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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 25, 2000
FIRSTCITY FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 033-19694 76-0243729
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
</TABLE>
<TABLE>
<S> <C>
6400 IMPERIAL DRIVE,
WACO, TEXAS 76712
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (254) 751-1750
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 25, 2000, FirstCity Consumer Lending Corporation ("Consumer
Corp."), a wholly-owned subsidiary of FirstCity Financial Corporation (the
"Company"), completed a sale of a 49% equity interest in its automobile finance
operation to IFA Drive GP Holdings LLC ("IFA-GP") and IFA Drive LP Holdings LLC
("IFA-LP"), wholly-owned subsidiaries of IFA Incorporated ("IFA Parent"), for a
purchase price of $15,000,000 cash pursuant to the terms of a Securities
Purchase Agreement dated as of August 18, 2000 (the "Securities Purchase
Agreement"), by and among the Company, Consumer Corp., FirstCity Funding LP
("Funding LP"), FirstCity Funding GP Corp. ("Funding GP"), IFA-GP and IFA-LP, a
copy of which is attached hereto as Exhibit 10.40 and incorporated herein by
reference. The Company had a loan outstanding to IFA Parent which was paid from
the proceeds of the sale and IFA Parent is the lender under the $12,000,000 Term
B Loan under the restructure of the Company's debt described in "Item 5. Other
Events" below. IFA Parent is a wholly-owned subsidiary of the Bank of Scotland
which is the agent for the lenders under the Company's senior loan facility. See
"Item 5. Other Events" below.
Funding LP, which is indirectly and directly 80% owned by Consumer Corp.,
and its general partner Funding GP were the entities engaged in the automobile
finance operation since 1997 in Dallas, Texas. Consumer Corp. and Thomas R.
Brower, Scot A. Foith, Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman (the "Management Group"), officers and
shareholders of Funding GP and limited partners of Funding LP who indirectly and
directly owned the remaining 20% equity interest in Funding LP, created a new
entity, Drive Financial Services LP ("Drive"), to facilitate the sale. Consumer
Corp. and Funding LP contributed all of the assets utilized in the operations of
the automobile finance operation to Drive pursuant to the terms of a
Contribution and Assumption Agreement dated as of August 18, 2000, by and
between Consumer Corp. and Drive, and a Contribution and Assumption Agreement
dated as of August 18, 2000, by and between Funding LP and Drive (collectively,
the "Contribution Agreements"), copies of which are attached hereto as Exhibit
10.41 and Exhibit 10.42, respectively, and incorporated herein by reference.
Drive assumed substantially all of the liabilities of the automobile finance
operation as set forth in the Contribution Agreements. After taking into effect
the sale of the 49% interest to IFA-GP and IFA-LP, the ownership of Drive is
allocated as follows: 49% of Drive is owned (directly and indirectly) by IFA-GP
and IFA-LP, 31% of Drive is owned (directly and indirectly) by Consumer Corp.,
and 20% of Drive is owned (directly and indirectly) by the Management Group.
In the Securities Purchase Agreement, the Company, Consumer Corp., Funding
LP and Funding GP made various representations and warranties concerning (i)
their respective organizations, (ii) the auto finance operation conducted by
Consumer Corp. and Funding LP, and (iii) the assets transferred by Consumer
Corp. and Funding LP to Drive. The Company, Consumer Corp., Funding LP and
Funding GP also agreed to indemnify IFA Parent, IFA-GP and IFA-LP from damages
resulting from a breach of any representation or warranty contained in the
Securities Purchase Agreement or otherwise made by the Company, Consumer Corp.
