<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
|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
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 0-16886
SEMELE GROUP INC.
-----------------
(Name of Small Business Issuer in its charter)
Delaware 36-3465422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Nyala Farms, Westport, Connecticut 06880
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (203) 341-0555
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Shares of Common Stock
(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 Issuer 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 in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer'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. |X|
The Issuer's revenues for the fiscal year ended December 31, 1999 were
$1,886,087. Shares of common stock outstanding as of March 2, 2000: 1,196,804.
The aggregate market value of the Issuer's shares of common stock held by
non-affiliates on such date was $5,746,536.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for the year
ended December 31, 1999 (Part I and II) Transitional Small Business Disclosure
Format: YES |_| NO |X|
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART I
ITEM 1 DESCRIPTION OF BUSINESS 1
ITEM 2 DESCRIPTION OF PROPERTY 2
ITEM 3 LEGAL PROCEEDINGS 2
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 2
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 3
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 3
ITEM 7 FINANCIAL STATEMENTS 3
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 3
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 4
ITEM 10 EXECUTIVE COMPENSATION 5
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 9
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 11
ITEM 13 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 14
SIGNATURES 17
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS OPERATION
The Issuer, Semele Group Inc. (the "Company"), formerly known as Banyan
Strategic Land Fund II, is a Delaware corporation organized pursuant to a
Certificate of Incorporation filed on April 14, 1987 under the name VMS
Strategic Land Fund II. The Company currently holds an ownership interest in a
274 acre land parcel located in Southern California known as the Rancho Malibu
property. The Company also holds a 0.3% beneficial interest in a liquidating
trust, established for the benefit of a group of unsecured creditors of a
previous borrower of the Company.
In December 1999, the Company acquired an 85% equity interest in Equis
II Corporation ("Equis II") that the Company financed by issuing
purchase-money notes totaling $19,586,000 to the selling Equis II
stockholders. In connection with this investment, the Company also acquired a
Special Beneficiary interest in four Delaware Business Trusts known as AFG
Investment Trust A, AFG Investment Trust B, AFG Investment Trust C, and AFG
Investment Trust D (collectively, the "Trusts") for $9,652,500 that the
Company financed by issuing a non-recourse purchase-money note. The
stockholders of Equis II, from whom the Company acquired its 85% interest,
are Gary D. Engle, President, Chief Executive Officer and Chairman of the
Board of Directors of the Company, James A. Coyne, President and Chief
Operating Officer of the Company, and certain trusts established for the
benefit of Mr. Engle's children. Equis II Corporation was organized in the
State of Delaware in 1997 and its operations commenced on July 17, 1997.
Equis II owns the following Class B interests: AFG Investment Trust A
(822,863 interests), AFG Investment Trust B (997,373 interests), AFG
Investment Trust C (3,019,220 interests), and AFG Investment Trust D
(3,140,683 interests) (collectively, the "Class B Interests"). AFG Investment
Trust A owns 20,969 shares of the Company's common stock and has a note
receivable from the Company equal to $462,353 that matures in April 2001.
Through its ownership of the Class B Interests, Equis II holds approximately
62% of the voting interests in each of the Trusts. Notwithstanding the
foregoing, Mr. Engle has voting control of the Class B Interests pursuant to
the terms of a Voting Trust Agreement executed in connection with the Equis
II transaction. Equis II also owns AFG ASIT Corporation, the Managing Trustee
of the Trusts. As Managing Trustee of the Trusts, AFG ASIT Corporation has a
1% carried interest in the Trusts and significant influence over the
operations of the Trusts.
In May 1999, the Company and certain affiliates formed EFG/Kirkwood Capital
LLC ("EFG/Kirkwood") for the purpose of acquiring preferred and common stock
interests in Kirkwood Associates Inc. ("KAI"). KAI owns a ski resort, a local
public utility, and land which is held for development. The resort is located in
Kirkwood, California and is approximately 30 miles from South Lake Tahoe,
Nevada.
In August 1998, the Company acquired Ariston Corporation ("Ariston"), a
holding company having two investments: (i) a 99% limited partnership interest
in AFG Eireann Limited Partnership, a Massachusetts limited partnership having a
tax interest in a diversified pool of lease contracts owned by an institutional
investor and (ii) a 98% limited partnership interest in Old North Capital
Limited Partnership, a Massachusetts limited partnership with investments in
cash and notes, equipment leases, and limited partnerships that are engaged in
either equipment leasing or real estate. The latter includes two commercial
buildings, one located in Washington D.C. and one in Sydney, Australia that are
leased to an investment-grade educational institution.
The Company's business plan contemplates making additional acquisitions or
other investments where its sizable net operating loss carryforward can make it
a value added buyer.
Certain statements in this annual report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Without limiting the foregoing, words
such as "anticipates", "expects", "intends", "plans" and similar expressions are
intended to identify forward-looking statements. These statements are subject to
a number of risks and uncertainties including the Company's ability to
successfully
1
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implement a growth-oriented business plan. Actual results could differ
materially from those projected in any forward-looking statements.
ITEM 2. DESCRIPTION OF PROPERTY
Incorporated herein by reference to Notes 4 and 5 to the Consolidated
Financial Statements in the 1999 annual report.
ITEM 3. LEGAL PROCEEDINGS
Incorporated herein by reference to Note 14 to the Consolidated
Financial Statements in the 1999 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
2
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All share and per share data for prior periods presented have been restated
to reflect stock splits.
Beginning January 8, 1999, the Company's shares were included for quotation
on the NASDAQ Smallcap system (symbol - VSLF). Prior to that date, the Company's
shares were included for quotation on the NASDAQ National Market. The table
below shows the quarterly high and low bid prices as reported by the NASDAQ
Smallcap system and the NASDAQ National Market for the years ended December 31,
1999 and 1998:
Share Price
Quarter ----------------------------------
Ended 1999 1998
------- ---- ----
3/31 High $4.000 $10.000
Low $3.500 $5.000
6/30 High $5.000 $9.375
Low $3.438 $7.500
9/30 High $5.438 $8.500
Low $4.000 $4.625
12/31 High $6.000 $4.750
Low $5.313 $3.750
The Company's management currently does not anticipate paying dividends
in the foreseeable future.
The Company's ability to pay future dividends to its stockholders will
be dependent upon, among other things, the level of liquidity required to
successfully implement a growth-oriented business plan and the Company's
ability to manage its development and operating expenses. Future development
of the Rancho Malibu property is likely to require additional capital
investments that could be significant. In addition, the Company's investments
in Equis II in December 1999 and Ariston Corporation in 1998 (see Item 1)
were highly leveraged and, therefore, substantially all of the cash flow
generated by these investments in the foreseeable future will be used to
retire the corresponding debt obligations.
At March 2, 2000, there were 1,449 record holders of the Company's shares
of common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis or Plan of Operation" in the 1999 annual report.
ITEM 7. FINANCIAL STATEMENTS
Incorporated herein by reference to the Company's Consolidated Financial
Statements included in the 1999 annual report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, the Company's
accountants on any matter of accounting principles, practices or financial
statement disclosure.
3
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company are:
Walter E. Auch, Sr. Director
Robert M. Ungerleider Director
Joseph W. Bartlett Director
Gary D. Engle Chairman, Chief Executive Officer and Director
James A. Coyne President, Chief Operating Officer and Director
Gary M. Romano Chief Financial Officer
Michael J. Butterfield Treasurer
WALTER E. AUCH, SR., age 76, Prior to retiring, Mr. Auch was the Chairman
and Chief Executive Officer of the Chicago Board Options Exchange. Prior to that
time, Mr. Auch was Executive Vice President, director and a member of the
executive committee of PaineWebber. Mr. Auch is a director of Pimco Advisors
L.P., Smith Barney Concert Series Funds, Smith Barney Trak Fund, The Brinson
Partners Funds, and Nicholas Applegate Funds. He is also a Trustee of Hillsdale
College and the Arizona Heart Institute. Mr. Auch is also a trustee of Banyan
Strategic Realty Trust and a director of Legend Properties, Inc. (f/k/a Banyan
Mortgage Investment Fund).
ROBERT M. UNGERLEIDER, age 58, is of counsel to the law firm of Lane
Felcher Kurlander & Fox. Mr. Ungerleider has founded, developed and sold a
number of start-up ventures including Verifone Finance, an equipment leasing
company, SmartPage, a paging service company and Financial Risk Underwriting
Agency, Inc., an insurance firm specializing in financial guarantee
transactions. Prior to that, Mr. Ungerleider practiced real estate and corporate
law in New York City for ten years. Mr. Ungerleider is also a director of Legend
Properties, Inc. (f/k/a Banyan Mortgage Investment Fund).
JOSEPH W. BARTLETT, age 66, is a partner in the law firm of Morrison &
Foerster LLP, which he joined in March 1996. From July 1991 until March 1996 he
was a partner in the law firm of Mayer, Brown & Platt. Mr. Bartlett is also a
Director of Cyrk, Inc., which designs, manufactures and distributes products for
promotional programs and custom-designed sports apparel and accessories.
GARY D. ENGLE, age 51, is Chairman and Chief Executive Officer of the
Company which position he assumed in November 1997. Mr. Engle is President and
Chief Executive Officer of Equis Financial Group Limited Partnership ("EFG"),
which he joined in 1990 as Executive Vice President. Mr. Engle purchased a
controlling interest in EFG in December, 1994. He is also President of AFG
Realty, Inc. From 1987 to 1990, Mr. Engle was a principal and co-founder of Cobb
Partners Development, Inc., a real estate and mortgage banking company, with
principal offices in Florida. From 1980 to 1987, Mr. Engle served in various
capacities with Arvida Disney Company, a large scale community real estate
development company owned by the Walt Disney Company with real estate
development projects worldwide. Mr. Engle became a Director of the Company in
May 1997. Mr. Engle has an M.B.A from Harvard University and a B.S. degree from
the University of Massachusetts (Amherst).
JAMES A. COYNE, age 39, is President and Chief Operating Officer of the
Company which position he assumed in May 1997. Mr. Coyne is Executive Vice
President, Capital Markets of EFG and is also Vice President of AFG Realty Inc.,
an affiliate of EFG. He is responsible for EFG's real estate activities in both
the United States and Australia. Mr. Coyne joined EFG in 1989, remained until
May 1993, and rejoined EFG in November 1994. In September 1997, Mr. Coyne was
appointed Executive Vice President of EFG. From May 1993 through November 1994,
he was employed by the Raymond Company, a private investment firm, where he was
responsible for financing corporate and real estate acquisitions. From 1985
through 1989, Mr. Coyne was affiliated with a real estate investment company and
an equipment leasing company. Prior to 1985, he was with the accounting firm of
Ernst & Whinney (now Ernst & Young LLP). He has a B.S. in Business
Administration from John Carroll University, a Masters Degree in Accounting from
Case Western Reserve University and is a Certified Public Accountant. Mr. Coyne
became a Director of the Company in October 1997.
4
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GARY M. ROMANO, 40, is Chief Financial Officer of the Company which
position he assumed in November 1997. Mr. Romano is Executive Vice President and
Chief Operating Officer of EFG and certain of its affiliates. Mr. Romano joined
EFG in November 1989, became Vice President and Controller in April 1993 and
Chief Financial Officer in April 1995. Mr. Romano assumed his current position
at EFG in April 1996. Prior to joining EFG, Mr. Romano was Assistant Controller
for a privately held real estate development and mortgage origination company
that he joined in 1987. Previously, Mr. Romano was an Audit Manager at Ernst &
Whinney (now Ernst & Young LLP), where he was employed from 1982 to 1986. Mr.
Romano is a Certified Public Accountant and holds a B.S. degree from Boston
College.
MICHAEL J. BUTTERFIELD, 40, is Treasurer of the Company which position he
assumed in November 1997. Mr. Butterfield joined EFG in June 1992, became Vice
President, Finance and Treasurer of EFG and certain of it's affiliates in April
1996 and in July 1998, was promoted to Senior Vice President, Finance and
Treasurer of EFG and certain of its affiliates. Prior to joining EFG, Mr.
Butterfield was an Audit Manager with Ernst & Young LLP, which he joined in
1987. Mr. Butterfield was employed in public accounting and industry positions
in New Zealand and London (UK) prior to coming to the United States in 1987. Mr.
Butterfield attained his Associate Chartered Accountant (A.C.A.) professional
qualification in New Zealand and has completed his CPA requirements in the
United States. He holds a Bachelor of Commerce degree from the University of
Otago, Dunedin, New Zealand.
ITEM 10. EXECUTIVE COMPENSATION
A. DIRECTOR COMPENSATION
The Directors are paid an annual fee of $15,000, payable quarterly, plus
$875 for each board meeting, including meetings of the compensation and audit
committees, attended in person and $250 an hour for each board meeting,
including meetings of the compensation and audit committees, attended via
telephonic conference call. In addition, each Director is reimbursed for
out-of-pocket expenses incurred in attending meetings of the board.
B. EXECUTIVE COMPENSATION
Compensation paid to Mr. Engle and Mr. Coyne for the years ended December
31, 1999, 1998 and 1997 and Mr. Levine, the former President and Chief Executive
Officer of the Company, for the year ended December 31, 1997 is as follows:
Annual Compensation (1)
-----------------------
<TABLE>
<CAPTION>
Other Annual
Year Salary Bonus (3) Compensation
---- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Gary D. Engle, (2) 1999 $ 120,000 n/a n/a
Chairman and Chief 1998 $ 120,000 n/a n/a
Executive Officer 1997 $ 48,383 n/a n/a
James A. Coyne, 1999 $ 120,000 n/a n/a
President and Chief 1998 $ 120,000 n/a n/a
Operating Officer 1997 $ 48,383 n/a n/a
Leonard G. Levine, 1997 $ 111,926 $ 7,164 n/a
Former President and Chief
Executive Officer
</TABLE>
5
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Long-Term Compensation (1)
--------------------------
<TABLE>
<CAPTION>
Awards Payouts
--------------------------- --------------------------------
Restricted
Stock Options/ LTIP All Other
Year Awards SARSs (#) Payouts Compensation
---- ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Gary D. Engle, (2) 1999 n/a n/a n/a n/a
Chairman and Chief 1998 n/a n/a n/a n/a
Executive Officer 1997 n/a n/a n/a n/a
James A. Coyne, 1999 n/a n/a n/a n/a
President and Chief 1998 n/a n/a n/a n/a
Operating Officer 1997 n/a n/a n/a n/a
Leonard G. Levine, 1997 n/a n/a n/a $400,000
Former President and Chief
Executive Officer
</TABLE>
(1) Total compensation for each of the next three highest paid executive
officers did not exceed $100,000 in 1999, 1998 or 1997.
(2) Mr. Engle became Chairman and Chief Executive Officer on November 10,
1997, following Mr. Levine's resignation.
(3) Pursuant to Mr. Levine's employment agreement, the incentive amount which
he earned in 1996 was paid or awarded to him by the Company in 1997.
Mr. Engle serves as Chief Executive Officer of the Company pursuant to an
Executive Employment Agreement dated November 10, 1997, and Mr. Coyne serves as
Chief Operating Officer of the Company pursuant to an Executive Employment
Agreement dated May 1, 1997. The provisions of the two Agreements (the
"Agreements") are identical.
Pursuant to the Agreements, the Company paid each executive a base salary
of $120,000 per year for services rendered to the Company during 1999 and 1998,
and $48,383 during 1997. The Agreements provide that the Company will pay each
executive a base salary at the rate of not less than $120,000 per year beginning
in 1998, subject to adjustment by the Board of Directors based upon performance
by the executive of his duties and the financial performance of the Company.
Under the Agreements, each executive is also entitled to receive such incentive
or performance cash bonuses as the Board may determine from time to time.
The Agreements provide that the executives' salaries will be deferred
under an Incentive Compensation Plan, unless the executive in any prospective
period elects to have such salary paid to him directly. Pursuant to the
Agreements and the Incentive Plan, the Participants elected to accept common
stock in lieu of cash compensation and therefore deferred $240,000 of cash
compensation during each of the years ended December 31, 1999 and 1998,
representing 54,928 and 41,400 shares of common stock, respectively, and
$96,766 of compensation during 1997, representing 15,483 shares of common
stock. All such shares of common stock are held in a rabbi trust for the
benefit of Messrs. Engle and Coyne. During 1997, the number of shares of
Common Stock was determined by dividing the dollar amount of the salary
deferred by $6.25, the closing price of a share of the Company's Common Stock
on December 30, 1997, the effective date of the Incentive Plan. During
subsequent years, the number of shares of Common Stock was determined by
dividing the dollar amount of the salary deferred each month by the average
of the closing prices of a share of the Company's Common Stock for the last
ten trading days of the month.
The Agreements provided for the grant of 40,000 options to each executive,
subject to approval by the stockholders. Incentive stock options to purchase
40,000 shares of Common Stock of the Company at an exercise price of $9.25 per
share were granted to each executive on December 30, 1997. These grants were
approved by stockholders at the 1997 Annual Meeting, but subsequently canceled
in connection with the Equis II transaction.
6
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Additional benefits to which the executives are entitled under the
Agreements include such amount of paid vacation per calendar year and such
health, life and disability insurance protection as the executive reasonably
requests.
Each Agreement expires on December 31, 2000, but thereafter is renewed for
additional one-year terms unless either party gives written notice to the other
not less than 30 days prior to the end of the original term or any renewal term
that the party does not wish to renew the Agreement. The Company may terminate
the Agreements for cause, and the executive may terminate his Agreement at any
time upon 60 days' prior written notice. In addition, the executive may
terminate his Agreement effective immediately within 60 days of a
Change-in-Control, and in that event the Company must continue the executive's
salary and fringe benefits under his Agreement and his incentive compensation
under the Incentive Plan for a period of 18 months. If the Company terminates an
executive or the Company elects not to renew an executive's Agreement within 24
months following a Change-in-Control, the Company must pay to the executive in a
lump sum an amount equal to the greater of (i) three times the base salary paid
to the executive in the 36 months preceding the Change-in-Control or (ii) the
base salary due to be paid the executive through the end of the term (or renewal
term) of his Agreement. If the Company terminates the employment of an executive
without cause, all payments under his Agreement continue through the end of the
then term. If the Company elects not to renew an executive's Agreement at the
end of the original term or any renewal term, the executive will receive a
termination settlement equal to 12 months' salary and will continue to receive
insurance benefits for 12 months, unless such non-renewal occurs within 24
months following a Change-in-Control, in which event the executive will receive
the benefits he would have received if he had terminated the Agreement following
a Change-in-Control. Upon termination of an Agreement voluntarily by an
executive, upon the election of the executive not to renew his Agreement or by
the Company for cause, all payments and benefits under the Agreement cease on
the date of termination.
Until November 10, 1997, Mr. Levine served as Chief Executive Officer of
the Company pursuant to an employment agreement entered into on January 1,
1990, which was amended and restated effective May 1, 1997 (together, the
"Levine Agreement"). Under the Levine Agreement, Mr. Levine was paid a salary
for the calendar year 1997 equal to $111,926 per year.
Under the Levine Agreement, Mr. Levine received incentive compensation
calculated as follows: (i) 1.00% of the Company's collateralized claims which
were converted into cash; (ii) 3.00% of the Company's unsecured claims which
were converted into cash; (iii) 0.1% of all cash distributions of capital; and
(iv) 0.14% of all distributions of income to stockholders of the Company.
Pursuant to the Levine Agreement, incentive compensation was paid 80% in cash on
or before March 15th of the following year and 20% in phantom stock rights (the
"Phantom Stock"). On April 1, 1997, Mr. Levine was paid $7,164 in cash,
representing 80% of his incentive compensation earned for the fiscal year ended
December 31, 1996 and received 191 shares of Phantom Stock, representing 20% of
the incentive compensation earned for that year. The value of the Phantom Stock
on the date of grant was $9.375 per share or $1,790 for shares issued in 1997.
Under the Levine Agreement, Mr. Levine received a termination fee of
$400,000 in connection with the termination of his employment and all of his
Phantom Shares were forfeited by him.
C. EXECUTIVE AND DIRECTORS STOCK OPTION PLAN
On June 30, 1994, the stockholders approved and adopted the 1994
Executive and Directors Stock Option Plan (the "Plan"). As originally
adopted, the Plan authorized the grant of non-statutory stock options only.
