UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11663
CHANCELLOR CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2626079
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
745 Atlantic Avenue, Boston, Massachusetts 02111
(Address of principal executive offices) (Zip Code)
(617) 728 - 8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 1997, 20,186,391 shares of Common Stock, $.01 par value per
share, and 8,000,000 shares of Series AA Convertible Preferred Stock, $.01 par
value per share (with a liquidation preference of $.50 per share or $4,000,000)
were outstanding.
<PAGE>
Chancellor Corporation and Subsidiaries
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as
of June 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information 12
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 13
1
<PAGE>
<TABLE>
<CAPTION>
Chancellor Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands)
June 30, December 31,
1997 1996
-------------- -------------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 226 $ 21
Cash - restricted and escrowed 2,488 3,553
Receivables, net 302 2,563
Leased equipment held for underwriting -- 1,231
Net investment in direct finance leases 567 748
Equipment on operating lease, net of accumulated depreciation
of $6,351 and $7,191 254 497
Residual values, net 108 748
Furniture and equipment, net of accumulated depreciation
of $2,672 and $2,655 58 121
Other assets, net 1,652 980
-------- --------
$ 5,655 $ 10,462
======== ========
Liabilities and Stockholders' Deficit
Accounts payable and accrued expenses $ 5,032 $ 10,260
Indebtedness:
Nonrecourse 714 1,188
Recourse 4,829 3,432
-------- --------
Total liabilities 10,575 14,880
-------- --------
Stockholders' deficit:
Convertible preferred stock, Series AA, $.01 par value, 10,000,000 shares
authorized, 8,000,000 and 5,000,000 shares issued and outstanding 80 50
Common stock, $.01 par value; 30,000,000 shares authorized,
20,186,391 and 6,567,302 shares issued and outstanding 202 65
Additional paid-in capital 26,612 24,609
Accumulated deficit (31,814) (28,606)
-------- --------
(4,920) (3,882)
Less: Treasury stock, none and 1,430,911 shares at cost -- (536)
-------- --------
Total stockholders' deficit (4,920) (4,418)
-------- --------
$ 5,655 $ 10,462
======== ========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
2.
<PAGE>
<TABLE>
<CAPTION>
Chancellor Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
------------ ----------- ------------ -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 218 $ 631 $ 496 $ 1,211
Lease underwriting income 23 191 38 324
Direct finance lease income 101 41 141 79
Interest income 3 17 16 31
Gains from portfolio remarketing 211 400 384 649
Fees from remarketing activities 169 217 518 424
Other income 18 24 18 143
----------- ----------- ----------- -----------
743 1,521 1,611 2,861
----------- ----------- ----------- -----------
Costs and expenses:
Selling, general and administrative 2,824 1,314 4,660 2,589
Interest expense 117 149 219 278
Depreciation and amortization 71 298 161 637
Residual value estimate reduction -- -- 709 --
----------- ----------- ----------- -----------
3,012 1,761 5,749 3,504
----------- ----------- ----------- -----------
Net loss before extraordinary
item (2,269) (240) (4,138) (643)
Extraordinary item - gain on early
extinguishment of debt 930 -- 930 --
----------- ----------- ----------- -----------
Net loss ($1,339) ($240) ($3,208) ($643)
=========== =========== =========== ===========
Net loss per share:
Before extraordinary item ($.24) ($.05) ($.56) ($.13)
Extraordinary item .10 -- .13 --
----------- ----------- ----------- -----------
($.14) ($.05) ($.43) ($.13)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares 9,664,114 5,136,391 7,412,760 5,136,391
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3.
<PAGE>
<TABLE>
<CAPTION>
Chancellor Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Six Months Ended June 30,
1997 1996
---------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 3,208) ($64)
------- -------
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 161 637
Residual value estimate realizations and
reductions, net of additions 640 74
Changes in assets and liabilities:
Decrease in receivables 2,261 1,714
Increase in other assets (672) (21)
Decrease in accounts payable and accrued expenses (5,228) (1,797)
------- -------
(2,838) 607
------- -------
Net cash used by operating activities (6,046) (36)
------- -------
Cash flows from investing activities:
Leased equipment held for underwriting 1,231 (5,485)
Net investments in direct finance leases 181 266
Equipment on operating lease 113 630
Investment in Truckscan -- (350)
Net change in cash restricted and escrowed 1,065 1,494
Additions to furniture and equipment, net 32 (29)
------- -------
Net cash provided (used) by investing activities 2,622 (3,474)
------- -------
Cash flows from financing activities:
Increase in indebtedness - nonrecourse 20 3,873
Increase in indebtedness - recourse 4,074 --
Repayments of indebtedness - nonrecourse (494) (80)
Repayments of indebtedness - recourse (2,677) (654)
Issuance of preferred stock, net 900 1,021
Issuance of common stock, net 1,806 --
------- -------
Net cash provided by financing activities 3,629 3,560
------- -------
Net increase in cash and cash equivalents 205 50
Cash and cash equivalents at beginning of period 21 185
------- -------
Cash and cash equivalents at end of period $ 226 $ 235
======= =======
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE>
CHANCELLOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
and the rules and regulations of the Securities and Exchange Commission for
interim financial statements. Accordingly, the interim statements do not
include all of the information and disclosure required for annual financial
statements. In the opinion of the Company's management, all adjustments
(consisting solely of adjustments of a normal recurring nature) necessary
for a fair presentation of these interim results have been included.
Intercompany accounts and transactions have been eliminated. These
financial statements and related notes should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996. The balance sheet at December 31, 1996 has been derived from the
audited consolidated financial statements included in the Annual Report on
Form 10-K. The results for the interim period ended June 30, 1997 are not
necessarily indicative of the results to be expected for the entire year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
SFAS 128 specifies required disclosures relating to earnings per share
data. SFAS 128 is effective for fiscal years ending after December 15, 1997
and earlier application is not permitted. The implementation of these
standards is not expected to materially affect the Company's consolidated
financial statements.
3. DEBT
In April 1997, the Company repaid in advance of their respective terms an
intercreditor loan and secured inventory loan. The aggregate amount of this
debt on the repayment date was $1,906,000, of which approximately $976,000
was paid in cash and the balance of $930,000 was forgiven. In addition, the
Company paid approximately $22,000 in legal and bank fees to complete this
transaction.
On May 19, 1997, the Company borrowed $1.5 million from the Vice Chairman
of the Board of the Company. The loan is evidenced by a promissory note
that bears interest at the prime rate plus 2-1/8% (10-3/8% at May 19, 1997)
and is guaranteed by the Chairman of the Board of the Company. The Company
is also negotiating an additional $2.5 million loan with a bank and a $2.5
million warehouse line of credit facility with a financing institution
owned by the Vice Chairman of the Board of the Company. Although there can
be no assurance that such financing will occur, management is confident
that these additional financing transactions can be closed during the third
quarter of fiscal 1997.
4. PREFERRED STOCK
In February 1997, the Board of Directors approved the issuance of 3,000,000
shares of the Company's Series AA Convertible Preferred Stock ("Preferred
Stock") at $.30 per share to Vestex, the Company's majority stockholder, in
consideration of $900,000 of consulting fees due to Vestex. Each share of
Preferred Stock is entitled to the number of votes equal to the number of
5
<PAGE>
CHANCELLOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
whole shares of Common Stock into which the shares of Preferred Stock held
by Vestex are then convertible. The holders of shares of Preferred Stock
shall be entitled to receive cash dividends only to the same extent and in
the same amounts as dividends are declared and paid with respect to Common
Stock as if the Preferred Stock had been converted to Common Stock in
accordance with the provision related to conversion.