or Funding LP in connection with the transaction. The indemnity obligation under
the Securities Purchase Agreement survives for a period of seven (7) years from
August 25, 2000 (the "Closing Date") with respect to tax-related representations
and warranties and for thirty (30) months from the Closing Date with respect to
all other representations and warranties. None of the Company, Consumer Corp.,
Funding LP, or Funding GP is required to make any payments as a result of the
indemnity provided under the Securities Purchase Agreement until the aggregate
amount payable exceeds $250,000, and then only for the amount in excess of
$250,000 in the aggregate; however certain representations and warranties are
not subject to this $250,000 threshold. Pursuant to the terms of the
Contribution Agreements, Consumer Corp. and Funding LP have agreed to indemnify
Drive from any damages resulting in a material adverse effect on Drive resulting
from breaches of representations or warranties, failure to perform, pay or
discharge liabilities other than the assumed liabilities, or claims, lawsuits or
proceedings resulting from the transactions contemplated by the Contribution
Agreements. Pursuant to the terms of the Contribution Agreements, Drive has
agreed to indemnify Consumer Corp. and Funding LP for any breach of any
representation or warranty by Drive, the failure of Drive to discharge any
assumed liability, or any claims arising out of any failure by Drive
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to properly service receivables after August 1, 2000. Liability for
indemnification pursuant to the terms of the Contribution Agreements will not
arise until the total of all losses with respect to such matters exceeds
$250,000 and then only for the amount by which such losses exceed $250,000;
however this limitation will not apply to any breach of which the party had
knowledge at the time of the Closing Date or any intentional breach by a party
of any covenant or obligation under the Contribution Agreements.
On the Closing Date, the Company and its subsidiaries entered into various
agreements with Drive pursuant to the terms of the Securities Purchase
Agreement, including (a) a Services Agreement dated as of August 18, 2000,
between and among Consumer Corp. and Drive providing for certain personnel of
the Company to work for Drive; (b) an Employee Leasing Agreement dated as of
August 18, 2000, between Consumer Corp. and Drive pursuant to which Consumer
Corp. will lease certain employees to Drive until December 31, 2000; and (c) an
agreement among Funding LP and the other owners of Drive relating to election of
managers, restrictions on sale of equity interests and certain other matters
related to the operation of Drive.
In connection with the purchase of the equity interest, IFA Parent, an
affiliate of IFA-GP and IFA-LP, made a $60,000,000 term loan to Drive, the
proceeds of which were used by Drive to repay a $60,000,000 loan owed to
Consumer Corp. by Funding LP which was one of the liabilities assumed by Drive
under the Contribution Agreements. The $60,000,000 term loan by IFA Parent to
Drive was secured by residual interests in securitizations and other assets
which had been transferred to Drive by Consumer Corp. and Funding LP pursuant to
the terms of the Contribution Agreements. The Company provided a guaranty
limited to a maximum amount of up to $4,000,000 of the $60,000,000 term loan by
IFA Parent. The Company, Consumer Corp. and Funding LP secured the guaranty with
a security interest in their respective ownership interests in Consumer Corp.,
Funding LP and Drive. IFA Parent also provided an additional warehouse facility
of up to $100,000,000 to Drive.
The sale of the 49% interest in Drive and the payment of the $60,000,000
loan owed to the Company generated a total of $75,000,000 in cash flow to the
Company. The sale also resulted in a net profit from the auto finance operation
of approximately $6,000,000, which will be reflected in the Company's third
quarter results.
ITEM 5. OTHER EVENTS
As a result of the sale of the 49% interest in the automobile finance
operation, the Company reduced the outstanding debt under its senior and
subordinate facilities from $113,000,000 to $44,263,000. The Company also
retired $6,409,000 of debt owed to other lenders. The Company, the Bank of
Scotland, as agent, The Governor and Company of the Bank of Scotland and IFA
Parent (collectively, the "Lenders"), entered into a Second Amendment to Amended
and Restated Loan Agreement dated as of August 18, 2000 (the "Second
Amendment"), a copy of which is attached hereto as Exhibit 10.43 and
incorporated herein by reference, pursuant to which the remaining debt under the
Company's senior and subordinate debt facilities was restructured into a new
loan facility that provides for a maximum aggregate loan amount of $53,000,000.
