SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
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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
(Name of Small Business Issuer in its Charter)
MASSACHUSETTS 04-2626079
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
210 SOUTH STREET, BOSTON, MASSACHUSETTS 02111
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(Address of Principal Executive Offices) Zip Code
Issuer's Telephone Number, Including Area Code (617) 368-2700
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Securities registered Name of Each Exchange on
under Section 12(b) of Which Registered
the Exchange Act:
Title of Each Class
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None None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.01
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers pursuant in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the year ended December 31, 1999 were approximately
$62,272,000.
Aggregate market value of the registrant (inclusive of Series B shares) was
approximately $51,082,000 as of March 30, 2000.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of March 30, 2000, 58,795,000 shares of Common Stock, $.01 par value per
share and 350,000 shares of Series B Convertible Preferred Stock ("Series B"),
$.01 par value per share were outstanding. The Series B shares convert into
common on a 1 for 10 basis (3,500,000 in total) and have a liquidation
preference of $20.00 per preferred share or $7,000,000 in the aggregate. Market
value of the voting stock held by non-affiliates of the registrant as of March
30, 2000 was approximately $10,183,000.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders to be held at 2:00 p.m.
on June 30, 2000 at the offices of Bingham Dana, LLP, 150 Federal Street,
Boston, MA 02109 - Part III
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This Annual Report on Form 10-KSB 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.
PART I
ITEM 1 DESCRIPTION OF BUSINESS.
Chancellor Corporation ("Chancellor" or the "Company") was incorporated in
Massachusetts in January 1977. It is principally engaged in (1) wholesale and
retail used transportation equipment sales through its wholly owned subsidiary,
Chancellor Asset Management. (CAM), which was incorporated in Massachusetts in
1998, (2) buying, selling, leasing and remarketing new and used transportation
equipment, (3) managing equipment on and off-lease, and (4) arranging
equipment-related financing through its principal subsidiary, Chancellor Fleet
Corporation ("Fleet") which was incorporated in Massachusetts in January 1980.
HISTORICAL BUSINESS AND FISCAL YEAR 1999 SIGNIFICANT DEVELOPMENTS
The Company originates lease transactions directly with equipment users and
in most cases sells those leases to investors and/or may hold for its own
account. The Company also manages most of the leases it sells to investors and,
when the original leases expire or terminate, remarket the equipment for the
benefit of the investors and the Company. The Company originates leases
involving primarily transportation equipment, but also leases other equipment
including material handling equipment and construction equipment. Investors who
purchase equipment subject to a lease may receive the tax and most of the
economic benefits associated with the lease transaction. In certain cases, the
Company has retained leases for its own account. The Company also arranges
non-recourse financing for some of the leases which it sells and for most leases
which it has retained for its own account. Typically, when the Company
originates leases, the investors or buyers of those leases are not known.
Therefore, the Company at the time of entering into the lease transaction is
"underwriting" the lease. At the expiration or early termination of the original
lease, the Company typically sells or releases the equipment on behalf of the
investor. To date, the Company has leased, re-marketed, or re-sold equipment
with an original cost of over $1,500,000,000 ($1.5 Billion U.S.).
During the period 1989 through 1997, the Company incurred cumulative losses
in excess of $56 million. The Company recorded a loss of $1,802,000 during
fiscal 1997. This continued decline from 1989 through 1996 (inclusive of such
losses) led the Company to the development and implementation of a restructuring
and transition plan. This plan was developed and implemented under the direction
of Vestex Capital Corporation, the Company's majority shareholder. The
continued, but decreasing loss in 1997 was due primarily to the lack of
sufficient cash flow to add new leases to the Company's own lease portfolio and
continued costs that occurred in the first half of 1997 in connection with the
Company's restructuring efforts. The Company virtually broke-even for Q3, 1997
with a loss of approximately $9,000, and the Company posted a profit for Q4,
1997. For the year ended December 31, 1998, the Company recorded a profit of
$524,000, the first full year of profitability since 1988. The Company's return
to profitability in 1998 reflects the culmination of new management's efforts
and strategies to maximize remarketing of off lease transportation equipment and
continued implementation of its strategy to expand its operations to retail used
transportation equipment. The Company continues to develop and attempts to
implement innovative financing and fleet management programs in the
transportation equipment finance industry to further the Company's continued
growth.
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Chancellor Asset Management Inc. ("CAM"), a wholly owned subsidiary of the
Company, entered into a Management Agreement, dated August 1, 1998, as amended
August 17, 1998, with M.R.B. Inc., a Georgia corporation d/b/a Tomahawk Truck
Sales; Tomahawk Truck & Trailer Sales, Inc., a Florida corporation; and Tomahawk
Truck & Trailer Sales of Virginia, Inc., a Virginia corporation; and Tomahawk
Truck & Trailer Sales of Missouri, a Missouri Company, and the management
agreement provided CAM with effective control of Tomahawk's operations as of
August 1, 1998. Subsequently, CAM acquired all of the outstanding capital stock
of Tomahawk from the two (2) sole shareholders (the "Selling Shareholders")
pursuant to a Stock Purchase Agreement (the "Agreement") dated January 29, 1999.
Tomahawk is engaged in a similar line of business as CAM. Tomahawk retails
and wholesales used transportation equipment consisting primarily of tractors
and trailers. Tomahawk operates seven (7) retail centers in Conley, Georgia;
Richmond, Virginia; Pompano Beach, Florida; Orlando, Florida; Elizabeth, New
Jersey; Dallas, Texas; and Kansas City, Missouri. Tomahawk also operates its
wholesale division from the Conley, Georgia facility. Tomahawk operates as a
wholly owned subsidiary of CAM, coordinating many operations with the Company to
achieve operating efficiencies and synergies.
