SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997 Commission File Number 0-12977
PEGASUS INDUSTRIES, INC.
_________________________________________________
(Exact name of registrant as specified in charter)
Nevada 95-3599648
_____________________________ _______________________________________
(State or other jurisdiction) (I.R.S. Employer Identification Number)
400 N. St. Paul, Suite 950, Dallas, TX 75201
____________________________________________
(Address of principal executive offices)
(214) 520-8300
___________________________
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports re-
quired 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 re-
gistrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
As of September 30, 1997, there were 14,343,091 shares of Common Stock out-
standing.
1
<PAGE>
PEGASUS INDUSTRIES, INC.
Index
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial
Statements 3
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statement of
Income - Three Months Ended September 30, 1997
and September 30, 1996 6
Condensed Consolidated Statement of
Income - Nine Months Ended September 30, 1997
and September 30, 1996 6
Condensed Consolidated Statement of
Cash Flows - Nine Months Ended
September 30, 1997 and September 30, 1996 8
Item 2. Managements' Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
2
<PAGE>
PART I
ITEM I. PEGASUS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
In the opinion of management, the information set forth in the Condensed
Consolidated Balance Sheets is fairly stated in all material aspects in rela-
tion to the consolidated balance sheets from which it has been derived.
The Condensed Consolidated Balance Sheets as of September 30, 1997 reflect
the Company's liquidation of its wholly owned subsidiary Zearl T. Young, Incor-
porated ("ZTY"). The liquidation is reflected as a loss from discontinued ope-
rations. Management believes that while the unpaid liabilities and preferred
stockholders' equity are presented on these financial statements, those lia-
bilities remain solely the obligation of ZTY and are not the responsibility or
obligation of the parent corporation.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (Unaudited)
_____________ ____________
<S> <C> <C>
Current Assets:
Cash $ 48,513 $ 132,162
Financing Contract Receivables
Current Portion - 2,988,990
Inventories - 624,141
Prepaid Expenses and Other - 35,740
_____________ ____________
Total Current Assets 48,513 3,781,033
Property and Equipment, net of
accumulated depreciation of
$1,590 and $1,290 354 274,363
Financing Contracts Receivable -
non current portion - 1,102,395
Other Assets - 60,010
_____________ ____________
$ 48,867 $ 5,217,801
_____________ ____________
</TABLE>
The accompanying notes are an integral part of
the Condensed Consolidated Balance Sheets
3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (Unaudited)
______________ ____________
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 687,103 $ 557,418
Accrued Expenses 136,931 516,243
Current maturities of long
term debt 4,063,759 6,584,128
______________ ____________
Total Current Liabilities 4,887,793 7,657,789
Long-term debt, less current maturities - -
______________ ____________
4,887,793 7,657,789
Preferred Stockholders' Equity in
Subsidiary 1,128,370 1,128,370
Stockholders' Equity
Common stock, $.01 par value,
50,000,000 shares authorized;
14,343,091 shares issued and
outstanding at September 30, 1997
and 14,343,091 shares issued and
outstanding at December 31, 1996 143,091 143,091
Additional Paid in Capital 58,536 58,536
Accumulated Loss (6,169,263) (3,770,325)
______________ ____________
(5,967,636) (3,568,358)
______________ ____________
48,867 5,217,801
______________ ____________
</TABLE>
The accompanying notes are an integral part of
the Condensed Consolidated Financial Statements
4
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF INCOME
The interim consolidated condensed statement of income contained herein
reflect all adjustments which, in the opinion of management, are necessary for
a fair statement of the results of operations for the periods presented. Ope-
rating results for the three month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
Operating results of the Company for the period have been adjusted to re-
flect the operation of Zearl T. Young, Incorporated ("ZTY"), its wholly owned
subsidiary as losses from discontinued operations. The Company liquidated the
assets of ZTY under an agreement with its secured lender in the third quarter
of 1997.
