SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From June 1, 1995 Commission
through December 31, 1995 File No. 0-14786
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AUTOINFO, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 13-2867481
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1600 Route 208, Fair Lawn, New Jersey 07410
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(Address of Principal Executive Officer) (Zip Code)
(Registrant's telephone number including area code) (201) 703-0500
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Securities registered under Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
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 the registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
YES |_| NO |X|
As of May 7, 1996, the Registrant had outstanding 7,954,752 shares of
Common Stock.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates as of May 7, 1996 was approximately $23,215,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part IV Certain exhibits listed in response to Item 14(a)(3) have been included
in prior filings made by the Registrant under the Securities Act of
1933 and the Securities Exchange Act of 1934.
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PART I
Item 1: BUSINESS
General
During 1995, AutoInfo, Inc. (the "Company") sold substantially all of its
operating assets for $34,100,000 in cash in two separate transactions. As a
result, the Company's sole operating business which remained provides long
distance telephone communications services. The long distance telephone
communication service is marketed to over 1,400 customers through an independent
commissioned sales force.
During 1995, the Company commenced an active search for acquisition
candidates and expansion opportunities in industries which management believed
would provide significant shareholder value and growth potential.
On December 6, 1995, the Company, through a wholly owned subsidiary,
acquired the operating assets of FALK Finance Company (FFC), a Norfolk, Virginia
based specialized financial services company, for $5,125,000 in cash and the
assumption of liabilities and debt approximating $34,000,000. As a result of
this acquisition, the Company is primarily engaged in the non-prime automobile
finance business which encompasses the purchase of automobile retail installment
contracts from new and used automobile dealers. The Company services these
dealers by providing specialized financing programs for buyers who typically
have impaired credit histories and are unable to access traditional sources of
available consumer credit.
The Non-Prime Auto Finance Industry
The automobile finance industry was estimated to be in excess of $300
billion in 1994 (1995 data is not yet available). The market is generally
divided by the types of automobiles sold (new versus used) and the credit
worthiness of the borrower. Generally, banks, savings and loan associations,
credit unions, large independent finance companies and captive finance companies
such as Ford Motor Credit, GMAC, Chrysler Credit tend to provide financing for
new automobiles purchased by prime customers.
The non-prime segment of this overall market is believed to be
approximately $60 billion and is comprised of both private and publicly traded
companies providing credit availability to consumers who are higher financial
risks and who have limited access to traditional financing sources. These
independent finance companies tend to provide financing for used automobiles
sold through new and used automobile dealerships at higher interest rates
commensurate with the higher risk associated with the non-prime consumer.
The non-prime market has been fueled by the significant increase in the
sale of used automobiles. In 1994, the sale of new automobiles increased merely
1% while the sale of used vehicles increased over 5% to in excess of 31 million
automobiles. This increase resulted from a number of factors including, (i) the
high price of new cars, which increased in 1994 to over 51% of the median U.S.
family income, (ii) the increased availability of newer late model used
automobiles related, to some extent, to the trend toward leasing rather than
buying of new vehicles, and (iii) availability of financing alternatives as
provided by the growth in the number of independent finance companies servicing
the non-prime segment of the market.
Operations and Markets
The Company, through its acquisition of FFC in December 1995, entered the
non-prime automobile finance industry. FFC had been purchasing and servicing
automobile retail installment contracts since 1992. The business was formed by
an operator of eleven used automobile dealerships in the Norfolk / Richmond /
Newport News area of Virginia and began operating as a captive finance
affiliate. In 1994 FFC began purchasing installment contracts from other
independent used automobile dealers in the same marketplace.
The management and operating staff of FFC joined AutoInfo in conjunction
with the acquisition. The management group brings to the Company significant
expertise in the non-prime automobile finance business
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with experience in consumer credit and collection, the development and
implementation of proven credit underwriting criteria and management information
systems vital to the support of the portfolio. Since its entrance into the
non-prime automobile finance industry in December 1995, the Company has made
notable strides in expanding its dealer relations, increasing contract
originations and adding several industry professionals with significant
expertise in marketing, operations and financial management.
The Company's strategy is to build a super regional service center catering
to Virginia and the surrounding states, providing a complete range of services
including sales and marketing, credit, servicing and collection. It is
management's belief that this approach, as compared to the branch network
utilized by a number of other non-prime finance companies, provides a necessary
presence in the local market and thereby maximizes the knowledge and needs of
the local market, both from the consumers' and dealers' perspectives.
Dealer Network
The Company purchases automobile retail installment contracts from new and
used automobile dealers pursuant to dealer agreements. The agreements generally
set forth the terms and conditions upon which contracts generated by the dealer
will be purchased by the Company. The agreements do not obligate either the
dealer to sell or the Company to buy any individual contract. The agreements
contain certain warranties by the dealer, including the compliance with certain
laws and regulations, and provide for the indemnification of the Company in the
event of a breach by the dealer.
In conjunction with the acquisition of FFC, the Company entered into a ten
year agreement with Charlie Falk Auto Wholesale, Incorporated ("CFAW") . This
agreement provides and establishes the basis for conducting business and the
criteria under which the Company may purchase contracts from CFAW. The agreement
provides that CFAW shall present to the Company at least 90% of all retail
installment contracts generated by CFAW for resale. The Company evaluates these
contracts based upon established underwriting criteria and makes a determination
whether to purchase each contract. The Company is under no obligation to
purchase any individual contract. As of December 31, 1995, approximately 80% of
all contracts funded by the Company were purchased from CFAW.
The Company presently has dealer agreements with 209 independent dealers in
Virginia, Maryland and North Carolina.
Purchase of Installment Contracts and Underwriting Guidelines
The Company purchases automobile retail installment contracts from both
independent and franchised used car dealers at a discount on a non-recourse
basis. Discounts presently range from 10% to 20% depending upon the risk factors
associated with a specific contract. Dealers fax contract applications to the
Company's credit / underwriting department. The application is evaluated based
upon established criteria including the customer's credit history, available
disposable income, job status, stability of residence and value of the
collateral. Based upon this evaluation, the dealer is given either an initial
approval or rejection.
Once an application is approved and the dealer agrees to sell the contract
to the Company and supplies the Company with a signed contract together with a
complete package of required supporting documentation, the credit verification
department conducts a thorough credit investigation. This process includes
direct contact with the applicant. Once this process is completed and the
application data is verified, the Company purchases the contract and the
appropriate payment, net of the agreed upon discount, is made to the dealer.
Contract Servicing
The terms of each contract provide for the monthly payment of principal and
interest. If the payment is not received by the due date, the next day a
collection specialist attempts to contact the customer to
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arrange for payment. The collection department will take a number of available
actions depending upon whether initial contact was made with the customer,
payment is received or other acceptable arrangements are made. These actions
include contacting employers or family members. If the Company is not successful
in collecting the amount due or resolving the matter to the collection
specialist's satisfaction, repossession action is initiated. Customers are given
an opportunity to redeem repossessed vehicles. However, after the lapse of the
redemption period, the vehicles are sold at dealer auction.
Sales and Marketing
The Company markets its dealer financing program through a staff of trained
field sales representatives under the direct supervision of the Company's Vice
President of Sales and Marketing. The main duties of a field representative are
to solicit and enroll new dealers into the program, train the dealers regarding
the specific aspect of the Company's loan acquisition program, encourage
additional contract volume and provide a direct hands on customer contact on a
regular basis. Presently, the Company concentrates its marketing effort in
Virginia, Maryland and North Carolina.
Competition
The non-prime automotive consumer finance market is both highly competitive
and fragmented. As such, the Company encounters competition in the Virginia
market from other local, regional and national consumer finance companies, many
of whom have raised significant capital through initial public offerings of
common stock during the past several years. Other more traditional finance
sources, such as banks and captive automobile finance companies, have not
generally serviced the non-prime segment of the market. The major competitive
factors leading to the dealer's choice of financing source are the consistency
of the application of underwriting guidelines, the competitiveness of financing
terms and dealer fees, the timeliness of application approval and funding and
the financial stability of the source. The Company believes that it competes
favorably on these factors.
The Company's long distance telephone communications service competes with
numerous companies that provide long distance telephone communication services
on the basis of price and service.
Regulation
The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations businesses. Federal and state
consumer protection laws and related regulations require significant disclosures
by lenders and companies providing automobile financing. These regulations
include, among other items, a) limitations on interest rates and other charges
that may be imposed by or the terms of the installment contracts purchased by
the Company; b) regulations concerning other products, such as insurance and the
insurers the Company represents as an agent; and c) the rights of the Company to
repossess and sell collateral.
The Company believes that it is in substantial compliance with all
applicable material laws and regulations affecting its business. Any adverse
changes in the laws or regulations relating to the Company's business, such as
the limitation of interest rates, could have a material adverse effect on the
Company's results of operations.
Patents, Trademarks and Copyrights
"AUTOINFO" is a registered trademark and service mark of the Company.
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Employees
The Company currently has 80 full-time employees. None of the Company's
employees are represented by a labor union. The Company considers its
relationship with its employees to be good.
Item 2: PROPERTIES
AutoInfo Finance of Virginia, Inc., the Company's newly formed subsidiary,
leases approximately 8,000 square feet of space at 863 Glenrock Road, Norfolk,
Virginia. The lease runs through April 2001 and provides for an annual rental of
$96,000. The Company maintains an operational facility of approximately 800
square feet at 6818 Grover St., Omaha, Nebraska. The lease for such facility
runs through June 1996 at an annual rental of $10,000. AutoInfo Insurance
Inspection Services, which was sold on July 20, 1995, rents approximately 5,100
square feet of space at 1600 Route 208, Fair Lawn, New Jersey. The lease runs
through May 1997 at an annual rental of approximately $76,000. The Company
intends to sublet this space. The Company rents approximately 2,900 square feet
of space at 1600 Route 208, Fair Lawn, New Jersey where it maintains its
executive offices. The lease runs through November 1997 at an annual rental of
approximately $44,000, subject to certain rent escalation provisions. The
Company believes that its present facilities are suitable and adequate for its
reasonably foreseeable growth.
Item 3: LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
Item 5: PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market and is
quoted through the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") on the National Market System under the symbol AUTO.
The following table sets forth, for the periods indicated, the high and low
closing bid quotations per share for the Company's Common Stock as reported by
NASDAQ.
High Low
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Fiscal year ended May 31, 1994
First quarter ............................................. 4 3 11/16
Second quarter ............................................ 4 5/8 3 1/4
Third quarter ............................................. 4 5/8 3 7/8
Fourth quarter ............................................ 4 1/8 3 5/8
Fiscal year ended May 31, 1995
First quarter ............................................. 4 2 3/4
Second quarter ............................................ 3 1/8 2 1/2
Third quarter ............................................. 3 1/2 3 3/16
Fourth quarter ............................................ 3 59/64 3 1/4
Seven Months ended December 31, 1995
Three months ended August 31, 1995 ........................ 3 1/2 3 1/16
Three months ended November 30, 1995 ..................... 3 1/2 3 1/8
Month ended December 31, 1995 ............................. 3 1/2 3 1/8
As of May 8, 1996, the closing bid price per share for the Company's Common
Stock, as reported by NASDAQ was $3.125. As of May 8, 1996, the Company had
approximately 400 stockholders of record.
Dividend Policy
The Company has never declared or paid a cash dividend on its Common Stock.
It has been the policy of the Company's Board of Directors to retain all
available funds to finance the development and growth of the Company's business.
The payment of cash dividends in the future will be dependent upon the earnings
and financial requirements of the Company and other factors deemed relevant by
the Board of Directors.
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Item 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of selected consolidated financial data relating
to the Company. This summary has been restated to present the businesses sold as
discontinued operations.
Seven Months
Ended
December 31, Year Ended May 31,
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(In Thousands, Except Per Share Data)
1995 1995 1994 1993 1992
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Statement of Operations Data:
Revenues $ 2,232 $ 1,598 $ 2,075 $ 1,903 $ 1,033
Income (loss) from continuing
operations before
income tax benefit 385 (2,410) (208) (338) (412)
Benefit from income
taxes (176) (332) (64) (121) (121)
Income (loss) from
continuing operations 561 (2,078) (143) (217) (291)
Income (loss) from
discontinued operations (28) 1,519 2,164 1,953 1,512
Gain on sale of discontinued
operations 297 8,885 -- -- --
Net income 829 8,326 2,021 1,736 1,221
Net income (loss) per share:
From continuing operations .07 (.28) (.02) (.03) (.04)
From discontinued operations -- .21 .29 .27 .21
From gain on sale of
discontinued operations .04 1.19 -- -- --
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Net income per share .11 1.12 .27 .24 .17
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Balance Sheet Data:
Total assets $65,795 42,357 $26,387 $19,975 $18,611
Total debt 32,746 4,161 4,784 216 753
Retained earnings 14,029 13,199 4,873 2,852 1,116
Stockholders' equity 31,018 30,121 20,857 18,625 16,872
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Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's liquid assets amounted to $24.9 million as of December 31,
1995. The Company has sufficient liquid assets to meet its short and long term
capital requirements.
The total amount of debt outstanding as of December 31, 1995 was
$32,746,000, of which $267,000 is due in less than one year. This debt is
primarily comprised of a senior credit facility of approximately $21 million and
subordinated notes of $9.8 million included in the liabilities assumed with the
acquisition of the assets of FALK Finance Company, Inc. ("FFC") in December
1995, and $2 million of 7.55% subordinated notes issued by the Company in
January 1994. The Company has adequate resources to meet these obligations.
Inflation and changing prices had no material impact on revenues or the
results of operations for the seven month period ended December 31, 1995. There
are no trends or commitments which may have an impact on the Company's
liquidity.
Changes in various asset and liability categories are directly related to
the acquisition of FFC in December 1995 (See Note 2 to the Consolidated
Financial Statements).
Income taxes payable decreased by $6,563,000 directly related to taxes paid
on the gain on sale of assets of discontinued operations in April 1995 (See Note
3 to the Consolidated Financial Statements).
Results of Operations
On April 1, 1995, the Company consummated the sale of certain assets, net
of certain liabilities, constituting the operating assets of the Orion Network,
Compass Network, Checkmate Computer Systems, and Insurance Parts Locator
businesses. On July 20, 1995, the Company consummated the sale of the operating
assets of its insurance inspection services business. The Results of Operations
of these businesses have been classified as discontinued operations for all
periods presented.
On December 6, 1995, the Company, through a newly formed wholly owned
subsidiary, acquired the operating assets of FALK Finance Company (FFC), a
Norfolk, Virginia based specialized financial services company, for $5,125,000
in cash and the assumption of liabilities and debt approximating $34,000,000. As
a result of this acquisition, the Company's primary business is to purchase
automobile retail installment contracts from independent used vehicle dealers.
The Company services these dealers by providing specialized financing programs
for buyers who typically have impaired credit histories and are unable to access
traditional sources of available consumer credit.
Except as otherwise noted, the following discussion of the results of
operations is with respect to the Company's continuing operations consisting of
its long distance services business and its non-prime auto finance business
acquired in December 1995.
SEVEN MONTHS ENDED DECEMBER 31, 1995
On February 28 , 1996, the Company elected to change its year end to
December 31. This decision is directly related to the acquisition of FFC and the
entry by the Company into the non-prime automobile finance industry. It is the
belief of management that the ability to compare the performance of the Company
against numerous other publicly traded non-prime companies reporting the results
of operations on a calendar year will provide for more meaningful dissemination
of financial information and is in the best interest of the public and the
Company's shareholders.
Operations for the seven months ended December 31, 1995 include the
operating results of the
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Company's non-prime auto finance business since December 6, 1995, the
acquisition date.
Revenues
Revenues of $2,232,000 for the seven month period ended December 31, 1995
were derived from the non-prime auto finance business for the month of December
($772,000), the Company's long distance telephone services business ($440,000)
and investment income ($1,020,000).
Costs and Expenses
Interest expense for the seven month period ended December 31, 1995 was
$416,000 and relates to the debt assumed relating to the acquisition of FFC in
December 1995 of approximately $34,000,000 and to the $4,000,000 subordinated
notes issued by the Company in January 1994 and notes payable issued in
connection with an acquisition in January 1994. In September 1995, the Company
elected to prepay $2,000,000 of the subordinated notes.
Operating expenses for the seven month period ended December 31, 1995 were
$1,346,000 and consisted primarily of corporate office costs and the operating
expenses of the non-prime auto finance business acquired in December 1995.
Depreciation and amortization expense for the seven month period ended
December 31, 1995 was $85,000 and consisted primarily of the amortization of
goodwill and other intangible assets associated with the acquisition of FFC in
December 1995.
Income from Continuing Operations and Income Tax Benefit
Income from continuing operations before taxes for the seven month period
ended December 31, 1995 was $385,000. The income tax benefit for the seven month
period ended December 31, 1995 was $176,000. The Company recorded a tax benefit
as a result of a substantial portion of its investment income being derived from
instruments exempt from federal taxation.
Loss From Discontinued Operations
Loss from discontinued operations for the seven month period ended December
31, 1995 was $28,000 and was related solely to the operations of the Company's
insurance inspection services business sold in July 1995.
Gain on Sale of Discontinued Operations
The gain on sale of discontinued operations for the period ended December
31, 1995 was $297,000 and was related solely to the sale of the Company's
insurance inspection services business in July 1995.
YEARS ENDED MAY 31, 1995 AND 1994
Revenues
For the years ended May 31, 1995 and 1994, the Company's revenues were
derived from the sale of long distance telephone services ($1,030,000) and
investment income ($568,000). Total revenues for the year ended May 31, 1995
were $1,599,000 a decrease of 23% or $477,000 compared with total revenues of
$2,076,000 for the prior year. The Company's telephone reseller division
experienced a decline in revenue of $771,000 due primarily to reduced network
usage levels and volume rebates from AT&T ($200,000) received in the prior
fiscal year in connection with the achievement of certain network usage levels.
Investment income increased by $294,000 as a direct result of the investment of
the proceeds in April 1995 from the sale of the assets of the Orion Network,
Compass Network, Checkmate Computer Systems, and Insurance Parts Locator
businesses.
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Costs and Expenses
Interest expense was $316,000, an increase of $185,000 over $131,000 for
the prior year. This was directly related to the $4,000,000 subordinated notes
issued by the Company in January 1994 and notes payable issued in connection
with an acquisition in January 1994.
Operating expenses for the year ended May 31, 1995 decreased by 12% to
$1,864,000 from $2,118,000 for the prior year. The decrease was primarily
related to the reduction in direct costs associated with providing the Company's
long distance telephone services and was directly related to the decline in
revenues.
Depreciation and amortization expense for the year ended May 31, 1995
decreased by 25% to $25,000 from $34,000 for the prior year.
Preferred stock investment write-off for the year ended May 31, 1995 was
$1,804,000. As a result of the sale of the Company's businesses providing
computerization and communication services to the automotive industry, the lack
of synergistic business opportunity and the inability to remit management fees
and preferred stock dividends as they became due, the Company has written off
its preferred stock investment in ComputerLogic, Inc. (See Note 6 to the
Consolidated Financial Statements.)
Loss from Continuing Operations and Income Tax Benefit
Loss from continuing operations before taxes for the year ended May 31,
1995 was $2,410,000 compared to $207,000 in the prior year, an increase of
$2,203,000. This increase is attributable to the write-off of the Company's
Preferred Stock investment ($1,804,000) and the impact of the decline in revenue
in the Company's Telephone Reseller Division.
The income tax benefit for the year ended May 31, 1995 was $332,000, or 14%
of the loss before income taxes compared to $64,000, or 31% in the prior year.
The decrease in percentage was the result of the write-off of the Company's
Preferred Stock investment with no current tax benefit. The net loss from
continuing operations was $2,078,000 for the year ended May 31, 1995 an increase
of $1,935,000 as compared to $143,000 in the prior year.
Income From Discontinued Operations
Income from discontinued operations for the year ended May 31, 1995 was
$1,519,000 as compared to $2,164,000 in the prior year, a decrease of $645,000.
The income for fiscal year 1995 reflects the ten month period up to the date of
sale. In addition, the decrease was caused by lower margins on the sale of
computer systems ($200,000) and the impact of reduced revenues from the sale of
automotive supplies ($60,000).
Gain on Sale of Discontinued Operations
The gain on the sale of discontinued operations for the year ended May 31,
1995 relates solely to the sale of the operating assets of the Company's Orion
Network, Compass Network, Checkmate Computer Systems and Insurance Parts Locator
businesses on April 1, 1995 to ADP Claims Solutions Group, Inc. The gross
proceeds of $30,350,000 in cash resulted in a gain of $8,886,000 after
applicable taxes of $7,659,000.
Trends And Uncertainties
During the year ended May 31, 1995, increased competition had an adverse
impact on the sale of computer systems and the results of operations.
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Report
beginning on page F-1.
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Item 9: DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information with respect to the
directors and executive officers of the Company:
Name Age Position
- ---- --- --------
Andrew Gaspar 48 Director, Chairman of the Board
Scott Zecher 37 Director, President, Chief Operating Officer
William Wunderlich 48 Chief Financial Officer, Secretary, Treasurer
Jason Bacher 57 Director
Robert Fagenson 47 Director
Howard Nusbaum 48 Director
Jerome Stengel 59 Director
Directors of the Company are elected annually by the stockholders of the
Company to serve one year terms and until their successors have been elected and
qualified. All officers serve at the discretion of the Board of Directors. No
director or executive officer has any family relationship with any other
director or executive officer.
ANDREW GASPAR, age 48, was named Chairman of the Board on March 29, 1995.
Mr. Gaspar has, since March 1991, been President of the general partner of R.S.
Lauder, Gaspar & Co. and Vice-Chairman of The Central European Development
Corporation, venture capital firms conducting business in the United States and
Eastern Europe. Prior thereto, Mr. Gaspar was a Managing Director of E.M.
Warburg Pincus & Co., a venture banking and investment advisory firm, a position
he held from 1982 through March 1991. He holds a B.S. degree from Columbia
University, an M.S. degree from Northeastern University and an M.B.A. degree
from Harvard Business School. He has been a director of the Company since 1978.
Mr. Gaspar serves as a director of Central European Media Enterprises., Nova TV
and General Banking & Trust.
SCOTT ZECHER, age 37, joined the Company in January 1984 and was named its
President and Chief Operating Officer in January 1993. Prior to becoming
President, he held the position of Executive Vice President and Chief Financial
Officer. He became a director of the Company in 1989. From 1980 to 1984, he was
with the accounting firm of KPMG Peat Marwick. Mr. Zecher is a Certified Public
Accountant with a B.A. degree in Accounting and Economics from the City
University of New York at Queens College.
WILLIAM WUNDERLICH, age 48, joined the Company in October 1992 as its Vice
President-Finance and became Chief Financial Officer in January 1993. From 1990
to 1992, he served as Vice President of Goldstein Affiliates, Inc., a public
insurance adjusting company. From 1981 to 1990, he served as Executive Vice
President, Chief Financial Officer and a Director of Novo Corporation, a
manufacturer of consumer products. Mr. Wunderlich is a Certified Public
Accountant with a B.A. degree in Accounting and
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Economics from the City University of New York at Queens College.
JASON BACHER, age 57, has been a Director of the Company since its
inception in 1976. From its inception in 1976 through March 29, 1995, Mr. Bacher
was Chairman of the Board and the Chief Executive Officer of the Company. Mr.
Bacher has been associated with the automobile salvage industry since 1961 as a
principal of Bacher Tire Company, Inc., an automobile recycler located in the
New York metropolitan area. In connection with the sale by the Company of a
substantial portion of its operating assets to ADP on April 1, 1995, Mr. Bacher
became an employee of ADP.
ROBERT FAGENSON, age 47, has been an officer and director of Fagenson &
Co., Inc., a registered broker-dealer, for more than five years. Mr. Fagenson is
a member of the Board of Directors of the New York Stock Exchange. Since April
1983, Mr. Fagenson has also served as the Secretary and a director of Starr
Securities, Inc., a registered broker-dealer, which was the underwriter of the
Company's initial public offering in May 1986. Mr. Fagenson has been a director
of the Company since June 1986. Mr. Fagenson is also a director of Healthy
Planet Products, Inc., Microtel Franchise and Development Corp., Rentway, Inc.
and Nu-Tech Biomed, Inc. Mr. Fagenson has a B.S. degree in Business
Administration from Syracuse University.
HOWARD NUSBAUM, age 48, has been a director of the Company from its
inception in 1976. Mr. Nusbaum, who earned a B.A. degree from Brooklyn College,
has been a consultant to the automobile recycling industry since 1976. Mr.
Nusbaum is President and Chief Executive Office of SWZ Engineering, a
corporation which holds patents on advanced electronic display technologies.
JEROME STENGEL, age 59, has been a Vice President, Treasurer and Chief
Financial Officer of Genovese Drug Stores, Inc., an American Stock Exchange
company, for more than five years. Mr. Stengel is a Certified Public Accountant
with a B.B.A. degree from the City University of New York. He has been a
director of the Company since 1987.
Item 11: EXECUTIVE COMPENSATION
The Summary Compensation Table below includes, for the seven month period ended
December 31, 1995 and for each of the fiscal years ended May 31, 1995 and 1994,
individual compensation for services to the Company and its subsidiaries paid
to: (1) the Chief Executive Officer; and (2) the other most highly paid
executive officers of the Company in Fiscal 1995 whose salary and bonus exceeded
$100,000 (together, the "Named Executives").
<TABLE>
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Annual Long-Term All
Compensation Compensation Other
Name and Principal Position Year Salary Bonus Options Compensation(2)
---- ------ ----- ------- ---------------
<S> <C> <C> <C> <C> <C>
Scott Zecher 1995(1) $ 87,500 $ 50,000 - $2,625
President and 1995 $ 145,000 $235,000(3) 80,000 $4,230
Chief Operating Officer 1994 $ 144,000 $ 50,000 - $3,240
William Wunderlich 1995(1) $ 70,000 $ 15,000 - $1,320
Treasurer and Chief 1995 $ 103,333 $ 80,000(3) 40,000 $5,500
Financial Officer 1994 $ 91,250 $ 19,000 35,000 $3,068
</TABLE>
- ----------
(1) Represents the seven month period ended December 31, 1995.
12
<PAGE>
(2) Represents amounts contributed to the Company's 401(k) deferred
compensation plan.
(3) Includes a one-time bonus relating to the ADP transaction in the
amount of $150,000 to Scott Zecher and $50,000 to William Wunderlich.
Employment Agreements
Messrs. Zecher and Wunderlich are employed by the Company pursuant to
employment agreements which expire in April 1998 and April 1997, respectively.
These agreements provide for minimum annual compensation of $150,000 and
$120,000, respectively, and provide for annual review by the Board of Directors.
The Company has entered into supplemental employment agreements (the
"Supplemental Employment Agreements") with Messrs. Zecher and Wunderlich (the
"Covered Executives"), which provide that if there is a Change in Control of the
Company (as defined therein) during the Protected Period (described below), the
terms of the Supplemental Employment Agreements will supersede the Covered
Executives' existing employment agreements and will govern the terms of the
Covered Executives' employment following the Change in Control for a three-year
term, in the case of Mr. Zecher, and a two-year term, in the case of Mr.
Wunderlich (the "Employment Term"). For these purposes, the Protected Period is
a three-year period which commenced on April 10, 1995 and is automatically
extended for one year on April 10, 1996 and each April 10 thereafter, unless the
Company otherwise notifies the Covered Executive at least 90 days prior thereto.
The Supplemental Employment Agreements provide that during the Employment Term
the Covered Executives will remain employed in their capacities with the Company
as of the Change in Control and will continue to receive an annual salary (the
"Base Salary") and benefits at least equal to that which they received prior to
the Change in Control and an annual bonus at least equal to the Covered
Executive's average annual bonus during the three years prior to the Change in
Control. The Supplemental Employment Agreements provide that if, during the
Employment Term, the Covered Executive's employment is terminated by the Company
other than for Cause or Disability or by the Executive either for Good Reason or
during the 60-day Window Period commencing on the anniversary of the Change in
Control (as each of the foregoing terms are defined in the applicable
Supplemental Employment Agreement), the Covered Executive would receive a
severance payment equal to the sum of his Base Salary and the higher of his
annual bonus for the then most recent year or his average annual bonus during
the three years preceding the Change in Control (the "Highest Annual Bonus")
multiplied by two, in the case of Mr. Zecher, and one and one-half, in the case
of Mr. Wunderlich. In addition, the restrictions on any stock-related incentive
awards held by the Covered Executive would lapse and he would be entitled to
continued coverage under the Company's life, health and disability benefits for
two years following termination of his employment (three years in the case of
Mr. Zecher) or until he receives similar benefits from a new employer. Mr.
Zecher's Supplemental Employment Agreement also provides that if he is subject
to excise taxes under Section 4999 of the Internal Revenue Code on any payments
or benefits triggered by a Change in Control, he will be entitled to receive an
additional amount such that after the payment of all applicable taxes he will
retain an amount equal to that which he would have retained absent the excise
taxes. In connection with the Supplemental Employment Agreements, the Company
also approved the creation and funding of an Employee Protection Trust, which is
a form of grantor trust under which the assets of the trust remain subject to
the satisfaction of the general claims of the Company's creditors, to provide
for the payment of all benefits payable under the Supplemental Employment
Agreements.