5. COMMON STOCK
On June 6, 1997, the Company issued 8,333,333 shares of Common Stock to
Vestex in consideration of the guarantee by Vestex of certain bank lines of
credit in the aggregate of $4,000,000. The Company ascribed a value of
$1,000,000 to the guarantee and recorded the value as debt issuance costs.
On June 6, 1997, the Company also issued 6,716,667 shares of Common Stock
to Vestex in consideration of approximately $806,000 of fees due Vestex
which were previously accrued. Of the total 15,050,000 shares issued,
1,430,911 shares were issued from treasury stock.
6. STOCK OPTION PLAN
In April 1997, the Board of Directors approved, subject to stockholder
approval, the 1997 Stock Option Plan (the "Plan"). The Plan provides for
the grant of options to purchase up to 2,500,000 shares of Common Stock to
new management, employees and consultants. Vestex will contribute 500,000
shares of Common Stock that it currently owns into the Plan.
7. DIVESTITURE
On May 1, 1997, the Company sold its 50% investment in Truckscan LLC to
Telescan Technologies LLC ("Telescan"), a party unrelated to the Company.
In consideration for its 50% ownership interest, the Company received
certain assets from Telescan with an estimated value of $35,000 and a one
year promissory note in the amount of $50,000 secured by certain assets of
Telescan. In addition, Telescan released the Company from its obligations
to make a capital investment in Truckscan LLC of approximately $300,000.
6
<PAGE>
CHANCELLOR CORPORATION
ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Three Month Period Ended June 30, 1997 vs. June 30, 1996
Revenues. Total revenues for the three month period ended June 30, 1997 was
$743,000 as compared to $1,521,000 for the corresponding prior year period, a
decrease of $778,000 or 51.2%. For the three month period ended June 30, 1997,
rental income decreased by $413,000 or 65.5% as compared to the corresponding
prior year period. The decrease in rental income is attributable primarily to
the expiration of several leases, including the subsequent disposition of $2.0
million of equipment (based on its original cost). Rental income will continue
to decrease until the Company is able to begin adding new equipment to its
portfolio. For the three month period ended June 30, 1997, lease underwriting
income decreased by $168,000 or 88.0% as compared to the corresponding prior
year period. Lease underwriting income decreased due to the origination of only
$844,000 of equipment leases, at cost, as compared to origination of $6.7
million of equipment leases, at cost, during the same period last year. For the
three month period ended June 30, 1997, direct finance lease income increased by
$60,000 or 146.3%, as compared to the corresponding prior year period. The
increase in direct finance lease income is attributable to the transfer of 10
leases acquired as a result of the buyout of the intercreditor agreement in
April 1997. For the three month period ended June 30, 1997, gains from portfolio
remarketing decreased by $189,000 or 47.3% as compared to the corresponding
prior year period. The decrease in gains from portfolio remarketing is
attributable to the decrease in sales of portfolio assets during the three month
period ended June 30, 1997 as compared to the corresponding prior year period.
For the three month period ended June 30, 1997, fees from remarketing activities
decreased by $48,000 or 22.7% as compared to the corresponding prior year
period. This decrease is attributable in part to the lack of remarketing to
third parties other than trusts in the current period as compared to the prior
year period. Although no fees were attributable to remarketing performed for
third parties other than trust investors, management plans to utilize the
Company's remarketing expertise to provide such services to third parties.
Costs and Expenses. Selling, general and administrative expense for the
three month period ended June 30, 1997 was $2,824,000 as compared to $1,314,000
for the corresponding prior year period, an increase of $1,510,000 or 114.9%. As
expected, the Company incurred additional legal, accounting and consulting fees
of approximately $1,202,000 in connection with the continuing restructuring
activities and litigation against certain members of the Company's former
management team and directors. Management does not believe it will incur further
significant costs in connection with the restructuring of the Company.
Additionally, the Company recorded $1,000,000 of debt issuance costs in
connection with the guarantee by Vestex of the $4,000,000 bank lines of credit.
Although selling, general and administrative expenses increased as a whole, the
Company reduced operating costs by approximately $577,000 or 48.0% as compared
to the corresponding prior year period. These cost reductions result from the
continued restructuring and stabilization efforts by the new management team.
Interest expense for the three month period ended June 30, 1997 was
$117,000 as compared to $149,000 for the corresponding prior year period, a
decrease of $32,000 or 21.5%. The decrease in interest expense is attributable
to lower interest rates on recourse debt.
Depreciation expense for the three month period ended June 30, 1997 was
$71,000 as compared to $298,000 for the corresponding prior year period, a
decrease of $227,000 or 76.2%. The decrease is primarily due to the decrease in
the operating lease base, resulting from decreases in operating leases
originated by the Company over the past year and sale of equipment coming off
lease.
7
<PAGE>
Extraordinary Item - Gain on Early Extinguishment of Debt. The Company
recorded a gain on early extinguishment of debt for the three month period ended
June 30, 1997 of $930,000. In April 1997, the Company repaid in advance of their
respective terms an intercreditor loan and secured inventory loan. The aggregate
amount of this debt on the repayment date was $1,906,000, of which approximately
$976,000 was paid in cash and the balance of $930,000 was forgiven. In addition,
the Company paid approximately $22,000 in legal and bank fees to complete this
transaction.
Net Loss. Net loss for the three month period ended June 30, 1997 was
$1,339,000 as compared to $240,000 for the corresponding prior year period, an
increase of $1,099,000 or 457.9%. The increase in the net loss is attributable
to the decrease in revenue components and the net increases in total costs,
specifically described above. The increase in the net loss is offset in part by
the impact of the gain on early extinguishment of debt. Net loss per share for
the three month period ended June 30, 1997 was $.14 per share as compared to
$.05 per share for the corresponding prior year period, an increase of $.09 per
share or 180.0%.
Six Month Period Ended June 30, 1997 vs. June 30, 1996
Revenues. Total revenues for the six month period ended June 30, 1997 was
$1,611,000 as compared to $2,861,000 for the corresponding prior year period, a
decrease of $1,250,000 or 43.7%. For the six month period ended June 30, 1997,
rental income decreased by $715,000 or 59.0% as compared to the corresponding
prior year period. The decrease in rental income is attributable primarily to
the expiration of several leases, including the subsequent disposition of $2.9
million of equipment (based on its original cost). Rental income will continue
to decrease until the Company is able to begin adding new equipment to its
portfolio. For the six month period ended June 30, 1997, lease underwriting
income decreased by $286,000 or 88.3% as compared to the corresponding prior
year period. Lease underwriting income decreased due to the origination of only
$1.4 million of equipment leases, at cost, as compared to origination of $9.5
million of equipment leases, at cost, during the same period last year. For the
six month period ended June 30, 1997, direct finance lease income increased by
$62,000 or 78.5%, as compared to the corresponding prior year period. The
increase in direct finance lease income is attributable to the transfer of 10
leases acquired as a result of the buyout of the intercreditor agreement in
April 1997. For the six month period ended June 30, 1997, gains from portfolio
remarketing decreased by $265,000 or 40.8% as compared to the corresponding
prior year period. The decrease in gains from portfolio remarketing is
attributable to the decrease in sales of portfolio assets during the six month
period ended June 30, 1997 as compared to the corresponding prior year period.
For the six month period ended June 30, 1997, fees from remarketing activities
increased by $94,000 or 22.2% as compared to the corresponding prior year
period. This increase is attributable to a continued focus by management on the
remarketing of trust assets as they become available for sale. Although no fees
were attributable to remarketing performed for third parties other than trust
investors, management plans to utilize the Company's remarketing expertise to
provide such services to third parties. For the six month period ended June 30,
1997, other income decreased by $125,000 or 87.4% as compared to the
corresponding prior year period. The decrease is due primarily to a $101,000
bankruptcy claim settlement recognized in the six month period ended June 30,
1996.