On December 30, 1997, the Board of Directors of the Company adopted an
amendment to the Plan to permit the granting of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code. The
stockholders approved the Amendment to the Plan at the 1997 Annual Meeting of
Stockholders. The Plan granted the Board of Directors the authority to issue
up to 100,000 shares of the Company's common stock for stock option awards.
The Plan consists of an Executive Option Grant Program and a Director Option
Grant Program. Under the Director Option Grant Program, each of the
Directors, in consideration of their length of service on the Board, received
an option to acquire 5,000 shares. The exercise price of the options
initially granted to the Board of Directors on July 15, 1994 under the
Director Option Grant Program was $11.25. The exercise price was reduced to
$9.25 by a vote of the Board of Directors on December 30, 1997. No executive
is eligible to receive options under the Director Option Grant Program.
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The Board administers the Executive Option Grant Program and has the
authority to determine, among other things, the individuals to be granted
Executive Options, the exercise price at which shares may be acquired, the
number of shares subject to option and the exercise period of each option. The
Board is also authorized to construe and interpret the Executive Option Grant
Program and to prescribe additional terms and conditions of exercise in option
agreements and provide the form of option agreement to be utilized with the
Executive Option Grant Program. No Director is eligible to receive options under
the Executive Option Grant Program.
Options are not transferable except by will or by the laws of descent and
distribution and are exercisable during an optionee's lifetime only by the
optionee or the appointed guardian or legal representative of the optionee. Upon
the: (a) death or permanent and total disability of an optionee; or (b)
retirement in accord with the Company's retirement practices, any unexercised
options will be exercisable at any time within one year in the case of (a) and
ninety days in the case of (b) (but in no case beyond the expiration date
specified in the Option Agreement). If, while unexercised options remain
outstanding under the Plan, the Company ceases to be a publicly-traded company,
or if the Company merges with another entity or a similar event occurs, all
options outstanding under the Plan shall immediately become exercisable at that
time.
The Plan requires the optionee to pay, at the time of exercise, for all
shares acquired on exercise in cash, shares, or in the case of the Executive
Option Program, other forms of consideration acceptable to the Board.
If the Company declares a stock dividend, splits its stock, combines or
exchanges its shares, or engages in any other transactions which result in a
change in capital structure such as a merger, consolidation, dissolution,
liquidation or similar transaction, the Board may adjust or substitute, as the
case may be, the number of shares available for options under the Plan, the
number of shares covered by outstanding options, the exercise price per share of
outstanding options, any target price levels for vesting of the options and any
other characteristics of the options as the Board deems necessary to equitably
reflect the effects of those changes on the option holders.
Pursuant to the terms of the grants, options for all shares granted under
the Executive Option Grant Program are exercisable and vested in installments as
follows: (i) 33.3% of the number of shares commencing on the first anniversary
of the date of grant; (ii) an additional 33.3% of the shares commencing on the
second anniversary of the date of the grant; and (iii) an additional 33.4% of
shares commencing on the third anniversary of the date of grant. Options for all
shares as granted under the Director Option Grant Program are exercisable in
installments as follows: (i) 50.0% of the number of shares commencing on the
first anniversary of the date of grant; and (ii) an additional 50.0% of the
number of shares commencing on the second anniversary of the date of grant. The
Board is granted discretion to determine the term of each option granted under
the Executive Option Grant Program, but in no event will the term exceed ten
years and one day from the date of grant.
During 1998, unexercised stock options issued to a former Director, Mr.
Nudo, under the Director Option Grant Program were canceled and surrendered in
connection with his resignation. Mr. Nudo was paid $20,000 by the Company as
consideration for his options.
On December 30, 1997, the Board voted to grant nonstatutory stock options
for 5,000 shares at an exercise price of $9.25 per share to Joseph W. Bartlett
under the Director Option Grant Program and incentive stock options for 40,000
shares at an exercise price of $9.25 per share to each of Gary D. Engle and
James A. Coyne under the Executive Option Grant Program. These grants were
approved by the stockholders at the 1997 Annual Meeting held on June 30, 1998.
The closing price for a share of the Company's Common Stock as reported by
NASDAQ was $6.25 and $8.125 at December 30, 1997 and June 30, 1998,
respectively. On December 22, 1999, the incentive options granted to Gary D.
Engle and James A. Coyne were canceled in connection with the Equis II
transaction.
Stock Options granted or exercised under the Option Plan by executive
officers named in the executive compensation table for the year ended December
31, 1999, are as follows:
8
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STOCK OPTION GRANTS IN 1999 FISCAL YEAR
<TABLE>
<CAPTION>
Number of Securities % of Total Options Granted
Underlying to Employees Exercise or Expiration
Name Options Granted in Fiscal Year Base Price Date
- ----------------- --------------- -------------- ---------- -------
<S> <C> <C> <C> <C>
Gary D. Engle none n/a n/a n/a
James A. Coyne none n/a n/a n/a
</TABLE>
AGGREGATED STOCK OPTION EXERCISES DURING 1999
AND DECEMBER 1999 OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options
at December 31 at December 31
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ---------------- --------------- --------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Gary D. Engle None $0 None/None n/a / n/a
James A. Coyne None $0 None/None n/a / n/a
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
owners of Common Stock as of March 2, 2000 by: (i) each person or entity who is
known by the Company to own more than five percent of the Common Stock (together
with such person's address); (ii) each director and each executive officer of
the Company named in the executive compensation table; and (iii) all current
directors and officers as a group. Share amounts and percentages shown for each
person or entity are adjusted to give effect to shares of Common Stock that are
not outstanding but may be acquired by that person or entity upon exercise of
all options and warrants exercisable by that person or entity within 60 days.
However, such shares of Common Stock are not deemed to be outstanding for the
purpose of computing the percentage of outstanding shares beneficially owned by
any other person or entity. Messrs. Romano and Butterfield do not own any shares
of Common Stock of the Company.
<TABLE>
<CAPTION>
Name of Person or Entity Number of Shares Percent of Total Shares
- ------------------------ ---------------- -----------------------
<S> <C> <C>
AFG Hato Arrow Limited Partnership 198,700 (1) 16.6%
AFG Dove Arrow Limited Partnership
AIP/Larkfield Limited Partnership
c/o Equis Corporation
88 Broad Street
Boston, Massachusetts 02110
Gary D. Engle, Chairman, Chief Executive 259,214 (2) 21.7%
Officer and Director
James A. Coyne, President, Chief Operating 62,413 (3) 5.2%
Officer and Director
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Name of Person or Entity Number of Shares Percent of Total Shares
- ------------------------ ---------------- -----------------------
<S> <C> <C>
Joseph W. Bartlett, Director 5,000 (4) Less than 1%
Robert M. Ungerleider, Director 5,600 (4) Less than 1%
Walter E. Auch, Sr., Director 6,600 (4) Less than 1%
All Directors and Officers of the Company, 338,827 28.3%
as a group (7 persons)
</TABLE>
(1) Certain affiliates of EFG have filed reports with the Securities and
Exchange Commission (the "SEC") pursuant to Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), indicating ownership
of five percent or more of the outstanding Common Stock. At March 2, 2000:
(i) AFG Hato Arrow Limited Partnership owned 63,544 shares, amounting to
5.3% of the outstanding Common Stock; (ii) AFG Dove Arrow Limited
Partnership owned 61,673 shares, amounting to 5.2% of the outstanding
Common Stock and (iii) AIP/Larkfield Limited Partnership owned 73,483
shares, amounting to 6.1% of the outstanding Common Stock. Gary D. Engle,
Chairman, Chief Executive Officer and a director of the Company, has
effective control over the operation of each of these limited partnerships.
(2) Includes 1,100 shares owned directly and 59,414 shares owned by the trustee
of a rabbi trust for the benefit of Mr. Engle over which Mr. Engle has
voting control. The shares held by such trustee represent salary deferred
by Mr. Engle through March 2, 2000 pursuant to the Company's Incentive
Compensation Plan. Because Mr. Engle has effective control over AFG Hato
Arrow Limited Partnership, AFG Dove Arrow Limited Partnership and
AIP/Larkfield Limited Partnership, he is also deemed to beneficially own
198,700 shares owned by those partnerships.
(3) Includes 3,000 shares owned directly and 59,413 shares owned by the trustee
of a rabbi trust for the benefit of Mr. Coyne over which Mr. Coyne has
voting control. The shares held by such trustee represent salary deferred
by Mr. Coyne through March 2, 2000 pursuant to the Company's Incentive
Compensation Plan.
(4) Includes 5,000 shares underlying currently exercisable options granted
under the Company's 1994 Executive and Director Stock Option Plan .
The Company is not aware of any other person who, alone or as part of a
group, beneficially owns more than five percent of the outstanding shares of
Common Stock at March 2, 2000. The Company is not aware of any arrangement, the
operation of which may at a subsequent date result in a change of control of the
Company.
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file initial statements of beneficial
ownership (Form 3), and statements of changes in beneficial ownership (Forms 4
and 5), of Common Stock and other equity securities of the Company with the SEC
and the National Association of Securities Dealers, Inc. (the "NASD"). The SEC
requires officers, directors and greater than ten percent stockholders to
furnish the Company with copies of all such forms filed with the SEC and NASD.
To the Company's knowledge, based solely on its review of the copies of
these forms received by it, or written representations from certain reporting
persons that no additional forms were required for those persons, the Company
believes that all filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with during 1999.
See Item 10, Executive Compensation, for information on Stock Options of
the Company held by officers and directors pursuant to the 1994 Executive and
Directors Stock Option Plan and for information on shares held in a rabbi trust
for the benefit of certain officers pursuant to the Company's Incentive
Compensation Plan.
10
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF EQUIS II CORPORATION AND SPECIAL BENEFICIARY INTERESTS
On December 22, 1999, the Company acquired an 85% equity interest in
Equis II Corporation ("Equis II") that the Company financed by issuing
purchase-money notes totaling $19,586,000 to the selling Equis II
stockholders. In connection with this investment, the Company also acquired a
Special Beneficiary interest in four Delaware Business Trusts known as AFG
Investment Trust A, AFG Investment Trust B, AFG Investment Trust C, and AFG
Investment Trust D (collectively, the "Trusts") for $9,652,500 that the
Company financed by issuing a non-recourse purchase-money note. The Trusts
are engaged principally in the business of equipment leasing. In recent
years, they each have made additional investments in certain real estate
projects, including a Class A interest in EFG/Kirkwood Capital LLC. The
Company owns a Class B interest in EFG/Kirkwood Capital LLC that it acquired
in 1999. (See "Investment in EFG/Kirkwood Capital LLC" below.) In addition, a
subsidiary of the Company serves as general partner to a real estate
development project in which Trusts C and D are partial investors.
Equis II Corporation
The stockholders of Equis II from whom the Company acquired 85% of Equis
II are Gary D. Engle, President, Chief Executive Officer and Chairman of the
Board of Directors of the Company, James A. Coyne, President and Chief
Operating Officer of the Company, and certain trusts established for the
benefit of Mr. Engle's children. Equis II was organized in the State of
Delaware in 1997 and commenced operations on July 17, 1997. Equis II owns the
following Class B interests: AFG Investment Trust A (822,863 interests), AFG
Investment Trust B (997,373 interests), AFG Investment Trust C (3,019,220
interests), and AFG Investment Trust D (3,140,683 interests) (collectively,
the "Class B Interests"). AFG Investment Trust A owns 20,969 shares of the
Company's common stock and has a note receivable from the Company equal to
$462,353 that matures in April 2001. Through its ownership of the Class B
Interests, Equis II holds approximately 62% of the voting interests in each
of the Trusts, although it is not entitled to vote on certain matters,
principally those involving transactions with related parties. Equis II also
owns AFG ASIT Corporation, the Managing Trustee of the Trusts. As Managing
Trustee of the Trusts, AFG ASIT Corporation has a 1% carried interest in the
Trusts and significant influence over the operations of the Trusts.
Notwithstanding the foregoing, Mr. Engle has voting control of the Class B
Interests pursuant to the terms of a Voting Trust Agreement executed in
connection with the Equis II transaction.
In connection with the purchase, the Company entered into a put and call
agreement with Messrs. Engle and Coyne and the Engle family trusts, which
gives the Company a call right to purchase from these Equis II stockholders,
and gives these Equis II stockholders a put right to sell to the Company,
subject to shareholder approval, the 15% of Equis II that Messrs. Engle and
Coyne and the Engle family trusts continue to own. A special committee of the
Board of Directors of the Company, consisting of Messrs. Auch, Bartlett and
Ungerleider, the Company's independent directors, unanimously approved the
purchase by the Company of 85% of Equis II and the entering into of the put
and call agreement to purchase the remaining 15% balance.
Special Beneficiary Interests
The Special Beneficiary interests were purchased from an affiliate,
Equis Financial Group ("EFG"), for $9,652,500 and represent an 8.25%
non-voting, carried interest in each of the Trusts. The Special Beneficiary
interests were purchased with a non-recourse note having a 10 year term that
bears interest at 7% per year. Interest and principal payments are required
to be paid only out of and to the extent of cash distributions paid to the
Company on account of the Special Beneficiary interests.
Equis II Corporation - Transaction Terms and Source of Funds
The Company purchased 85% of the common stock of Equis II by delivering
promissory notes to the selling Equis II stockholders having a total principal
value of $19,586,000. In connection with the acquisition, Messrs. Engle and
Coyne delivered back to the Company, and the Company canceled, the options that
each of them held to purchase 40,000 shares of Common Stock of the Company at an
exercise price of $9.25 per share that were granted to them on December 30,
1997. A portion of the notes, having an aggregate principal amount of
11
<PAGE>
$14,600,000, mature on October 31, 2005, and bear interest at the annual rate of
7%, of which 3% is due and payable on a current quarterly basis and 4% accrues
to the maturity date. Principal payments of $3,600,000, $4,000,000, $4,000,000
and $3,000,000 are due and payable on May 31, 2000, October 31, 2002, May 31,
2003, and the maturity date, respectively. The $14,600,000 of notes are
prepayable without penalty.
The balance of the promissory notes issued to the Equis II stockholders in
connection with the purchase of 85% of Equis II, which have a total principal
value of $4,986,000, have terms identical to the terms of promissory notes
payable by Messrs. Engle and Coyne to Equis II ($1,901,000) and to Old North
Capital Limited Partnership ($3,085,000). (The Company, through its subsidiary
Ariston Corporation, has a 98% limited partnership interest in Old North Capital
Limited Partnership.) Therefore, the Company is effectively the payee of notes
and accrued interest from Messrs. Engle and Coyne of $4,986,000, and it is the
payor of notes to Messrs. Engle and Coyne and the Engle family trusts in the
same amount. Of the $4,986,000 of promissory notes issued by the Company to the
selling Equis II stockholders, promissory notes having a total principal value
of $1,901,000 have terms identical to promissory notes payable to Equis II from
Messrs. Engle ($1,260,997) and Coyne ($640,003). These notes bear interest at
the annual rate of 7.5% payable quarterly, and all outstanding principal and
interest is due on August 8, 2007. The $3,085,000 balance of the promissory
notes issued by the Company to the selling Equis II stockholders have terms
identical to a promissory note payable to Old North Capital Limited Partnership
by Messrs. Engle ($2,046,383) and Coyne ($1,038,617), which bears interest at
the annual rate of 11.5% and is payable on demand. The Company intends to make
the payments on the $4,986,000 of promissory notes from the proceeds of payments
made by Messrs. Engle and Coyne on their indebtedness to Equis II and Old North
Capital Limited Partnership. If either individual fails to make timely payments,
the Company will be relieved of its obligations on the $4,986,000 of notes until
the default is cured.
The $19,586,000 of promissory notes are general obligations of the
Company secured by a pledge to the selling Equis II stockholders of the
shares of Equis II owned by the Company. At December 31, 1999, this pledge
was junior to a prior pledge of such shares to a third-party financial
institution to secure indebtedness of $18,962,000 owed by Equis II to that
institution. The pledge became a first priority pledge upon the repayment of
the institutional indebtedness of Equis II in January 2000 (See Note 15 -
Subsequent Events). In the case of the $14,600,000 of promissory notes, those
notes issued to Mr. Engle and to the Engle family trusts become immediately
due and payable if Mr. Engle ceases to be the Chief Executive Officer and a
director of the Company, except if he resigns voluntarily or is terminated
for cause, and those notes issued to Mr. Coyne become immediately due and
payable if Mr. Coyne ceases to be the President and a director of the
Company, except if he resigns voluntarily or is terminated for cause, as
cause is defined in the executives' employment agreements with the Company.
The Company may in the future purchase the remaining 15% of the
outstanding shares of common stock of Equis II that it does not currently own
by issuing 510,000 shares of common stock of the Company to the selling Equis
II stockholders in payment for the 15% balance, but only if stockholder
approval for payment in shares is obtained. If stockholder approval is not
obtained before December 31, 2000, the put and call agreement with respect to
the purchase of the 15% balance will terminate. (See Note 15 - Subsequent
Events.)
INVESTMENT IN EFG/KIRKWOOD CAPITAL LLC
On May 1, 1999, the Company and the Trusts formed EFG/Kirkwood Capital LLC
("EFG/Kirkwood") for the purpose of acquiring preferred and common stock
interests in Kirkwood Associates Inc. ("KAI"). EFG/Kirkwood's investment
consists of a common stock interest in KAI of approximately 16% as well as
preferred stock and convertible debt. The Company purchased a Class B
interest in EFG/Kirkwood and the Trusts purchased Class A interests in
EFG/Kirkwood. Generally, the Class A Interest holders are entitled to certain
preferred returns prior to distributions being paid to the Company, as Class
B interest holder. KAI owns a ski resort, a local public utility, and land
that is held for development. The resort is located in Kirkwood, California
and is approximately 30 miles from South Lake Tahoe, Nevada. Subsequent to
making its investment in KAI, EFG/Kirkwood made a 50% investment in Mountain
Springs Resorts LLC, an entity formed for the purpose of acquiring an
ownership interest in a Colorado ski resort that remains pending. The
Company's investment in EFG/Kirkwood had a cost of $750,000.
ACQUISITION OF ARISTON CORPORATION
On August 31, 1998, the Company executed an agreement to acquire all of the
common stock of Ariston Corporation ("Ariston") for a total purchase price of
$12,450,000. Ariston is a holding company having two investments: (i) a 99%
limited partnership interest in AFG Eireann Limited Partnership ("AFG
Eireann"), a Massachusetts limited partnership having a tax interest in a
diversified pool of lease contracts owned by an institutional investor and
(ii) a 98% limited partnership interest in Old North Capital Limited
Partnership ("ONC"), a Massachusetts limited partnership with investments in
cash and notes, equipment leases, and limited partnerships that are engaged
in either equipment leasing or real estate. The latter includes two
commercial buildings located in Washington D.C. and Sydney, Australia that
are leased to an investment-grade educational institution. Gary D. Engle,
Chairman, Chief Executive Officer and a director of the Company and James A.
Coyne, President, Chief Operating Officer and a director of the Company both
are affiliated with ONC and Gary D. Engle is affiliated with AFG Eireann.
Ariston was organized on July 31, 1998 as a Delaware corporation. On August
3, 1998, Equis Financial Group Limited Partnership ("EFG") contributed its
limited partnership interests in AFG Eireann and ONC to Ariston in exchange
for Ariston common stock. Ariston was a wholly-owned subsidiary of EFG until
its acquisition by the Company and was formed principally to facilitate the
transfer of limited partnership interests held by EFG in AFG Eireann and ONC.
Gary D. Engle controls EFG and is the sole director of Ariston.
The Company purchased all of the common stock of Ariston from EFG for fair
value of $12,450,000. The Company's consideration consisted of cash of $2
million and a purchase-money note of $10,450,000. The Ariston acquisition was
accounted for under the purchase method of accounting and the balance sheet
and statement of operations of Ariston were consolidated effective September
1, 1998. The purchase-money note bears interest at the annualized rate of 7%,
payable quarterly in arrears, and requires principal reductions based upon
the cash flows generated by the limited partnership interests owned by
Ariston. The note matures on August 31, 2003 and is recourse only to the
common stock of Ariston. The cost of the Ariston acquisition was allocated on
the basis of the estimated fair value of the assets acquired and liabilities
assumed. In October 1998, Ariston declared and paid a cash distribution of
$2,020,000 to the Company. Until the purchase-money note is retired, future
cash distributions by Ariston require the consent of EFG.