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
_____________ _____________
<S> <C> <C>
Collection Income $ 18,705 $ 25,469
Other Income 5,881 5,829
_____________ _____________
24,856 31,298
Operating Expenses 12,837 19,402
_____________ _____________
Operating Income 11,749 11,896
Interest Expense 4,334 4,634
_____________ _____________
Net Income/(Loss) 7,415 7,262
Loss from Discontinued Operations (1,904,583) (307,887)
_____________ _____________
(1,897,168) (300,625)
_____________ _____________
Income per Common Share
Before Discontinued Operations 0.00 0.00
_____________ _____________
Loss per Common Share from
Discontinued Operations (0.13) (0.07)
_____________ _____________
(0.13) (0.07)
_____________ _____________
Weighted Average Common Shares 14,343,091 14,343,091
_____________ _____________
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
5
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF INCOME
The interim consolidated condensed statement of income contained herein
reflect all adjustments which, in the opinion of management, are necessary
for a fair statement of the results of operations for the periods presented.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
Operating results of the Company for the period have been adjusted to re-
flect the operation of Zearl T. Young, Incorporated ("ZTY"), its wholly owned
subsidiary as losses from discontinued operations. The Company liquidated the
assets of ZTY under an agreement with its secured lender in the third quarter
of 1997.
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
_____________ _____________
<S> <C> <C>
Financing Income $ 72,654 $ 106,788
Other Income 19,604 18,953
_____________ _____________
92,258 125,740
Operating Expenses 46,717 54,104
Operating Income 45,541 71,636
Interest Expense 12,101 24,526
_____________ _____________
Net Income/(Loss) 33,440 47,110
_____________ _____________
Loss from Discontinued Operations (2,432,378) (1,096,216)
_____________ _____________
(2,398,938) (1,049,106)
Income per Common Share
before Discontinued Operations 0.00 0.00
Loss per Common Share from
Discontinued Operations (0.17) (0.07)
_____________ _____________
(0.17) (0.07)
_____________ _____________
Weighted Average Common Shares 14,343,091 14,343,091
_____________ _____________
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Statement of Cash Flow
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The financial statements are adjusted to reflect the liquidation of the
Company's wholly owned subsidiary Zearl T. Young, Incorporated ("ZTY"). ZTY
was liquidated in the third quarter of 1997. The income statements have been
adjusted to restate the results of ZTY's operations in 1997 and 1996 as loss
from discontinued operations to more fully present the Company's operating
results.
(2) Reflects consolidated restated stockholders equity after the effects of
the acquisition of ZTY as if the acquisition had occurred January 1, 1994.
(3) Reflects the preferred stockholders' equity interest in ZTY as a result
of a reorganization in 1994. The preferred stock issued as part of the re-
organization has a $5.00 par value and 5% cumulative dividend. The preferred
stock relates only to the assets of ZTY. The shareholders have no common or
preferred shares in the parent corporation.
7
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flow provided by (used in)
operating activities:
Net income /(loss) 33,440 47,110
Net loss from discontinued operations (2,432,378) (1,096,216)
Adjustments to reconcile net cash
provided (used in) operating activities:
Depreciation and amortization 300 57,822
(Increase)decrease in finance contract
receivables 4,091,385 1,085,924
(Increase)decrease in inventories 624,141 (32,656)
(Increase)decrease in prepaid expenses 35,740 110,245)
Increase(decrease) in accounts payable 129,685 ( 40,895)
Increase(decrease) in accrued expenses (379,312) 52,853
__________ _________
Net cash provided by (used) in
operating activities 4,501,939 184,187
Cash flows (used in) investing activities:
(Increase)decrease in property and
equipment 273,709 63
(Increase)decrease in other assets 60,010 (8,039)
__________ __________
Net cash (used in) investing activities 333,719 (7,976)
Cash flows (used in) financing activities:
Increase(decrease) in long-term debt (2,520,369) (212,729)
__________ __________
Net cash (used in) financing
activities (2,520,369) (212,729)
__________ __________
Net Increase in Cash (83,644) (36,518)
Cash - beginning of period 132,162 73,782
__________ __________
Cash - end of period 48,513 37,264
========== ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All financial statements presented herein reflect the operations of the
Company and ZTY, a wholly owned subsidiary of the Company. ZTY was liquidated
in the third quarter of 1997 under a liquidation agreement with ZTY's primary
lender.