Costs and Expenses. Selling, general and administrative expense for the six
month period ended June 30, 1997 was $4,660,000 as compared to $2,589,000 for
the corresponding prior year period, an increase of $2,071,000 or 80.0%. As
expected, the Company incurred additional legal, accounting and consulting fees
of approximately $2,166,000 in connection with the continuing restructuring
activities and litigation against certain members of the Company's former
management team and directors. Management does not believe it will incur further
significant costs in connection with the restructuring of the Company.
Additionally, the Company recorded $1,000,000 of debt issuance costs in
connection with the guarantee by Vestex of the $4,000,000 bank lines of credit.
Although selling, general and administrative expenses increased as a whole, the
Company reduced operating costs by approximately $918,000 or 37.1% as compared
to the corresponding prior year period. These cost reductions result from the
continued restructuring and stabilization efforts by the new management team,
including the reduction of headcount and general operating costs.
8
<PAGE>
Interest expense for the six month period ended June 30, 1997 was $219,000
as compared to $278,000 for the corresponding prior year period, a decrease of
$59,000 or 21.2%. The decrease in interest expense is attributable to lower
interest rates on recourse debt.
Depreciation expense for the six month period ended June 30, 1997 was
$161,000 as compared to $637,000 for the corresponding prior year period, a
decrease of $476,000 or 74.7%. The decrease is primarily due to the decrease in
the operating lease base, resulting from decreases in operating leases
originated by the Company over the past year and sale of equipment coming off
lease.
Extraordinary Item - Gain on Early Extinguishment of Debt. The Company
recorded a gain on early extinguishment of debt for the six month period ended
June 30, 1997 of $930,000. In April 1997, the Company repaid in advance of their
respective terms an intercreditor loan and secured inventory loan. The aggregate
amount of this debt on the repayment date was $1,906,000, of which approximately
$976,000 was paid in cash and the balance of $930,000 was forgiven. In addition,
the Company paid approximately $22,000 in legal and bank fees to complete this
transaction.
Net Loss. Net loss for the six month period ended June 30, 1997 was
$3,208,000 as compared to $643,000 for the corresponding prior year period, an
increase of $2,565,000 or 398.9%. The increase in the net loss is attributable
to the decrease in revenue components and the net increases in total costs,
specifically described above. The increase in the net loss is offset in part by
the impact of the gain on early extinguishment of debt. Net loss per share for
the six month period ended June 30, 1997 was $.43 per share as compared to $.13
per share for the corresponding prior year period, an increase of $.30 per share
or 230.8%.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash flow from operations of $6,046,000 during the six
month period ended June 30, 1997, in part, due to the net loss of $3,208,000,
for the same period, and conversion of approximately $4.0 million of fees due
Vestex into recourse debt, preferred stock and common stock. Investing
activities, which are primarily related to investments in equipment for lease,
provided $2,662,000 during the six month period, in part, due to the sale of
equipment coming off lease and the effect of the early termination of the
intercreditor loans. Financing activities in the six month period provided
$3,629,000, in, part due to the issuance of 3,000,000 shares of the Company's
Series AA Convertible Preferred Stock at $.30 per share to Vestex in
consideration of $900,000 of consulting fees due Vestex, the conversion of
approximately $2.3 million of accrued fees due Vestex into recourse debt and the
issuance of 6,716,667 shares of common stock in consideration of approximately
$806,000 of accrued fees due Vestex.. The net result of the above activity for
the six month period was an increase in cash and cash equivalents of $205,000.
Cash and cash equivalents amounted to $226,000 at June 30, 1997 as compared to
$235,000 at June 30, 1996. Cash restricted and escrowed amounted to $2.5 million
at June 30, 1997 as compared to $3.0 million at June 30, 1996. Withdrawals of
restricted cash balances are limited to debt service and working capital
allotments, whereas the use of escrowed balances is limited to debt service
payments.
In February 1997, the Board of Directors approved the issuance of 3,000,000
shares of the Company's Series AA Convertible Preferred Stock at $.30 per share
to Vestex in consideration of $900,000 of consulting fees due Vestex. In
addition during the first quarter of 1997, the Company received loans from
Vestex of approximately $250,000 which are due on demand.
9
<PAGE>
In April 1997, the Company executed and delivered (1) the Loan Reduction
and Purchase and Assignment Agreement dated as of April 1997 among the Company,
its corporate affiliates and/or subsidiaries, Fleet National Bank- Corporate
Trust Division, as agent (the "Agent") for the Company's principal recourse
lenders, and Vestex, the Company's majority stockholder; (2) release in favor of
the principal recourse lenders to be given by Vestex and Brian Adley, Chairman
of the Board of Directors of the Company and president of Vestex, individually;
(3) release in favor of the principal recourse lenders to be given by the
Company, its corporate affiliates and/or subsidiaries; and (4) $1,500,000
Secured Promissory Note given by the Company, its corporate affiliates and/or
subsidiaries in favor of Vestex.
In April 1997, both an intercreditor loan and secured inventory loan were
repaid in advance of their respective terms. The aggregate amount of this debt
on the repayment date was approximately $1,906,000 of which approximately
$976,000 was paid in cash and the balance of $930,000 was forgiven. In addition,
the Company paid approximately $22,000 in legal and bank fees to complete this
transaction.
The Company's ability to underwrite equipment lease transactions is largely
dependent upon the continuing availability of short-term warehouse lines of
credit. Management is engaged in a continuing dialogue with several possible
alternative inventory lenders which appear to be interested in providing the
Company with warehouse financing. If the Company were to lose either of its
existing credit lines, or if their availability were reduced, the Company would
take immediate steps to replace either or both of them with one or more
alternative warehouse facilities. If the Company experienced unexpected delays
in putting a new warehouse facility in place, it would temporarily disrupt the
Company's ability to underwrite new equipment leases until the new warehouse
financing was secured.
On May 19, 1997, the Company borrowed $1.5 million from the Vice Chairman
of the Board of the Company. The loan is evidenced by a promissory note that
bears interest at the prime rate plus 2-1/8% (10-3/8% at May 19, 1997) and is
guaranteed by the Chairman of the Board of the Company. The Company is also
negotiating an additional $2.5 million loan with a bank and a $2.5 million
warehouse line of credit facility with a financing institution owned by the Vice
Chairman of the Board of the Company. Although there can be no assurance that
such financing will occur, management is confident that these additional
financing transactions can be closed during the third quarter of fiscal 1997.
On June 6, 1997, the Company issued 8,333,333 shares of Common Stock to
Vestex in consideration of the guarantee by Vestex of certain bank lines of
credit in the aggregate of $4,000,000. The Company ascribed a value of
$1,000,000 to the guarantee and recorded the value as debt issuance costs. On
June 6, 1997, the Company also issued 6,716,667 shares of Common Stock to Vestex
in consideration of approximately $806,000 of fees due Vestex which were
previously accrued. Of the total 15,050,000 shares issued, 1,430,911 shares were
issued from treasury stock.
The remarketing of equipment has played and will continue to play a vital
role in the Company's operating activities. In connection with the sale of lease
transactions to investors, the Company typically is entitled to share in a
portion of the residual value realized upon remarketing. Successful remarketing
of the equipment is essential to the realization of the Company's interest in
the residual value of its managed portfolio. It is also essential to the
Company's ability to recover its original investment in the equipment in its own
portfolios and to recognize a return on that investment. The Company has found
that its ability to remarket equipment is affected by a number of factors. The
original equipment specifications, current market conditions, technological
changes, and condition of the equipment upon its return all influence the price
for which the equipment can be sold or re-leased. Delays in remarketing caused
by various market conditions reduce the profitability of the remarketing.