The Supplemental Employment Agreements were entered into on April 10, 1995,
after Steel Partners II LP acquired 14.9% of the Company's Common Stock. In the
opinion of the Board, it was necessary and desirable to enter into the
Supplemental Employment Agreements and to implement the Employee Protection
Trust so that the Covered Executives would concentrate on performing their
duties and promoting the best interests of the Company and its stockholders
without being concerned about the possibility of a Change in Control. In the
opinion of the Board of Directors, the provisions of the Supplemental Employment
Agreements and the Employee Protection Trust would not have any significant
impact on the decision of any person or entity relating to whether or not to
acquire the Company or effect a Change in Control although a person or entity
interested in acquiring, or effecting a Change in Control, of the Company may
view the provisions of the Supplemental Employment Agreement and the funding of
the Employee Protection Trust as making it more difficult to consummate an
acquisition, or effect a
13
<PAGE>
Change in Control, of the Company. In addition, in the opinion of the Board of
Directors, entering into the Supplemental Employment Agreements and implementing
the Employee Protection Trust and the funding thereof would not have an adverse
impact on the Company's ability to execute its business strategy in pursuing
value for the benefit of all stockholders.
Restricted Stock Grants
In November 1987, the Company issued 410,000 shares of Common Stock
pursuant to restricted stock bonus grants to key executives, directors and
consultants. In January 1994, the Company issued 15,000 shares of Common Stock
pursuant to a restricted stock bonus grant to a non-employee director. Such
shares vest ratably over a period of 30 years. The unvested portion is subject,
upon the occurrence of certain events, to either forfeiture or accelerated
vesting.
401(k) Cash or Deferred Compensation
The Company maintains a tax-qualified 401(k) cash or deferred compensation
plan that covers all employees who have completed 90 days of service with the
Company and have attained age 21. Participants are permitted, within the
limitations imposed by the Internal Revenue Code, to make pre-tax contributions
to the plan pursuant to salary reduction agreements. The Company makes a 50%
matching cash contribution on up to a 6% contribution by the employee. In
addition, the Company may, in its discretion, make additional contributions as
permitted by the Internal Revenue Code. Participants' contributions are always
fully vested. The Company's contributions vest proportionally over a five year
period commencing on the employee's date of employment.
Stock Option Plans
In February 1986, the Company's stockholders approved the AutoInfo 1985
Stock Option Plan (the "1985 Plan") which provides that a total of 555,000
shares of Common Stock are subject to options granted thereunder. In November
1986, the Company's stockholders approved the AutoInfo 1986 Stock Option Plan
(the "1986 Plan") which provides that a total of 637,500 shares of Common Stock
are subject to options granted thereunder. In October 1989, the Company's
stockholders approved the AutoInfo 1989 Stock Plan (the "1989 Plan") which
provides that a total of 300,000 shares of Common Stock are subject to options
granted thereunder. In November 1992, the Company's stockholders approved the
AutoInfo 1992 Stock Option Plan (the "1992 Plan") which provides that a total of
350,000 shares of Common Stock are subject to options granted thereunder. (The
1985 Plan, 1986 Plan, 1989 Plan and 1992 Plan are sometimes referred to herein
as the "Option Plans".)
Under the Option Plans, the Company may grant options to purchase Common
Stock to its officers, key employees, directors, and, in the case of the 1985
and 1992 Plans, to non-employees performing services for the Company. Payment of
the option exercise price is to be made (i) in cash, (ii) by delivery of Common
Stock already owned by and in the possession of the option holder, or (iii) if
so provided for in the option being exercised, by delivery of the option
holder's promissory note in favor of the Company. If an option granted under an
Option Plan expires, terminates or is canceled without being exercised in full,
the unpurchased shares subject to such options will again be available for
options to be granted under such Plan. Options may be granted in the form of
incentive stock options ("Incentive Option") or options which do not qualify for
the favorable tax treatment of Incentive Options which are known as
non-qualified options.
The Option Plans are administered by a committee of the Board of Directors
consisting of Messrs. Fagenson and Stengel who are ineligible to participate in
the Plans.
No options may be exercised more than ten years from the date of grant, and
no options may be granted after December 16, 1996, December 31, 1996, December
31, 1999 and December 31, 2002 under the
14
<PAGE>
1985 Plan, 1986 Plan, 1989 Plan, and 1992 Plan, respectively.
The option price of each Incentive Option granted under the Option Plans
shall be not less than 100% of the fair market value of the Common Stock as of
the date the option is granted (110% of the fair market value if the grant is to
an employee holding 10% or more of the Company's outstanding Common Stock).
Options other than Incentive Options may be granted at an exercise price as
determined by the Board. The exercise prices of such non-qualified options must
be at least 85% of the fair market value of the underlying shares of Common
Stock at the date of grant. Options granted are not transferable and are subject
to various other conditions and restrictions. All Incentive Options granted
before December 31, 1986 must be exercised in the order in which they were
granted regardless of the differences in the exercise prices.
Option Grants in the Seven Month Period Ended December 31, 1995
During the seven month period ended December 31, 1995, there were no
options granted to the Named Executives who are reflected in the Summary
Compensation Table. On September 7, 1995, the Company granted to Andrew Gaspar,
its Chairman of the Board, a non-qualified option to purchase 100,000 shares of
the Company's Common Stock at $3.575 per share. The options vest ratably over
the three year period commencing one year following issuance.
Aggregate Options Exercised in the Seven Month Period Ended December 31, 1995
Shown below is information with respect to unexercised options granted in
prior fiscal years under the Option Plans and held by them at December 31, 1995.
Number of Unexercised Value of Unexercised In-the-Money
Options at 12/31/95 Options at 12/31/95(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
Scott Zecher 33,333/80,000 $0/$0
William Wunderlich 73,345/51,655 $37,500/$0
- ----------
(1) Based on the closing price as quoted by NASDAQ/NMS on the date.
Director Compensation
The Company pays a Directors fee of $750 for each meeting attended by a
non-employee director.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table, together with the accompanying footnotes, sets forth
information, as of May 7, 1996, regarding stock ownership of all persons known
by the Company to own beneficially 5% or more of the Company's outstanding
Common Stock, all directors and nominees, and all directors and officers of the
Company as a group.
Shares of Common
Stock Percentage
Name of Beneficial Owner Beneficially Owned(1) of Ownership
- ------------------------ ------------------- ------------
(i) Directors:
Jason Bacher 356,272(2) 4.5%(5)
Robert Fagenson 30,750(3) *5
Andrew Gaspar 75,000 1.0%
Howard Nusbaum 171,531 2.2%
15
<PAGE>
Jerome Stengel 30,000 *
Scott Zecher 365,079(4) 4.6%(5)
All executive officers 1,115,310(6) 13.6%(7)
and directors as a group
(7 persons)
(ii) 5% Stockholders:
Ashford Capital Management, Inc. (8)
P.O. Box 4172
Greenville, Delaware 19807 403,200 5.1%
Dimensional Fund
Advisors, Inc.8
1299 Ocean Avenue
Santa Monica, CA 90401 436,200 5.5%
William Harris Investors, Inc.(8)
2 North LaSalle Street
Suite 505
Chicago, IL 60602 399,028 5.0%
Ryback Management Corporation(9)
7711 Corondelet Avenue
St. Louis, Missouri 63105 900,850 11.3%
Steel Partners II L.P.(9)
750 Lexington Avenue
New York, New York 10022 1,133,500 14.2%
- ----------
* Less than 1%
(1) Unless otherwise indicated below, each director, executive officer and each
5% stockholder has sole voting and investment power with respect to all
shares beneficially owned.
(2) Includes 50,000 shares subject to currently exercisable options.
(3) Includes (i) 1,500 shares owned by the Fagenson & Co. Profit Sharing Plan
and Employee Pension Plan, of which Mr. Fagenson is a trustee, and (ii)
29,250 shares issuable upon exercise of a Common Stock purchase warrant
held by Mr. Fagenson which is currently exercisable.
(4) Includes 60,000 shares subject to currently exercisable options.
(5) Assumes that all currently exercisable options or warrants owned by this
individual have been exercised.
(6) Includes 225,928 shares subject to currently exercisable options or
warrants.
(7) Assumes that all currently exercisable options or warrants owned by members
of the group have been exercised.
(8) Information with respect to this stockholder has been derived from the
Schedule 13G filed by such stockholder with the Securities and Exchange
Commission.
(9) Information with respect to this stockholder has been derived from the
Schedule 13D filed by such stockholder with the Securities and Exchange
Commission.
16
<PAGE>
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 28, 1995 the Company entered into a Promissory Note and Security
and Pledge Agreement with Scott Zecher, its President, Chief Operating Officer
and a Director, pursuant to which the Company lent to Mr. Zecher, consistent
with the Company's past practice, the sum of $466,797, in connection with Mr.
Zecher's exercise of options to acquire 216,799 shares of the Company's Common
Stock (the "Shares") under the Company's 1985 and 1986 Stock Option Plans. The
Note, which is non-interest bearing, is secured by the Shares and is payable on
the earlier of May 31, 1996 or out of proceeds of the underlying collateral. As
a result of such exercise, the percentage of outstanding shares of common stock
owned by executive officers and directors of the Company increased from
approximately 8.7% to approximately 11.5%. This increase may discourage a party
from instituting a take-over attempt with regard to the Company. The purpose of
the Company granting an interest free loan for the purpose of exercising in-the
money stock options is the same as the purpose of the Company for granting stock
options to key employees and officers; namely, to encourage such key employees
and officers to acquire an increased personal interest in the success and
progress of the Company. The granting of the stock options provides the key
employee or officer with the potential to benefit from the success and growth of
the Company and the interest free loan enables such key employee or officer to
actually realize the benefit when the stock option becomes in-the-money.
On June 22, 1995, the Company entered into a Settlement Agreement with
Ryback Management Corporation ("Ryback"), Eric C. Ryback and Lawrence Callahan
(the "Agreement"; Ryback together with Eric C. Ryback and Lawrence Callahan,
collectively, the "Ryback Parties"). As more fully described below, the
Settlement provides that, for a period of five (5) years, Ryback, the holder of
approximately 14.8% of the Company's outstanding shares at the time the
Agreement was entered into, will vote such shares on all matters in accordance
with the recommendation of the Company's Board of Directors (the "Board"),
unless, as a result of the recommendation, the Board's "outside directors" (as
such term is hereinafter defined) would not continue to constitute a majority,
in which case, the shares would be voted in the same proportion as the vote of
other stockholders. The Agreement also provided for the dismissal of the
Company's litigation against the Ryback Parties and for mutual releases from the
Company to the Ryback Parties and from the Ryback Parties to the Company.
Pursuant to the Agreement, Ryback agreed that during the term of the
Agreement, unless specifically requested in writing in advance by the Board,
Ryback will not, and will cause its affiliates and associates (as such terms are
used within Rule 126-2 (as such rule is currently in effect) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) not to, alone
or in concert with others (and neither Ryback nor any affiliate or associate of
Ryback will advise, assist or encourage others to), directly or indirectly: (i)
by purchase or otherwise, acquire, or agree to acquire, ownership (including,
but not limited to, beneficial ownership) of any shares of Common Stock of the
Company (the "Common Stock"), including securities convertible into Common
Stock, or direct or indirect rights or options to acquire such ownership; (ii)
make any public announcement with respect to, or submit any proposal for, the
acquisition of beneficial ownership of Common Stock (or securities convertible
into Common Stock or direct or indirect rights or options to acquire such
beneficial ownership), or for or with respect to any extraordinary transaction
or merger, consolidation, sale of substantial assets or business combination
involving the Company or any of its affiliates, (iii) make, or in any way
participate in, any "solicitation" of "proxies" (as such terms are defined or
used in Regulation 14A under the Exchange Act (the "Exchange Act")) or become a
"participant" in any "election contest" (as such terms are defined or used in
Rule 14a-11 under the Exchange Act) to vote, or seek to advise or influence any
person or entity with respect to the voting of, any voting securities of the
Company or any of its affiliates; (iv) form, join or in any way participate in a
"group" (as such term is used in Section 1 3d(3) of the Exchange Act) to take
any action otherwise prohibited by the terms of the Agreement; (v) initiate or
propose any stockholder proposals for submission to a vote of stockholders,
whether by action at a stockholder meeting or by written consent, with respect
to the Company or any of its affiliates or propose any person for election to
the Board of the Company or any of its affiliates or propose the removal of any
member of the Board of the Company or any of its affiliates; (vi) otherwise seek
to control the management or policies of the Company or any of its affiliates,
including, without limitation, taking any action to seek to obtain
representation on the Board of the Company or any of its affiliates;(vii)
institute, prosecute or pursue against the Company (or any of its officers,
directors, representatives, trustees, employees, attorneys, advisors, agents,
affiliates or associates) (a) any claim with respect to any action hereafter
duly approved the Board or (b) any claim on behalf of a class of the Company's
security holders; (viii) disclose to any third party, or make any filing under
the Exchange Act (including, without limitation, under Section 13(d) thereof)
disclosing, any intention, plan or arrangement inconsistent with the foregoing;
(ix)publicly oppose any duly authorized Board action or recommendation; (x)
initiate any communication with any customer or supplier of the Company or any
other person which does or is contemplating doing business or entering into a
transaction with the Company with a view interfering or otherwise adversely
affecting the relationship between the Company and or the applicable customer,
17
<PAGE>
supplier or other person; (xi) enter into any discussions, negotiations,
arrangements or understandings with any third party with respect to any of the
foregoing; or (xii) request the Company (or its directors, officers, employees
or agents) to amend or waive any provision of the Agreement or otherwise seek
any modification to or waiver of any of the agreements or obligations of Ryback,
or any of its affiliates or associates, under the Agreement.
The Agreement also provides that during the term of the Agreement, Ryback
will not and will cause its associates and affiliates not to, transfer, assign,
pledge, sell, hypothecate or otherwise dispose (a "disposition") of any capital
stock of the Company owned by it, except if all of the following conditions are
satisfied with respect to such disposition: (I) the applicable disposition
together with all other dispositions for the account of Ryback and its
associates and affiliates during the one month period immediately preceding the
date of such disposition does not exceed one percent of the outstanding Common
Stock, as shown on the most recent applicable report or statement published by
the Company; (ii) such disposition shall be by means of a "broker's transaction"
within the meaning of rule 144(g) under the Securities Act of 1933, as amended;
and (iii) with respect to any such disposition, the seller shall instruct its
broker that such broker shall make due inquiry and shall not make the
disposition to any person (including any agent of such person) if Ryback and/or
its affiliates or associates or such broker knows, or has reason to believe,
that such person, together with such persons, affiliates and associates, owns,
collectively (with its associates and affiliates), or, will own, collectively
(with its associates and affiliates), upon consummation of the disposition, 3%
or more of the outstanding Common Stock as shown on the most recent applicable
report or statement published by the Company.
The Agreement also provides that during its term, with respect to each
matter submitted to the stockholders of the Company for a vote, whether at a
meeting or pursuant to any consent of stockholders, including, without
limitation, any matter submitted to the stockholders of the Company relating to
the election or removal of directors, Ryback agrees to, and agrees to cause its
affiliates and associates to, vote (whether by proxy or otherwise) all shares of
Common Stock owned by Ryback and/or any of its affiliates and associates in
accordance with the applicable duly authorized recommendation of the Board;
provided, however, that, with respect to any recommendation relating to the
election or removal of directors, if, assuming such recommendation were adopted
by the stockholders of the Company, less than a majority of all directors
constituting the Board would be "outside directors" (as such term is hereinafter
defined), Ryback and its associates and affiliates shall vote their shares in
the same proportion as the votes of all other outstanding voting securities of
the Company voting on such applicable matter. As used in the Agreement, the term
"outside directors" refer to directors who are not also officers or employees of
the Company.
18
<PAGE>
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
Financial Statements
The financial statements listed in the accompanying index to financial
statements on Page F-1 are filed as part of this report.
Exhibits
The Exhibits listed below are filed as part of this Report.
No. 2A Agreement and Plan of Merger between AutoInfo, Inc. (New York) and
AutoInfo, Inc. (Delaware), January 20, 1987. (2)
No. 3A Certificate of Incorporation of the Company. (3)
No. 3B Amended and restated By-Laws of the Company. (11)
No. 4A Specimen Stock Certificate. (4)
No. 4B Form of Warrant Agreement and form of Warrant issued to Starr
Securities, Inc., Martin Vegh and Robert Fagenson, May 20, 1986. (1)
No. 4C Rights Agreement, dated as of March 30, 1995, between AutoInfo, Inc.
and American Stock Transfer & Trust Company, as Rights Agent.(5)
No. 9A Settlement Agreement, dated June 22, 1995, between AutoInfo, Inc. and
Ryback Management Corporation, et al.(12)
No. 10A 1985 Stock Option Plan. (1)
No. 10B 1986 Stock Option Plan. (3)
No. 10C 1989 Stock Option Plan. (7)
No. 10D 1992 Stock Option Plan. (10)
No. 10E Employment Agreement between AutoInfo, Inc. and Scott Zecher dated as
of January 1, 1994, as amended by Agreement dated April 10, 1995.(12)
No. 10F Supplemental Employment Agreement between AutoInfo, Inc. and Scott
Zecher dated as of April 10, 1995.(12)
No. 10G Employment Agreement between AutoInfo, Inc. and William Wunderlich
dated as of April 10, 1995.(12)
No. 10H Supplemental Employment Agreement between AutoInfo, Inc. and William
Wunderlich dated as of April 10, 1995.(12)
No. 10I Form of AutoInfo, Inc. Employee Protection Trust Agreement dated
August 17, 1995.(12)
19
<PAGE>
No. 10J Form of Restricted Stock Grant Agreement between AutoInfo, Inc. and
certain executive officers, directors and consultants. (4)
No. 10K Series A Convertible Preferred Stock Purchase Agreement dated as of
December 19, 1991 between ComputerLogic, Inc., Richard A. Palmer and
AutoInfo, Inc. (8)
No. 10L Series B Preferred Stock Purchase Option Agreement dated as of
December 19, 1991 between ComputerLogic, Inc., Richard A. Palmer and
AutoInfo, Inc. (8)
No. 10M Outstanding Stock Purchase Option Agreement dated as of December 19,
1991 between ComputerLogic, Inc., Richard Palmer and AutoInfo, Inc.
(8)
No. 10N Note Agreement dated January 10, 1994 between AutoInfo, Inc. and
certain investors with respect to issuance of $4 million of 7.55%
Subordinated Notes due January 9, 2000 and 533,333 Common Stock
Purchase Warrants.(6)
No. 10O Asset Purchase Agreement dated January 31, 1995 between ADP Claims
Solutions Group, Inc. and AutoInfo, Inc.(9)
No. 10P Promissory Note and Security and Pledge Agreement dated April 28, 1995
between AutoInfo, Inc. and Scott Zecher.(12)
No. 10Q Loan and Security Agreement, Promissory Note and Guaranty dated
December 19, 1995 among Finova Capital Corporation and AutoInfo
Finance of Virginia, Inc.
No. 10R Asset Purchase Agreement dated December 6, 1995 between AutoInfo, Inc.
and AutoInfo Finance of Virginia, Inc. on the one hand and Falk
Holding Company, Inc., et al, on the other hand. (13)
No. 10S Purchase Agreement dated December 6, 1995 between AutoInfo Finance of
Virginia, Inc. and Charlie Falk's Auto Wholesaler, Incorporated.*
No. 10T Employment Agreement dated December 6, 1995 between AutoInfo Finance
of Virginia, Inc. and Robert E. Upton, Jr. *
No. 10U Non-Qualified Stock Option Agreement dated December 6, 1995 between
AutoInfo Finance of Virginia, Inc. and Robert E. Upton, Jr. *
No. 11A Calculation of earnings per share.*
No. 21 Subsidiaries of the Registrant. *
No. 24A Consent of Arthur Andersen LLP, independent public accountants.*
- ----------
*Filed as an Exhibit hereto.
(1) This Exhibit was filed as an Exhibit to the Company's Registration
Statement on Form S-18 (File No. 33-3526-NY) and is incorporated herein by
reference.
(2) This Exhibit was filed as an Exhibit to the Company's Current Report on
Form 8-K dated January 6, 1987 and is incorporated herein by reference.
(3) These Exhibits were filed as Exhibits to the Company's definitive proxy
statement dated October 20, 1986 and are incorporated herein by reference.
(4) These Exhibits were filed as Exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-15465) and are incorporated herein by
reference.
(5) This Exhibit was filed as an Exhibit to the Company's Registration
Statement on Form 8-A filed April 13, 1995, and is incorporated herein by
reference.
(6) This Exhibit was filed as an Exhibit to the Company's Annual Report on Form
10-K for the year
20
<PAGE>
ended May 31, 1994 and is incorporated herein by reference.
(7) This Exhibit was filed as an Exhibit to the Company's definitive proxy
statement dated September 25, 1989 and is incorporated herein by reference.
(8) These Exhibits were filed as Exhibits to the Company's Current Report on
Form 8-K dated December 19, 1991 and are incorporated herein by reference.
(9) This Exhibit was filed as an Exhibit to the Company's definitive proxy
statement dated March 1, 1995 and is incorporated herein by reference.
(10) This Exhibit was filed as an Exhibit to the Company's definitive proxy
statement dated October 2, 1992 and is incorporated herein by reference.
(11) This Exhibit was filed as an Exhibit to the Company's Current Report on
Form 8-K dated March 30, 1995 and is incorporated herein by reference.
(12) This Exhibit was filed as an Exhibit to the Company's Annual Report on Form
10-K dated May 31, 1995 and is incorporated herein by reference.
(13) This Exhibit was filed as an Exhibit to the Company's Current Report on
Form 8-K dated December 6, 1995 and is incorporated herein by reference.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d), the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be
signed on May 10, 1996 on its behalf by the undersigned, thereunto
duly authorized.
AUTOINFO, INC.
By:/s/Scott Zecher
------------------------
Scott Zecher, President and
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated.
/s/Andrew Gaspar Director and Chairman May 10, 1996
- ------------------------
Andrew Gaspar
/s/Scott Zecher Director, President and May 10, 1996
- ------------------------ Chief Operating Officer
Scott Zecher
/s/William Wunderlich Chief Financial Officer, May 10, 1996
- ------------------------ Secretary and Treasurer
William Wunderlich
/s/Jason Bacher Director May 10, 1996
- ------------------------
Jason Bacher
/s/Robert Fagenson Director May 10, 1996
- ------------------------
Robert Fagenson
/s/Howard Nusbaum Director May 10, 1996
- ------------------------
Howard Nusbaum
/s/Jerome Stengel Director May 10, 1996
- ------------------------
Jerome Stengel
22
<PAGE>
AUTOINFO, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants.......................... F-2
Consolidated Balance Sheets - as of December 31, 1995 and
May 31, 1995 ................................................ F-3
Consolidated Statements of Operations for the Seven Months Ended
December 31, 1995 and Years Ended May 31, 1995
and 1994..................................................... F-4
Consolidated Statements of Stockholders' Equity for the Seven
Months Ended December 31, 1995 and Years Ended
May 31, 1995 and 1994........................................ F-5
Consolidated Statements of Cash Flows for the Seven Months
Ended December 31, 1995 and Years Ended
May 31, 1995 and 1994........................................ F-6
Notes to Consolidated Financial Statements........................ F-7
Information required by schedules called for under Regulation S-X is either
not applicable or is included in the consolidated financial statements or
notes thereto.
F - 1
<PAGE>
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AutoInfo, Inc.
We have audited the accompanying consolidated balance sheets of AutoInfo, Inc.
(a Delaware Corporation) and subsidiaries as of December 31, 1995 and May 31,
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for the seven month period ended December 31, 1995 and
each of the two years in the period ended May 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AutoInfo, Inc. and subsidiaries
as of December 31, 1995 and May 31, 1995 and the results of their operations and
their cash flows for the seven month period ended December 31, 1995 and each of
the two years in the period ended May 31, 1995, in conformity with generally
accepted accounting principles.
/s/Arthur Andersen LLP
New York, New York
May 6, 1996
F - 2
<PAGE>
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND MAY 31, 1995
December 31, May 31,
ASSETS 1995 1995
------------ -----------
Cash $ 964,842 $ 521,868
Short-term investments 23,906,459 38,314,489
Installment contracts receivable, net 25,073,858 --
Fixed assets, net 256,269 692,784
Goodwill and other intangibles, net 14,302,274 1,766,503
Other assets 1,291,674 1,061,455
----------- -----------
$65,795,376 $42,357,099
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Revolving line of credit $20,679,024 $ --
Subordinated notes and other debt 12,067,166 4,160,869
Accounts payable 566,734 400,544
Income taxes payable 568,278 7,131,543
Accrued liabilities 895,821 543,357
----------- -----------
Total liabilities 34,777,023 12,236,313
----------- -----------
Commitments and contingencies (Note 11)
Stockholders' equity:
Common Stock - authorized 20,000,000 shares $.01
par value; issued and outstanding - 7,777,752 at
December 31, 1995 and 7,756,252 at May 31, 1995 77,778 77,563
Additional paid-in capital 17,782,677 17,725,267
Officer note receivable (Note 12) (466,797) (466,797)
Deferred compensation under stock bonus plan (404,092) (414,686)
Retained earnings 14,028,787 13,199,439
----------- -----------
Total stockholders' equity 31,018,353 30,120,786
----------- -----------
$65,795,376 $42,357,099
=========== ===========
See Accompanying Notes To Consolidated Financial Statements
F - 3
<PAGE>
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SEVEN MONTHS ENDED DECEMBER 31, 1995 AND
YEARS ENDED MAY 31, 1995 AND 1994
<TABLE>
<CAPTION>
December 31, May 31,
1995 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Interest and other finance revenue $ 771,502 $ - $ -
Investment income 1,020,382 568,267 273,915
Long distance telephone services 439,839 1,030,428 1,801,497
---------- ---------- ----------
Total revenues 2,231,723 1,598,695 2,075,412
COSTS AND EXPENSES
Interest expense 415,904 315,908 131,087
Operating expenses 1,346,218 1,863,779 2,118,251
Depreciation and amortization 84,889 25,158 33,646
Preferred stock investment write-off - 1,804,256 -
---------- ---------- ----------
Total operating expenses 1,847,011 4,009,101 2,282,984
---------- ---------- ----------
Income (loss) from operations 384,712 (2,410,406) (207,572)
Income tax benefit (175,960) (332,280) (64,336)
---------- ---------- ----------
Income (loss) from continuing operations 560,672 (2,078,126) (143,236)
Income (loss) from discontinued operations,
net of income tax benefit of $ 14,522
for the seven months ended December 31, 1995
and income taxes of $502,535 and $971,979 for
the years ended May 31, 1995 and 1994,
respectively (Note 4) (28,163) 1,518,659 2,163,984
Gain on sale of discontinued operations, net
of income taxes of $152,917 and
$7,658,641, for the seven months ended
December 31, 1995 and the year ended
May 31, 1995 respectively (Note 4) 296,839 8,885,688 -
---------- ---------- ----------
Net income $ 829,348 $8,326,221 $2,020,748
========== ========== ==========
Per share data:
Income (loss) from continuing operations $.07 ($ .28) ($ .02)
Income from discontinued operations - .21 .29
Gain on sale of discontinued operations .04 1.19 -
---------- ---------- ----------
Net income per share $ .11 $1.12 $ .27
========== ========== ==========
Weighted average number of common and
common equivalent shares 7,770,917 7,410,548 7,416,721
---------- ---------- ----------
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
F - 4
<PAGE>
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SEVEN MONTHS ENDED DECEMBER 31, 1995
AND YEARS ENDED MAY 31, 1995 AND 1994
<TABLE>
<CAPTION>
Shares of Deferred
Common Additional Officer Compensation
Stock Common Paid-In Note Under Stock Retained
Outstanding Stock Capital Receivable Bonus Plan Earnings
----------- ----- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 1, 1993 7,119,336 $71,193 $16,118,428 -- $(417,118) $ 2,852,470
Common Stock Pursuant
to Stock Bonus Plan 15,000 150 32,662 -- (32,812) --
Exercise of Stock
Option 118,950 1,190 193,104 -- -- --
Amortization of Deferred
Compensation -- -- -- 17,083 --
Net Income -- -- -- -- -- 2,020,748
---------- ------- ----------- --------- --------- -----------
Balance, May 31, 1994 7,253,286 72,533 16,344,194 -- (432,847) 4,873,218
Exercise of Stock
Options 502,966 5,030 1,234,365 -- -- --
Amortization of Deferred
Compensation -- -- -- -- 18,161 --
Acceleration of Vesting
Rights of Employee
Stock Options -- -- 146,708 -- -- --
Loan to Officer for
the Exercise of Stock
Options (466,797)
Net Income -- -- -- -- -- 8,326,221
---------- ------- ----------- --------- --------- -----------
Balance, May 31, 1995 7,756,252 77,563 17,725,267 (466,797) (414,686) 13,199,439
Exercise of Stock
Options 21,500 215 57,410 -- -- --
Amortization of Deferred
Compensation -- -- -- -- 10,594 --
Net Income -- -- -- -- -- 829,348
---------- ------- ----------- --------- --------- -----------
Balance, December 31, 1995 7,777,752 $77,778 $17,782,677 $(466,797) $(404,092) $14,028,787
========== ======= =========== ========= ========= ===========
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
F - 5
<PAGE>
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED DECEMBER 31, 1995 AND
YEARS ENDED MAY 31, 1995 AND 1994
<TABLE>
<CAPTION>
December 31, May 31,
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 829,348 $ 8,326,221 $ 2,020,748
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization expenses 84,889 413,926 249,759
Amortization of deferred compensation 10,594 18,161 17,083
Gain on sale of discontinued operations (449,756) (16,544,329) --
Preferred stock investment write-off -- 1,637,199 --
Changes in assets and liabilities:
Installment contracts receivable, net (986,632) 238,860 (253,901)
Other assets (573,645) (44,100) (119,061)
Income taxes payable (6,563,265) 7,059,396 5,468
Accounts payable and accrued liabilities (62,539) 269,687 287,006
------------- ------------ -----------
Net cash provided by (used for)
continuing operations (7,711,006) 1,375,021 2,207,102
------------- ------------ -----------
Net cash (used for) discontinued operations
and non-cash charges (105,141) (205,480) (965,257)
------------- ------------ -----------
Cash Flows from Investing Activities:
Proceeds from the sale of discontinued
operations 3,750,000 30,350,000 --
Officer note receivable -- (466,797) --
Acquisitions (4,912,333) -- (948,639)
Capital expenditures (497,661) (341,861) (173,635)
Proceeds from redemptions of short-term
investments 103,294,353 23,644,168 --
Purchases of short-term investments (88,886,323) (54,894,966) (3,743,031)
------------- ------------ -----------
Net cash provided by (used for)
investing activities 12,748,036 (1,709,456) (4,865,305)
------------- ------------ -----------
Cash Flows from Financing Activities:
Issuance of notes -- -- 4,000,000
Reduction of borrowings (4,546,540) (623,096) (277,406)
Exercise of stock options 57,625 1,239,395 194,294
------------- ------------ -----------
Net cash provided by (used for)
financing activities (4,488,915) 616,299 3,916,888
------------- ------------ -----------
Net increase in cash 442,974 76,384 293,428
Cash at beginning of year 521,868 445,484 152,056
------------- ------------ -----------
Cash at end of year $ 964,842 $ 521,868 $ 445,484
============= ============ ===========
</TABLE>
Supplemental Disclosures of Non-cash Investing and Financing Activities:
In connection with acquisitions during the year ended May 31, 1994, the Company
entered into Notes payable of $844,759.