The restructured facility is comprised of a $10,000,000 Revolving Line of
Credit, a $31,000,000 Term Loan A and a $12,000,000 Term Loan B. The loans under
the restructured loan facility mature December 31, 2003, and carry pricing of
Libor plus 2.5% for the Revolving Line of Credit and Term Loan A and prime rate
for Term Loan B. The Second Amendment provides for a facility fee of $500,000
and a prepayment fee of $500,000. The restructured loan facility requires the
consent of the Lenders prior to payment of any common and preferred dividends.
The Company obtained waivers or modifications under the Second Amendment that
bring the Company into full compliance under the facility and cured defaults
that existed prior to the restructure.
IFA Parent retained the warrant for the purchase 425,000 shares of the
Company's voting common stock at $2.3125 per share (the closing price on
December 21, 1999) which was issued in connection with the debt restructure in
December 1999. In connection with the execution of the Second Amendment, the
Company and IFA Parent amended the option to obtain a warrant for 1,975,000
shares of non-voting stock which was granted in December 1999 in connection with
the $25,000,000 subordinated debt facility. The option, as
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amended, allows IFA Parent to acquire a warrant to acquire 1,975,000 shares of
the Company's non-voting common stock; the option can be exercised after August
31, 2001 if Term Loan B remains outstanding, but not prior to such date. The
Company has until December 1, 2000 to take the necessary actions to authorize
the issuance of the non-voting common stock covered by the option. The strike
price of $2.31 will remain the same, but the initial date upon which the option
can be exercised has been extended to August 31, 2001. In the event that prior
to August 31, 2001 the Company either (a) refinances the $12,000,000 Term Loan B
with subordinated debt, or (b) pays off the balance of Term Loan B from proceeds
of an equity offering, then the option to acquire a warrant for 1,975,000 shares
of non-voting stock will terminate. In the event that Term Loan B is terminated
prior to August 31, 2001 through a transaction involving the issuance of
warrants, IFA Parent is entitled to retain sufficient warrants to allow it to
acquire approximately 4.86% of the Company's common stock.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements. Not applicable.
(b) Pro Forma Financial Information. The pro forma financial information
for the following unaudited Pro Forma Condensed Consolidated Financial
Statements is filed with this report:
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<S> <C>
Pro Forma Condensed Consolidated Balance Sheet as at June
30, 2000............................................... Page F-1
Pro forma Condensed Consolidated Statements of
Operations:
Year Ended December 31, 1999........................... Page F-2
Six Months Ended June 30, 2000......................... Page F-3
</TABLE>
The unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company
as of June 30, 2000, reflects the financial position of the Company after giving
effect to the disposition of the assets, assumption of the liabilities by Drive,
and the reduction and restructure of the Company's debt as discussed in Items 2
and 5, and assumes the disposition took place on June 30, 2000. The unaudited
Pro Forma Condensed Consolidated Statement of Operations for the fiscal year
ended December 31, 1999, and the six months ended June 30, 2000, assume that the
transactions discussed in Items 2 and 5 occurred on January 1, 1999, and are
based on the operations of the Company for the year ended December 31, 1999, and
the six months ended June 30, 2000.
The unaudited Pro Forma Condensed Financial Statements have been prepared
by the Company based upon assumptions deemed proper by it. The unaudited Pro
Forma Condensed Consolidated Financial Statements presented herein are shown for
illustrative purposes only and are not necessarily indicative of the future
financial position or future results of operations of the Company, or of the
financial position or results of operations of the Company that would have
actually occurred had the transaction been in effect as of the date or for the
periods presented. In addition, it should be noted that the Company's financial
statements will reflect the disposition only from August 1, 2000, which is the
cut-off date under the Securities Purchase Agreement.
The unaudited Pro Forma Condensed Consolidated Financial Statements should
be read in conjunction with the historical financial statements and related
notes of the Company.