10
<PAGE>
The Company anticipates it will continue to dedicate substantial resources
toward the further development and improvement of its remarketing capabilities
and believes that remarketing will continue to be a profit center for the
Company. The Company's strategy is to further exploit its remarketing expertise
by continuing to develop its ability to sell remarketing services to other
lessors, fleet owners, and lessees and also to create a dealer capability under
which the Company would buy and resell fleet equipment. The Company is also
implementing a plan to expand its brokerage activities through the Internet and
the use of other information technologies.
The Company's current lines of credit, if renewed or replaced, the renewal
of recently expired lines, its expected access to the public and private
securities markets, both debt and equity, anticipated new lines of credit (both
short-term and long-term and recourse and nonrecourse), anticipated long-term
financing of individual significant lease transactions, and its estimated cash
flows from operations are anticipated to provide adequate capital to fund the
Company's operations for the next twelve months. Although no assurances can be
given, the Company expects to be able to renew or timely replace its existing
and recently expired lines of credit, to continue to have access to the public
and private securities markets, both debt and equity, and to be able to enter
into new lines of credit and individual financing transactions.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's future quarterly operating results and the market price of
its stock may fluctuate. In the event the Company's revenues or earnings for any
quarter are less than the level expected by securities analysts or the market in
general, such shortfall could have an immediate and significant adverse impact
on the market price of the Company's stock. Any such adverse impact could be
greater if any such shortfall occurs near the same time of any material decrease
in any widely followed stock index or in the market price of the stock of one or
more public equipment leasing companies or major customers or vendors of the
Company.
The Company's quarterly results of operations are susceptible to
fluctuations for a number of reasons, including, without limitation, as a result
of sales by the Company of equipment it leases to its customers. Such sales of
equipment, which are an ordinary but not predictable part of the Company's
business, will have the effect of increasing revenues, and, to the extent sales
proceeds exceeds net book value, net income, during the quarter in which the
sale occurs. Furthermore, any such sale may result in the reduction of revenue,
and net income, otherwise expected in subsequent quarters, as the Company will
not receive lease revenue from the sold equipment in those quarters.
Given the possibility of such fluctuations, the Company believes that
comparisons of the results of its operations to immediately succeeding quarters
are not necessarily meaningful and that such results for one quarter should not
be relied upon as an indication of future performance.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Quarterly Report on Form 10-Q contains certain "Forward-Looking"
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to the Company and its subsidiaries that
are based on the beliefs of the Company's management as well as assumptions used
in this report, the words "anticipate," "believe," "estimate," "expect," and
"intend" and words or phrases of similar import, as they relate to the Company
or its subsidiaries or the Company management, are intended to identify
forward-looking statements. Such statements reflect the current risks,
uncertainties and assumptions related to certain factors including, without
limitation, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introduction and acceptance, technology changes and changes in industry
conditions. Should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended. The Company does not intend to update these
forward-looking statements.
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company is involved in the following legal proceedings:
On January 15, 1997, Chancellor filed a complaint in Superior Court,
Suffolk County, Massachusetts, alleging that certain of its former officers and
directors are liable to the corporation for losses incurred as a result of their
negligence, breach of fiduciary duties, unjust enrichment, conversion, and
unfair and deceptive trade practices. In addition, Chancellor's complaint seeks
the imposition of a constructive trust for the corporation's benefit on various
assets that Chancellor claims were wrongfully taken from the corporation by its
former officers and directors, as well as recovery of damages arising from legal
malpractice allegedly committed by the corporation's former general counsel, and
defamatory statements made by one former officer and director to certain of the
corporation's customers.
Four of the defendants, Stephen G. Morison, David W. Parr, Gregory S.
Harper and Thomas W. Killilea, have answered the complaint (denying its
allegations), and have filed a counterclaim against Chancellor, and have
commenced a third-party action against Brian M. Adley, Vestex Corporation and
Vestex Capital Corporation. The counterclaim alleges that Chancellor is liable
for breach of certain employment and severance agreements allegedly entered into
with the defendants Morison and Harper, and for the abuse of process in
connection with the corporation's initiation of this lawsuit. The third-party
complaint seeks indemnification and contribution from Adley, Vestex Corporation
and Vestex Capital Corporation in connection with the claims raised by
Chancellor in the primary action. In addition, the third party complaint seeks
recovery of damages from Adley, Vestex Corporation and Vestex Capital
Corporation for alleged abuse of process, interference with the contractual
relations and deceit. In their answer to the counterclaim the third-party
complaint, Chancellor and the third-party defendant have denied the defendants'
allegations.
The Company is also involved in routine legal proceedings incidental
to the conduct of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
operations of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Under Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed herewith:
10.1 Loan Reduction and Purchase and Assignment Agreement dated as of
April 4, 1997 by and among Fleet National Bank, the lenders named
in the agreement, Vestex Capital Corporation, and Chancellor
Corporation and its affiliates.
(b) Reports on Form 8-K - None
12
<PAGE>
Chancellor Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHANCELLOR CORPORATION
/s/ John J. Powell
John J. Powell
President and Chief Executive Officer
DATE: August 13, 1997
13
Exhibit 10.1
LOAN REDUCTION AND
PURCHASE AND ASSIGNMENT AGREEMENT
This Loan Reduction and Purchase and Assignment Agreement is made as of
April 4, 1997 (this "Agreement") by and among FLEET NATIONAL BANK, a national
banking association with offices at One Federal Street, Boston, Massachusetts
02110 (the "Agent"), the lenders named on the signature pages hereto (the
"Lenders"), VESTEX CAPITAL CORPORATION, a Massachusetts corporation with offices
at 12 Waltham Street, Lexington, Massachusetts 02173 ("Vestex") and CHANCELLOR
CORPORATION, CHANCELLOR FLEET CORPORATION, CHANCELLOR FINANCIAL SALES AND
SERVICES, INC., CHANCELLLOR FLEET REMARKETING, INC., CHANCELLOR ASSET
CORPORATION, CHANCELLOR FINANCIALEASE, INC., VALMONT FINANCIAL CORPORATION,
CHANCELLOR DATACOMM, INC. ALCO 474N TRUST, CAINS 931D TRUST, CAINS 931E TRUST,
CHRYSLER B04E TRUST, CONAGRA 25405 TRUST, CONAGRA 25409 TRUST, DALLAS 38329
TRUST, H.E. BUTT 796C TRUST, KRAFT 79328 TRUST, KRAFT 993C TRUST, PIC B03H
TRUST, SATURN BO62 TRUST, SATURN BO63 TRUST, SATURN BO67 TRUST, SHAMROCK 25748
TRUST, TYLER 3110 TRUST, AND WHIRLPOOL 49434 TRUST (the "Borrowers").
