, its finance contract
portfolio is unseasoned. Accordingly, delinquency and charge-off rates in the
portfolio may not fully reflect the rates that may apply when the average
holding period for finance contracts in the portfolio is longer. Increases in
the delinquency and/or charge-off rates in the portfolio would adversely affect
the Company's ability to obtain credit or securitize its finance contracts and
would have an adverse effect on the Company's results of operations and
financial condition.
The following table shows the Company's repossession and loss experience
for its managed finance contract portfolio for the periods indicated:
32
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------
1994 1995 1996 1997
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Average principal balance outstanding(1) ............... $ 26,062 $ 96,569 $333,183 $737,423
Balance of finance contracts at the time of repossession 1,707 7,722 40,258 138,643
Number of repossessions ................................ 172 722 3,494 11,964
Repossession ratio (2) ................................. 6.8% 8.2% 13.0% 18.8%
Default balance of fully liquidated vehicles ........... $ 1,391 $ 6,719 $ 15,920 $ 84,713
Proceeds from liquidation, net of repossession costs ... 914 3,393 7,964 35,654
Gross charge offs(3) ................................... 477 3,326 7,956 49,059
Credit default insurance proceeds (4) .................. 436 2,669 4,092 14,749
Net charge offs (5) .................................... 41 657 3,864 34,310
Net charge offs as a percentage of liquidations(6) ..... 2.9% 9.8% 12.0% 40.5%
Net charge offs as a percentage of average
principal balance outstanding .......................... 0.2% 0.8% 1.2% 4.65%
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------
(1) Arithmetic mean of beginning and ending outstanding principal balance of
all finance contracts acquired including those previously sold in
securitization transactions.
(2) Balance of finance contracts at the time of repossession divided by average
principal balance outstanding during the period.
(3) Gross charge offs equals the aggregate balance of finance contracts
liquidated, including those previously sold in securitization transactions,
less all recoveries from the sale of the financed vehicles. Repossession
and liquidation expenses are included in gross charge offs.
(4) Since August 1995, the Company no longer deposits money to a segregated
account from which losses incurred under a policy would be paid.
(5) Net charge offs are gross charge offs reduced by credit default insurance
proceeds received relating to the defaulted finance contracts.
(6) Net charge off amount divided by the aggregate balance of finance contracts
relating to vehicles liquidated.
The Company has prepared analyses, based on its own credit experience and
available industry data, to identify the relationship between finance contract
delinquency and default rates at the various stages of a finance contract
repayment term. The results of these analyses, which have been incorporated into
the Company's methodology of determining gains from securitization transactions
suggest that the probability of a finance contract becoming delinquent or going
into default is highest during the "seasoning period" that occurs between the
sixth to the eighteenth month payment period from the acquisition date.
If the rate of the Company's finance contract acquisition volume continues to
escalate, an increasingly greater portion of the Company's finance contract
portfolio is expected to fall into the "seasoning period" described above, which
may cause a rise in the overall finance contract portfolio delinquency and
default rates, without regard to underwriting performance. Assuming no changes
in any other factors that may affect delinquency and default rates, the Company
believes this trend should stabilize or reverse when the volume of mature
finance contracts (with lower delinquency and default rates) is sufficient to
offset the total finance contract portfolio delinquency and default rates.
The Company believes delinquencies and losses can be mitigated through an
in-house collection program. Accordingly, the Company responded to the increased
rates of delinquencies and losses in the fiscal year ended June 30, 1995 by
entering into a sub-servicing agreement with its third-party servicer in April
1995, providing for the transfer of specific collection functions to the
Company. Through this arrangement the Company assumed responsibility for all
customer contact with respect to all existing leases and with respect to finance
contracts that were included in the Company's December 1994 securitization
transaction and all finance contracts acquired thereafter. In addition, the
Company assumed responsibility for liquidation activities on its entire finance
contract portfolio (including securitized finance contracts) at such time.
Because of the Company's limited operating history and the rapid growth of its
finance contract acquisitions, a significant portion of its finance contract
portfolio is unseasoned. Accordingly, delinquency and loss rates in the
portfolio may not be indicative of rates the Company may experience over time.
There can be no assurance that the performance of the Company's portfolio will
be maintained, or that the rate of future defaults and/or losses will be
consistent with prior experience or at levels that will not adversely affect the
Company's profitability.
33
<PAGE>
Repossession Experience - Static Pool Analysis
The Company's finance contract portfolio is continuing to grow rapidly. The
Company does not record its provision for credit losses based on a percentage of
the Company's finance contract portfolio outstanding because percentages can be
favorably affected by large balances of recently acquired finance contracts. The
Company utilizes actual dollar levels of delinquencies and charge-offs and
analyzes the data on a "static pool" basis. The Company's goal is to complete
the liquidation process as quickly as possible. All repossessed vehicles are
sold at wholesale auction. The Company is responsible for the costs of
repossession, transportation and storage. The Company's net charge-off per
repossession equals the unpaid balance less the auction proceeds (net of
associated costs) and less proceeds from insurance claims.
The following table provides static pool analysis of the Company's portfolio as
of June 30, 1996 for the periods shown. In this table, all finance contracts
have been segregated by month of acquisition. All repossessions have been
segregated by the month in which the repossessed finance contract was originally
acquired by the Company. Cumulative repossessions equals the ratio of
repossessions as a percentage of finance contracts acquired for each segregated
month. Annualized repossessions equals an annual equivalent of the cumulative
repossession ratio for each segregated month. This table provides information
regarding the Company's repossession experience over time. For example, recently
acquired finance contracts demonstrate very few repossessions. After
approximately one year of seasoning, frequency of repossessions appear to reach
a plateau. Based on industry statistics and the performance experience of the
securitizations, the Company believes that finance contracts seasoned in excess
of approximately 18 months will start to demonstrate declining repossession
frequency.
<TABLE>
<CAPTION>
Repossession Frequency Net
Fiscal Year and Month Repossessions by --------------------------- Finance Contracts Charge-Off
of Acquisition Month Acquired Cumulative(1) Annualized(2) Acquired Per Unit
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------------------- ----------------------- ------------- ------------ ------------------ ---------
Units Amount Units Amount Amount
----- ------ ----- ------ ------
(Dollars in (Dollars in (Actual
Thousands) Thousands) Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1994
July ...................... 22 $ 191 21.36% 5.34% 103 $ 1,138 $ 2,119
August .................... 24 210 24.49% 6.25% 98 1,113 1,323
September ................. 18 153 22.22% 5.80% 81 856 1,068
October ................... 15 142 20.27% 5.41% 74 801 1,433
November .................. 22 193 34.38% 9.38% 64 685 2,670
December .................. 37 304 29.60% 8.26% 125 1,382 1,682
January ................... 45 434 25.86% 7.39% 174 1,913 1,895
February .................. 52 529 23.64% 6.92% 220 2,436 1,537
March ..................... 122 1,156 25.10% 7.53% 486 5,403 1,853
April ..................... 144 1,444 29.03% 8.93% 496 5,719 2,083
May ....................... 122 1,283 25.63% 8.09% 476 5,573 1,839
June ...................... 163 1,599 28.75% 9.32% 567 6,718 2,501
Fiscal 1995
July ...................... 149 1,500 28.11% 9.37% 530 6,320 2,272
August .................... 175 1,822 28.88% 9.90% 606 7,327 2,536
September ................. 152 1,644 25.89% 9.14% 587 7,064 2,917
October ................... 144 1,534 30.25% 11.00% 476 5,674 3,020
November .................. 149 1,623 27.49% 10.31% 542 6,658 3,907
December .................. 156 1,638 27.61% 10.69% 565 6,856 3,763
January ................... 208 2,340 30.77% 12.31% 676 8,334 4,191
February .................. 249 2,748 31.20% 12.91% 798 9,736 3,741
March ..................... 362 4,073 29.82% 12.78% 1,214 14,715 4,098
April ..................... 426 4,779 30.63% 13.61% 1,391 16,843 3,956
May ....................... 458 5,165 29.55% 13.64% 1,550 18,906 3,857
June ...................... 563 6,292 28.72% 13.79% 1,960 23,860 4,304
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Repossession Frequency Net
Fiscal Year and Month Repossessions by --------------------------- Finance Contracts Charge-Off
of Acquisition Month Acquired Cumulative(1) Annualized(2) Acquired Per Unit
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------------------- ----------------------- ------------- ------------ ------------------ ---------
Units Amount Units Amount Amount
----- ------ ----- ------ ------
(Dollars in (Dollars in (Actual
Thousands) Thousands) Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1996
July ...................... 503 5,765 27.81% 13.90% 1,809 22,401 5,053
August .................... 607 6,956 29.51% 15.40% 2,057 25,024 6,247
September ................. 535 6,080 25.76% 14.05% 2,077 25,137 5,656
October ................... 689 7,906 29.36% 16.78% 2,347 28,449 2,508
November .................. 751 8,618 26.79% 16.08% 2,803 34,391 1,504
December .................. 820 9,706 26.97% 17.04% 3,040 37,743 2,021
January ................... 810 9,423 24.81% 16.54% 3,265 39,922 4,466
February .................. 781 8,939 23.66% 16.70% 3,301 39,875 3,018
March ..................... 853 10,054 21.31% 15.98% 4,003 48,984 5,171
April ..................... 786 9,243 20.67% 16.53% 3,803 46,952 5,322
May ....................... 777 9,267 19.27% 16.51% 4,033 50,025 5,912
June ...................... 764 9,409 18.19% 16.79% 4,201 52,635 6,835
Fiscal 1997
July ...................... 826 10,183 16.35% 16.35% 5,051 62,843 6,208
August .................... 755 9,147 14.66% 16.00% 5,149 63,518 6,747
September ................. 640 7,778 12.31% 14.77% 5,201 64,482 6,839
October ................... 462 5,630 8.83% 11.78% 5,231 64,048 6,841
November .................. 325 3,936 7.16% 10.74% 4,538 56,322 6,683
December .................. 252 3,168 5.23% 8.97% 4,815 59,563 6,298
January ................... 110 1,354 2.82% 5.63% 3,907 48,363 5,536
February .................. 55 664 2.22% 5.34% 2,474 30,054 --
March ..................... 21 269 0.80% 2.41% 2,611 32,164 --
April ..................... 9 92 0.30% 1.20% 3,004 37,617 --
May ....................... 0 0 0.00% 0.00% 2,917 36,941 --
June ...................... 0 0 0.00% 0.00% 2,824 35,927 --
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -----------
(1) For each month, cumulative repossession frequency equals the dollar amount
of repossessions divided by the dollar amount of finance contracts
acquired.
(2) Annualized repossession frequency converts cumulative repossession
frequency into an annual equivalent (e.g., for December 1994, $245
repossessions divided by $1,382, divided by 30 months outstanding times 12
equals an annualized repossession frequency of 6.9%).
(3) The increase in fiscal 1996 is due to the change in the Company's credit
default insurance policy. Since August 1995, the Company no longer deposits
money to a segregated account from which losses incurred under the policy
would be paid. The new policies provide for the Company to bear all losses
until a deductible amount is met. The rise in Net Charge-Off Per Unit cost
commencing in August 1995 reflects the application of the deductible under
the policy.
The following table provides static pool information regarding the Company's
rated securitization transactions as of June 30, 1996:
<TABLE>
<CAPTION>
Gross Loss Gross Loss Net Loss
Percentage Cumulative per Default Pool, Pool
Issuance Original Current of Original Repos Receivable Cumulative Cumulative,
Date Amount Amount Amount (1) (1)(2) (1)(3) (1)(3)(4) (1)(5)
----- ------ ------ ---------- --------- ------ --------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aegis Auto Receivable Trust
Series 1994-A.................. Jun-94 $18,539 $2,595 14.00% 20.06% 50.40% 9.51 3.87%
Aegis Auto Receivable Trust
Series 1994-2.................. Sep-94 23,251 4,722 20.31 22.21 53.03 10.87 4.48
Aegis Auto Receivable Trust
Series 1994-3.................. Dec-94 21,000 5,379 25.61 22.36 53.22 10.44 5.41
Aegis Auto Receivable Trust
Series 1995-1.................. Mar-95 21,000 6,437 30.65 25.62 54.11 11.51 6.49
Aegis Auto Receivable Trust
Series 1995-2.................. Jun-95 54,000 19,381 35.89 25.83 54.86 11.91 7.34
Aegis Auto Receivable Trust
Series 1995-3.................. Sep-95 60,000 24,809 41.35 25.87 56.62 11.97 10.95
Aegis Auto Receivable Trust
Series 1995-4.................. Dec-95 70,000 32,440 46.34 27.54 57.22 9.63 1.64
Aegis Auto Receivable Trust
Series 1996-1.................. Mar-96 92,000 49,626 53.94 22.60 56.07 5.64 1.22
Aegis Auto Receivable Trust
Series 1996-2.................. Jun-96 105,000 65,912 62.77 18.93 57.16 3.53 2.48
Aegis Auto Receivable Trust
Series 1996-3.................. Sep-96 110,000 79,329 72.12 14.77 54.21 0.71 0.50
Aegis Auto Owners Trust
1995-A......................... Dec-95 - Oct-96 148,347 90,766 61.18 14.65 58.24 6.45 6.45
Total Managed Portfolio........ $1,220,416 $867,603 71.09% 15.47% 55.69 4.99% 3.20%
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------
(1) Data computed from trustee reports of Juy 1997 reflecting servicer data of
June 30, 1997 and from Company's records as of June 30, 1997.
35
<PAGE>
(2) Cumulative Repossession Frequency reflects the total dollar volume of
finance contracts that have been liquidated, or are in the liquidation
process (but in any event can no longer be reinstated), as a percentage of
the original pool balance.
(3) Receivable gross losses are calculated as losses after the proceeds from
repossessed vehicle sales, service contract rebates, consumer insurance and
VSI insurance, net of repossession and liquidation costs, as a percentage
of the defaulted receivable balance.
(4) Calculated as the receivable gross losses for the pool as a percentage of
the original pool balance.
(5) Net loss is calculated as the receivable gross losses for the pool less
proceeds received from credit default insurance, as a percentage of the
original pool balance.
Liquidity and Capital Resources
The Company's business requires substantial cash to support its operating
activities. The principal cash requirements include (i) amounts necessary to
acquire automobile finance contracts pending securitization and (ii) cash held
from time to time in restricted spread accounts to support securitizations and
other securitization expenses. The Company also uses material amounts of cash
for operating expenses and debt service and, on occasion, to hedge interest rate
risk. The Company has operated on a negative operating cash flow basis and
expects to continue to do so for so long as the Company's volume of finance
contract acquisition continues to grow. The Company has funded these negative
operating cash flows principally through borrowings from financial institutions
and sales of equity securities, among other resources. There can be no assurance
that the Company will have access to capital markets in the future or that
financing will be available to satisfy the Company's operating and debt service
requirements or to fund future growth. If these resources are not available on
terms acceptable to the Company, the Company may have to curtail its finance
contract acquisition volume levels.
The Company's external capital resources primarily consist of the warehouse
credit facilities and the Company's securitization program. When the Company
securitizes finance contracts it repays a portion of its outstanding warehouse
indebtedness with the proceeds from such securitizations, making such portion
available for future borrowing. The Company expects to securitize its assets at
least quarterly, although there can be no assurance that the Company will be
able to do so. The Company also continues to seek additional arrangements with
financial institutions with respect to the disposition of its portfolio assets.
In addition, the Company has borrowed against its retained interests to increase
liquidity. The Company is exploring the feasibility of securitizing pools of its
leases or selling whole leases as possible complements to its current financing
arrangements. The Company ceased the funding of leases in the first quarter of
fiscal 1996.
The following table sets forth the major components of the increase
(decrease) in cash and cash equivalents for the periods shown:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------
1994 1995 1996 1997
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Net cash used in operating activities(1) ... $(18,986) $(49,208) $(15,782)
Net cash provided by (used in) investing
activities(2) ............................ 2,180 745 (390)
Net cash provided by financing activities .. 17,291 53,452 13,292
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents .............................. $ 485 $ 4,989 $ (2,880)
======== ======== ========
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------
(1) Includes net cash used in acquisition of automobile finance contracts of
$(16,075) in fiscal 1994, $(32,523) in fiscal 1995, and $(6,324) in fiscal
1996.
(2) Includes net cash (used in) provided by warehouse credit facilities of
$15,260 in fiscal 1994, $32,902 in fiscal 1995, and $(10,960) in fiscal
1996.