The purchase price paid by CAM consisted of 4,500,000 shares of Common
Stock of Chancellor (valued at $.65 per share) and future cash consideration
pursuant to an earn-out (the "Earn-Out") as provided for in the Agreement. The
Earn-Out provides that each of the Selling Shareholders will be paid an amount
equal to seven and one-half percent (7.5%) of the Adjusted Pre-Tax Earnings of
Tomahawk. The Earn-Out, which is paid on a quarterly basis, begins in the fiscal
year ended December 31, 1999 and ends in the fiscal year ended December 31,
2004. In connection with this Agreement, CAM loaned the Selling Shareholders a
total of $300,000 pursuant to certain promissory notes payable that are payable
in full on January 29, 2004. Additionally, Vestex Capital Corporation, the
largest shareholder of the Company, is to receive up to $3,250,000 plus
expenses, not to exceed $50,000, payable over the next six years for services
rendered in finding, negotiating and arranging financing on the transaction as
well as ongoing management and development of long-term growth strategies
including initiation of possible acquisition and/or merger candidates. The final
fee is based principally upon the financial impact and profitability that
Tomahawk adds to the Company's operating results. Through 1999, Vestex received
approximately $1,019,000 in fees, plus repayment of debt advanced to the
Company, as well as fees for granting a line of credit advanced for the CAM
subsidiary of up to $1,000,000 at prime plus 2%.
The Agreement also: i) nominates one of the Selling Shareholders as a
director of Chancellor's Board of Directors; ii) elects both of the Selling
Shareholders as directors of CAM's Board of Directors; iii) provides for
Employment Agreements for the Selling Shareholders over a period of five years
with base salaries of $200,000 per annum; iv) prohibits the Selling Shareholders
from competing against CAM or Tomahawk, or soliciting former employees and
customers of Tomahawk; v) provides for Tomahawk to lease from the Selling
Shareholders the Conley, Georgia facility at fair market value rents of
approximately $8,500 per month; and vi) provides CAM an option to purchase from
the Selling Shareholders the Conley, Georgia facility for an amount not to
exceed $950,000. Subsequent to year- end, the Company and the shareholders have
entered into a definitive agreement. Final details are being confirmed and/or
reviewed by legal counsel, however the purchase price is believed to be less
than the $950,000 as discussed above. The Company plans to own the real estate,
when closed, through a new subsidiary incorporated in 2000.
This Tomahawk acquisition was recorded in accordance with the purchase
method of accounting as of January 29, 1999. In connection with this
transaction, CAM assumed liabilities of approximately $11,200,000 and incurred
acquisition costs of approximately $155,000. The excess of the purchase price
over net assets of approximately $3,142,000 at December 31, 1999, including
additional consideration since closing, has been recorded in intangibles and
allocated between a covenant not to compete, customer database files and
goodwill in 1999 and will be amortized over periods of five (5) to fifteen (15)
years beginning February, 1999.
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In August 1997, the Company committed to make a $1,000,000 ($1 million)
equity investment in the New Africa Opportunity Fund, LP ("NAOF"). NAOF is a
$120 million investment fund composed of $40 million from equity participants
including the Company, and $80 million in debt financing provided by the
Overseas Private Investment Corporation ("OPIC"), an independent U.S. government
agency. In addition to Chancellor, some of the limited partners within the fund
include, but are not limited to, Sun America, Northwestern, Citicorp, and
others. The purpose of the fund is to make direct investments in emerging
companies throughout Africa. As of December 31, 1999, the Company had funded
approximately $469,000 and is obligated to provide additional funding in the
approximate amount of $531,000. As further described in footnote 13, the company
has additionally invested up to 15.1% into one of NAOF's investee companies. The
Company continues to negotiate further strategic opportunities with this
investee company.
During a prior year, the Company undertook a review of its trust portfolio,
including consultation with legal counsel, an International "Big Five (5)"
Independent public accounting firm, and industry consultants and determined that
it had not been recovering costs associated with administering the trusts.
Management's initial review determined that approximately $22,000,000 of costs
for periods prior to 1997 had not been recovered from the trusts. The Company
has recorded approximately $972,000 and $1,498,000 of cost recoveries in the
years ended December 31, 1999 and 1998, respectively. For periods prior to 1998,
$2,862,000 was recovered. Thus, to date, the Company has recovered in excess of
$5,300,000. Management makes no representations concerning the Company's ability
to recover any further costs for periods prior to 1997. Further recoveries for
periods prior to 1997 and thereafter are contingent upon the current status of
the specific trusts and the Company's level of recovery efforts.
The ability of the Company to profitably operate its lease origination
business unit in the future will depend largely on the amount of new capital
available to the Company and the cost of that capital. In addition, the success
of the Company's remarketing and retailing of used transportation equipment will
result, in part, from its ability to locate sources of quality used
transportation equipment and expansion of its distribution channel through
siting of potential new retail facilities. The Company continues to explore
possible sources of new capital including, for example, obtaining new or
additional recourse debt, obtaining new equity capital, securitizing lease
transactions, obtaining equity capital from private investors, purchases of
equipment leases originated by the Company and/or entering into strategic
alliances/joint ventures with other leasing or financial services companies and
the sale of ancillary business units and/or assets as considered appropriate.
The Company also utilizes an expansive database of over 75,000 sources and
customers of used transportation equipment. This effort is on going and includes
a fully staffed telemarketing group to continually upgrade and add new sources
and users of transportation equipment. Additionally, the Company's management
has established a retail facility expansion program which investigates potential
new sites that can be developed internally as well as acquisition candidates.
The Company intends on investing any new capital that it obtains in leases for
its own portfolios (if practical), expansion of its remarketing and
retail/wholesale operations, general working capital purposes, and other
activities or operations as determined by management and/or the board of
Directors.
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DESCRIPTION OF BUSINESS
The majority of the Company's leases are noncancelable "net" leases which
contain provisions under which the customer must make all lease payments
regardless of any defects in the equipment and which require the customer to
insure the equipment against casualty loss, and pay all related property, sales
and other taxes. Some of the leases written by the Company provide for early
termination options. Generally, these options may be exercised at specified
times upon receipt by the Company of an amount at least equal to the discounted
present value of remaining rent payments. The Company intends to collect all
termination payments. Other leases allow the lessee at certain times to require
the Company to attempt to sell or sublease the equipment for the lessee, with
the Company sharing in any losses or gains should a decrease or increase in
revenue streams occur as a result.
Leases are generally originated for private third party purchasers of
equipment. The Company's lease origination marketing strategy is transaction
driven. With each lease origination opportunity, the Company evaluates both the
prospective lessee and the equipment to be leased. With respect to each
potential lessee, the Company evaluates the lessee's credit worthiness. With
respect to the equipment, the Company evaluates the remarketing potential.