W I T N E S S E T H:
WHEREAS, the Borrowers, each having a principal place of business at
745 Atlantic Avenue, Boston, Massachusetts 02111, and certain affiliates
(collectively, the "Borrowers") of the foregoing from time to time parties, as
borrowers and/or guarantors, to certain extensions of credit referenced in that
certain Forbearance Agreement, dated as of April 6, 1990, and that certain Loan
Agreement, dated as of April 6, 1990 (the "Loan Agreement") executed by certain
of the Borrowers, the Agent and the Lenders (the Loan Agreement together with
all security documents and all other documents described on Exhibit A attached
hereto and made a part hereof, are sometimes referred to hereinafter
collectively as the "Loan Documents");
WHEREAS, at the request of the Borrowers, the Lenders have agreed to
(i) reduce the aggregate principal amount of the
<PAGE>
-2-
obligations to the Lenders pursuant to the Loan Documents from $2,429,412.89 to
$1,500,000, (ii) agree to transfer and assign all of their right, title and
interest in and to the Loan Documents (reflecting the reduced amount of the
obligations thereunder) to Vestex, and (iii) provide full and complete releases
in favor of the Borrowers, in exchange for (x) $523,234.43 from the Borrowers
representing the aggregate amount of the principal and interest payments made by
the Borrowers from the Collateral Account in two installments, one on or about
February 25, 1997 and one on or about March 25, 1997) and (y) full
and complete releases in favor of the Agent and each of the Lenders from each of
the Borrowers;
WHEREAS, at the request of the Borrowers, the Lenders have agreed to
assign to Vestex all of their respective right, title and interest in and to the
Loan Documents (reflecting the reduced amount of the obligations thereunder) in
exchange for (x) $976,765.77 from Vestex and (y) a full and complete release in
favor of the Agent and each of the Lenders from Vestex and Brian Adley;
WHEREAS, the Borrowers have arranged to obtain financing from Vestex in
replacement for the financing currently provided by the Lenders at a reduced per
annum rate of interest and on longer amortization terms, and Vestex has agreed
to purchase and accept and subsequently reduce the interest rate and lengthen
the amortization under, and the Lenders have agreed to sell and assign, all of
the Lenders' rights under the Loan Documents, all in accordance with the terms
and conditions hereinafter described;
WHEREAS, to induce Vestex to purchase the rights under the Loan
Documents, the Borrowers have agreed to substitute a promissory note payable
jointly and severally by the Borrowers to Vestex reflecting the amended terms
and to terminate the Loan Agreement;
NOW THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
<PAGE>
-3-
Section 1. Loan Reduction. In consideration of the payment of
$523,234.43 from the Borrowers of which amount the Lenders acknowledge that
$523,234.43 has been paid to the Lenders in two installments, one on or about
February 25, 1997, the other on or about March 25, 1997 ) and the delivery of
full and complete releases by the Borrowers in favor of the Lenders and the
Agent, the Lenders agree (i) to reduce the aggregate amount of the total
indebtedness of the Borrowers to the Lenders pursuant to the Loan Documents to
$1,500,000, and (ii) to transfer the Loan Documents to Vestex in accordance with
the terms hereof.
Section 2. Assignment to Vestex. In consideration of the payment of
$976,765.77 from Vestex and the delivery of full and complete releases by Vestex
and Brian Adley in favor of the Lenders and the Agent, the Lenders agree to
sell, grant, assign and convey to Vestex, without recourse, representation or
warranty of any kind, except as otherwise provided herein, and Vestex hereby
accepts, all of the Lenders' right, title and interest in, to and under the Loan
Documents (as amended hereunder), including, without limitation, all liens and
security interests in all collateral and security for the Borrowers' obligations
under the Loan Documents.
Section 3. Conditions Precedent. The Lenders' agreements herein are
subject to the delivery of the following items by the Borrowers to the Lenders
in form and substance satisfactory to the Lenders and its counsel and the Agent:
(a) resolutions of the Boards of Directors of the Borrowers authorizing
the execution and delivery by the Borrowers of this Agreement and of
the other documents and instruments referred to herein;
(b) payment of the fees and expenses of Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C. through the date of closing of this Agreement;
(c) payment of the fees and expenses of Fleet National Bank, as Agent
to the Lenders, through the date of closing of this Agreement;
<PAGE>
-4-
(d) payment of the fees and expenses of Argus Management Corporation
and Equipment Leasing Services, Inc., each as Consultant to the
Lenders, through the date of closing of this Agreement;
(e) such other documents, instruments, opinions of counsel and other
materials that the Lenders, any participant, or their respective
counsel may reasonably require; and
(f) Releases in the form attached hereto as Exhibits C and D duly
executed by each of the Borrowers, Vestex and Brian Adley.
Section 4. Representations and Warranties of Agent and
Lenders. The Agent and the Lenders each represents and warrants to Vestex that
(i) Exhibit A hereto sets forth all of the material documents, instruments and
agreements entered into in connection with the Loan Agreement, together with all
amendments to the Loan Agreement or any such documents, (ii) there are no
written agreements to which the Agent or any of the Lenders is a party which
vary the terms of or the priorities of the security interests granted under the
Loan Documents which would adversely affect Vestex thereunder, and (iii) the
Lenders own the loans evidenced by the Loan Documents for their own accounts,
respectively, and none of the Lenders has sold any participations therein or
encumbered any or all of its interest in such loans or its security interests
and liens evidenced by the Loan Documents.
<PAGE>
-5-
Section 5. Representations and Warranties of Vestex. Vestex represents
and warrants to the Agent and the Lenders that (a) Vestex has been and will
continue to be solely responsible for the making of its own independent
investigation as to: (i) the authorization, execution, legality, validity,
effectiveness, genuineness, enforceability and sufficiency of the Loan
Documents, (ii) the adequacy or perfection of any security interests held by the
Agent or the Lenders in the collateral securing the Borrowers' obligations under
the Loan Documents and any liens held by the Agent or the Lenders in any other
security therefor, (iii) Vestex has entered into this Agreement on the basis of
its own independent investigation and has not relied upon, and will not rely
upon, any explicit or implicit written or oral representation, warranty or other
statement of the Lenders other than those expressly contained herein, and (b)
that Vestex shall cancel all notes or instruments delivered pursuant to Section
6 below and accept from the Borrowers, in replacement of all evidence of the
obligations of the Borrowers under the Loan Documents, a promissory note
providing for a reduced rate of interest and a longer amortization period.
Section 6. Delivery of Loan Documents. Upon satisfaction of each of the
conditions precedent set forth in Section 3 above, and upon receipt by the Agent
of the payment of $976,765.77 from Vestex, (a) the Lenders shall reduce the
amount of the obligations of the Borrowers to the Lenders to $1,500,000 in
accordance with Section 1 above, and (b) the Agent shall deliver to Vestex the
original of the Secured Promissory Note dated April 6, 1990 in the original
principal amount of $8,000,000 payable by certain of the Borrowers to Shawmut
Bank, N.A., predecessor in interest to the Agent, endorsed as follows:
Pay to the order of Vestex Capital Corporation, without recourse.
Fleet National Bank, formerly known as Fleet National Bank of
Connecticut, successor by merger to Fleet National Bank of
Massachusetts, formerly known as Shawmut Bank, N.A.
By:
Name:
Title:
<PAGE>
-6-
The Agent agrees to use its best efforts to deliver to Vestex within ten (10)
business days from the date hereof the originals of all other Loan Documents
described on Exhibit A hereto and all original file-stamped secured party copies
of the executed UCC financing statements for the locations described on Exhibit
B hereto together with executed assignments of same to Vestex in recordable
form. Each of the Agent and the Lenders agrees to execute such other documents
as Vestex may reasonably request in connection with effecting the transactions
contemplated by this Agreement, including, without limitation, releases or
assignments of any blocked accounts, cash collateral accounts and the like
maintained in connection with the Loan Documents.
Section 7. Indemnification. The Agent, the Lenders and Vestex all agree
that from and after the date hereof Vestex shall be responsible for all acts and
omissions which may hereafter occur with respect to the Loan Documents. Vestex
hereby indemnifies and holds the Agent and the Lenders harmless from any
liability, damage, cost or expense (including reasonable attorney fees) claimed
or asserted against the Agent or the Lenders by Vestex, any Borrower, Brian
Adley (collectively, the "Indemnitors") or any Affiliate of any Indemnitor with
respect to the Loan Documents or this Agreement. For the purposes hereof,
"Affiliate" shall mean, with respect to any Indemnitor, (i) any entity directly
or indirectly controlling (including but not limited to all directors and
officers, if any, of such entity), controlled by or under direct or indirect
common control with any Indemnitor, or (ii) any family member of any Indemnitor
who is a natural person. An entity shall be deemed to control a corporation,
partnership, trust, joint venture or other enterprise or person if such entity
possesses, directly or indirectly, the power (a) to vote 5% or more of the
interests having ordinary voting power for such entity, or (b) to direct or
cause direction of the management and policies of such corporation, partnership,
trust, joint venture, enterprise or person whether through the ownership of
voting securities or interest, by contract or otherwise.