12
<PAGE>
INDEBTEDNESS
The Company obtained a loan of $4,419,500 from certain affiliates in 1997.
The loan bears interest at an annualized rate of 10% and provides for mandatory
principal reductions, if and to the extent the Company realizes any net cash
proceeds from the sale or refinancing of its Rancho Malibu property. The loan,
which was to mature on April 30, 2000, was extended to April 30, 2001. During
each of the years ended December 31, 1999 and 1998, the Company incurred
interest expense of $441,950 in connection with this indebtedness. At December
31, 1999, the carrying value of the note approximates its estimated fair value.
ADMINISTRATIVE SERVICES
The Company's administrative functions are performed by an affiliate, EFG,
pursuant to an Administrative Services Agreement between the Company and EFG
dated May 7, 1997. EFG is reimbursed at actual cost for expenses it incurs on
the Company's behalf. Administrative expenses consist primarily of professional
and clerical salaries and certain rental expenses. The Company incurred total
administrative costs of $153,823 and $152,201 during the years ended December
31, 1999 and 1998, respectively.
13
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of Semele Group Inc. included
in its Annual Report for the year ended December 31, 1999 are incorporated by
reference in Item 7 hereof:
Consolidated Balance sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations For the Years Ended December 31,
1999 and 1998
Consolidated Statements of Stockholders' Equity For the Years Ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows For the Years Ended December 31,
1999 and 1998
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
None required.
(3) Exhibits
A list of exhibits filed or incorporated by reference is as follows:
3.1 Restated Certificate of Incorporation (filed with the Securities
and Exchange Commission as Exhibit (3)(i) to the Registrant's
Report on Form 8-K dated October 21, 1997 and incorporated herein
by reference).
3.2 Amended and Restated By-Laws (filed with the Securities and
Exchange Commission as Exhibit (3)(ii) to the Registrant's Report
on Form 8-K dated October 21, 1997 and incorporated herein by
reference).
4 Form of new stock certificate (filed with the Securities and
Exchange Commission as Exhibit (4) to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1997 and
incorporated herein by reference).
10.1 Executive Employment Agreement for Gary D. Engle (filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 as Exhibit 10.1 and is incorporated herein by
reference).
10.2 Executive Employment Agreement for James A. Coyne (filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 as Exhibit 10.2 and is incorporated herein by
reference).
10.3 Amended 1994 Executive and Director Stock Option Plan (filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 as Exhibit 10.3 and is incorporated herein by
reference).
10.4 Incentive Compensation Plan (filed in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 as
Exhibit 10.4 and is incorporated herein by reference).
10.5 Trust under Semele Group Inc. Incentive Compensation Plan (filed
in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 as Exhibit 10.5 and is incorporated herein by
reference).
10.6 Qualified Stock Option Agreement Executive Option Grant Program
dated December 30, 1997 between Semele Group Inc. and Gary D.
Engle (filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997 as Exhibit 10.6 and is
incorporated herein by reference).
14
<PAGE>
10.7 Qualified Stock Option Agreement Executive Option Grant Program
dated December 30, 1997 between Semele Group Inc. and James A.
Coyne (filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997 as Exhibit 10.7 and is
incorporated herein by reference).
10.8 Director Stock Option Agreement Director Option Grant Program
(filed in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 as Exhibit 10.8 and is incorporated herein
by reference).
10.9 Amendment to Director Stock Option Agreement Director Option Grant
Program dated December 30, 1997 between Semele Group Inc. and
Gerald L. Nudo (filed in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 as Exhibit 10.9 and is
incorporated herein by reference).
10.10 Amendment to Director Stock Option Agreement Director Option Grant
Program dated December 30, 1997 between Semele Group Inc. and
Robert M. Ungerleider (filed in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997 as Exhibit 10.10
and is incorporated herein by reference).
10.11 Amendment to Director Stock Option Agreement Director Option Grant
Program dated December 30, 1997 between Semele Group Inc. and
Walter E. Auch (filed in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 as Exhibit 10.11 and is
incorporated herein by reference).
10.12 Third Amended and Restated Employment Agreement for Leonard G.
Levine dated May 1, 1997 (filed with the Securities and Exchange
Commission as Exhibit (10)(i) to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1997 and
incorporated herein by reference).
10.13 Amendment No. 1 to Exchange Agreement dated August 7, 1997 (filed
with the Securities and Exchange Commission as Exhibit (10)(ii) to
the Registrant's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1997 and incorporated herein by reference).
10.14 Exchange Agreement dated April 30, 1997 by and among AFG Hato
Arrow Limited Partnership, AFG Dove Arrow Limited Partnership,
AIP/Larkfield Limited Partnership, Equis Exchange LLC, Equis
Financial Group Limited Partnership and the Registrant and related
exhibits (filed with the Securities and Exchange Commission as
Exhibit (10)(i) to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1997 and incorporated
herein by reference).
10.15 Directors Stock Option Agreement dated July 15, 1994.
10.16 Executive Stock Option Agreements dated July 1, 1994, July 11,
1995 and April 16, 1996.
10.17 Stock Purchase Agreement dated December 16, 1999 between Gary D.
Engle, James A. Coyne and four trusts for the benefit of
Mr. Engle's children and the Registrant (filed as Exhibit No. 2
to the Registrant's Report on Form 8-K dated January 6, 2000
is incorporated herein by reference).
10.18 Agreement for Purchase and Sale of Special Beneficiary Interests
dated November 18, 1999 between Equis Financial Group Limited
Partnership and the Registrant is filed herewith.
10.19 Registration Rights Agreement dated December 22, 1999 between
Gary D. Engle, James A. Coyne, four trusts for the benefit of
Mr. Engle's children and the Registrant is filed herewith.
10.20 Security Agreement and Collateral Agency Agreement dated
December 22, 1999 between Gary D. Engle, James A. Coyne, four
trusts for the benefit of Mr. Engle's children and the Registrant
is filed herewith.
10.21 Security Agreement (regarding the purchase and sale of Special
Beneficiary Interests) dated January 20, 2000 between Equis
Financial Group Limited Partnership and the Registrant is
filed herewith.
10.22 Put and Call Agreement dated December 22, 1999 between Gary D.
Engle, James A. Coyne, four trusts for the benefit of Mr. Engle's
children and the Registrant is filed herewith.
13 The Company's Annual Report to Stockholders for the year ended
December 31, 1999.
21 Subsidiaries of the Company
23 Consent of Independent Auditors
27 Financial Data Schedule (such schedule is not deemed filed as part
of this report).
99.1 Press Release dated October 21, 1997 (filed with the Securities
and Exchange Commission as Exhibit (99)(i) to the Registrant's
Report on Form 8-K dated October 21, 1997 and incorporated herein
by reference).
(b) No Reports on Form 8-K were filed during the quarter ended
December 31, 1999.
(c) See Item 13(a)(3) above.
15
<PAGE>
(d) None.
An annual report will be sent to the stockholders subsequent to this filing
and the Company will furnish copies of such report to the Commission at that
time.
16
<PAGE>
SIGNATURES
IN ACCORDANCE WITH Section 13 or 15(d) of the Exchange Act, the Issuer
has caused this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SEMELE GROUP INC.
By: /s/Gary D. Engle Date: March 30, 2000
Gary D. Engle, Chairman, Chief Executive
Officer and Director
IN ACCORDANCE WITH the Exchange Act, this Annual Report has been signed
below by the following persons on behalf of the Issuer and in the capacities and
on the dates indicated.
By: /s/Gary D. Engle Date: March 30, 2000
Gary D. Engle, Chairman, Chief Executive
Officer and Director
By: /s/James A. Coyne Date: March 30, 2000
James A. Coyne, President, Chief
Operating Officer and Director
By: /s/Gary M. Romano Date: March 30, 2000
Gary M. Romano, Vice President and
Chief Financial Officer
By: /s/Walter E. Auch Date: March 30, 2000
Walter E. Auch, Sr., Director
By: /s/Robert M. Ungerleider Date: March 30, 2000
Robert M. Ungerleider, Director
By: /s/Joseph W. Bartlett Date: March 30, 2000
Joseph W. Bartlett, Director
17
<PAGE>
AGREEMENT FOR PURCHASE AND SALE
OF SPECIAL BENEFICIARY INTERESTS
This Agreement for Purchase and Sale of Special Beneficiary Interests
is made this 18th day of November, 1999, by and between Equis Financial Group
Limited Partnership, a Massachusetts limited partnership with offices located at
88 Broad Street, Boston, Massachusetts 02110 (the "Seller"), and Semele Group
Inc., a Delaware corporation with offices located at One Canterbury Green,
Stamford, Connecticut 06901 (the "Buyer");
WITNESSETH:
WHEREAS, the Seller owns a beneficial interest in each of the four
following Delaware business trusts, each such interest being defined in the
Second Amended and Restated Declaration of Trust, as amended to date, of each of
the trusts (each a "Declaration of Trust") as a "Special Beneficiary Interest,"
and the Seller in its capacity as such owner being defined in each Declaration
of Trust as the "Special Beneficiary":
AFG Investment Trust A
AFG Investment Trust B
AFG Investment Trust C
AFG Investment Trust D
(such Special Beneficiary Interests collectively the "Special Beneficiary
Interests," and such trusts collectively the "Trusts");
WHEREAS, the Seller wishes to sell and the Buyer wishes to purchase the
Special Beneficiary Interests subject to the provisions set forth herein;
WHEREAS, the Special Beneficiary Interests have the rights to
distributions and allocations provided for in the Declaration of Trust of each
of the Trusts, including an 8.25% share of all distributions;
WHEREAS, the Buyer has received from Josephthal & Co. Inc. a "fairness
opinion" with respect to the fairness to the Buyer from a financial point of
view of this acquisition and a related acquisition by the Buyer from Gary D.
Engle, James A. Coyne and certain trusts for the benefit of Mr. Engle's children
of all of the Common Stock of Equis II Corporation, which opinion is acceptable
to the Special Committee of the Board of Directors of the Buyer consisting of
the Buyer's independent directors;
NOW, THEREFORE, in consideration of the terms, covenants and conditions
hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE AND SALE OF SPECIAL BENEFICIARY INTERESTS
The Seller hereby transfers, sells and assigns to the Buyer, and the
Buyer hereby purchases from the Seller, the Special Beneficiary Interests for a
purchase price of
<PAGE>
$9,652,500, paid by the delivery to the Seller simultaneously with the execution
hereof of a promissory note of the Buyer payable to the Seller in the principal
amount of $9,652,500. Such promissory note, which is in the form of Exhibit A
hereto, bears interest on the unpaid principal balance thereof from time to time
at the rate of 7% per annum and is payable on the terms set forth therein. The
Special Beneficiary Interests are currently subject to a pledge executed by the
Seller securing indebtedness of Equis II Corporation, a Delaware corporation,
totalling approximately $19.5 million at September 30, 1999. The Buyer agrees
that as soon as such indebtedness has been repaid and such pledge has been
released, it will secure its obligations under such note by a pledge of the
Special Beneficiary Interests pursuant to a Security Agreement in the form of
Exhibit B hereto.
Pursuant to Article IX of the Declaration of Trust of each of the
Trusts, the Seller and the Buyer have delivered to the Managing Trustee of the
Trusts a duly executed and completed assignment form satisfactory to the
Managing Trustee, and the Managing Trustee has consented to the substitution of
the Buyer as a Substitute Special Beneficiary (as defined in each Declaration of
Trust) in place of the Seller, all as shown in the Assignment attached hereto as
Exhibit C.
2. FAMILIARITY WITH THE COMPANY
The Buyer hereby acknowledges that it is familiar with the investment
objectives, business, assets and liabilities of the Trusts, each of which have a
class of securities registered under Section 12(g) of the Securities Exchange
Act of 1934 and each of which are accordingly reporting companies under such
Act. The Buyer further hereby acknowledges that it has examined such reports
filed under such Act and has had the opportunity to make such inquiries of
employees and representatives of the Seller and to consult with such experts as
it has deemed appropriate or necessary in connection with the execution of this
Agreement and the consummation of the transaction provided for herein.
3. REPRESENTATIONS OF THE SELLER
The Seller hereby represents and warrants to the Buyer that
(a) it has good and marketable title to the Special Beneficiary
Interests free and clear of all liens, security interests, charges or
encumbrances of any kind except as set forth on Schedule 3 hereto, and upon the
execution of this Agreement title to the Special Beneficiary Interests will pass
to the Buyer free and clear of any pledge, lien, security interest, charge or
encumbrance of any kind except as set forth on such Schedule, and thereupon the
Buyer, as record and beneficial owner, will be entitled to all rights of the
Seller with respect to the Special Beneficiary Interests;
(c) the Seller is a duly formed and validly existing limited
partnership under the laws of the Commonwealth of Massachusetts with the right,
power and authority to enter into and carry out the provisions of this
Agreement; Equis Corporation is the sole general partner of the Seller; and Gary
D. Engle is an officer of such general partner who has been duly authorized by
all necessary partnership and corporate action to execute, deliver and perform
on behalf of the Seller all such instruments and agreements and take all such
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other action as he may deem necessary or desirable for the Seller to consummate
the sale of the Special Beneficiary Interests to the Buyer, including, without
limiting the generality of the foregoing, this Agreement and the Assignment
attached hereto as Exhibit C;
(d) the execution, delivery and performance of this Agreement by the
Seller and the consummation by the Seller of the transaction contemplated hereby
do not and will not violate, conflict with or result in a breach of or
constitute a default under any of the terms, conditions or provisions of any
instrument or contract to which the Seller is a party or by which it or any of
its properties or assets is bound or any judgment, decree, order, statute, rule
or regulation to which it is subject or by which it or any of its properties or
assets is bound, or result in the creation of any lien, charge or encumbrance on
any of its properties or assets;
(e) the Seller has delivered to the Buyer true, accurate and complete
copies of the Declaration of Trust of each of the Trusts.
4. REPRESENTATIONS OF THE BUYER
The Buyer hereby represents and warrants to the Seller that
(a) the Buyer is a duly formed and validly existing corporation under
the laws of the State of Delaware with the right, power and authority to enter
into and carry out the provisions of this Agreement; and James A. Coyne is an
officer of the Buyer who has been duly authorized by all necessary corporate
action to execute, deliver and perform on behalf of the Buyer all such
instruments and agreements and take all such other action as he may deem
necessary or desirable for the Buyer to consummate the purchase of the Special
Beneficiary Interests from the Seller, including, without limiting the
generality of the foregoing, this Agreement and the promissory note delivered to
the Seller pursuant to this Agreement;
(b) the execution, delivery and performance of this Agreement by the
Buyer and the consummation by the Buyer of the transaction contemplated hereby
do not and will not violate, conflict with or result in a breach of or
constitute a default under any of the terms, conditions or provisions of any
instrument or contract to which the Buyer is a party or by which it or any of
its properties or assets is bound or any judgment, decree, order, statute, rule
or regulation to which it is subject or by which it or any of its properties or
assets is bound, or result in the creation of any lien, charge or encumbrance on
any of its properties or assets.
5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All agreements, covenants, representations and warranties of the
parties are set forth and merged in this Agreement, and no other oral or written
understanding, representation or warranty shall be deemed to be part of this
Agreement . All of the representations, warranties, agreements and covenants of
the Seller contained in this Agreement shall survive the date hereof.
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6. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same agreement.
7. ENTIRE AGREEMENT
This Agreement represents the only agreement between the parties and
supersedes all prior agreements or understandings concerning the subject matter
hereof.
8. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
9. BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
Seller and the Buyer and their respective successors and assigns.
10. INDEMNIFICATION
The Seller will indemnify and hold the Buyer harmless from and against
any loss or expense, including reasonable legal fees and expenses, which the
Buyer may incur as the result of (i) any breach of the representations and
warranties made by the Seller hereunder or (ii) any claim made against the Buyer
arising out of the ownership by the Seller or the Company of the Stock or the
Partnership Interests prior to the date hereof. Whenever, on each occasion, and
as often as the Buyer shall incur any such loss or expense which may entitle the
Buyer to indemnification under the provisions of this Section 10 the Buyer shall
promptly so notify the Seller in writing of any such loss or expense and of the
amount of indemnification which may be claimed by the Buyer hereunder. The
Seller shall be entitled to take any and all such action as may be within its
power to mitigate the amount of any such loss or expense and shall be entitled
at its own expense to participate in and to select reputable counsel and direct
the defense of any such claim against the Buyer. If the Seller acknowledges in
writing that it is liable to the Buyer for such claim and elects to employ such
counsel and to direct such defense, the Seller shall have no further liability
hereunder for any legal fees and expenses incurred by the Buyer in connection
with such
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defense, provided that in such event the Buyer may employ its own counsel at its
own cost and expense.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
"Buyer" "Seller"
SEMELE GROUP INC. EQUIS FINANCIAL GROUP LIMITED
PARTNERSHIP
By: Equis Corporation, General Partner
By:/s/ JAMES A. COYNE By: /s/ GARY D. ENGLE
----------------------------- ------------------------------
Name: James A. Coyne Name: Gary D. Engle
Title: President Title: President
<PAGE>
Exhibit 10.19
REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of December 22, 1999, is entered into by and
among Semele Group Inc., a Delaware corporation (the "Company"), and the persons
listed on Exhibit A hereto (the "Sellers").
WHEREAS, the Company and the Sellers have entered into a Stock Purchase
Agreement (the "Purchase Agreement") and a Put and Call Agreement ("Put and Call
Agreement"), each dated the date hereof;
WHEREAS, the Company and the Sellers desire to provide for certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933, as amended, as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"COMMON STOCK" means the Common Stock, $.10 par value, of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any registration statement covering only securities proposed to
be issued in exchange for securities or assets of another corporation).
"REGISTRATION EXPENSES" means the expenses described in Section 5.
"REGISTRABLE SHARES" means (i) the Shares, (ii) any other shares of
Common Stock of the Company issued in respect of the Shares (because of stock
splits, stock dividends, reclassifications, recapitalizations or similar
events); provided, however, that shares of Common Stock which are Registrable
Shares shall cease to be Registrable Shares upon any sale pursuant to a
Registration Statement or Rule 144 under the
<PAGE>
Securities Act, or any sale in any manner to a person or entity which, by virtue
of Section 12 of this Agreement, is not entitled to the rights provided by this
Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"SHARES" means the 510,000 shares of Common Stock of the Company that
may be acquired by the Sellers pursuant to the Put and Call Agreement plus all
other shares of Common Stock, if any, that are acquired by them in payment of
the Notes referred to in the Purchase Agreement.
"STOCKHOLDERS" means the Sellers and any persons or entities to whom
the rights granted under this Agreement are transferred by the Sellers or their
respective successors or assigns pursuant to Section 12 hereof.
2. REQUIRED REGISTRATIONS.
(a) At any time after one year from the date hereof, a Stockholder or
Stockholders holding in the aggregate at least 50% of the voting power of the
Registrable Shares may request, in writing, that the Company effect the
registration of the Registrable Shares owned by such Stockholder or
Stockholders. If the holders initiating the registration intend to distribute
the Registrable Shares by means of an underwriting, they shall so advise the
Company in their request. Upon receipt of any such request, the Company shall
promptly give written notice of such proposed registration to all Stockholders.
Such Stockholders shall have the right, by giving written notice to the Company
within 30 days after the Company provides its notice, to elect to have included
in such registration such of their Registrable Shares as such Stockholders may
request in such notice of election. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration of
all Registrable Shares which the Company has been requested to so register.
(b) The Company shall not be required to effect more than one registration
in total pursuant to paragraph (a) above.
(c) If at the time of any request to register Registrable Shares
pursuant to this Section 2, the Company is engaged or has fixed plans to
engage within 90 days of the time of the request in a registered public
offering as to which the Stockholders may include Registrable Shares pursuant
to Section 3 or is engaged in any other activity which, in the good faith
determination of the Company's Board of
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Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of six months from the
effective date of such offering or the date of commencement of such other
material activity, as the case may be.