See Accompanying Notes To Consolidated Financial Statements
F - 6
<PAGE>
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MAY 31, 1995 AND 1994
Note 1 - Business and Summary of Significant Accounting Policies
Business
During the fiscal year ended May 31,1995 and on July 20, 1995, AutoInfo, Inc.
(the "Company") sold substantially all of its operating assets for $34,100,000
in cash in two separate transactions. As a result, the Company's sole operating
business which remained provides long distance telephone communications
services. The long distance telephone communication service is marketed to over
1,400 customers through an independent commissioned sales force.
The Company commenced an active search for acquisition candidates and expansion
opportunities in industries which would provide significant shareholder value
and growth potential.
On December 6, 1995, the Company, through a newly formed wholly owned
subsidiary, acquired the operating assets of FALK Finance Company (FFC), a
Norfolk, Virginia based specialized financial services company, for $5,125,000
in cash and the assumption of liabilities and debt approximating $34,000,000. As
a result of this acquisition, the Company's primary business is to purchase
non-prime automobile retail installment contracts from independent and
franchised used vehicle dealers. The Company services these dealers by providing
specialized financing programs for buyers who typically have impaired credit
histories and are unable to access traditional sources of available consumer
credit.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
balances and transactions have been eliminated in consolidation.
Installment Contracts Receivable
Installment contracts receivable represent retail installment sales contracts
purchased from independent automobile dealers at discounts ranging from 10% to
20%.
Allowance for Credit Losses
The Company established an allowance for credit losses in the acquired portfolio
as of the date of acquisition based upon an evaluation of a number of factors
including prior loss experience, contractual delinquencies, the value of
underlying collateral and other factors. All discounts on the purchase of
installment contracts from dealers are added to the allowance. The allowance is
evaluated for adequacy based upon estimated future losses inherent in the
existing finance receivable portfolio. A provision for losses, if any, is
charged to income in order to maintain the allowance at an adequate level.
Repossessed Vehicles Held for Sale
The Company repossesses the collateral when the determination is made that
collection efforts are unlikely to be successful. The value of a repossessed
vehicle is based upon an estimate of the net realizable amount upon liquidation.
As of December 31, 1995, there were 246 vehicles held for sale with an aggregate
value of $408,467.
F - 7
<PAGE>
Revenue Recognition
The Company recognizes interest income from installment contracts receivable on
the interest method. The accrual of interest income is suspended when a loan is
ninety days contractually delinquent. All discounts on the purchase of
installment contracts from dealers are held in reserve and are considered to
cover future anticipated credit losses.
The Company recognizes revenue from long distance telephone communications
services as services are rendered.
Short-Term Investments
Short-term investments include common stock and bond funds, money market
instruments and municipal bonds. Investments are carried at cost which
approximates market value. (See Note 5).
Fixed Assets
Depreciation of fixed assets is provided on the straight-line method over the
estimated useful lives of the related assets which range from three to five
years.
Goodwill and Other Intangibles
The excess of cost over the fair value of net assets acquired is allocated to
goodwill and other intangibles and is being amortized using the straight-line
method over periods of up to twenty years. In March 1995, the Financial
Accounting Standards Board issued SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." This statement requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
currently uses methods that are consistent with SFAS No.121 to evaluate the
carrying amount of Goodwill and at December 31, 1995 no impairment of Goodwill
existed. The pronouncement is effective for fiscal years beginning after
December 15, 1995. In management's opinion, when adopted, SFAS No.121 will not
have a material effect on the Company's financial position or results of
operations.
Net Income Per Share
Net income per share of common stock is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. The net income per share and the weighted average number of common and
common equivalent shares represent primary earnings per share data. Fully
diluted earnings per share is not presented since its effect is not significant.
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets, liabilities and contingent liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the periods
presented. Management estimates that are particularly sensitive to change relate
to the determination of the adequacy of the allowance for credit losses on
installment contracts. The Company believes that all such assumptions are
reasonable and that all estimates are adequate, however, actual results could
differ from those estimates.
F - 8
<PAGE>
Income Taxes
The Company follows the liability method for income taxes. Under this method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted Statutory Tax Rates to differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities. Deferred income taxes have not been provided for as the net effect
of temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities are immaterial.
Fiscal Year
On February 28, 1996, the Company made an election to change its fiscal year-end
from May 31 to December 31. The Company believes that this change will provide
shareholders with information on a basis more comparable to other public
entities in the specialized automobile finance industry. Accordingly, the
accompanying financial statements reflect the Company's financial position and
results of operations as of and for the seven month period ended December 31,
1995.
Reclassifications
Certain reclassifications have been made to the financial statements for the
years ended May 31, 1995 and 1994 to conform to the December 31, 1995
presentation. (See Note 2).
Note 2 - Change in Fiscal Year
On February 28, 1996, the Company changed its fiscal year-end to December 31
from May 31. Accordingly, the accompanying financial statements reflect the
Company's financial position and results of operations as of and for the seven
month period ended December 31, 1995.
Following are selected financial data for the seven month periods ended December
31, 1995 and 1994:
1995 1994
----------- -----------
(Unaudited)
Revenues $ 2,231,723 $ 641,227
----------- -----------
Income (loss) from continuing operations 560,672 (186,225)
Income (loss) from discontinued operations (28,163) 1,072,913
Gain on sale of discontinued operations 296,839 --
----------- -----------
Net Income $ 829,348 $ 886,688
----------- -----------
Per share data:
From continuing operations $ .07 $ (.03)
From discontinued operations -- .15
From gain on sale .04 --
----------- -----------
Net Income $ .11 $ .02
----------- -----------
Note 3 - Business Acquisitions
On December 6, 1995, the Company, through a newly formed wholly owned
subsidiary, acquired the operating assets of FALK Finance Company (FFC), a
Norfolk, Virginia based specialized financial services company, for $5,125,000
in cash and the assumption of
F - 9
<PAGE>
liabilities and debt approximating $34,000,000. The results of operations of
this business has been consolidated with the Company since December 6, 1995.
In January and April 1994, the Company acquired the automotive photo inspection
business of D.B. Kelley Associates, Inc., and Equifax Services, Inc.,
respectively. The aggregate purchase price consisted of approximately $1,500,000
in cash and notes. The results of operations of these businesses have been
consolidated with the Company since January 31, 1994 and April 16, 1994,
respectively.
The acquisitions have been accounted for under the purchase method of accounting
and, accordingly, the purchase price was allocated to assets acquired based upon
their estimated fair market value at the date of acquisition. The excess of the
purchase price over the fair market value of net assets acquired has been
recorded as goodwill.
The following unaudited pro-forma results of operations for the seven month
period ended December 31, 1995 and for the year ended May 31, 1995 is presented
as though the Company's business acquisition during the seven month period ended
December 31, 1995 had occurred at the beginning of the prior fiscal year ended
May 31, 1995:
(Unaudited)
For the seven For the year
month period ended ended
December 31, 1995 May 31, 1995
----------------- ------------
Revenues $ 5,957,662 $ 8,141,980
Net Income $ 601,400 $ 6,840,548
Net income per share $ .08 $ .92
Note 4 - Discontinued Operations
On July 20, 1995, the Company sold the assets relating to its Insurance
Inspection Services business for $3,750,000 in cash. The gain on the sale was
$296,839 after applicable taxes of $152,917. On April 1, 1995, the Company sold
the assets relating to its Orion Network, Compass Network, Checkmate Computer
Systems, and Insurance Parts Locator businesses to ADP Claims Solutions Group,
Inc., for $30,350,000 in cash. The gain of the sale was $8,885,688 after
applicable taxes of $7,658,641. Prior years have been restated to present the
businesses sold as discontinued operations.
Summarized results of operations and financial position data of the discontinued
operations were as follows:
Seven Months
Ended
December 31, Years Ended May 31,
------------ -----------------------
1995 1995 1994
---- ---- ----
Results of Operations:
Revenues $ 533,318 $17,490,757 $18,765,900
--------- ----------- -----------
Income (loss) before income taxes (42,685) 2,021,194 3,135,963
Income taxes (benefit) (14,522) 502,535 971,979
--------- ----------- -----------
Net income (loss) from discontinued
operations $ (28,163) $ 1,518,659 $ 2,163,984
========= =========== ===========
As of May 31, 1995
------------------
Balance Sheet:
Current assets $ 437,067
Net property, equipment and furniture 663,533
Net goodwill and other intangibles 1,766,503
Other assets 327,950
-----------
Net book value of assets of discontinued
operations $ 3,195,053
===========
F - 10
<PAGE>
Note 5 - Short-Term Investments
Effective June 1, 1994, the Company, as required, adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". This
pronouncement establishes the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. This statement supersedes Statement No. 12 "Accounting for
Certain Marketable Securities". The effect of the adoption of this pronouncement
was not material. In connection with the adoption of SFAS No. 115, debt and
equity securities used as part of the Company's investment management that may
be sold in response to cash needs, changes in interest rates, and other factors
have been classified as securities available for sale. Such securities are
reported at cost which approximates fair value and have maturities of less than
one year and included common stock and bond funds ($3,613,394 as of December 31,
1995 and $3,520,041 as of May 31, 1995), money market instruments ($4,585,558 as
of December 31, 1995 and $3,159,808 as of May 31, 1995) and municipal bonds
($15,727,507 as of December 31, 1995 and $31,634,640 as of May 31, 1995). As of
December 31, 1995 unrealized gains and losses were not material. Unrealized
gains and losses, if material, would be excluded from earnings and reported as a
separate component of stockholders' equity (on an after tax basis). During the
seven month period ended December 31, 1995 and the years ended May 31, 1995 and
1994, gains or losses arising from the disposition of marketable securities were
not material. Gains and losses on disposition of securities are recognized on
the specific identification method in the period in which they occur.
Note 6 - Installment Contracts Receivable
As of December 31, 1995, installment contracts receivable consists of the
following:
Gross installment contracts receivable $ 44,070,860
Less: Unearned finance charges and fees (12,178,807)
Less: Allowance for credit losses (6,818,195)
------------
Installment contracts receivable, net $ 25,073,858
============
Note 7 - Accrued Liabilities
The components of accrued liabilities at December 31 and May 31, 1995 were as
follows:
December 31, May 31,
1995 1995
------------ -------
Payroll and related costs $ 136,583 $ 76,856
Professional fees 74,499 196,431
Interest 309,920 126,243
Other 374,819 143,827
--------- ---------
$ 895,821 $ 543,357
========= =========
Note 8 - Investment
In December 1991, the Company acquired a Preferred Stock Investment (3,293
shares of $500 par value, 7% cumulative convertible preferred stock) in
ComputerLogic, Inc., a Georgia corporation, which offers computer based products
to the automobile parts and repair industries. The Preferred Stock elects not
less than 40% of the ComputerLogic board of directors. The Company's Preferred
Stock Investment is convertible into 38% of the outstanding capital stock of
ComputerLogic, Inc. The Company also has the option to increase its investment
for additional consideration as described in the purchase
F - 11
<PAGE>
agreement. The purchase price consisted of cash of $1,250,000 and 101,667 shares
of the Company's Common Stock. The investment was being carried at the lower of
cost or net realizable value.
As a result of the sale of the Company's businesses providing computerization
and communications services to the automotive industry and the resulting lack of
synergistic business opportunities, the Company has no intention of exercising
its option to increase its investment. The Company therefore wrote off its
preferred stock investments totaling $1,804,256 which included unpaid management
fees and unpaid preferred stock dividends of $155,460 as of May 31, 1995.
Note 9 - Debt
In conjunction with the acquisition of FFC on December 6, 1995, the Company
entered into a revolving credit facility maturing on September 30, 1999, with
Finova Capital Corporation which provides for borrowings of up to $42 million.
Advances under the agreement amounted to $20,679,024 as of December 31, 1995 and
are secured by all of the Company's installment contracts receivable. Interest
is payable monthly at the prime rate (8.75% at December 31, 1995) plus 1.50%.
The weighted average interest rate on borrowings under this facility for the
month of December 1995 was 10.25%.
On December 6, 1995 and as part of the acquisition of FFC, the Company assumed
unsecured subordinated notes in the amount of $9,800,000. These notes bear
interest at the rate of 12% per annum, payable monthly. $4,900,000 Series A
notes mature on May 1, 1999 and $4,900,000 Series B notes mature on December 31,
2000.
Other notes consist of the following: December 31, May 31,
1995 1995
------------ -------
Subordinated notes due January 2000 payable in equal
annual installments in January 1998, 1999 and 2000
with interest at 7.55% paid semi-annually $2,000,000 $4,000,000
Note payable to former owner of acquired
business, due in January 1996 with interest
at 4% payable in equal monthly installments 36,166 160,869
Debt incurred in connection with the acquisition,
of FFC payable in January 1996 231,000 -
---------- ----------
Total other notes $2,267,166 $4,160,869
---------- ----------
The Company paid interest of approximately $231,000 for the seven month period
ended December 31, 1995 and $308,000 and $14,000 during fiscal years ended May
31, 1995 and 1994, respectively.
Note 10 - Income Taxes
For the seven months ended December 31, 1995 and for the years ended May 31,
1995 and 1994, the provision (benefit) for income taxes consists of the
following:
Seven Months Years Ended
Ended May 31,
December 31,
1995 1995 1994
------------ ----------- ----------
Federal $ (184,882) $ (320,331) $ (56,253)
State 8,922 (11,949) (8,083)
---------- ---------- ---------
Income tax benefit on loss
from continuing operations $ (175,960) $ (332,280) $ (64,336)
---------- ---------- ---------
F - 12
<PAGE>
Income taxes on income from
discontinued operations:
Federal $ (14,522) $ 593,093 $ 849,861
State - (90,558) 122,118
---------- ----------- ---------
$ (14,522) $ 502,535 $ 971,979
---------- ---------- ---------
Income taxes on gain on sale
of discontinued operations:
Federal $ 152,917 $7,148,753 $ -
State - 509,888 -
---------- ---------- ---------
$ 152,917 $7,658,641 $ -
========== ========== =========
The following table reconciles the Company's effective income tax rate on income
(loss) from continuing operations to the Federal Statutory Rate for the seven
month period ended December 31, 1995 and for the years ended May 31, 1995 and
1994:
Seven Months Years Ended
Ended May 31,
December 31,
1995 1995 1994
---- ---- ----
Federal Statutory Rate 34.0 % (34.0)% (34.0)%
Effect of:
State and local taxes, net
of federal benefit (.8) (.2) (3.9)
Benefit from tax exempt
income (81.4) (7.0) --
Preferred stock investment
write-off -- 23.1 --
Credits resulting from
amendments to and refunds
from prior year returns -- -- 5.7
Other, net 2.5 4.3 1.2
----- ----- -----
(45.7)% (13.8)% (31.0)%
===== ===== =====
The Company paid income taxes of approximately $884,000, $1,119,000 and
$1,178,000 for the seven month period ended December 31, 1995 and for the fiscal
years ended May 31, 1995 and 1994, respectively.
Note 11 - Commitments and Contingencies
Leases
The Company is obligated under noncancellable operating leases for premises and
equipment expiring at various dates through 1999. Future minimum lease payments
are $225,825, $145,727, $95,753, $95,753 and $95,753 for each of the five year
periods ended December 31, 2000 and $31,918 thereafter. Lease expense for the
seven month period ended December 31, 1995 and the years ended May 31, 1995 and
1994 was approximately $ 68,000, $384,000 and $434,000, respectively.
401(k) Plan
The Company is obligated under its 401(k) Plan to match fifty percent of
employee contributions up to a maximum of three percent of eligible
compensation. 401(k) Plan expense for the seven month period ended December 31,
1995 and the years ended May 31, 1995 and 1994 was approximately $ 3,000,
$72,000 and $73,000, respectively.
F - 13
<PAGE>
Other Agreements
The Company has employment agreements with Messrs. Zecher and Wunderlich, two
officers of the Company, one of whom is also a stockholder. The agreements
expire in 1997 and 1998 and provide for a minimum annual compensation of
approximately $400,000, $300,000 and $83,333 for the years ended December 31,
1996, 1997 and 1998, respectively. In addition, the Company has an employment
agreements with a non-officer employee. This agreement expires in November 2000
and provides for an aggregate minimum annual compensation of $140,000 plus a
bonus equal to one-eighth of one percent (1/8%) of the outstanding net
performing installment contract receivable portfolio of the Company's non-prime
auto finance business located in Norfolk, Virginia.
The Company has entered into supplemental employment agreements (the
"Supplemental Employment Agreements") with Messrs. Zecher and Wunderlich (the
"Covered Executives"), which provide that if there is a Change in Control of the
Company (as defined therein) during the Protected Period (described below), the
terms of the Supplemental Employment Agreements will supersede the Covered
Executives' existing employment agreements and will govern the terms of the
Covered Executives' employment following the Change in Control for a three-year
term, in the case of Mr. Zecher, and a two-year term, in the case of Mr.
Wunderlich (the "Employment Term").
The Supplemental Employment Agreements provide that during the Employment Term,
the Covered Executives will remain employed in their capacities with the Company
as of the Change in Control and will continue to receive an annual salary (the
"Base Salary") and benefits at least equal to that which they received prior to
the Change in Control and an annual bonus at least equal to the Covered
Executive's average annual bonus during the three years prior to the Change in
Control. The Supplemental Employment Agreements provide that if, during the
Employment Term, the Covered Executive's employment is terminated by the Company
other than for Cause or Disability or by the Executive either for Good Reason or
during the 60-day Window Period commencing on the anniversary of the Change in
Control (as each of the foregoing terms are defined in the applicable
Supplemental Employment Agreement), the Covered Executive would receive a
severance payment equal to the sum of his Base Salary and the higher of his
annual bonus for the then most recent year or his average annual bonus during
the three years preceding the Change in Control (the "Highest Annual Bonus")
multiplied by two, in the case of Mr. Zecher, and one and one-half, in the case
of Mr. Wunderlich. In addition, the restrictions on any stock-related incentive
awards held by the Covered Executive would lapse and he would be entitled to
continued coverage under the Company's life, health and disability benefits for
two years following termination of his employment (three years in the case of
Mr. Zecher) or until he receives similar benefits from a new employer. Mr.
Zecher's Supplemental Employment Agreement also provides that if he is subject
to excise taxes under Section 4999 of the Internal Revenue Code on any payments
or benefits triggered by a Change in Control, he will be entitled to receive an
additional amount such that after the payment of all applicable taxes, he will
retain an amount equal to that which he would have retained absent the excise
taxes. In connection with the Supplemental Employment Agreements, the Company
also approved the creation of an Employment Protection Trust Agreement which is
a form of a grantor trust under which the assets of the trust remain subject to
the satisfaction of the general claims of the Company's creditors, to provide
for the payment of all benefits payable under the Supplemental Employment
Agreements.
F - 14
<PAGE>
Note 12 - Stockholders' Equity
Stock Bonus Plan
In January 1994, the Company issued 15,000 shares of Common Stock pursuant to a
restricted stock bonus plan to a Director. In June 1987 and November 1987, the
Company issued 410,000 shares of Common Stock pursuant to a restricted stock
bonus plan to key executives and consultants.
These shares will vest ratably every two years over a period of 30 years. The
unvested portion is subject, upon the occurrence of certain events, to either
forfeiture or accelerated vesting. Such shares are recorded at their estimated
fair market value as determined by the Board of Directors and are charged as
compensation expense ratably over the vesting period.
Warrants
In connection with the $4,000,000 7.55% subordinated long-term notes issued in
January 1994, the Company issued six year warrants to purchase 533,333 shares of
Common Stock at a per share price of $4.00. In September 1995, the Company
prepaid $2,000,000 of the notes. In conjunction with the prepayment, 196,296 of
these warrants were canceled. The Company has reserved 337,037 shares of Common
Stock for issuance upon the exercise of the remaining warrants. No such warrants
have been exercised to date.
In connection with a May 1986 public offering of Common Stock, the Company
issued warrants to the underwriter for the purchase of 96,000 shares of its
Common Stock at a per share price of $4.80. During fiscal 1992, 66,750 warrants
to purchase shares of the Company's Common Stock expired. The remaining 29,250
warrants are exercisable through May 1998. The Company has reserved 29,250
shares of Common Stock for issuance upon the exercise of these warrants.
Stock Option Plans
The Company has four stock option plans under which officers and other key
employees may acquire shares of Common Stock. Options have been granted at not
less than fair market value on the date of grant and expire ten years from that
date. Options are exercisable immediately after the granting date except where
exercise is otherwise limited at the time of granting.
Option information for the seven month period ended December 31, 1995 and the
years ended May 31, 1995 and 1994 are as follows:
Number of Option Price
Shares Per Share
--------- ------------
Outstanding at June 1, 1993 920,749 $1.625 to $4.125
Granted during the year 165,000 $3.75 to $4.00
Exercised during the year (118,950) $1.625 to $1.75
Forfeited during the year (269,000) $3.00 to $4.00
-------- --------------
Outstanding at May 31, 1994 697,799 $1.625 to $4.125
Granted during the year 270,000 $2.75 to $4.125
Exercised during the year (502,966) $1.625 to $3.375
Forfeited during the year (30,000) $3.00 to $3.75
-------- --------------
F - 15
<PAGE>
Outstanding at May 31, 1995 434,833 $1.75 to $4.125
Exercised during the period (21,500) $1.75 to $2.75
-------- --------------
Outstanding at December 31, 1995 413,333 $3.00 to $4.125
-------- ---------------
Options exercisable at December 31, 1995 were 145,603 and at May 31, 1995 and
1994 were 177,055 and 380,799 shares, respectively. At December 31, 1995,
413,333 shares of the Company's authorized Common Stock were reserved to cover
future exercise of options, and 280,751 shares were available for future grants.
In connection with the sale of discontinued operations in April 1995, the
Company accelerated the vesting provisions relating to outstanding options held
by employees of the businesses sold. As of May 31, 1995, the vesting of options
to purchase 175,333 shares was accelerated resulting in a charge against the
gain on sale of discontinued operations of $146,708.
On April 10, 1995, an officer of the Company exercised options to acquire
216,799 shares. In connection with this exercise, the Company received a full
recourse, non-interest bearing note due in May 1996, secured by a pledge of the
acquired shares in the amount of $466,797.
Other Options
The Company issued a non-qualified performance stock option to a non-officer
employee to purchase an aggregate of 375,000 shares of the Company's Common
Stock at an average exercise price of $3.00 per share. These shares will vest
over a five year period based upon the performance of the Company's non-prime
auto finance business in Norfolk, Virginia.
Note 13 - Subsequent Event
On April 24, 1996, the Company entered into an employment agreement with a
non-officer relating to the anticipated expansion of the Company's non-prime
auto finance business in the New England states. This agreement expires in April
2000 and provides for an aggregate minimum annual compensation of $140,000 plus
a bonus equal to one-tenth of one percent (1/10%) of the outstanding net
performing installment contract receivable portfolio generated in the New
England region, a restricted stock grant of 100,000 shares of the Company's
Common Stock and non-qualified options to purchase 400,000 shares of the
Company's Common Stock at an exercise price of $3.125 per share. These options
will vest over a four year period based upon in part the performance of the
Company's non-prime auto finance business in the New England region.
F - 16
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FINOVA Capital Corporation
Rediscount Finance
FIRST AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Borrower: AutoInfo Finance of Virginia, Inc.
Address: 536 West 21st Street
Norfolk, Virginia 23517
Date: December 19, 1995
================================================================================
THIS FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into on
the above date between FINOVA CAPITAL CORPORATION, a Delaware corporation
("Lender"), whose corporate address is Dial Tower, Dial Corporate Center,
Phoenix, Arizona 85077 and whose Rediscount Finance Office address is 13355 Noel
Road, Suite 800, Dallas, Texas 75240 and the borrower named above (the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address"). Borrower has purchased certain assets and certain
assumed the obligations of Falk Finance Company, Inc.'s, including the
indebtedness to Lender pursuant to that certain Loan and Security Agreement,
dated September 30, 1994, ("Prior Agreement"). This First Amemded and Restated
Loan and Security Agreement is an amendment and restatement of the Prior
Agreement.
1. DEFINITIONS
1.1. ACCOUNT DEBTOR. The term "Account Debtor" shall mean any person or
persons that are an obligor in any contractual arrangement with Borrower or any
co-signor in respect of any Receivable.
1.2. AGREEMENT. The term "Agreement" shall mean this Loan and Security
Agreement and any amendment, modifications or extension hereof.
1.3. BUSINESS DAY. The term "Business Day" shall mean a day, other than a
Saturday or Sunday, on which commercial banks are open for business to the
public in Phoenix, Arizona and New York, New York.
1.4. CHARGE OFFS. The term "Charge Offs" shall mean the amount due (including
the principal balance plus all earned fees and charges) pursuant to a Receivable
on the date that Borrower charges off such Receivable as uncollectible, pursuant
to Borrower's policies and/or procedures.
1.5. CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
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<PAGE>
1.6. COLLATERAL. The term "Collateral" shall have the meaning set forth in
Section 3.1. hereof.
1.7. COLLATERAL RECOVERY RATE. The term "Collateral Recovery Rate" shall mean,
for any period of determination, (i) the total cash collected from all
Receivables (including but not limited to all cash proceeds from charge off
recoveries, but excluding recoveries from Charlie Falk Auto Wholesale, Inc., or
its affiliates, (collectively referred to herein as "CFAW") pursuant to any
recourse agreement or agreements between Borrower and CFAW ["Recourse
Agreement"]), divided by (ii) the sum of (a) the Rebates plus (b) the total cash
collected from all Receivables (excluding all cash proceeds from charge off
recoveries) plus (c) the aggregate of all Charge Offs for that period.
1.8. COMMONLY CONTROLLED ENTITY. The term "Commonly Controlled Entity" shall
mean an entity, whether or not incorporated, which is under common control with
Borrower within the meaning of Section 414(b) or (c) of the Code.
1.9. DEFAULT. The term "Default" shall mean an event which with the passage of
time or notice or both would constitute an Event of Default (as defined in
Section 7.1).
1.10. DISTRIBUTIONS. The term "Distributions" shall mean any dividends or
other distribution of earnings to Borrower's shareholders, loans to officers,
directors, affiliates or shareholders (excluding salaries).