36
<PAGE>
Net cash used in operating activities primarily represents cash flows
utilized to support the Company's acquisition of automobile finance contracts,
including amounts representing capitalized acquisition costs, net of cash
proceeds of sales, including through securitizations, and repayments from
automobile finance receivables. The cash used to acquire automobile finance
contracts is generated primarily by financing activities under the Company's
warehouse credit facilities, discussed below.
A further significant source of cash used in operating activities is net
income offset by non-cash revenue items, most notably unrealized gains on
securitization transactions, which is expected to generate cash in future
periods. The unrealized gains principally represent the discounted present value
of the amount of anticipated collections from securitized receivables over the
amounts due to investors in the securitizations. These amounts were $ _____
million, $ ____ million and $ _______ million for the fiscal years ended June
30, 1994, 1995 and 1996, respectively. During the years ended June 30, 1994,
1995 and 1996, the Company received cash proceeds of $ _____ , $_______ million
and $______ million, respectively, from its retained interests in securitized
receivables which were utilized in meeting both its operating needs and its debt
repayment requirements under the related financing agreements. During the first
quarter of the fiscal year ended June 30, 1994, the Company also sold
substantially all of its previously acquired retained interests in securitized
receivables, resulting in a non-cash use of operating funds of $ ______ million.
The Company generated cash proceeds from investing activities in these
transactions of $ ________ million, providing it with excess cash receipts of $
________ which were also utilized in meeting its operating cash needs.
Other non-cash adjustments include depreciation and amortization, which
amounted to $ _____ or the fiscal year ended June 30, 1994, $ ______ for the
fiscal year ended June 30, 1995 and $ ______ for the fiscal year ended June 30,
1996; provision for credit losses, which amounted to $ ______ for the fiscal
year ended June 30, 1994, $ ______ for the fiscal year ended June 30, 1995 and
$______ million for fiscal year ended June 30, 1996; and provision (benefit) for
deferred income taxes of $( ______ ) for the fiscal year ended June 30, 1994,
$______ million for the fiscal year ended June 30, 1995 and $ _____ million for
the fiscal year ended June 30, 1996. In addition, as of June 30, 1995 and 1996,
the Company released _______ and ________ respectively, of the Escrowed Shares
(of which ____ shares were released to the executive officers of the Company in
1995 and _______ shares were released to the executive officers of the Company
in 1996) and consequently incurred non-cash charges of $ _______ and $ _______
respectively. The charges did not affect the Company's total stockholders'
equity or working capital. The Company also incurred non-cash charges of $
______ million and $ ______ for the fiscal year ended June 30, 1996 for write
downs and valuations allowances, respectively, on retained interests in
securitized receivables and a note receivable, respectively, with no such
charges in the prior periods.
To the extent that the foregoing activities were net users of cash, such
cash was provided primarily by borrowings under notes payable of $ _______
million for the fiscal year ended June 30, 1995 and $ ______ million for the
fiscal year ended June 30, 1996 secured by retained interests in securitized
receivables created in the Company's automobile finance contract
securitizations. Principal repayments are made from the Company's proceeds
received from pay downs on such assets, which amounted to $ _______ million for
the fiscal year ended June 30, 1995 and $ _______ million for the comparable
1996 period. The borrowing base on the retained interests in securitized
receivables is determined on each transaction through a calculation that
incorporates prevailing prepayment default and loss experience. Consequently, as
each securitization transaction becomes seasoned, it experiences a period of
higher incidence of default and loss, resulting in a repayment on the notes
secured by the allocable retained interests in securitized receivables. The
Company made additional principal pay downs of $ __________ million in excess of
proceeds received for the fiscal year ended June 30, 1995 and $8.6 million for
the comparable 1996 period.
The Company's cash flows and results of operations may be affected
adversely in the near term by rising interest rates, since not all costs of
funds, which under the Company's warehouse credit facilities are at floating
rates of interest, can be immediately passed on to consumers, whose finance
contracts are at fixed rates of interest. In addition, rising interest rates
would result in a decrease in the Company's net spreads on securitization
transactions thereby decreasing future projected cash flows from retained
interests in securitized receivables. Furthermore, the Company's discount rate
utilized in determining its borrowing base may also
37
<PAGE>
rise, decreasing the amount available to borrow. Moreover, interest rates
charged by the Company may be more significantly affected by factors other than
prevailing interest rates, most notably geographic distribution and varying
state interest rate limitations. The Company has a hedging policy which seeks to
limit the risks associated with changes in interest rates.
In connection with its securitization transactions, the Company enters into
pooling and servicing agreements (the "Agreements") in which its finance
contracts are sold to a Trust which, in turn, sells securities to investors.
Generally, the Company is required to make an initial cash deposit to the Trust
as a form of credit enhancement for the securitization. The terms of the
Agreements generally require that the excess servicing cash flows of the finance
contracts be retained in a bank account under the control of the Trustee (the
"Reserve Fund") until the Reserve Fund meets predetermined deposit requirements.
Any cash flows in excess of Reserve Fund requirements are released to the
Company on a monthly basis. For the fiscal years ended June 30, 1994, 1995 and
1996, the Company received $ ________ $ ______ million and $ ________ million,
respectively, in excess servicing cash flows from Reserve Funds. In the event
that the finance contracts owned by the Trusts fail to meet predetermined
delinquency and loss performance measures, the Agreements require that the
Trustee retain excess servicing cash flows until the Reserve Fund attains
pre-set incrementally higher levels of credit enhancement. The predetermined
performance measures are not always maintained on a consistent monthly basis,
thus deferring the release of the cash flows to the Company from the Reserve
Fund of the applicable Trust. In addition, certain of the Agreements required
the Company to deposit additional cash into the Trust's Reserve Fund if its
initial minimum required levels were not met within a predetermined time frame.
For the fiscal year ended June 30, 1996, the Company paid additional cash
contributions to certain Reserve Funds of $______ million and in August 1996
paid a $_______ million deposit which, management believes to be its final
payment to Reserve Funds under the existing Agreements.
The Company's warehouse credit facility with III Finance Ltd. for
automobile finance contracts provides that the Company may borrow the lesser of
$ _______ million (less the amount outstanding under the Company's lease
warehouse credit facility with III Finance Ltd. described below ($ _______
million as of August 20, 1996)) or the sum of (A) 100% of the outstanding
principal amount of performing, insured, finance contracts and (B) the lesser of
90% of the outstanding principal amount of delinquent finance contracts (which
percentages are reduced to 80% and 70%, respectively, if the Company's
automobile insurer fails to maintain an A.M. Best Company rating of "A" or
better (defined by A.M. Best Company as an "excellent" rating regarding the
insurer's financial strength and ability to meet its obligations to
policyholders)) and $ _____ million plus 92% (declining 1% per month for each
month the receivable is outstanding past 180 days) of the outstanding principal
amount of uninsured automobile finance contracts for the purpose of acquiring
automobile finance contracts in accordance with the Company's underwriting
guidelines. The Company has a warehouse credit facility for originating its
lease transactions, which provides the Company with a $______ million credit
line on substantially the same terms as the automobile finance contract
facility. These facilities are secured primarily by the Company's auto finance
receivables and bear interest at the rate of the one-month LIBOR plus 4.0%,
adjusted monthly ( ________ % for July, 1996). Under these warehouse credit
facilities, principal payments are made monthly to the extent of principal
payments received on the underlying collateral, and interest payments are made
quarterly in arrears and on the date of any prepayment of principal on the
underlying collateral. The Company's ability to continue to borrow under these
warehouse credit facilities is dependent upon its compliance with the terms
thereof, including the maintenance by the Company of certain minimum capital
levels. Under each warehouse credit facility, the Company is required to prepay
5% of the outstanding principal balance of finance contracts held by the Company
for more than 180 days. In addition, each warehouse credit facility requires a
prepayment fee of ________ % of the outstanding principal balance of the finance
contracts voluntarily prepaid, including in connection with the sale of finance
contracts. In the event the prepayment occurs within the same month of the
borrowings, the prepayment fee is _______ % of the outstanding principal
balance. As of June 30, 1996, the Company had approximately $ _______ million of
borrowings available through the warehouse credit facility arrangements with III
Finance Ltd. In addition, the Company has a $ _________ million warehouse credit
facility dedicated to the purchase of HUD Title I Loans, which
38
<PAGE>
the Company does not anticipate utilizing at this time. All three warehouse
credit facilities with III Finance, Ltd. expire in November 1997.
In the quarters ended June 1994, September 1994, December 1994, March 1995,
June 1995, September 1995, December 1995, March 1996 and June 1996, the Company
securitized approximately $ ________ million, $ ________ million, $ ________
million, $________ million, $ ________ million, $ ________ million, $________
million, $ ________ million and $ ________ million, respectively, of finance
contracts and used the net proceeds to pay down borrowings under its warehouse
credit facilities. In each of its last seven securitizations, the Company has
utilized a "pre-funding account" that enabled the Company to fund certain
finance contract acquisitions without committing its warehouse credit facility
for an extended period of time. Additionally, the Company directly sold in the
form of whole finance contract sales, approximately $ ________ million
(approximately $ ________ million in the fiscal year ended June 30, 1996) of
automobile finance contracts as of June 30, 1996 and used part of the proceeds
to pay down borrowings under its warehouse credit facility.
In December 1995, the Company entered into a commitment to sell $ ________
million of sub-prime automobile finance contracts to be resold as asset-backed
securities through Rothschild, Inc. During the fiscal year ended June 30, 1996,
the Company sold approximately $ ______ million of automobile receivables into
this facility. This facility requires the Company to directly sell between $
______ million and $ _____ million per month for a fifteen-month funding period
subsequent to the initial funding date. If the Company fails to meet the minimum
target, the terms of the facility provide that the Company may not be able to
sell future finance contracts to the facility. As of June 30, 1996 the Company
has a remaining commitment of $ _______ million.
In February 1996, the Company issued $ ________ of Series C Convertible
Preferred Stock (the "Preferred Stock") under Regulation S of the Securities
Act. The Preferred Stock is convertible into Common Stock at the lower of $6.425
per share of Common Stock or 85% of the fair market value of the Common Stock at
the time of conversion. The Company can redeem the Preferred Stock upon
conversion at the fair market value of the Common Stock into which such
Preferred Stock is convertible. The Preferred Stock has an 8.0% annual dividend
payable in Common Stock at the time of conversion. The Preferred Stock is
automatically converted into Common Stock on the third anniversary of its
issuance. For the fiscal year ended June 30, 1996, the Company redeemed _______
shares of Preferred Stock for $ _______ million and converted ________ shares of
Preferred Stock into shares of Common Stock.
In May 1996, the Company secured an additional warehouse credit facility
with Greenwich Capital., a subsidiary of Long Term Credit Bank of Japan (which
has recently entered into an agreement to sell Greenwich Capital, to NatWest
Markets) for $ ______ million, which will provide the Company with additional
flexibility to purchase greater volumes of receivables or warehouse automobile
receivables for longer periods. The facility is secured primarily by the
Company's finance contracts and bears interest at the rate of the one-month
LIBOR plus 3.0% (8.4297% at August 22, 1996), adjusted monthly. Principal
payments are made to the extent that principal is paid on the underlying
collateral, and are required to be made if the underlying collateral does not
meet certain specified conditions. Prepayment of principal is not permitted,
except in connection with securitization transactions and whole loan sales. The
Company's ability to continue to borrow under this facility is dependent on its
compliance with the terms thereof, including the maintenance by the Company of
certain minimum capital levels. As of June 30, 1996, the Company had
approximately $ ________ million of borrowings available through this facility.
In addition to the warehouse financing, the Company also secured a one-year
$______ million revolving credit facility (with a six-month renewal option) from
Greenwich Capital (the Company utilized $ _____ million of the revolving credit
facility in August 1996) and a one-year commitment from Greenwich Capital to
purchase and securitize up to $ ________ million of the Company's finance
contract acquisitions until the commitment is filled, subject to customary
conditions. Two securitizations aggregating $ _____ million were completed as of
June 30, 1996 pursuant to this commitment. In connection with these facilities,
the Company granted warrants to Greenwich Capital to purchase _______ shares of
common stock at an exercise price of $6.50 per share (subject to adjustment as
defined in the agreement).
39
<PAGE>
The Greenwich Capital warehouse credit facility is for a one year term with a
one year renewal option. In addition, the agreement provides the Company, at its
option (expiring in December 1996), to increase the facility up to $150 million
with a 90 day notice.
The Company believes that cash flows from operations, available lines of
credit and its warehouse credit facilities along with the proceeds received from
the Series C Convertible Preferred Stock or through other financing arrangements
are adequate to support its current and near-term funding and operations needs
at current levels. The Company is currently in the process of seeking additional
capital; however, there can be no assurance as to the availability or timing of
such transactions.
Inflation
While inflation has not had a material impact upon the Company's results of
operations, there can be no assurance that the Company's business will not be
affected by inflation in the future. Increases in the inflation rate generally
result in increased interest rates and can be expected to result in increases in
the Company's operating expenses. As the Company borrows funds at variable rates
and generally acquires finance contracts at an average interest rate of
approximately 20.2%, increased interest rates will increase the borrowing costs
of the Company, and such increased borrowing costs may not be offset by
increases in the interest rates with respect to finance contracts acquired.
Seasonality
The Company's operations are affected to some extent by seasonal
fluctuations. Finance contract acquisitions tend to increase in March through
June and September and October, while finance contract acquisitions are lowest
in December and January. Delinquencies also tend to be higher during certain
holiday periods, particularly at calendar year end.
Item 8: Financial Statements and Supplementary Data.
The information required under this item is indexed on page F-1 herein and
is contained on the pages following said page F-1.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
PART III
Item 10: Directors and Executive Officers of the Registrant.
The information required by Item 10 will be contained in the Registrant's
Definitive Proxy Statement for its 1997 Annual Meeting of Shareholders, (the
"1996 Proxy Statement") called to be held in November 1996, which the Registrant
intends to file with the Commission in October 1996, and such information is
incorporated herein by reference.
Item 11: Executive Compensation.
The information required by Item 11 will be contained in the 1996 Proxy
Statement, and such information is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 will be contained in the 1996 Proxy
Statement, and such information is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions.
The information required by Item 13 will be contained in the 1996 Proxy
Statement, and such information is incorporated herein by reference.
40
<PAGE>
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this Report:
(1) The financial statements and schedules listed in the accompanying
index to Financial Statements and Schedules on page F-1 are filed as
part of the Annual Report on Form 10K.
(2) Exhibits. See Exhibit Index beginning on page 43.
(b) No current Reports on Form 8-K were filed by the Company during the fourth
quarter ended June 30, 1996.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE AEGIS CONSUMER FUNDING GROUP, INC.
By: S/Angelo R. Appierto
--------------------------------
Angelo R. Appierto
Chairman of the Board and
Chief Executive Officer
Date: September 9, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------- ----- ----
S/Angelo R. Appierto Chairman of the Board, September , 1997
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---------------------- Chief Executive Officer
Angelo R. Appierto and Director
S/Joseph F. Battiato President September , 1997
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------------------
Joseph F. Battiato
S/Dina L. Penepent Chief Financial Officer, September , 1997
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---------------------- Executive Vice President,
Dina L. Penepent Secretary, Principal
Financial and Accounting Officer
S/Gary D. Peiffer General Counsel, September , 1997
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---------------------- Vice-Chairman and Director
Gary D. Peiffer
S/Felice Cutler Director September 9, 1996
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------------------
Felice Cutler
S/Carl Frischling Director September , 1997
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------------------
Carl Frischling
S/Paul Fitzpatrick Director September , 1997
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------------------
Paul Fitzpatrick
42
<PAGE>
INDEX OF EXHIBITS
Listed below are all Exhibits filed as part of this report. Certain Exhibits are
incorporated herein by reference to (1) the Company's Registration Statement on
Form SB-2 originally filed on April 6, 1995 (File No. 33- 85836) and (2)
documents previously filed by the Company with The Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended.