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(c) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<C> <S>
10.40 -- Securities Purchase Agreement, dated as of August 18,
2000, by and among the Company, Consumer Corp., Funding
LP, Funding GP, IFA-GP and IFA-LP.
10.41 -- Contribution and Assumption Agreement, dated as of August
18, 2000, by and between Consumer Corp. and Drive.
10.42 -- Contribution and Assumption Agreement, dated as of August
18, 2000, by and between Funding LP and Drive.
10.43 -- Second Amendment to Amended and Restated Loan Agreement,
dated December 20, 1999, by and among the Company, as
borrower, and the Lenders, as lenders, and Bank of
Scotland, as Agent.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRSTCITY FINANCIAL CORPORATION
By: /s/ J. BRYAN BAKER
----------------------------------
J. Bryan Baker
Senior Vice President
and Chief Financial Officer
Date: September 11, 2000
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FIRSTCITY FINANCIAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
HISTORICAL (A) (B) OTHER PRO FORMA
---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Cash and equivalents................ $ 17,160 $ (6,003) $ -- $ -- $ 11,157
Purchased asset pools, net.......... 30,889 30,889
Loan receivables, net............... 88,333 (81,188) 7,145
Equity in unconsolidated
subsidiaries...................... 31,391 2,185(C) 33,576
Discontinued operations............. 18,144 18,144
Investment securities............... 53,817 (53,817) --
Deferred tax asset.................. 20,101 20,101
Other assets........................ 16,776 (6,597) 10,179
-------- --------- -------- -------- --------
Total assets.............. $276,611 $(147,605) $ -- $ 2,185 $131,191
======== ========= ======== ======== ========
Intercompany note payable........... $ -- $ (60,000) $ 60,000 $ -- $ --
Notes payable....................... 231,827 (74,622) (58,100) (15,000)(D) 84,105
Other liabilities................... 10,529 (5,935) (1,900) 5,000(E) 7,694
-------- --------- -------- -------- --------
Total liabilities......... 242,356 (140,557) -- (10,000) 91,799
-------- --------- -------- -------- --------
Redeemable preferred stock.......... 28,249 28,249
Common stock........................ 84 84
Paid in capital..................... 79,613 (5,827) 5,827 79,613
Foreign currency loss............... (636) (636)
Accumulated deficit................. (73,055) (1,221) 6,358 (67,918)
-------- --------- -------- -------- --------
Total equity.............. 6,006 (7,048) -- 12,185 11,651
-------- --------- -------- -------- --------
Total liabilities &
equity.................. $276,611 $(147,605) $ -- $ 2,185 $131,191
======== ========= ======== ======== ========
</TABLE>
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(A) To eliminate the assets and liabilities included in the balance sheet of
the Drive business as of June 30, 2000 and accrue $1.1 million of
additional costs in Drive related to the transaction.
(B) To reflect $60 million loan from IFA to Drive which was used to pay down a
$60 million intercompany loan to the Company. The Company applied $58.1
million of the proceeds to the Company's senior revolving line of credit,
subordinated debt and other creditors and paid $1.9 million of closing
costs and accrued interest.
(C) To reflect 31% equity investment in the Drive business under the equity
method of accounting.
(D) To reflect a $15 million pay down of the Company's senior revolving line of
credit, subordinated debt other creditors with the $15 million net proceeds
from the sale of 49% interest in auto finance operation.
(E) To reflect $4 million deferred gain from sale of interest in Auto Finance
operation and $1 million accrued closing costs related to the transaction.