The Company currently concentrates on leasing transportation equipment,
such as tractors, trailers and trucks. The Company also leases construction
equipment, aircraft, material handling equipment and other equipment. The
Company's long term business plan will also consider diversification of the
equipment available to be financed. This potential diversification will provide
for the financing of low-obsolescence, hard-asset equipment with predictable and
dependable residual values, including but not limited to, plastics, printing,
construction and general manufacturing equipment. Further, the Company will seek
to syndicate transactions not meeting these criteria or the Company's credit
risk profile.
The Company leases equipment to lessees in diverse industries throughout
the United States. Although the Company's direct solicitation efforts involving
leases of new equipment have shifted from Fortune 100 companies to include
smaller business entities, most of the Company's lessees of new equipment are
still of substantial creditworthiness, with minimum net worth in excess of $25
million. Some of the Industries the Company participates in include;
aircraft/aerospace, agricultural, automotive, beverage/bottling,
chemical/pharmaceutical, consumer goods, electronics, food distribution, hotels
& entertainment, industrial, paper & textiles, petroleum, retail/apparel, and
transportation. Customers within these industries include; Purdue, Tyson Farms,
Ford Motor, Daimlerbenz, Coors, Coca-Cola, Dow, Walmart, Whirlpool, Texaco,
Alliant Food Service, and others.
During 1999, the Company continued its lease originating activities,
including brokering of new lease transactions. The Company also transacted
several significant buyouts of portfolios held by certain trust investors.
During 1999, 67% (based on original equipment cost) of the new lease
transactions originated by the Company were with one large lessee. During 1998,
31% (based on original equipment cost) of the new lease transactions originated
by the Company were with the one largest lessee (Wal-Mart). In addition,
approximately 40% and 31% (based on original equipment cost) of equipment sold
to investors in 1998 were purchased by the two largest investors.
EQUIPMENT ACQUISITION
The Company acquired $4.2 million of equipment under 40 leases during 1999.
The Company acquired $5.5 million of equipment under 40 leases during 1998.
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EQUIPMENT DISPOSITION
In 1999, the Company disposed of $1.1 million of portfolio equipment
(measured by its original cost) on operating leases and disposed of $310,000 on
direct finance leases. The total equipment (net of depreciation, pay-down and
write-downs) on operating leases and direct finance leases increased in 1999 to
$4.2 million and $376,000, respectively. In 1998, the Company disposed of $6.8
million of the Company's portfolio equipment (measured by its original cost) on
operating leases and disposed of $139,000 on direct finance leases, reducing the
total equipment (net of depreciation, pay-down and write-downs) on operating
leases and direct finance leases to $702,000 and $359,000, respectively.
REMARKETING ACTIVITIES
The remarketing of equipment plays a vital role in the operations of the
Company. The Company's remarketing efforts are directed through Chancellor Asset
Management, Inc. ("CAM"), the Company's wholly owned subsidiary.
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 not only to
the realization of the Company's interest in the residual value but also for the
Company to recover its original investment in the equipment in its portfolios
and to recognize a return on that investment.
The Company continues to dedicate substantial resources towards the
development and improvement of its remarketing capabilities, which is a
significant profit center for the Company. The Company's strategy is to exploit
its remarketing expertise by providing fee-based remarketing services to fleet
equipment owners and lessees and also to create a dealer capability under which
the Company would buy and re-sell fleet equipment. The Company continually
explores the potential for financing relationships enabling the remarketing
group to enter into transactions to purchase used transportation equipment which
can be quickly and profitably remarketed.
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 remarketing.
Remarketing efforts are pursued on a direct retail sale, wholesale or lease
basis. The Company's fleet equipment remarketing experience has shown that
generally the greatest residual value is realized by initially re-leasing
equipment, rather than immediately selling it. Therefore, the Company has
concentrated its remarketing efforts on re-leasing, although re-leasing involves
more risks than selling because lessees of used equipment are generally smaller,
less creditworthy enterprises than the Company's initial lessees. The Company
sells fleet equipment through its retail sales center located in Elizabeth, New
Jersey. Additionally, the Company uses indirect retail sales centers in
California, Georgia, Illinois, Florida, Missouri, and Texas.
RETAIL AND WHOLESALE ACTIVITIES
As previously mentioned, CAM acquired Tomahawk for purposes of enhancing
its remarketing of used transportation equipment. The acquisition of Tomahawk
provides the Company with six (6) additional retail centers in Conley, Georgia;
Pompano Beach and Orlando, Florida; Richmond, Virginia; Dallas, Texas; and
Kansas City, Missouri, in addition to its previously existing location in
Elizabeth, New Jersey. The Dallas, Texas location was opened in Q3, 1999 and the
Kansas City location was opened in Q4, 1998. Tomahawk also provides additional
wholesale opportunities from its Conley, Georgia headquarters. The Company will
derive significant revenues from the retail and wholesale of used transportation
equipment through CAM's Tomahawk business unit. In addition, the Company's
ability to utilize retail pricing to establish residual values on lease
transactions will provide the Company with a competitive advantage in its retail
centers throughout the domestic marketplace. CAM maintains an extensive database
of used equipment sources and customers and continually updates this information
through a fully staffed telemarketing group.
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COMPETITION
The principal methods by which the Company competes are its ability to
underwrite the lease transactions which it originates; its knowledge of the
equipment used by its lessees; the training and experience of its personnel; the
relationships and reputation it has established with lessees, equipment
suppliers and financial institutions; its ability to adapt to changing
regulations and tax laws; and its experience in successfully remarketing the
equipment at lease termination. Additionally, the Company's ability to provide
in-house retail distribution channels provides advantages in establishing
pricing for lease origination transactions and improving overall fleet
management and total holding costs for the customer.
The equipment leasing business, on a global basis, is a highly competitive,
fragmented marketplace with thousands of competitors. The Company has identified
emerging markets such as Russia, the Commonwealth of Independent States, the
Republic of South Africa, the Kingdom of Swaziland, and other sub-Saharan
countries. These emerging markets hold significant opportunity to provide
financial services, such as leasing, that the Company will continue to explore
as resources and opportunities permit, however, the primary focus remains within
the United States. The Company is aggressively pursuing the transacting of lease
deals and negotiation of strategic alliances in these markets. Chancellor's
competitors include (1) large diversified financial services companies, (2)
other leasing companies and (3) vendor financing programs. Many of these
organizations have greater financial resources than the Company and, therefore,
may be able to obtain funds or equipment on more favorable terms than those
available to the Company. Additionally, the Company competes against other
financing alternatives available to lessees for the purchase of equipment.