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
3.1 Certificate of Incorporation(1)..............................................................
3.2 By-laws(1)...................................................................................
3.3 Form of Amended and Restated Certificate of Incorporation(1).................................
3.4 Form of Amended and Restated By-laws(1)......................................................
3.5 Certificate of Designation of Series C Preferred Stock(2)....................................
4.1 Specimen Common Stock Certificate(1).........................................................
4.2 Warrant issued to Drew Schaefer(1)...........................................................
4.3 Underwriters' Warrant Agreement(1)...........................................................
4.4 Form of Escrow Agreement(1)..................................................................
4.6 Voting Agreement dated February 15, 1996(1)..................................................
4.6 Irrevocable Proxy dated February 15, 1995(1).................................................
4.7 Warrants to purchase 114,553 shares of Common Stock (2)......................................
4.8 Warrant issued to Chaneil Associates(2)......................................................
4.9 Warrant issued to Beckett Reserve Fund, L.L.C(2).............................................
4.10 Warrant issued to Bjorn Ahlstrom.............................................................
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP(1)......................................
10.1 Revolving Credit Facility Agreement, dated July 23, 1993, between
The Bennett Funding Group, Inc. and the Company(1)...........................................
10.2 Loan and Security Agreement, dated as of February 28, 1994, among Aegis
Acceptance Corp., Aegis Consumer Finance, Inc. and III Finance Ltd(1)........................
10.2.1 Form of Promissory Note relating to Exhibit 10.2(1)..........................................
10.2.2 Aging Receivables Report relating to Exhibit 10.2(1).........................................
10.2.3 Form of Dealer Agreement relating to Exhibit 10.2(1).........................................
10.2.4 GAP Auto Protection Insurance Policy relating to Exhibit 10.2.(1)............................
10.2.5 Form of Lease relating to Exhibit 10.2(1)....................................................
10.2.6 Liability Insurance Policy relating to Exhibit 10.2(1).......................................
10.2.7 Risk Default Policy relating to Exhibit 10.2(1)..............................................
10.2.8 Residual Value Insurance Policy relating to Exhibit 10.2(1)..................................
10.2.9 Underwriting Criteria relating to Exhibit 10.2(1)............................................
10.2.10 Vendor Single Interest Physical Damage Insurance Policy relating to
Exhibit 10.2(1)..............................................................................
10.2.11 Form of Custodian Confirmation relating to Exhibit 10.2(1)...................................
10.2.12 List of Closing Documents relating to Exhibit 10.2(1)........................................
10.3 Loan and Security Agreement, dated as of November 8, 1993, between
Aegis Capital Markets, Inc., Aegis Acceptance Corp.,
Aegis Auto Finance, Inc. and III Finance Ltd.(1).............................................
10.3.1 Form of Promissory Note relating to Exhibit 10.3(1)..........................................
10.3.2 Aging Receivables Report relating to Exhibit 10.3(1).........................................
10.3.3 Form of Dealer Agreement relating to Exhibit 10.3(1).........................................
10.3.4 Form of RDI Policy relating to Exhibit 10.3(1)...............................................
10.3.5 Underwriting Criteria relating to Exhibit 10.3(1)............................................
10.3.6 Form of VSI Policy relating to Exhibit 10.3(1)...............................................
10.3.7 Form of Servicer's Confirmation relating to Exhibit 10.3(1)..................................
10.3.8 List of Closing Documents relating to Exhibit 10.3(1)........................................
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.4 Loan and Security Agreement, dated as of July 1, 1993, between Aegis
Securitized Assets, Inc. and III Finance Ltd.(1).............................................
10.4.1 Underwriting Criteria relating to Exhibit 10.4(1)............................................
10.5 1994 Stock Option Plan of the Company(1).....................................................
10.5.1 1994 Stock Option Plan of the Company, as amended(2).........................................
10.5.2 1996 Stock Option Plan of the Company(2).....................................................
10.6 Employment Agreement with Angelo R. Appierto(1)..............................................
10.6.1 Amendment to Employment Agreement with Angelo R. Appierto(2).................................
10.6.2 Form of Amendment to Employment Agreement with Angelo R. Appierto(2).........................
10.6.3 Form of Amendment to Employment Agreement with Angelo R. Appierto............................
10.6.4 AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated
as of April 1, 1997, by and between THE AEGIS CONSUMER FUNDING
GROUP, INC. and Mr. Angelo R. Appierto.......................................................
10.7 Employment Agreement with Gary D. Peiffer(1).................................................
10.7.1 Amendment to Employment Agreement with Gary D. Peiffer(2)....................................
10.7.2 Form of Amendment to Employment Agreement with Gary D. Peiffer(2)............................
10.7.3 Form of Amendment to Employment Agreement with Gary D. Peiffer...............................
10.7.4 TERMINATION AGREEMENT dated as of June 18, 1997, between
THE AEGIS CONSUMER FUNDING GROUP, INC. and Mr. Gary D.
Peiffer......................................................................................
10.8 Employment Agreement with Joseph F. Battiato(1)..............................................
10.8.1 Amendment to Employment Agreement with Joseph F. Battiato(2).................................
10.8.2 Form of Amendment to Employment Agreement with Joseph F. Battiato(2).........................
10.8.3 Form of Amendment to Employment Agreement with Joseph F. Battiato............................
10.8.4 AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of
April 1, 1997, by and between THE AEGIS CONSUMER FUNDING GROUP,
INC. and Mr. Joseph F. Battiato..............................................................
10.9 Employment Agreement with Matthew B. Burns(1)................................................
10.9.1 Amendment to Employment Agreement with Matthew B. Burns(2)...................................
10.9.2 Amendment to Employment Agreement of Matthew B. Burns,
dated as of October 11, 1995.(2).............................................................
10.9.3 Termination of Employment Agreement with Matthew B. Burns....................................
10.10 Employment Agreement with Jorge G. Rios(1)...................................................
10.10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of
April 1, 1997, by and between THE AEGIS CONSUMER FUNDING GROUP, INC.
and Mr. Jorge Rios...........................................................................
10.11 Employment Agreement with Robert G. Nelson(1)................................................
10.12 Consulting Agreement with Drew E. Schaefer and Nustar Financial Corp.(1).....................
10.13 Termination of Consulting Agreement with Drew E. Schaefer
Nustar Financial Corporation(1)..............................................................
10.14 Lease, dated June 29, 1992, by and between the Company and First Pac
Limited, with respect to 33 Whitehall St., New York, New York(1).............................
10.15 Additional Space Agreement, dated September 30, 1993, by and
between the Company and First Pac Limited(1).................................................
10.16 Sublease, dated September 27, 1993, by and between the
Company as subtenant and Centre Reinsurance Company and
International Insurance
Advisors, Inc., as sublessors(1).............................................................
10.17 Sublease, dated as of October 1, 1993, by and between the Company as
sublessor and Americorp Financial Services, Inc. as subtenant(1).............................
10.18 Master Servicing Agreement, dated as of February 28, 1994, between
American Lenders Facilities, Inc. and Aegis Consumer Finance, Inc.(1)........................
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.19 Program Management Agreement, dated as of November 16, 1992, by and
between Aegis Financial Advisers, Inc., and The Bennett Funding
Group, Inc(1)................................................................................
10.20 Program Management Agreement Amendment No. 1, dated as of
July 1, 1993 by and between Aegis Financial Advisers, Inc. and
The Bennett Funding Group, Inc.(1)...........................................................
10.21 Loan and Security Agreement, dated as of August 11, 1994, between Aegis
Consumer Finance, Inc. and III Finance Ltd.(1)...............................................
10.21.1 Form of Promissory Note relating to Exhibit 10.21(1).........................................
10.21.2 Form of Cash Flow Valuation Report relating to Exhibit 10.21(1)..............................
10.21.3 Aegis Auto Receivables 1994-A, L.P., Agreement of Limited Partnership
relating to Exhibit 10.21(1).................................................................
10.21.4 Pooling and Servicing Agreement relating to Exhibit 10.21.(1)................................
10.21.5 List of Closing Documents relating to Exhibit 10.21.(1)......................................
10.21.6 See Exhibit 10.3.4.(1).......................................................................
10.21.7 See Exhibit 10.3.6.(1).......................................................................
10.22 Loan and Security Agreement, dated as of September 28, 1994, between
Aegis Consumer Finance, Inc. and III Finance Ltd.(1).........................................
10.22.1 Form of Promissory Note relating to Exhibit 10.22(1).........................................
10.22.2 See Exhibit 10.21.2(1).......................................................................
10.22.3 See Exhibit 10.21.3(1).......................................................................
10.22.4 See Exhibit 10.21.4(1).......................................................................
10.22.5 See Exhibit 10.21.5(1).......................................................................
10.22.6 See Exhibit 10.3.4(1)........................................................................
10.22.7 See Exhibit 10.3.6.(1).......................................................................
10.23 Form of Dealer Agreement(1)..................................................................
10.24 Form of Customer Credit Application(1).......................................................
10.25 Partnership Agreement of Aegis Investment Partners(1)........................................
10.26 Employment Termination Agreement, dated as of February 22, 1995,
between the Company and Robert Nelson(1).....................................................
10.27 Servicing Agreement with American Lenders Facility, Inc.(2)..................................
10.28 Loan and Security Agreement, dated as of December 22, 1994
between Aegis Consumer Finance, Inc. and III Finance Ltd.(2).................................
10.28.1 Form of Promissory Note relating to Exhibit 10.28(2).........................................
10.28.2 Exhibit 10.21.2 Form of Cash Flow Valuation Report relating to
Exhibit 10.21(1).............................................................................
10.28.3 Exhibit 10.21.3 Aegis Auto Receivables 1994-A, L.P., Agreement of
Limited Partnership relating to Exhibit 10.21(1).............................................
10.28.4 Exhibit 10.21.4 Pooling and Servicing Agreement relating to
Exhibit 10.21(1).............................................................................
10.28.5 Exhibit 10.21.5 List of Closing Documents relating to Exhibit 10.21(1).......................
10.28.6 Exhibit 10.3.4 Form of RDI policy relating to Exhibit 10.3(1)................................
10.28.7 Exhibit 10.3.6 Form of VSI Policy relating to Exhibit 10.3(1)................................
10.29 Loan and Security Agreement dated as of March 22, 1995,
between Aegis Consumer Finance, Inc. and III Finance LTD.(2).................................
10.29.1 Form of Promissory Note relating to Exhibit 10.29(2).........................................
10.29.2 Exhibit 10.21.2 Form of Cash Flow Valuation Report relating to
Exhibit 10.21(1).............................................................................
10.29.3 Exhibit 10.21.3 Aegis Auto Receivables 1994-A, L.P., Agreement of
Limited Partnership relating to Exhibit 10.21(1).............................................
10.29.4 Exhibit 10.21.4 Pooling and Servicing Agreement relating to
Exhibit 10.21(1).............................................................................
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.29.5 Exhibit 10.21.5 List of Closing Documents relating to Exhibit 10.21(1).......................
10.29.6 Exhibit 10.3.4 Form of RDI Policy relating to Exhibit 10.3(1)................................
10.29.7 Exhibit 10.3.6 Form of VSI Policy relating to Exhibit 10.3(1)................................
10.39 Employment Agreement with Dina L. Penepent(2)................................................
10.40 Master Amendment to Loan and Security Agreements, dated as of August 24, 1995
between Aegis Auto Finance, Inc. and III Finance Ltd(2)......................................
10.41 Amendment No. 4 to Loan and Security Agreement, dated as of September 12, 1995
between Aegis Acceptance Corp., Aegis Consumer Finance, Inc. and III Finance Ltd.(2).........
10.42 Amendment No. 5 to Loan and Security Agreement, dated as of October 18, 1995
between Aegis Acceptance Corp., Aegis Consumer Finance, Inc. and III Finance ................
Ltd.(2)......................................................................................
10.43 Amendment No.5 to Loan and Security Agreement, dated as of September 13, 1995,
between Aegis Auto Finance, Inc. and III Finance Ltd.(2).....................................
10.44 Amendment No. 6 to Loan and Security Agreement, dated as of October 18, 1995,
between Aegis Auto Finance, Inc. and III Finance Ltd.(2).....................................
10.45 Purchase Agreement dated as of 611/95 by and between Aegis Auto Finance, Inc.
as Seller and Aegis Auto Funding Corp. as Purchaser(2).......................................
10.46 Purchase Agreement dated as of 6/20/95 by and between Aegis Auto Funding
Corp. as Seller and Smith Barney Inc. as Purchaser.(2).......................................
10.47 Loan and Security Agreement, dated as of June 20, 1995 between Aegis Auto
Finance, Inc. as Borrower and III Finance Ltd. as Lender.(2).................................
10.47.1 Promissory Note relating to Exhibit 10.45.(2)................................................
10.48. Exhibit 10.30.2 Form of Cash Flow Valuation Report relating to Exhibit
10.29.2, relating to Exhibit 10.21.3, relating to Exhibit 10.21(1)...........................
10.48.1 Exhibit 10.30.3 Pooling and Servicing Agreement relating to Exhibit
10.29.4, relating to Exhibit 10.21.4, relating to Exhibit 10.21(1)...........................
10.48.2 Exhibit 10.30.4 List of Closing Documents relating to Exhibit 10.29.5,
relating to Exhibit 10.21.5, relating to Exhibit 10.21(1)....................................
10.48.3 Exhibit 10.30.5 Form of RDI Policy relating to Exhibit 10.29.6, relating to Exhibit
10.3.4, relating to Exhibit 10.3(1)..........................................................
10.48.4 Exhibit 10.30.6 Form of VSI Policy relating to Exhibit 10.29.7, relating to Exhibit
10.3.6, relating to Exhibit 10.3(1)..........................................................
10.49 Purchase Agreement dated as of 9/1/95 by and between Aegis Auto Finance, Inc.
as Seller and Aegis Auto Funding Corp. as Purchaser.(2)......................................
10.50 Purchase Agreement dated as of 9/20/95 by and between Aegis Auto Funding
Corp. as Seller and Smith Barney Inc. as Purchaser.(2).......................................
10.51 Loan and Security Agreement, dated as of September 25, 1995 between Aegis....................
Auto Finance, Inc. as Borrower and III Finance Ltd. as Lender.(2)............................
10.51.1 Promissory Note relating to Exhibit 10.49.(2)................................................
10.52 Exhibit 10.46 Form of Cash Flow Valuation Report relating to Exhibit
10.30.2, relating to Exhibit 10.29.2, relating to Exhibit 10.21.3, relating to Exhibit
10.21(1).....................................................................................
10.52.1 Exhibit 10.46.1 Pooling and Servicing Agreement relating
to Exhibit 10.30.3, relating to Exhibit 10.29.4, relating
to Exhibit 10.21.4, relating to
Exhibit 10.21(1).............................................................................
10.52.2 Exhibit 10.46.2 List of Closing Documents relating to Exhibit 10.30.4,
relating to Exhibit 10.29.5, relating to Exhibit 10.21.5, relating to Exhibit
10.21(1).....................................................................................
10.52.3 Exhibit 10.46.3 Form of RDI Policy relating to Exhibit 10.30.5, relating to Exhibit
10.29.6, relating to Exhibit 10.3.4, relating to Exhibit 10.3(1).............................
</TABLE>
46
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<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.52.4 Exhibit 10.46.4 Form of VSI Policy relating to Exhibit 10.30.6, relating to Exhibit
10.29.7, relating to Exhibit 10.3.6, relating to Exhibit 10.3(1).............................
10.53 Purchase Agreement dated as of 11/7/95 by and between Aegis Auto
Finance, Inc. as Seller and Cameron State Bank as Purchaser.(2)..............................
10.54 Purchase Agreement dated as of 11/7/95 by and between Aegis Auto Finance, Inc.
as Seller and City Savings Bank and Trust as Purchaser.(2)...................................
10.55 Amendment No. 1 to 6/20/95 Loan and Security Agreement, dated as of October
27, 1995 between Aegis Auto Finance, Inc. and III Finance LTD.(2)............................
10.56 Amendment No. 1 to 9/25/95 Loan and Security Agreement, dated as of October
27, 1995 between Aegis Auto Finance, Inc. and III Finance LTD.(2)............................
10.57 Form of Regulation S Subscription Agreement (2)..............................................
10.57.1 Registration Rights Agreement relating to Exhibit 10.57 (2)..................................
10.58 Loan and Security Agreement, dated as of 11/7/95 between The Aegis Consumer
Funding Group, Inc., as Borrower, and both Aegis Consumer Finance, Inc., and
Aegis Auto Funding Corp.,as Guarantors, and Beckett Reserve Fund, L.L.C.,
as Lender. (2)...............................................................................
10.58.1 Promissory Note relating to Exhibit 10.58.(2)................................................
10.59 Purchase Agreement dated as of 11/7/95 between Aegis Auto Finance, Inc.,
as Seller, and City Savings Bank and Trust as Purchaser.(2)..................................