Section 8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.
Section 9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts.
Section 10. Other Agreements. Nothing contained herein shall be
construed so as to limit or impair the Borrowers' obligations, liabilities and
indebtedness to any Lender on account of indebtedness not listed on Exhibit A
hereto.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under seal as of the day and year first written above.
WITNESSED: VESTEX CAPITAL CORPORATION
/s/ Derek R. Coulter By: /s/ Brian M. Adley
Brian M. Adley
Derek R. Coulter Chief Executive Officer
Print Name
BORROWERS:
WITNESSED AS TO ALL SIGNATURES
ON BEHALF OF BORROWERS: CHANCELLOR CORPORATION
/s/ Derek R. Coulter By: /s/ John J. Powell
John J. Powell
Derek R. Coulter President
Print Name
CHANCELLOR FLEET CORPORATION
By: /s/ John J. Powell
John J. Powell
President
CHANCELLOR FINANCIAL SALES AND
SERVICES, INC.
By: /s/ John J. Powell
John J. Powell
President
CHANCELLOR FLEET
REMARKETING, INC.
By: /s/ John J. Powell
John J. Powell
President
CHANCELLOR ASSET
CORPORATION
By: /s/ John J. Powell
John J. Powell
President
CHANCELLOR FINANCIALEASE, INC.
By: /s/ John J. Powell
John J. Powell
President
<PAGE>
-8-
VALMONT FINANCIAL CORPORATION
By: /s/ John J. Powell
John J. Powell
President
CHANCELLOR DATACOMM, INC.
By: /s/ John J. Powell
John J. Powell
President
ALCO 474N TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
CAINS 931D TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
<PAGE>
-9-
CAINS 931E TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
CHRYSLER B04E TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
CONAGRA 25405 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
CONAGRA 25409 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
DALLAS 38329 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
<PAGE>
-10-
H.E. BUTT 796C TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
KRAFT 79328 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
KRAFT 993C TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
PIC B03H TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
SATURN BO62 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
<PAGE>
-11-
SATURN BO63 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
SATURN BO67 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
SHAMROCK 25748 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
TYLER 3110 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
WHIRLPOOL 49434 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By: /s/ John J. Powell
John J. Powell
President
<PAGE>
-12-
AGENT:
WITNESSED: FLEET NATIONAL BANK, AS AGENT
/s/ Maria Pizzelli By: /s/ Michael Quaile
Maria Pizzelli Michael Quaile
Print Name Print Name
Title: Corporate Trust Officer
Address: One Federal Street
Boston, MA 02110
LENDERS:
WITNESSED: FLEET NATIONAL BANK, AS LENDER
/s/ Amy H. Witryoz By: /s/ Cynthia G. Stannard
Amy H. Witryoz Cynthia G. Stannard
Print Name Print Name
Title: Vice President
Address: One Federal Street
Boston, MA 02110
RELIASTAR LIFE INSURANCE
WITNESSED: COMPANY
/s/ Chester J. Kennedy By: /s/ Gary L. Jacobson
Chester J. Kennedy Gary L. Jacobson
Print Name Print Name
Title: Authorized Representative
Address:100 Washington Ave., So.
Minneapolis, MN
55401-2121
<PAGE>
-13-
WITNESSED: ATLANTIC BANK OF NEW YORK
/s/ Arthur Tremblay By: /s/ Charles J. Mcgrath, II
Arthur Tremblay Charles J. Mcgrath, II
Print Name Print Name
Title: Vice President
Address: 960 Bank of America
New York, NY 10001
WITNESSED: THE CIT GROUP
/s/ Robert W. Ihne By: /s/ Hiojia L. Addath
Robert W. Ihne Hiojia L. Addath
Print Name Print Name
Title: Executive Vice President
Address: 630 CIT Drive
Livingston, NJ
WITNESSED: AMRESCO
NEW HAMPSHIRE, L.P., f/k/a
AMRESCO New Hampshire, Inc.
successor in interest to
First N.H. Bank
/s/ Arthur Gauthier By: /s/ Stephen G. Bernardo
Arthur Gauthier Stephen G. Bernardo
Print Name Print Name
Title: Vice President
Address: 10 Dorrance Street,
Suite 800
Providence, RI
<PAGE>
-14-
FEDERAL DEPOSIT INSURANCE
COMPANY AS ASSIGNEE OF
WITNESSED: FIRST MUTUAL
By:
Print Name Print Name
Title:
Address:
WITNESSED: FB ANNUITY COMPANY
By: /S/ David D. Baker
David D. Baker
Print Name Print Name
Title: Portfilio Depart Manager
Address: 7373 W. Saginaw Hwy
Lansing, MI 48917
WITNESSED: FARM BUREAU MUTUAL
INSURANCE COMPANY
By: /S/ David D. Baker
David D. Baker
Print Name Print Name
Title: Portfilio Depart Manager
Address: 7373 W. Saginaw Hw
WITNESSED:
FARM BUREAU LIFE INSURANCE
By: /S/ David D. Baker
David D. Baker
Print Name Print Name
Title: Portfilio Depart Manager
Address: 7373 W. Saginaw Hw
<PAGE>
Exhibit A
1. Loan Agreement dated as of April 6, 1990, by and between Shawmut
Bank, N.A., as agent and the Borrowers;
2. $8,000,000 Secured Promissory Note, dated as of April 6, 1990, made
by the Borrowers in favor of Shawmut Bank, N.A. as agent.
3. Forbearance Agreement dated as of April 6, 1990, by and among the
Lenders and the Borrowers and the promissory notes, loan agreements and related
documents referred to in the schedules and exhibits thereto, including Schedule
1 attached hereto [not available on disk].
4. Security Agreement, dated as of April 6, 1990.
5. Pledge Agreement, dated as of April 6, 1990.
6. Promissory Notes with respect to "Deferred Payments" in accordance
with Letter Agreement dated as of July 25, 1995.
Deferred Payment Promissory Note in the principal amount of
$80,950.58 payable to the order of Northwestern National Life Insurance
Company, predecessor-in-interest to Reliastar Life Insurance;
Deferred Payment Promissory Note in the principal amount of
$23,128.74 payable to the order of Shawmut Bank, N.A.,
predecessor-in-interest to Fleet National Bank;
Deferred Payment Promissory Note in the principal amount of
$3,854.79 payable to the order of Farm Bureau Life Insurance Company of
Michigan;
<PAGE>
Deferred Payment Promissory Note in the principal amount of
$3,854.79 payable to the order of F.B. Annuity Company;
Deferred Payment Promissory Note in the principal amount of
$3,854.79 payable to the order of Farm Bureau Mutual Insurance Company
of Michigan;
Deferred Payment Promissory Note in the principal amount of
$14,918.04 payable to the order of The CIT Group/Equipment Financing,
Inc.; and
7. Warrants to purchase common stock dated February 5, 1993:
No. 1 - 181,912 shares in favor of Northwestern National Life
Insurance, predecessor-in-interest to Reliastar Life Insurance
No. 2 - 81,615 shares in favor of The Daiwa Bank Limited
No. 3 - 51,975 shares in favor of Shawmut Bank, N.A.,
predecessor-in-interest to Fleet National Bank
No. 4 - 34,651 shares in favor of Atlantic Bank of New York
No. 5 - 33,524 shares in favor of The CIT Group/Equipment
Financing, Inc.