1.11. ELIGIBLE RECEIVABLES. The term "Eligible Receivables" shall mean those
Receivables of Borrower that are acceptable to Lender, in its reasonable
discretion, and, in each case, that meet, at a minimum, all of the following
requirements: (i) arise from the extension of credit, the sale and delivery of
goods or the rendering of services in the ordinary course of Borrower's
business; (ii) represent a valid and binding obligation enforceable in
accordance with its terms for the amount outstanding thereof without offset,
counterclaim or defense (whether actual or alleged); (iii) comply in all
respects with all applicable laws and regulations, including, but not limited
to, truth in lending and credit disclosure laws and regulations; (iv) all
amounts and information appearing thereon or furnished to Lender in connection
therewith are true and correct and undisputed by the Account Debtor thereon or
any guarantor thereof; (v) Borrower and the Account Debtor are not engaged in
any litigation regarding nonpayment of the Receivable; (vi) to the best
knowledge of Borrower neither the Account Debtor thereon nor any guarantor
thereof is subject to any receivership, insolvency or bankruptcy proceeding, is
insolvent or has failed to meet its debts as they mature; (vii) Borrower has
good and sufficient right to pledge, assign and deliver the Receivables free
from all liens, claims, encumbrances or security interests whatsoever; (viii)
neither the Account Debtor thereon nor any guarantor thereof is employed by,
related to or affiliated with Borrower; (ix) to the best knowledge of Borrower
no condition exists that materially or adversely affects the value of the
Receivables or jeopardizes any security therefor; (x) if the Receivables arise
from the sale of goods, such goods have been delivered and accepted by the
Account Debtor and are still subject to the lawful possession and control of the
Account Debtor and have not been otherwise returned to or repossessed by
Borrower; (xi) is not a renewal of any Receivable or an extension of any
Receivable previously ineligible hereunder; (xii) the original principal amount
thereof does not exceed the Maximum Amount of an Eligible Receivable (Schedule
Sections 1.11.A.) and the original term thereof does not exceed the Maximum Term
of an Eligible Receivable (Schedule Section 1.11.B.); (xiii) meets the
Eligibility Test and has been reported to Lender in compliance with the Aging
Procedures (Schedule Section 1.11.C.); (xiv) is not evidenced by a judgment or
has not been reduced to judgment; (xv) is not an open account; (xvi) is
evidenced by a written payment agreement, bearing interest or containing a time
price differential, which has been executed by the Account Debtor; (xvii) the
Account Debtor thereunder is a legal resident of the United States; (xviii)
payments under the Receivable are to be made in United States dollars; and (xix)
is not solely for the financing of a deferred down payment and/or tax, title
costs and license tag fees.
1.12. ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
1.13. GAAP. The term "GAAP" shall mean generally accepted accounting
principles and other standards as promulgated by the American Institute of
Certified Public Accounts.
1.14. GUARANTOR. The term "Guarantor" shall mean any person or persons who
execute a guaranty agreement in favor of Lender guaranteeing the repayment of
the Borrower's Indebtedness to Lender (Schedule Section 4.5).
1.15. GUARANTY AGREEMENT. The term "Guaranty Agreement" shall mean that
certain agreement executed by the Guarantor, in a form and substance approved by
Lender.
1.16. GOVERNING RATE. The term "Governing Rate" shall mean the "Prime" rate
publicly announced by Citibank N.A., New York, New York (or such other "money
center" bank as Lender, in its sole discretion, may select from time to time,
but shall not be more than the highest rate of the five largest banks in the
Continental United States as their respective corporate base, reference, prime
or similar benchmark rate), provided however, that such rate may not be the
lowest rate charged to such bank's customers.
1.17. INDEBTEDNESS. The term "Indebtedness" shall mean all amounts advanced
hereunder by Lender to Borrower together with all other amounts owing or
becoming owing to Lender by Borrower, direct or indirect, absolute or
contingent, now or hereafter existing, whether pursuant to the terms of this
Agreement or any document or instrument evidencing or securing the transaction
contemplated hereby.
-2-
<PAGE>
1.18. LEVERAGE RATIO. The term "Leverage Ratio" shall mean, at any date of
determination, total liabilities of Borrower excluding all Subordinated Debt,
but including the outstanding balance of the Indebtedness, divided by the sum of
the amount of Borrower's Tangible Net Worth plus all Subordinated Debt.
1.19. LOAN DOCUMENTS. The term "Loan Documents" shall mean this Agreement, the
Note, the Schedule, the Guaranty, Subordination Agreements, Agency and Custodian
Agreements and all other documents executed in connection with this Agreement,
together with any and all renewals, amendments, restatements or replacements of
such documents.
1.20. MAXIMUM RATE. The term "Maximum Rate" shall mean the highest lawful and
nonusurious rate of interest applicable to the Note made and delivered by
Borrower to Lender in connection herewith, that at any time or from time to time
may be contracted for, taken, reserved, charged, or received on the Note and the
Indebtedness under the laws of the United States and the laws of such states as
may be applicable thereto, that are in effect or, to the extent allowed by such
laws, that may be hereafter in effect and that allow a higher maximum
nonusurious and lawful interest rate than would any applicable laws now allow.
1.21. NET INCOME. The term "Net Income" shall mean with respect to any fiscal
period, the net earnings of Borrower (excluding all extraordinary gains or
nonrecurring income) before provision for income taxes for such fiscal period of
Borrower, all as reflected on the financial statements of Borrower supplied to
Lender pursuant to Sections 4.4(A) and 4.4(B) hereof.
1.22. NOTE. The term "Note" shall mean the promissory note of even date
herewith, executed by Borrower and payable to the order of Lender.
1.23. PLAN. The term "Plan" shall mean any pension plan that is covered by
Title IV of ERISA and with respect to which Borrower or a Commonly Controlled
Entity is an "Employer" as defined in section 3(5) of ERISA.
1.24. REBATES. The term "Rebates" shall mean, for any period of determination,
the aggregate of all rebates of interest and insurance fees for that period.
1.25. RECEIVABLES. The term "Receivables" shall mean all accounts of Borrower
and any other right of Borrower to receive payment, including, without
limitation, all loans, extensions of credit or Borrower's right to payment for
goods sold or services rendered by Borrower.
1.26. REQUEST FOR ADVANCE. The term "Request for Advance" shall mean a written
request for an advance in the form of Exhibit "A" attached hereto and made a
part hereof.
1.27. SCHEDULE. The term "Schedule" shall mean the schedule executed in
conjunction with this Agreement of even date herewith, as may be amended from
time to time, upon written agreement of Lender and Borrower.
1.28. SUBORDINATED DEBT. The term "Subordinated Debt" shall mean the aggregate
amount of any indebtedness of Borrower to persons other than Lender that by its
terms is subordinated in all respects, including, but not limited to, the right
of payment, to the prior payment in full of the Indebtedness. A subordination
and standstill agreement, in a form and substance satisfactory to Lender, shall
be entered into by all holders of Subordinated Debt.
1.29. TANGIBLE NET WORTH. The term "Tangible Net Worth" shall mean, at any
time of determination, the shareholder's equity of Borrower determined in
accordance with GAAP minus the aggregate amount of all intangible assets and all
assets consisting of obligations due to Borrower from shareholders, directors,
officers, or any affiliate of Borrower, any shareholder of Borrower or any
Guarantor hereunder. Notwithstanding the foregoing, up to an aggregate
outstanding balance of Two Million Five Hundred Thousand of obligations due to
Borrower from shareholder, directors, officers, or any affiliate of Borrower,
any shareholder of Borrower or any Guarantor may be included in Tangible Net
Worth, provided that all such obligations are adequately collateralized by an
automobile or automobiles.
1.30. 30-DAY RECEIVABLES PERCENTAGE. The term "30-Day Receivables Percentage"
shall mean, at any date of determination, the percentage determined by the
aggregate unmatured and unpaid amount due to Borrower from all Account Debtors
named thereon, including all unearned finance charges, time price differentials,
insurance fees and other fees and charges pursuant to the Receivables that are
thirty (30) days or less past due, divided by the aggregate unmatured and unpaid
amount due to Borrower from all Account Debtors named thereon, including all
unearned finance charges, time price differentials, insurance fees and other
fees and charges pursuant to all the Receivables.
2. LOAN
2.1. AMOUNT OF LOAN. Subject to the terms, covenants and conditions
hereinafter set forth, Lender agrees upon the Borrower's request from time to
time, until the Maturity Date, to make advances to Borrower (collectively, the
"Loan"), in an aggregate amount not to exceed at any time outstanding the lesser
of the following: (a) the Amount of Revolving Credit Line (Schedule Section
2.1.A.) or (b) the Availability on Eligible Receivables (Schedule Section
2.1.B.). Within the limits of this Section 2.1, Borrower may borrow, repay and
reborrow the advances. The Loan shall be evidenced by the Note.
-3-
<PAGE>
2.2. INTEREST RATE. The outstanding principal balance of Loan shall bear
interest at the Stated Interest Rate (Schedule Section 2.2). If Lender is ever
prevented from charging or collecting interest at the rate set forth in Stated
Interest Rate Section (i) because interest at such rate would exceed interest at
the Maximum Rate, then the rate set forth in Stated Interest Rate Section (i)
shall continue to be the Maximum Rate until Lender has charged and collected the
full amount of interest chargeable and collectable had interest at the rate set
forth in Stated Interest Rate Section (i) always been lawfully chargeable and
collectible. As the Governing Rate changes, the rate set forth in Stated
Interest Rate Section (i) shall be increased or decreased (subject to the
Maximum Rate) on the first day of each calendar month to correspond with the
change in the Governing Rate then in effect and shall remain fixed at such rate
until the first day of the next succeeding calendar month, notwithstanding
fluctuations in the Governing Rate during the month. All changes in the
Governing Rate shall be made without notice to Borrower. The monthly interest
due on the principal balance of the Loan outstanding shall be computed for the
actual number of days elapsed during the month in question on the basis of a
year consisting of three hundred sixty (360) days and shall be calculated by
determining the average daily principal balance outstanding for each day of the
month in question. The daily rate shall be equal to 1/360th times the Stated
Interest Rate (but shall not exceed the Maximum Rate).
2.3. PAYMENTS. All payments to Lender shall be payable at FINOVA Capital
Corporation, File No. 96425, P. O. Box 668100, Charlotte, NC 28266-8100. All
payments received pursuant to this Agreement shall be applied to Borrower's
Indebtedness three (3) Business Days after the actual receipt of such payment by
Lender's depository bank if such payment is credited to Lender's account. The
Indebtedness shall be due and payable as follows:
A. Accrued but unpaid interest for each calendar month during the term hereof
shall be due and payable, in arrears, on or before the fifteenth (15th) day of
the immediately succeeding calendar month; if such accrued but unpaid interest
for the preceding month is not received by the fifteenth (15th) of the month,
such unpaid interest shall be added to the Indebtedness.
B. Costs, fees and expenses payable pursuant to this Agreement shall be due
and payable by Borrower to Lender or to such other person(s) designated by
Lender in writing on demand; and
C. The entire outstanding balance of the Indebtedness shall be due and
payable, if not prepaid, on the Maturity Date (Schedule Section 2.3.).
2.4. PAYMENT DUE ON A NON-BUSINESS DAY. If any payment of the Indebtedness
falls due on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day.
2.5. MANDATORY PAYMENTS. Provided that Borrower is not otherwise in Default
hereunder, if at any time the amount advanced by Lender to Borrower exceeds the
maximum amount of the Loan allowed pursuant to Section 2.1, Borrower shall
immediately and without notice, repay to Lender an amount sufficient to
eliminate such excess, or, at Lender's option, assign and deliver additional
Eligible Receivables sufficient for such purpose. In the event Borrower sells,
transfers, assigns or otherwise disposes of all or any portion of its
Receivables, other than in the ordinary course of business, Borrower shall apply
all proceeds of any such sale, transfer, assignment or other disposition to
reduce the outstanding balance of the Indebtedness.
2.6. VOLUNTARY PREPAYMENTS. Borrower may, at its option, voluntarily prepay
the Indebtedness in full at any time, provided, however, that Borrower has given
Lender ninety (90) days written notice of any such intention to prepay the
Indebtedness in full. Borrower may not make such prepayment prior to the
expiration of such ninety (90) day period. Upon written notice of prepayment of
the Indebtedness in full, the commitment by Lender to advance funds to Borrower
and all the obligations of Lender shall terminate on the expiration of said
ninety (90) day notice period, and the entire amount of the Indebtedness shall
be due and payable on such date.
2.7. MAXIMUM INTEREST; CONTROLLING AGREEMENT. The contracted for rate of
interest of the Loan without limitation, shall consist of the following: (i) the
Stated Interest Rate, calculated and applied to the principal balance of the
Note in accordance with the provisions of the Note and this Agreement; (ii)
Interest After Event of Default or Due Date, calculated and applied to the
amounts due under the Note in accordance with the provisions thereof; and (iii)
all Additional Sums (as herein defined), if any. Borrower agrees to pay an
effective contracted for rate of interest which is the sum of the
above-referenced elements.
All fees, charges, goods, things in action or any other sums or things of
value (other than amounts described in the immediately previous paragraph), paid
or payable by Borrower (collectively, the "Additional Sums"), whether pursuant
to the Note, this Agreement or any other documents or instruments in any way
pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
-4-
<PAGE>
It is the intent of the parties to comply with the usury law ("Applicable
Usury Law") applicable pursuant to the terms of the preceding paragraph or such
other usury law which is applicable if the law chosen by the parties is not
applicable. Accordingly, it is agreed that notwithstanding any provisions to the
contrary in the Loan Documents, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall the Loan Documents or
such documents require the payment or permit the collection of interest in
excess of the maximum contract rate permitted by the Applicable Usury Law. In
the event (a) any such excess of interest otherwise would be contracted for,
charged or received from Borrower or otherwise in connection with the loan
evidenced hereby, or (b) the maturity of the indebtedness evidenced by the Loan
Documents is accelerated in whole or in part, or (c) all or part of the
principal or interest of the Loan Documents shall be prepaid, so that under any
of such circumstances the amount of interest contracted for, shared or received
in connection with the loan evidenced hereby, would exceed the maximum contract
rate permitted by the Applicable Usury Law, then in any such event (1) the
provisions of this paragraph shall govern and control, (2) neither Borrower nor
any other person or entity now or hereafter liable for the payment hereof will
be obligated to pay the amount of such interest to the extent that it is in
excess of the maximum contract rate permitted by the Applicable Usury Law, (3)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount hereof or refunded to Borrower,
at Lender's option, and (4) the effective rate of interest will be automatically
reduced to the maximum amount of interest permitted by the Applicable Usury Law.
It is further agreed, without limiting the generality of the foregoing, that to
the extent permitted by the Applicable Usury Law; (x) all calculations of
interest which are made for the purpose of determining whether such rate would
exceed the maximum contract rate permitted by the Applicable Usury Law shall be
made by amortizing, prorating, allocating and spreading during the period of the
full stated term of the loan evidenced hereby, all interest at any time
contracted for, charged or received from Borrower or otherwise in connection
with such loan; and (y) in the event that the effective rate of interest on the
loan should at any time exceed the maximum contract rate allowed under the
Applicable Usury Law, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall be
paid to Lender from time to time, if and when the effective interest rate on the
loan otherwise falls below the maximum amount permitted by the Applicable Usury
Law, to the extent that interest paid to the date of calculation does not exceed
the maximum contract rate permitted by the Applicable Usury Law, until the
entire amount of interest which would have otherwise been collected had there
been no ceiling imposed by the Applicable Usury Law has been paid in full.
Borrower further agrees that should the maximum contract rate permitted by the
Applicable Usury Law be increased at any time hereafter because of a change in
the law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by the Applicable Usury Law,
should the maximum contract rate permitted by the Applicable Usury Law be
decreased because of a change in the law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
2.8. STATEMENT OF ACCOUNT. Lender shall provide Borrower, each month, with a
statement of Borrower's account, prepared from Lender's records, which shall
conclusively be deemed correct and accepted by Borrower, unless Borrower gives
Lender a written statement of exceptions within ten (10) days after receipt of
such statement.
2.9. CONDITIONS PRECEDENT TO ADVANCES. The obligation of Lender to make
advances is subject to the following conditions: (i) no Default, except to the
extent that Borrower is diligently pursuing the cure of such Default in good
faith within the cure period set forth in Section 7.1 hereof, or Event of
Default shall have occurred; (ii) all actions to be taken by Borrower in
connection with the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to Lender; (iii) the warranties and
representations of Borrower contained herein shall be true and correct on the
date hereof and shall be deemed to have been made again on the date of each
advance and shall then also be true and correct; (iv) Borrower shall have
performed and complied with all obligations or conditions required by this
Agreement to be performed or complied with prior to each advance and Borrower
shall not then be in default under any document or instrument evidencing or
securing the Indebtedness; (v) Borrower shall submit to Lender a completed
Request for Advance Report in the form and substance of Exhibit "A" attached
hereto, on the date such advance is requested or shall have complied with the
provisions concerning oral advances hereunder as set forth in Section 2.10
hereof; (vi) prior to the initial advance hereunder, Borrower shall submit to
Lender the initial Availability Report and all other documents, instruments,
financing statements, evidence of authority, evidence of compliance with
applicable laws, opinions of counsel and other information which Lender may
reasonably request; and (vii) Borrower shall submit to Lender resolutions of its
Board of Directors designating personnel authorized by Borrower to execute
Availability Reports on behalf of Borrower and each specific request for advance
shall be executed by one such person.
2.10. ORAL REQUEST FOR ADVANCE. All oral requests for advances shall be made
only by an authorized agent of Borrower designated by or acting under the
authority of a resolution of the Board of Directors of Borrower, a duly
certified or executed copy of which shall be furnished to Lender prior to any
oral request. Lender shall be entitled to rely upon such authorization until
written notice to the contrary is received by Lender. Borrower covenants and
agrees to furnish to Lender written confirmation of any such oral request within
two (2) days after such oral request, in a form set forth on Exhibit "A"
attached hereto and incorporated herein, but any such loan or advance shall be
deemed to be made under and entitled to the benefits of this
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Agreement and any other documents or instruments executed in connection herewith
irrespective of any failure by Borrower to furnish such written confirmation.
Any loan or advance shall be conclusively presumed to have been made under the
terms of this Agreement, to or for the benefit of Borrower, when made pursuant
to the terms of any written agreement executed in connection herewith; or in
accordance with such requests and directions; or when an advance is deposited to
the credit of the account of any person or persons, corporation or corporations
comprising Borrower, regardless of the fact that persons other than those
authorized hereunder may have authority to draw against such account or
regardless of the fact that the advance was not made or deposited for the
benefit of all persons or corporations comprising Borrower.
2.11. ALL ADVANCES TO CONSTITUTE ONE LOAN. All evidences of credit, loans and
advances made by Lender to Borrower under this Agreement and any other documents
or instruments executed in connection herewith shall constitute one loan, and
all indebtedness and obligations of Borrower to Lender under this Agreement and
all other such documents and instruments shall constitute one general obligation
secured by Lender's security interest in all of the Collateral and by all other
security interests, liens, claims and encumbrances heretofore, now, or at any
time or times hereafter granted by Borrower to Lender. Borrower agrees that all
of the rights of Lender set forth in this Agreement shall apply to any
modification of or supplement to this Agreement and any other such documents and
instruments.
2.12. ADVANCES. Lender shall have the right in Lender's discretion, subject to
availability hereunder on behalf of and without notice to Borrower, to make and
use advances to pay Lender for any amounts due to Lender pursuant to this
Agreement or otherwise, to cure any default hereunder, notwithstanding the
expiration of any applicable cure period.
2.13. APPLICATION OF PAYMENTS. Borrower does hereby irrevocably agree that
Lender shall have the continuing exclusive right to apply and reapply any and
all payments and collections at any time or times hereafter received by Lender
against the Indebtedness, in such manner as Lender may determine.
3. SECURITY AGREEMENT
3.1. SECURITY INTEREST. To secure the prompt payment to Lender of the
Indebtedness and any and all other obligations now existing or hereinafter
arising owed by Borrower to Lender, Borrower hereby irrevocably grants to Lender
a first and continuing security interest in the following property and interests
in property of Borrower, whether now owned or existing or hereafter acquired or
arising and wheresoever located:
A. All Receivables and all accounts, chattel paper, instruments, contract
rights and general intangibles, all of Borrower's right, remedies, security,
liens, guaranties, or other contracts of suretyship with respect thereto, all
deposits or other security or support for the obligation of any Account Debtor
thereunder and credit and other insurance acquired by Account Debtor or the
Borrower in connection therewith.;
B. All bank accounts of Borrower, except for such bank's right of offset;
C. All monies, securities and property, now or hereafter held, received by, or
intrusted to, in the possession or under the control of Lender or a bailee of
Lender;
D. All accessions to, substitutions for and all replacements, products and
proceeds of the foregoing, including, without limitation, proceeds of insurance
policies referenced in Section 3.1.A above (including but not limited to claims
paid and premium refunds); and
E. All books and records (including, without limitation, customer lists,
credit files, tapes, ledger cards, computer software and hardware, electronic
data processing software, computer printouts and other computer materials and
records) of Borrower evidencing or containing information regarding any of the
foregoing.
3.2. FINANCING STATEMENTS AND FURTHER ASSURANCES. Borrower hereby agrees to
execute UCC-1 Financing Statements, in the form and substance of Exhibit "B"
hereto, and any other instruments or documents reasonably necessary to evidence,
preserve or protect Lender's security interest in the Collateral. Borrower
agrees that financing statements shall be filed covering all of Borrower's
locations (Schedule Section 3.2.).
Upon Lender's request, Borrower agrees to deliver to Lender, at such places as
Lender may reasonably designate, schedules executed by Borrower, listing the
Receivables and fully and correctly specifying in adequate detail the aggregate
unmatured unpaid face amount of each Receivable and the amount of the deferred
installments thereof falling due each month. These schedules shall be in form
and tenor satisfactory to or supplied by Lender. All schedules of delivered
Collateral pledged to Lender shall be assigned to Lender pursuant to the
"Schedule of Receivables and Assignment" in the form and substance of Exhibit
"E" attached hereto. Borrower further warrants and agrees that in each case
where the terms of any Receivable require the Borrower or the Account Debtor
named in such Receivable to place or carry fire insurance or other insurance in
respect of the merchandise or property to which such Receivable relates, the
Borrower shall or shall cause the Account Debtor to maintain such insurance
until the full amount of such Receivable is collected and if not, Lender, at its
option, may place and maintain such insurance, charging the cost thereof to
Borrower.
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3.3. FAILURE TO DELIVER. Failure to deliver physical possession of any
instruments, documents or writings in respect of any Receivable to Lender shall
not invalidate Lender's security interest therein. To the extent that possession
may be required by applicable law for the perfection of Lender's security
interest, the original chattel paper and instruments representing the
Receivables shall be deemed to be held by Lender, although kept by the Borrower
as the custodial agent of Lender.
3.4. NOTICE OF COLLATERAL ASSIGNMENT. All contracts, documents or instruments
representing or evidencing a Receivable shall contain (by way of stamp or other
method satisfactory to Lender) the following language: "Assigned to FINOVA
Capital Corporation as Collateral".
3.5. LOCATION OF RECEIVABLES. Borrower shall, at any reasonable time and at
Borrower's own expense, physically deliver to Lender all Receivables (including
any instruments, documents or writings in respect of any Receivable together
with all instruments, documents or writings in respect of any collateral
securing each Receivable, except to the extent Borrower is required by
applicable law to retain possession of such instruments, documents or writings)
assigned to Lender to any reasonable place or places designated by Lender. All
Receivables shall, regardless of their location, be deemed to be under Lender's
domination and control (with files so labeled) and deemed to be in Lender's
possession.
3.6. RECORDS AND INSPECTIONS. Borrower shall at all times keep complete and
accurate records pertaining to the Collateral, which records shall be current on
a daily basis and located only at the locations (Schedule Section 3.2.). Lender
by or through any of its officers, agents, employees, attorneys or accountants,
shall have the right to enter any such locations, at any reasonable time or
times during regular business hours, for so long as Lender may desire, to
inspect the Collateral and to inspect, audit and make extractions or copies from
the books, records, journals, orders, receipts, correspondence or other data
relating to the Collateral or this Agreement.
3.7. ADDITIONAL DOCUMENTS. Borrower hereby agrees to execute any additional
documents or financing statements which Lender deems necessary in its reasonable
discretion in order to evidence Lender's security interest in the Collateral.
Borrower shall not allow any financing statement or notice of assignment of
accounts receivable, other than those executed in connection with this
Agreement, to be on file in any public office covering any Collateral, proceeds
thereof or other matters subject to the security interest granted to Lender.
3.8. COLLECTION. Borrower agrees at its own expense to promptly and diligently
collect each installment of all Receivables in trust for the exclusive account
of Lender, to hold Lender harmless from any and all loss, damage, penalty,
liability, fine or expense arising from such collection by Borrower or its
agents and to faithfully account therefor to Lender. Upon the occurrence of a
Default, Lender expressly retains the unqualified right at any time it so elects
to take over the collection of the Receivables.
3.9. BLOCKED ACCOUNTS. Upon the occurrence of a Default, except to the extent
that Borrower is diligently pursuing the cure of such Default in good faith
within the cure period set forth in Section 7.1 hereof, or an Event of Default,
at Lender's request, any checks, notes, drafts or any other payment upon and/or
proceeds of the Collateral received by Borrower (or any subsidiaries, divisions,
affiliates, proprietorships, shareholders, directors, officers, employees,
agents or those persons acting for or in concert with Borrower), shall no later
than the next Business Day following receipt thereof, be delivered to Lender, at
Lender's address set forth above, for application on account of the Indebtedness
and shall be reflected in the Statement of Account as provided in Section 2.8
herein, until such time as Lender has established a depository account at a bank
for the deposit of such payments, made arrangements for such deposits to be
transferred to Lender daily and thereafter established a lock-box arrangement or
otherwise. Borrower shall (i) deposit or cause all Items, as defined below, to
be deposited in the special account so established by Lender or transfer all
Items to Lender for application on account of the Indebtedness and to be
reflected in the Statement of Account as provided in Section 2.8 herein and (ii)
maintain copies of all checks or other items of payment and deposit slips
related thereto, together with a collection report in a form satisfactory to
Lender. All cash payments, checks, drafts, or similar items of payment upon
and/or proceeds of the Receivables (collectively "Items") by or for the account
of Borrower shall be the sole and exclusive property of Lender immediately upon
the earlier of the receipt of such Items by Lender or the receipt of such Items
by Borrower; provided, however, that no such item received by Lender shall
constitute payment to Lender and be applied to reduce the Indebtedness until the
later of: (i) three (3) Business Days from collection of such Item by Lender's
depository bank, or (ii) such Item being actually collected by Lender's
depository bank and such collection being credited to Lender's account.
Notwithstanding anything to the contrary herein, all such items of payment shall
be deemed not received if the same is subsequently dishonored or not duly
credited to Lender's depository account for any reason whatsoever.
3.10. PROTECTION OF RECEIVABLE RECORDS. Borrower hereby agrees to take the
following protective actions to prevent destruction of Borrower's Collateral and
records pertaining to such Collateral: (i) if Borrower maintains its Collateral
records on a manual system such records shall be kept in a fire proof cabinet or
on no less than a monthly basis, a record of all payments on Receivables and all
other matters relating to the Collateral shall be placed in an off site safety
deposit box (and Lender shall have access to such safety deposit box); or (ii)
if the Collateral records are computerized, Borrower agrees to create a tape or
diskette "back-up" of the computerized information and upon the request of
Lender, provide Lender with a tape or diskette copy of such "back-up"
information.
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3.11. USE OF COLLECTIONS AND MODIFICATION OF RECEIVABLES. Provided that Lender
has not required that Borrower remit all collections or proceeds of Collateral
to Lender, Borrower may use or dispose of the funds received on the Receivables
in the ordinary course of business (including returned or repossessed goods),
collect or compromise accounts or obligations and accept returned goods or make
repossessions, as Borrower shall determine based upon its reasonable discretion.
3.12. USE OF PROCEEDS. Borrower shall use the initial advance of the Loan to
pay in full all debt or obligations which are secured by the Collateral
immediately prior to the execution of this Agreement, and thereafter to use the
proceeds of the Loan in the ordinary course of business, solely in its
operations for costs incurred in the acquisition and financing of Receivables,
or for payments to Lender pursuant to Section 2.12 hereof.
3.13. RETURN OF COLLATERAL. Upon the payment in full or renewal of any
Receivable to which the written documents evidencing such Receivable are held by
Lender, Borrower shall submit all requests for the return of such documents
pursuant to the "Request For Return of Collateral" form, a copy of which is
attached hereto as Exhibit "C".
3.14. LENDER'S PAYMENT OF CLAIMS. Lender may, in its sole discretion,
discharge or obtain the release of any security interest, lien, claim or
encumbrance asserted by any person against the Collateral. All sums paid by
Lender in respect thereof shall be payable, on demand, by Borrower to Lender and
shall be a part of the Indebtedness.
4. REPORTING REQUIREMENTS
4.1. ACCOUNTING PRACTICES. Borrower shall maintain (i) a modern system of
accounting in accordance with GAAP or other systems of accounting acceptable to
Lender and (ii) standard operating procedures applicable to all of its locations
with respect to the handling and disposition of cash receipts and other proceeds
of Collateral on a daily basis, including the depositing thereof, aging of
account receivables, record keeping and such other matters as Lender may
reasonably request. For the purpose of determining compliance with the covenants
and representations in the Loan Documents, Lender shall have the right to recast
any financial statement or report presented to Lender by or on behalf of
Borrower to comply with GAAP.