10.60 Purhase Agreement dated as of 11/7/95 between Aegis Auto Finance, Inc.,
as Seller, and Cameron State Bank as Purchaser.(2)...........................................
10.61 Agreement of Sublease dated as of 11/10/95 between Aegis Consumer
Funding Group, Inc., and Peterson & Ross.(2).................................................
10.62 Purchase Agreement dated as of 12/12/95 between Aegis Auto Finance, Inc.
as Seller and Calcasieu Marine National Bank as Purchaser.(2)................................
10.63 Funding Agreement dated as of 4/4/95 between U.S. Investment Group, Inc.,
and The Aegis Consumer Funding Group, Inc.(2)................................................
10.63.1 Amendment dated as of 8/4/95 relating to Exhibit 10.63.(2)...................................
10.64 Fee Agreement dated as of 12/20/95 with Chaneil Associates.(2)...............................
10.65 Loan Purchase Agreement dated as of 12/1/95 between Aegis Auto Finance, Inc.
and Aegis Auto Funding Corp. II, as Purchaser.(2)............................................
10.65.1 Trust Purchase Agreement dated as of 12/1/95 between Aegis Auto Owner Trust 1995
as Issuer, and Aegis Auto Funding Corp. II, as Seller.(2)....................................
10.65.2 Trust Agreement dated as of 12/1/95 among Aegis Auto Funding Corp. II,
as Depositor, and Bankers Trust as Owner Trustee.(2).........................................
10.65.3 Indenture dated as of 12/1/95 between Aegis Auto Owner Trust 1995, as Issuer, and
Norwest Bank Minnesota, National Association, as Indenture Trustee.(2).......................
10.65.4 Insurance Agreement dated as of 12/1/95 by and between MBIA Insurance
Corporation, as Insurer, Aegis Auto Funding Corp. II, as Seller, Aegis Auto
finance, Inc., as Servicer, Aegis Auto Owner Trust 1995, as Issuer, Norwest
Bank Minnesota, National association, as Indenture Trustee, and Norwest Bank
Minnesota, National Association, as Back-up Servicer.(2).....................................
10.65.5 Servicing Agreement dated as of 12/1/95 among Aegis Auto Finance, Inc., as Servicer,
Aegis Auto Funding Corp. II, as Seller, Aegis Auto Owner Trust 1995, as Issuer, and
Norwest Bank Minnesota, National Association, as Back-up Servicer.(2)........................
10.65.6 Addendum to Servicing Agreement, relating to Exhibit 10.65.5.(2).............................
10.65.7 Placement agency Agreement dated as of 12/13/95, relating to Exhibit 10.65.2.(2).............
10.65.8 Note Purchase Agreement dated as of 12/20/95, by and between Aegis Auto Owner
Trust 1995, Issuer, Aegis Auto Finance, Inc, as Servicer, Aegis Auto Funding Corp.,
as Seller, Market Street Capital Corporation, as Purchaser.(2)...............................
</TABLE>
47
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<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.65.9 Administration Agreement dated as of 12/20/95 between
Aegis Auto Finance, Inc., as Servicer, and Rothschild Inc., as Administrator.(2).............
10.70 Lease Agreement dated as of 11/14/94, between Newport L.G.-I, Inc.,
as Landlord, and The Aegis Consumer Funding Group, Inc., as Tenant.(2).......................
10.70.1 Amendment to Lease, dated as of 12/23/94 between Newport L.G.-I, Inc., as
Landlord, and The Aegis Consumer Funding Group, Inc., as Tenant, relating to
Exhibit 10.70.(2) ...........................................................................
10.70.2 Second Amendment to Lease, dated as of 12/29/95 between Newport L.G.-I, Inc., as
Landlord, and The Aegis Consumer Funding Group, Inc.,as Tenant, relating
to Exhibit 10.70 (2).........................................................................
10.71 Fee Agreement dated as of 12/20/95 with U.S. Investment Group, Inc., relating
to Exhibit 10.63.............................................................................
10.72 Purchase Agreement dated as of 12/1/95 by and between Aegis Auto Finance, Inc.
as Seller and Aegis Auto Funding Corp., as Purchaser.(2).....................................
10.73 Purchase Agreement dated as of 12/20/95 by and between
Aegis Auto Funding Corp. as Seller and Smith Barney Inc., as Purchaser.(2)...................
10.74 Loan and Security Agreement dated as of 12/20/95 between
Aegis Auto Finance, Inc. as Borrower and III Finance Ltd., as Lender.(2).....................
10.74.1 Form of Promissory Note relating to Exhibit 10.60.(2)........................................
10.75 Exhibit 10.48 Form of Cash Flow Valuation Report, relating to Exhibit 10.30.2,
relating to Exhibit 10.29.2, relating to Exhibit 10.21.3, relating to Exhibit 10.21(1).......
10.75.1 Exhibit 10.48.1 Pooling and Servicing Agreement, relating to Exhibit 10.30.3, relating
to Exhibit 10.29.4, relating to Exhibit 10.21.4, relating to Exhibit 10.21(1)................
10.75.2 Exhibit 1048.2 List of Closing Documents, relating to Exhibit 10.30.4,
relating to Exhibit 10.29.5, relating to Exhibit 10.21.5, relating to Exhibit 10.21(1).......
10.75.3 Exhibit 10.48.3 Form of RDI Policy, relating to Exhibit 10.30.5, relating to
Exhibit 10.29.6 relating to Exhibit 10.3.4, relating to Exhibit 10.3(1)......................
10.75.4 Exhibit 10.48.4 Form of VSI Policy, relating to Exhibit 10.30.6, relating to
Exhibit 10.29.7, relating to Exhibit 10.3.6, relating to Exhibit 10.3(1)....................
10.76 Form of Servicing Agreement dated as of 12/1/95 by and between
Aegis Auto Finance, Inc. as Seller and Aegis Auto Funding Corp. as Purchaser.(2).............
10.77 Consultant/Advisor Agreement dated as of 1/2/96, between The Sloane Organization,
as Consultant, and The Aegis Consumer Funding Group, Inc., as the Consultee.(2)..............
10.77.1 Sloane Letter Agreement dated as of 1/3/96, relating to Exhibit 10.77.(2)....................
10.78 Purchase Agreement dated as of 1/19/96 between Aegis Auto Finance, Inc.
as Seller and United Bank and Trust Company as Purchaser.(2).................................
10.79 Purchase Agreement dated as of 1/24/96 between Aegis Auto Finance, Inc.
as Seller and Gulf Coast Bank as Purchaser.(2)...............................................
10.79.1 Reserve Account Agreement, relating to Exhibit 10.79.(2).....................................
10.80 Notice of Annual Meeting of Stockholders and Proxy Statement.(2).............................
10.80.1 Proxy Card, relating to 10.80.(2)............................................................
10.81 Purchase Agreement dated as of 2/29/96 between Aegis Auto Finance, Inc. as
Seller and First Bank of Eunice as Purchaser.(2).............................................
10.82 Purchase Agreement dated as of 3/21/96 between Aegis Auto Finance, Inc. as
Seller and United Bank and Trust Company as Purchaser.(2)....................................
10.83 Purchase Agreement dated as of 3/1/96 by and between Aegis Auto Finance, Inc.
as Seller and Aegis Auto Funding Corp., as Purchaser.(2).....................................
10.84 Purchase Agreement dated as of 3/22/96 by and between Aegis Auto Funding
Corp. as Seller and Greenwich Capitol Markets, Inc., as Purchaser.(2)........................
10.85 Loan and Security Agreement dated as of 3/22/96 between Aegis Auto Finance,
Inc. as Borrower and III Finance Ltd., as Lender.(2).........................................
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.85.1 Form of Promissory Note relating to Exhibit 10.85(2).........................................
10.86 Exhibit 10.75 Form of Cash Flow Valuation Report, relating to Exhibit 10.48
relating to Exhibit 10.30.2, relating to Exhibit 10.29.2, relating to
Exhibit 10.21.3, relating to Exhibit
10.21(1).....................................................................................
10.86.1 Exhibit 10.75.1 Pooling and Servicing Agreement, relating to Exhibit 10.48.1,
relating to Exhibit 10.30.3, relating to Exhibit 10.29.4, relating to Exhibit
10.21.4, relating to Exhibit 10.21(1)........................................................
10.86.2 Exhibit 10.75.2 List of Closing Documents, relating to Exhibit 10.48.2, relating to
Exhibit 10.30.4, relating to Exhibit 10.29.5, relating to Exhibit 10.21.5, relating to
Exhibit 10.21(1).............................................................................
10.86.3 Exhibit 10.75.3 Form of RDI Policy, relating to Exhibit 10.48.3, relating to
Exhibit 10.30.5, relating to Exhibit 10.29.6, relating to Exhibit 10.3.4, relating to
Exhibit 10.3(1)..............................................................................
10.86.4 Exhibit 10.75.4 Form of VSI Policy, relating to Exhibit 10.48.4, relating to
Exhibit 10.30.6, relating to Exhibit 10.29.7, relating to Exhibit 10.3.6, relating to
Exhibit 10.3(1)..............................................................................
10.87 Servicing Agreement dated as of 3/1/96 by and between Aegis Auto Finance, Inc.
as Servicer and Norwest Bank Minnesota, National Association in its capacity as
Backup Servicer and Norwest Bank Minnesota, National Association in its
capacity as Trustee.(2)......................................................................
10.88 Master Servicing Agreement dated as of 4/6/96 by and between American
Lenders Facilities, Inc. as Servicer and Aegis Consumer Finance, Inc. as
Company.(2)..................................................................................
10.89 Subcontracting Agreement dated as of 4/6/96 by and between American Lenders
Facilities, Inc. as Servicer and Aegis Consumer Finance, Inc. as Subcontractor.(2)...........
10.90 Form of Greenwich Capital Markets, Inc. Warrant ("Greenwich Warrant") to
purchase Common Stock of The Aegis Consumer Funding Group, Inc.(2)...........................
10.90.1 Form of Escrow letter concerning Greenwich Warrant, relating to Exhibit 10.90.(2)............
10.90.2 Form of Acknowledgement letter concerning the adequacy of the Greenwich
Warrant, relating to Exhibit 10.90.(2).......................................................
10.91 Exhibit 10.86 Form of Cash Flow Valuation Report, relating to Exhibit 10.75, relating
to Exhibit 10.48, relating to Exhibit 10.30.2, relating to Exhibit 10.29.2, relating to
Exhibit 10.21.3, relating to Exhibit 10.21(1)................................................
10.91.1 Exhibit 10.86.1 Pooling and Servicing Agreement, relating to Exhibit 10.75.1,
relating to Exhibit 10.48.1, relating to Exhibit 10.30.3, relating to Exhibit 10.29.4,
relating to Exhibit 10.21.4, relating to Exhibit 10.21(1)....................................
10.91.2 Exhibit 10.86.2 List of Closing Documents, relating to Exhibit 10.75.2,
relating to Exhibit 10.48.2, relating to Exhibit 10.30.4, relating to Exhibit 10.29.5,
relating to Exhibit 10.21.5, relating to Exhibit 10.21(1)....................................
10.91.3 Exhibit 10.86.3 Form of RDI Policy, relating to Exhibit 10.75.3,
relating to Exhibit 10.48.3, relating to Exhibit 10.30.5, relating to Exhibit 10.29.6,
relating to Exhibit 10.3.4, relating to Exhibit 10.3(1)......................................
10.91.4 Exhibit 10.86.4 Form of VSI Policy, relating to Exhibit 10.75.4,
relating to Exhibit 10.48.4, relating to Exhibit 10.30.6, relating to Exhibit 10.29.7,
relating to Exhibit 10.3.6, relating to Exhibit 10.3(1)......................................
10.91.5 Form of Purchase Agreement dated as of 6/01/96 by and between Aegis Auto Finance,
Inc. as Seller and Aegis Auto Funding Corp., as Purchaser....................................
10.91.6 Form of Purchase Agreement dated as of 6/01/96 by and between Aegis Auto Funding
Corp. III, as seller and Aegis Auto Finance, Inc., as Purchaser..............................
10.91.7 Fom of Servicing Agreement dated as of 6/1/96 by and between Aegis Auto Finance,
Inc. as Servicer and Norwest Bank Minnesota, National Association in its capacity as
Backup Servicer and Norwest Bank Minnesota, National Association in its
capacity as Trustee.(2)......................................................................
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.91.8 Form of Purchase Agreement as of May 17, 1996, by and between Aegis Auto Finance,
Inc. as Seller and Aegis Auto Funding Corp. III as Purchaser.................................
10.92 Form of Rothschild Placement Agency Agreement Letter.........................................
10.93 Greenwich Capital Commitment Letter..........................................................
10.93.1 Amendment to Greenwich Capital Commitment Letter ............................................
10.94 Warehouse Lending Agreement dated as of May 17, 1996 by and between The
Aegis Consumer Funding Group, Inc. as Guarantor, Aegis Auto Funding Corp. III
and Greenwich Capital Financial Products, Inc., as Lender....................................
10.94.1 Form of Note relating to Exhibit 10.94.......................................................
10.94.2 Form of Security Agreement relating to Exhibit 10.94.........................................
10.94.3 Form of Servicing Agreement relating to Exhibit 10.94........................................
10.95 Credit Agreement Dated as of May 17, 1996, Among The Aegis Consumer Funding
Group, Inc. as borrower, Aegis Consumer Finance, Inc., as Guarantor, Aegis Auto
Finance, Inc., as Guarantor, and Greenwich Capital Financial Products, Inc.,
as Lender ...................................................................................
10.95.1 Form of Note relating to Exhibit 10.95.......................................................
10.95.2 Form of Aegis Consumer Finance, Inc. Security and Pledge Agreement relating to
Exhibit 10.95................................................................................
10.95.3 Form of Aegis Auto Finance, Inc. Security and Pledge Agreement
relating to Exhibit 10.95....................................................................
10.95.4 AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 23, 1997
to the Credit Agreement dated as of May 17, 1996 among THE AEGIS CONSUMER
FUNDING GROUP, INC., as Borrower and AEGIS CONSUMER FINANCE, INC.
and AEGIS AUTO FINANCE, INC. as Guarantors and GREENWICH CAPITAL
FINANCIAL PRODUCTS, INC......................................................................
10.96 Loan and Security Agreement dated June 25, 1996, between Aegis Consumer
Finance, Inc. and III Finance, Inc. LTD......................................................
10.96.1 Form of Promissory Note relating to Exhibit 10.96............................................
10.97 PURCHASE AGREEMENT dated as of September 1, 1996 by and between AEGIS
AUTO FINANCE, INC. as Seller and AEGIS AUTO FUNDING CORP. as Purchaser.......................
10.97.1 SERVICING AGREEMENT dated as of September 1, 1996 among AEGIS AUTO FINANCE,
INC., as Servicer NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION in its
capacity as Backup Servicer and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION in its capacity as Trustee...................................
10.97.2 POOLING AND SERVICING AGREEMENT Dated as of September 1, 1996 by
and between AEGIS AUTO FUNDING CORP., as Seller and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION as Trustee and Backup Servicer...............................
10.98 LOAN AND SECURITY AGREEMENT dated as of September 12, 1996 by and between
AEGIS AUTO FINANCE, INC. as Borrower and III FINANCE, INC. as Lender.........................
10.98.1 NOTE relating to 10.98.......................................................................
10.99 POOLING AND SERVICING AGREEMENT dated as of September 1, 1996 by and
between AEGIS AUTO FUNDING CORP., as Seller and NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee and Backup Servicer.........................................
10.99.1 PURCHASE AGREEMENT dated as of September 1, 1996 by and
between AEGIS AUTO FINANCE, INC. as Seller and AEGIS AUTO
FUNDING CORP. as Purchaser...................................................................
10.99.2 CERTIFICATE PURCHASE AGREEMENT dated as of September 27,
1996 by and between AEGIS AUTO FUNDING CORP. and
GREENWICH CAPITAL MARKETS, INC...............................................................
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.100 SERVICING AGREEMENT dated as of September 1, 1996 among AEGIS AUTO FINANCE,
INC., as Servicer, NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION in its
capacity as Backup Servicer and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION in its capacity as Trustee.......................................................
10.101 Employment Agreement by and between SYSTEMS AND SERVICES TECHNOLOGIES,
INC. and Matthew B. Burns....................................................................