(d) In connection with any offering under this Section 2 involving an
underwriting, the right of other Stockholders to participate shall be
conditioned on such Stockholders participating in such underwriting and execute
the underwriting agreement with the underwriter chosen by the Stockholders
initiating the offering to underwrite the offering. Further, if in the opinion
of the underwriter managing any underwritten offering the registration of all
the Registrable Shares sought to be included would materially and adversely
affect such public offering, then the Company shall be required to include in
the underwriting only that number of Registrable Shares that the managing
underwriter believes may be sold without causing such material adverse effect,
and any limitation on participation in the offering will be imposed pro rata
with respect to all such Registrable Shares.
3. INCIDENTAL REGISTRATION.
(a) Whenever the Company proposes to file a Registration Statement
(other than pursuant to Section 2) at any time and from time to time, it will,
prior to such filing, give written notice to all Stockholders of its intention
to do so and, upon the written notice of a Stockholder or Stockholders given
within 20 days after the Company provides such notice, the Company shall use its
best efforts to cause all Registrable Shares which the Company has been
requested by such Stockholder or Stockholders to register to be included in such
Registration Statement; provided, that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Section 3(a)
without obligation to any Stockholder.
(b) In connection with any offering under this Section 3 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the holders thereof participate in such
underwriting and executing the underwriting agreement with the underwriter
chosen by the Company to underwrite the offering. Further, if in the opinion of
the managing underwriter the registration of all, or part of, the securities
whose holders have a contractual incidental right to include them in the
Registration Statement and as to which inclusion has been
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requested pursuant to such right would materially and adversely affect such
public offering, then the Company shall be required to include in the
underwriting only that number of Registrable Shares, if any, which the managing
underwriter believes may be sold without causing such adverse effect. If the
number of Registrable Shares to be included in the underwriting in accordance
with the foregoing is less than the total number of shares which the holders of
Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration shall participate in the
underwriting pro rata based upon their total ownership of Registrable Shares. If
any holder would thus be entitled to include more shares that such holder
requested to be registered, the excess shall be allocated among other requesting
holders pro rata based upon their total ownership of Registrable Shares.
4. REGISTRATION PROCEDURES. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect to such
Registrable Shares and use its best efforts to cause that Registration Statement
to become and remain effective.
(b) as expeditiously as possible prepare and file with the Commission any
amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective until the earlier of such time as all such
Registrable Shares are sold and the date that is 120 days from the effective
date.
(c) as expeditiously as possible furnish to each selling Stockholder such
reasonable number of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the selling Stockholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Stockholder; PROVIDED,
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HOWEVER, that the Company shall not be required in connection with this
paragraph (d) to qualify as a foreign corporation or execute a general consent
to service of process in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to the selling
Stockholders and after having done so the prospectus is supplemented or amended
to comply with the requirements of the Securities Act, the Company will promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.
5. ALLOCATION OF EXPENSES. The Company will pay all Registration Expenses
of a registration under Section 2(a) of this Agreement; provided however, that
if a registration under Section 2(a) is withdrawn at the request of the
Stockholders requesting such registration (other than as a result of material
adverse information concerning the business or financial condition of the
Company which is made known to the Stockholders after the date on which such
registration was requested), and if the requesting Stockholders elect not to
have such registration counted as the registration requested under Section 2(a),
the requesting Stockholders shall pay the Registration Expenses of such
registration pro rata in accordance with the number of their Registrable Shares
included in such registration. For purposes of this Section, the term
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Agreement, including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company and the fees and expenses of one
counsel selected by the selling Stockholders to represent the selling
Stockholders, state Blue Sky fees and expenses and the expense of any special
audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and the fees and expenses of selling
Stockholders' own counsel (other than the counsel selected to represent all
selling Stockholders).
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6. INDEMNIFICATION.
(a) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company will indemnify
and hold harmless the seller of such Registrable Shares, each underwriter of
such Registrable Shares, and each other person, if any, who controls such seller
or underwriter within the meaning of the Securities Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
such seller, underwriter or controlling person may become subject under the
Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse each such seller,
underwriter and controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
(b) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky
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laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such seller specifically for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such Stockholders
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section 6 (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6 unless the Indemnifying Party's rights or
defenses are materially prejudiced by the failure to provide such notice. The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay such expense if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the
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claimant or plaintiff to such Indemnified Party of a release from all liability
in respect of such claim or litigation, and no Indemnified Party shall consent
to entry of any judgment or settle such claim or litigation without the prior
written consent of the Indemnifying Party.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 6 provides for
indemnification in such case or (ii) contribution under the Securities Act may
be required on the part of any such selling Stockholder or any such controlling
person in circumstances for which indemnification is provided under this Section
6; then, in each such case, the Company and such Stockholder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportions so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Registrable Shares offered by the Registration Statement
bears to the public offering price of all securities offered by such
Registration Statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the proceeds to it of all
Registrable Shares sold by it pursuant to such Registration Statement and (B) no
person or entity guilty of fraudulent misrepresentation, within the meaning of
Section 11(f) of the Securities Act, shall be entitled to contribution for any
person or entity who is not guilty of such fraudulent misrepresentation.
7. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the event that
Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2, the Company agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without
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limitation customary provisions with respect to indemnification by the Company
of the underwriters of such offering.
8. INFORMATION BY HOLDER. Each holder of Registrable Shares included in any
registration shall furnish to the Company such information regarding such holder
and the distribution proposed by such holder as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
9. "STAND-OFF" AGREEMENT; BLACKOUT PERIODS.
(a) "STAND-OFF" AGREEMENT. Each Stockholder, if requested by the Company
and an underwriter of Common Stock or other securities of the Company, shall
agree not to sell or otherwise transfer or dispose of any Registrable Shares or
other securities of the Company held by such Stockholder for a specified period
of time not to exceed 180 days following the effective date of a Registration
Statement; provided, that all Stockholders holding not less than the number of
shares of Common Stock held by such Stockholder (including shares of Common
Stock issuable upon the conversion of convertible securities, or upon the
exercise of options, warrants or rights) and all officers and directors of the
Company enter into similar agreements. Such agreement shall be in writing in a
form satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the Registrable Shares or other
securities subject to the foregoing restriction until the end of the stand-off
period.
(b) BLACKOUT PERIODS.
(i) At any time when a Registration Statement on Form S-3 (or its
successor) effected pursuant to this Agreement is effective, upon written notice
from the Company to the Stockholders participating in such Registration
Statement that the Company determines in the good faith judgment of the Board of
Directors of the Company, with the advice of counsel, that such Stockholders'
sale of Registrable Shares pursuant to the Registration Statement would require
disclosure of non-public material information the disclosure of which would have
a material adverse effect on the Company (an "INFORMATION BLACKOUT"), such
Stockholders shall suspend sales of Registrable Shares pursuant to such
Registration Statement until the earliest of:
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(x) the date upon which such material information is disclosed to
the public or ceases to be material;
(y) 60 days after the Company makes a good faith determination that
such material information ceases o be material; and
(z) such time as the Company notifies such Stockholders that sales
pursuant to such Registration Statement may be resumed.
(The number of days from such suspension of sales by such Stockholders until the
day when such sales may be resumed under CLAUSE (X), (Y) or (Z) hereof is
hereinafter called a "SALES BLACKOUT PERIOD.")
(ii) Any delivery by the Company of notice of an Information Blackout
during the 90 days immediately following effectiveness of any Registration
Statement on Form S-3 effected pursuant to this Agreement shall give such
Stockholders the right, by written notice to the Company within 20 business days
after the end of such Sales Blackout Period, to cancel such registration and
obtain one additional registration right (a "BLACKOUT TERMINATION RIGHT") under
this Agreement.
(iii) If there is an Information Blackout and if such Stockholders do not
exercise their cancellation right, if any, pursuant to Section 9(b)(ii) hereof,
or, if such cancellation right is not available, the time period set forth in
SECTION 11(A) hereof shall be extended for a number of days equal to the number
of days in the Sales Blackout Period.
10. RULE 144 REQUIREMENTS. The Company agrees to:
(a) Comply with the requirements of Rule 144(c) under the Securities Act
with respect to current public information about the Company;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) Furnish to any holder of Registrable Shares upon request a written
statement by the Company as to its compliance with the requirements of such Rule
144(c) and of the reporting requirements of the Securities Act and the Exchange
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Act, a copy of the most recent annual or quarterly report of the Company and
such other reports and documents of the Company as such holder may reasonably
request to avail itself of any similar rule or regulation of the Commission
allowing it to sell any such securities without registration.
11. TERMINATION OF THIS AGREEMENT. The rights provided to any person under
this Agreement shall terminate, and be of no further force or effect, on the
earliest to occur of (a) of the fifteenth anniversary of the date of this
Agreement; (b) the sale of all or substantially all of the assets or business of
the Company by merger, sale of assets, sale of securities or otherwise; and (c)
the written agreement of holders of at least 50% of the voting power of the
Registrable Shares to terminate this Agreement.
12. TRANSFERS OF RIGHTS. This Agreement, and the rights and obligations of
each Seller hereunder, may be assigned by such Seller to any person or entity to
which Registrable Shares are transferred by such Seller, provided, however, that
no such transfer may be effected without the written consent of the Company; and
each such transferee shall be deemed a "Seller" for purposes of this Agreement.
A transferee to whom rights are transferred pursuant to this Section 12 may not
again transfer such rights to any other person or entity, other than as provided
in this Section.
13. NOTICES. All notices, requests, consents and other communications under
this Agreement shall be in writing and shall become effective when received.
Notices shall be deemed to have been duly received if delivered by hand or sent
by a reputable overnight delivery service or mailed by first class certified or
registered mail, return receipt requested, postage prepaid:
If to the Company, at One Canterbury Green, 201 Broad Street, Stamford,
Connecticut 06901, Attention: President (or at such other address or addresses
as may have been furnished in writing by the Company to the Sellers in
accordance with this Section) with a copy to Nixon Peabody LLP, 101 Federal
Street, Boston, Massachusetts 02110, Attention: Joan Barkhorn Hass.
If to a Seller, at his address set forth on Exhibit A (or at such other address
or addresses as may have been furnished to the Company in writing by such Seller
in accordance with this Section).
11
<PAGE>
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
15. AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth in this
Agreement, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at least 50% of the voting power of the
Registrable Shares; provided, that this Agreement may be amended with the
consent of the holders of less than all Registrable Shares only in a manner
which effects all Registrable Shares in the same fashion.
16. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17. HEADINGS. The headings of the sections, subsections and paragraphs of
this Agreement have been added for convenience only and shall not be deemed to
be a part of this Agreement.
18. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
day and year first above written.
COMPANY:
SEMELE GROUP INC.
By: /s/ Gary M. Romano
---------------------------
Gary M. Romano, Chief Financial
Officer
SELLERS:
/s/ Gary D. Engle
---------------------------
Gary D. Engle
12
<PAGE>
/s/ James A. Coyne
--------------------------------------
James A. Coyne
/s/ Wayne E. Engle
--------------------------------------
Wayne Ellis Engle, Trustee, Staci
Albury Trust u/i/t dated July 21, 1998
/s/ Wayne E. Engle
--------------------------------------
Wayne Ellis Engle, Trustee, Kristen
Engle Trust u/i/t dated July 21, 1998
/s/ Wayne E. Engle
--------------------------------------
Wayne Ellis Engle, Trustee, Sydney
Peyton Engle Trust u/i/t dated
July 21, 1998
/s/ Wayne E. Engle
--------------------------------------
Wayne Ellis Engle, Trustee, Zoe P.
Engle Trust u/i/t dated July 21, 1998
13
<PAGE>
EXHIBIT A
SELLER
Gary D. Engle
Semele Group Inc.
One Canterbury Green (8th Floor)
Stamford, CT 06901
James A. Coyne
Semele Group Inc.
One Canterbury Green (8th Floor)
Stamford, CT 06901
Wayne Ellis Engle, Trustee, Staci Albury Trust u/i/t dated
July 21, 1998
88 Broad Street
Boston, MA 02110
Wayne Ellis Engle, Trustee, Kristen Engle Trust u/i/t dated
July 21, 1998
88 Broad Street
Boston, MA 02110
Wayne Ellis Engle, Trustee, Sydney Peyton Engle Trust u/i/t
dated July 21, 1998
88 Broad Street
Boston, MA 02110
Wayne Ellis Engle, Trustee, Zoe P. Engle Trust u/i/t dated
July 21, 1998
88 Broad Street
Boston, MA 02110
<PAGE>
Exhibit 10.20
SECURITY AGREEMENT AND
COLLATERAL AGENCY AGREEMENT
THIS SECURITY AGREEMENT made as of the 22nd day of December, 1999, by
and among (i) Semele Group Inc., a Delaware corporation (the "Pledgor"), (ii)
Gary D. Engle; James A. Coyne; Wayne Ellis Engle, Trustee, Staci Albury Trust
u/i/t dated July 21, 1998; Wayne Ellis Engle, Trustee, Kristen Engle Trust u/i/t
dated July 21, 1998; Wayne Ellis Engle, Trustee, Sydney Peyton Engle Trust u/i/t
dated July 21, 1998; and Wayne Ellis Engle, Trustee, Zoe P. Engle Trust u/i/t
dated July 21, 1998 (each a "Secured Party" and collectively the "Secured
Parties"), and (iii) Gary D. Engle as agent for the Secured Parties (the
"Collateral Agent");
W I T N E S S E T H:
WHEREAS, pursuant to a Stock Purchase Agreement dated as of the date
hereof (the "Purchase Agreement") the Pledgor purchased from the Secured Parties
an aggregate of 2,550 shares of the Voting and Non-Voting Common Stock, $.01 par
value (the "Stock"), of Equis II Corporation, a Delaware corporation (the
"Company"), as set forth on EXHIBIT A, which are 85% of the shares of capital
stock of the Company issued and outstanding;
WHEREAS, the Pledgor paid for the Stock by delivery to the Secured
Parties of Promissory Notes of the Pledgor in the aggregate original principal
amount of $19,586,000 (the "Notes");
WHEREAS, the Stock is currently subject to a pledge previously executed
by the Secured Parties securing certain indebtedness of the Company to Fleet
Bank, N.A., totalling $19,540,000 at September 30, 1999; and
WHEREAS, the Pledgor and the Secured Parties desire to enter into this
Agreement whereby the Pledgor will secure its commitments under the Notes by a
pledge of the Stock which is junior only to the currently existing pledge and
which will become a first priority pledge when such indebtedness to Fleet Bank
has been repaid and such prior pledge has been released;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. RIGHTS OF PARTIES HEREUNDER SUBJECT TO PRIOR RIGHTS OF FLEET BANK.
The parties to this Agreement acknowledge and agree that their respective rights
and obligations hereunder are subject to the prior and superior rights of Fleet
Bank, N.A., as pledgee of the Stock, which pledge was made pursuant to a loan
agreement among the Company, Fleet Bank and other interested parties dated July
17, 1997, as amended (the "Acquisition Credit Agreement"), which pledge includes
the right of Fleet Bank to vote the Stock after an event of default under the
Acquisition Credit Agreement.
<PAGE>
2. PLEDGE.
In consideration of the acceptance by the Secured Parties of
the Notes and the undertakings of the Pledgor in this Agreement, the Pledgor
hereby grants to the Collateral Agent as agent for the Secured Parties a
security interest in the Stock together with all of the Pledgor's rights to
receive distributions in respect to such securities, whether in cash, securities
or other property, and whether during the continuance of or on account of the
liquidation of the issuer of such securities, and all of its other rights as a
holder of securities of such issuer, and all of its rights, title and interest
in and to any certificate, instrument or other evidence of any of the foregoing,
and together with any and all substitutions and replacements thereof, including
any securities or other instruments into which any of the foregoing may at any
time and from time to time be converted or exchanged (the "Pledged Stock"). The
parties hereto acknowledge and agree that such pledge is junior to a prior
pledge of the Stock by the Secured Parties to Fleet Bank, N.A., to secure
certain indebtedness of the Company totalling $19,540,000 at September 30, 1999,
and that such pledge will become a first priority pledge when such indebtedness
has been repaid and such prior pledge has been released. The Pledgor covenants
upon such repayment and release to promptly deliver the Certificates
representing the Pledged Stock accompanied by eight separate stock powers duly
endorsed in blank by the Pledgor to the Collateral Agent as agent for the
Secured Parties, to be held on the terms and conditions contained herein. The
Pledgor hereby appoints the Collateral Agent as agent for the Secured Parties as
its attorney in fact to cause the transfer of the Pledged Stock on the books of
the Company to the Secured Parties or their respective designees, ratably in
proportion to their respective interests as shown on Exhibit A hereto, upon the
occurrence of an "Event of Default," as such term is defined in the Notes. The
Collateral Agent as agent for the Secured Parties shall hold the Pledged Stock
as security for the purposes described herein and shall not encumber or dispose
of such property except in accordance with the provisions of this Agreement.
3. STOCK DIVIDEND OR STOCK SPLIT; LIQUIDATION, RECAPITALIZATION,
MERGER, ETC.
Any additional shares of capital stock paid upon or
distributed with respect to any of the Pledged Stock in the event of any stock
dividend or stock split declared by the Company or any issuer thereof and any
sums paid upon or with respect to any of the Pledged Stock upon the merger,
consolidation, liquidation, recapitalization, dissolution or reorganization of
the Company or any other issuer thereof shall be paid over to the Collateral
Agent as agent for the Secured Parties to be held by him as security for the
Notes; and in case any distribution of capital shall be made upon or with
respect to any of the Pledged Stock or any property shall be distributed upon or
with respect to any of the Pledged Stock pursuant to the recapitalization or
reclassification of the capital of the issuer thereof or pursuant to the
reorganization, merger or consolidation thereof, the property so distributed
shall be delivered to the Collateral Agent as agent for the Secured Parties to
be held by him as security for the Notes. All securities, sums of money and
other property paid or distributed in respect of the Pledged Stock upon any such
stock dividend, stock split, merger, consolidation, liquidation, dissolution,
reorganization, recapitalization or reclassification which are received by the
Pledgor shall, until paid or delivered
-2-
<PAGE>
to the Collateral Agent as agent for the Secured Parties, be held in trust for
the Secured Parties as security for the Notes.
4. WARRANTY OF TITLE.
The Pledgor warrants that it has good and marketable title to
the Pledged Stock pledged hereunder on the date hereof, subject to no pledge,
lien, security interest, charge, option, restriction or other encumbrance except
as set forth on Exhibit B hereto, and that it has power, authority and legal
right to pledge such Pledged Stock pursuant to this Agreement. The Pledgor
covenants that it will defend the Secured Parties' rights and security interest
in such Pledged Stock against the claims and demands of all persons whomsoever
except for those persons described on Exhibit B, and their successors and
assigns; and the Pledgor covenants that it will have the like title to and right
to pledge all other property hereafter pledged with the Collateral Agent as
agent for the Secured Parties hereunder and will likewise defend the Secured
Parties' rights and security interest therein.
5. DIVIDENDS AND VOTING RIGHTS.
Unless and until an Event of Default shall have occurred and
be continuing, the Pledgor shall be entitled to receive all cash dividends paid
in respect of the Pledged Stock and to vote the Pledged Stock and to give
consents, waivers and ratifications in respect of the Pledged Stock; provided,
however, that no vote shall be cast, or consent, waiver or ratification given or
action taken which would be inconsistent with or violate any provisions of this
Agreement or the Notes. All such rights of the Pledgor to receive any cash
dividends shall cease in case an Event of Default shall have occurred and be
continuing, and in that case cash dividends shall be paid over by the Pledgor to
the Collateral Agent as agent for the Secured Parties to be applied by him to
the satisfaction of the Notes, and all cash dividends received by the Pledgor
shall, until so paid to the Collateral Agent as agent for the Secured Parties,
be held in trust for the Secured Parties as security for the Notes. All such
rights of the Pledgor to vote and give consents, waivers and ratifications with
respect to the Pledged Stock shall, at the Collateral Agent`s option as
evidenced by the Collateral Agent's notifying the Pledgor of such election,
cease in case an Event of Default shall have occurred and be continuing, and in
that case the Collateral Agent as agent for the Secured Parties shall have all
such rights.
6. DISCHARGE OF OBLIGATIONS.
Upon payment and performance in full of all obligations to be
performed by the Pledgor under the Notes, the Collateral Agent as agent for the
Secured Parties shall deliver to the Pledgor all of the certificates
representing the Pledged Stock together with any stock powers held by the
Collateral Agent as agent for the Secured Parties as a result of the pledge
contained herein.