F-1
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FIRSTCITY FINANCIAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------
HISTORICAL (A) OTHER PRO FORMA
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of automobile loans................ $10,280 $(10,280) $ -- $ --
Servicing fees.................................. 8,936 (5,086)
Gain on resolution of Portfolio Assets.......... 4,054 4,054
Equity in earnings of unconsolidated
subsidiaries................................. 11,318 1,807(B) 13,125
Interest income................................. 20,502 (17,449) 3,053
Other........................................... 3,838 (110)
------- -------- ------- -------
Total revenues.......................... 58,928 (32,925) 1,807 27,810
Expenses:
Interest on notes payable....................... 16,291 (4,730) (6,323)(C) 5,238
Salaries and benefits........................... 15,621 (8,053) 7,568
Provision for loan and impairment losses........ 4,302 (4,302) 0
Occupancy, data processing, communication and
other........................................ 20,405 (9,945) 10,460
------- -------- ------- -------
Total expenses.......................... 56,619 (27,030) (6,323) 23,266
Loss from continuing operations before income
taxes, minority interest and preferred
dividends.................................... 2,309 (5,895) 8,130 4,544
Provision for income taxes........................ (5,051) 65 (4,986)
Minority interest................................. (734) 446 (288)
Preferred dividends............................... (2,568) (2,568)
------- -------- ------- -------
Loss from continuing operations......... $(6,044) $ (5,384) $ 8,130 $(3,298)
======= ======== ======= =======
Average Shares Outstanding........................ 8,307 8,307
Earnings per share -- fully diluted............... $ (0.73) $ (0.40)
</TABLE>
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(A) To eliminate the results of operations of Drive for the year.
(B) To reflect the 31% equity in earnings of Drive under the equity method of
accounting.
(C) To eliminate interest expense that would not have been incurred if the
transaction had been completed at the beginning of the year.
F-2
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FIRSTCITY FINANCIAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------
HISTORICAL (A) OTHER PRO FORMA
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of automobile loans................ $ 2,836 $ (2,836) $ -- $ --
Servicing fees.................................. 7,236 (3,309) 3,927
Gain on resolution of Portfolio Assets.......... 1,770 1,770
Equity in earnings of unconsolidated
subsidiaries................................. 3,870 505(B) 4,375
Interest income................................. 11,064 (10,144) 920
Other........................................... 1,290 (100) 1,190
-------- -------- ------- --------
Total revenues.......................... 28,066 (16,389) 505 12,182
Expenses:
Interest on notes payable....................... 11,703 (2,568) (4,575)(C) 4,560
Salaries and benefits........................... 9,614 (5,194) 4,420
Provision for loan and impairment losses........ 3,835 (2,231) 1,604
Occupancy, data processing, communication and
other........................................ 9,887 (4,759) 5,128
-------- -------- ------- --------
Total expenses.......................... 35,039 (14,752) (4,575) 15,712
Loss from continuing operations before income
taxes, minority interest and preferred
dividends.................................... (6,973) (1,637) 5,080 (3,530)
Provision for income taxes........................ (7,321) 8 (7,313)
Minority interest................................. 187 (330) (143)
Preferred dividends............................... (1,284) (1,284)
-------- -------- ------- --------
Loss from continuing operations......... $(15,391) $ (1,959) $ 5,080 $(12,270)
======== ======== ======= ========
Average Shares Outstanding........................ 8,348 8,348
Earnings per share -- fully diluted............... $ (1.84) $ (1.47)
</TABLE>
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(A) To eliminate the results of operations of Drive for the period.
(B) To reflect the 31% equity in earnings of Drive under the equity method of
accounting.
(C) To eliminate interest expense that would not have been incurred if the
transaction had been completed at the beginning of the period.
F-3
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.40 -- Securities Purchase Agreement, dated as of August 18,
2000, by and among the Company, Consumer Corp., Funding
LP, Funding GP, IFA-GP and IFA-LP.
10.41 -- Contribution and Assumption Agreement by and between
Consumer Corp. and Drive dated as of August 18, 2000.
10.42 -- Contribution and Assumption Agreement by and between
Funding LP and Drive dated as of August 18, 2000.
10.43 -- Second Amendment to Amended and Restated Loan Agreement,
dated December 20, 1999, by and among the Company, as
borrower, and the Lenders, as lenders, and Bank of
Scotland, as Agent.
</TABLE>