10.102 Employment Agreement by and between SYSTEMS AND SERVICES TECHNOLOGIES,
INC. and John Chappell.......................................................................
10.103 PURCHASE AGREEMENT dated as of December 9, 1996 by and
between AEGIS AUTO FINANCE, INC. as Seller and ENTERPRISE
NATIONAL BANK OF PALM BEACH as Purchaser.....................................................
10.103.A FIRST MODIFICATION OF PURCHASE AGREEMENT
dated as of March 20, 1997, by and between AEGIS
AUTO FINANCE, INC. as Seller and ENTERPRISE
NATIONAL BANK OF PALM BEACH as Purchaser.....................................................
10.103.1 ADDENDUM TO MASTER SERVICING AGREEMENT dated as of
December 9, 1996 by and among AMERICAN LENDERS FACILITIES,
INC. as Servicer, AEGIS CONSUMER FINANCE, INC., AEGIS AUTO
FINANCE INC. as Seller and ENTERPRISE NATIONAL BANK OF
PALM BEACH...................................................................................
10.103.1A MODIFICATION OF ADDENDUM TO MASTER SERVICING
AGREEMENT dated as of March 20, 1997, by
and among AMERICAN LENDERS FACILITIES, INC.
as Servicer, AEGIS CONSUMER FINANCE, INC., AEGIS
AUTO FINANCE, INC. as Seller and ENTERPRISE NATIONAL
BANK OF PALM BEACH as Purchaser..............................................................
10.104 MASTER TRUST AGREEMENT dated as of March 1, 1997, by and
among AEGIS AUTO FUNDING CORP. IV, NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION as Backup Servicer,
and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Trustee with respect to the Aegis Auto Receivables Trusts.................................
10.104.1 MASTER PURCHASE AGREEMENT dated as of
March 1, 1997, by and between AEGIS AUTO FINANCE, INC. as
Borrower and AEGIS AUTO FUNDING CORP. IV.....................................................
10.104.2 MASTER SERVICING AGREEMENT dated as of March
1, 1997, by and among AEGIS AUTO FUNDING CORP. IV,
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Backup Servicer and NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION as Trustee..............................................................
10.104.3 POOLING AND SERVICING AGREEMENT dated as of March 1,
1997, by and among AEGIS AUTO FUNDING CORP. IV., NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION as Trustee and
Backup Servicer..............................................................................
10.104.4 MASTER CERTIFICATE PURCHASE AGREEMENT dated as of
March 14, 1997, by and among AEGIS AUTO FUNDING CORP. IV
THE AEGIS CONSUMER FUNDING GROUP, INC., and III FINANCE
LTD., III GLOBAL LTD. and III LIMITED PARTNERSHIP,
collectively, as Purchasers..................................................................
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.104.5 POOLING AND SERVICING AGREEMENT dated as of April 1, 1997,
by and between AEGIS AUTO FUNDING CORP. IV, as Seller
and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee and Backup Servicer...............................................................
10.104.6 SUPPLEMENTAL CONVEYANCE dated as of April 16, 1997, by
AEGIS AUTO FINANCE, INC. to AEGIS AUTO FUNDING CORP. IV,
as Purchaser.................................................................................
10.104.7 PROMISSORY NOTE dated as of Apr 16, 1997, executed by THE
AEGIS CONSUMER FUNDING GROUP, INC. in favor of AEGIS
AUTO FUNDING CORP. IV........................................................................
10.104.8 POOLING AND SERVICING dated as of May 1, 1997,
by and between AEGIS AUTO FUNDING CORP. IV, as Seller
and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee and Backup Servicer..................................................
10.104.9 PROMISSORY NOTE dated as of May 12, 1997, executed by THE
AEGIS CONSUMER FUNDING GROUP, INC. in favor of
AEGIS AUTO FUNDING CORP. IV.
10.104.10 SUPPLEMENTAL CONVEYANCE dated as of May 12, 1997,
executed by AEGIS AUTO FINANCE, INC. to AEGIS AUTO
FUNDING CORP. IV, as Purchaser...............................................................
10.104.11 AMENDED AND RESTATED MASTER TRUST AGREEMENT dated as of May
1, 1997, by and between AEGIS AUTO FUNDING CORP. IV, as Seller and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee.....................................
10.104.12 POOLING AND SERVICING AGREEMENT dated as of [ ] by and
between AEGIS AUTO FUNDING CORP. IV, as Seller and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, as Trustee and Backup Servicer..............................
10.104.13 SUPPLEMENTAL CONVEYANCE dated as of [ ] by AEGIS AUTO
FINANCE, INC. to AEGIS AUTO FUNDING CORP. IV, as Purchaser...................................
10.104.14 TERM NOTE dated as of [ ] by THE AEGIS CONSUMER FUNDING
GROUP, INC. in favor of AEGIS AUTO FUNDING CORP. IV..........................................
10.104.15 POOLING AND SERVICING AGREEMENT dated as of [ ] by and between
AEGIS AUTO FUNDING CORP. IV, as Seller and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, as Trustee and Backup Servicer..............................
10.104.16 SUPPLEMENTAL CONVEYANCE dated as of [ ] by AEGIS AUTO
FINANCE, INC. to AEGIS AUTO FUNDING CORP. IV, as Purchaser...................................
10.104.17 TERM NOTE dated as of [ ] by THE AEGIS CONSUMER FUNDING
GROUP, INC. in favor of AEGIS AUTO FUNDING CORP. IV..........................................
10.105 LOAN AND SECURITY AGREEMENT dated as of March
14, 1997, by and among AEGIS AUTO FINANCE, INC. as
Borrower, III FINANCE LTD. and III GLOBAL LTD., collectively
as Lenders...................................................................................
10.105.1 PROMISSORY NOTE dated as of March 14, 1997,
executed by AEGIS AUTO FINANCE, INC. in favor of III FINANCE
LTD..........................................................................................
10.105.2 PROMISSORY NOTE dated as of March 14, 1997,
executed by AEGIS AUTO FINANCE, INC. in favor of
III GLOBAL LTD...............................................................................
10.105.3 GUARANTY dated as of March 14, 1997, executed by THE AEGIS
CONSUMER FUNDING GROUP, INC. in favor of III FINANCE
LTD. and III GLOBAL LTD......................................................................
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.105.4 PLEDGE AGREEMENT dated as of March 14,1997,
executed by THE AEGIS CONSUMER FUNDING GROUP, INC. in
favor of III FINANCE LTD. and III GLOBAL LTD.................................................
10.105.5 PLEDGE AGREEMENT dated as of March 14, 1997,
executed by AEGIS CONSUMER FINANCE, INC. in favor of
III FINANCE LTD. and III GLOBAL LTD..........................................................
10.105.6 PLEDGE AGREEMENT dated as of March 14, 1997,
executed by AEGIS CAPITAL MARKETS, INC.
(d/b/a MARKETS) in favor of III FINANCE LTD. AND III
GLOBAL LTD...................................................................................
10.105.7 RETAINED YIELD PLEDGE AGREEMENT dated as of March 14,
1997, executed by AEGIS AUTO FINANCE, INC. in favor of III
FINANCE LTD..................................................................................
10.105.8 AMENDMENT NO. 6 dated as of March 12, 1997,
by and among AEGIS ACCEPTANCE CORP., AEGIS CONSUMER
FINANCE, INC. and III FINANCE LTD. to the LOAN AND
SECURITY AGREEMENT dated as of February 28, 1994.............................................
10.105.9 SECURITY AGREEMENT dated as of March 14,
1997, by and between AEGIS ACCEPTANCE CORP. and AEGIS
CONSUMER FINANCE, INC., as grantors and III FINANCE LTD.
and III GLOBAL LTD., as Secured Parties......................................................
10.105.10 MASTER AMENDMENT TO LOAN AND
SECURITY AGREEMENT dated as of March 19, 1997 by and
between AEGIS CONSUMER FINANCE, INC. and AEGIS AUTO
FINANCE, INC., as Borrowers and III FINANCE LTD., as
Lender and an ASSIGNMENT AGREEMENT dated as of March 19,
1997 by and among AEGIS CAPITAL MARKETS, AEGIS ACCEPTANCE
CORP. AND AEGIS AUTO FINANCE, INC............................................................
10.106 SERVICING AGREEMENT dated as of January 3, 1997,
by and between SYSTEMS & SERVICES TECHNOLOGIES, INC.
and AEGIS CONSUMER FINANCE, INC..............................................................
10.107 INDENTURE dated as of April 30, 1997, among AEGIS AUTO FINANCE, INC.,
as Borrower, THE AEGIS CONSUMER FUNDING GROUP and NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture Trustee as to
the Subordinated Debentures..................................................................
10.107.1 12% EXCHANGEABLE SUBORDINATED NOTES due 2004 (i) the first payable
to THE HIGH RISK OPPORTUNITIES HUB FUND LTD. in the principal amount
of $5,000,000; and (ii) the second payable to III FINANCE LTD. in the principal
amount of $16,333,333........................................................................
10.107.2 NOTE PURCHASE AGREEMENT dated as of April 30, 1997, among AEGIS
AUTO FINANCE, INC., THE AEGIS CONSUMER FUNDING GROUP, INC.,
III FINANCE LTD. AND THE HIGH RISK OPPORTUNITIES HUB FUND LTD.
10.107.3 REGISTRATION RIGHTS AGREEMENT dated as of April 30, 1997, among
THE AEGIS CONSUMER FUNDING GROUP, INC., THE HIGH RISK
OPPORTUNITIES HUB FUND LTD., AND III FINANCE LTD.............................................
10.107.4 GUARANTY AGREEMENT dated as of April 30, 1997, executed by THE AEGIS
CONSUMER FUNDING GROUP, INC. in favor of NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, as Indenture Trustee.
10.107.5 PLEDGE AGREEMENT dated as of April 30, 1997, from THE AEGIS
CONSUMER FUNDING GROUP, INC. to NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Indenture Trustee...................................................
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ----------- --------
<S> <C> <C>
10.107.6 PLEDGE AGREEMENT dated as of April 30, 1997, from AEGIS CONSUMER
FINANCE, INC. to NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION..................................................................................
10.107.7 PLEDGE AGREEMENT dated as of April 30, 1997, from AEGIS CAPITAL
MARKETS, INC. to NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION..................................................................................
10.107.8 PLEDGE AGREEMENT dated as of April 30, 1997, from AEGIS AUTO
FINANCE, INC. to NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION..................................................................................
10.107.9 PLEDGE AGREEMENT dated as of April 30, 1997, from AEGIS CONSUMER
FINANCE, INC. to NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION..................................................................................
10.107.10S ECURITY AGREEMENT dated as of April 30, 1997, from AEGIS AUTO
FINANCE, INC. to NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION..................................................................................
10.107.11 SECURITY AGREEMENT dated as of April 30, 1997, from AEGIS
ACCEPTANCE CORP. and AEGIS CONSUMER FINANCE, INC. to NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION.........................................................
10.107.12 LIEN SUBORDINATION AGREEMENT dated as of April 30, 1997, by
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION in favor
of III FINANCE LTD...........................................................................
10.107.13 DESIGNEE AMENDMENT AGREEMENT dated as of April 30, 1997, from
AEGIS CONSUMER FINANCE, INC. and acknowledged by III FINANCE LTD.
and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION.............................................
10.107.14 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
CLASSD REDEEMABLE PREFERRED STOCK OF THE AEGIS CONSUMER
FUNDING GROUP, INC. dated as of May 15, 1997.................................................
10.108 AMENDED AND RESTATED MASTER LOAN AGREEMENT dated as of
April 30, 1997, among AEGIS AUTO FINANCE, INC., AEGIS CONSUMER
FINANCE, INC. AND III FINANCE LTD............................................................
10.108.1 AMENDED AND RESTATED NOTE dated as of May 21, 1997...........................................
10.108.2 PLEDGE AGREEMENT dated as of April 30, 1997, from AEGIS AUTO
FINANCE, INC. to III FINANCE LTD.............................................................
10.108.3 PLEDGE AGREEMENT dated as April 30, 1997, from AEGIS CONSUMER
FINANCE, INC. to III FINANCE LTD.............................................................
10.108.4 MASTER SECURITY AGREEMENT dated as of April 30, 1997, from each of
THE AEGIS CONSUMER FUNDING GROUP, INC., AEGIS CONSUMER
FINANCE, INC., AEGIS CAPITAL MARKETS, INC. and AEGIS AUTO
FINANCE, INC. to III FINANCE LTD.............................................................
10.108.5 GUARANTY dated as of April 30, 1997, from THE AEGIS CONSUMER
FUNDING GROUP, INC. to III FINANCE LTD.......................................................
10.109 EMPLOYMENT AGREEMENT dated as of July 1, 1997, by and between THE
AEGIS CONSUMER FUNDING GROUP, INC. and Mr. William F. Henle.
11 Computation of Earnings Per Share............................................................
21 Subsidiaries of the Company(1)...............................................................
27 Financial Data Schedule......................................................................
</TABLE>
54
<PAGE>
THE AEGIS CONSUMER FUNDING GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors..............................................................F-2
Consolidated Statements of Financial Condition at June 30, 1996 and 1997 ...................F-3
Consolidated Statements of Income for the fiscal years ended June 30, 1995, 1996
and 1997................................................................................F-4
Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended
June 30, 1995, 1996 and 1997............................................................F-5
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1995, 1996
and 1997................................................................................F-6
Notes to Consolidated Financial Statements..................................................F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
The Aegis Consumer Funding Group, Inc.
We have audited the accompanying consolidated statements of financial
condition of The Aegis Consumer Funding Group, Inc. and subsidiaries (the
"Company") as of June 30, 1997 and 1996 and the related consolidated statements
of income, changes in stockholders' equity, and cash flows for the three years
in the period ended June 30, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of June 30, 1997 and 1996 and the consolidated results of its
operations and its cash flows for the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
September __, 1997
New York, New York
F-2
<PAGE>
The Aegis Consumer Funding Group, Inc.
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
Assets
June 30,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 3,090,624 $ 4,492,591
Interest and other receivables 1,660,442 4,146,667
Automobile finance receivables, net 41,058,222 33,572,010
Retained interests in securitized receivables 70,242,773 36,329,946
Fixed assets, net of accumulated
depreciation of $712,073 in 1995
and $1,401,048 in 1996 1,817,356 5,024,814
Other assets 3,582,337 3,234,620
------------ ------------
$121,451,754 $ 87,720,321
============ ============
Liabilities and stockholders' equity
Warehouse credit facilities $ 37,202,342 $ 17,407,004
Notes payable 29,848,859 38,409,302
Accounts payable and accrued expenses 11,220,644 14,685,011
Income taxes payable 9,188,444 764,902
------------ ------------
Total liabilities 87,460,289 71,266,219
------------ ------------
Subordinated debentures, net -- 24,031,746
------------ ------------
Stockholders' equity:
Common stock, $.01 par value; 30,000,000
shares authorized; shares issued
and outstanding in 1996 and 17,677,217 shares
issued and outstanding in 1997 154,560 176,772
Preferred stock, Series C, $0.10 par value;
1,100 shares authorized; 920 shares
issued; 525 shares outstanding in 1996
and 106 shares outstanding in 1997 53 11
Paid-in capital 22,199,545 22,303,034
Retained earnings, (defecit) since date of
recapitalization (March 1, 1992) 11,637,307 (30,057,461)
------------ ------------
Total stockholders' equity 33,991,465 7,577,644
------------ ------------
$121,451,754 $ 87,720,321
============ ============
</TABLE>
See notes to these consolidated financial statements.