4.2. PLEDGE OF RECEIVABLES. Borrower hereby agrees to pledge all Receivables
and deliver documentation evidencing such Receivables to Lender, no less often
than on the fifteenth (15th) day of each calendar month during the term of this
Agreement. If the evidence of title of the collateral securing the pledged
Receivables is not delivered to Lender with the original Receivable
documentation, such evidence of title shall be delivered to Lender not later
than fifteen (15) days after such evidence of title is received by Borrower.
Borrower shall deliver monthly to Lender, with the delivery of the documentation
evidencing the Receivables above, a "Vehicle Title Exception Report" listing all
vehicle titles which have not been received by Lender or are due from the
appropriate state motor vehicle department.
4.3. ACCOUNT DEBTORS' ADDRESSES. Borrower agrees to furnish to Lender from
time to time, promptly upon request, a list of all Account Debtors' names and
their most current addresses. Borrower agrees that Lender may from time to time,
consistent with standard or generally accepted auditing practices, verify the
validity, amount and any other matters relating to the Receivables by means of
mail, telephone or otherwise, in the name of Borrower and upon the occurrence of
an Event of Default in the name of Lender or such other name as Lender may
choose.
4.4. FINANCIAL REPORTS. Borrower shall furnish to Lender the following
financial statements and reports, in a form satisfactory to Lender:
A. As soon as practicable and in any event mailed within fifteen (15) days
after the end of each fiscal month, an Availability Report for the immediately
preceding month, reflecting information for each Contractual Life Category of
Receivables (Schedule Section 1.9.C.) and a summary Availability Report for all
Receivables, in the form and substance of Exhibits "D" and "D-1" attached
hereto;
B. As soon as practicable and in any event mailed within fifteen (15) days
after the end of each fiscal month for the immediately preceding month: (i)
Statement of Accounts Receivable showing the detailed aging of each Receivable
categorized by contractual life according to the procedures (Schedule Section
1.9.C.); (ii) a Dilution Analysis of the Receivables acquired during each fiscal
year, reflecting the aging, cumulative losses and cumulative charge-offs with
respect to such Receivables; (iii) a Collection Report, reflecting the
contractual payment obligations due to Borrower for the month of reporting from
the Receivables, the actual payments received from the Receivables and all
collections received from all sources, including payments, from the Receivables;
(iv) a monthly Profit and Loss Statement and Balance Sheet, certified by
Borrower's chief financial officer or equivalent duly elected officer of
Borrower; and (v) Schedule of Receivables and Assignment in the form and
substance of Exhibit "E" attached hereto.
C. Within ninety (90) days after the end of each of Borrower's fiscal years,
annual financial statements, or consolidated statements, as the case may be, of
Borrower prepared in accordance with GAAP, consistently applied and certified by
its chief financial officer or equivalent duly elected officer. The financial
statements shall be prepared in accordance with GAAP and shall consist of a
balance sheet as of the end of such fiscal year and comparative statements of
earnings, cash flows, and change in stockholders' equity for such fiscal year
(Schedule Section 4.4.).
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D. With reasonable promptness, such other financial data as Lender may
reasonably request, including but not limited to tax returns, business plans and
reports.
Together with each delivery of financial statements required by subsections A,
B and C above, Borrower shall deliver to Lender and shall cause each of its
subsidiaries to deliver to Lender, if requested by Lender, a certificate in form
satisfactory to Lender, certifying that no Default or Event of Default exists
under this Agreement as of the date of such certificate, or if a Default or an
Event of Default exists, specifying the nature and period of existence thereof
and what action Borrower proposes to take with respect thereto.
4.5. FINANCIAL STATEMENTS OF GUARANTORS. Guarantor (Schedule Section 4.5.)
shall furnish to Lender all form 10-Qs and 10-Ks, with all financial exhibits
(and others as requested by Lender), filed by the Guarantor with the Securities
and Exchange Commission, within thirty (30) days of the filing of the same.
4.6. NOTICE OF CHANGES. Borrower shall promptly notify Lender in writing of
any change of its officers, directors or key employees; change of location of
its principal offices, change of location of any of its principal assets; any
acquisition, disposition or reorganization of any corporate subsidiary,
affiliate or parent of Borrower; change of Borrower's name; death or withdrawal
of any partner (if Borrower is a partnership); any sale or purchase out of the
regular course of Borrower's business; litigation of which Borrower or a
Guarantor is a party; and any other material change in the business or financial
affairs of Borrower.
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS AND GUARANTOR.
5.1. REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor hereby
continuously represent and warrant to Lender as follows:
A. Borrower is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation, is duly qualified to
do business and is in good standing as a foreign corporation in all states where
such qualification is required, has all necessary corporate power and authority
to enter into this Agreement and each of the documents and instruments relating
hereto and to perform all of its obligations hereunder and thereunder.
B. Borrower operates its business only under the assumed names (Schedule
Section 5.1.) and has not used any other assumed name for the operation of its
business activities for the previous seven (7) years.
C. Borrower has all requisite corporate right and power and is duly authorized
and empowered to enter into, execute, deliver and perform this Agreement and all
documents and instruments relating hereto and this Agreement and all documents
and instruments relating hereto are the legal, valid and binding obligations of
Borrower and are enforceable against Borrower in accordance with their terms.
D. Each Guarantor is competent to enter into this Agreement and the Guaranty
and to perform all of Guarantor's obligations thereunder.
E. The execution, delivery and performance by Borrower of this Agreement does
not and shall not (i) violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to Borrower; (ii) violate any provision of its Articles of
Incorporation or Bylaws; or (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower is a party or by which it or any of its assets or
properties may be bound or affected; and Borrower is not in default of any such
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award or any such indenture, agreement, lease or instrument.
F. No consent, approval, license, exemption of or filing or registration with,
giving of notice to, or other authorization of or by, any court, administrative
agency or other governmental authority is or shall be required in connection
with the execution, delivery or performance by Borrower for the valid
consummation of the transactions contemplated by this Agreement.
G. No event has occurred and is continuing which constitutes a Default or an
Event of Default, as defined in this Agreement. There is no action, suit,
proceeding or investigation pending or threatened against or affecting Borrower
before or by any court, administrative agency or other governmental authority
that brings into question the validity of the transactions contemplated hereby,
or that might result in any material adverse change in the businesses, assets,
properties or financial conditions of Borrower or Guarantor.
H. Borrower and/or Guarantor are not in default in the payment of any taxes
levied or assessed against either of them or any of their assets or properties,
except for taxes being contested in good faith and by appropriate proceedings.
I. Borrower and Guarantor have good and marketable title to their assets and
properties as reflected in their financial statements furnished to Lender.
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J. Each of the financial statements furnished to Lender by the Borrower and
Guarantor was prepared in accordance with GAAP and fairly and accurately
reflects in all material respects their financial condition as of the date
thereof; and each hereby certifies that there have been no material adverse
changes in their condition, financial or otherwise, since the date of such
statements, and there are no contingent liabilities not provided for or
disclosed in such statements.
K. Neither this Agreement, any Availability Report or any statement or
document referred to herein or delivered to Lender by Borrower and/or Guarantor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements made herein or therein not misleading.
L. Borrower has good, indefeasible and merchantable title to and ownership of
the Collateral, free and clear of all liens, claims, security interests and
encumbrances, except those of Lender and except where such liens, claims,
charges, security interests and encumbrances are removed contemporaneously with
the execution of this Agreement or are subordinate to those of Lender, in a form
and substance acceptable to Lender.
M. All books, records and documents relating to the Collateral are and shall
be genuine and in all respects what they purport to be; the original amount and
the unpaid balance of each Receivable shown on the books and records of Borrower
and in the schedules represented as owing by each Account Debtor is and shall be
the correct amount actually owing or to be owing by such Account Debtor at
maturity; each Account Debtor liable upon the Receivables has and shall have
capacity to contract; Borrower has no knowledge of any fact which would impair
the validity or collectibility of any of the Receivables; and the payments shown
to have been made by each Account Debtor on the books and records of Borrower
shall reflect the amounts of and dates on which said payments were actually
made.
N. Borrower has places of business only at the locations (Schedule Section
3.2.). Borrower shall not begin or do business (either directly or through
subsidiaries) at other locations or cease to do business at any of the above
locations or at Borrower's principal place of business without first notifying
Lender.
O. The present value of all benefits vested under all Plans of Borrower or any
Commonly Controlled Entity (based on the assumptions used to fund the Plans) did
not, as of the last annual valuation date (which in case of any Plan was not
earlier than December 31, 1982) exceed the value of the assets of the Plans
applicable to such vested benefits.
P. The liability to which Borrower or any Commonly Controlled Entity would
become subject under Sections 4063 or 4064 of ERISA if Borrower or any Commonly
Controlled Entity were to withdraw from all Multi-employer Plans or if such
Multi- employer Plans were to be terminated as of the valuation date most
closely preceding the date hereof, is not in excess of One Thousand Dollars
($1,000.00);
Q. Borrower is not engaged nor shall it engage, principally or as one of its
important activities, in a business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulations G or X of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in effect. No
part of the proceeds of any advances hereunder shall be used for "purchasing" or
"carrying" "margin stock" as so defined or for any purpose which violates, or
which would be inconsistent with, the provisions of the Regulations of such
Board of Governors. If requested by Lender, Borrower shall furnish to Lender a
statement in conformity with the requirement of Federal Reserve Form G-3
referred to in said Regulation G to the foregoing effect. All of the outstanding
securities of Borrower have been offered, issued, sold and delivered in
compliance with, or are exempt from, all federal and state laws and rules and
regulations of federal and state regulatory bodies governing the offering,
issuance, sale and delivery of securities.
R. Borrower is not an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
S. Each of the Exhibits and Schedules to this Agreement contain true, complete
and correct information.
T. To the best of Borrower's knowledge, the land and improvements owned or
leased by Borrower for use in its business operations are free of dangerous
levels of contaminates, oils, asbestos, radon, PCB's, hazardous substances or
waste as defined by federal, state or local environmental laws, regulations or
administrative orders or other materials, the removal of which is required or
the maintenance of which is prohibited, regulated or penalized by any federal,
state or local governmental authority.
U. Borrower is solvent, generally able to pay its obligations as they become
due, has sufficient capital to carry on its business and transactions and all
businesses and transactions in which it intends to engage, and the current value
of Borrower's assets, at fair saleable valuation, exceeds the sum of its
liabilities. Borrower shall not be rendered insolvent by the execution and
delivery of the Loan Documents and the consummation of the transactions
contemplated thereby and the capital remaining in Borrower is not now and shall
not foreseeably become unreasonably small to permit Borrower to carry on its
business and transactions and all businesses and transactions in which it is
about to engage. Borrower does not intend to, nor does it reasonably believe it
shall, incur debts beyond its ability to repay the same as they mature.
V. Lender has a perfected security interest in favor of Lender in all of
Borrower's right, title and interest in the Collateral, prior and superior to
any other security interest or lien, except any statutory or constitutional lien
for taxes not yet due and payable.
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W. There are no material actions, suits or proceedings pending, or threatened
against or affecting the assets of Borrower or the consummation of the
transactions contemplated hereby, at law, or in equity, or before or by any
governmental authority or instrumentality or before any arbitrator of any kind.
Neither Borrower nor Guarantor is subject to any judgment, order, writ,
injunction or decree of any court or governmental agency. There is not a
reasonable likelihood of an adverse determination of any pending proceeding
which would, individually or in the aggregate, have a material adverse effect on
the business operations or financial condition of Borrower or Guarantor.
5.2. WARRANTIES AND REPRESENTATIONS AS TO ELIGIBLE RECEIVABLES. With respect
to Eligible Receivables, Borrower and Guarantor continuously warrant and
represent to Lender that during the term of this Agreement and so long as any of
the Indebtedness remains unpaid: (i) in determining which Receivables are
"Eligible Receivables," Lender may rely upon all statements or representations
made by Borrower; and (ii) those Receivables designated as Eligible Receivables
meet each requirement set forth below at the time any request for advance is
provided to Lender.
A. The Eligible Receivables are genuine; are in all respects what they purport
to be; and are evidenced by at least one executed original instrument,
agreement, contract or document which has been or shall be delivered to Lender;
B. The Eligible Receivables represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any documents
related thereto;
C. The amounts of the face value shown on any schedule of Receivables provided
to Lender, and/or all invoices or statements delivered to Lender with respect to
any Eligible Receivables, are actually and absolutely owing to Borrower and are
not contingent for any reason;
D. No set-offs, counterclaims or disputes as to payments or liability thereon
exist or have been asserted with respect thereto and Borrower has not made any
agreement with any Account Debtor thereunder for any deduction therefrom, except
a discount or allowance allowed by Borrower in the ordinary course of its
business for prompt payment, all of which discounts or allowances are reflected
in the calculation of the outstanding amount of the Receivable;
E. No facts, events or occurrences exist that, in any way, impair the validity
or enforcement thereof or tend to reduce the amount payable thereunder from the
amount of the Receivable shown on any schedule, or on all contracts, invoices or
statements delivered to Lender with respect thereto;
F. All Account Debtors in connection with Eligible Receivables: (i) had the
capacity to contract at the time any contract or other document giving rise to
the Receivable was executed; and (ii) generally have the ability to pay their
debts as become due;
G. Within Borrower's knowledge, no proceedings or actions are threatened or
pending against any Account Debtor that might result in any material adverse
change in the Account Debtor's financial condition;
H. The Eligible Receivables have not been assigned or pledged to any other
person or entity;
I. The goods giving rise to the Eligible Receivables are not, and were not at
the time of the sale, rental and/or lease thereof, subject to any lien, claim,
encumbrance or security interest except those of Lender, those removed or
terminated prior to the date hereof or those subordinated to Lender's security
interest, by a subordination and standstill agreement acceptable to Lender;
J. The End of Month Delinquency set forth in Section 14 of the Availability
Report shall be delivered to Lender by Borrower hereunder as determined pursuant
to the Aging Procedures and Eligibility Test (Schedule Section 1.9.C.).
6. COVENANTS AND OTHER AGREEMENTS
6.1. AFFIRMATIVE COVENANTS. During the term of this Agreement and so long as
any of the Indebtedness remains unpaid, Borrower and Guarantor agree and
covenant, jointly and severally, that they shall:
A. Pay or cause to be paid currently all of their expenses, including all
payments on their obligations whenever due, as well as all payments of any and
all taxes of whatever nature when due. This provision shall not apply to taxes
or expenses which are due, but which are challenged in good faith.
B. Maintain, preserve, and protect the Collateral, including, but not limited
to, keeping documents, instruments or other written records otherwise evidencing
the Collateral in a fire proof cabinet.
C. Furnish to Lender written notice as to the occurrence of any Default or
Event of Default hereunder.
D. Furnish to Lender notice of: (i) any development related to the business,
financial condition, properties or assets of Borrower or Guarantor, that would
have or has a materially adverse affect on such business, financial condition,
properties or assets, or ability to perform their obligations under this
Agreement and (ii) any material and adverse litigation or investigation to which
either of them may be a party.
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E. With respect to the Borrower only, carry on and conduct its business in the
same manner and in the same fields of enterprise as it is presently engaged, and
shall preserve its corporate existence, licenses or qualifications as a domestic
corporation in the jurisdiction of its incorporation and as a foreign
corporation in every jurisdiction in which the character of its assets or
properties or the nature of the business transacted by it at any time makes
qualification as a foreign corporation necessary, and to maintain all other
material corporate rights and franchises, provided, however, nothing herein
shall be construed to prevent Borrower from closing any retail location in the
good faith exercise of its business judgment.
F. Comply, and cause each affiliate to comply, with all statutes, governmental
rules and regulations applicable to them.
G. Permit and authorize Lender, without notifying Borrower or Guarantor, to
make such inquiries through business credit or other credit reporting services
concerning Borrower or Guarantor as Lender shall deem appropriate.
H. With respect to the Borrower, provide Lender with evidence of insurance
that insures loss or damage to all tangible Collateral issued by a reputable
carrier, as reasonably required by Lender. This insurance shall reflect Lender
as the loss payee or additional insured, as required by Lender, and contain a
provision that Lender shall be notified by the carrier thirty (30) days prior to
the termination or cancellation of any such insurance.
6.2. NEGATIVE COVENANTS. During the term of this Agreement and until the
Indebtedness secured hereby has been paid in full, Borrower and Guarantor
covenant and agree that they shall not, without Lender's prior written consent,
which consent shall not be unreasonably withheld, do any of the following:
A. Incur or permit to exist any mortgage, pledge, title retention lien or
other lien, encumbrance or security interest with respect to the Collateral now
owned or hereafter acquired by Borrower, except liens in favor of Lender.
B. Delegate, transfer or assign any of their obligations or liabilities under
this Agreement, or any part thereof, to any other person or entity.
C. With respect to the Borrower only, be a party to or participate in: (i) any
merger or consolidation; (ii) any purchase or other acquisition of all or
substantially all of the assets or properties or shares of any class of, or any
partnership or joint venture interest in, any other corporation or entity; (iii)
any sale, transfer, conveyance or lease of all or substantially all of
Borrower's assets or properties; or (iv) any sale or assignment with or without
recourse of any Receivables, provided however, Borrower may sell part or all of
the Receivables upon the conditions that the sales price for such Receivables is
equal to or greater than the Availability on Eligible Receivable applicable to
such Receivables being sold and the proceeds of such sale are applied to the
balance of the Indebtedness.
D. Cause or take any of the following actions with respect to Borrower: (i)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's outstanding securities; or (ii) purchase or acquire, directly or
indirectly, any shares of capital stock, evidences of indebtedness or other
securities of any person or entity, except in the Borrower's ordinary course of
business.
E. Amend, supplement or otherwise modify Borrower's Articles of Incorporation
or Bylaws which would have a material adverse affect on the condition and
operations, prospects or financial condition of the Borrower.
F. With respect to the Borrower only, incur, assume or suffer to exist any
debt (including capitalized leases) other than (i) the Indebtedness, (ii)
accounts payable incurred in the ordinary course of business, (iii) Subordinated
Debt, or (iv) other Debt consented to in writing by Lender.
G. With respect to the Borrower only, directly or indirectly make loans to,
invest in, extend credit to, or guaranty the debt of any person or entity, other
than in the ordinary course of Borrower's business.
H. Amend, modify, or otherwise change in any respect any material agreement,
instrument, or arrangement (written or oral) by which Borrower, or any of its
assets, are bound.
I. Allow Borrower to be owned and controlled by any person or entity other
than the Guarantor, with such ownership by Guarantor being either direct or
indirect.
J. Allow the monthly cash receipts from Receivables, from all sources,
including but not limited to, liquidation and/or foreclosure of the collateral
securing a Receivable, to be less than the amount determined by dividing the
balance due on all Receivables (including all unearned fees and charges), as of
the last day of the previous fiscal month, by thirty (30).
K. Allow Borrower to collect less than an average of ninety percent (90%) of
all contractual payments due pursuant to the Receivables (specifically excluding
proceeds received from the liquidation of and/or foreclosure of a lien on
collateral securing a Receivable), for any one hundred and eighty (180) day
period from any date of determination.
L. Permit the Leverage Ratio to be more than the Leverage Ratio Limit
(Schedule Section 6.2.A.).
M. Permit the Net Income to be less than the Minimum Net Income requirement
(Schedule Section 6.2.B.).
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N. With respect to Borrower only, make or allow Distributions, in the
aggregate, to exceed the distributions limitation (Schedule Section 6.2.C.);
provided, however, that no Distribution shall be made if a Default or an Event
of Default shall exist.
O. Allow the 30-Day Receivables Percentage, on any calendar month end, to be
less than the Minimum 30-Day Receivables Percentage (Schedule Section 6.2.D.).
7. EVENTS OF DEFAULT AND REMEDIES
7.1. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
A. If any payment of principal or interest or any other amount due Lender is
not paid within five (5) days after the same shall be due and payable.
B. If Borrower or Guarantor fails or neglects to perform, keep or observe any
of the terms, provisions, conditions or covenants, contained in this Agreement,
any of the other Loan Documents or any other agreement or document executed in
connection with the transactions contemplated by this Agreement or if any
representation, warranty or certification made by Borrower herein or in any
certificate or other writing delivered pursuant hereto shall prove to be untrue
in any material respect as of the date upon which the same was made or at any
time thereafter, and the same is not cured to Lender's satisfaction within
fifteen (15) days after Lender has given written notice to Borrower identifying
such default.
C. If the validity or enforceability of any lien, charge, security interest,
mortgage, pledge or other encumbrance granted to Lender to secure the
Indebtedness shall be impaired in any respect or to any degree, for any reason,
or if any other lien, charge, security interest, mortgage, pledge or other
encumbrance shall be created or imposed upon the Collateral unless such lien,
charge, security interest, mortgage, pledge or other encumbrance is subordinate
to that of Lender, pursuant to a subordination and standstill agreement in a
form and substance acceptable to Lender.
D. If any judgment against Borrower not covered by insurance in an amount in
excess of Twenty-Five Thousand Dollars ($25,000.00), or any attachment or other
levy against the properties or assets of Borrower with respect to a claim for
any amount in excess of Twenty-Five Thousand Dollars ($25,000.00), remains
unpaid, unstayed on appeal, undischarged, unbonded, undismissed or otherwise
contested in good faith for a period of thirty (30) days.
E. Default in the payment of any sum due under any instrument of indebtedness
for borrowed money owed by Borrower or any Guarantor to any person (with respect
to the Guarantor only on indebtedness in excess of One Hundred Thousand Dollars
($100,000.00), or any other default under such instrument of indebtedness for
borrowed money that permits such indebtedness for borrowed money to become due
prior to its stated maturity or permits the holders of such indebtedness for
borrowed money to elect a majority of the board of directors or manage the
business of Borrower or any Guarantor.
F. If a court or governmental authority of competent jurisdiction shall enter
an order, judgment or decree appointing, with or without Borrower's or
Guarantor's consent or acquiescence, a receiver, custodian, liquidator, trustee
or other officer with similar powers of Borrower or Guarantor or of the whole or
any substantial part of its properties or assets, or approving a petition filed
against Borrower or Guarantor seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the federal
bankruptcy laws or any other applicable law, and such order, judgment or decree
shall remain unvacated, unstayed or not set aside for an aggregate of thirty
(30) days (whether or not consecutive) from the date of the entry thereof or if
any petition seeking such relief shall be filed against Borrower or Guarantor
and such petition shall not be dismissed within thirty (30) days.
G. An event shall occur which shall have a material adverse affect on the
condition and operations, prospects or financial condition of the Borrower or
Guarantor.
H. If either Borrower or Guarantor shall: (i) be generally not paying their
respective debts as they become due; (ii) file a petition in bankruptcy or a
petition to take advantage of any insolvency act or other act for the relief or
aid of debtors; (iii) make an assignment for the benefit of their creditors;
(iv) consent to or acquiesce in the appointment of a receiver, custodian,
liquidator, trustee or other officer with similar powers of either of their
properties or assets; (v) file a petition or answer seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the federal bankruptcy laws or any other applicable law; (vi) be
adjudicated insolvent or be liquidated; (vii) admit in writing either of their
inability to pay debts as they become due; (viii) voluntarily suspend
transaction of usual business; or (ix) take any action, corporate or otherwise,
for the purpose of any of the foregoing.
I. Any of the following shall occur: (i) entry of a court order that enjoins,
restrains or in any way prevents Borrower from conducting all or any material
part of its business affairs in the ordinary course of business or (ii)
withdrawal or suspension of any license or authority required for the conduct of
any material part of Borrower's business.
J. If any Guarantor gives notice of termination or terminates his liability
pursuant to the Guaranty Agreement executed in conjunction with this Agreement.
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7.2. ACCELERATION OF THE INDEBTEDNESS. Upon and after an Event of Default, the
outstanding principal balance together with all accrued but unpaid interest on
the Indebtedness and all other sums due and payable by Borrower to Lender may,
at the option of Lender and without demand, presentment, notice of dishonor,
notice of intent to demand or accelerate payment, diligence in collecting,
grace, notice and protest or a legal process of any kind, all of which are
hereby expressly waived, be declared, and immediately shall become due and
payable.
7.3. LOUISIANA CONFESSION OF JUDGMENT. In the event that Borrower is domiciled
in, or Collateral is located in, Louisiana, and to the extent of such domicile
or location where Louisiana law is applicable to this Agreement:
A. Borrower hereby confesses judgment, up to the full amount of principal,
interest and attorney's fees and for any sums that Lender may advance during the
life of this Agreement for the payment of premiums of insurance, taxes and
assessments or for the protection and preservation of this Agreement as
authorized elsewhere in this Agreement, and does by these presents, consent,
agree and stipulate that, in the event of any payment of principal or interest
due hereunder not being promptly and fully paid when the same becomes due and
payable, or in the event of failure to comply with any of the obligations set
forth herein, the Indebtedness shall, at the option of Lender become due and
payable, and it shall be lawful for Lender, without making a demand and without
notice or putting in default, the same being hereby expressly waived, to cause
all and singular the Collateral herein secured to be seized and sold by
executory process issued by any competent court or to proceed with enforcement
of its security interest in any other manner provided by law; and
B. Borrower hereby expressly waives: (a) the benefit of appraisement, as
provided in Articles 2332, 2336, 2723, and 2724, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (b) the demand and three (3)
days delay according by Articles 2639 and 2721, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (c) the notice of seizure
required by Articles 2293 and 2721, Louisiana Code of Civil Procedure, and all
other laws conferring the same; (d) the three (3) days delay provided by
Articles 2331 and 2722, Louisiana Code of Civil Procedure, and all other laws
conferring the same; and (e) the benefit of the other provisions of Articles
2331, 2722 and 2723, Louisiana Code of Civil Procedure, and all other Articles
not specifically mentioned above; and Borrower expressly agrees to the immediate
seizure of the Collateral in the event of suit thereon.
7.4. REMEDIES. Upon and after an Event of Default, Lender shall have the
following rights and remedies, which individual remedies shall be non-exclusive,
cumulative and in addition to each and every other remedy set forth in the Loan
Documents or in this Agreement:
A. All of the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in the State of Arizona, as amended, or other
applicable law.
B. The right, to the fullest extent permissible by law, to: (i) enter upon the
premises of Borrower, or any other place or places where the Collateral is
located and kept, without any obligation to pay rent to Borrower, through
self-help and without judicial process, without first obtaining a final judgment
or giving Borrower notice and opportunity for a hearing on the validity of
Lender's claim, and remove the Collateral therefrom to the premises of Lender or
any agent of Lender, for such time as Lender may desire, in order to effectively
collect and liquidate the Collateral; and/or (ii) require Borrower to assemble
the Collateral and make it available to Lender at a place to be designated by
Lender, in Lender's reasonable discretion.
C. The right to sell or otherwise dispose of any or all Collateral in its then
condition at public or private sale or sales, in lots or in bulk, for cash or on
credit, all as Lender, in its discretion, may deem advisable; provided that such
sales may be adjourned from time to time with or without notice. The requirement
of reasonable notice to Borrower of the time and place of any public sale of the
Collateral or of the time after which any private sale either by Lender or at
its option, a broker, or any other intended disposition thereof is to be made,
shall be met if such notice is mailed, postage prepaid, to Borrower at the
address of Borrower designated herein at least ten (10) Business Days before the
date of any public sale or at least ten (10) Business Days before the time after
which any private sale or other disposition is to be made unless applicable law
requires otherwise.
Lender shall have the right to conduct such sales on Borrower's premises or
elsewhere and shall have the right to use Borrower's premises without charge for
such sales for such time or times as Lender may see fit. Lender is hereby
granted a license or other right to use, without charge, Borrower's labels,
copyrights, rights of use of any name, trade secrets, trade names, trademarks
and advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in advertising for sale and selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
Lender's benefit. Lender agrees to hold Borrower harmless from any liability
arising out of Lender's use of Borrower's premises, labels, copyrights, rights
of use of any name, trade secrets, trade names, trademarks and advertising
matter, or any property of a similar nature as it pertains to advertising for
sale, marshalling or selling the Collateral.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or part of the Collateral at public or, if permitted
by law, private sale and, in lieu of actual payment of such purchase price, may
set off the amount of such price against the Indebtedness owing by Borrower to
Lender. The proceeds realized from the sale of any Collateral shall
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be applied first to reasonable costs and expenses, attorney's fees, expert
witness fees incurred by Lender for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral; second to all
payments, other than principal and interest, due under this Agreement; third to
interest due upon any of the Indebtedness; fourth to the principal balance owing
on the Indebtedness; and fifth the remainder, if any, to Borrower, its
successors or assigns, or to whomsoever may be lawfully entitled to receive the
same. If any deficiency shall arise, Borrower shall remain liable to Lender
therefor.
D. In the event that Borrower is domiciled in, or Collateral is located in,
Louisiana, and to the extent of such domicile or location where Louisiana law is
applicable to this Agreement, the right to cause all and singular the
hereinabove described Collateral to be seized and sold under executory process
without appraisement, appraisement being hereby expressly waived, as an entirety
or in parcels, as Lender may determine, to the highest bidder for cash.