No. 6 - 25,847 shares in favor of First NH Bank, N.A.
predecessor-in-interest to AMRESCO New Hampshire, Inc.
No. 7 - 13,929 shares in favor of First Mutual of Boston
predecessor-in-interest to the FDIC
No. 8 - 8,662 shares in favor of FB Annuity Company
No. 9 - 8,662 shares in favor of Farm Bureau Life Insurance
Company of Michigan
No. 10 - 8,662 shares in favor of Farm Bureau Mutual Life
Insurance Company of Michigan
8. Amendments, modifications and supplements to the foregoing to which
one or more of the Borrowers are parties.
The Lenders and/or their predecessors in interest are parties to an
Agency, Funding and Collateral Sharing Agreement dated as of April 6, 1990, as
amended through the date hereof, with respect to the Lenders' and Agent's
agreements regarding taking actions against the collateral and sharing of
proceeds of the obligations of the Borrowers and of the collateral. None of the
Agent's or Lenders' rights or obligations pursuant to such agreement are being
transferred.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
to Loan Reduction and Purchase and Assignment Agreement
UCC Financing Statements
Debtor Jurisdiction Date of Filing File No.
<S> <C> <C> <C>
Chancellor Acquisition Corp. Illinois Secretary of State April 10, 1990 2701859
745 Atlantic Avenue
Boston, MA 02111
Chancellor Asset Illinois Secretary of State April 10, 1990 2701860
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. Illinois Secretary of State April 10, 1990 2701863
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. Illinois Secretary of State April 10, 1990 2701862
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. Illinois Secretary of State April 10, 1990 2701861
745 Atlantic Avenue
Boston, MA 02111
Chancellor Acquisition Corp. DuPage County Recorder April 10, 1990 9OU-2088
745 Atlantic Avenue
Boston, MA 02111
Chancellor Asset DuPage County Recorder April 10, 1990 9OU-2087
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. DuPage County Recorder April 10, 1990 9OU-2084
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. DuPage County Recorder April 10, 1990 9OU-2085
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. DuPage County Recorder April 10, 1990 9OU-2086
745 Atlantic Avenue
Boston, MA 02111
Chancellor Acquisition Corp. NC Secretary of State April 10, 1990 0668412
745 Atlantic Avenue
Boston, MA 02111
<PAGE>
<CAPTION>
Debtor Jurisdiction Date of Filing File No.
<S> <C> <C> <C>
Chancellor Asset NC Secretary of State April 10, 1990 0668411
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. NC Secretary of State April 10, 1990 0668408
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. NC Secretary of State April 10, 1990 0668408
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. NC Secretary of State April 10, 1990 0668410
745 Atlantic Avenue
Boston, MA 02111
Chancellor Acquisition Corp. Registry-Mecklenberg April 10, 1990 005563
745 Atlantic Avenue County
Boston, MA 02111
Chancellor Asset Registry-Mecklenberg April 10, 1990 005562
Management Corp. County
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. Registry-Mecklenberg April 10, 1990 005559
745 Atlantic Avenue County
Boston, MA 02111
Chancellor Credit, Ltd. Registry-Mecklenberg April 10, 1990 005560
745 Atlantic Avenue County
Boston, MA 02111
Chancellor Fleet Corp. Registry-Mecklenberg April 10, 1990 005561
745 Atlantic Avenue County
Boston, MA 02111
Chancellor Acquisition Corp. Tennessee Secretary of State April 16, 1990 761497
745 Atlantic Avenue
Boston, MA 02111
Chancellor Asset Tennessee Secretary of State April 16, 1990 761498
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. Tennessee Secretary of State April 16, 1990 761501
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. Tennessee Secretary of State April 16, 1990 761500
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. Tennessee Secretary of State April 16, 1990 761499
745 Atlantic Avenue
Boston, MA 02111
Chancellor Acquisition Corp. Davidson County, Tennessee April 16, 1990 072485
745 Atlantic Avenue
Boston, MA 02111
2
<PAGE>
<CAPTION>
Debtor Jurisdiction Date of Filing File No.
<S> <C> <C> <C>
Chancellor Asset Davidson County, Tennessee April 16, 1990 072484
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. Davidson County, Tennessee April 16, 1990 072481
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. Davidson County, Tennessee April 16, 1990 072482
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. Davidson County, Tennessee April 16, 1990 072483
745 Atlantic Avenue
Boston, MA 02111
Chancellor Asset Texas Secretary of State April 10, 1990 076266
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
Chancellor Acquisition Corp. Texas Secretary of State April 10, 1990 076267
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. Texas Secretary of State April 10, 1990 076265
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. Texas Secretary of State April 10, 1990 076264
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. Texas Secretary of State April 10, 1990 076263
745 Atlantic Avenue
Boston, MA 02111
Chancellor Asset Clerk of Dallas County, April 10, 1990 002820
Management Corp. Texas
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. Clerk of Dallas County, April 10, 1990 002818
745 Atlantic Avenue Texas
Boston, MA 02111
Chancellor Acquisition Corp. Clerk of Dallas County, April 10, 1990 002821
745 Atlantic Avenue Texas
Boston, MA 02111
Chancellor Fleet Corp. Clerk of Dallas County, April 10, 1990 002819
745 Atlantic Avenue Texas
Boston, MA 02111
Chancellor Corp. Clerk of Dallas County, April 10, 1990 002817
745 Atlantic Avenue Texas
Boston, MA 02111
Chancellor Acquisition Corp. Fulton County, GA April 10, 1990 735390
745 Atlantic Avenue
Boston, MA 02111
Chancellor Asset Fulton County, GA April 10, 1990 735389
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
3
<PAGE>
<CAPTION>
Debtor Jurisdiction Date of Filing File No.
<S> <C> <C> <C>
Chancellor Corp. Fulton County, GA April 10, 1990 735386
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. Fulton County, GA April 10, 1990 735387
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. Fulton County, GA April 10, 1990 735388
745 Atlantic Avenue
Boston, MA 02111
Chancellor Acquisition Corp. Wayne County, MI April 10, 1990 D464453
745 Atlantic Avenue
Boston, MA 02111
Chancellor Asset Wayne County, MI April 10, 1990 D464452
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. Wayne County, MI April 10, 1990 D464455
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. Wayne County, MI April 10, 1990 D464456
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. Wayne County, MI April 10, 1990 D464454
745 Atlantic Avenue
Boston, MA 02111
Chancellor Acquisition Corp. April 10, 1990 02541B
745 Atlantic Avenue
Boston, MA 02111
Chancellor Asset April 10, 1990 02540B
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. April 10, 1990 02542B
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. April 10, 1990 02543B
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. April 10, 1990 02544B
745 Atlantic Avenue
Boston, MA 02111
Chancellor Acquisition Corp. New Jersey Secretary of April 10, 1990 1331116
745 Atlantic Avenue State
Boston, MA 02111
Chancellor Asset New Jersey Secretary of April 10, 1990 1331108
Management Corp. State
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. New Jersey Secretary of April 10, 1990 1331110
745 Atlantic Avenue State
Boston, MA 02111
4
<PAGE>
Chancellor Credit, Ltd. New Jersey Secretary of April 10, 1990 1331114
745 Atlantic Avenue State
Boston, MA 02111
Chancellor Corp. New Jersey Secretary of April 10, 1990 1331112
745 Atlantic Avenue State
Boston, MA 02111
Chancellor Acquisition Corp. Middlesex County, NJ April 10, 1990 001005
745 Atlantic Avenue
Boston, MA 02111
Chancellor Asset Middlesex County, NJ April 10, 1990 001004
Management Corp.