F-3
<PAGE>
The Aegis Consumer Funding Group, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Gains (losses) from securitization transactions, net $ 9,522,648 $ 32,428,861 ($ 9,438,729)
Interest income 6,853,819 13,576,948 22,221,346
Servicing fee income 4,037,772
Fees and commissions earned 769,953 283,319 138,072
Fees and commissions earned - related parties 275,000 -- --
Other income 388,881 38,759 1,140,990
------------ ------------ ------------
17,810,301 46,327,887 18,099,451
------------ ------------ ------------
Operating Expenses:
Interest 4,541,006 10,090,712 16,486,325
Interest paid to related parties 252,879 -- --
Salaries and other employee costs 3,896,697 8,267,376 14,324,924
Provision for credit losses 941,354 3,504,62 9,426,802
Charge for release of escrowed shares 878,739 806,886 --
Office expenses 744,149 899,667 2,082,352
Professional fees 372,324 1,131,759 2,330,632
Professional fees to related parties 350,000 125,000 --
Rent and electricity 615,749 1,249,557 2,018,778
Communications 606,523 974,979 2,463,008
Amortization and depreciation 453,821 611,833 1,140,478
Travel and entertainment 126,640 300,042 483,106
Dealer list purchased from related parties -- --
Other 988,775 1,604,816 2,271,800
------------ ------------ ------------
14,768,656 29,567,249 53,028,205
------------ ------------ ------------
Net income before income taxes 3,041,645 16,760,638 (34,928,754)
Income taxes 1,768,024 7,472,022 (8,427,030)
------------ ------------ ------------
Net income $ 1,273,621 $ 9,288,616 ($26,501,724)
============ ============ ============
Net income available for common stockholders $ 1,079,423 $ 9,017,976 ($26,694,201)
============ ============ ============
Net income per common and common equivalent share:
Primary Earnings Per Share:
Historical basis $ 0.09 $ 0.65
============ ============
Pro-forma basis $ 0.12 N/A N/A
============ ============ ============
Fully Diluted Earnings Per Share:
Historical basis 0.08 $ 0.61
============ ============
Pro forma basis $ 0.11 N/A N/A
============ ============ ============
</TABLE>
See notes to these consolidated financial statements.
F-4
<PAGE>
The Aegis Consumer Funding Group, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 1994 , 1995 and 1996
<TABLE>
<CAPTION>
Other
Preferred Stock Transactions Retained
Common ------------------ Paid-in With (Defecit)
Stock Series B Series C Capital Shareholders Earnings Total
------ -------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1 , 1994 $122,563 $ 25 $ -- $ 2,755,484 ($335,000) $ 1,539,907 $ 4,082,979
Issuance of common stock from
initial public offering, net 21,921 -- -- 11,824,936 -- -- 11,846,857
Issuance of common stock from
exercise of warrants 3,284 -- -- 23,716 -- -- 27,000
Amortization of common stock issued -- -- -- -- 25,000 -- 25,000
Redemption of preferred stock -- (25) -- (2,452,653) -- -- (2,452,678)
Repayment of stockholder receivable -- -- -- -- 210,000 -- 210,000
Net income -- -- -- -- -- 1,273,621 1,273,621
Release of escrowed shares -- -- -- 878,739 -- -- 878,739
Series B preferred stock dividends -- -- -- -- -- (194,198) (194,198)
-------- ---- ---- ------------ --------- ------------ ------------
Balance, June 30, 1995 147,768 -- -- 13,030,222 (100,000) 2,619,330 15,697,320
Issuance of Series C preferred stock -- -- 92 8,463,908 -- -- 8,464,000
Conversions of Series C preferred
stock to common stock 6,792 -- (31) (6,761) -- -- --
Redemptions of Series C preferred stock -- -- (8) (1,104,413) -- -- (1,104,421)
Issuance of warrants from debt agreements -- -- -- 739,064 -- -- 739,064
Amortization of common stock issued -- -- -- -- 100,000 -- 100,000
Net income -- -- -- -- -- 9,288,616 9,288,616
Release of escrow shares -- -- -- 806,886 -- -- 806,886
Series C preferred stock dividends -- -- -- 270,639 -- (270,639) --
-------- ---- ---- ------------ --------- ------------ ------------
Balance, June 30, 1996 154,560 -- 53 22,199,545 -- 11,637,307 33,991,465
-------- ---- ---- ------------ --------- ------------ ------------
Conversion of Series C preferred
stock to common stock 22,212 -- (42) (22,170) -- -- --
Issuance of warrants from debt
agreements 265,985
Treasury stock reclassed to common
from preferred stock conversion -- -- -- (340,000) -- -- (340,000)
Net loss -- -- -- -- -- (26,501,724) (26,501,724)
Series C preferred stock dividends -- -- -- 199,674 -- (192,477) --
-------- ---- ---- ------------ --------- ------------ ------------
Balance, June 30, 1997 $176,772 $ -- $ 11 $ 22,303,034 -- $ 15,056,894 $ 7,422,923
======== ==== ==== ============ ========= ============ ============
</TABLE>
See notes to these consolidated financial statements.
F-5
<PAGE>
The Aegis Consumer Funding Group, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,273,621 $ 9,288,616 ($ 41,495,093)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Amortization and depreciation 453,821 611,833c 1,140,478
Provision for credit losses 941,354 3,504,622 9,426,802
Valuation allowance on note receivable -- 600,000 --
Provision (benefit) for deferred income taxes 1,546,540 5,918,034
Release of Escrowed shares 878,739 806,886 --
Unrealized gains on securitization transactions (21,439,207) (53,950,552) (12,316,889)
Sale of retained yield assets 1,028,797
Write down of retained interests in securitized receivables -- 7,500,000 46,000,000
Automobile finance receivables portfolio:
Purchases of automobile finance receivables (162,154,536) (451,972,152) (593,755,887)
Sales of automobile finance receivables 123,899,778 432,582,175 567,209,169
Repayments of automobile finance receivables 6,515,100 15,930,459 24,341,440
Increase in prepaid insurance and direct costs of acquisition
net of deferred acquisition fees (757,582) (1,319,746) 7,257,419
Decrease in note receivable -- 7,651,985 --
(Increas) decrease in interest and other receivables (4,182,398) 3,047,448 --
Increase in other assets (217,500) (2,551,691) 160,556
(Increase)(decrease) in accounts payable and accrued expenses 5,017,747 5,104,868 4,196,022
Decrease (increase) in income taxes payable (983,063) 1,464,933 (9,155,199)
------------- ------------- -------------
Net cash used in operating activities (49,207,586) (15,782,282) 4,037,615
------------- ------------- -------------
Cash flows from investing activities:
Additional payments to securitized receivable trusts -- (2,335,562) (2,4212849)
Distributions from retained interests in securitized receivables 1,796,173 2,991,063 1,622,203
Purchases of fixed assets (802,419) (1,045,553) (6,239,621)
Write off fixed asets
Purchase of sales territory (248,490) --
Net cash provided by (used in) investing activities 745,264 (390,052) 703,897,020
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from borrowings under warehouse credit
facilities 161,641,043 468,882,721 626,283,300
Repayment of borrowings under warehouse credit facilities (128,738,913) (479,842,650) (646,078,639)
Proceeds from borrowings under notes payable 16,044,277 39,416,908 84,325,383
Repayment of borrowings under notes payable (3,088,154) (22,524,171) (75,764,941)
Proceeds from borrowings under revolving credit facility 5,273,006 --
Repayment of borrowings under revolving credit facility (7,116,673) --
Proceeds from subordinated debt -- -- 26,333,333
Pay of subordinated debt/Unamortized costs of sub debt -- -- (2,301,587)
Utilization of net operating loss carryforward -- --
Proceeds from initial public offering, net 11,846,857 --
Exercise of warrants to purchase common stock 27,000 --
Preferred stock, Series B dividends paid (194,198) --
Proceeds from repayment of stockholder receivable 210,000 --
Redemption of preferred stock, Series B in 1995, Series C in 1996 (2,452,678) (1,104,421) --
Purchase of treasury stock (340,000)
Dividends preferred stock 21,435
Proceeds from preferred stock issue, Series C -- 8,464,000
------------- ------------- -------------
Net cash provided by financing activities 53,451,567 13,292,387 12,478,284
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 4,989,245 (2,879,947) 1,401,967
Cash and cash equivalents, beginning of year 981,326 5,970,571 3,090,624
------------- ------------- -------------
Cash and cash equivalents, end of year $ 5,970,571 $ 3,090,624 $ 4,492,591
============= ============= =============
</TABLE>
See notes to these consolidated financial statements.
F-6
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of The Aegis
Consumer Funding Group, Inc. (ACFG), and its wholly owned subsidiaries
(collectively, the "Company"). Such subsidiaries are engaged primarily in
automobile finance (acquiring automobile retail installment contracts and from
April 1994 through August 1995 originated automobile leases), the capital
markets business (structuring the securitizations of the Company), loan
servicing (as of January 1, 1997) and providing financial advise to
institutional investors. All material intercompany balances and transactions
have been eliminated.
ACFG was formed for the purpose of providing management and operational
services to its subsidiaries. Its principal subsidiaries, Aegis Consumer
Finance, Inc. (ACF),ams Systems and Services Technologies, Inc. ("SST") were
formed for the purpose of providing operational services, warehouse facility
arrangements and marketing support for its subsidiaries, and to service loans
acquired by the Companyas well as other types of marginal loans originated by
third parties, respectively.
On March 1, 1992, the Company underwent a significant recapitalization; at
that time, the approximately $3,000,000 deficit from the operations of the
Company since the date of formation (October 4, 1989) were transferred to paid
in capital. The carrying amount of the Company's assets and liabilities
approximated their fair values at that time.
Certain prior year financial statement line items have been reclassified to
conform to current year presentation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and short-term investments with an original maturity of less than ninety
days.
Automobile Finance Receivables
Automobile finance receivables held for sale (through the securitization
process) are carried at the lower of cost or market value. Market value is
estimated based on the characteristics of the finance contracts held for sale
and the terms of recent securitizations of similar finance contracts completed
by the Company and others. Automobile finance receivables held as investments
are receivables the Company believes it can not currently securitize and are
carried at their amortized cost.
The Company's evaluation of its allowance for credit losses is based upon
the Company's historical and expected future default rates, the liquidation
value of the underlying collateral in the existing portfolio, estimates of
repossession expenses and any recoveries expected from insurance proceeds. The
Company's charge off policy is based on a receivable-by-receivable review.
Interest on automobile finance receivables is accrued and credited to interest
income based upon the daily principal amount outstanding using the interest
method. If an automobile receivable becomes more than 60 days delinquent in its
payment of interest and principal, the Company no longer accrues interest
revenue and reverses all interest previously accrued and uncollected.
Finance contract acquisition fees received, insurance premiums paid and
direct costs incurred for the underwriting and acquisition of automobile finance
receivables held for sale are deferred until the related automobile finance
receivables are securitized and sold. Origination fees received, insurance
premiums paid at origination, and direct costs incurred for the underwriting and
origination of automobile finance receivables held for investment are deferred
and amortized to interest income over their contractual lives using the interest
method. Unamortized amounts are recognized in income at the time that automobile
finance receivables are sold or paid in full.
Retained Interests in Securitized Receivables
Retained interests in securitized receivables represent the discounted
amount of expected collections from securitized receivables in excess of the
amounts due to investors in the securitizations. Amortization of the carrying
value amount is based on the declines during the period in the present value of
the currently projected collections using the same discount rate as was
appropriate at the time of securitization.
F-7
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
Fixed Assets
The Company depreciates fixed assets on a straight-line basis over their
estimated useful lives which range from three to seven years. Leasehold
improvements are amortized over the lesser of the estimated useful life of the
asset or the remaining life of the lease.
Fees and Commissions
Fees and commissions earned are recorded as income at the closing date of
the related transaction or as they are earned in accordance with the terms of
the underlying agreements.
Income Taxes
Deferred income taxes are determined by recognizing deferred tax assets and
liabilities for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. The realization of deferred tax assets is assessed
and a valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Use of Estimates and Judgements
The Company's consolidated financial statements include amounts determined
using estimates and assumptions. For example, estimates and assumptions are used
in determining asset valuations and allowances for retained interests in
securitized receivables, automobile finance receivables and interest receivable.
While these estimates are based on the best judgement of management, actual
results could differ from these estimates.
Impact of New Accounting Pronouncements
The Company has not adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which was issued by
the Financial Accounting Standards Board in October 1995. SFAS 123 provides for
companies to recognize compensation expense associated with stock based
compensation plans over the anticipated service period based on the fair value
of the award on the date of grant. SFAS 123 is effective for fiscal years
beginning after December 15, 1995. Upon adoption, and as allowed under SFAS 123,
the Company plans to elect to adopt SFAS 123's disclosure only alternative and
will continue to account for stock-based compensation as prescribed by
Accounting Principles Board Opinion No 25, "Accounting for Stock Issued to
Employees."
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFAS 125"), was issued by the Financial Accounting Standards Board in June
1996. SFAS 125 provides for companies, upon a transfer of financial assets, to
recognize financial and servicing assets it controls, derecognize financial
assets when control has been surrendered and derecognize liabilities when
extinguished. SFAS 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996. SFAS
125 will not have a material impact on the Company's consolidated financial
statements.
2. AUTOMOBILE FINANCE RECEIVABLES, NET
ACF, through its subsidiaries, acquires retail installment contracts
("finance contracts") and from April 1994 through August 1995 originated direct
finance receivables ("leases") maturing within a range of three to five years.
At June 30, 1996, 27%, 22%, and 15%, respectively of automobile finance
receivables outstanding were acquired in Georgia, Louisiana and North Carolina,
respectively, with the remaining 36% being originated in 29 other states. At
June 30, 1997, ____%, ____%, ____% and ____% of automobile receivables
outstanding were purchased in Florida, Georgia, Louisiana and North Carolina,
respectively, with the remaining ____% being generated in ____ other states.
Automobile finance receivables are acquired through the Company's established
dealership base to individual consumers with sub-prime credit.
F-8
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
2. AUTOMOBILE FINANCE RECEIVABLES, NET (CONTINUED)
For the fiscal years ended June 30, 1995, 1996 and June 30, 1997, separate
groups of Dealers with common ownership accounted for _____ %, _____ % and ____%
respectively, of the finance contracts and leases acquired or originated by the
Company. In addition; for the fiscal year ended June 30, 1995, approximately
20.3%, 19.1%, 16.3% and 15.1% of all automobile finance receivables were
purchased in North Carolina, Florida, Louisiana and Georgia, respectively, for
the fiscal year ended June 30, 1996, 20.7%, 15.2%, 14.4% and 12.8% of all
automobile finance receivables were purchased in Florida, North Carolina,
Georgia and Texas and for the fiscal year ended June 30, 1997, approximately
____%, _____ %, _____ % and _____ % of all automobile finance receivables were
purchased in the Georgia, Florida, North Carolina and New Jersey, respectively.
Independent marketing brokers are engaged by the Company to introduce Dealers in
Florida, Louisiana and four other states.
ACF periodically packages and securitizes, as asset-backed securities,
portions of its automobile finance receivables to sell to institutional
investors. During the years ended June 30, 1995, 1996 and 1997, the Company
securitized $11.93 million, $424.8 million and $ _____ million, respectively, of
its automobile finance contracts. For the years ended June 30, 1995, 1996 and
1997, the Company also sold $12.3, $7.8 million and $ _______ million,
respectively, of its finance contract receivables in whole loan sales. The
Company contracts with a third party agent to perform all servicing for its
automobile finance receivables acquired prior to December 31, 1996. Effective in
April 1995, the Company entered into a sub-servicing agreement, whereby it
performs certain collection functions on designated automobile finance
receivables and receives a sub-servicing fee. This servicer is also retained by
the purchasers of the asset-backed securitization transactions. Effective
January 1, 1997, the Company's wholly owned subsidiary, SST, began servicing its
finance contracts as acquired. In May of 1997, the Company transferred servicing
on $______ million from its third party servicer to SST, including $______
million of finance contracts in asset-back securitization transactions.
Automobile finance receivables consist of the following:
Year Ended June 30,
----------------------------
1996 1997
------------- ------------
Automobile finance contracts -
Held for sale $ 12,930,864
Held for investment 11,426,903
Automobile leases - held for investment 25,991,174
Unearned income on automobile leases (6,156,486)
Unamortized prepaid insurance and direct costs of
acquisition, net of deferred acquisition fees 9,451
------------
44,201,906
Less allowance for credit losses (3,143,684)
------------
$ 41,058,222
============
Weighted average interest rates:
Finance contracts 20.10%
============
Leases 16.53%
============
The Company's expected future minimum lease payments from performing leases to
be received as of June 30, 1996 are as follows:
Year Ending
June 30 Amount
------- ------
1998 $ 5,549,000
1999 5,462,000
2000 4,539,000
-----------
$17,019,000
===========
F-9
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
2. AUTOMOBILE FINANCE RECEIVABLES, NET (CONTINUED)
An analysis of the allowance for credit losses follows:
Year Ended June 30,
------------------------------
1995 1996
----------- -----------
Balance, beginning of year $ 268,194 $ 1,183,988
Provision charged to income 941,354 3,504,622
Charge-offs (25,560) (1,544,926)
----------- -----------
Balance, end of year $ 1,183,988 $ 3,143,684
=========== ===========
As of June 30, 1995 and 1996, substantially all automobile finance
receivables are pledged as security under the Company's warehouse credit
facilities.