-3-
<PAGE>
7. DEFAULT.
Upon the occurrence of an Event of Default, the Collateral
Agent as agent for the Secured Parties shall have the rights and remedies
provided in the Uniform Commercial Code of Massachusetts, and in that connection
the Collateral Agent as agent for the Secured Parties may, upon 5 days' notice
to each member of the board of directors of the Pledgor sent by registered mail
and without liability for any diminution in price which may have occurred, sell
all of the Pledged Stock in such manner and for such price as the Collateral
Agent as agent for the Secured Parties may determine. It is agreed by the
Pledgor that such notice is reasonable. At any public sale, the Collateral Agent
as agent for the Secured Parties shall be free to purchase all or any part of
the Pledged Stock. Out of the proceeds of any sale, the Collateral Agent as
agent for the Secured Parties may retain an amount equal to the principal and
interest then due under the Notes, plus the amount of the expenses of sale,
including legal costs and reasonable attorneys' fees, and shall pay any balance
of such proceeds to the Pledgor.
8. COLLATERAL AGENT.
Each Secured Party, by executing this Agreement, hereby
appoints the Collateral Agent and the Collateral Agent hereby accepts such
appointment, as collateral agent hereunder, and each of the Secured Parties
irrevocably authorizes the Collateral Agent to act as the agent of such Secured
Party. The Pledgor may tender performance of the Notes and give any notices
required or permitted to be given hereunder to the Collateral Agent on behalf of
all of the Secured Parties and may rely on all communications from and to the
Collateral Agent as having been given or received on behalf of all of the
Secured Parties.
9. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit
of the Pledgor, the Collateral Agent and the Secured Parties and their
respective successors and assigns; provided, however, that neither the Pledgor
nor the Collateral Agent may assign this Agreement without the consent of the
other. Any purchaser, assignee or transferee of any of the Notes shall become
vested with and entitled to exercise all the powers and rights of a Secured
Party hereunder upon execution of an instrument agreeing to be bound by the
terms of this Agreement.
10. OTHER PROVISIONS.
(a) WAIVERS; RIGHTS AND REMEDIES. No delay or omission on the
part of the Secured Parties in exercising any right or remedy shall operate as a
waiver thereof or of any other right or remedy. No waiver by the Secured Parties
shall be effective unless made in writing, and a waiver on any one occasion
shall not be construed as a bar to or waiver of any right or remedy on any
future occasion. All the Secured Parties' rights and remedies shall be
cumulative and may be exercised singularly or concurrently, and nothing herein
shall be deemed to limit in any way any rights the Secured Parties might
otherwise have under any other instrument or by law, including, without limiting
the generality thereof, the right to negotiate any note or other instrument
together with any collateral specifically described herein.
-4-
<PAGE>
(b) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof
and may be amended only by an instrument in writing referring to this Agreement
executed by the Pledgor and the Secured Parties.
(c) GOVERNING LAW. This Agreement shall be governed by and
construed and interpreted according to the laws of the Commonwealth of
Massachusetts.
(d) NOTICES. All notices required or permitted hereunder shall
be in writing and shall be deemed to have been duly given if delivered in hand
or deposited in the United States mail, postage prepaid, or with Federal Express
or comparable overnight delivery service, addressed as follows:
(i) if to the Pledgor:
Each Member of the Board
of Directors at his address
shown on EXHIBIT B
(ii) if to the Collateral Agent:
Gary D. Engle
c/o Equis Financial Group Limited
Partnership
88 Broad Street
Boston, MA 02110
or to such other address, or in the case of any change in the Board of
Directors, to such other name and address, as a party shall designate by notice
to the other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
SEMELE GROUP INC.
/s/ Gary D. Engle By: /s/ Gary M. Romano
- ------------------------------------ ---------------------------
Gary D. Engle, as Collateral Agent Name: Gary M. Romano
Title: Chief Financial Officer
/s/ Gary D. Engle
- ------------------------------------
Gary D. Engle
-5-
<PAGE>
/s/ James A. Coyne
- -------------------------------------------
James A. Coyne
/s/ Wayne E. Engle
- -------------------------------------------
Wayne Ellis Engle, Trustee, Staci
Albury Trust u/i/t dated July 21, 1998
/s/ Wayne E. Engle
- -------------------------------------------
Wayne Ellis Engle, Trustee, Kristen
Engle Trust u/i/t dated July 21, 1998
/s/ Wayne E. Engle
- -------------------------------------------
Wayne Ellis Engle, Trustee, Sydney
Peyton Engle Trust u/i/t dated July 21, 1998
/s/ Wayne E. Engle
- -------------------------------------------
Wayne Ellis Engle, Trustee, Zoe P.
Engle Trust u/i/t dated July 21, 1998
-6-
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
VOTING NON-VOTING TOTAL
<S> <C> <C> <C>
Gary D. Engle 382 1,054 1,436
James A. Coyne 42 816 858
Wayne Ellis Engle, Trustee, Staci Albury Trust u/i/t None 64 64
dated July 21, 1998
Wayne Ellis Engle, Trustee, Kristen Engle Trust u/i/t None 64 64
dated July 21, 1998
Wayne Ellis Engle, Trustee, Sydney Peyton Engle Trust None 64 64
u/i/t dated July 21, 1998
Wayne Ellis Engle, Trustee, Zoe P. Engle Trust u/i/t None 64 64
dated July 21, 1998 ---- ----- -----
TOTALS 424 2,126 2,550
==== ===== =====
</TABLE>
-7-
<PAGE>
EXHIBIT B
<TABLE>
<S> <C>
Walter E. Auch 6001 North 62nd Place
2700 Crystal Drive Paradise Valley, AZ 85253 (Winter)
Crystal Lake
Beulah, MI 49617 (Summer)
Joseph W. Bartlett, Esq.
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104-0050
James A. Coyne
Semele Group Inc.
One Canterbury Green, 8th Floor
201 Broad Street
Stamford, CT 06910
Gary D. Engle
One Canterbury Green, 8th Floor
201 Broad Street
Stamford, CT 06910
Robert M. Ungerleider
Felcher, Fox & Litner
18 East 48th Street
New York, NY 10017
</TABLE>
<PAGE>
Exhibit 10.21
SECURITY AGREEMENT
THIS SECURITY AGREEMENT made as of the 20th day of January, 2000, by
and between Semele Group Inc., a Delaware corporation (the "Pledgor"), and Equis
Financial Group Limited Partnership, a Massachusetts limited partnership (the
"Secured Party"),
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement for Purchase and Sale of Special
Beneficiary Interests dated November 18, 1999 (the "Purchase Agreement"), the
Pledgor has purchased from the Secured Party a beneficial interest in each of
the four following trusts, each such interest being defined in the Second
Amended and Restated Declaration of Trust, as amended to date, of each of the
trusts as a "Special Beneficiary Interest":
AFG Investment Trust A
AFG Investment Trust B
AFG Investment Trust C
AFG Investment Trust D
(such Special Beneficiary Interests collectively, the "Special Beneficiary
Interests," and such Trusts collectively the "Trusts");
WHEREAS, the Pledgor has paid for the Special Beneficiary Interests by
delivery of the Pledgor's promissory note payable to the Secured Party in the
principal amount of $9,652,500 (the "Note"); and
WHEREAS, the Pledgor has agreed to secure its commitments under the
Note by a pledge of the Special Beneficiary Interests now owned by the Pledgor;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. PLEDGE.
In consideration of the acceptance by the Secured Party of the
Note and the undertakings of the Pledgor in this Agreement, the Pledgor hereby
grants a security interest to the Secured Party in the Special Beneficiary
Interests together with all of the Pledgor's rights to receive distributions in
respect to such securities, whether in cash, securities or other property, and
whether during the continuance of or on account of the liquidation of any issuer
of such securities, and all of its other rights as a holder of securities of
each such issuer, and all of its rights, title and interest in and to any
certificate, instrument or other evidence of any of the foregoing, and together
with any and all substitutions and replacements thereof, including any
securities or other instruments into which any of the foregoing may at any time
and from time to time be converted or exchanged (the "Pledged Interests"). An
Assignment form duly endorsed in blank by the Pledgor is herewith delivered to
the Secured Party, to be held on the terms and conditions
<PAGE>
contained herein. The Pledgor hereby appoints the Secured Party as its attorney
in fact to cause the transfer of the Pledged Interests on the books of the
Trusts to the Secured Party or its designee upon the occurrence of an "Event of
Default," as such term is defined in the Note. The Secured Party shall hold the
Pledged Interests as security for the purposes described herein and shall not
encumber or dispose of such property except in accordance with the provisions of
this Agreement.
2. LIQUIDATION, RECAPITALIZATION, ETC.
Any sums paid upon or with respect to any of the Pledged
Interests upon the consolidation, liquidation, recapitalization, dissolution or
reorganization of any of the Trusts or any other issuer thereof shall be paid
over to the Secured Party to be held by it as security for the Note; and in case
any distribution of capital shall be made upon or with respect to any of the
Pledged Interests or any property shall be distributed upon or with respect to
any of the Pledged Interests pursuant to the recapitalization or
reclassification of the capital of the issuer thereof or pursuant to the
reorganization or consolidation thereof, the property so distributed shall be
delivered to the Secured Party to be held by it as security for the Note. All
sums of money and other property paid or distributed in respect of the Pledged
Interests upon any such stock consolidation, liquidation, dissolution,
reorganization, recapitalization or reclassification which are received by the
Pledgor shall, until paid or delivered to the Secured Party, be held in trust
for the Secured Party as security for the Note.
3. WARRANTY OF TITLE.
The Pledgor warrants that it has good and marketable title to
the Pledged Interests pledged hereunder on the date hereof, subject to no
pledge, lien, security interest, charge, option, restriction or other
encumbrance, and that it has power, authority and legal right to pledge such
Pledged Interests pursuant to this Agreement. The Pledgor covenants that it will
defend the Secured Party's rights and security interest in such Pledged
Interests against the claims and demands of all persons whomsoever; and the
Pledgor covenants that it will have the like title to and right to pledge all
other property hereafter pledged with the Secured Party hereunder and will
likewise defend the Secured Party's rights and security interest therein.
4. DISTRIBUTIONS AND VOTING RIGHTS.
Unless and until an Event of Default shall have occurred and
be continuing, the Pledgor shall be entitled to receive all cash distributions
paid in respect of the Pledged Interests and to vote the Pledged Interests and
to give consents, waivers and ratifications in respect of the Pledged Interests;
provided, however, that no vote shall be cast, or consent, waiver or
ratification given or action taken which would be inconsistent with or violate
any provisions of this Agreement or the Note. All such rights of the Pledgor to
receive any cash distributions shall cease in case an Event of Default shall
have occurred and be continuing, and in that case cash distributions shall be
paid over by the Pledgor to the Secured Party to be applied by it to the
satisfaction of the Note, and all cash distributions received by the Pledgor
shall, until so paid to the Secured Party, be held in trust for the Secured
Party as security for the Note. All such rights of the Pledgor to vote and give
consents, waivers and ratifications with respect to the Pledged Interests shall,
at
-2-
<PAGE>
the Secured Party's option as evidenced by the Secured Party's notifying the
Pledgor of such election, cease in case an Event of Default shall have occurred
and be continuing, and in that case the Secured Party shall have all such
rights.
5. DISCHARGE OF OBLIGATIONS.
Upon payment and performance in full of all obligations to be
performed by the Pledgor under the Note, the Secured Party shall transfer to the
Pledgor all of the Pledged Interests and all rights received by the Secured
Party as a result of the pledge contained herein.
6. DEFAULT.
Upon the occurrence of an Event of Default, the Secured Party
shall have the rights and remedies provided in the Uniform Commercial Code of
Massachusetts, and in that connection the Secured Party may, upon 5 days' notice
to the Pledgor sent by registered mail and without liability for any diminution
in price which may have occurred, sell all of the Pledged Interests in such
manner and for such price as the Secured Party may determine. It is agreed by
the Pledgor that such notice is reasonable. At any public sale, the Secured
Party shall be free to purchase all or any part of the Pledged Interests. Out of
the proceeds of any sale, the Secured Party may retain an amount equal to the
principal and interest then due under the Note, plus the amount of the expenses
of sale, including legal costs and reasonable attorneys' fees, and shall pay any
balance of such proceeds to the Pledgor.
7. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit
of the Pledgor and the Secured Party and their successors and assigns; provided,
however, that neither party may assign this Agreement without the consent of the
other.
8. OTHER PROVISIONS.
(a) WAIVERS; RIGHTS AND REMEDIES. No delay or omission on the
part of the Secured Party in exercising any right or remedy shall operate as a
waiver thereof or of any other right or remedy. No waiver by the Secured Party
shall be effective unless made in writing, and a waiver on any one occasion
shall not be construed as a bar to or waiver of any right or remedy on any
future occasion. All the Secured Party's rights and remedies shall be cumulative
and may be exercised singularly or concurrently, and nothing herein shall be
deemed to limit in any way any rights the Secured Party might otherwise have
under any other instrument or by law, including, without limiting the generality
thereof, the right to negotiate any note or other instrument together with any
collateral specifically described herein.
(b) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof
and may be amended only by an instrument in writing referring to this Agreement
executed by the Pledgor and the Secured Party.
-3-
<PAGE>
(c) GOVERNING LAW. This Agreement shall be governed by and
construed and interpreted according to the laws of the Commonwealth of
Massachusetts.
(d) NOTICES. All notices required or permitted hereunder shall
be in writing and shall be deemed to have been duly given if delivered in hand
or deposited in the United States mail, postage prepaid, or with Federal Express
or comparable overnight delivery service, addressed as follows:
(i) if to the Pledgor:
Semele Group Inc.
200 Nyala Farms
Westport, CT 06880
Attn: President
(ii) if to the Secured Party:
Equis Financial Group Limited Partnership
88 Broad Street
Boston, MA 02110
Attn: Chief Executive Officer
or to such other address as a party shall designate by notice to the other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
SEMELE GROUP INC.
By: /s/ James A. Coyne
---------------------------------------
James A. Coyne
Title: President
EQUIS FINANCIAL GROUP LIMITED
PARTNERSHIP
By: Equis Corporation, its general partner
By: /s/ Gary D. Engle
---------------------------------------
Gary D. Engle
Title: President
-4-
<PAGE>
Exhibit 10.22
PUT AND CALL AGREEMENT
THIS AGREEMENT made as of the 22nd day of December, 1999, by and
between (i) Gary D. Engle; James A. Coyne; Wayne Ellis Engle, Trustee, Staci
Albury Trust u/i/t dated July 21, 1998; Wayne Ellis Engle, Trustee, Kristen
Engle Trust u/i/t dated July 21, 1998; Wayne Ellis Engle, Trustee, Sydney Peyton
Engle Trust u/i/t dated July 21, 1998; and Wayne Ellis Engle, Trustee, Zoe P.
Engle Trust u/i/t dated July 21, 1998 (each a "Seller" and collectively the
"Sellers"); and (ii) Semele Group Inc., a Delaware corporation (the "Buyer");
WITNESSETH:
WHEREAS, the Sellers and the Buyer have entered into a certain Stock
Purchase Agreement dated as of December 16, 1999 (the "Purchase Agreement"),
providing for the sale by the Sellers and the purchase by the Buyer of 85
percent of the issued and outstanding shares of capital stock of Equis II
Corporation, a Delaware corporation (the "Company");
WHEREAS, following the closing of the purchase and sale contemplated by
the Purchase Agreement, the Sellers will continue to own 15 percent of the
issued and outstanding shares of capital stock of the Company, each Seller
owning the number of shares of Voting Common Stock and Non-Voting Common Stock,
each $.01 par value, of the Company set forth opposite their respective names on
Exhibit A (collectively, the "Shares");
WHEREAS, the Sellers desire to have the ability to sell the Shares to
the Buyer; and
WHEREAS, the Buyer desires to have the ability to purchase the Shares
from the Sellers;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Sellers and the Buyer hereby agree as follows:
1. PUT RIGHTS.
Commencing on the date on which the stockholders of the Buyer shall
have approved the payment by the Buyer to the Sellers of the purchase price
provided for in Section 3 hereof, and continuing for a period of one year
thereafter, Gary D. Engle, as representative of the Sellers, may, but only for
the purchase price provided for in Section 3, require the Buyer to purchase all
of the Shares upon the terms contained in this Agreement by giving written
notice thereof to the Buyer in accordance with the terms of Section 8(b) hereof.
If no such approval shall have been obtained by December 31, 2000, then the
rights of Mr. Engle and the Sellers set forth in the preceding sentence shall
terminate. Any such written notice shall state that the Sellers have exercised
their rights under this Section 1. Upon the giving of such notice to the Buyer,
the Sellers shall become and be absolutely and unconditionally obligated to sell
to the Buyer, and the Buyer shall become and be absolutely and unconditionally
obligated to purchase from the Sellers, all of the Shares in accordance with the
terms of this Agreement. The Sellers may exercise the foregoing right only in
respect of all the Shares.
<PAGE>
2. CALL RIGHTS.
Commencing on the date on which the stockholders of the Buyer shall
have approved the payment by the Buyer to the Sellers of the purchase price
provided for in Section 3 hereof, and continuing for a period of one year
thereafter, the Buyer may require the Sellers to sell all of the Shares upon the
terms contained in this Agreement, but only for the purchase price provided for
in Section 3, by giving written notice thereof to the Sellers in accordance with
the terms of Section 8(b) hereof. If no such approval shall have been obtained
by [June 30, 2000], then the rights of the Buyer set forth in the preceding
sentence shall terminate. Any such written notice shall state that the Buyer has
exercised its rights under this Section 2. Upon the giving of such notice to the
Sellers, the Sellers shall become and be absolutely and unconditionally
obligated to sell to the Buyer, and the Buyer shall become and be absolutely and
unconditionally obligated to purchase from the Sellers, all of the Shares in
accordance with the terms of this Agreement. The Buyer may exercise the
foregoing right only in respect of all the Shares.
3. PURCHASE PRICE.
The purchase price for the Shares shall be 510,000 shares of the Common
Stock, $.10 par value, of the Buyer.
4. PAYMENT OF PURCHASE PRICE.
The Buyer, within 30 days after (a) receiving notice from the Sellers
in accordance with Section 1 hereof, or (b) giving notice to the Sellers in
accordance with Section 2 hereof, shall pay to the Sellers the entire amount of
the purchase price for the Shares by delivering to the Sellers certificates
evidencing shares of Common Stock of the Buyer in the names and in the amounts
shown on Exhibit B within such 30-day period.
5. TRANSFER OF THE SHARES TO THE BUYER.
Simultaneously with the payment of the purchase price to the Sellers in
accordance with the provisions of Section 4 above, the Sellers shall deliver to
the Buyer the certificates representing the Shares purchased, duly endorsed for
transfer to the Company or accompanied by one or more duly executed stock
powers, and shall take all such further action as may then be necessary to
transfer title to the Shares to the Buyer free and clear of all liens,
encumbrances and interests of others except those shown on Exhibit C.
6. RESTRICTIONS.
The Sellers shall not sell, assign, transfer, pledge, or dispose of any
or all of their respective Shares except as provided for herein or as otherwise
agreed to in writing by all the parties hereto. Each certificate representing
Shares held by the Sellers shall bear a legend substantially as follows:
"The shares of stock represented by this certificate are subject
to restrictions on transfer as set forth in a Put and Call
Agreement dated December 22, 1999, between the Sellers
identified therein and Semele Group Inc. No transfer of any
shares represented
-2-
<PAGE>
by this certificate shall be valid unless made in accordance
with the provisions of such Agreement."
7. OTHER PROVISIONS.
(a) AMENDMENT. This Agreement may not be amended, modified or
revoked in whole or in part except by a writing signed by each of the parties
hereto.
(b) NOTICES. All notices given shall be in writing and shall
become effective when received. Notices shall be deemed to have been duly
received if delivered by hand or by overnight delivery service or mailed by
certified or registered mail, return receipt, requested, postage prepaid, to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section):
If to the Sellers:
Gary D. Engle
Equis Financial Group Limited Partnership
88 Broad Street
Boston, MA 02110
with a copy to:
Nixon Peabody LLP
101 Federal Street
Boston, Massachusetts 02110-1832
Attn: Joan Barkhorn Hass
and, if to the Buyer:
Semele Group Inc.