BUSINESS PLAN
The Company's strategy is to continue in a profitable manner, increase
market share, and create growth opportunities by expanding its core business
through servicing of investment grade and middle market clients, joint ventures
with financial institutions, expanding its used transportation equipment retail
and wholesale distribution channel, expanding into new transportation and
equipment markets and seeking strategic financial partnerships and joint
ventures domestically and internationally.
Historically, the Company focused its efforts on Fortune 100 companies. The
Company implemented a plan to broaden the focus of its transportation equipment
and remarketing expertise by expanding the number of customers within its target
market. The Company will broaden its scope of lease origination activities to
include middle market clients with a variety of transportation equipment
requirements. The strategic decision to target middle market origination
activities is expected to result in higher gross margins while utilizing the
Company's twenty years of historical equipment residual performance. The Company
will leverage off of its expertise allowing entry into emerging international
markets seeking these basic financial services in their economic development.
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The Company enjoys a reputation as one of the premier transportation
equipment remarketers in the industry. The Company believes there is a
significant opportunity to offer lease and rental companies, finance companies,
utilities, financial institutions, municipalities, and transportation companies
an outlet for their used equipment other than the traditional low-end auction
channels. The Company further believes the acquisition of Tomahawk will enhance
the distribution of this equipment at lease expiration.
The Company also perceives significant opportunities for its services in
international markets. Additionally, the Company can benefit from higher margins
in less competitive international markets. The Company has completed certain
lease transactions in the Russian Federation and the Commonwealth of Independent
States ("Russia and the CIS"). In addition, the Company has made investments
with certain parties that both invest in and operate companies in the Republic
of South Africa ("RSA"), the Kingdom of Swaziland and other sub-Saharan
countries. The Company continues to evaluate the potential for providing
additional financial services in the RSA as a result of the strategic alliances
established.
BUSINESS EXPANSION
Since the change in management and Board control on December 3, 1996 the
Company closely scrutinizes transactions to maximize profitability. As a result
of the restructuring, which was completed in 1997, and a move towards
concentrating on profit centers, the Company has established a foundation upon
which future profitable business expansion can be achieved. As an outgrowth of
the Company's core transportation leasing business, several acquisitions are
being evaluated that provide for vertical and horizontal integration into
businesses that utilize similar back office operations.
The expansion of the Company's core business through the acquisition of and
merger with complementary businesses within the financial services and
transportation industries will be an ongoing strategic focus. The implementation
of this strategy involves members of senior management and outside professionals
reporting to a Mergers and Acquisitions subcommittee of the Board of Directors.
This group is constantly evaluating a variety of domestic and international
leasing companies and related opportunities, for potential alliances and/or
business combinations.
The Company, through an affiliate acquired from Afinta Motor Corporation
(Pty) Ltd., ("AMC") the exclusive worldwide distribution rights for products
manufactured/assembled by AMC, excluding Africa, England, Scotland and Wales.
AMC is one of South Africa's largest manufacturer/assembler of trucks,
tractor-trailers, buses, automobiles, sport utility vehicles ("SUV),
motorcycles, and other products supplied by AMC. The Company is currently
evaluating various methods to utilize these rights, along with direct and
indirect commissions the Company may receive with these products. A long-term
plan is to directly re-sell/market these rights and/or products within this
exclusive territory.
COMMUNICATIONS AND INFORMATION
The Company has completed efforts to assess and, where required, remediate
issues associated with Year 2000 ("Y2K") issues. Generally defined, Y2K issues
arise from computer programs which use only two digits to refer to the year and
which may experience problems when the two digits become "00" in the year 2000.
In addition, imbedded hardware microprocessors may contain time and two-digit
year fields in executing their functions. Much literature has been devoted to
the possible effects such programs may experience in the Year 2000, although
significant uncertainty exists as to the scope and effect the Y2K issues will
have on industry and the Company.
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In 1998, the Company developed a strategic plan to identify the IT systems
needed to accomplish the Company's overall growth plans. As part of this
process, Y2K issues were considered and addressed by the Company's senior
management and MIS personnel. Although this plan was intended to modernize the
IT systems, compliance with Y2K requirements were incorporated. The cost of
bringing the Company in full compliance should not result in a material increase
in the recent levels of capital spending or any material one-time expenses. To
date, the Company has spent approximately $400,000 in modernizing its IT system,
including compliance with Y2K requirements. The Company anticipates spending
approximately $350,000 during fiscal 2000 to complete the modernization of its
IT system.
The failure of either the Company, its vendors or clients to correct the
systems affected by Y2K issues could result in a disruption or interruption of
business operations. The Company uses computer programs and systems in a vast
array of its operations to collect, assimilate and analyze data. Failure of such
programs and systems could affect the Company's ability to track assets under
lease and properly bill. Although the Company does not believe that any of the
foregoing worst-case scenarios will occur, there can be no assurance that
unexpected Y2K problems of the Company's and its vendors' and customer's
operations will not have a material adverse effect on the Company. No
significant operational deficiencies have arisen from the Y2K issue.
In 1998 the Company made several improvements to its Internet presence
(HTTP://WWW.CHANCELLORCORP.COM) as part of the Company's strategy to further
incorporate technology into its marketing and customer service initiatives. The
Company's goal is to create a simple, well-designed and useful Internet
destination by redesigning the site and expanding content to improve its
usefulness as a business resource for customers and an informational tool for
investors when fully developed. The Chancellor site will showcase the Company's
truck and trailer inventory available through its seven (7) retail locations,
provides online and downloadable lease applications for fleet managers, and
improve the quality and quantity of corporate and financial information tailored
for the investment community.
MARKET OPPORTUNITIES
Through implementation of a strategy allowing for penetration of investment
grade and middle market, as well as Fortune 100 customers, the Company will
broaden its target market to a less competitive and price sensitive arena. The
Company will focus its energies domestically and internationally on the
multi-billion dollar leasing marketplace. The ability of the Company to
originate and remarket equipment in underdeveloped and inefficient markets
translates into higher potential rates of return. Additionally, the willingness
of the Company's strategic financial partners to augment the Company's deal
underwriting capabilities provides financial strength to execute transactions.