E. The right to appoint or seek appointment of a receiver, custodian or
trustee of Borrower or any of its properties or assets pursuant to court order.
F. The right to cease all advances hereunder.
G. All other rights and remedies that Lender may have at law or in equity.
7.5. NO WAIVER. No delay, failure or omission of Lender to exercise any right
upon the occurrence of any Default or Event of Default shall impair any such
right or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein. Lender may, from time to time, in a writing
waive compliance by the other parties with any of the terms of this Agreement
and its rights and remedies upon any Default or Event of Default, and, Borrower
agrees that no waiver by Lender shall ever be legally effective unless such
waiver shall be acknowledged and agreed in writing by Lender. No waiver of any
Default or Event of Default shall impair any right or remedy of Lender not
specifically waived. No single, partial or full exercise of any right of Lender
shall preclude any other or further exercise thereof. No modification or
amendment of or supplement to this Agreement or any other written agreement
between the parties hereto shall be valid or effective (or serve as a basis of
reliance by way of estoppel) unless the same is in writing and signed by the
party against whom it is sought to be enforced. The acceptance by Lender at any
time and from to time of a partial payment or partial performance of any of
Borrower's obligations set forth herein shall not be deemed a waiver, reduction,
modification or release from any Default or Event of Default then existing. No
waiver by Lender of any Default or Event of Default shall be deemed to be a
waiver of any other existing or any subsequent Default or Event of Default.
7.6. GENERAL INDEMNIFICATION. Borrower hereby agrees to indemnify and hold
Lender harmless from and against any and all claims, liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (collectively "Claim" or "Claims") of any kind or nature
whatsoever, asserted by any party other than Borrower, or with respect to
Borrower only as otherwise provided in this Agreement or pursuant to applicable
law regarding Lender's obligations to Borrower, which may be imposed on,
incurred by or asserted against Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) in any way relating to or arising out of the Loan Documents or
any action taken or omitted by Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) under the Loan Documents, except to the extent such indemnified
matters are finally found by a court to be caused by Lender's gross negligence
or wilful misconduct.
7.7. APPLICATION OF PROCEEDS. After an Event of Default shall have occurred
and is continuing, all amounts received by Lender on account of any Indebtedness
and realized by Lender with respect to the Collateral, including any sums which
may be held by Lender, or the proceeds of any thereof, shall be applied in the
same manner as proceeds of Collateral as set forth in Section 7.4.C. hereof.
7.8. APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT. Borrower irrevocably
designates, makes, constitutes and appoints Lender (and all persons reasonably
designated by Lender), with full power of substitution, as Borrower's true and
lawful attorney-in-fact (and not agent-in-fact) and Lender, or Lender's agent,
may, without notice to Borrower, and at such time or times thereafter as Lender
or said agent, in its discretion, may determine, in Borrower's or Lender's name,
at no duty or obligation on Lender, do the following:
A. All acts and things necessary to fulfill Borrower's administrative duties
pursuant to this Agreement, including, but not limited to, the execution of
financing statements;
B. Upon the occurrence of any Default, all acts and things necessary to
fulfill Borrower's obligations under this Agreement and the Loan Documents,
except as set forth in Section 7.8.C below, at the cost and expense of Borrower.
C. In addition to, but not in limitation of the foregoing, at any time or
times upon the occurrence of an Event of Default, Lender shall have the right:
(i) to enter upon Borrower's premises and to receive and open all mail directed
to Borrower and remove all payments to Borrower on the Receivables; however,
Lender shall turn over to Borrower all of such mail not relating to Receivables;
(ii) in the name of Borrower, to notify the Post Office authorities to change
the address for the delivery of mail addressed to Borrower to such address as
Lender may designate (notwithstanding the
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foregoing, for the purposes of notice and service of process to or upon Borrower
as set forth in this Agreement, Lender's rights to change the address for the
delivery of mail shall not give Lender the right to change the address for
notice and service of process to or upon Borrower in this Agreement); (iii)
demand, collect, receive for and give renewals, extensions, discharges and
releases of any Receivable; (iv) institute and prosecute legal and equitable
proceedings to realize upon the Receivables; (v) settle, compromise, compound or
adjust claims in respect of any Receivable or any legal proceedings brought in
respect thereof; (vi) generally, sell in whole or in part for cash, credit or
property to others or to itself at any public or private sale, assign, make any
agreement with respect to or otherwise deal with any of the Receivables as fully
and completely as though Lender were the absolute owner thereof for all
purposes, except to the extent limited by any applicable laws and subject to any
requirements of notice to Borrower or other persons under applicable laws; (vii)
take possession and control in any manner and in any place of any cash or
non-cash items of payment or proceeds of Receivables; (viii) endorse the name of
Borrower upon any notes, acceptances, checks, drafts, money orders, chattel
paper or other evidences of payment of Receivables that may come into Lender's
possession; and (vii) sign Borrower's name on any instruments or documents
relating to any of the Collateral, or on drafts against Account Debtors; .
The appointment of Lender as attorney-in-fact for Borrower is coupled with an
interest and is irrevocable.
8. MISCELLANEOUS
8.1. REIMBURSEMENT FOR EXPENSES. Upon the occurrence of a Default, except as
set forth in the Schedule Section 8.1., Borrower agrees to reimburse Lender,
upon demand, for all reasonable out-of-pocket expenses (including costs of
establishing and maintaining accounts or arrangements set forth in Section 3.9,
attorney's fees, expert witness fees and legal expenses) incurred in connection
with the evaluation of collateral, preservation of collateral, or collection of
the indebtedness.
8.2. NOTICES. All notices, demands, billings, requests and other written
communications hereunder shall be deemed to have been properly given: (i) upon
personal delivery; (ii) on the third Business Day following the day sent, if
sent by registered or certified mail; (iii) on the next Business Day following
the day sent, if sent by overnight express courier; or (iv) on the day sent or
if such day is not a Business Day on the next Business Day after the day sent if
sent by telecopy providing the receiving party has acknowledged receipt by
return telecopy, in each case, to Lender, Borrower or Guarantors at its address
and/or telecopy number as set forth in this Agreement or Schedule Section 8.2,
or at such other address and/or telecopy number as either party may designate
for such purpose in a written notice given to the other party.
Lender shall have the right, on or after initial funding pursuant to the terms
of this Agreement, to issue a press release or other brochure announcing the
consummation of the Loan Documents and to distribute that information to third
parties in the normal course of Lender's business, at no cost to Borrower.
8.3. PARTICIPATIONS. Borrower and Guarantors acknowledge and agree that Lender
may from time to time sell or offer to sell interests in the Indebtedness and
the Loan Documents to one or more participants. Borrower and Guarantors
authorize Lender to disseminate any information it has pertaining to the
Indebtedness, including without limitation, complete and current credit
information on Borrower and any of its principals and Guarantors, to any such
participant or prospective participant. Nothwithstanding any provision contained
herein to the contrary, if Lender requests information that is not available to
the public from Borrower or Guarantor for the purposes of providing that
information to a participant or prospective participant, upon Borrower's or
Guarantor's request, Lender shall obtain a written agreement from such
participant that it will not trade in the securities of Borrower or Guarantor
unless or until such non-public information provided to such participant has
been made available to the public.
8.4. SURVIVAL OF AGREEMENTS. All of the various representations, warranties,
covenants and agreements of Borrower (including without limitation, any
agreements to pay costs and expenses and to indemnify Lender) in the Loan
Documents shall survive the execution and delivery of the Loan Documents and the
performance under such Loan Documents, and shall further survive until one (1)
year and one (1) month after all of the Indebtedness is paid in full to Lender
and all of Lender's obligations to Borrower under the Loan Documents are
terminated.
8.5. NO OBLIGATION BEYOND MATURITY. Borrower agrees and acknowledges that upon
the Maturity Date, Lender shall have no obligation to renew, extend, modify or
rearrange the Loan and shall have the right to require all amounts due and owing
under the Loan to be paid in full upon such date.
8.6. PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the sole and only
agreement of the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties respecting the subject matter of
this Agreement. No provision of this Agreement or other document or instrument
relating hereto may be modified, waived or terminated except by instrument in
writing executed by the party against whom a modification, waiver or termination
is sought to be enforced.
8.7. PARTIES BOUND. This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns, except as
otherwise expressly provided for herein. Borrower and Guarantor shall not assign
any of their respective rights or obligations pursuant this Agreement.
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8.8. NUMBER AND GENDER. Whenever used herein, the singular number shall
include the plural and the plural the singular, and the use of any gender shall
be applicable to all genders. The duties, covenants, obligations and warranties
of Borrower in this Agreement shall be joint and several obligations of Borrower
and of each Borrower if more than one.
8.9. NO THIRD PARTY BENEFICIARY. This Agreement is for the sole benefit of
Lender and Borrower and is not for the benefit of any third party.
8.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, and all
of which taken together shall constitute but one and the same instrument.
8.11. SEVERABILITY OF PROVISIONS. Any provision which is determined to be
unconscionable, against public policy or any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
8.12. HEADINGS. The Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.
8.13. SCHEDULES AND EXHIBITS. Any and all exhibits hereto are hereby expressly
incorporated by reference as though fully set forth at that point verbatim. All
terms and provisions as defined or set forth in Article 1 and in any Schedule
are hereby incorporated into and made a part of this Agreement. Each reference
in this Agreement and the Schedule hereto to any information or definitions
contained in Article 1 or the Schedule shall mean and refer to the information
or definitions as set forth in Article 1 and the Schedule unless the context
specifically requires otherwise. Any terms used in Article 1 and in the Schedule
which are not defined shall have the meanings ascribed to such terms, as of the
date of this Agreement, by the Uniform Commercial Code as enacted in the State
of Arizona to the extent the same are defined therein.
8.14. FURTHER INSTRUMENTS. Borrower and Guarantors shall from time to time
execute and deliver, and shall cause each of Borrower's subsidiaries to execute
and deliver, all such amendments, supplements and other modifications hereto and
to the other Loan Documents and all such financing statements or continuation
statements, instruments of further assurance and any other instruments, and
shall take such other actions, as Lender reasonably requests and deems necessary
or advisable in furtherance of the agreements contained herein.
8.15. LENDER'S EXPENSES AND ATTORNEY'S FEES. UPON AND AFTER AN EVENT OF
DEFAULT, LENDER SHALL BE ENTITLED TO RECOVER FROM BORROWER AND GUARANTORS ALL OF
LENDER'S ATTORNEY'S FEES AND REASONABLE COSTS AND EXPENSES INCURRED IN THE
EXERCISE OF LENDER'S RIGHTS SET FORTH IN THIS AGREEMENT, AND ALL DAMAGES
SUSTAINED BY LENDER BY REASON OF MISREPRESENTATION, BREACH OF WARRANTY OR BREACH
OF COVENANT OF BORROWER HEREIN, EXPRESSED OR IMPLIED, WHETHER CAUSED BY THE ACTS
OR DEFAULTS OF BORROWER, ACCOUNT DEBTORS OR OTHERS; INCLUDING WITHOUT
LIMITATION, ALL ATTORNEY'S FEES ARISING FROM SUCH SERVICES, EXPERT WITNESS FEES
AND ANY EXPENSES, COSTS AND CHARGES RELATING THERETO, AND ALL OF THE FOREGOING
SHALL CONSTITUTE PART OF THE INDEBTEDNESS SECURED BY THE COLLATERAL AND SHALL BE
PAYABLE ON DEMAND.
8.16. GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED BY
BORROWER AND GUARANTOR AND ACCEPTED BY LENDER IN MARICOPA COUNTY, ARIZONA AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ARIZONA.
8.17. JURISDICTION AND VENUE. TO INDUCE THE LENDER TO ENTER INTO THIS
AGREEMENT, BORROWER, GUARANTORS AND LENDER IRREVOCABLY AGREE THAT, SUBJECT TO
THE LENDER'S ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY OF
MARICOPA, STATE OF ARIZONA. BORROWER, GUARANTORS AND LENDER HEREBY CONSENT AND
SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
SAID COUNTY AND STATE AND WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
BORROWER, AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO BORROWER AT THE ADDRESS SET FORTH IN SCHEDULE SECTION 8.17 AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
8.18. WAIVER. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT AND TO THE
EXTENT NOT PROHIBITED BY APPLICABLE LAW, BORROWER AND
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EACH GUARANTOR HEREBY WAIVES (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF
PRESENTMENT, PROTEST, DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE,
SETTLEMENT, AND ONE OR MORE EXTENSIONS OR RENEWALS OF ANY OR ALL ACCOUNTS,
CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY
TIME HELD BY THE LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER THE LENDER MAY DO IN THIS REGARD; (ii) ALL RIGHTS
TO NOTICE AND HEARING PRIOR TO THE LENDER'S TAKING POSSESSION OR CONTROL OF, OR
THE LENDER'S REPLEVIN, ATTACHMENT OR LEVY ON OR OF THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THE LENDER TO
EXERCISE ANY OF THE LENDER'S REMEDIES; AND (iii) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT OR EXEMPTION LAWS.
8.19. ADVICE OF COUNSEL. BORROWER AND EACH GUARANTOR ACKNOWLEDGES THAT THEY
HAVE BEEN REPRESENTED AND ADVISED BY INDEPENDENT LEGAL COUNSEL WITH RESPECT TO
THE NEGOTIATION, EXECUTION AND ACCEPTANCE OF THIS AGREEMENT AND THE TRANSACTION
GOVERNED BY THIS AGREEMENT AND SPECIFICALLY WITH RESPECT TO THE PROVISIONS
CONTAINED IN SECTIONS 7.3, 8.15, 8.16, 8.17, 8.18, 8.19 and 8.20 HEREOF AND HAS
RELIED UPON THE ADVICE OF ITS INDEPENDENT LEGAL COUNSEL IN AGREEING TO THE TERMS
AND CONDITIONS HEREIN AND IN EXECUTING AND DELIVERING THIS AGREEMENT, AND THAT
THEY HAVE FREELY AND VOLUNTARILY ENTERED INTO THIS AGREEMENT AS THE PRODUCT OF
ARMS' LENGTH NEGOTIATIONS.
8.20. WAIVER OF RIGHT TO TRIAL BY JURY. LENDER, BORROWER AND GUARANTORS HEREBY
COVENANT AND AGREE THAT IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF ANY
MATTER ARISING OUT OF THIS AGREEMENT, THE DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, ANY WRITTEN AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER NOW EXISTING
OR HEREAFTER ARISING OR IN ANY WAY RELATED TO, CONNECTED WITH OR INCIDENTAL TO
THE DEALINGS OF THE PARTIES HERETO OR TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, TRIAL SHALL BE TO A
COURT OF COMPETENT JURISDICTION AND NOT TO A JURY; LENDER, BORROWER AND EACH
GUARANTOR HEREBY EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY. ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
8.21. TIME OF ESSENCE Time is of the essence for the performance the
obligations set forth in this Agreement and the Loan Documents.
(Intentionally Left Blank)
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first set forth above.
BORROWER:
AUTOINFO FINANCE OF VIRGINIA, INC.
a Virginia corporation
By:
---------------------------------------------
Jason Bacher, Vice President (Date)
GUARANTOR:
AUTOINFO, INC.
a Delaware corporation
- --------------------------------------------
Jason Bacher, Vice President (Date)
LENDER:
FINOVA CAPITAL CORPORATION
a Delaware corporation
By:
-----------------------------------------------
J. Steven Cammack, Vice President (Date)
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FINOVA Capital Corporation
Rediscount Finance
PROMISSORY NOTE
$42,000,000.00 PHOENIX, ARIZONA December 19, 1995
FOR VALUE RECEIVED, the undersigned ("MAKER"), hereby unconditionally
promises to pay to the order of FINOVA CAPITAL CORPORATION, a Delaware
corporation ("HOLDER"), at HOLDER's branch address at 13355 Noel Road, Suite
800, Dallas, Texas 75240, or at such other place as HOLDER may designate in
writing, the principal sum of Forty-Two Million Dollars ($42,000,000.00) or so
much thereof as shall be advanced or readvanced, with interest thereon at the
Stated Interest Rate calculated on the average daily balance outstanding, as
follows:
1. DEFINITIONS. When used herein, the following terms have the meanings
given in this paragraph:
A. Loan Agreement. The term "Loan Agreement" shall mean that certain
Loan and Security Agreement of even date herewith, entered into by and
between FINOVA CAPITAL CORPORATION, as Lender, and MAKER, as Borrower, and
all amendments, substitutions, renewals and extensions thereof. All terms
used herein which are not expressly defined herein shall have the meanings
ascribed to them in the Loan Agreement.
B. Maximum Rate. The term "Maximum Rate" shall mean the highest lawful
rate of interest applicable to this NOTE. In determining the Maximum Rate,
due regard shall be given to all payments, fees, charges, deposits,
balances and agreements which may constitute interest or be deducted from
principal when calculating interest.
2. PAYMENT. The principal and interest of this NOTE are payable as follows:
A. Accrued but unpaid interest for each calendar month during the term
hereof shall be due and payable monthly, in arrears, on the fifteenth
(15th) day of the immediately succeeding calendar month commencing January
15, 1996. All outstanding principal together with all accrued and unpaid
interest shall be due and payable, if not sooner paid on September 30,
1999. All payments received hereunder shall be applied as set forth in the
Loan Agreement.
B. Notwithstanding the foregoing, principal shall be immediately due
and payable without written notice and demand from Lender in such amounts
so that the outstanding balance hereunder does not, at anytime, exceed the
amount of the Loan as determined pursuant to Section 2.1 of the Loan
Agreement. The amount of such payments shall be determined by HOLDER
pursuant to the terms of the Loan Agreement and based upon the principal
balance of this NOTE then outstanding as determined pursuant to the Loan
Agreement and as shown on the books and records of HOLDER, maintained in
accordance with its usual practice, the entries of which being conclusive
evidence of the existence and amounts as therein recorded.
C. All of the principal hereunder may be prepaid in full at any time;
however, such voluntary prepayments shall be subject to the voluntary
prepayment provisions set forth in Article 2.6 of the Loan Agreement.
3. PRINCIPAL BALANCE. The unpaid principal balance of this NOTE at any time
shall be the total amounts loaned or advanced hereunder by HOLDER, less the
amount of payments or prepayments of principal made hereon by or for the account
of MAKER. It is contemplated that by reason of payments or prepayments hereon
there may be times when no indebtedness is owing hereunder; but notwithstanding
such occurrences, this NOTE shall remain valid and shall be in force and effect
as to loans or advances
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<PAGE>
made pursuant to and under the terms of this NOTE subsequent to each such
occurrence. All loans or advances and all payments or prepayments made hereunder
on account of principal or interest may be evidenced by HOLDER, or any
subsequent holder, maintaining in accordance with its usual practice an account
or accounts evidencing the indebtedness of MAKER resulting from all loans or
advances and all payments or prepayments hereunder from time to time in the
amounts of principal and interest payable and paid from time to time hereunder,
in which event, in any legal action or proceeding in respect of this NOTE,
subject to Section 2.8 of the Loan Agreement, the entries made in such account
or accounts shall be conclusive evidence of the existence and amounts of the
obligations of MAKER therein recorded. In the event that the unpaid principal
amount hereof, at any time and for any reason, exceeds the maximum amount
hereinabove specified, MAKER covenants and agrees to pay the excess principal
amount immediately without notice or demand; such excess principal amount shall
in all respects be deemed to be included among the loans or advances made
pursuant to the other terms of this NOTE and shall bear interest at the rate
hereinabove stated.
4. ADVANCES. This Promissory Note is the "Note" referred to in the Loan
Agreement and the Holder is entitled to all the rights, remedies and benefits of
the Lender thereunder. Reference is hereby made to the Loan Agreement for the
terms and conditions under which this Note is to be made and to be repaid.
5. DEFAULT, REMEDIES. Upon the occurrence of any one or more of the Events
of Default set forth in the Loan Agreement, at the option of the holder of this
NOTE, the entire unpaid principal balance and accrued and unpaid interest hereon
shall at once become due and payable without notice or demand and the Holder may
foreclose and enforce all liens and security interests securing this NOTE.
If this NOTE is not paid when due, whether at maturity or by acceleration,
or if it is collected through a bankruptcy, probate, or other judicial
proceeding, whether before or after maturity, MAKER agrees to pay attorney's
fees, together with all actual expenses of collection and litigation and costs
of court incurred by the Holder, whether or not suit is actually filed or not.
6. WAIVER. MAKER and all other makers, signers, sureties, guarantors and
endorsers of this NOTE waive demand, presentment, notice of dishonor, notice of
intent to demand or accelerate payment hereof, diligence in the collecting,
grace, notice and protest, and agree to one or more extensions for any period or
periods of time and partial payments, before or after maturity, without
prejudice to HOLDER.
7. SECURITY. This NOTE is secured by certain security interests as set
forth in the Loan Agreement.
8. CONTROLLING AGREEMENT. The contracted for rate of interest of the Loan
without limitation, shall consist of the following: (i) the Stated Interest
Rate, calculated and applied to the principal balance of the Note in accordance
with the provisions of this Note and the Loan Agreement; (ii) interest after
event of default or due date, calculated and applied to the amounts due under
this Note in accordance with the provisions thereof; and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective contracted
for rate of interest which is the sum of the above-referenced elements.
All fees, charges, goods, things in action or any other sums or things of
value (other than amounts described in the immediately previous paragraph), paid
or payable by Borrower (collectively, the "Additional Sums"), whether pursuant
to this Note, the Loan Agreement or any other documents or instruments in any
way pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
It is the intent of the parties to comply with the usury law ("Applicable
Usury Law") applicable pursuant to the terms of the preceding paragraph or such
other usury law which is applicable if the law chosen by the parties is not
applicable. Accordingly, it is agreed that notwithstanding any provisions to the
contrary in this NOTE, or in any of the documents securing payment hereof or
otherwise relating hereto, in no event shall this NOTE or such documents require
the payment or permit the collection of interest in excess of the maximum
contract rate permitted by the Applicable Usury Law. In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
Maker or otherwise in connection with the loan evidenced hereby, or (b) the
maturity of the indebtedness evidenced by this NOTE is accelerated in whole or
in part, or (c) all or part of the principal or interest of
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<PAGE>
this NOTE shall be prepaid, so that under any of such circumstances the amount
of interest contracted for, shared or received in connection with the loan
evidenced hereby, would exceed the maximum contract rate permitted by the
Applicable Usury Law, then in any such event (1) the provisions of this
paragraph shall govern and control, (2) neither Maker nor any other person or
entity now or hereafter liable for the payment hereof will be obligated to pay
the amount of such interest to the extent that it is in excess of the maximum
contract rate permitted by the Applicable Usury Law, (3) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount hereof or refunded to Maker, at Holder's option, and (4)
the effective rate of interest will be automatically reduced to the maximum
amount of interest permitted by the Applicable Usury Law. It is further agreed,
without limiting the generality of the foregoing, that to the extent permitted
by the Applicable Usury Law; (x) all calculations of interest which are made for
the purpose of determining whether such rate would exceed the maximum contract
rate permitted by the Applicable Usury Law shall be made by amortizing,
prorating, allocating and spreading during the period of the full stated term of
the loan evidenced hereby, all interest at any time contracted for, charged or
received from Maker or otherwise in connection with such loan; and (y) in the
event that the effective rate of interest on the loan should at any time exceed
the maximum contract rate allowed under the Applicable Usury Law, such excess
interest that would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law shall be paid to Holder from time to time,
if and when the effective interest rate on the loan otherwise falls below the
maximum amount permitted by the Applicable Usury Law, to the extent that
interest paid to the date of calculation does not exceed the maximum contract
rate permitted by the Applicable Usury Law, until the entire amount of interest
which would have otherwise been collected had there been no ceiling imposed by
the Applicable Usury Law has been paid in full. Maker further agrees that should
the maximum contract rate permitted by the Applicable Usury Law be increased at
any time hereafter because of a change in the law, then to the extent not
prohibited by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the maximum contract
rate permitted by the Applicable Usury Law be decreased because of a change in
the law, such decreases shall not apply to the indebtedness evidenced hereby
regardless of when incurred.
9. APPLICABLE LAW. This NOTE shall be construed in accordance with the laws
of the State of Arizona and the laws of the United States applicable to
transactions in the State of Arizona.
10. NO WAIVER. No delay on the part of the HOLDER in the exercise of any
power or right under this NOTE, or under the LOAN AGREEMENT or any other
instrument executed in connection herewith, shall operate as a waiver thereof,
nor shall a single or partial exercise of any power or right preclude other or
further exercise thereof or exercise of any other power or right. Enforcement by
HOLDER of any security for the payment hereof shall not constitute any election
by it of remedies so as to preclude the exercise of any other remedy available
to it.
11. SUCCESSORS, ASSIGNS. The term "HOLDER" shall include all of HOLDER's
successors and assigns to whom the benefits of this NOTE shall inure.
MAKER:
AutoInfo Finance of Virginia, Inc.,
a Virginia corporation
By:_________________________________
Jason Bacher, Vice President
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<PAGE>
- --------------------------------------------------------------------------------
FINOVA Capital Corporation
Rediscount Finance
GUARANTY
(Continuing/Unlimited)
TO: FINOVA CAPITAL CORPORATION
Ladies/Gentlemen:
1. THE GUARANTEED DEBT. In consideration of any and all loans, advances,
acceptances and extensions of credit made by FINOVA CAPITAL CORPORATION, a
Delaware corporation, ("FINOVA") to, for the account of, or on behalf of
AutoInfo Finance of Virginia, Inc., a Virginia corporation, ("Borrower") and as
an inducement for FINOVA to make future loans, advances, acceptances and
extensions of credit to, for the account of, or on behalf of Borrower, the
undersigned (the "Guarantor"), absolutely and unconditionally, guarantees to
FINOVA the punctual payment in full at maturity, whether due pursuant to
acceleration or otherwise, of the principal, interest and other sums due or to
become due from Borrower to FINOVA at any time and from time to time from the
date of this Guaranty until termination. The guaranteed debt includes, without
limitation, all obligations, indebtedness and liability of Borrower to FINOVA,
whether now existing or hereafter incurred; whether direct, indirect or
contingent; and whether otherwise guaranteed or secured. All of these
obligations, indebtedness and liability are hereinafter referred to as the
"debt". Guarantor hereby acknowledges that it will receive a materially
financial and economic benefit from the extension of credit by FINOVA to
Borrower.
2. DURATION. This Guaranty shall operate as a continuing guaranty and shall
terminate as to the Guarantor only upon written notice signed by such Guarantor
and actually received by FINOVA, effective as of the opening of business on the
day following the date of receipt. Such termination shall be effective only as
to that portion of the debt incurred after such termination date, and this
Guaranty shall remain in full force and effect as to all debt incurred before
that time. Regardless of when a renewal or extension of pre-termination debt
occurs (with or without adjustment of interest rate or other terms), the debt is
deemed to have been incurred prior to termination to the extent of the renewal
or extension, and to be fully covered by this Guaranty. This Guaranty shall be
binding upon the undersigned Guarantor and its successors and assigns and shall
inure to the benefit of FINOVA and its successors and assigns.
3. NO CONDITIONS. This is an unconditional Guaranty; it is unlimited as to
time, until termination. The Guarantor warrants that there are no conditions,
oral or otherwise, on the effectiveness of this Guaranty. This writing
constitutes the entire agreement of the parties regarding the Guaranty.
4. DISCLOSURE OF CONDITION OF BORROWER. The Guarantor warrants and
represents to FINOVA that: (a) this Guaranty is executed at the Borrower's
request; (b) the Guarantor has established adequate means of obtaining from the
Borrower on a continuing basis financial and other information pertaining to the
Borrower's affairs or business; and (c) the Guarantor is now and will be
familiar with the affairs, business, operation and condition of the Borrower and
its assets. The Guarantor hereby waives any duty on the part of FINOVA to
disclose to the Guarantor any matter relating to the affairs, business,
operation or condition of the Borrower and its assets now known or hereafter
known to FINOVA during the life of this continuing Guaranty. With respect to any
debt of the Borrower to FINOVA, FINOVA need not inquire into the powers of the
Borrower or the officers, directors or agents acting or purporting to act on its
behalf, and any debt created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
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<PAGE>
5. WAIVERS REGARDING THE GUARANTEED DEBT. The Guarantor expressly waives
the following: notice of the incurring of debt by the Borrower; notice of
default on the debt or intent to accelerate; notice of acceleration; notice of
intent to accelerate; the acceptance of this Guaranty by FINOVA; presentment and
demand for payment, protest, notice of protest and notice of dishonor or
nonpayment of any instrument evidencing debt of the Borrower; any right to
require the pursuit of any remedies against the Borrower or any other Guarantor,
including commencement of suit, before enforcing this Guaranty (this is a
guaranty of payment, not a guaranty of collection); any right to have security
or the right of setoff applied before enforcing this Guaranty; and any and all
right of subrogation to FINOVA's rights against the Borrower, other guarantors
or any other person or entity; all diligence in collection and failure or delay
by FINOVA in protection or exercise of FINOVA's rights against Borrower; and any
other action or any other encumbrance whatsoever which might constitute a
defense to the enforcement of this Guaranty.