One Canterbury Green, 8th Floor
Stamford, CT 06901
Attn: James A. Coyne
with a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Chicago, IL 60611
Attn: Michael J. Choate
(c) BINDING AGREEMENT; GOVERNING LAW. This Agreement shall be
binding upon and inure to the benefit of the Sellers and the Buyer and their
respective heirs, successors, assigns and legal representatives. This Agreement
shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date first above written.
<TABLE>
<S> <C>
THE SELLERS: SEMELE GROUP INC.
/s/ Gary D. Engle By: /s/ Gary M. Romano
- ------------------------------------- ---------------------------
Gary D. Engle Gary M. Romano, Chief Financial
Officer
/s/ James A. Coyne
- -------------------------------------
James A. Coyne
/s/ Wayne E. Engle
- -------------------------------------
Wayne Ellis Engle, Trustee, Staci
Albury Trust u/i/t dated July 21, 1998
/s/ Wayne E. Engle
- -------------------------------------
Wayne Ellis Engle, Trustee, Kristen
Engle Trust u/i/t dated July 21, 1998
/s/ Wayne E. Engle
- -------------------------------------
Wayne Ellis Engle, Trustee, Sydney
Peyton Engle Trust u/i/t dated July 21, 1998
/s/ Wayne E. Engle
- -------------------------------------
Wayne Ellis Engle, Trustee, Zoe P.
Engle Trust u/i/t dated July 21, 1998
</TABLE>
-4-
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OWNED
VOTING NON-VOTING
<S> <C> <C>
Gary D. Engle 68 186
James A. Coyne 8 144
Wayne Ellis Engle, Trustee, Staci Albury Trust None 11
u/i/t dated July 21, 1998
Wayne Ellis Engle, Trustee, Kristen Engle Trust None 11
u/i/t dated July 21, 1998
Wayne Ellis Engle, Trustee, Sydney Peyton Engle None 11
Trust u/i/t dated July 21, 1998
Wayne Ellis Engle, Trustee, Zoe P. Engle Trust NONE 11
u/i/t dated July 21, 1998
TOTALS 76 374
</TABLE>
-5-
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
NUMBER OF
NAME PURCHASE PRICE SHARES
<S> <C>
Gary D. Engle 287,300
James A. Coyne 171,700
Wayne Ellis Engle, Trustee, Staci Albury Trust u/i/t 12,750
dated July 21, 1998
Wayne Ellis Engle, Trustee, Kristen Engle Trust u/i/t 12,750
dated July 21, 1998
Wayne Ellis Engle, Trustee, Sydney Peyton Engle Trust 12,750
u/i/t dated July 21, 1998
Wayne Ellis Engle, Trustee, Zoe P. Engle Trust u/i/t 12,750
dated July 21, 1998
TOTAL 510,000
</TABLE>
-6-
<PAGE>
EXHIBIT C
LIENS AND ENCUMBRANCES ON SHARES
The Shares referred to in the accompanying Put and Call Agreement, which are to
be purchased by the Buyer, are pledged to Fleet Bank, N.A., a national banking
association having an office at 592 Fifth Avenue, New York, New York 10036 (the
"Bank") as partial collateral for that certain loan agreement between Equis II
Corporation, the Bank and other interested parties dated July 17, 1997, as
amended (the "Acquisition Credit Agreement"), together with related agreements.
The Shares are also subject to an irrevocable proxy giving the Bank the right to
vote the Shares after an event of default under the Acquisition Credit
Agreement.
At September 30, 1999, the outstanding principal balance of indebtedness under
the Acquisition Credit Agreement was $19,540,000.
<PAGE>
EXHIBIT 13
SEMELE GROUP INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
-----
Management's Discussion and Analysis of Financial Condition or
Plan of Operation 19-20
Report of Independent Auditors 21
Consolidated Balance Sheets as of December 31, 1999 and 1998 22
Consolidated Statements of Operations
For the Years Ended December 31, 1999 and 1998 23
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1999 and 1998 24
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998 25
Notes to Consolidated Financial Statements 26-35
All schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedule or
because the information required is included in the consolidated financial
statements and notes thereto.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATION
GENERAL
Certain statements in this annual report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Without limiting the foregoing, words
such as "anticipates", "expects", "intends", "plans" and similar expressions are
intended to identify forward-looking statements. These statements are subject to
a number of risks and uncertainties including the Company's ability to
successfully implement a growth-oriented business plan. Actual results could
differ materially from those described in any forward-looking statements.
YEAR 2000 ISSUE
The Company uses information systems provided by Equis Financial Group
Limited Partnership ("EFG") and has no information systems of its own. EFG
completed all Year 2000 readiness work prior to December 31, 1999 and did not
experience any significant problems. Additionally, EFG is not aware of any
outside customer or vendor that experienced a Year 2000 issue that would have a
material effect on the Company's results of operations, liquidity, or financial
position. However, EFG has no means of ensuring that all customers, vendors and
third-party servicers have conformed to Year 2000 standards. The effect of this
risk to the Company is not determinable.
OVERVIEW
The Company was established in 1987 to invest primarily in short-term,
junior, pre-development and construction mortgage loans. Subsequently, the
Company became owner of various real estate assets through foreclosure
proceedings in connection with its mortgages. For the years 1993, 1994 and 1995,
the Company elected to be treated as a real estate investment trust (REIT) for
income tax purposes. Effective January 1, 1996, the Company revoked its REIT
status and became a taxable "C" corporation. Since then, the Company has
attempted to seek out ways to maximize shareholder value and take advantage of
investment opportunities where its significant loss carryforwards for federal
income tax purposes (approximately $90 million at December 31, 1999) can make it
a value-added buyer. In 1999 and 1998, the Company made certain investments with
affiliated parties where its income tax loss carryforwards could be utilized and
otherwise enable the Company to expand its asset mix beyond its principal real
estate asset, an ownership interest in a 274 acre land parcel located in
Southern California known as Rancho Malibu. The Company intends to develop the
Rancho Malibu property in the future and is in the process of obtaining various
permits that are necessary to commence development. In addition, the Company
holds a 0.3% beneficial interest in a liquidating trust, established for the
benefit of a group of unsecured creditors of a previous borrower of the Company.
Significant investments in 1999 and 1998 are summarized below:
EQUIS II CORPORATION
In December 1999, the Company acquired an 85% equity interest in Equis
II Corporation ("Equis II") that the Company financed by issuing
purchase-money notes totaling $19,586,000 to the selling Equis II
stockholders. In connection with this investment, the Company also acquired a
Special Beneficiary interest in four Delaware Business Trusts known as AFG
Investment Trust A, AFG Investment Trust B, AFG Investment Trust C, and AFG
Investment Trust D (collectively, the "Trusts") for $9,652,500 that the
Company financed by issuing a non-recourse purchase-money note. The
stockholders of Equis II from whom the Company acquired 85% of Equis II are
Gary D. Engle, President, Chief Executive Officer and Chairman of the Board
of Directors of the Company, James A. Coyne, President and Chief Operating
Officer of the Company, and certain trusts established for the benefit of Mr.
Engle's children. Equis II Corporation was organized in the State of Delaware
in 1997 and commenced operations on July 17, 1997. Equis II owns the
following Class B interests: AFG Investment Trust A (822,863 interests), AFG
Investment Trust B (997,373 interests), AFG Investment Trust C (3,019,220
interests), and AFG Investment Trust D (3,140,683 interests) (collectively,
the "Class B Interests"). AFG Investment Trust A owns 20,969 shares of the
Company's common stock and has a note receivable from the Company equal to
$462,353 that matures in April 2001. Through its ownership of the Class B
Interests, Equis II holds approximately 62% of the voting interests in each
of the Trusts. However, Mr. Engle has voting control of the Class B Interests
pursuant to the terms of a Voting Trust Agreement executed in connection with
the Equis II transaction. Equis II also owns AFG ASIT Corporation, the
Managing Trustee of the Trusts. As Managing Trustee of the Trusts, AFG ASIT
Corporation has a 1% carried interest in the Trusts and significant influence
over the operations of the Trusts.
EFG/KIRKWOOD CAPITAL LLC
On May 1, 1999, the Company and the Trusts formed EFG/Kirkwood Capital LLC
("EFG/Kirkwood") for the purpose of acquiring preferred and common stock
interests in Kirkwood Associates Inc. ("KAI"). EFG/Kirkwood's investment
consists of a common stock interest in KAI of approximately 16% as well as
preferred stock and convertible debt. The Company purchased a Class B interest
in EFG/Kirkwood and the Trusts purchased Class A interests in EFG/Kirkwood.
Generally, the Class A Interest holders are entitled to certain preferred
returns prior to distributions being paid to the Company, as Class B interest
holder. KAI owns a ski resort, a local public utility, and land that is held for
development. The resort is located in Kirkwood, California and is approximately
30 miles from South Lake Tahoe, Nevada. Subsequent to making its investment in
KAI, EFG/Kirkwood made a 50% investment in Mountain Springs Resorts LLC, an
entity formed for the purpose of acquiring an ownership interest in a Colorado
ski resort that remains pending. The Company's investment in EFG/Kirkwood had a
cost of $750,000.
2
<PAGE>
ARISTON CORPORATION
On August 31, 1998, the Company executed an agreement to acquire all of the
common stock of Ariston Corporation ("Ariston") for a total purchase price of
$12,450,000. Ariston is a holding company having two investments: (i) a 99%
limited partnership interest in AFG Eireann Limited Partnership ("AFG Eireann"),
a Massachusetts limited partnership having a tax interest in a diversified pool
of lease contracts owned by an institutional investor and (ii) a 98% limited
partnership interest in Old North Capital Limited Partnership ("ONC"), a
Massachusetts limited partnership with investments in cash and notes, equipment
leases, and limited partnerships that are engaged in either equipment leasing or
real estate. The latter includes two commercial buildings located in Washington
D.C. and Sydney, Australia that are leased to an investment-grade educational
institution. Gary D. Engle, Chairman, Chief Executive Officer and a director of
the Company and James A. Coyne, President, Chief Operating Officer and a
director of the Company both are affiliated with ONC and Gary D. Engle is
affiliated with AFG Eireann. Ariston was organized on July 31, 1998 as a
Delaware corporation. On August 3, 1998, EFG contributed its limited partnership
interests in AFG Eireann and ONC to Ariston in exchange for Ariston common
stock. Ariston was a wholly-owned subsidiary of EFG until its acquisition by the
Company and was formed principally to facilitate the transfer of limited
partnership interests held by EFG in AFG Eireann and ONC. Gary D. Engle controls
EFG and is the sole director of Ariston.
The Company purchased all of the common stock of Ariston from EFG for fair
value of $12,450,000. The Company's consideration consisted of cash of $2
million and a purchase-money note of $10,450,000. The Ariston acquisition was
accounted for under the purchase method of accounting and the balance sheet and
statement of operations of Ariston were consolidated effective September 1,
1998. The purchase-money note bears interest at the annualized rate of 7%,
payable quarterly in arrears, and requires principal reductions based upon the
cash flows generated by the limited partnership interests owned by Ariston. The
note matures on August 31, 2003 and is recourse only to the common stock of
Ariston. The cost of the Ariston acquisition was allocated on the basis of the
estimated fair value of the assets acquired and liabilities assumed. In October
1998, Ariston declared and paid a cash distribution of $2,020,000 to the
Company. Until the purchase-money note is retired, future cash distributions by
Ariston require the consent of EFG.
LIQUIDITY AND CAPITAL RESOURCES
The Company's recent investments, described above, were highly leveraged
transactions whereby substantially all of the near-term cash flow generated by
the underlying assets will be used to service corresponding purchase
indebtedness. Accordingly, the Company does not anticipate incremental free cash
flow, net of debt service, being generated from these investments until the
indebtedness is retired. The Company's cash and cash equivalents balance
declined from $7,788,124 at December 31, 1998 to $4,896,554 at December 31, 1999
principally as a result of (i) the Company's $750,000 investment in EFG/Kirkwood
(see Note 6); (ii) higher principal payments on debt obligations; (iii) cash
paid for interest expense which increased approximately $1.5 million from 1998
to 1999, and (iv) higher operating costs resulting from the Company's recent
investment activities.
The Company's future near-term liquidity needs will continue to be
influenced principally by debt service payments in addition to potential new
investments, operating expenses, and development of the Rancho Malibu property.
The extent and timing of additional capital investments for the Rancho Malibu
project will be dependent upon completion of the permitting and local regulatory
approval processes, which remain pending.
RESULTS OF OPERATIONS
Total income for the year ended December 31, 1999 increased to $1,886,087
from $1,158,216 for the year ended December 31, 1998. This increase reflects
higher revenues in 1999 compared to 1998 resulting from the acquisition of
Ariston during 1998. Such revenues include the recognition of (i) rental income
from two commercial buildings and equipment on operating leases and (ii)
interest income from a note receivable from affiliates. The operating results of
Ariston were consolidated in the Company's statement of operations effective
September 1, 1998. Accordingly, 1999 was the first year the Company recognized a
full year's income related to the Ariston acquisition. The increase in total
income from 1998 to 1999 was partially offset by a decrease in income from
lending and investing activities. This decrease resulted from the recognition of
interest income in 1998 related to notes receivable, which were collected during
that year.
Total expenses for year ended December 31, 1999 increased to $4,222,981
from $2,618,063 for the year ended December 31, 1998. The increase of $1,604,918
was caused in part by the consolidation of the operating results of Ariston into
the Company's statements of operations, effective September 1, 1998. Significant
expenses relating to Ariston include (i) interest expense incurred in connection
with indebtedness related to its commercial buildings, (ii) depreciation and
amortization expense related to the buildings, equipment on operating leases and
deferred financing costs, and (iii) operating expenses. As described above, the
Company's statement of operations for the year ended December 31, 1998 only
includes such expenses incurred subsequent to the Ariston acquisition on August
31, 1998. In addition, the increase in expenses reflects an increase in interest
expense related to the Ariston acquisition indebtedness based upon the length of
time such indebtedness was outstanding during the respective years. Increases in
other professional fees and general and administrative expenses, resulting
principally from the Company's recent investment activities, further contributed
to the overall increase in total expenses in 1999 compared to 1998.
The above changes resulted in an increase in the Company's net loss for the
year ended December 31, 1999 to $2,336,894 ($2.01 per share) from $1,459,847
($1.23 per share) for the year ended December 31, 1998. The net loss per share
for the year ended December 31, 1999 is based on the weighted average number of
shares outstanding during the year of 1,162,821 as compared to 1,182,810 for the
year ended December 31, 1998.
3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Semele Group Inc.
We have audited the accompanying consolidated balance sheets of Semele
Group Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Semele Group Inc. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
March 30, 2000
4
<PAGE>
SEMELE GROUP INC.
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents.......................................... $ 4,896,554 $ 7,788,124
Rents Receivable................................................... 95,059 91,038
Accounts Receivable - Affiliates................................... 10,160 6,652
Interest Receivable - Affiliates................................... 438,837 125,382
Notes Receivable - Affiliates...................................... 2,725,695 2,725,695
Real Estate Held for Development................................... 10,045,493 9,961,991
Other Investments.................................................. 750,000 --
Special Beneficiary Interests...................................... 9,608,916 --
Investment in Equis II Corporation................................. 19,586,000 --
Investment in Partnerships and Trusts.............................. 3,534,393 3,884,755
Land .............................................................. 1,929,000 1,929,000
Building, net of accumulated depreciation of $1,175,632 and
$820,478 at December 31, 1999 and 1998, respectively............. 10,757,365 11,112,519
Other Assets....................................................... 379,255 543,763
---------------- ----------------
Total Assets....................................................... $ 64,756,727 $ 38,168,919
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes Payable - Affiliates......................................... $ 44,108,000 $ 14,869,500
Notes Payable...................................................... 6,628,141 7,011,202
Accrued Interest - Affiliates...................................... 118,690 243,833
Accrued Interest................................................... 60,680 67,659
Accrued Expenses - Affiliates...................................... 71,118 71,118
Accounts Payable and Accrued Expenses.............................. 1,100,467 853,189
Distributions Payable.............................................. 52,063 48,875
Minority Interest.................................................. 3,780,960 3,722,131
---------------- ----------------
Total Liabilities.................................................. 55,920,119 26,887,507
---------------- ----------------
Stockholders' Equity
Shares of Common Stock, $0.01 Par Value,
5,000,000 Authorized, 2,080,185 Shares Issued 170,663,365 170,663,365
Accumulated Deficit................................................ (145,617,782) (143,172,978)
Deferred Compensation, 111,811 and 56,883 Shares at
December 31, 1999 and 1998, respectively......................... (1,900,780) (967,004)
Treasury Stock at Cost, 890,397 and 945,325 Shares at
December 31, 1999 and 1998, respectively......................... (14,308,195) (15,241,971)
---------------- ----------------
Total Stockholders' Equity........................................ 8,836,608 11,281,412
---------------- ----------------
Total Liabilities and Stockholders' Equity........................ $ 64,756,727 $ 38,168,919
================ ================
Book Value Per Share of Common Stock
(1,189,788 and 1,134,860 Shares Outstanding at
December 31, 1999 and 1998, respectively)........................ $ 7.43 $ 9.94
================ ================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
SEMELE GROUP INC.