745 Atlantic Avenue
Boston, MA 02111
Chancellor Fleet Corp. Middlesex County, NJ April 10, 1990 001003
745 Atlantic Avenue
Boston, MA 02111
Chancellor Credit, Ltd. Middlesex County, NJ April 10, 1990 001002
745 Atlantic Avenue
Boston, MA 02111
Chancellor Corp. Middlesex County, NJ April 10, 1990 001001
745 Atlantic Avenue
Boston, MA 02111
</TABLE>
5
<PAGE>
EXHIBIT C
RELEASE
Release executed as of April ____, 1997, by each of the undersigned
(the "Releasors") in favor of Fleet National Bank, as agent (the "Agent"), and
Reliastar Life Insurance Company, the CIT Group/Equipment Financing, Inc.,
Atlantic Bank of New York, Inc., Farm Bureau Life Insurance Company of Michigan,
Inc., F.B. Annuity Company, Farm Bureau Mutual Insurance Company of Michigan,
Fleet National Bank, The Federal Deposit Insurance Corporation, and AMRESCO New
Hampshire, L.P. (collectively, the "Lenders" and, together with the Agent, the
"Releasees").
WITNESSETH:
WHEREAS, Releasees, Releasors and others have entered into a Loan
Reduction and Purchase and Assignment Agreement, dated as of the date hereof
(the "Settlement Agreement") and this Release is being executed pursuant to
Section 3(f) of the Settlement Agreement.
NOW THEREFORE, in consideration of one dollar ($1.00), the
consideration set forth in the Settlement Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Releasors, with the intention of binding their respective heirs, executors,
administrators, legal representatives, successors and assigns, do hereby
expressly remise, release and forever discharge Releasees, their respective
officers, directors, shareholders, agents, servants, employees, attorneys,
predecessors in interest, successors and assigns from all debts, liabilities,
obligations, claims, demands, actions, accounts, covenants, contracts,
agreements, promises, omissions, damages and causes of action whatsoever, of
every name, nature, and description, both in law and in equity, or which may
result
<PAGE>
2
from the existing state of things, that Releasors ever had or may now have,
known or unknown, direct or indirect, absolute or contingent, or might
subsequently accrue to Releasors or any of them or that anyone claiming through
or under any of them may have, or claim to have, which arise under or in any way
relate to any of the Loan Documents (as defined in the Settlement Agreement) or
the subject matter of the Settlement Agreement, against any one or more of the
Releasees or their respective officers, directors, shareholders, agents,
servants, employees, attorneys, predecessors in interest, successors or assigns.
This Release shall forever settle, adjust, and discharge all claims of
Releasors against Releasees designated above. Releasors voluntarily and
knowingly execute this release with the intent of effecting the extinguishment
of obligations as hereinabove designated. The Releasors have read this Release
and understand all of its terms. The undersigned have executed the same
voluntarily and with full knowledge of its significance.
EXECUTED as an instrument under seal the day and year first above
written.
BORROWERS:
WITNESSED AS TO ALL SIGNATURES
ON BEHALF OF BORROWERS: CHANCELLOR CORPORATION
By:
John J. Powell
President
Print Name
CHANCELLOR FLEET CORPORATION
By:
John J. Powell
President
CHANCELLOR FINANCIAL SALES AND
SERVICES, INC.
By:
John J. Powell
President
CHANCELLOR FLEET
REMARKETING, INC.
By:
John J. Powell
President
CHANCELLOR ASSET
CORPORATION
By:
John J. Powell
President
CHANCELLOR FINANCIALEASE, INC.
By:
John J. Powell
President
<PAGE>
-3-
VALMONT FINANCIAL CORPORATION
By:
John J. Powell
President
CHANCELLOR DATACOMM, INC.
By:
John J. Powell
President
ALCO 474N TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
CAINS 931D TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
<PAGE>
-4-
CAINS 931E TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
CHRYSLER B04E TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
CONAGRA 25405 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
CONAGRA 25409 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
DALLAS 38329 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
<PAGE>
-5-
H.E. BUTT 796C TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
KRAFT 79328 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
KRAFT 993C TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
PIC B03H TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
SATURN BO62 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
<PAGE>
-6-
SATURN BO63 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
SATURN BO67 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
SHAMROCK 25748 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
TYLER 3110 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
WHIRLPOOL 49434 TRUST
By: CHANCELLOR FLEET
CORPORATION, AS TRUSTEE
By:
John J. Powell
President
<PAGE>
EXHIBIT D
RELEASE
Release executed as of April 4, 1997, by each of the undersigned (the
"Releasors") in favor of Fleet National Bank, as agent (the "Agent"), and
Reliastar Life Insurance Company, the CIT Group/Equipment Financing, Inc.,
Atlantic Bank of New York, Inc., Farm Bureau Life Insurance Company of Michigan,
Inc., F.B. Annuity Company, Farm Bureau Mutual Insurance Company of Michigan,
Fleet National Bank, The Federal Deposit Insurance Corporation, and AMRESCO New
Hampshire, L.P. (collectively, the "Lenders" and, together with the Agent, the
"Releasees").
WITNESSETH:
WHEREAS, Releasees, Releasors and others have entered into a Loan
Reduction and Purchase and Assignment Agreement, dated as of the date hereof
(the "Settlement Agreement") and this Release is being executed pursuant to
Section 3(f) of the Settlement Agreement.
NOW THEREFORE, in consideration of one dollar ($1.00), the
consideration set forth in the Settlement Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Releasors, with the intention of binding their respective heirs, executors,
administrators, legal representatives, successors and assigns, do hereby
expressly remise, release and forever discharge Releasees, their respective
officers, directors, shareholders, agents, servants, employees, attorneys,
predecessors in interest successors and assigns from all debts, liabilities,
obligations, claims, demands, actions, accounts, covenants, contracts,
agreements, promises, omissions, damages and causes of action whatsoever, of
every name, nature, and description, both in law and in equity, or which may
result from the existing state of things, that Releasors ever had or may now
have, known or unknown, direct or indirect, absolute or contingent, or might
subsequently accrue to Releasors or any of them or that anyone claiming through
or under any of them may have, or claim to have, which arise under or in any way
relate to any of the Loan Documents (as defined in the Settlement Agreement) or
the subject matter of the Settlement Agreement, against any one or more of the
Releasees or their respective officers, directors, shareholders, agents,
servants, employees, attorneys, predecessors in interest, successors or assigns.
This Release shall forever settle, adjust, and discharge all claims of
Releasors against Releasees designated above. Releasors voluntarily and
<PAGE>
-2-
knowingly execute this release with the intent of effecting the extinguishment
of obligations as hereinabove designated. The Releasors have read this Release
and understand all of its terms. The undersigned have executed the same
voluntarily and with full knowledge of its significance.
EXECUTED as an instrument under seal the day and year first above
written.
WITNESS: /s/Derek Coulter VESTEX CAPITAL CORPORATION
Derek Coulter
By: /s/Brian M. Adley
Brian M. Adley
Print Name Print Name
Title: CEO & Chairman
WITNESS: /s/Derek Coulter /s/Brian M. Adley
Derek Coulter Brian Adley
Print Name
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 226
<SECURITIES> 0
<RECEIVABLES> 302
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,730
<DEPRECIATION> (2,672)
<TOTAL-ASSETS> 5,655
<CURRENT-LIABILITIES> 0
<BONDS> 5,543
0
80
<COMMON> 202
<OTHER-SE> (5,202)
<TOTAL-LIABILITY-AND-EQUITY> 5,655
<SALES> 0
<TOTAL-REVENUES> 1,611
<CGS> 0
<TOTAL-COSTS> 5,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 219
<INCOME-PRETAX> (4,138)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,138)
<DISCONTINUED> 0
<EXTRAORDINARY> 930
<CHANGES> 0
<NET-INCOME> (3,208)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