The Guarantor hereby consents and agrees that renewals and extensions of
time of payment (including interest rate adjustments), surrender, release,
exchange, substitution, dealing with or taking of additional collateral,
modifying any obligations of, taking or release of other guarantors, abstaining
from taking advantage of or realizing upon any collateral security or other
guaranty and any and all other forbearances or indulgences granted by FINOVA to
the Borrower or any other party may be made, granted or effected by FINOVA
without notice to the Guarantor and without affecting in any manner Guarantor's
liability hereunder. The Guarantor hereby expressly consents to any impairment
of collateral including, but not limited to, failure to perfect a security
interest and release of collateral.
Any adjustment or compromise may be made by FINOVA with the Borrower or any
other party to the debt, and a lesser sum than the face amount thereof may be
accepted in full payment and discharge. Any of the collateral or other security
granted by the Borrower or any other party which FINOVA may hold or which may
come to it or its possession may be released or otherwise dealt with by FINOVA
in all respects as if this Guaranty were not in existence and the obligation of
the Guarantor shall in no way be affected thereby. The Guarantor hereby waives
and forgoes any right in respect of any such action by FINOVA.
6. FINOVA'S COLLECTION RIGHTS AGAINST GUARANTOR. The Guarantor agrees to
pay to FINOVA any and all costs, expenses and reasonable attorney's fees paid or
incurred by FINOVA in collecting or endeavoring to collect the debt of the
Borrower or in enforcing or endeavoring to enforce this Guaranty, unless
recovery of attorney's fees is invalid under applicable state or federal law. In
addition to its other rights and remedies under this Guaranty, FINOVA may
require, at FINOVA's option, collateral security to support the Guarantor's
obligations upon Borrower's default of any loan agreement with FINOVA and that
FINOVA reasonably deems itself insecure; if such a requirement is imposed, now
or in the future, FINOVA shall have any rights and remedies contained in any
mortgage, security agreement or other document executed by the Guarantor. If the
Guarantor refuses to execute such documents, the debt of the Borrower shall, for
the purposes of this Guaranty, be deemed to have matured.
7. BANKRUPTCY OF BORROWER. Guarantor agrees that this Guaranty shall not be
discharged except (subject to the limitations expressly contained herein) by
complete performance of Borrower's obligations to FINOVA and further agree that
the obligations of the Guarantor hereunder shall not be discharged, reduced or
affected in any way by any receivership, insolvency, bankruptcy or other
proceedings affecting the Borrower or any of its assets or the release or
discharge of the Borrower from the performance of any obligations to FINOVA,
whether by operation of law or otherwise or any other cause, whether similar or
dissimilar to the foregoing.
8. ASSIGNMENT. FINOVA may assign its rights hereunder in whole or in part
and upon any such assignment all the terms and provisions of this Guaranty shall
inure to the benefit of such assignee, to the extent so assigned.
9. MATURITY, PAYMENT. The Guarantor agrees that if the maturity of any of
the debt is accelerated by bankruptcy or otherwise, such maturity shall also be
deemed accelerated for the purpose of this Guaranty without demand or notice of
any kind to the Guarantor. Guarantor further agrees that, to the extent that the
Borrower or any other Person makes a payment to FINOVA on account of the
Indebtedness, or FINOVA receives any proceeds of collateral, which payment or
any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside, or otherwise required to be repaid to the Borrower or
any other party, including without limitation, it's estate, trustee or receiver,
under any bankruptcy, insolvency, or other similar law, whether state or federal
or under any common law or equitable claim; then to the extent of such payment
or repayment, the obligation or part thereof which has been paid, reduced or
satisfied by such amount shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or satisfaction occurred.
The Guarantor shall defend and indemnify FINOVA of and from any claim or loss
under this paragraph including FINOVA's attorneys' fees and expenses in the
defense of any such action or suit. The Guarantor will,
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<PAGE>
forthwith upon notice from FINOVA of the Borrower's failure to pay any debt at
maturity, pay to FINOVA at FINOVA's principal offices the amount due and unpaid
by the Borrower and guaranteed hereby. The failure of FINOVA to give this or any
notice shall not in any way release the Guarantor hereunder.
10. NO ORAL MODIFICATIONS. This Guaranty Agreement shall not be suspended,
amended, released, terminated or modified in any manner except by an instrument
in writing signed by all parties to be bound.
11. WAIVER OF DEFAULT. No wavier by FINOVA of any default of any provision
of this Guaranty Agreement shall be deemed a waiver of any other pre-existing or
subsequently existing default, nor shall any such waiver by FINOVA be deemed a
continuing waiver. No delay or omission by FINOVA in exercising any right
hereunder, at any law or in equity, or otherwise, shall impair any such right or
be construed as a waiver thereof, acquiescence therein, nor shall any single or
partial exercise of any right preclude other or further exercise of any other
right that may exist or that may thereafter exist.
12. INDEMNIFICATION. In the event of the breach of this Guaranty Agreement,
by Guarantor, Guarantor hereby agrees to indemnify and hold FINOVA harmless from
any and all resulting claims and damages, including attorney's fees, and all
other costs.
13. GOVERNING LAW. This Guaranty is executed and delivered by Guarantor and
is performable in Maricopa County, Arizona, and shall be governed by and
construed in accordance with the laws of the State of Arizona.
14. JURISDICTION AND VENUE. Any suit, action or proceeding against
Guarantor with respect to this Agreement, the Loan Documents or any judgment
entered by any court in respect thereof, may be brought in any local, state or
federal court in the State of Arizona located in Maricopa County and Guarantor
hereby submits to the nonexclusive jurisdiction of such courts for the purpose
of any such suit, action or proceeding. Guarantor hereby further irrevocably
consents to the service of process in any suit, action or proceeding in said
court by the mailing thereof by Lender by registered or certified mail, postage
thereon prepaid, to Guarantor at the following address, 536 West 21st Street,
Norfolk, Virginia 23517. Guarantor hereby irrevocably waives any objections
which they may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Agreement or the Loan Documents
brought in any local, state or federal court of the State of Arizona located in
Maricopa County and hereby further irrevocably waive any claim that any such
suit, action or proceeding brought in any such court has been brought in any
inconvenient forum.
15. WAIVER OF RIGHT TO TRIAL BY JURY. GUARANTOR AND FINOVA HEREBY COVENANT
AND AGREE THAT IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF ANY MATTER
ARISING OUT OF THIS AGREEMENT, THE LOAN DOCUMENTS OR TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, TRIAL SHALL
BE TO A COURT OF COMPETENT JURISDICTION AND NOT TO A JURY; GUARANTOR HEREBY
EXPRESSLY WAIVES ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY. ANY PARTY MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
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16. ADVICE OF COUNSEL. Guarantor acknowledges that it has been advised by
counsel with respect to the transaction governed by this Agreement and
specifically with respect to the terms of Sections 13, 14 and 15.
IN WITNESS WHEREOF, this Guaranty has been executed and delivered to FINOVA
by the undersigned Guarantor on this 19th day of December, 1995.
AutoInfo, Inc.
By:____________________________________
Jason Bacher, Vice President
THE STATE OF ARIZONA )
)
COUNTY OF MARICOPA )
BE IT REMEMBERED, that on this 19th day of December, 1995, before me, the
undersigned, a Notary Public within and for the County and State aforesaid, came
Jason Bacher, who is personally known to me to be the same person who executed
the within instrument of writing, and duly acknowledged the execution of the
same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year last above written.
__________________________________________
NOTARY PUBLIC, STATE OF ARIZONA
My commission expires:____________________
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT made this 6th day of December, 1995, by and between
CHARLIE FALK'S AUTO WHOLESALE, INCORPORATED (hereinafter referred to as "CFAW"),
a Virginia corporation, and AUTOINFO FINANCE OF VIRGINIA, INC., a Virginia
corporation (hereinafter referred to as "AI FINANCE").
WITNESSETH:
WHEREAS, CFAW is in the business of selling automobiles and other vehicles
(collectively, the "Vehicles") to retail customers; and
WHEREAS, AI FINANCE is in the business of purchasing retail installment
contracts secured by Vehicles; and
WHEREAS, CFAW desires to offer to sell to AI FINANCE, upon the terms and
conditions set forth in this Agreement, retail installment sale contracts,
security agreements, chattel mortgages and/or other such title retention and
lien instruments (hereinafter collectively referred to as "Contracts" or,
singularly, as a "Contract") which relate to the sale by CFAW at retail of
Vehicles; and
WHEREAS, AI FINANCE desires to purchase from time to time certain of the
Contracts acceptable to it in its sole discretion as set forth in this
Agreement; and
WHEREAS, CFAW and AI FINANCE wish to set forth the terms and conditions
upon which CFAW will offer and sell certain of the Contracts and AI FINANCE will
purchase certain of the Contracts, all as set forth herein.
NOW, THEREFORE, it is hereby agreed as follows:
1. Term. The term of this Agreement shall be for a period of ten (10)
years commencing on the date first written above (the "Term").
2. Fee. In consideration for CFAW entering into this Agreement AI
Finance shall pay to CFAW on the date hereof the sum of One Million Five Hundred
Thousand ($1,500,000) Dollars.
3. Obligation to Offer Contracts to AI FINANCE. During the Term of
this Agreement, CFAW shall exclusively offer at least ninety (90%) percent of
the
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Contracts it enters into or acquires to AI FINANCE for purchase. CFAW shall
provide AI FINANCE with all reasonable documentation necessary for AI FINANCE to
evaluate each such Contract in accordance with the "Credit Criteria" annexed
hereto as Exhibit A (the "Credit Criteria"). In the event that AI FINANCE elects
not to purchase any Contract, CFAW shall have the right to offer such Contract
for purchase by third parties; provided, however, that AI FINANCE shall have a
right of first refusal to purchase any such Contract it previously elected not
to purchase, on the same terms and conditions that a third party has proposed to
purchase such Contract, upon two (2) business days notice to it in writing of
CFAW's intent to sell such Contract. CFAW shall provide AI FINANCE with a copy
of its monthly sales log, in arrears, on or before the fifteenth day of each
month during the Term.
4. Obligation of AI FINANCE. AI FINANCE shall consider and evaluate
each Contract presented to it by CFAW in a commercially reasonable manner
consistent with past practice, and AI FINANCE shall advise CFAW within two (2)
business days from its receipt of all reasonable documentation necessary to
evaluate a Contract whether it elects to purchase such Contract. AI FINANCE
shall purchase at least eighty-five (85%) percent of the Contracts presented by
CFAW which are in strict compliance with the Credit Criteria (a "Conforming
Contract"). AI FINANCE shall provide CFAW with an aging report of Down-Payment
Notes (as herein defined) on the first and fifteenth day of each month during
the Term.
5. Terms of Purchase.
(a) Upon the acceptance by AI FINANCE of a Contract, CFAW shall sell,
transfer and assign to AI FINANCE all of its rights, title and interest in and
to such Contract together with any notes, guarantees, security agreements,
chattel mortgages and other instruments associated with the Contract, all moneys
due under the Contract and all of CFAW's rights and remedies under or in
connection with the Contract. The assignment and transfer hereunder shall not
constitute an assignment of CFAW's obligations as a seller of the automobiles.
(b) The Purchase Price for each Contract purchasable by AI FINANCE
hereunder shall be the lesser of (i) the sum of (a) eighty (80%) percent of the
face value of such Contract after deducting any fees charged for taxes, title
and transfer (the
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"TTT Charges") and (b) 100% of the TTT Charges; or (ii) the sum of (a) five
hundred fifty-two ($552.00) dollars above the clean wholesale Black Book value
of the Vehicle underlying the Contract and (b) 100% of the amount paid for a
CFAW warranty product on the Vehicle, if any. The face value of the Contract may
include warranty products included in the Contract based upon a schedule of
retail prices for such products to be agreed upon by the parties hereto on a
periodic basis (the present retail price for the CFAW warranty is $690.00);
provided, however that the value of the CFAW warranty shall be excluded from the
Purchase Price under (i) and (ii) above if, in AI FINANCE's reasonable opinion,
CFAW is not providing adequate warranty service. All conveyances of the
Contracts and Documents (as herein defined), as contemplated herein, shall be
effective upon payment of the Purchase Price.
(c) In the event that AI FINANCE purchases a Contract for which a
down-payment was tendered in the form of a promissory note (a "Down-Payment
Note"), then AI FINANCE shall, in addition to purchasing the Contract, purchase
the Down-Payment Note for eighty (80%) percent of its face value. CFAW may never
hold any commercial paper or other debt instruments of any nature whatsoever
(including but not limited to warranty and TTT notes) on a Vehicle with respect
to which AI FINANCE purchased the Contract. No Down-Payment Note which CFAW
enters into shall (a) be for a term greater than ninety (90) days; (b) be in a
principal amount greater than $1,000.00; or (c) bear interest. All late fees and
other charges due pursuant to a Down-Payment Note transaction shall be due to
and for the benefit of AI FINANCE.
6. Purchase Documentation. The Contracts purchased by AI FINANCE shall be
evidenced by the documents (the "Documents") set forth in Exhibit B attached
hereto. The Documents shall be executed and delivered and otherwise be in form
and content satisfactory to AI FINANCE and CFAW. The assignment and conveyance
of the Contracts shall be in the form of Exhibit C attached hereto.
7. Repurchase Obligations of CFAW. All Conforming Contracts purchased by AI
FINANCE hereunder, or purchased by Falk Finance Company, Inc. ("FFC") prior to
the date hereof, shall be subject to a full repurchase obligation by CFAW (the
"Repurchase Obligation") at all times prior the payment by the borrower of ten
(10%) percent of the cash price of the Vehicle (as set forth on line 1 of the
Buyer Sheet) (i.e., if a ten (10%) percent cash down-payment is made, there
shall be no Repurchase Obligations pursuant to thisParagraph, but if less than
ten (10%) percent is tendered as a down-payment in either (i) cash, (ii) actual
cash value of a trade-in, or (iii) as a result of payments made pursuant to
Down-Payment Notes, then the Contract shall be subject to the Repurchase
Obligation until the full ten (10%) percent has been actually paid). Pursuant to
its Repurchase Obligation, CFAW shall repurchase each and every Contract subject
thereto for a price equal to one hundred (100%) percent of the outstanding
principal balance due pursuant to (a) the Contract, and (b) the Down-Payment
Note, if applicable; plus eighty (80%) percent of the prorated portion of any
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warranty product included in such Contract (collectively, the "Repurchase
Price"); provided, however, that the Repurchase Price shall never exceed the
amount originally paid to CFAW by AI FINANCE (or FFC) in connection with such
Contract. All Contracts subject to the Repurchase Obligation shall be
repurchased for cash by CFAW immediately upon presentation of the transfer
documentation set forth on Exhibit D hereto by AI FINANCE and physical receipt
of the Vehicle underlying the Contract, following a default under such Contract.
For the purposes of this Agreement "actual cash value" shall mean the amount
actually realizable upon the disposition of a Vehicle. From and after the date
hereof, the Repurchase Obligation with respect to any Contract shall be
evidenced by CFAW's acknowledgment thereof on the Contract.
8. Recourse Obligations of CFAW. All Contracts purchased by AI FINANCE
which do not strictly conform to the Credit Criteria (a "Non-Conforming
Contract") shall be full recourse to CFAW during any period in which an
outstanding balance remains due and owing under such Contract (a "Recourse
Obligation"). Additionally, CFAW acknowledges that certain Contracts purchased
by FFC prior to the date hereof are recourse to CFAW as evidenced by CFAW's
acknowledgment thereof on such Contracts. Pursuant to its Recourse Obligation,
CFAW shall, upon a default under each such Contract subject thereto, pay to AI
FINANCE an amount equal to one hundred (100%) percent of the outstanding
principal balance due pursuant to (a) the Contract, and (b) the Down-Payment
Note, if applicable, plus eighty (80%) percent of the prorated portion of any
warranty product included in such Contract (collectively, the "Recourse
Amount"); provided, however, that the Recourse Amount shall never exceed the
amount originally paid to CFAW by AI FINANCE (or FFC) in connection with such
Contract. The payment of a Recourse Amount shall be made in cash by CFAW
immediately upon presentation of the transfer documentation set forth on Exhibit
D hereto by AI FINANCE, following a default under such Contract. If AI FINANCE
is willing to purchase a Non-Conforming Contract pursuant to the provisions of
this Paragraph it shall advise CFAW thereof. In such event CFAW may either (a)
accept the recourse nature of the transaction, or (b) withdraw the Contract for
purchase consideration by AI FINANCE and offer it to unaffiliated third parties
for purchase; provided, however, that AI FINANCE shall have a right of first
refusal to purchase any such Contract on the same terms and conditions that a
third party has proposed to purchase such Contract, upon two (2) business days
notice to it in writing of CFAW's intent to sell such Contract. From and after
the date hereof, CFAW's recourse obligation with respect to a Contract purchased
shall be evidenced by CFAW's acknowledgment thereof on the face of the Contract.
9. Remarketing Services. AI FINANCE may offer to CFAW the option to
purchase any Vehicle repossessed by AI FINANCE which relates to a Contract
purchased by FFC or AI FINANCE. Upon repossession, AI FINANCE shall make the
repossessed Vehicle available to CFAW for inspection. CFAW shall have seven (7)
business days in which to advise AI FINANCE whether it elects to purchase such
Vehicle. If CFAW elects not to purchase the Vehicle, and such Vehicle is stored
on a CFAW lot, then AI FINANCE shall have seven (7) business days to remove the
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Vehicle from CFAW's lot, during which time it shall be stored without charge. In
the event CFAW elects to purchase the Vehicle, it shall pay to AI FINANCE for
each Vehicle purchased by it one hundred (100%) percent of the average wholesale
Black Book value, mileage adjusted, as of the date of repossession. Such payment
shall be made on the earlier of (i) the date the Vehicle is actually sold, or
(ii) the seventy-fifth (75th) day following CFAW's acceptance of the Vehicle for
purchase. Each of AI FINANCE and CFAW acknowledge that as the date hereof there
is an inventory of automobiles of AI FINANCE (or FFC) which are located on CFAW
lots. CFAW shall have ten (10) business days from the date of this Agreement in
which to advise AI FINANCE whether it elects to purchase each such Vehicle. If
CFAW elects not to purchase any such Vehicle, and such Vehicle is stored on a
CFAW lot, then AI FINANCE shall have ten (10) business days to remove the
Vehicle from CFAW's lot, during which time it shall be stored without charge.
With respect to each Vehicle CFAW elects to purchase, it shall pay to AI FINANCE
with respect to such Vehicle one hundred (100%) percent of the average wholesale
November 1995 Black Book value, mileage adjusted. Such payment shall be made on
the earlier of (i) the date the Vehicle is actually sold, or (ii) the
one-hundred twentieth (120th) day following CFAW's acceptance of the Vehicle for
purchase. CFAW shall provide AI Finance on a weekly basis during the Term hereof
with a list reflecting all Vehicles held by CFAW for resale.
In the event that AI FINANCE elects to have CFAW sell for AI FINANCE a
vehicle at the CFAW auction, then AI FINANCE shall pay to CFAW $120.00 in
connection with the storage of such vehicle. In the event that AI FINANCE elects
to have CFAW sell a Vehicle for AI FINANACE at an auction other then the CFAW
auction then AI FINANCE shall pay to CFAW ten (10%) percent of the strike price
at such auction as a handling and commission fee, plus $25.00 for local
transportation of the Vehicle. No other fees or amounts shall be due from AI
FINANCE to CFAW (or any affiliated party) in connection with the remarketing of
Vehicles.
10. Collection Agent. CFAW shall during the Term hereof, upon the
reasonable request of AI FINANCE, without charge, accept payments on AI
FINANCE's behalf on account of Contracts purchased hereunder or purchased by
FFC. AI FINANCE shall provide CFAW with all forms, logs and other documentation
necessary to perform this service. CFAW's sole obligation shall be to accept
such payments and use reasonable commercial efforts to safeguard the payments
until they are collected daily by AI FINANCE. Except upon written instruction
for AI FINANCE, CFAW shall not deposit any such payments.
11. Modification of Credit Criteria. AI FINANCE shall have the right, from
time to time during the Term, upon written notice to CFAW, to reasonably amend
the Credit Criteria if AI FINANCE's first lien loss ratio exceeds 22.39%.
12. Representations of CFAW. CFAW represents and warrants to AI FINANCE as
follows:
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(a) CFAW is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia and has the corporate
power and is duly qualified to carry on its business as it is now conducted.
(b) The execution, delivery and performance of this Agreement and all
documents related thereto by CFAW and the consummation of the transactions
contemplated herein have been duly and validly authorized by CFAW.
(c) This Agreement is a valid, binding and enforceable obligation of
CFAW enforceable against CFAW in accordance with its terms except to the extent
such enforceability may be limited by applicable bankruptcy or insolvency laws,
or creditor rights generally. The consummation of the transaction contemplated
by this Agreement will not result in a breach of any term or provision of the
Articles of Incorporation or Bylaws of CFAW or result in the breach of any term
or provision of, or conflict with or constitute an event of default under, any
agreement, document or instrument to which CFAW or its property is subject. The
execution and delivery of this Agreement and the performance of the transaction
contemplated by this Agreement will not result in the violation of any law,
rule, regulation, order, judgment or decree to which CFAW or its property is
subject.
(d) There is no action, suit, proceeding or investigation pending or,
to the knowledge of CFAW, threatened against or affecting CFAW before any court,
arbitrator or administrator of a government body which would or may result in
any material adverse change in the business, properties or condition of CFAW, or
which might otherwise affect the collectibility of any of the Contracts or the
Documents.
(e) With regard to each Contract sold hereunder, the Contract,
including the related Documents, is, and will be, legal, valid, binding and
enforceable in accordance with its terms (except as such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting the enforceability
of creditors' rights generally and by equitable principles of general
applicability) and is and will remain free of all claims, counterclaims,
disputes and offsets; the Contract and related Documents delivered to AI FINANCE
will contain the entire agreement of the parties thereto; to the best of CFAW's
knowledge, the Contract and the property and/or services therein described will
comply with all applicable laws and regulations; AI FINANCE's security interest
in the property specified in the Contract will be a duly perfected, valid and
enforceable first priority security interest in such property; and the insurance
covering the property specified in the Contract is, and will be, in full force
and effect.
(f) CFAW has full title and right to sell and assign the Contracts and
Documents and such Contracts and Documents are, and will be, conveyed free and
clear of all liens and encumbrances whatsoever.
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13. Indemnification. CFAW will indemnify, defend and hold harmless AI
FINANCE from any and all losses (including, without limitation, inability to
collect the amount outstanding under any contract), damages, costs, fines and
expenses, including reasonably attorneys' fees arising out of whether incurred
in connection with third party claims and defenses or in connection with
enforcing this Agreement),arising out of (i) any claim, defense, counterclaim,
dispute, action or proceeding brought or alleged on account of any warranty,
express or implied, agreement or undertaking either made or alleged to have been
made by CFAW or any other person or firm in connection with the sale, servicing
or repair of the subject matter of any Contract, or (ii) any failure (whether or
not known to CFAW) of any Contract or the property or services therein described
to comply with all applicable laws ad regulations; and (iii) any breach of any
agreement, representation or warranty made by CFAW herein or in the form of
Assignment attached hereto in Exhibit C. The indemnification provided for herein
shall not be limited to the outstanding balance under the Contracts, but shall
include all losses, damages, costs, fines and expenses incurred by AI FINANCE
and shall be entitled to assume the defense of any claim for which
indemnification is provided under this Agreement, using counsel selected by CFAW
and approved by AI FINANCE, which approval shall not be unreasonably withheld.
These indemnification rights shall be in addition to all other rights and
remedies under this Agreement including without limitation any right of AI
FINANCE to require that CFAW repurchase a Contract.
14. Covenant Relaxation Provisions. In the event AI FINANCE fails to
purchase eighty-five (85%) percent of the Conforming Contracts offered to it in
any calendar month during the Term hereof, and fails to purchase eighty-five
(85%) of the Conforming Contracts in each of the following two (2) calendar
months (a "AI FINANCE Non-Performance Event"), then the covenant not to compete
(the "Covenant") contained in the Asset Purchase Agreement of even date herewith
between, inter alia, AI FINANCE and FFC (the "Asset Purchase Agreement") shall
be modified and reformed as follows. If the AI FINANCE Non-Performance Event
occurs during a period when Charles E. Falk, Sr. is a guarantor of the "Finova
Debt" (as defined in the Asset Purchase Agreement) (the "Guarantee Obligation")
then the Covenant shall terminate with respect to Charles E. Falk, Sr., Charles
E. Falk, Jr., and any entity controlled by either of them (collectively, a
"Related Party"). If the AI FINANCE Non-Performance Event occurs during the
first five (5) years of the Term hereof and the Guarantee Obligation has ceased,
then the Covenant shall be modified to permit CFAW to offer Conforming Contracts
to a Related Party without first offering such Contracts to AI FINANCE as
required pursuant to the terms of this Agreement (provided, however, that all
other provisions of the Covenant shall continue in full force and effect except
to the extent necessary to permit the foregoing). If the AI FINANCE
Non-Performing Event occurs after the fifth year of the Term hereof, then the
Covenant shall terminate with respect to any Related Party.
15. Set-Off. AI FINANCE shall have the right to set-off against the
purchase price of any Contract any amounts then due and owing from CFAW to AI
FINANCE
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hereunder. Notwithstanding the foregoing, prior to setting off any amount due to
it, AI Finance shall request in writing from CFAW any amount then due and owing
to AI Finance, which shall be paid by CFAW within five (5) days of such notice.
AI Finance shall have the absolute right to withhold payment to CFAW on account
of any Contract as long as CFAW owes AI FINANCE any amounts hereunder.
16. Miscellaneous. (a) This Agreement and the Exhibits referred to herein
constitute the entire Agreement between the parties with respect to the subject
matter hereof, and all prior understandings, whether written or oral, with
respect to such subject matter are superseded by this Agreement. No modification
or variation of this Agreement shall be deemed valid unless made in writing and
signed by both CFAW and AI FINANCE. The terms of this Agreement shall control in
the event of any inconsistency between the term of this Agreement and any
preprinted terms of assignment that may appear on a Contract form.
(b) This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
(c) This Agreement shall be binding upon any successor
or assignee of CFAW or any successor or assignee of any significant portion of
CFAW's business whether by stock purchase, asset transfer, joint venture, or
otherwise.
(d) Each obligation of CFAW hereunder which exists as
of the date that the Term expires shall survive such termination until each such
obligation is performed or terminates as a matter of fact.
(e) For the purposes of this Agreement, any obligation
of CFAW shall be deemed to be an obligation of CFAW and any company controlled
by, controlling or under common control with CFAW. WITNESS the following
signatures:
CHARLIE FALK'S AUTO WHOLESALE
INCORPORATED
By:
-----------------------------------
AUTOINFO FINANCE OF VIRGINIA,INC.
By:
-----------------------------------
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EXHIBIT A
Newco
Credit Criteria
October 1995
SECTION I - GENERAL TERMS
Contracts financed by Newco must meet the following conditions:
1. Rate: All contracts must be written with a target interest rate of
twenty-four (24%) percent. Newco will earn interest using the Rule of 78's as it
relates to customer accounts.
2. Eligible: Newco will finance cars, vans, and trucks that are no older than
eight model years and Warranty Contracts. Currently this includes 1988 and newer
models.
3. Terms: The maximum term for the current model year and four prior years
will be 48 months. Currently 1994 is one year old, 1993 is two years old, 1992
is three years old and 1991 is four years old. The maximum term for model years
five years old or greater shall be 42 months.
4. Minimum Down Payment: The minimum down payment is 10% of the Cash Price of
the vehicle, but not less than $500 (as reflected on line one of the Buyers
Order Sheet). However, Newco may require an additional down payment depending
upon the strength of the individual transaction.
The Downpayment may consist of:
- Cash.
- Trade - Ins: Newco will use Black Book Used Car Market Guide
or appraisal report (ACV), whichever is less, to determine the
acceptable value for a trade-in. The appraisal report (ACV)
must be realizable by CFAW.
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- Downpayment Notes: With a term no longer than 90 days from
sale of car and not to exceed $1,000.00.
5. Payment Due Date: A maximum of 45 days from Date of Contract is acceptable.
6. Casualty Insurance: Casualty insurance cannot be financed in the contract.
The borrower must provide evidence of insurance coverage to Newco, Newco will
accept a maximum of $250.00 comprehensive and collision deductible.
The borrower must provide:
1. A signed agreement to provide insurance and evidence of a pre-
existing policy on which the new vehicle is to be added; or
2. A signed agreement to provide insurance which lists: insurance
company name, company agent, address, and phone number; and
3. All casualty insurance will be verified prior to delivery of the
vehicle.
Vehicle must be covered by Physical Damage Insurance at the time of
contract funding.
7. Warranty Contracts: Warranty Contracts are an approved product that can be
financed in the contract. The maximum amount financed will be $690.00. If an
approved Warranty Contract is written in the contract, the cost of that Warranty
Contract will be deducted from the contract proceeds and forwarded to the
Carrier unless the premium is verified by the Carrier as paid.