The used transportation equipment market also presents one of the most
fragmented markets available. Dominated by local dealers and manufacturer
remarketers, the used transportation equipment market presents Chancellor an
opportunity for consolidation in this industry. The Company's management
believes that a significant opportunity exists to offer lease and rental
companies, finance companies, utilities, municipalities, and transportation
companies a retail outlet for their used equipment as opposed to the current
wholesale and auction outlets currently used.
The Company also views its efforts to be a global originator / remarketer
of transportation and non-transportation equipment as an element to its
corporate growth strategy over the next 5 to 7 years. The additional
international revenue streams, where margins are significantly higher than the
domestic market, will help facilitate the Company's goal of increasing
profitability. Exposure on these transactions will be mitigated through the use
of credit enhancement, letters of credit and other similar instruments. The
Company's management is committed to a strategy providing for international
diversification within emerging global markets.
Additionally, the Company has made significant progress in establishing a
presence in the Republic of South Africa ("RSA") as a premier financial services
company in this region. The Company's efforts as a key contributor in the
economic development of the RSA are demonstrated indirectly through an
investment in the New Africa Opportunity Fund, LP ("NAOF.) Additionally, during
1999, the Company invested in and acquired up to 15.1% of one of NAOF's investee
companies as well as obtained worldwide distribution rights excepting certain
countries for its products.
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As a result of its strength in the management of assets, the Company has a
unique opportunity to originate and/or remarket long-lived assets in the
international marketplace. As continued emphasis is placed on projects to
rebuild and improve infrastructure, the need for capital equipment in these
international markets is expected to grow.
OPERATING FACILITY
The Company's fully integrated sales and marketing departments are
headquartered in Boston, Massachusetts, with a satellite office located in New
York City, New York. The Company maintains retail used transportation equipment
centers in Conley, Georgia; Pompano Beach, Florida; Orlando, Florida; Richmond,
Virginia; Dallas, Texas; Kansas City, Missouri; and Elizabeth, New Jersey. A
direct sales staff and telemarketing program supports a national network of
sales representatives.
SEASONALITY
Because of tax and investment considerations, investors frequently defer
their decisions to purchase lease transactions until after the first half of the
calendar year.
EMPLOYEES
In April 1999, the Company employed approximately 90 persons on a full time
basis. As of March 30, 2000, the Company employed approximately 107 persons on a
full time basis. Pending adequate financial resources, the Company expects to
hire a number of sales and marketing people to support its plan to re-establish
its origination business and service planned development or acquisition of
additional dealerships.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases an office facility in Boston, Massachusetts. This
facility houses the Company's administrative, financing and marketing
operations. The Boston, Massachusetts lease is for a non-cancelable period of
five years, with a five-year renewable period at fair market value. The lease
has two and a half years remaining in the original term as of December 31, 1999,
with a base rent of approximately $11,000 per month. The Boston, Massachusetts
facility adequately provides for present and future needs, as currently planned.
The Company also leases offices in New York and Nevada on a month to month
basis.
The Company also leases seven (7) other retail locations in the following
states; Florida, Georgia, New Jersey, Texas, Missouri, and Virginia. Total lease
commitments at December 31, 1999 were approximately $33,000 per month.
Subsequent to year- end, the Company and the former Tomahawk shareholders have
entered into a definitive agreement to purchase the Conley, Georgia location.
Final details are being confirmed and/or reviewed by legal counsel, however the
purchase price is believed to be less than $950,000. The Company plans to own
the real estate, when closed, through a new subsidiary incorporated in 2000.
ITEM 3. LEGAL PROCEEDINGS.
As of 12/31/99, all material litigation involving the Company has been
settled and grievances have been resolved. The Company is 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.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has traded on the NASDAQ OTC Electronic Bulletin
Board under the symbol "CHLR" since August 21, 1996 and under the symbol "CHLR"
between January 28, 1994 and August 21, 1996 on the basis of actual trading
prices. The Company's Common Stock had traded from June 30, 1992 to January 28,
1994 on the Small Cap Market of the Automated Quotation System of NASDAQ on the
basis of actual trading prices.
The following table sets forth the high and low sales prices of the
Company's Common Stock for the periods indicated, according to published
sources.
<TABLE>
<CAPTION>
High Low
2000
<S> <C> <C>
First quarter through March 30 $ .82 $ .28
1999
Fourth Quarter .67 .22
Third Quarter .88 .44
Second Quarter .75 .44
First quarter .93 .43
1998
Fourth quarter .88 .50
Third quarter 1.34 .24
Second quarter .37 .16
First quarter .44 .27
1997
Fourth quarter .44 .15
Third quarter .18 .10
Second quarter .15 .09
First quarter .10 .04
</TABLE>
On March 30, 2000, there were approximately 700 beneficial owners of the
Company's common stock. The Company has not paid or declared cash dividends on
its common stock during the periods indicated and does not currently intend to
pay cash dividends on its common stock for the foreseeable future.
10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 VS. DECEMBER 31, 1998
REVENUES. Total revenues for the year ended December 31, 1999 was
$62,272,000 as compared to $10,708,000 for the prior year, an increase of
$51,564,000 or 482.0%. For the year ended December 31, 1999, transportation
equipment sales were $54,528,000 as compared to $6,165,000 sales for the
corresponding prior year. The increase in revenue is attributable in part to the
acquisition of Tomahawk, as well as the ongoing efforts of purchasing and
selling of transportation portfolios. The Company will also utilize the
competitive advantage provided by its access to retail pricing for residual
values to aid in the ability to improve competitiveness within the Company's
lease origination business unit. For the year ended December 31, 1999, rental
income increased by $813,000 or 86.3% as compared to the prior year. The
increase in rental income is attributable primarily to the addition of certain
equipment acquired in connection with the purchase of several portfolios. For
the year ended December 31, 1999, lease-underwriting income decreased by $47,000
or 63.5% as compared to the prior year. Lease underwriting income decreased due
to a higher concentration of broker related activity that results in a lower
overall revenue stream. The Company, however, continues to rebuild its lease
origination process and plans the addition of key senior management and sales
personnel, and development of strategic alliances to provide future growth in
this area. For the year ended December 31, 1999, direct finance lease income
decreased by $1,000 or 0.9%, as compared to the prior year. The decrease in
direct finance lease income is attributable primarily to the lack of additions
to its portfolio of direct finance leases in 1999. For the year ended December
31, 1999, gains from portfolio remarketing decreased by $501,000 or 36.5% as
compared to the prior year. The decrease in gains from portfolio remarketing is
attributable to the shift in revenue to sales of transportation equipment. For
the year ended December 31, 1999, fees from remarketing activities increased by
$2,848,000 or 164.8% as compared to the prior year. This significant increase is
attributable, in part, to management's efforts to increase the level of activity
in the sales of used transportation equipment. For the year ended December 31,
1999, other income increased by $67,000. Other comprehensive income was $49,000
for 1999 and $0 for 1998.