Under the agreement, ZTY was to sell the finance contracts receivable to a
third party at a price to be agreed to by ZTY, its lender and a third party
purchaser. On August 5, 1997, ZTY's management completed a sale of the finance
contracts for total consideration of $1,760,698.20 or 48.5% of the face amount
of the contracts. The value received represented 60.49% of the book value of
the accounts resulting in a $1,154,112 loss to the Company as a result of the
sale.
The Company initiated a liquidation of the remaining two stores in July
1997 when the finance contract purchaser had been located. Two public auctions
were conducted on August 23, 1997 and September 7, 1997 netting total proceeds
of $77,225 for ZTY's remaining inventory and equipment. The combined loss for
the quarter recognizing the loss for discontinued operations was $1,904,583.
The operating results have been restated for comparative purposes to
reflect only those operations of the Company reflecting ZTY's liquidation as a
loss from discontinued operations for 1997 and 1996.
The balance sheets for September 30, 1997 reflect approximately $4.7
million in liabilities of ZTY including $3.9 million of secured debt, $686,379
of accounts payable and $132,008 of accrued liabilities. The parent corporation
assumed no responsibility or liability for ZTY's obligations and consequently
management believes these obligations should have no impact on the Company's
ongoing operations.
The $1,128,370 of Preferred Stockholder's Equity also relates directly to
ZTY's preferred stock owned in ZTY, not the parent corporation and,
consequently, should have no impact on the Company's common shareholders.
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 1997 COMPARED TO
DECEMBER 31, 1996
During the nine months ended September 30, 1997 total assets decreased from
$5,217,801 at December 31, 1996 to $48,867 representing the liquidation of ZTY's
assets.
The remaining operations of the Company reflect continuing collections of
charge off finance
9
<PAGE>
contracts purchased from ZTY in October 1995. The Company paid ZTY $300,000 for
the receivables which it financed with a third party lender. As of September
30, 1997 the loan balance had been reduced to $183,302. Cash at September 30,
1997 was $48,513. The Company assigned no value to the receivables purchased
from its subsidiary for financial reporting purposes.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996
Operating results exclude operations of ZTY, the Company's wholly owned
subsidiary, except as reflected as a loss from discontinued operations. The
Company reported revenues of $24,586 for the quarter ended September 30, 1997
compared to $31,298 for the same period the prior year. Operating expenses for
the three month period were $12,837 or $7,565 less than the prior year.
The losses from discontinued operations for ZTY were $1,904,583 for the
three month period ended September 30, 1997 compared to $307,887 for the same
period a year earlier. The losses are due to the liquidation of all assets of
ZTY. ZTY recorded a $1,154,112 loss on the sale of finance contracts in August
1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues for the nine months ended September 30, 1997 were $92,258 as
compared to $125,740 for the year earlier period. The 27% decrease is primarily
due to the closing of ZTY's stores which resulted in a relocation of the
Company's collection office. Operating expenses decreased $7,387 for the same
period.
The Company reported $33,440 net income for the nine months ended September
30, 1997 before the loss from discontinued operations as compared to $47,110 for
the same period the prior year.
The $2,432,378 loss from discontinued operations reflects the liquidation
of ZTY's assets in the third quarter of 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company's wholly owned subsidiary, ZTY, liquidated its assets as part
of a liquidation agreement with its secured lender, Norwest Bank Minnesota, N.A.
After liquidation, ZTY still owed Norwest approximately $3.9 million as a
deficiency. The parent corporation assumed none of the responsibilities or
obligations of ZTY in conjunction with the acquisition or its liquidation.
ZTY continues to be in default under the loan for nonpayment of the
outstanding deficiency.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Zearl T. Young, Incorported
Liquidation Agreement.............................................13
Norwest Letter - Sales of Accounts Receivable.....................18
(b) There are no reports on Form 8-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 13, 1998.
PEGASUS INDUSTRIES, INC.
By: /s/ Robert W. Schleizer
------------------------------
Robert W. Schleizer, President
11
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in capacities and on the dates indicated.
/s/ Robert W. Schleizer
- -------------------------------
Robert W. Schleizer, President (1)
April 13, 1998
(1) Principal executive officer
12
<PAGE>
LIQUIDATION AGREEMENT
This Agreement is entered into as of this 5th day of May, 1997 between
Norwest Bank Minnesota, National Association (the "Lender") and Zearl T. Young,
Incorporated (the "Company").