At June 30, 1996 and 1997, the estimated fair value of the Company's
automobile finance receivables held for sale approximated $13.5 million and
$_____ million, respectively, which is $931,000 and $ ________ respectively, in
excess of book value. The estimated fair values of the Company's automobile
finance receivables held for investment at June 30, 1996 and 1997 approximated
their book values of $28.6 million and $ ______ million, respectively.
3. RETAINED INTERESTS IN SECURITIZED RECEIVABLES
Retained interests in securitized receivables are computed by taking into
account certain assumptions regarding prepayments, defaults, servicing and other
costs. The Company reviews on a quarterly basis the retained interests in
securitized receivables. If actual experience differs from the Company's
assumptions or to the extent that market and economic changes occur that
adversely impact the assumptions utilized in determining the retained interests
in securitized receivables, the Company records a charge against gains from
securitization transactions. The discount rate utilized in determining the
retained interest in securitized receivables and gain from securitization
transactions is based on the Company's estimate of the yield required by a third
party purchaser of such instrument. The Company also bases these assumptions on
the performance characteristics of the Company's finance contract portfolio to
date. The Company's default assumptions are based on estimated repossession
rates, proceeds from the liquidation of repossessed vehicles, proceeds from VSI
Policy coverage and recoveries from the Company's credit default insurance.
An analysis of the retained interests in securitized receivables follows
(in thousands):
Year Ended June 30,
--------------------------
1996 1997
-------- --------
Balance, beginning of year $ 23,985 $ 70,243
Additions 56,749 14,738
Amortization (2,991) (2,651)
Write-downs (7,500) (31,000)
-------- --------
Balance, end of year $ 70,243 $ 51,330
======== ========
The estimated fair values of the Company retained interests in securitized
receivables at June 30, 1996 and 1997 approximated their book values of $70.2
million and $51.3 million, respectively.
F-10
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
4. WAREHOUSE AND OTHER CREDIT FACILITIES
[ACF has two separate two-year Loan and Security agreements with III
Finance Ltd. ("III Finance"), (the "Auto Agreements") whereby, as borrower, it
may borrow, in total, the lesser of $100,000,000 or the sum of the outstanding
principal amount of auto finance contracts or leases, as defined, for the
purpose of financing auto finance contracts or leases in accordance with ACF's
underwriting guidelines. Interest is charged at the annual rate of the one-month
LIBOR plus 4.0%, adjusted monthly. As of June 30, 1995 and 1996, amounts
outstanding under the Auto Agreements were $______________ and $___________,
respectively, and the applicable interest rate was 10.0625% and 9.4805%,
respectively. The Auto Agreements expire in November 1997.]
Principal payments are made monthly in an amount equal to principal
payments received from the underlying collateral. Prepayments of principal
occurs when the Company securitizes and sells the underlying collateral.
Interest payments are made quarterly in arrears and on the date of any principal
prepayments on the unpaid principal amount of each finance contract or lease
made in accordance with the Auto Agreements.
The Company also has a Loan and Security agreement (the "Title I
Agreement") whereby, as borrower, it may borrow the lesser of $50,000,000 or the
sum of the outstanding principal amount of mortgage loans and 90% of the then
outstanding principal amount of deficient mortgage loans, as defined, for the
purpose of purchasing or financing home improvement and mortgage loans from
originators and servicers of HUD Title I Loans in connection with separate
purchase agreements that are approved by the lender. Interest is charged at an
annual rate of the one-month LIBOR plus 4.0%. As of June 30, 1996 and 1997, no
amounts were outstanding under the Title I Agreement. The Title I Agreement
expires in November 1997.
Under the Auto Agreements and the Title I Agreement, ACF and the Company
may also borrow funds to sell 90- day Eurodollar futures contracts as a hedge
against interest rate fluctuations. At June 30, 1996 and 1997, the Company had
no futures contracts outstanding.
In May 1996, the Company secured an additional warehouse credit facility
with Greenwich Capital Markets, Inc., [a subsidiary of Long Term Credit Bank of
Japan (which has recently entered into an agreement to sell Greenwich Capital
Markets, Inc. to NatWest Markets) ("Greenwich Capital")] for $100.0 million,
which will provide the Company with additional flexibility to purchase greater
volumes of receivables or warehouse automobile receivables for longer periods.
The facility was secured primarily by the Company's finance contracts and had an
interest rate of the one-month LIBOR plus 3.0% (8.4805% at June 30, 1996),
adjusted monthly. Principal payments were made to the extent that principal was
paid on the underlying collateral, and were required to be made if the
underlying collateral did not meet certain specified conditions. Prepayment of
principal is not permitted, except in connection with securitization
transactions and whole loan sales. The Company's ability to continue to borrow
under this facility is dependent on its compliance with the terms thereof,
including the maintenance by the Company of certain minimum capital levels. As
of June 30, 1996, the Company had approximately $100.0 million of borrowings
available through this facility. This facility expired in May 1997.
4. WAREHOUSE AND OTHER CREDIT FACILITIES (CONTINUED)
Additionally, the Company has a commitment from Greenwich Capital to
purchase and securitize up to $533.0 million of the Company's finance contract
acquisitions until the commitment is filled, subject to customary conditions. As
of June 30, 1997, three securitizations aggregating $307.0 million were
completed pursuant to the securitization commitment. The Credit Agreement
expired in May 1997 and was at an interest rate of 15.0% or LIBOR plus 9.0%
determined by the Company at the time of borrowing. As of June 30, 1996, and
1997 the Company had $5.0 million and $0.0 million available under the Credit
Agreement. [expand footnote for 5/23/97}.
5. NOTES PAYABLE
[The Company has entered into several two-year Loan and Security Agreements
(the "Financing Agreements") with III Finance, whereby, it may borrow the lesser
of an aggregate amount of $66.4 million or the maximum borrowing base, as
defined under the Financing Agreements. As of June 30, 1995 and 1996, the
Company had notes payable aggregating $ ____________ and $ __________ ,
respectively (which approximates their fair value) and related interest payable
of
F-11
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
$_____________ and $ __________ , respectively, under the Financing Agreements.
The notes bear interest at 12.0% per annum and are secured by certain of the
Company's retained interests in securitized receivables with carrying values
aggregating approximately $ ________ million and $ ________ million at June 30,
1995 and 1996, respectively, which approximates their fair value. As of June 30,
1996, the Company had $ ______ million available under the Financing Agreements.
These Financing Agreements expire at varying dates from December 1996 through
June 1998.]
6. SUBORDINATED DEBENTURES
On May 23, 1997, the Company sold $21.3 million subordinated debentures
(the "Debentures") for $20.0 million. The debenture is convertible into 8%
non-voting preferred stock (the "Preferred Shares") of the Company on a common
share equivalent basis equal to $2.0 per common share. The Debenture is for a
term of seven years and carries a coupon rate of twelve percent (12%) per annum.
Approximately [$15.1] million of the proceeds of the Debenture were utilized to
repay existing debt. The Debenture and the Preferred Shares, into which the
Debenture is convertible, are redeemable ar any time by the Company for cash or
by the folder for cash; however, if the redemption is requested by the holder,
the Company at its election may pay the redemption price in the form of common
stock. In the event the Debentures are redeemed for any reason, in addition to
the redemption price, warrants shall be issued to the holder which are
exercisable for that number of Preferred Shares into which the redeemed
Debentures were convertible. If Preferred Shares are redeemed at the option of
the Company, the Company must issue to the holder warrants to acquire an
equivalent number of shares of common stock ar an aggregate purchase price equal
to the redemption price paid by the Company. All warrants will expire at the
original stated maturity date of the Debenture.
In May 1996, the Company entered into a one year $5.0 million revolving
credit agreement with Greenwich Capital (the "Credit Agreement") at an annual
interest rate of 15.0% or LIBOR plus 9% determined by the Company at the time of
borrowing. As of June 30, 1996, the Company had no borrowing under the Credit
Agreement. During the year ended June 30, 1997, the Company borrowed $5.0
million at LIBOR plus 9% (14% as of June , 1997). On June , 1997, the Company
paid down $1.0 million under the Credit Agreement and entered into a new
agreement with Greenwich Capital for the remaining $4.0 million outstanding. The
Company will repay $2.0 million of the adjusted balance under the revolving
credit facility proportionately (pari passu) with principal payments made on the
balances of the Debentures and certain notes payable aggregating $41.3 million.
The term of the loan was extended for four years from the date of closing of the
Debenture and the interest rate decreased to 12.0% per annum, payable monthly.
Early repayment for the other $2.0 million under the revolving credit facility
is permitted if Greenwich provides for lowering the strike price on warrants
issued to them by the Company from $6.50 to as low as $4.00, contingent on
achieving certain levels of auto loan servicing placed by Greenwich with the
Company.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its office space and certain of its office equipment
under noncancelable operating leases. The Company also has subleased certain of
its office space and offsets its rent expense by the amount collected under the
subleases.
The Company's minimum rental payments as of June 30, 1996 are:
Year Ending Gross Sub-lease Net
June 30, Amount Amount Amount
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------- ------------ ------------ -----------
1998 2,882,000 (637,000) 2,245,000
1999 2,249,000 (371,000) 1,878,000
2000 1,040,000 -- 1,040,000
2001 977,000 -- 977,000
2002
Thereafter 3,916,000 -- 3,916,000
------------ ------------ -----------
$ 14,001,000 $ (1,642,000) $12,359,000
============ ============ ===========
F-12
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has employment agreements with several of its key employees and
officers which expire at various times through July 1, 2001. Under the terms of
these agreements, the Company is obligated to pay minimum annual payments of
$1.7 million, $1.4 million and $400,000, respectively, during each of the years
ending June 30, 1998 through June 30, 2001. In addition to the minimum payments,
the Company is further obligated to pay incentive bonuses based on its earnings,
as defined in the respective agreements.
In December 1995, the Company entered into a commitment to sell $175.0
million of sub-prime automobile finance contracts to be resold as asset-backed
securities through an Owner Trust Agreement (the "Agreement"). During the years
ended June 30, 1996 and 1997, the Company sold approximately $97.8 million and
$50.6 million, respectively of automobile receivables into this facility. In
October 1996, it was determined that the finance contracts underlying the
securities were not performing in accordance with the levels required under the
Agreement. This event terminated the Company's remaining commitment of $26.6
million (as of that date, the Company had sold $148.4 million of finance
contracts of the $175.0 million total commitment).
In connection with securitization transactions, the Company enters into
pooling and servicing agreements. The agreements require the Company to increase
its cash contribution to the underlying trusts when the delinquencies and
default rates increase to certain levels defined in certain agreements. As
delinquencies and/or default rates increase or decrease, the Company's
obligation varies. For the year ended June 30, 1996, the Company paid additional
contributions to the trusts of approximately $2.3 million and, $2.4 million,
respectively.
On April 28, 1996, a complaint was filed against the Company in the United
States District Court for the Southern District of New York alleging that the
complainant was entitled to certain fees under a finder's agreement entered into
with the Company on January 2, 1996 (the Complaint). The amounts alleged to be
due were in connection with the Company's private placement of $92 million of
asset-backed securities in March 1996. On July 3, 1996, the complaint was
amended (the "Amended Complaint") to include fees allegedly due under the
finder's agreement in connection with a series of financing arrangements entered
into by the Company and in connection with a potential sale of common stock of
the Company. The complainant seeked damages of $21.0 million plus interest and
punitive damages of at least $545,000 together with costs, attorneys' fees and
such other relief as the court deemed appropriate. On January 8, 1997, the
United States District Court for the Southern District of New York denied
Plaintiffs Attachment Motion and its cross motion for partial summary judgement.
The Company's Motion to Dismiss was granted with respect to certain claims for
relief made by the Plaintiff. In accordance with the procedures set by the
court, both parties have submitted their direct cases in writing and the
remainder of the trial was set for late May 1997. [On May 19, 1997, a judgement
of $650,000 was entered in favor of the complainant. The Company subsequently
filed a counter claim seeking relief for attorney's fees paid in defending the
Complaint. In August 1997, the Company agreed to a settlement amount of $50,000
from the complainant versus incurring additional costs to defend the counter
claim.]
The Company believes it has meritorious defenses to the allegations in the
complaint and intends to defend the matter vigorously.
The Company is subject to various other legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management of the
Company, based in part on the advice of counsel, the amount of any ultimate
liability with respect to these actions will not materially affect the results
of operations, cash flows or financial position of the Company.
8. CAPITAL STOCK
On October 18, 1994, the Board of Directors and the Company's stockholders
authorized a 47,654.4578 for 1 split of the common stock, the reclassification
of the common stock from no par value to $.01 par value per share and an
increase in the number of authorized shares of common stock to 30,000,000. All
share and per share amounts presented in these financial statements have been
adjusted to reflect the effect of such stock split and reclassification.
F-13
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
In July 1993, the Company issued 3,637,477 shares to an existing
stockholder in consideration for extending it credit under a $10,000,000
revolving credit facility. The Company recorded a commitment fee of $150,000 in
consideration for this credit facility. This fee was capitalized and amortized
as additional issuance of common shares over the six year life of the revolving
credit facility. In March, 1996 the revolving credit facility was cancelled,
whereby the Company expended the then remaining balance.
The Series B preferred stock provided for the accrual of no dividends until
the first anniversary date of its issuance. Dividends accrued at an annual rate
of 10%, payable quarterly, which commenced October 1, 1994. The Series B
preferred stock was cumulative, nonvoting and non redeemable; however, ACFG had
the option, upon 30 days notice to, redeem all or part of the outstanding Series
B preferred stock at its liquidation value of $10,000 per share. During the year
ended June 30, 1995, the Company paid cash Series B preferred stock dividends of
$194,198 and retired its Series B preferred stock at its redemption value of
$2,452,678.
During the year ended June 30, 1995, the Company received $210,000 from one
of its stockholders as the repayment of an outstanding receivable from a
previous year's transaction.
On September 15, 1993, the Company granted a warrant in connection with
consulting services received by the Company. Such warrant is exercisable for
2.68% of the Company's common stock (328,389 shares) outstanding at the time of
grant at an aggregate exercise price equal to $27,000, which was estimated to be
the fair market value on the date of grant. In April 1995, the warrant was
exercised and the Company issued 328,389 shares of common stock at its exercise
price of $27,000.
On April 6, 1995, the Company completed the issuance of 1,875,955 shares of
common stock in an initial public offering (IPO). Net proceeds to the Company
were approximately $9,997,000 after deducting expenses of the offering.
Subsequently, on April 13, 1995, the Company completed the issuance of 316,250
shares of common stock pursuant to the exercise of the underwriters' IPO
over-allotment option, resulting in additional net proceeds to the Company of
approximately $1,850,000.
On April 6, 1995, the executive officers of the Company and Patrick and
Michael Bennett placed 1,892,763 shares of common stock in escrow pending the
Company's attainment of certain pre-determined earnings or market price targets.
In the event the Company attains any of the pre-determined earnings or market
price targets, the fair market value of the escrowed shares at the time they are
released will be deemed additional compensation expense to the extent such
shares are released from escrow to officers, directors or other employees of the
Company. For the years ended June 30, 1995 and 1996, the Company incurred
non-cash (non tax deductible) charges in the amount of $878,739 and $806,886,
respectively from the release of 113,386 and 150,118 escrowed shares released to
the executive officers of the Company (814,455 and 1,078,308 of the escrowed
shares were released, respectively). As of June 30, 1996, all escrowed shares
have been released. There was no impact on total stockholders equity on the
Company's financial statements as a result of the release of the escrowed shares
due to a corresponding increase in paid-in capital.