COSTS AND EXPENSES. Total costs and expenses for the year ended December
31, 1999 was $61,442,000 as compared to $10,184,000 for the prior year, an
increase of $51,258,000 or 503.3%. The increase is primarily a result of the
costs associated with sales of transportation equipment. The cost of
transportation equipment sales was $43,802,000 for the year ended December 31,
1999 and resulted in an overall gross margin of 19.7%. Selling, general and
administrative expenses for the year ended December 31, 1999 was $15,217,000 as
compared to $3,949,000 for the corresponding prior year, an increase of
$11,268,000 or 285.3%. For the year ended December 31, 1999, selling, general
and administrative expenses included reimbursable administration costs of
$972,000 as compared to $1,498,000 for the corresponding prior year. Before
netting out the reimbursable administration costs, selling, general and
administrative costs increased to $16,189,000 for the year ended December 31,
1999 as compared to $5,447,000 for the corresponding prior year, an increase of
$10,742,000. The increase in selling, general and administrative expenses is
due, in part, to the operating expenses of Tomahawk, as well as increases in
technology spending and expenses incurred in start up operations in Missouri and
Texas as well as costs incurred in acquiring investments in Tomahawk and South
Africa in accordance with S.O.P 98.5.
Interest expense for the year ended December 31, 1999 was $802,000 as
compared to $111,000 for the prior year, an increase of $691,000 or 622.5%. This
increase is due primarily to the continued expansion of the Company's retail
platform, and the floor planning lines of credit required to finance its
equipment inventory as well as the cost to finance the operating lease
portfolios purchased from the trusts and other financial institutions during
1999.
Depreciation and amortization expense for the year ended December 31, 1999
was $1,621,000 as compared to $477,000 for the prior year, an increase of
$1,144,000 or 239.8%. This increase is primarily due to the amortization of
excess purchase price of the Tomahawk acquisition, amortization of distribution
rights acquired from AMC, depreciation on assets from operating leases, and the
amortization of prepaid fees on the trust recovery and buyout projects. These
costs are being amortized over periods from three (3) to fifteen (15) years.
11
<PAGE>
NET INCOME. Net income after taxes for the year ended December 31, 1999 was
$1,074,000 as compared to of $524,000 for the prior year, an increase of
$550,000 or 105%. The increase in net income is attributable to the significant
increase in revenues, primarily from the retail and wholesale of used
transportation equipment, the buy-out of leases from trust portfolios, the
utilization of tax benefits generated from prior years net operating losses, and
continued improvements in the containment of corporate overhead costs. Basic net
income per share for the year ended December 31, 1999 remained at $0.02 per
share. The earnings per share remains fairly constant due to the issuance of
additional equity interests and/or an increase in the number of shares
outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company recognized a net increase in cash and cash equivalents for the
year ended December 31, 1999 of $492,000. Operating activities provided cash of
$2,785,000 during the year ended December 31, 1999. Investing activities used
cash of $9,441,000 during the year ended December 31, 1999. Financing activities
provided cash of $7,148,000 during the year ended December 31, 1999 and is
primarily a result of conversion of stock options and warrants and increases in
debt required to finance its used equipment inventory as well as debt incurred
to finance the buyout of certain lease portfolios. Cash and cash equivalents
amounted to $1,104,000 at December 31, 1999 as compared to $612,000 at December
31, 1998, an increase of $492,000 or 80.4%.
The Company is provided management and consulting services by VMI,
Corporation ("VMI") an affiliate of the Company's majority stockholder, pursuant
to a consulting agreement approved by the shareholders at the 1995 Annual
Meeting of the Stockholders, as amended in July 1998. VMI provides specified
services including, but not limited to, general business consulting, the
development and implementation of the Company's 1997 transition and turnaround
strategies, development of domestic and international business opportunities and
growth strategies, identification and development of strategic alliances, and
support of merger and acquisition activity. VMI was paid approximately $1.1
million for consulting fees including reimbursement for expenses paid on behalf
of the Company in the approximate amount of $170,000.
Vestex Capital Corporation ("VCC"), the major shareholder of the Company,
provided specified services including debt and equity raising efforts, due
diligence related to major acquisitions, and other services related to financing
and investing activities. VCC is paid fees related to debt and equity
transactions up to 3.0% and 7.5%, respectively, of the amount of financing
raised in addition to related expenses. VCC provides additional services to the
Company on operational and other matters for which it is compensated at levels
negotiated with the Company.
During 1999, VCC investigated numerous strategic alliances and merger and
acquisition opportunities on behalf of the Company. VCC was instrumental in the
negotiation and management of the Company's financing, acquisition and
investment efforts in the Republic of South Africa and other international
opportunities. VCC was also instrumental in the development and implementation
of the strategy to buy-out and acquire investment grade transportation equipment
portfolios. As a result of this strategy, the Company acquired portfolios valued
at an original equipment cost of approximately $35,000,000. The acquisition of
these portfolios was further facilitated by VCC assisting in arranging
approximately $8,000,000 of financing to effect the portfolio buy-out. VCC was
also instrumental in recruiting and attracting key employees to the Company.
Additionally, VCC provided these key employees warrants to purchase Chancellor
common stock, beneficially owned by VCC and valued at approximately $1,752,300.
VCC's activities provided sources of funding to the Company of approximately
$6,500,000, and $300,000 for fees for services and reimbursable expenses,
respectively, and converted into debt and equity instruments of the Company. In
1998, this included the purchase of 1,946,146 shares of the Company's common
stock at a price of $.69 per share. During 1999 VCC infused directly over
$3,250,000 into the Company in the form of cash and of stock purchases, and paid
over $450,000 of expenses on behalf of the Company. VCC also exercised stock
options valued at $2,000,000 during 1999. Vestex also guaranteed the debt of up
to $1,000,000 for a line of credit with a financial institution for one of the
Company's subsidiaries. VCC infused approximately $2,385,000 of cash and paid
expenses of approximately $670,000 on behalf of the Company during 1998. As a
result, in part, of VMI and VCC's activities and services provided, the
Company's net worth increased to approximately $9,500,000 at December 31, 1999,
to $2,362,000 at December 31, 1998, from $227,000 as of December 31, 1997 and
from a negative net worth of approximately $9,446,000 as of December 31, 1996,
as adjusted for stock issuance, direct equity infusions, contributions of
related parties, and the results of discussion regarding the initial Vestex
recapitalization of the Company during 1995.