Recitals
- --------
A. The Company is indebted to the Lender pursuant to a Loan and Security
Agreement dated October 28, 1994, as amended, (the "Credit Agreement"). All
advances under the Credit Agreement, together with daily interest, fees, costs
and expenses and any other indebtedness of the Company to Lender, are
hereinafter collectively referred to as the "Indebtedness." The Credit Agreement
and all related documents in favor of the Lender are referred to herein as the
"Security Documents."
B. As of the close of business on May 4, 1997, the outstanding principal
amount of the Indebtedness was $6,055,473.65. In addition, interest, fees, costs
and expenses have accrued and are accruing.
C. The Indebtedness is secured by, among other things, a perfected
security interest in, without limitation, all inventory, receivables, accounts,
equipment and general intangibles of the Company (the "Collateral").
D. Robert W. Schleizer and John R. Boudreau (the "Guarantors") have each,
in their personal capacities, executed a Guaranty dated as of October 28, 1994,
as amended, and a Management Agreement dated as of October 28, 1994.
E. The Company is in default of its obligations under the Security
Documents. The Lender is entitled to exercise its rights and remedies.
F. The Company has acknowledged its financial difficulties and has
represented to the Lender its desire to liquidate its assets. The Company
desires to seek a buyer for its assets on a going concern basis for a limited
period of time, and, if the Company cannot sell its assets as a going concern,
to wind up its affairs through an orderly liquidation. The Company has
represented that the level of the Collateral will not materially deteriorate in
relationship to the level of Indebtedness while the Company seeks buyers for its
assets. The Lender has consented to a winding down of the Company's business and
orderly liquidation on the terms and conditions set forth below.
12
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
each party, the parties agree as follows:
1. The Recitals are true and correct. The Indebtedness is due and owing,
without defense, offset or counterclaim.
2. The Company may continue its business operations to the extent
reasonably necessary to sell inventory and other assets, service existing
customers, collect receivables and wind down its affairs in a timely manner
until July 31, 1997, provided that it complies with the Budget attached hereto
as Exhibit A in all material respects. No item of Collateral with a value
greater than $5,000.00 may be sold, other than in the ordinary course of
business, by the Company without the prior approval of the Lender. The Company
shall pay the Indebtedness in full on or before July 31, 1997. Promptly after
July 15, 1997, unless the Company has located a buyer who will buy the Company's
assets on a going-concern basis, the Company will conduct a going out of
business sale or will otherwise sell its remaining inventory, equipment and
other assets, and shall either sell or collect its remaining receivables.
3. All proceeds from the sale of assets and from the collection of accounts
or otherwise collected or received by the Company shall be turned over to the
Lender in the form received for application to the Indebtedness in a manner to
be determined by the Lender in its sole discretion.
4. Except as set forth in paragraph 5 below, the Company shall not incur or
pay expenses or other obligations except expenses which are both (i) set forth
in the Budget and (ii) reasonably necessary to wind down its business. The
Lender, in its sole discretion, may fund advances required by the Company as set
forth in the Budget, and any amounts so advanced shall become part of the
Indebtedness. The Company shall achieve the collections and payments to the
Indebtedness as set forth in the Budget, and shall comply with the Budget in
every respect at the times and in the amounts set forth in the Budget. The
Company shall not accept consigned inventory unless the consignor has executed
an intercreditor agreement with the Lender, in form and substance acceptable to
the Lender, including, without limitation, provisions regarding the segregation
of consigned inventory and that no consigned inventory shall be sold on a
deferred payment basis unless such deferred payments are sold to a third party.
5. The Company has represented to the Lender that certain parties
("Consignors") may provide inventory to the Company on consignment (the
"Consignment Goods") for sale by the Company. The Lender has no objection to the
Company accepting Consigned Goods for sale, provided:
13
<PAGE>
(i) All Consigned Goods must be readily identifiable by marking or
labeling as constituting Consigned Goods.
(ii) All Consigned Goods that are not clearly marked or labeled as such
shall be deemed to be part of the Collateral.
(iii) The Company shall not sell any Consigned Goods for less than the
amount owing to the Consignor for such Consigned Goods.