In February, 1996 the Company issued $9,200,000 of Series C convertible
preferred stock under Regulation S of the Securities Act of 1933. The Series C
preferred stock is convertible into common stock of the Company at the lower of
$6.425 per share of common stock or 85% of the fair market value of the common
stock at the time of conversion. The Company can redeem the Series C preferred
stock upon conversion at the fair market value of the common stock into which
such Series C preferred stock is convertible. The Series C preferred stock has
an 8% annual dividend payable in common stock at the time of conversion. The
Series C preferred stock is automatically converted into common stock on the
third anniversary of its issuance. For purposes of computing earnings per share,
the Series C preferred stock is deemed to be a common stock equivalent, and as
such is included in the weighted average common and common equivalent shares
outstanding. The Company also issued warrants to the placement agent to purchase
114,553 shares of common stock of the Company at a price of $6.425 per share,
which expire five years from their issuance date. None of these warrants were
exercised as of June 30, 1997. During the year ended June 30, 1996, the Company
redeemed 88 Series C preferred shares for $1.1 million and converted 307 Series
C preferred shares into 679,114 shares of common stock. During the year ended
June 30, 1997, the Company converted 419 shares of Series C Preferred Stock into
2,221,259 shares of Common Stock. In July 1996, the Company purchased 80,000
shares of common stock from a former executive officer of the Company, who is
currently the CEO of SST,
F-14
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
for $340,000. These shares were re-issued in connection with the conversion of
preferred stock to common stock. In connection with the issuance of the
Debenture, the Company has reserved 21, 333.33 shares of Preferred Stock and
designated them as Series D. As of June 30, 1997, no shares have been issued
under the Series D.
In September, 1994, the Company adopted the 1994 stock option plan (the
"1994 Plan") and reserved 1,000,000 shares for such purposes and in May 1996 the
Company adopted the 1996 stock option plan (the "1996 Plan") and reserved
750,000 shares for such purposes (collectively the "Option Plan"). The Option
Plan is administered by the Board of Directors or a committee appointed by the
Board of Directors and provides for grants of incentive stock options ("ISOs")
and non-incentive stock options ("Non-ISOs") to employees, directors and
consultants of the Company or its subsidiaries (as defined in the Option Plan).
Consultants and directors who are not also employees of the Company may
only be granted Non-ISOs. The exercise price of each ISO may not be less than
100% of the fair market value of the common stock at the time of grant, except
that in the case of a grant to an employee who owns 10% or more of the
outstanding common stock of the Company or a subsidiary of the Company (a "10%
Stockholder"), the exercise price shall not be less than 110% of the fair market
value on the date of grant. The exercise price of each Non-ISO granted under the
Option Plan may not be less than 85% of the fair market value of the common
stock at the time of grant or, in the case of a Non-ISO granted to a 10%
Stockholder, 110% of the fair market value of the common stock at the time of
the Grant. ISOs may not be exercised after the tenth anniversary (fifth
anniversary in the case of any option granted to a 10% Stockholder) of their
grant. Options may not be transferred during the lifetime of an option holder.
No stock options may be granted under the Option Plan after ten years from the
adoption of the Option Plan. Each director who is not also an employee of the
Company will automatically receive each year Non-ISO's to purchase 10,000 shares
of Common Stock pursuant to such terms as are provided in the formula provisions
of the Option Plan.
The stock options are immediately vested or are subject to vesting over a
three year period. Activity of the Option Plan is summarized as follows:
Plan
1994 1996 Total
---------- ------- ----------
Granted 945,000 309,163 1,254,163
Terminated (105,000) -- (105,000)
---------- ------- ----------
Outstanding at June 30, 1996 840,000 309,163 1,149,163
========== ======= ==========
Exercisable at June 30, 1996 783,333 -- 783,333
========== ======= ==========
In connection with the Greenwich Capital facilities, the Company granted
warrants to Greenwich Capital to purchase 1,116,335 shares of common stock at an
exercise price of $6.50 per share (subject to adjustment). The warrants vest at
the occurrence of various events relating to the facilities. As of June 30,
1996, [675,526]warrants are exercisable and [217,542]of the remaining non-vested
warrants vest over the remaining securitization commitment and [223, 267]
warrants will remain unvested.
9. EARNINGS PER SHARE
Pro forma net income and pro forma earnings per share for the year ended
June 30, 1995 is calculated assuming the Company's April 1995 IPO occurred as of
the beginning of the year and gives effect to (i) the redemption of
approximately $2.5 million of the Company's preferred stock and dividends paid
of $194,198, (ii) the termination of a consulting agreement providing consulting
fees of $139,751, net of taxes, (iii) the repayment of approximately $5.0
million of indebtedness under the Company's revolving credit facility and
related interest expense of $192,157, net of taxes.
F-15
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
9. EARNINGS PER SHARE(CONTINUED)
The components of the Company's earnings per share of common and common
equivalent share are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Primary earnings per share:
Historical basis:
Net income available, as adjusted $1,079,423 $9,288,615
========== ==========
Net income per common and common
equivalent share $ 0.09 $ 0.65
========== ==========
Weighted average common shares 12,641,878 12,969,500
Weighted average common equivalent shares 9,968 1,359,130
---------- ----------
Weighted average common and common
equivalent shares 12,651,846 14,328,630
========== ==========
Pro forma basis:
Net income available to common stockholders $1,605,529 N/A N/A
========== ========== ==========
Net income per common and common
equivalent share $ 0.12 N/A N/A
========== ========== ==========
Weighed average common shares 12,886,319 N/A N/A
Weighted average common equivalent shares 32,917 N/A N/A
---------- ---------- ----------
Weighted average common and common
equivalent shares 12,919,235 N/A N/A
========== ========== ==========
Fully diluted earnings per share:
Historical basis:
Net income available, as adjusted $1,079,423 $9,288,615
========== ==========
Net income per common and common
equivalent share $ 0.08 $ 0.61
========== ==========
Weighted average common shares 13,081,631 14,862,263
Weighted average common equivalent shares 10,661 328,430
---------- ----------
Weighted average common and common
equivalent shares 13,092,292 15,190,693
========== ==========
Pro forma basis:
Net income available to common stockholders $1,605,529 N/A N/A
========== ========== ==========
Net income per common and common
equivalent share $ 0.11 N/A N/A
========== ========== ==========
Weighted average common shares 14,776,844 N/A N/A
Weighted average common equivalent shares 35,887 N/A N/A
---------- ---------- ----------
Weighted average common and common
equivalent shares 14,812,731 N/A N/A
========== ========== ==========
</TABLE>
10. RELATED PARTY TRANSACTIONS
For the year ended June 30 1995, the Company provided consulting, financial
and structuring services to an affiliated entity of one of its then significant
stockholders. In connection with these engagements, the Company earned and
$275,000 for the year ended June 30, 1995. For the years ended June 30, 1996 and
1997 and none of these services were provided.
During the year ended June 30, 1996, the Company recorded a valuation
allowance of $600,000, the full amount on a note receivable it received in
connection with the sale of certain retained interests in securitized
receivables. The note
F-16
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
10. RELATED PARTY TRANSACTIONS (CONTINUED)
accrued interest ar 8.5% per annum and matures in August 2000. The Company has
filed a claim in the Bankruptcy filing of the debtor and as of June 30, 1997 has
[need working from Skadden Arps].
The Company had a consulting agreement with another significant stockholder
whereby it provided advisory services to the Company for the development,
implementation and marketing of consumer product lines. In connection with this
agreement, the Company paid approximately $ _________ and $350,000 to such
stockholder during the year ended June 30, 1995. This agreement was canceled
effective April 6, 1995.
In March 1996, the Company entered into a consulting agreement (the
"Consulting Agreement") with Whitehall Financial Group, Inc. ("Whitehall"),
whereby Whitehall was engaged to provide consulting services to the Company
relating to operations, management, financing and marketing. The Consulting
Agreement was renewed or its anniversary date of on February 5, 1997, for an
additional one-year term and provides an annual fee to Whitehall of $300,000
(subject to adjustment in certain circumstances) plus reasonable and necessary
expenses. For the year ended June 30, 1996 and 1997, the Company incurred an
expense of $125,000 and [$300,000], respectively, under the Consulting
Agreement.
11. INCOME TAXES
At June 30, 1997, the Company had a federal net operating loss carryforward
of approximately [$34.0] million which will expire no sooner than September 30,
2005. Future utilization of approximately [$30.0] million of the total net
operating losses are subject to an annual limitation under Section 382 of the
Internal Revenue Code. The Company has recorded a deferred tax asset relating to
the future benefit of the carryforward. As discussed in the summary of
significant accounting policies, the Company underwent a quasi-reorganization in
1992. Accordingly, any benefit relating to the use of [$1.8] million of the
Section 382 loss carryforward generated prior to the quasi-reorganization will
be reflected as an adjustment to stockholders' equity. A full valuation
allowance has been established against this [$1.8] million Section 382 loss
carryforward.
The Company's income tax provisions consist of the following:
Year Ended June 30,
------------------------------------
1995 1996 1997
---------- ---------- ----------
Current provision
Federal $ -- $ --
State and local 221,484 1,553,988
---------- ----------
Total current 221,484 1,553,988
---------- ----------
Deferred (benefit) provision
Federal 1,475,000 5,639,763
State and local 71,540 278,271
---------- ----------
Total deferred 1,546,540 5,918,034
---------- ----------
Total provision for income taxes $1,768,024 $7,472,022
========== ==========
Deferred taxes have been provided for temporary differences in the
recognition of revenues and expenses for tax and financial statement purposes.
The significant components of the Company's deferred tax liability, which is
included in income taxes payable, are as follows:
F-17
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
June 30,
------------------------------
1996 1997
------------ ------------
Liabilities:
Securitization transactions $ 17,628,762
Leases 534,990
------------
Total deferred tax liability 20,163,752
------------
Assets:
Net operating loss carryforward 11,956,095
Allowance for credit losses 1,236,491
State taxes 193,375
Rent expense 130,217
------------
Total deferred tax asset 13,516,178
------------
Valuation allowance (661,000)
------------
Net deferred tax asset 12,855,178
------------
Net deferred tax liability $ 7,308,574
============
11. INCOME TAXES (CONTINUED):
The reconciliation of the federal statutory rate to the effective tax rate is as
follows:
Year Ended June 30,
----------------------
1995 1996 1997
---- ---- ----
Statutory federal rate 4% 35%
State taxes, net of federal benefit 2% 7%
Permanent difference resulting from charge for
release of Escrowed shares 0% 2%
Warrants 1%
Other 2% --
---- ----
8% 45%
==== ====
12. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized financial data is as follows (dollars in thousands, except for
per share amounts):
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, March 31, June 30 Sept. 30, Dec. 31, March 31, June 30,
1995 1995 1996 1996 1996 1996 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 9,158 $ 9,405 $13,064 $14,700
------- ------- ------- -------
Interest expense 2,124 2,459 2,723 2,784
Other expenses 3,386 3,720 5,824 6,547
------- ------- ------- -------
Total expenses 5,511 6,179 8,547 9,331
------- ------- ------- -------
Net income before income taxes 3,647 3,227 4,517 5,369
Provision for income taxes 1,641 1,384 1,988 2,460
------- ------- ------- -------
Net income $ 2,006 $ 1,844 $ 2,529 $ 2,909
======= ======= ======= =======
Net income available to shareholders $ 2,006 $ 1,844 $ 2,529 $ 2,768
======= ======= ======= =======
Net income per common share:
Primary $ 0.15 $ 0.13 $ 0.17 $ 0.19
======= ======= ======= =======
Fully Diluted $ 0.14 $ 0.12 $ 0.16 $ 0.18
======= ======= ======= =======
</TABLE>
F-18
<PAGE>
The Aegis Consumer Funding Group, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 1995, 1996 and 1997
The quarters ended December 31, 1995, March 31, 1996, June 30, 1996,
September 30, 1996 and December 31, 1996 included write-downs on retained
interests in securitized receivables of $1.5 million, $2.5 million,$3.5 million
$2.0 million and $29.0 million, respectively.
The quarter ended June 30, 1996, included a non-cash charge of $807,000
from the release of escrowed shares which was offset by an increase in
paid-in-capital. There was no impact on total stockholders' equity as a result
of the escrow share release and the resultant non-cash charge.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest and income taxes paid during the year were as follows:
Year Ended June 30,
----------------------------------------------------
1995 1996 1997
------------ ------------ ------------
Interest ........... $ 4,098,195 $ 10,369,296
============ ============
Income taxes ....... $ 1,070,513 $ 141,623
============ ============
F-19
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,492,591
<SECURITIES> 0
<RECEIVABLES> 71,968,296
<ALLOWANCES> 0
<INVENTORY> 0
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<INTEREST-EXPENSE> 16,588,261
<INCOME-PRETAX> (52,922,140)
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To Our Stockholders:
The Aegis Consumer Funding Group, Inc., a Delaware corporation (Referred to as
either the "Company" or "Aegis"), is a sub-prime finance company that has been
involved in purchasing loans from automobile dealers, nationally, for the past
five years. In fiscal year 1995, the Company's loan portfolio rapidly
accelerated as the sub-prime automobile finance market swelled. Aegis emerged as
a market leader, acquiring over 12,000 retail installment sales contracts in
fiscal year 1995 with a face value in excess of $160 million. As Aegis' loan
volume continued to expand Aegis, experienced increased competition from other
lenders in the sub-prime finance market. Beginning in 1996, a variety of factors
impacted Aegis, as well as the sub-prime industry in general, resulting in
substantial deterioration to Aegis' loan portfolio. In response, Aegis took
substantial write downs on its retained yield assets in securitized receivables
which adversely affected its financial condition.
As a result, and in direct response to the Company's substantial loss in
earnings, the Company underwent a massive restructuring of its operations and
programs, beginning in late October 1997. I was offered the position of
President and Chief Executive Officer, and along with my newly appointed senior
management team, set about to restructure the Company and restore it to
profitability while producing quality loans. My senior management team consists
of: Cyril Means as General Counsel and Executive Vice President, Robert
Micalizzi as Vice President in charge of Production and Troy Cavallaro as Vice
President in charge of New Business Development.
Senior management immediately set about implementing plans to cut existing
overhead and create a profitable platform for the future of the Company. In
order to accomplish these goals, it was necessary to downsize and consolidate
the operations of the Company. By November 1997, the production facility in
California was closed while the production facility in New Jersey was
consolidated to the Company's existing production facility in Georgia. In
December 1997, the executive offices located in New Jersey were also
consolidated with the Company's facility in Georgia. By January 1998, the
Company had reduced personal by 66% and no longer had any presence in the State
of New Jersey. The Company continues to retain a small office in California from
which collections on certain older securitizations are carried out and an office
in Kansas where the Company's state of the art computer networks are maintained.
The changes I have implemented with the help of my senior management team have
resulted in savings to the Company of roughly $2.6 million per month. Today,
operating expenses run at approximately $1.2 million per month, of which
$900,000 is for actual current operating overhead (the remaining $300,000 per
month is used to satisfy past creditors inherited by senior management). The
Company has revamped its programs with a strong emphasis on producing quality
loans while retaining a competitive position in the marketplace. The tightening
of the program's underwriting guidelines has had the effect of significantly
reducing loan acquisition volume, although the loans that are purchased perform
at levels superior to the loans produced prior to 1998. It is now senior
management's task to focus the Company on the reaffirmation of past
relationships with good automobile dealers and the development of new
relationships with other dealers along the lines of the Company's current
philosophy of purchasing only quality loans.
<PAGE>
in the past two years, twelve of the fourteen major sub-prime finance companies
have suffered losses from overstated retained yield valuations. These losses
have prompted some finance companies to leave the sub-prime field (i.e., The
Money Store), while others have declared bankruptcy (i.e., Jayhawk Acceptance
Corp., Mercury Finance, First Enterprise Financial Group, Inc., First Merchants
Acceptance, Corp.).
The Company continues to see opportunities in the sub-prime automobile finance
industry. Senior management believes that the hasty retreat of many of its
competitors from the sub-prime market should restore the market share and
profits of those few Companies that remain. Secondly, there are a number of
portfolios originated by companies that have left the industry that are now
available at a discount. The Company has begun to explore the possibility of
purchasing some of the better portfolios currently available with the assistance
of its credit source.
I believe that a great deal is owed to our main credit source, warehouse
provider and primary shareholder for its continuing support of the Company
through these tumultuous times and for continuing to share our vision of the
Company's future. I also want to extend, on behalf of the Company, senior
management and employees, our thanks for your continued support in our struggle
to restore Aegis as a leader in the sub-prime finance arena.
There is still much that needs to be accomplished in order to turn around Aegis
and make it a profitable platform to carry it into the next century. In this
endeavor, I believe we will succeed. There is a feeling that permeates through
Aegis' workforce which has not existed for some time; that feeling is one of
hope and aspirations and a communal drive to work as a well organized team. For
the first time in a long time we can see the future and it looks bright.
Sincerely,
/s/ Matthew B. Burns
Matthew B. Burns
President and Chief Executive Officer