Consolidated Statements of Operations
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
INCOME
Income From Lending and Investing Activities:
Interest on Loans Receivable......................................... $ -- $ 269,000
Income on Investments ............................................... 289,257 382,282
---------------- ---------------
Total Income From Lending and Investing Activities..................... 289,257 651,282
---------------- ---------------
Other Income:
Rental Income........................................................ 1,187,044 395,163
Interest on Note Receivable - Affiliates............................. 313,455 104,771
Gain on Sale of Equipment ........................................... 24,750 7,000
Other Income ........................................................ 71,581 --
---------------- ---------------
Total Other Income..................................................... 1,596,830 506,934
---------------- ---------------
Total Income........................................................... 1,886,087 1,158,216
---------------- ---------------
EXPENSES
Expenses From Property Operating Activities:
Net Loss From Operations of Foreclosed Real Estate Held for Sale..... 691,140 730,249
---------------- ---------------
Total Expenses From Property Operating Activities...................... 691,140 730,249
---------------- ---------------
Other Expenses:
Stockholder Expenses ................................................ 34,473 138,549
Directors' Fees, Expenses, and Insurance ............................ 180,715 234,709
Other Professional Fees ............................................. 357,910 124,091
General and Administrative .......................................... 864,955 496,836
Administrative Reimbursement - Affiliate ............................ 153,823 152,201
Interest Expense - Affiliates ....................................... 1,292,140 685,783
Interest Expense .................................................... 541,055 187,006
Depreciation Expense ................................................ 517,378 163,443
Amortization Expense................................................. 23,563 23,563
Recovery of Losses on Loans, Notes, Advances and
Interest Receivable................................................ (434,171) (383,176)
---------------- ---------------
Total Other Expenses .................................................. 3,531,841 1,887,814
---------------- ---------------
Total Expenses ........................................................ 4,222,981 2,618,063
---------------- ---------------
Net Loss .............................................................. $ (2,336,894) $ (1,459,847)
================ ===============
Net Loss Per Share of Common Stock Basic
(Based on the Weighted Average Number of Shares
Outstanding of 1,162,821 and 1,182,810, respectively)................ $ (2.01) $ (1.23)
================ ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE>
SEMELE GROUP INC.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock
-------------------------------------- Accumulated
Shares Amount Deficit
--------------- --------------- ---------------
<S> <C> <C> <C>
Stockholder's Equity,
December 31, 1997................... 2,125,327 $ 171,019,463 $ (141,713,131)
Deferred Compensation
41,400 Shares of Stock.............. -- -- --
1-for-300 reverse stock split and
30-for-1 forward stock split
(including $356,098 paid for
fractional shares).................. (45,142) (356,098) --
Acquisition of 69,223 Shares of
Treasury Stock, at Cost............ -- -- --
Net Loss............................ -- -- (1,459,847)
--------------- --------------- ---------------
Stockholder's Equity,
December 31, 1998.................. 2,080,185 170,663,365 (143,172,978)
Deferred Compensation
54,928 Shares of Stock............. -- -- --
Distributions Declared By
Subsidiary......................... -- -- (107,910)
Net Loss............................ -- -- (2,336,894)
--------------- --------------- ---------------
Stockholder's Equity,
December 31, 1999.................. 2,080,185 $ 170,663,365 $ (145,617,782)
=============== =============== ===============
<CAPTION>
Deferred Treasury
Compensation Stock Total
--------------- -------------- ---------------
<S> <C> <C> <C>
Stockholder's Equity,
December 31, 1997................... $ (263,204) $ (15,591,003) $ 13,452,125
Deferred Compensation
41,400 Shares of Stock.............. (703,800) 703,800 --
1-for-300 reverse stock split and
30-for-1 forward stock split
(including $356,098 paid for
fractional shares).................. -- -- (356,098)
Acquisition of 69,223 Shares of
Treasury Stock, at Cost............ -- (354,768) (354,768)
Net Loss............................ -- -- (1,459,847)
--------------- -------------- ---------------
Stockholder's Equity,
December 31, 1998.................. (967,004) (15,241,971) 11,281,412
Deferred Compensation
54,928 Shares of Stock............. (933,776) 933,776 --
Distributions Declared By
Subsidiary......................... -- -- (107,910)
Net Loss............................ -- -- (2,336,894)
--------------- -------------- ---------------
Stockholder's Equity,
December 31, 1999.................. $ (1,900,780) $ (14,308,195) $ 8,836,608
=============== ============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE>
SEMELE GROUP INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss....................................................................... $ (2,336,894) $ (1,459,847)
Adjustments to Reconcile Net Loss to Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization Expense........................................ 540,941 251,815
Minority Interest............................................................ 58,829 31,315
Net Change In:
Interest Receivable on Loans................................................. -- 3,565
Rents Receivable............................................................. (4,021) 977,678
Accounts Receivable - Affiliates............................................. (3,508) 36,912
Interest Receivable - Affiliates............................................. (313,455) (104,771)
Other Receivables............................................................ -- 65,374
Other Assets................................................................. (21,279) (7,375)
Accrued Interest - Affiliates................................................ (125,143) 243,833
Accrued Interest............................................................. (6,979) 14,387
Accrued Expenses - Affiliates................................................ -- 25,681
Accounts Payable and Accrued Expenses........................................ 247,278 198,914
Distributions Payable........................................................ 3,188 2,126
--------------- ---------------
Net Cash Provided By (Used In) Operating Activities............................ (1,961,043) 279,607
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Ariston Corporation........................................... -- (111,066)
Real Estate Held for Development............................................. (83,502) --
Collection of Loans Receivable............................................... -- 475,000
Investment in Partnerships and Trusts........................................ 350,362 148,843
Special Beneficiary Distribution............................................. 43,584 --
Other Investments............................................................ (750,000) --
--------------- ---------------
Net Cash Provided By (Used In) Investing Activities............................ (439,556) 512,777
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Notes Payable.......................................... (383,061) (72,755)
Distributions Paid by Investee............................................... (107,910) (105,232)
Payment for Fractional Shares as a Result of Reverse Stock Split............. -- (356,098)
Acquisition of Treasury Stock................................................ -- (354,768)
--------------- ---------------
Net Cash Used In Financing Activities.......................................... (490,971) (888,853)
--------------- ---------------
Net Decrease in Cash and Cash Equivalents...................................... (2,891,570) (96,469)
Cash and Cash Equivalents at Beginning of Year................................. 7,788,124 7,884,593
--------------- ---------------
Cash and Cash Equivalents at End of Year....................................... $ 4,896,554 $ 7,788,124
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest....................................... $ 1,965,317 $ 463,151
============== ==============
</TABLE>
Supplemental disclosure of non-cash activity:
See Note 5 to the consolidated financial statements
The accompanying notes are an integral part of the
consolidated financial statements.
8
<PAGE>
SEMELE GROUP INC.
Notes to the Consolidated Financial Statements
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Semele Group Inc. (the "Company"), formerly known as Banyan Strategic Land
Fund II, was organized as a corporation under the laws of the State of Delaware,
pursuant to the Certificate of Incorporation filed April 14, 1987.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries and consolidated ventures
which hold title to the Company's property. In August 1998, the Company
acquired Ariston Corporation ("Ariston"), the results of which are
consolidated in the Company's financial statements, effective September 1,
1998. All intercompany balances and transactions have been eliminated in
consolidation.
On December 22, 1999, the Company acquired an 85% equity interest in Equis
II Corporation. In connection with this investment, the Company acquired a
Special Beneficiary interest in four Delaware Business Trusts. The Company
accounts for both investments using the equity method of accounting (See Note5).
The Company's investment in partnerships and trusts consists of limited
partner or beneficiary interests that represent less than a 20% ownership
interest in the investees and are accounted for using the cost method.
REVENUE RECOGNITION
Interest income is accrued when earned. The accrual of interest is
discontinued when the borrower acknowledges its inability to make payments or
when payments become contractually delinquent ninety days or more, unless the
loan is in the process of collection. Once a loan has been placed in a
non-accrual status, all cash received is applied against the outstanding loan
balance until such time as the borrower has demonstrated an ability to make
payments under the terms of the then current loan agreement.
Rental income from operating leases is recognized on a straight-line basis
over the life of the lease agreements.
REAL ESTATE HELD FOR DEVELOPMENT
At December 31, 1999, foreclosed real estate held for sale was
reclassified as real estate held for development, at its former basis.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". Tax provisions are
made based upon earnings reported for financial statement purposes and includes
deferred taxes for the effects of timing differences between financial
accounting and taxable earnings. Reserves are recorded against deferred tax
assets in accordance with FAS 109.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
INVESTMENTS IN REAL ESTATE PROPERTY
Investments in real estate property, consisting of buildings and land, are
recorded at cost. Impairment losses on investments are recognized where
indicators of impairment are present and the undiscounted cash flows (net
realizable value) estimated to be generated by the Company's investments is less
than the carrying amount of such investments. The determination of net
realizable value includes consideration of many factors including income to be
earned from the investment, holding costs (exclusive of interest), estimated
selling prices, and prevailing economic and market conditions.
9
<PAGE>
SEMELE GROUP INC.
Notes to the Consolidated Financial Statements
(Continued)
DEPRECIATION AND AMORTIZATION
Depreciation is computed using the straight-line depreciation method
over the estimated useful lives of the related assets (2 years for equipment
on operating leases and 27.5 and 40 years for buildings). Depreciation
expense was $517,378 and $251,815 during the year ended December 31, 1999 and
1998, respectively. Amortization is computed using the straight-line
depreciation method over the estimated useful lives of the related intangible
assets.
VALUATION OF STOCK OPTIONS
The Company's Stock Options awarded pursuant to its 1994 Directors and
Executive Option Plans are accounted for in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
MINORITY INTEREST
Ariston owns approximately 51% of a real estate investment program that
is consolidated in the Company's financial statements. The outside investors'
interest in this investment is reflected on the accompanying consolidated
balance sheets as minority interest and its share of the respective income is
included in general and administrative expenses on the accompanying
consolidated statements of operations. Additionally, Ariston's investments
include a 98% interest in Old North Capital Limited Partnership ("ONC"). The
remaining 2% interest has been recorded as a minority interest adjustment.
2. OTHER ASSETS
Other assets principally include equipment on operating lease and deferred
financing costs, both of which pertain to Ariston. The deferred financing costs
are being amortized over the life of the loan to which they pertain and
equipment on operating leases is being depreciated using the straight-line
method over the equipment's remaining estimated useful life. Rental income and
interest expense associated with equipment on operating leases are recognized as
earned and incurred, respectively. Future minimum rents of $68,673 are due in
the year ending December 31, 2000 in connection with equipment on operating
leases.
In addition, the Company, through its consolidation of Ariston, has an
interest in future rental income from leasing two commercial buildings to an
investment-grade educational institution. Future minimum lease payments
pertaining to these contracts are as follows:
For the year ending December 31, 2000 $ 911,455
2001 1,150,504
2002 1,084,962
2003 91,000
-----------
Total $ 3,237,921
===========
10
<PAGE>
SEMELE GROUP INC.
Notes to the Consolidated Financial Statements
(Continued)
3. NOTES PAYABLE
Through its acquisition of Ariston, the Company acquired a limited
partnership interest in a real estate investment program and assumed related
indebtedness. The note bears a fluctuating interest rate based on prime plus
a margin and requires quarterly payments of principal and interest. The
outstanding balance of this indebtedness was $757,510 at December 31, 1999.
The note matures on January 15, 2003 and is secured by the associated limited
partnership interest. Repayment of the debt is partially guaranteed by
Messrs. Engle and Coyne. In addition, the Company has consolidated additional
indebtedness pertaining to a commercial property leased to an
investment-grade educational institution. The interest rate on this debt is
fixed at 7.86%. The outstanding balance of this indebtedness was $5,740,267
at December 31, 1999.
The Company has non-recourse debt, consisting of installment notes that
are collateralized by certain equipment held on operating leases. The
installment notes will be repaid fully by non-cancelable rents generated by
the associated lease agreements. At December 31, 1999, the interest rate on
these obligations was 7.1%.
The annual maturities of the notes payable are as follows:
For the year ending December 31, 2000 $ 463,094
2001 546,610
2002 593,785
2003 642,648
2004 458,357
Thereafter 3,923,647
-----------
Total $ 6,628,141
===========
The carrying amount of notes payable approximates fair value at December
31, 1999.
4. REAL ESTATE HELD FOR DEVELOPMENT
Rancho Malibu is a 274-acre parcel of undeveloped land north of Malibu,
California ("Project"). On July 1, 1992, a joint venture (the "Venture") between
the Company and Legend Properties, Inc. (f/k/a Banyan Mortgage Investment Fund)
("Legend") acquired title to the property pursuant to a deed in lieu of
foreclosure agreement. The Company owns a 98.6% general partner interest in the
Venture while Legend holds the remaining 1.4% interest as a limited partner. The
Venture's results are consolidated in the accompanying financial statements.
Commencing in 1992, the Venture was engaged in zoning and entitlement
activities that have been opposed by the City of Malibu and various citizen
groups. The city and a neighboring homeowners association initiated several
legal actions intended to preclude the development of the property, all of which
were ultimately resolved in favor of the Venture or settled during 1998. The
Venture currently is entitled to develop a 46 unit housing community on
approximately 40 acres of the property. The remaining 234 acres will be
allocated as follows: (i) 167 acres will be dedicated to a public agency, (ii)
approximately 47 acres will be deed restricted within privately owned lots and
(iii) approximately 20 acres will be preserved as private open space.
During the year ended December 31, 1999, the Venture incurred
approximately $691,000 of costs in connection with Rancho Malibu. The
expenses are primarily related to the Venture's efforts to successfully
satisfy a number of complex requirements imposed by various state, local and
federal entities in order to commence development. These costs were included
in total expenses from property operating activities on the Company's
consolidated statements of operations. The Venture capitalized $83,502 of
costs for transfer development credits during the year ended December 31,
1999. At December 31, 1999, the Company's carrying balance for the property
was $10,045,493.
11
<PAGE>
SEMELE GROUP INC.
Notes to the Consolidated Financial Statements
(Continued)
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
ACQUISITION OF EQUIS II CORPORATION AND SPECIAL BENEFICIARY INTERESTS
On December 22, 1999, the Company acquired an 85% equity interest in
Equis II Corporation ("Equis II") that the Company financed by issuing
purchase-money notes totaling $19,586,000 to the selling Equis II
stockholders. In connection with this investment, the Company also acquired a
Special Beneficiary interest in four Delaware Business Trusts known as AFG
Investment Trust A, AFG Investment Trust B, AFG Investment Trust C, and AFG
Investment Trust D (collectively, the "Trusts") for $9,652,500 that the
Company financed by issuing a non-recourse purchase-money note. The Trusts
are engaged principally in the business of equipment leasing. In recent
years, they each have made additional investments in certain real estate
projects, including a Class A interest in EFG/Kirkwood Capital LLC. The
Company owns a Class B interest in EFG/Kirkwood Capital LLC that it acquired
in 1999. (See "Investment in EFG/Kirkwood Capital LLC" below.) In addition, a
subsidiary of the Company serves as general partner to a real estate
development project in which Trusts C and D are partial investors.
Equis II Corporation
The stockholders of Equis II from whom the Company acquired 85% of Equis
II are Gary D. Engle, President, Chief Executive Officer and Chairman of the
Board of Directors of the Company, James A. Coyne, President and Chief
Operating Officer of the Company, and certain trusts established for the
benefit of Mr. Engle's children. Equis II was organized in the State of
Delaware in 1997 and commenced operations on July 17, 1997. Equis II owns the
following Class B interests: AFG Investment Trust A (822,863 interests), AFG
Investment Trust B (997,373 interests), AFG Investment Trust C (3,019,220
interests), and AFG Investment Trust D (3,140,683 interests) (collectively,
the "Class B Interests"). AFG Investment Trust A owns 20,969 shares of the
Company's common stock and has a note receivable from the Company equal to
$462,353 that matures in April 2001. Through its ownership of the Class B
Interests, Equis II holds approximately 62% of the voting interests in each
of the Trusts. Notwithstanding the foregoing, Mr. Engle has voting control of
the Class B Interests pursuant to the terms of a Voting Trust Agreement
executed in connection with the Equis II transaction. Equis II also owns AFG
ASIT Corporation, the Managing Trustee of the Trusts. As Managing Trustee of
the Trusts, AFG ASIT Corporation has a 1% carried interest in the Trusts and
significant influence over the operations of the Trusts.
In connection with the purchase, the Company entered into a put and call
agreement with Messrs. Engle and Coyne and the Engle family trusts, which gives
the Company a call right to purchase from these Equis II stockholders, and gives
these Equis II stockholders a put right to sell to the Company, the 15% of Equis
II that Messrs. Engle and Coyne and the Engle family trusts continue to own. A
special committee of the Board of Directors of the Company, consisting of
Messrs. Auch, Bartlett and Ungerleider, the Company's independent directors,
unanimously approved the purchase by the Company of 85% of Equis II and the
entering into of the put and call agreement to purchase the remaining 15%
balance.
The Company's investment in Equis II is accounted for on the equity
method. Under the equity method of accounting, the Company's investment is
(i) increased (decreased) to reflect the Company's share of income (loss) of
the investee and (ii) decreased to reflect any dividends the Company received
from the investee. The cost of the Company's investment in Equis II was based
on the estimated discounted future cash flows of Equis II. At December 31,
1999, the carrying value of the Company's investment in Equis II was
$19,586,000. The amount of the Company's underlying equity in the net assets
of Equis II at that date was approximately $2,239,000. The difference between
the carrying value and the underlying equity in the net assets of Equis II
will be amortized over six years.
The unaudited summarized consolidated balance sheets of Equis II at
December 31, 1999 and 1998 (which include the Trusts) are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ------
<S> <C> <C>
Total assets .............................................................. $ 164,905,387 $ 177,546,435
Total liabilities ......................................................... 100,082,219 100,059,533
Minority interest ......................................................... 62,189,246 78,075,183
Total stockholders' equity (deficit) ...................................... 2,633,922 (588,281)
Total liabilities, minority interest & stockholders' equity ............... $ 164,905,387 $ 177,546,435
</TABLE>
The unaudited summarized consolidated statements of operations of Equis
II for the years ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Total income ....................................... $ 38,137,562 $ 44,263,740
Total operating expenses ........................... 26,634,573 38,180,597
Minority interest .................................. 8,322,774 7,286,173
Total expenses ..................................... 34,957,347 45,466,770
Net income (loss) .................................. $ 3,180,215 $ (1,203,030)
</TABLE>
Special Beneficiary Interests
The Special Beneficiary interests were purchased from an affiliate,
Equis Financial Group Limited Partnership ("EFG"), for $9,652,500 and
represent an 8.25% non-voting, carried interest in each of the Trusts. The
Special Beneficiary interests were purchased with a non-recourse note having
a 10 year term that bears interest at 7% per year. Interest and principal
payments are required to be paid only out of and to the extent of cash
distributions paid to the Company on account of the Special Beneficiary
interests. The Company accounts for its investment in the Special Beneficiary
interests on the equity method, as described above.
Equis II Corporation - Transaction Terms and Source of Funds
The Company purchased 85% of the common stock of Equis II by delivering
promissory notes to the selling Equis II stockholders having a total principal
value of $19,586,000. In connection with the acquisition, Messrs. Engle and
Coyne delivered back to the Company, and the Company canceled, the options that
each of them held to purchase 40,000 shares of Common Stock of the Company at an
exercise price of $9.25 per share that were
12
<PAGE>
SEMELE GROUP INC.
Notes to the Consolidated Financial Statements
(Continued)
granted to them on December 30, 1997. A portion of the notes, having an
aggregate principal amount of $14,600,000, mature on October 31, 2005, and bear
interest at the annual rate of 7%, of which 3% is due and payable on a current
quarterly basis and 4% accrues to the maturity date. Principal payments of
$3,600,000, $4,000,000, $4,000,000 and $3,000,000 are due and payable on May 31,
2000, October 31, 2002, May 31, 2003, and the maturity date, respectively. The
$14,600,000 of notes are prepayable without penalty.
The balance of the promissory notes issued to the Equis II stockholders in
connection with the purchase of 85% of Equis II, which have a total principal
value of $4,986,000, have terms identical to the terms of promissory notes
payable by Messrs. Engle and Coyne to Equis II ($1,901,000) and to Old North
Capital Limited Partnership ($3,085,000). (The Company, through its subsidiary
Ariston Corporation, has a 98% limited partnership interest in Old North Capital
Limited Partnership.) Therefore, the Company is effectively the payee of notes
and accrued interest from Messrs. Engle and Coyne of $4,986,000, and it is the
payor of notes to Messrs. Engle and Coyne and the Engle family trusts in the
same amount. Of the $4,986,000 of promissory notes issued by the Company to the
selling Equis II stockholders, promissory notes having a total principal value
of $1,901,000 have terms identical to promissory notes payable to Equis II from
Messrs. Engle ($1,260,997) and Coyne ($640,003). These notes bear interest at
the annual rate of 7.5% payable quarterly, and all outstanding principal and
interest is due on August 8, 2007. The $3,085,000 balance of the promissory
notes issued by the Company to the selling Equis II stockholders have terms
identical to a promissory note payable to Old North Capital Limited Partnership
by Messrs. Engle ($2,046,383) and Coyne ($1,038,617), which bears interest at
the annual rate of 11.5% and is payable on demand. The Company intends to make
the payments on the $4,986,000 of promissory notes from the proceeds of payments
made by Messrs. Engle and Coyne on their indebtedness to Equis II and Old North
Capital Limited Partnership. If either individual fails to make timely payments,
the Company will be relieved of its obligations on the $4,986,000 of notes until
the default is cured.
The $19,586,000 of promissory notes are general obligations of the
Company secured by a pledge to the selling Equis II stockholders of the
shares of Equis II owned by the Company. At December 31, 1999, this pledge
was junior to a prior pledge of such shares to a third-party financial
institution to secure indebtedness of $18,962,000 owed by Equis II to that
institution. The pledge became a first priority pledge upon the repayment of
the institutional indebtedness of Equis II in January 2000 (See Note 15 -
Subsequent Events). In the case of the $14,600,000 of promissory notes, those
notes issued to Mr. Engle and to the Engle family trusts become immediately
due and payable if Mr. Engle ceases to be the Chief Executive Officer and a
director of the Company, except if he resigns voluntarily or is terminated
for cause, and those notes issued to Mr. Coyne become immediately due and
payable if Mr. Coyne ceases to be the President and a director of the
Company, except if he resigns voluntarily or is terminated for cause, as
cause is defined in the executives' employment agreements with the Company.
The Company may in the future purchase the remaining 15% of the
outstanding shares of common stock of Equis II that it does not currently own
by issuing 510,000 shares of common stock of the Company to the selling Equis
II stockholders in payment for the 15% balance, but only if stockholder
approval for payment in shares is obtained. If stockholder approval is not
obtained before December 31, 2000, the put and call agreement with respect to
the purchase of the 15% balance will terminate. (See Note 15 - Subsequent
Events.)
ACQUISITION OF ARISTON CORPORATION
On August 31, 1998, the Company executed an agreement to acquire all of
the common stock of Ariston for a total purchase price of $12,450,000.