(iv) The Company shall not sell any Consigned Goods other than for cash
unless the company has an agreement from an unrelated third party
to purchase any accounts receivable or chattel paper created by
such sales at face value.
(v) The Company will deliver to the Lender all payments made to the
Company on account of the sale of the Consigned Goods, including the
proceeds from the disposition of chattel paper or accounts
receivable resulting from the sale of Consigned Goods.
Provided that the Company meets its obligations herein and complies with the
foregoing, the Lender has no objection to the Company's payment to Consignors of
an amount equal to the cost of Consigned Goods sold by the Company,
notwithstanding that the Budget does not list any payments to Consignors for the
Sale of Consigned Goods.
6. The Company agrees to permit the Lender, and its respective officers,
employees and agents, to have full access to the Company's books, records and
properties for the purpose of verifying the Company's compliance with the terms
of the Security Documents and this Agreement.
7. Except as expressly modified by this Agreement, all provisions of the
Security Documents remain in full force and effect. The Lender reserves its
rights at any time to exercise all of its rights and remedies under the Security
Documents, whether or not the Company has complied with its covenants and
obligations under this Agreement, or the Security Documents. The Company shall,
upon request of the Lender, deliver all of the Collateral to the Lender and
shall permit the Lender to use the Company's premises for the purpose of
enforcement and foreclosure of the Lender's security interest in the Collateral.
Without limiting the generality of the foregoing, the Lender specifically
reserves its rights with respect to the Guarantors.
8. The Company shall also deliver the following to the Lender: (a) a
daily report setting forth the sales of inventory, equipment and other assets
and collection of receivables by 12:00 noon on the next business day and (b) a
revised weekly cash flow
14
<PAGE>
forecast comparing actual results to forecasted performance for the prior week,
along with a collateral\loan schedule, and a sales projection schedule, all to
be received by 12:00 noon on the Tuesday of the following week and reflecting
information through the close of business for the prior week. The Company shall
also deliver to the Lender by 12:00 noon on each Tuesday, a report with respect
to the Company's efforts with respect to the sale of its receivables portfolio,
including information regarding offers received, contacts made, and other
information relevant to the disposition of the Company's assets. The reports
shall also provide detailed information regarding the Company's efforts to sell
its store operations, and information regarding store performance including
sales, cash collections and expenses. The Company agrees to execute and deliver
such other and further documents or reports as the Lender may request from the
Company to execute, perfect, evidence or otherwise implement the agreements set
forth in this Agreement. In consideration of the Lender's willingness to provide
further advances to the Company and to provide the Company an opportunity to
liquidate its assets in an orderly fashion, the Company shall execute such
further financing statements, assignments, mortgages or other documents which
the Lender may require to create perfected security interests or liens on assets
of the Company.
9. If the Company permanently reduces the outstanding Indebtedness from
the proceeds of liquidation to $4,000,000 or less by no later than July 31,
1997, the Lender will not object if Company elects to pay the Guarantors a bonus
of $25,000 each. If the Company further permanently reduces the outstanding
Indebtedness from the proceeds of the liquidation below $4,000,000 by no later
than July 31, 1997, the Lender will not object to the Company's payment of an
additional bonus to each Guarantor, not to exceed $50,000 each (in addition to
the foregoing $25,000 bonus), equal to five percent (5%) of the amount such
permanent reduction is less than $4,000,000. If the Company further permanently
reduces the outstanding Indebtedness from the proceeds of liquidation below
$3,000,000 by no later than July 31, 1997, the Lender will not object to the
Company's payment of a bonus to each of Guarantors of ten percent (10%) of the
amount of such permanent reduction below $3,000,000, such bonus being in
addition to the foregoing described bonuses. For the purposes of the
calculations set forth in this paragraph 9 only, (i) the proceeds of liquidation
shall not include any proceeds received from life insurance policies, and (ii)
collateral monitoring fees, unused line fees and interest accruing after April
5, 1997 shall not be added to the Indebtedness.