12
<PAGE>
The Company's ability to underwrite equipment lease transactions is largely
dependent upon the availability of short-term warehouse lines of credit.
Management is engaged in continuing dialogue with several inventory lenders
which appear to be interested in providing the Company with warehouse financing.
If the Company experiences delays in putting warehouse facilities in place, the
Company transacts deals by coterminous negotiation of lease transactions with
customers and financing with institutions upon which it obtains a fee as the
intermediary of up to 3% of the amount of financing.
The remarketing, retailing and wholesaling 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.
The Company anticipates it will continue to dedicate substantial resources
toward the further development and improvement of its remarketing and retailing
capabilities and believes that this business unit 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 will also expand its used transportation equipment retail and wholesale
capabilities through addition of retail centers through internal growth and
acquisitions. This improved capability will be used as a competitive advantage
that will enable the Company to provide a "total holding cost" concept when
competing for new lease origination deals. The Company's retail and wholesale
business unit will provide both an improved outlet for other lessors, financial
institutions, and fleet owners to dispose of used transportation equipment and a
source of quality used transportation equipment for fleet owners and
owner-operators. The Company will also aggressively promote its Internet
capabilities to further promote its business activities and as an e-commerce
tool.
In August 1997, the Company committed to make a $1 million equity
investment in the New Africa Opportunity Fund, LP ("NAOF"). NAOF is a $120
million investment fund composed of $40 million from equity participants
including the Company, and $80 million in debt financing provided by the
Overseas Private Investment Corporation ("OPIC"), an independent U.S. government
agency. The purpose of the fund is to make direct investments in emerging
companies throughout Africa. As of December 31, 1999, the Company had funded
approximately $469,000 and is obligated to provide additional funding in the
approximate amount of $531,000. As further described in footnote 13, the Company
has additionally invested in and acquired up to 15.1% of one of NAOF's investee
companies, plus acquired the worldwide distribution rights, excluding certain
countries, to distribute the products manufactured by the investee company. The
Company continues to negotiate further strategic opportunities with this
investee company.
13
<PAGE>
The Company's renewal or replacement 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 non-recourse), 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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 prescribes
standards for reporting comprehensive income and its components. The
implementation of this SFAS has no material effect on the Company's consolidated
financial statements.
SFAS No. 131, "Disclosures About Segments of An Enterprise and Related
Information", requires disclosures of certain information about the Company's
operating segments on a basis consistent with the way in which the Company is
managed and operated. SFAS No. 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of SFAS No. 131 did
not affect results of operations or the financial position of the Company but
did affect the disclosure of segment information.
Start-up Costs: In April, 1998, AcSEC issued Statement of Position 98-5
"Reporting on the Costs of Start-up Activities" (SOP 98-5). SOP 98-5 requires
costs of start up activities and organization costs to be expensed as incurred
and is effective for fiscal years beginning after December 15, 1998.
Revenue Recognition In December, 1999, the Securities and Exchange
Commission issued staff accounting bulletin No. 101("SAB101"), "Revenue
Recognition in Financial Statements." SAB101 provides guidance on applying
generally accepted accounting principles to revenue recognition issues in
financial statements. The Company will adopt SAB101 as required during the year
2000, and is evaluating the effect such adoption may have on its consolidated
results of operations and financial position.
14
<PAGE>
ITEM 7 FINANCIAL STATEMENTS.
The following documents are filed as a part of this report on Form 10-KSB:
Page No.
Independent Auditors' Report F-1
Consolidated Balance Sheet as of
December 31, 1999 F-2
Consolidated Statements of Operations for the
years ended December 31, 1999 and 1998 F-3
Consolidated Statements of Stockholders
Equity for the years ended December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the
Years ended December 31, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
All schedules have been omitted because they are inapplicable or the
required information is included in the notes to the consolidated financial
statements.
15
<PAGE>
PART III
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by Item 401 and 405 of Regulation S-B with respect
to directors and executive officers of the registrant will be set forth in the
Proxy Statement for the Annual Meeting of Stockholders to be held on June 30,
2000 and to be filed with the Securities and Exchange Commission by April 30,
2000, and is incorporated herein by this reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 402 of Regulation S-B with respect to
executive compensation will be set forth in the Proxy Statement for the Annual
Meeting of Stockholders to be held on June 30, 2000 and to be filed with the
Securities and Exchange Commission by April 30, 2000, and is incorporated herein
by this reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 403 of Regulation S-B with respect to
security ownership of certain beneficial owners and management will be set forth
in the Proxy Statement for the Annual Meeting of Stockholders to be held on June
30, 2000 and to be filed with the Securities and Exchange Commission by April
30, 2000, and is incorporated herein by this reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 404 of Regulation S-B with respect to
certain relationships and related transactions will be set forth in the Proxy
Statement for the Annual Meeting of Stockholders to be held on June 30, 2000 and
to be filed with the Securities and Exchange Commission by April 30, 2000, and
is incorporated herein by this reference.
16
<PAGE>
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K.
(a) Exhibits:
2 Stock Purchase Agreement, dated January 29, 1999, by and among
Chancellor Asset Management, Inc., M. Rea Brookings and David
F. Herring (incorporated by reference from Exhibit 2 to the
Company's current report on Form 8-K filed with the Securities
and Exchange Commission on February 12, 1999).
3.1 Restated Articles of Organization of the Company (Incorporated
by reference from Exhibit 3A to the Company's Registration
Statement on Form S-1, filed with the Securities and Exchange
Commission on July 22, 1983 (Registration Statement)), as
amended by Articles of Amendment filed with the Massachusetts
Secretary of the Commonwealth on May 18, 1990 (incorporated by
references from Exhibit 3(a) to the Company's Annual Report,
Form 10-K, for the year ended December 31, 1991), as amended
by Articles of Amendment filed with the Massachusetts
Secretary of the Commonwealth on January 26, 1995
(incorporated by reference from Exhibit 3(a) to the Company's
Annual Report, Form 10-K, for the year ended December 31,
1994) and as amended by Articles of Amendment files with the
Massachusetts Secretary of the Commonwealth on October 27,
1997 (incorporated by reference from Exhibit 3(a) to the
Company's annual report, Form 10-KSB-A, for the year ended
December 31, 1997).