8. LA&H Insurance: LA&H Insurance is an approved product that can be financed in
the contract. If LA&H is written in the contract, Newco will either deduct the
Premium from the proceeds and forward the premium to the Carrier or directly
verify with the Carrier that the premium has been paid.
9. Certificates of Ownership: Newco will hold the original titles to vehicles
and immediately return them upon the account being paid off.
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SECTION II
BORROWERS' PROFILE
Newco will consider potential borrowers including:
1. First Time Borrowers.
2. Military (Must be on allotment) (Officers no allotment).
3. Borrowers with some derogatory credit.
4. Borrowers with a prior bankruptcy.
5. Borrowers with a prior repossession and foreclosures.
Borrowers must meet the following minimum requirements:
1. Residence: Minimum one (1) year at residence or three (3) years in the area.
2. Employment: Minimum one (1) with employer or three (3) years employment
history. Will consider the following exceptions:
1. Recent college graduates.
2. Transferees.
3. Military.
3. Expense Ratio: Expense ratio must be 70% or less of verified take-home pay.
There must be at least $300 in disposable income after the payment of the auto
payment and family expenses.
Include as expenses:
1. Anticipated auto payment.
2. Auto insurance.
3. Rent and utilities.
4. $150 for each adult dependent and $75 for each child.
5. Bills on credit bureaus and other disclosed debts which have
scheduled monthly payments. Payment on credit card balances
are estimated at 5% of the account balance.
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4. Minimum Take Home Pay:
Non-Military Military Unmarried Living
------------ -------- ----------------
with Parent
-----------
Single Person $900.00 $1,000 $800.00
Married Couple $1,200.00 $1,300
The borrowers car payment cannot exceed 25% of their combined take home pay
with discretion used for first time borrowers and unmarried living at home.
5. Co-borrowers/Co-signers: For those who apply for joint credit or individual
credit, with a co-signer, both borrowers and/or co-signer must sign the credit
application and the sales contract.
Co-signers are acceptable to offset weak credit characteristics,
however, primary borrower must have sufficient income to service the
loan being requested. Co-signers must have an established credit
history in order to qualify as a co-signer.
Co-signers must sign Federal co-signer letter if not spouse.
6. Credit History: (a) A borrower with prior negative credit may be considered
if:
(i) Current delinquencies are justified.
(ii) Outstanding liens, judgments and charge-offs are older
than five (5) years and less than $500.
(iii)Medical and other collections under $500 or older than
5 years which are currently in dispute will be excluded
provided there is a reasonable explanation written and
signed by the Buyer.
* Justifiable exceptions will be considered and are defined as: an account
where there has been a legitimate dispute or where there is evidence to
indicate that the creditor is in error or it has been verified that
customer has made and kept arrangements with creditor. When a borrower's
profile does not strictly adhere to the Credit Criteria, Newco will require
recourse to the dealer.
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(b) Prior Bankruptcies.
(i) Must be discharged.
(ii) No borrowers currently in bankruptcy, without trustee
approval.
(iii)No derogatory credit since date of discharge of
bankruptcy.
(c) Tax Liens.
Consideration will be given to applicant with State and/or
Federal Tax Liens over $500; will require review and
management sign off.
7. Military: Allotment is Mandatory (Officers excepted).
A copy of the executed Allotment Authorization form and the first payment
must accompany the contract package submitted for contract funding. (Borrower's
check post-dated to the contractual payment date is acceptable).
8. Self-Employed: One of the major considerations in analyzing the credit
profile of our borrowers is the stability of employment and the stability of the
borrowers income.
For self-employed the following information should be submitted with the
credit application:
A. Copy of last years business tax returns (full and completed returns
including Schedule "C" or K-l's).
B. Copy of the Business License.
C. Income must be verifiable.
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EMPLOYMENT AGREEMENT
AGREEMENT dated as of December 6, 1995 by and between AutoInfo Finance of
Virginia, Inc., a Virginia corporation ("AI Finance") and Robert E. Upton, Jr.
residing at 421 West Bute Street, Unit 402, Norfolk, Virginia 23510 ("Upton").
WHEREAS, Upton is currently a shareholder in and the President and Chief
Operating Officer of Falk Finance Company, Inc. ("FFC"); and
WHEREAS, in connection with its acquisition of the business of FFC, AI
Finance desires to assure itself of the benefit of Upton's services and
experience for a period of time; and
WHEREAS, Upton is willing to enter into an agreement to that end with the
Company upon the terms and conditions herein set forth.
NOW THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. Employment. AI Finance hereby employs Upton as its President and Chief
Operating Officer and Upton hereby accepts such employment and agrees to perform
his duties and responsibilities hereunder in accordance with the terms and
conditions hereinafter set forth.
2. Duties and Responsibilities. Upton shall be the Chief Operating Officer
of AI Finance during the Employment Term (as defined below). Upton shall report
to and be subject to the direction of the President of AutoInfo, Inc. and Upton
shall perform such duties as may be assigned to him from time to time by the
President of AutoInfo, Inc. During the Employment Term Upton shall, subject to
the Company's vacation policy, devote substantially all of his normal business
time and attention to the businesses of AI Finance and its subsidiaries and
affiliates and shall perform such duties in a diligent, trustworthy, loyal,
businesslike and efficient manner, all for the purpose of advancing the business
of AI Finance and its subsidiaries and affiliates. Nothing contained in this
Agreement shall be deemed to prohibit Upton from devoting a nominal amount of
his time to his (and his family's) personal investments, provided, however,
<PAGE>
that, in case of conflict, the performance of Upton's duties under this
Agreement shall take precedence over his activities with respect to such
investments.
3. Term. The Term of this Agreement shall commence on the date hereof and
shall continue until November 30, 2000, unless terminated prior thereto in
accordance with the terms and provisions hereof (the "Employment Term").
4. Compensation. AI Finance shall pay to Upton a salary at the rate of
$140,000 per year, payable in such manner as AI Finance shall determine, but in
no event any less often than monthly, less withholding required by law and other
deductions agreed to by Upton. Upton's annual salary may be increased during the
Employment Term in the sole discretion of the Board of Directors of the Company
(the "Board"). In addition, on the date hereof, or as soon thereafter as
practicable, AutoInfo, Inc. ("Auto") shall grant to you a non-qualified stock
option to purchase up to 375,000 shares of Auto Common Stock at $3.00 per share,
pursuant to the terms and conditions of the Stock Option Agreement annexed
hereto as Exhibit A, which provides, inter alia, for performance related
vesting.
5. Bonus. In addition to the compensation provided for in Paragraph 4 of
this Agreement, Upton shall during the Employment Term on an annual basis
receive as a bonus a payment equal to one-eighth (1/8) of one percent of the
outstanding performing net receivable portfolio (as hereinafter defined)
computed on an annualized basis. This bonus, if any, shall be paid quarterly in
arrears. For the purposes of this provision the outstanding "net receivable
portfolio" shall mean all interest bearing finance receivables not greater than
ninety (90) days in contractual arrears. Furthermore Upton shall receive such
other bonuses as determined in the sole discretion of the Board.
6. Expenses and Benefits.
(a) AI Finance shall, consistent with AI Finance's policy of reporting
and reimbursement of business expenses, reimburse Upton for such other ordinary
and necessary entertainment and business related expenses as shall be incurred
by Upton in the course of the performance of his duties under this Agreement.
2
<PAGE>
(b) AI Finance recognizes that Upton will be required to incur
significant travel in rendering services to AI Finance hereunder and in
connection therewith AI Finance shall during the Employment Term provide Upton
with an automobile, consistent with Upton's current vehicle, and AI Finance
shall reimburse Upton for all of the reasonable expenses associated with the
operation of such automobile including, without limitation, fuel, maintenance,
repair and insurance costs.
(c) Upton shall be entitled to participate, to the extent he qualifies,
in such life insurance, hospitalization, disability and other medical insurance
plans or programs as are generally made available to executive officers of AI
Finance which shall be consistent with the programs and benefits currently
offered to Upton.
7. Termination.
(a) AI Finance shall have the right to terminate this Agreement for
disability in the event Upton suffers any illness or incapacity of such
character as to substantially disable him from performing his duties hereunder
for a period of more than sixty (60) consecutive business days in any one
calendar year upon AI Finance giving at least five (5) days written notice of
its intention to so terminate. If Upton shall resume his duties hereunder within
ten (10) days following the receipt of such notice and shall perform such duties
for fifty (50) days of the next sixty (60) consecutive days thereafter, the
Employment Term shall continue without interruption and such notice of intention
to terminate shall have no further force or validity. In the event of a
termination of this Agreement, AI Finance shall pay to Upton his salary as
provided for in Section 9 hereof for a ninety day period following such
termination.
(b) This Agreement shall terminate upon the death of Upton.
(c) AI Finance may terminate this Agreement at any time with Reasonable
Cause upon five (5) days written notice to Upton. "Reasonable Cause" means (i)
conviction of a crime involving moral turpitude; (ii) Upton having engaged in
any activity in competition with AI Finance, without AI Finance's consent; (iii)
Upton having divulged any secret or confidential information of a material
nature belonging to AI Finance, without AI Finance's consent, except as required
by law; (iv) Upton's dishonesty or misconduct that is damaging or detrimental to
AI
3
<PAGE>
Finance in any material respect; or (v) Upton's breach of any material term of
this Agreement; provided, however, that notice under this provision shall not be
effective unless Upton shall have first received written notice from AI Finance
of the specific acts or omissions alleged to constitute a breach of any material
term of this Agreement, and such breach continues unremedied for a period of ten
(10) days after such notice.
(d) AI Finance may terminate this Agreement for Non-performance upon
two-hundred seventy (270) days notice to Upton on or before any March 31 during
the Employment Term commencing with March 31, 1997. "Non-performance" means AI
Finance's failure to achieve sixty (60%) percent of its "projected net income"
during the calendar year preceding any such termination notice.
8. Non-Competition. Upton covenants and agrees that during his employment
hereunder and for a period of two years after his employment hereunder is
terminated, he will not, without the prior written consent of AI Finance, (a)
compete with the business of AI Finance or any of its subsidiaries or affiliates
and, in particular, he will not without such consent, directly or indirectly,
own, manage, operate, finance, join, control or participate in the ownership,
management, operation, financing or control of, or be connected as a director,
officer, employee, partner, consultant or agent with, any business in
competition with or similar to the business of AI Finance or any of its
subsidiaries or affiliates; provided, however, that Upton may own up to two
percent of the capital stock of any publicly traded corporation in competition
with the business of AI Finance or any of its subsidiaries or affiliates, and
(b) divert, take away, interfere with or attempt to take away any present or
former employee or customer of AI Finance or any of its subsidiaries or
affiliates. Notwithstanding the foregoing, in the event that AI Finance
terminates this Agreement pursuant to Section 7(d) hereof, then the covenant and
agreement contained in (i) subparagraph (a) of this Section 8 shall be
applicable for a period of one year from such termination and (ii) subparagraph
(b) shall be applicable for a period of one year from such termination as it
relates to customers of AI Finance other than Charlie Falk's Auto Wholesale,
Inc. or any other entity affiliated with Charles E. Falk, Sr. or Charles E.
Falk, Jr.;
4
<PAGE>
provided however that the remaining revisions of this Section 8 shall continue
in full force and effect without modification In the event that the provisions
of this Section 8 should ever be deemed to exceed the time or geographic
limitations or any other limitations permitted by applicable law, then such
provisions shall be deemed reformed to the maximum permitted by applicable law.
Upton acknowledges and agrees that the foregoing covenant is an essential
element of this Agreement and that, but for the agreement of Upton to comply
with the covenant, the Company would not have entered into this Agreement, and
that the remedy at law for any breach of the covenant will be inadequate and the
Company, in addition to any other relief available to it, shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damage.
9. Confidential Information. Upton recognizes and acknowledges that the
customer lists, patents, inventions, copyrights, methods of doing business,
trade secrets and proprietary information of AI Finance including, without
limitation, as the same may exist from time to time, are valuable, special and
unique assets of the business of AI Finance. Except in the ordinary course of
business or as required by law, Upton shall not, during or after the Employment
Term, disclose any such list of customers or any part thereof, any such patents,
inventions, copyrights, methods of doing business, trade secrets or proprietary
information which are not otherwise in the public domain to any person, firm,
corporation or other entity for any reason whatsoever. In addition, Upton
specifically acknowledges and agrees that the remedy at law for any breach of
the foregoing shall be inadequate and that AI Finance and the Company, in
addition to any other relief available to them, shall be entitled to temporary
and permanent injunctive relief without the necessity of proving actual damage.
10. Opportunities. During his employment with AI Finance, Upton shall not
take any action which might divert from AI Finance or any of its subsidiaries or
affiliates any opportunity which would be within the scope of any of the present
or future businesses of AI Finance or any of its subsidiaries or affiliates.
11. Contents of Agreement, Parties in Interest, Assignment, etc. This
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All
5
<PAGE>
of the terms and provisions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, representatives,
successors and assigns of the parties hereto, except that the duties and
responsibilities of Upton hereunder which are of a personal nature shall neither
be assigned nor transferred in whole or in party by Upton. This Agreement shall
not be amended except by a written instrument duly executed by AI Finance and
Upton.
12. Severability. If any term or provision of this Agreement shall be held
to be invalid or unenforceable for any reason, such term or provision shall be
ineffective to the extend of such invalidity or unenforceability without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable term or provision had not been
contained herein.
13. Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
If to AI Finance
addressed to: AutoInfo Finance of Virginia , Inc.
1600 Route 208
Fair Lawn, New Jersey 07410
Attn: Chief Executive Officer
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue, Suite 902
New York, New York 10178
Attn: Kenneth S. Rose, Esq.
If to Upton
addressed to: Mr. Robert E. Upton, Jr.
421 West Bute Street
Unit 402
Norfolk, Virginia 23510
or at such other address as the one party shall specify to the other party in
writing.
14. Counterparts and Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are inserted
for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
6
<PAGE>
15. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Virginia.
16. Arbitration. Any disputes arising hereunder shall be submitted to
arbitration before a single arbitrator in New York City under the rules and
regulations of the American Arbitration Association. Any award in such
arbitration proceeding may be enforced in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
AUTOINFO FINANCE OF VIRGINIA , INC.
By: /s/ Scott Zecher
-------------------------------------
Scott Zecher, Chief Executive Officer
/s/ Robert E. Upton, Jr.
-------------------------------------
Robert E. Upton, Jr.
7
AUTOINFO, INC.
Non-Qualified Stock Option Agreement
December 6, 1995
AutoInfo, Inc., a Delaware corporation (the "Company") hereby grants to
Robert E. Upton, Jr. (the "Optionee"), a non-qualified stock option to purchase
a total of 375,000 shares of the Company's Common Stock, par value $.01 per
share, at the price of $3.00 per share on the terms and conditions set forth
herein. As used herein, the term "Company" includes any affiliates of the
Company.
1. Exercisability; Term.
This option shall become effective on the date of grant and shall be
exercisable as follows:
(a) If the net income before income taxes of AutoInfo Finance of
Virginia, Inc. ("AFV") as determined by the independent accountants who audit
the books of AFV (hereinafter called "Net Income") for 1996 shall equal or
exceed the "Target Amount" for 1996 as set forth on Exhibit A hereto, then,
thereafter this option shall be exercisable as to 75,000 shares. If the Net
Income for 1996 shall be between 75% of the Target Amount (the "Minimum Amount")
for 1996 and the Target Amount for 1996, then, thereafter this option shall be
exercisable as to that number of shares as shall equal (A) 56,250 plus (B)
18,750 multiplied by a fraction the numerator of which shall be the Net Income
for 1996 and the denominator of which shall be the Target Amount for 1996.
(b) If the Net Income for 1997 shall equal or exceed the Target Amount
for 1997, then, thereafter this option shall be exercisable as to 75,000
additional shares. If the
1
<PAGE>
Net Income for 1997 shall be between the Minimum Amount for 1997 and the Target
Amount for 1997, then, thereafter this option shall be exercisable as to that
additional number of shares as shall be equal to (A) 56,250 plus (B) 18,750
multiplied by a fraction the numerator of which shall be the Net Income for 1997
and the denominator of which shall be the Target Amount for 1997.
(c) If the Net Income for 1998 shall equal or exceed the Target Amount
for 1998, then, thereafter this option shall be exercisable as to 75,000
additional shares. If the Net Income for 1998 shall be between the Minimum
Amount for 1998 and the Target Amount for 1998, then, thereafter this option
shall be exercisable as to that additional number of shares as shall be equal to
(A) 56,250 plus (B) 18,750 multiplied by a fraction the numerator of which shall
be the Net Income for 1998 and the denominator of which shall be the Target
Amount for 1998.
(d) If the Net Income for 1999 shall equal or exceed the Target Amount
for 1999, then, thereafter this option shall be exercisable as to 75,000
additional shares. If the Net Income for 1999 shall be between the Minimum
Amount for 1999 and the Target Amount for 1999, then, thereafter this option
shall (i) be exercisable as to that additional number of shares as shall be
equal to (A) 56,250 plus (B) 18,750 multiplied by a fraction the numerator of
which shall be the Net Income for 1999 and the denominator of which shall be the
Target Amount for 1999.
(e) If the Net Income for 2000 shall equal or exceed the Target Amount
for 2000, then, thereafter this option shall be exercisable as to 75,000
additional shares. If the Net Income for 2000 shall be between the Minimum
Amount for 2000 and the Target Amount for 2000, then, thereafter this option
shall be exercisable as to that additional number of shares
2
<PAGE>
as shall be equal to (A) 56,250 plus (B) 18,750 multiplied by a fraction the
numerator of which shall be the Net Income for 2000 and the denominator of which
shall be the Target Amount for 2000.
(f) This option shall be exercisable with respect to all of the shares
covered hereby on and after April 15, 2001.
(g) This option shall expire ten years from the date hereof (the
"Termination Date").
2. Written Notice of Exercise.
This option may be exercised only by the delivery to the Secretary or
Treasurer of the Company at its principal office within the time specified in
paragraph l, of a written notice of exercise substantially in the form described
in paragraph 8.
3. Anti-Dilution Provisions.
(a) If there is any stock dividend, stock split, or combination of
shares of Common Stock of the Company, the number and amount of shares then
subject to this option shall be proportionately and appropriately adjusted; no
change shall be made in the aggregate purchase price to be paid for all shares
subject to this option, but the aggregate purchase price shall be allocated
among all shares subject to this option after giving effect to the adjustment.
(b) If there is any other change in the Common Stock of the Company,
including recapitalization, reorganization, sale or exchange of assets, exchange
of shares, offering of subscription rights, or a merger or consolidation in
which the Company is the surviving corporation, an adjustment, if any, shall be
made in the shares then subject to this option as the Board of Directors may
deem equitable. Failure of the Board of Directors to provide for an adjustment
pursuant to this subparagraph prior to the effective date of any Company action
referred to herein shall be conclusive evidence that no adjustment is required
in consequence of such action.
3
<PAGE>
(c) If the Company is merged into or consolidated with any other
corporation, or if it sells all or substantially all of its assets to any other
corporation, then either (i) the Company shall cause provisions to be made for
the continuance of this option after such event, or for the substitution for
this option of an option covering the number and class of securities which the
Optionee would have been entitled to receive in such merger or consolidation by
virtue of such sale if the Optionee had been the holder of record of a number of
shares of Common Stock of the Company equal to the number of shares covered by
the unexercised portion of this option, or (ii) the Company shall give to the
Optionee written notice of its election not to cause such provision to be made
and this option shall become exercisable in full (or, at the election of the
Optionee, in part) at any time during a period of 20 days, to be designated by
the Company, ending not more than 10 days prior to the effective date of the
merger, consolidation or sale, in which case this option shall not be
exercisable to any extent after the expiration of such 20-day period. In no
event, however, shall this option be exercisable after the Termination Date.
4. Investment Representation; Legend on Certificates; Special Restriction
on Resale.
The Optionee agrees that until such time as a registration statement under
the Securities Act of 1933 becomes effective with respect to this option and/or
the stock underlying this option, the Optionee is taking this option and will
take the stock underlying this option, for investment and not for resale or
distribution. The Company shall have the right to place upon the face of any
stock certificate or certificates evidencing shares issuable upon the exercise
of this option such legend as the Board of Directors may prescribe for the
purpose of preventing disposition of such shares in violation of the Securities
Act of 1933, as now or hereafter provided.
4
<PAGE>
5. Non-Transferability.
This option shall not be transferable by the Optionee other than by will or
by the laws of descent or distribution, and is exercisable during the lifetime
of the Optionee only by the Optionee.
6. Certain Rights Not Conferred by Option.
The Optionee shall not, by virtue of holding this option, be entitled to
any rights of a stockholder in the Company.
7. Expenses.
The Company shall pay all original issue and transfer taxes with respect to
the issuance and transfer of shares of Common Stock of the Company pursuant
hereto and all other fees and expenses necessarily incurred by the Company in
connection therewith.
8. Exercise of Options.
(a) This option shall become exercisable, in accordance with its terms.
(b) An option shall be exercisable by written notice of such exercise,
in the form prescribed by the Board of Directors to the Secretary or Treasurer
of the Company, at its principal office. The notice shall specify the number of
shares for which the option is being exercised (which number, if less than all
of the shares then subject to exercise, shall be 50 or a multiple thereof) and
shall be accompanied by payment in full of the purchase price of such shares. No
shares shall be delivered upon exercise of any option until all laws, rules and
regulations which the Board of Directors may deem applicable have been complied
with. If a registration statement under the Securities Act of 1933 is not then
in effect with respect to the shares issuable upon such exercise, it shall be a
condition precedent that the person exercising the option give to the Company a
written representation and undertaking, satisfactory in form and substance to
the Board of Directors, that he is acquiring the shares for his own account for
investment and not with a view to the distribution thereof.
5
<PAGE>
(c) The person exercising an option shall not be considered a record
holder of the stock so purchased for any purpose until the date on which he is
actually recorded as the holder of such stock in the records of the Company.
(d) This option shall be exercisable only so long as the Optionee shall
continue to be an employee of the Company and for thirty (30) days after
termination of such employment. If the Optionee shall have been an employee of
the Company at the time of his death or permanent disability then this option
shall be exercisable by his personal representative or him, as the case may be,
for a period ending one year from the date of death or permanent disability. In
no event, however, shall this option be exercisable after the Termination Date.
9. Covenant not to Compete or Otherwise Injure the Company; Work Product.
The acceptance by the Optionee of this option shall constitute the
acceptance of and agreement to all of the terms and conditions contained herein
and in the Plan, and shall further constitute a covenant and agreement on the
part of the Optionee to the effect that, without any additional compensation:
(a) The Optionee shall, so long as he is employed by the Company, devote
his full business time to the business of the Company, and for a period of 24
months after the termination of his employment with the Company, he will not
engage in any competitive activities as herein defined:
Activities competitive with the activities of the Company shall mean the
following:
(i) Hiring, offering to hire, enticing away or in any other
manner persuading or attempting to persuade any officer, employee or agent of
the Company to discontinue his relationship with the Company without the written
permission of the Company unless the Optionee clearly establishes that the
relationship was initiated by the other party thereto;
6
<PAGE>
(ii) Directly or indirectly soliciting, diverting, taking away or
attempting to solicit, divert, or take away any business of the Company of which
the Optionee has any knowledge during the term of his employment, unless the
Optionee clearly establishes that the relationship was initiated by the other
party thereto. The term "business" shall mean actual or proposed contracts or
arrangements for products or services of the Company and any reasonable
extension or continuation of the business of the Company as constituted upon the
termination of Optionee's employment.
(b) The Optionee shall not make or permit to be made, except in
pursuance of his duties and for the sole use and account of the Company or its
nominees, any copies, abstracts or summaries of any Company reports, papers,
documents or programs, whether made by him or by others.
(c) The Optionee cedes and grants and agrees to cede and grant to the
Company, all rights to possession, copying, and title in and to, any Company
reports, papers, documents or programs, or copies, abstracts or summaries
thereof, in any form, coming into possession of the Optionee during and because
of his employment by the Company, whether made or prepared by him or by others.
(d) The Optionee shall keep confidential and not disclose to others,
except as required by his service as an employee or by law, any matter or thing
ascertained by him through his association with the Company, not otherwise
publicly known, the disclosure of which might possibly be contrary to the best
interests of any person, firm or corporation doing business with the Company, or
of the Company.
(e) If any product, invention, discovery, patent, patented item,
formula, improvement or process relating to the business of the Company (the
"Work Product") is created, conceived, developed and discovered by the Optionee
either solely or jointly with others during the period of his service as an
employee of the Company, he shall forthwith disclose the same to the Company and
does hereby assign to it any and all such Work Product and all of his rights
thereto. At any time, whether during the period of service as an employee
7
<PAGE>
or thereafter, upon request by the Company, Optionee will execute and deliver to
the Company an instrument assigning to the Company his entire right, title and
interest in and to any or all such Work Product, and applications for letters
patent therefor, or reissues thereof; he will execute and deliver application
papers for letters patent in any country for any and all such Work Product, as
may be required by the Company; he will execute and similarly deliver any and
all other papers and do such other acts as may in the opinion of the Company be
desirable to more effectively convey to the Company the rights intended hereby
to be conveyed; he will aid and assist the Company in the prosecution or defense
of any claim or litigation involving any and all of said Work Products;
provided, however, that the foregoing services which Optionee agrees to render
shall be rendered at no expense to him.
Notwithstanding anything to the contrary contained in this Section 9, in
the event that the Company terminates Upton's employment agreement pursuant to
Section 7(d) of the Employment Agreement of even date herewith (the "Employment
Agreement"), then the covenant and agreement contained in subparagraph (a) of
this Section 9 shall be modified as provided in Section 8 of the Employment
Agreement.
10. Continued Employment.
Nothing herein shall be deemed to create any employment agreement or
guaranty of continued employment or limit in any way the Company's right to
terminate Optionee's employment at any time.
AUTOINFO, INC.
By:/s/ Scott Zecher
--------------------------------
Accepted as of the date
first set forth above.
/s/ Robert E. Upton, Jr.
- ----------------------------------
Optionee
8
<PAGE>
EXHIBIT A
Year Target Amount
---- -------------
1996 $ 3,983,000
1997 $ 7,147,000
1998 $ 10,462,000
1999 $ 14,998,000
2000 $ 21,304,000
Exhibit 11
AUTOINFO, INC. AND SUBSIDIARIES
Calculation of Earnings Per Share
<TABLE>
<CAPTION>
Seven Months
Ended
December 31, Years ended May 31,
------------ -------------------
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Primary and Fully Diluted Earnings (Loss):
Income (loss) from continuing operations $ 560,672 $(2,078,126) $ (143,236)
Income (loss) from discontinued operations (28,163) 1,518,659 2,163,984
Gain on sale of discontinued operations 296,839 8,885,688 --
----------- ----------- -----------
Earnings from operations applicable
to Common Stock $ 829,348 $ 8,326,221 $ 2,020,748
----------- ----------- -----------
Shares:
Weighted average number of common
shares outstanding 7,765,261 7,307,657 7,177,564
Added shares issuable from assumed
exercise of options 5,656 102,891 239,157
----------- ----------- -----------
Weighted average number of common
shares as adjusted 7,770,917 7,410,548 7,416,721
----------- ----------- -----------
Primary and Fully Diluted Earnings (Loss):
From continuing operations $ .07 $ (.28) $ (.02)
From discontinued operations -- .21 .29
From gain on sale of discontinued
operations .04 1.19 --
----------- ----------- -----------
Earnings per common share $ .11 $ 1.12 $ .27
=========== =========== ===========
</TABLE>
Exhibit 21
AUTOINFO, INC. AND SUBSIDIARIES
Subsidiaries of AutoInfo, Inc.
AutoInfo Finance of Virginia, Inc.
CarLoanCo, Inc.
EXHIBIT 24A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into AutoInfo, Inc.'s previously filed
Registration Statement File No. 33-34443.
/s/Arthur Andersen LLP
New York, New York
May 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 964,842
<SECURITIES> 23,906,459
<RECEIVABLES> 31,946,727
<ALLOWANCES> (6,872,869)
<INVENTORY> 0
<CURRENT-ASSETS> 51,236,833
<PP&E> 369,488
<DEPRECIATION> (113,219)
<TOTAL-ASSETS> 65,795,376
<CURRENT-LIABILITIES> 2,297,999
<BONDS> 32,479,024
0
0
<COMMON> 77,778
<OTHER-SE> 30,940,575
<TOTAL-LIABILITY-AND-EQUITY> 65,795,376
<SALES> 2,231,723
<TOTAL-REVENUES> 2,231,723
<CGS> 0
<TOTAL-COSTS> 1,431,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415,904
<INCOME-PRETAX> 384,712
<INCOME-TAX> 175,960
<INCOME-CONTINUING> 560,672
<DISCONTINUED> (28,163)
<EXTRAORDINARY> 296,839
<CHANGES> 0
<NET-INCOME> 829,348
<EPS-PRIMARY> 0.110
<EPS-DILUTED> 0.110
</TABLE>