10. In consideration of the execution of this Agreement, the Company, on
behalf of itself, its officers, agents, insurers, successors and assigns,
releases, acquits and forever discharges the Lender, and its respective
officers, directors, agents, attorneys, insurers, parents, affiliates,
successors and assigns, of and from any and all manner of action or actions,
suits, claims, damages, judgments, levies and executions, whether known or
unknown, liquidated or unliquidated, fixed, contingent, direct or indirect,
which the Company ever had, has, or may have or claim to have against the Lender
or its respective officers, agents, insurers, successors and assigns, for, upon
or by reason of any matter, act or thing prior to the date of execution of this
Agreement.
15
<PAGE>
11. No modifications or amendments to this Agreement may be made except in a
writing signed by all parties hereto.
12. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument. Facsimiles or photocopies of executed signature pages to this
Agreement shall be considered originals.
13. This Agreement is made and entered into in the State of Minnesota, and
the laws of Minnesota shall govern its enforcement and performance.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NORWEST BANK MINNESOTA
NATIONAL ASSOCIATION
By______________________________
Its___________________________
ZEARL T. YOUNG, INCORPORATED
By /s/
______________________________
Its President
____________________________
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 48,513
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,513
<PP&E> 354
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,867
<CURRENT-LIABILITIES> 4,887,793
<BONDS> 0
0
1,128,370
<COMMON> 143,091
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,867
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,101
<INCOME-PRETAX> 33,440
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (2,432,378)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,398,938)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
NORWEST BANKS Norwest Bank Minnesota, N.A.
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0001
August 5, 1997
R. Harold Owens
President and Chief Operating Officer
World Acceptance Corporation
P.O. Box 6429
Greenville, SC 29806
Robert W. Schleizer
President
Zearl T. Young, Incorporated
400 North St. Paul, Suite 950
Dallas, Texas 75291
RE: Sale of Accounts Receivable
Gentlemen:
As you are aware, Norwest Bank Minnesota, National Association ("Norwest")
has a valid, perfected, first priority lien on, among other things, all accounts
receivable and other rights to payment of Zearl T. Young, Incorporated (the
"Company") pursuant to a Loan and Security Agreement dated October 28, 1994, as
amended from time to time.
Norwest has been informed that the Company would like to sell, and World
Acceptance Corporation (the "Purchaser") would like to buy, certain of the
Company's accounts receivable (the "Accounts"), all as more fully set forth in a
purchase agreement being executed between them. Norwest is willing to release
its lien on the Accounts on the terms and conditions set forth below.
The Purchaser shall pay an amount equal to $1,760,698.29 (the "Purchase
Price") equal to 48.5% of the face value of the Accounts on the Company's books
at the close of business Monday, August 4, 1997 (the "Closing Date"). All
collections of Accounts received on and prior to the Closing Date shall be wired
promptly in full directly to Norwest and shall remain subject to Norwest's lien.
All collections of Accounts received after the Closing Date and payment of the
Purchase Price shall be remitted promptly to the Purchaser and shall no longer
be subjectto Norwest's lien. The Purchase Price shall be wired by the Purchaser
directly to Norwest and applied in reduction of the Company's obligations to
Norwest The wiring instructions to Norwest are as follows:
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Norwest Bank Minnesota, National Association
ABA No. 091000019
Commercial Loan Clearing Account No. 840165
Attention: Alma McKenzie 612/673-8680
Reference: Zearl T. Young
We understand and agree that $50,000 of the Purchase Price may be reserved
by the Purchaser in a segregated account (the "Reserve Fund") for up to one year
solely for the purpose of paying any valid credit insurance premium refund
claims of account debtors whose accounts are sold to the Purchaser by the
Company where such credit insurance is actually in force on the closing date and
the premium has been fully paid; provided, however, that no refund claim shall
be paid from the Reserve fund in the event the account debtor renews, extends or
otherwise modifies an existing payment obligation and obtains additional or
replacement credit insurance to which the refund amount should be credited
against the new or additional premium.
Purchaser may not withdraw any funds from the Reserve Account without first
giving notice to Norwest of the intent to make such withdrawal, together with
evidence of the account debtor's right to receive a credit insurance premium
refund, and receiving written authorization for such withdrawal from Norwest. On
or before the first anniversary of the closing date of the sale of the Company's
accounts to the Purchaser, the Purchaser shall remit to Norwest the sum of
$50,000 or such balance as remains in the Reserve Fund after withdrawals
approved by Norwest.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/
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Its Assistant Vice President
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