Ariston is a holding company having two investments: (i) a 99% limited
partnership interest in AFG Eireann Limited Partnership ("AFG Eireann"), a
Massachusetts limited partnership having a tax interest in a diversified pool
of lease contracts owned by an institutional investor and (ii) a 98% limited
partnership interest in Old North Capital Limited Partnership ("ONC"), a
Massachusetts limited partnership with investments in cash and notes,
equipment leases, and limited partnerships that are engaged in either
equipment leasing or real estate. The latter includes two commercial
buildings located in Washington D.C. and Sydney, Australia that are leased to
an investment-grade educational institution. Gary D. Engle, Chairman, Chief
Executive Officer and a director of the Company and James A. Coyne,
President, Chief Operating Officer and a director of the Company both are
affiliated with ONC and Gary D. Engle is affiliated with AFG Eireann. Ariston
was organized on July 31, 1998 as a Delaware corporation. On August 3, 1998,
EFG contributed its limited partnership interests in AFG Eireann and ONC to
Ariston in exchange for Ariston common stock. Ariston was a wholly-owned
subsidiary of EFG until its acquisition by the Company and was formed
principally to facilitate the transfer of limited partnership interests held
by EFG in AFG Eireann and ONC. Gary D. Engle controls EFG and is the sole
director of Ariston.
The Company purchased all of the common stock of Ariston from EFG for
fair value of $12,450,000. The Company's consideration consisted of cash of
$2 million and a purchase-money note of $10,450,000. The Ariston acquisition
was accounted for under the purchase method of accounting and the balance
sheet and statement of operations of Ariston were consolidated effective
September 1, 1998. The purchase-money note bears interest at the annualized
rate of 7%, payable quarterly in arrears, and requires principal reductions
based upon the cash flows generated by the limited partnership interests
owned by Ariston. The note matures on August 31, 2003 and is recourse only to
the common stock of Ariston. The cost of the Ariston acquisition was
allocated on the basis of the estimated fair value of the assets acquired and
liabilities assumed. In October 1998, Ariston declared and paid a cash
distribution of $2,020,000 to the Company. Until the purchase-money note is
retired, future cash distributions by Ariston require the consent of EFG.
13
<PAGE>
The following summarized, unaudited pro forma results of operations for
the year ended December 31, 1998 assumes that the Company effected the
acquisition at the beginning of 1998:
<TABLE>
<S> <C>
Revenue and Other Income ............................ $ 6,808,297
Net Income .......................................... $ 3,616,802
Net Income Per Share of Common Stock Basic .......... $ 3.06
</TABLE>
The combined pro forma results of operations include activities that
were not ongoing as of the date of the Ariston purchase.
INDEBTEDNESS
The Company obtained a loan of $4,419,500 from certain affiliates in 1997.
The loan bears interest at an annualized rate of 10% and provides for mandatory
principal reductions, if and to the extent the Company realizes any net cash
proceeds from the sale or refinancing of its Rancho Malibu property. The loan,
which was to mature on April 30, 2000, was extended to April 30, 2001. During
each of the years ended December 31, 1999 and 1998, the Company incurred
interest expense of $441,950 in connection with this indebtedness. At December
31, 1999, the carrying value of the note approximates its estimated fair value.
ADMINISTRATIVE SERVICES
The Company's administrative functions are performed by an affiliate, EFG,
pursuant to an Administrative Services Agreement between the Company and EFG
dated May 7, 1997. EFG is reimbursed at actual cost for expenses it incurs on
the Company's behalf. Administrative expenses consist primarily of professional
and clerical salaries and certain rental expenses. The Company incurred total
administrative costs of $153,823 and $152,201 during the years ended December
31, 1999 and 1998, respectively.
6. OTHER INVESTMENTS
On May 1, 1999, the Company and the Trusts formed EFG/Kirkwood Capital
LLC ("EFG/Kirkwood") for the purpose of acquiring preferred and common stock
interests in Kirkwood Associates Inc. ("KAI"). EFG/Kirkwood's investment
consists of a common stock interest in KAI of approximately 16% as well as
preferred stock and convertible debt. The Company purchased a Class B
interest in EFG/Kirkwood and the Trusts purchased Class A interests in
EFG/Kirkwood. Generally, the Class A Interest holders are entitled to certain
preferred returns prior to distributions being paid to the Company, as Class
B interest holder. KAI owns a ski resort, a local public utility, and land
that is held for development. The resort is located in Kirkwood, California
and is approximately 30 miles from South Lake Tahoe, Nevada. Subsequent to
making its investment in KAI, EFG/Kirkwood made a 50% investment in Mountain
Springs Resorts LLC, an entity formed for the purpose of acquiring an
ownership interest in a Colorado ski resort that remains pending. The
Company's investment in EFG/Kirkwood had a cost of $750,000.
7. RECOVERY OF LOSSES ON LOANS, NOTES, ADVANCES AND INTEREST RECEIVABLE
During 1998, the Company received cash distributions of $18,423 related
to its interest in a liquidating trust established for the benefit of the
unsecured creditors (including the Company) of VMS Realty Partners and its
affiliates. In addition, the Company received $89,753 from its interest in
Springtown Partners, a California limited partnership formed by three land
owners, including the Company, for the purpose of merging land parcels in
order to option them to a third party for use as a wetland mitigation bank.
The Company acquired the land from Anden Group as a result of a loan default,
but fully reserved for the asset as the land was determined to be
"undevelopable" due to certain environmental issues. Since 1993, the Company
has sought to realize value from this asset. The Company has classified both
of the above-referenced amounts as a recovery of amounts previously charged
to losses on loans, notes, advances and interest receivable on its
consolidated statement of operations for the year ended December 31, 1998.
During 1994, in connection with the restructuring of Anden, the Company was
conveyed an interest in a first mortgage loan collateralized by a parcel of land
located in Hemet, California. The borrower was Hemet Phase IV Partners, L.P.
("Hemet"). The Company also was conveyed a limited partnership interest in
Hemet. The Company recorded its interest in the loan at $500,000 at the date of
foreclosure. During 1994, the Company recorded a
14
<PAGE>
SEMELE GROUP INC.
Notes to the Consolidated Financial Statements
(Continued)
provision for losses on loans, notes, advances and interest receivable
relating to the Hemet loan in the amount of $275,000. Pursuant to the
Company's valuation of the underlying collateral, the loan was placed on
non-accrual status. On October 8, 1998, the Company received $744,795 as
payment in full on the loan and interest. The Company recorded $225,000 as a
principal repayment, $275,000 as a recovery of amounts previously charged to
losses on loans, notes, advances and interest receivable and the remainder as
interest income. During 1999, the Company received $434,171 representing a
liquidating distribution related to its limited partnership interest in
Hemet. The Company has treated such amount as a recovery of amounts
previously charged to losses on loans, notes, advances and interest
receivable on its consolidated statement of operations for the year ended
December 31, 1999.
8. EXECUTIVE AND DIRECTOR STOCK OPTION PLAN
On June 30, 1994, the stockholders approved and adopted the 1994 Executive
and Directors Stock Option Plan (the "Plan"). As originally adopted, the Plan
authorized the grant of non-statutory stock options only. On December 30, 1997,
the Board of Directors of the Company adopted an amendment to the Plan to permit
the grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code. The stockholders approved the Amendment to the Plan at
the 1997 Annual Meeting of Stockholders. The Plan granted the Board of Directors
the authority to issue up to 100,000 shares of the Company's common stock for
stock option awards. The Plan consists of an Executive Option Grant Program and
a Director Option Grant Program. Under the Director Option Grant Program, each
of the Directors, in consideration of their length of service on the Board,
received an option to acquire 5,000 shares. The exercise price of the options
initially granted to the Board of Directors on July 15, 1994 under the Director
Option Grant Program was $11.25. The exercise price was reduced to $9.25 by a
vote of the Board of Directors on December 30, 1997. No executive is eligible to
receive options under the Director Option Grant Program.
The Board administers the Executive Option Grant Program and has the
authority to determine, among other things, the individuals to be granted
Executive Options, the exercise price at which shares may be acquired, the
number of shares subject to option and the exercise period of each option. The
Board is also authorized to construe and interpret the Executive Option Grant
Program and to prescribe additional terms and conditions of exercise in option
agreements and provide the form of option agreement to be utilized with the
Executive Option Grant Program. No Director is eligible to receive options under
the Executive Option Grant Program.
Pursuant to the terms of the grants, options for all shares granted under
the Executive Option Grant Program are exercisable and vested in installments as
follows: (i) 33.3% of the number of shares commencing on the first anniversary
of the date of grant; (ii) an additional 33.3% of the shares commencing on the
second anniversary of the date of the grant; and (iii) an additional 33.4% of
shares commencing on the third anniversary of the date of grant. Options for all
shares as granted under the Director Option Grant Program are exercisable in
installments as follows: (i) 50.0% of the number of shares commencing on the
first anniversary of the date of grant; and (ii) an additional 50.0% of the
number of shares commencing on the second anniversary of the date of grant. The
Board is granted discretion to determine the term of each option granted under
the Executive Option Grant Program, but in no event will the term exceed ten
years and one day from the date of grant.
During 1998, unexercised stock options issued to a former Director, Mr.
Nudo under the Director Option Grant Program were canceled and surrendered in
connection with his resignation. Mr. Nudo was paid $20,000 by the Company as
consideration for his options.
On December 30, 1997, the Board voted to grant nonstatutory stock options
for 5,000 shares at an exercise price of $9.25 per share to Joseph W. Bartlett
under the Director Option Grant Program and incentive stock options for 40,000
shares at an exercise price of $9.25 per share to each of Gary D. Engle and
James A. Coyne under the Executive Option Grant Program. These grants were
approved by the stockholders at the 1997 Annual Meeting held on June 30, 1998.
The closing price for a share of the Company's Common Stock as reported by
NASDAQ was $6.25 and $8.125 at
15
<PAGE>
SEMELE GROUP INC.
Notes to the Consolidated Financial Statements
(Continued)
December 30, 1997 and June 30, 1998, respectively. On December 22, 1999 the
incentive options granted to Gary D. Engle and James A. Coyne were canceled in
connection with the Equis II transaction (see Note 5).
SFAS No. 123 "Accounting for Stock-Based Compensation," became effective
for 1996. This statement addresses accounting and reporting standards for
stock-based employee compensation plans. The Company has elected to continue to
recognize compensation expense using the intrinsic value-based method of
accounting prescribed by APB Opinion No. 25. Proforma information regarding net
income and earnings per share is required by SFAS 123. Proforma disclosures must
include all stock-based compensation grants made in fiscal years that begin
after December 15, 1994.
Proforma results of net income and earnings per share using the fair value
method for accounting for stock-based employer compensation plans for the year
ended December 31, 1999 and 1998 are not presented, as results differ by two or
less percent from those reported.
For purposes of estimating the fair value of the Company's employee stock
options at the grant date, a Black-Scholes option pricing model was used with
the following weighted average assumptions: risk-free interest rate of 5.88% and
6.01% in 1999 and 1998, respectively; dividend yield of 0% during both 1999 and
1998; and volatility factors of the expected market price of the Company's
common stock of .474 during both 1999 and 1998. The weighted average life of the
stock options was 2 and 2.5 years as of December 31, 1999 and 1998,
respectively. For purposes of the proforma calculation, the estimated fair value
of the options was amortized to expense over the options vesting period.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of options.
The effects on 1999 and 1998 pro forma net income and pro forma basic
earnings per common share and common share equivalent of amortizing to expense
the estimated fair value of stock options are not necessarily representative of
the effects on net income to be reported in future years due to such things as
the vesting period of the stock options, and the potential for issuance of
additional stock options in future years.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1999 and 1998 is as follows:
16
<PAGE>
SEMELE GROUP INC.
Notes to the Consolidated Financial Statements
(Continued)
<TABLE>
<CAPTION>
Weighted Average
Shares Subject to Exercise Price Per
Option Share
------------------ -------------------
<S> <C> <C>
Balance at January 1, 1998...... 15,000 9.25
Options granted.............. 85,000 9.25
Options canceled............. (5,000) 9.25
------------------ -------------------
Balance at December 31, 1998.... 95,000 9.25
Options canceled............. (80,000) 9.25
------------------ -------------------
Balance at December 31, 1999 15,000 $ 9.25
================== ===================
</TABLE>
At December 31, 1999, options on 15,000 shares were exercisable. The
exercise price of these options was $9.25 per share.
9. DEFERRED COMPENSATION
The Company established an incentive compensation plan (the "Plan") for
certain executives (the "Participants"). The Plan provides for all or some of
the Participants' salary to be deferred. All such deferred compensation is held
subject to the claims of creditors of the Company in a "rabbi" trust until paid
to the Participants following the Participants' termination of employment. The
amounts deferred are invested in common stock of the Company. Pursuant to the
Plan, the Participants deferred $240,000 of compensation during each of the
years ended December 31, 1999 and 1998 which represented 54,928 and 41,400
shares of common stock, respectively. The deferred amounts were expensed by the
Company during 1999 and 1998 and are included in general and administrative
expenses on the consolidated statements of operations for the years ended
December 31, 1999 and 1998.
10. STOCK SPLITS
Effective June 30, 1998, the stockholders approved a 1-for-300 reverse
stock split followed by a 30-for-1 forward stock split. As a result of the
reverse stock split, each stockholder of record who owned less than 300
shares of common stock immediately prior to the reverse stock split received
in lieu of the fractional share resulting from the reverse split, cash in the
amount of $.790625 per share (the average daily closing price per share of
common stock on the NASDAQ Stock Exchange for the ten trading days prior to
effective date) multiplied by the number of shares of common stock owned by
such stockholder immediately prior to the reverse stock split. Immediately
after the reverse stock split, the number of shares of common stock of each
holder (excluding stockholders who held less than 300 shares immediately
prior to the reverse split) was converted in a forward split into multiple
shares of common stock on the basis of 30 shares of common stock for each
share or fraction thereof then held. The Company paid $356,098 to fractional
stockholders on July 17, 1998 as a result of the reverse stock split. All
share and per share data for prior periods presented have been restated to
reflect the stock splits.
11. TREASURY STOCK
On September 23, 1998, the Company purchased 69,223 shares of common
stock, or approximately 6.1% of the Company's common stock outstanding. The
Company paid cash in the amount of $5 1/8 per share, for a total purchase
price of $354,768.
12. NASDAQ SMALLCAP MARKET STOCK LISTING
On February 23, 1998, new requirements for continued inclusion on the
NASDAQ National Market system became effective. The Company had not
consistently met the new bid price criteria for continued listing based on
the Company's stock price. Effective January 8, 1999, the Company began
trading on the NASDAQ SmallCap system.
13. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes. Deferred income taxes
consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Mortgage loans in substantive foreclosure $ 2,327,000 $ 2,327,000
Foreclosed real estate held for sale, net 1,195,000 1,195,000
Investment in real estate venture 40,000 40,000
Net operating loss carry forwards 30,035,000 30,035,000
--------------- ---------------
Sub-total 33,597,000 33,597,000
Less valuation allowance for deferred tax assets (33,597,000) (33,597,000)
--------------- ---------------
Total deferred tax assets -- --
Deferred tax liabilities -- --
--------------- ---------------
Net deferred tax assets $ -- $ --
================ ===============
</TABLE>
17
<PAGE>
SEMELE GROUP INC.
Notes to the Consolidated Financial Statements
(Continued)
Appendix E
As of December 31, 1999, the Company had net operating loss carry forwards
of approximately $83,995,000 which expire as follows: $18,817,000 in 2005;
$47,337,000 in 2006; $281,000 in 2007; $2,981,000 in 2008; $4,086,000 in 2009;
$1,265,000 in 2010; $2,028,000 in 2011 and $7,200,000 in 2012.
14. LITIGATION
On June 16, 1994, Coastal Group, Inc. brought an action against
Westholme Partners, (an entity in which the Company has a limited partnership
interest), Bank of America (f/k/a Continental Bank, N.A.) ("CINB"), BMC
Westholme Corp., (a wholly owned subsidiary of the Company); the Anden Group
("Anden"), William A. Brandt, Jr. and Kent Kneblekamp in the New Jersey
Superior Court, Middlesex County. The case was subsequently removed to the
United States District Court for the District of New Jersey and assigned case
#94-3010. The case involves a real estate development located in New Jersey
known as "Winding River."
BMC Westholme Corp. was served with Summons and Complaint in June of
1994, but was not actively involved in the various motions and other
procedural matters which extended for approximately thirty months. On
February 10, 1997, BMC Westholme Corp. filed its Answer and began to take a
more active role in the case.
The plaintiff's complaint was substantially reduced by favorable
rulings, entered October 3, 1996, on various motions to dismiss whereby ten of
plaintiffs' sixteen counts were dismissed and another count was limited in
scope. The reduced complaint alleged breach of contract, unjust enrichment,
breach of the implied covenant of good faith and fair dealing, fraudulent
transfer and also sought relief under a theory of promissory estoppel and
requested the creation of a constructive trust for the benefit of plaintiff.
The case arose from a failed development and a subsequent foreclosure
filed by defendant CINB. The plaintiff alleged, among other things, that CINB
and BMC Westholme conspired with Anden to deprive the plaintiff of its
interest in the Winding River project, damaging plaintiff's reputation as a
homebuilder and causing it to lose business opportunities. A motion for
summary judgment was filed by CINB. The Company joined in that motion.
On December 15, 1998 the Court granted summary judgments in favor of BMC
Westholme Corporation on all remaining counts of the complaint and also
granted BMC Westholme's motions for reimbursement of certain attorney's fees
and costs. On January 21, 1999 the same Court awarded the sum of $15,178 to
BMC Westholme in consideration of attorney's fees and expenses.
The Court's order of December 15, 1998, which granted summary judgment
in favor of BMC Westholme has been appealed by Coastal Group, Inc. All
necessary briefs have been filed and the parties are awaiting the setting of
argument and the rendering of a decision. However, none of the issues on
appeal pertain to BMC Westholme. Accordingly, Management does not believe
that the resolution of the appeal will have a material adverse effect on the
Company's financial position or results of operations.
15. SUBSEQUENT EVENTS
On January 20, 2000, Equis II repaid in full indebtedness of $18,962,000
plus interest to a third-party financial institution. As a result, promissory
notes totaling $19,586,000 issued to the selling Equis II stockholders, are
now secured by a first priority pledge of the shares of Equis II owned by the
Company.
On January 26, 2000, the Company paid $3,102,000 of principal and
accrued interest in partial payment of the promissory note issued by the
Company to EFG to acquire the Special Beneficiary Interests in the Trusts.
On January 26, 2000, Messrs. Engle and Coyne paid principal and accrued
interest of $1,382,649 and $699,653, respectively, to Old North Capital
Limited Partnership in partial payment of their respective notes to Old North
Capital Limited Partnership, which is majority owned by Ariston. On the same
date the Company paid principal and accrued interest to Messrs. Engle and
Coyne of $1,382,649 and $699,653, respectively, in partial payment of the
notes issued to them by the Company in connection with the Equis II
transaction.
On March 6, 2000, the Company obtained shareholder approval for the
issuance of 510,000 shares of common stock to purchase the remaining 15%
interest of Equis II described in Note 5. The selling Equis II shareholders
(Gary D. Engle, James A. Coyne and the Engle Family Trusts) have informed the
Company that they plan to exercise their rights to put their remaining 15%
ownership interests in Equis II to the Company in exchange for 510,000 shares
of the Company's common stock.
18
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-KSB) of Semele Group Inc. of our report dated March 30, 2000, included in the
1999 Annual Report to stockholders of Semele Group Inc.
ERNST & YOUNG LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEMELE GROUP
INC.'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,896,554
<SECURITIES> 0
<RECEIVABLES> 3,269,751
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,001,773
<PP&E> 23,731,858
<DEPRECIATION> 0
<TOTAL-ASSETS> 64,756,727
<CURRENT-LIABILITIES> 1,331,900
<BONDS> 50,736,141
8,836,605
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 64,756,727
<SALES> 0
<TOTAL-REVENUES> 1,886,087
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,222,981
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,336,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,336,864)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,336,894)
<EPS-BASIC> (2.01)
<EPS-DILUTED> (2.01)
</TABLE>