3.2 By-laws of the Company, as amended to date (incorporated by
reference from Exhibit 3(b) to the Company's Annual Report,
Form 10-K, for the year ended December 31, 1994)
10.1 Recapitalization and Stock Purchase Agreement dated as of
September 20, 1994 among the Company, Bruncor Inc. and Vestex
Corporation (incorporated by reference from Exhibit 3 to the
Company's Form 8-K filed with the Securities and Exchange
Commission on September 27, 1994 and dated August 26, 1994),
as amended by Amendment No. 1 (incorporated by reference from
Appendix I to the Company's Proxy Statement dated December 9,
1994), by a letter agreement dated as of February 28, 1995
among the Company, Bruncor Inc. and Vestex Corporation
(incorporated by reference from Exhibit 10(t) to the Company's
Annual Report, Form 10-K, for the year ended December 31,
1994), by Amendment No. 3 to Recapitalization and Stock
Purchase Agreement dated as of July 14, 1995 by and among the
Company, Bruncor Inc., and Vestex Corporation (incorporated by
reference from Exhibit 1 to the Company's Form 8-K filed with
the Securities and Exchange Commission on August 4, 1995 and
dated July 25, 1995), and by Amendment No. 4 to
Recapitalization and Stock Purchase Agreement dated as of July
14, 1995 by and among the Company, Bruncor Inc., and Vestex
Corporation (incorporated by reference from Exhibit 1 to the
Company's Form 8-K filed with the Securities and Exchange
Commission on April 22, 1996 and dated April 12, 1996).
10.2 Loan Reduction and Purchase and Assignment Agreement dated as
of April 4, 1997 among the Company, Chancellor Fleet
Corporation, Chancellor Financial Sales Service, Inc.,
Chancellor 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 Bo4E Trust, Conagra
25405 Trust, Conagra 25409 Trust, Dallas 38329 Trust, H.E.
Butt 796C Trust, Kraft 79328 Trust, Sovran B063 Trust, Saturn
B067 Trust, Shamrock 25748 Trust, Tyler 3Mo Trust, Whirlpool
49434 Trust, Fleet National Bank and VESTEX Capital
Corporation.
10.3 *1994 Stock Option Plan, adopted by the Board of Directors of
the Company on August 12, 1994 and approved by the
Stockholders of the Company on January 20, 1995 (incorporated
by reference from Appendix III to the Company's Proxy
Statement dated December 9, 1994).
10.4 *1994 Directors' Stock Option Plan, adopted by the Board of
Directors of the Company on August 12, 1994 and approved by
the Stockholders of the Company on January 20, 1995
(incorporated by reference from Appendix III to the Company's
Proxy Statement dated December 9, 1994) and as amended by the
Board of Directors of the Company on December 30, 1996 and
approved by the Stockholders of the Company on August 29, 1997
(incorporated by reference from Appendix III to the Company's
Proxy Statement dated July 30, 1997.
10.5 *1994 Employee Stock Purchase Plan, adopted by the Board of
Directors of the Company on August 12, 1994 and approved by
the Stockholders of the Company on January 20, 1995
(incorporated by reference from Appendix IV to the Company's
Proxy Statement dated December 9, 1994).
10.6 *1997 Stock Option Plan, adopted by the Board of Directors of
the Company on March 20, 1997 and approved by the stockholders
of the Company on August 29, 1997 (incorporated by reference
from Appendix III to the Company's proxy statement dated July
30, 1997), and as amended by the Board of Directors of the
Company on April 1, 1998 and approved by the stockholders of
the Company on May 15, 1998 (incorporated by reference from
Appendix III to the Company's proxy statement dated April 9,
1998).
17
<PAGE>
10.7 $200,000 Subordinated Promissory Note dated as of July 25,
1995 by the Company in favor of Bruncor, Inc. (incorporated by
reference from Exhibit 3 to the Company's Form 8-K filed with
the Securities and Exchange Commission on August 4, 1995 and
dated July 25, 1995).
Specimen of Final Form of Warrant to Purchase Common Stock of
Chancellor Corporation issued by the Company on April 1, 1998
to VESTEX Capital Corporation.
Consulting Agreement, dated July 1, 1998, by and among the
Company and VMI Corporation.
Stock Redemption Agreement, dated August 7, 1998, by and among
the Company and VESTEX Capital Corporation.
10.22 Security Agreement, dated as of December 22, 1998, by and
among Chancellor Corporation and Vestex Capital Corporation.
Employment Agreement, dated October 1, 1998, by and among
Chancellor Corporation and Franklyn E. Churchill.
10.24 Promissory Note, dated September 30, 1999, in the original
principal amount of $546,274 from Chancellor Corporation to
Vestex Capital Corporation.
10.25 Promissory Note, dated December 22, 1999, in the original
principal amount of $39,500 from Chancellor Corporation to
Vestex Capital Corporation.
11 Computation of Earnings per Share
16(a) Letter dated January 9, 1997, from Deloitte & Touche LLP
(incorporated by reference from Exhibit to the Company's
Amendment No. 1 to Form 8-K filed with the Securities and
Exchange Commission on January 13, 1997 and dated December 6,
1996).
Subsidiaries of the Company (incorporated by reference from
Exhibit 21 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
Independent Auditor's Consent - Metcalf, Rice, Fricke and
Davis
27.1 Financial Data Schedule for year ended December 31, 1999.
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K.
Copies of these exhibits are available to stockholders of
record at a charge of $.09 per page, plus postage upon written
request. Direct requests to: Jon Ezrin, Treasurer, Chancellor
Corporation, 210 South Street, Boston, MA 02111.
(b) Reports on Form 8-K:
Current Report on Form 8-K, dated February 10, 1999
Current Report on Form 8-K, dated March 4, 1999
Current Report on Form 8-K/A, dated March 22, 1999
Current Report on Form 8-K/A, dated April 13, 1999
18
