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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996 COMMISSION FILE NO. 1-10569
AUTOLEND GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3137244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
930 WASHINGTON AVENUE,
MIAMI BEACH, FLORIDA 33139
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 673-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered
Common Stock, $.002 par value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
-- Units -- Redeemable Class A Warrants
-- Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the Registrant was required to file such report(s)), and (2) has been subject to
the filing requirements for the past ninety (90) days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of June 21, 1996 the registrant had 4,634,530 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
non-affiliates as of June 21, 1996 was approximately $3,288,834 million.
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<PAGE>
PART I
ITEM 1. BUSINESS.
BACKGROUND
AutoLend Group, Inc. ("AutoLend" or the "Company") is a consumer finance
company which, through its wholly-owned subsidiaries AutoLend IAP, Inc.,
AutoLend Corporation, LB NM, Inc. ("LB NM") and American Life Resources Group,
Inc. ("ALRG") is engaged in the business of (i) providing short term (2 to 6
weeks) financing to selected used car dealers for purchases of used automobiles
at certain regional auctions throughout the United States (the "Inventory
Assistance Program," or "IAP"), (ii) maintaining a portfolio of retail
installment loan contracts purchased from independent and franchised used
automobile dealers ("Installment Contracts Receivable"), and (iii) maintaining a
portfolio of life insurance policies ("Policies") purchased from individuals
facing life-threatening illnesses, a business generically referred to as
viatical settlements.
Unless the context indicates otherwise, all references to the "Company"
include AutoLend Group, Inc. and its wholly-owned subsidiaries, AutoLend IAP,
Inc. (Inventory Assistance Program), AutoLend Corporation (Installment Contracts
Receivable portfolio management), LB NM (viatical settlements) and American Life
Resources Group, Inc. (viatical settlements).
The Company's viability as a going concern is dependent upon the
successful closing of the Settlement (as hereinafter defined), the restructuring
of its obligations and asset base, and ultimately, a return to profitability.
The Company has been operating at a loss and has incurred operating losses in
the last three years. Management has initiated a plan to terminate certain of
its operations and to improve the profitability of the Company. See "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Based upon an analysis of market factors and growth potential, as well
as an evaluation of the Company's liquidity and capital resources, since
December 22, 1995 the Company has ceased to purchase Installment Contracts
Receivable and since September 29, 1994 to purchase Policies, and does not at
this time intend to recommence such activities.
INVENTORY ASSISTANCE PROGRAM
AutoLend launched a new financing product in March 1995 called the
AutoLend Inventory Assistance Program. The IAP program is similar to the "floor
plan" financing plans offered by automobile manufacturers to their new car
dealers. Dealers registered to purchase cars at participating auctions may
qualify for an IAP credit line to allow them to finance the auction purchase of
automobiles for terms of two, four or six weeks. The amount of the credit line
and the length of term depend upon the applicant's business and credit history.
The IAP program is targeted at the independent dealer who requires
short-term credit for purchases of used autos at selected regional auctions. In
exchange for a servicing fee and interest charges, approved dealers become
eligible for 100% financing of the purchase price of cars they purchase at an
AutoLend-affiliated auction. This financing, which is commonly referred to as
"floor plan" financing, typically extends for periods ranging from 2 to 6 weeks
from the time of purchase.
On June 30, 1995, IAP and the Company entered into an agreement (the
"ServNet Agreement") with ServNet, Inc. ("ServNet"), an association of 17
independent used car auctions, with a term of ten years, subject to renewals.
Pursuant to the ServNet Agreement, ServNet agreed to use its best efforts to
cause its constituent auctions to enter into agreements ("AutoLend Auction
Agreements") with IAP to allow IAP the exclusive opportunity to provide floor
plan financing for dealers purchasing cars at the participating auctions.
Pursuant to the ServNet Agreement, IAP will pay to ServNet a fee calculated
based upon volume or net profits, whichever results in a greater fee.
To date, IAP has entered into AutoLend Auction Agreements with 11
ServNet auctions for ten year terms.
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IAP's accounting system is coordinated with the systems of participating
ServNet auctions. On auction day, qualified buyers are given a
computer-generated report that itemizes the status and recent history of their
account and indicates their available IAP credit. At the time of payment, buyers
advise auction cashiers that they wish to access their IAP credit line. The
buyer must then provide a check for the aggregate administration fee and
interest due for all cars purchased, which is made out to IAP and is deposited
immediately; and separate checks for each car representing the principal amount
of each car purchased plus the auction buyer's fee based upon the purchase price
of the financed automobile, which are held in safekeeping. The principal checks
are held by the ServNet auction along with the title for each car purchased. The
titles are released to the dealer upon satisfaction of the buyer's obligation to
IAP, either once the checks have cleared at the end of the finance period or by
prepayment. If the dealer pre-pays, no pre-payment penalty is charged and
unearned interest is rebated to the dealer.
Each dealer applicant is subjected to an investigation that includes a
review of credit bureau reports, bank references, auction references, trade
references, verification that the dealer is bonded, insurance review, lien
searches and verification that the applicant is in good standing with any
relevant state licensing authority. In some instances where a ServNet auction
has specifically requested that certain borderline applicants be approved, the
particular ServNet auction guarantees the loan to IAP.
Under the terms of the proposed settlement of the stockholder derivative
litigation against the Company (the "Settlement"), AutoLend IAP, Inc. will be
sold by the Company. See "Item 3 -- Legal Proceedings."
INSTALLMENT CONTRACTS RECEIVABLE
From May 20, 1994 through December 22, 1995 the Company purchased
Installment Contracts Receivable, which the Company currently plans to hold in
its portfolio until maturity.
Installment Contracts Receivable that met the Company's underwriting
standards were acquired on either an individual basis after the Company had
reviewed and approved the automobile purchaser's credit application (a "point of
sale purchase"), or on a group basis through purchase of a dealer's portfolio of
existing installment contracts (a "bulk purchase").
The maturity of AutoLend's purchased Installment Contracts Receivable
ranged from periods of 3 months to 24 months from their respective dates of
purchase at annual interest rates ranging from 21% to 40%. Generally, all such
Installment Contracts Receivable were repayable in installments but may be
repaid, without penalty, prior to maturity. The average period to maturity of
Installment Contracts Receivable in the Company's portfolio at March 31, 1996
was 17 months.
To achieve an acceptable rate of return and provide for credit risk,
Installment Contracts Receivable were purchased from dealers at a discount to
the remaining principal balance. The amount of the discount reflected, among
other things, a contract's interest rate, remaining term and credit risk.
In January 1996, in order to reduce general and administrative expenses,
the Company began to outsource collection functions in connection with its
Installment Contracts Receivable under an agreement with LSI Financial Corp.
("LSI"), a leading third party servicing company specializing in servicing
portfolios of subprime automobile receivables. Under the agreement LSI receives
a flat service fee per active loan per month plus certain expenses in connection
with any repossessions.
VIATICAL SETTLEMENTS
From 1991 to 1994 the Company purchased Policies insuring individuals
generally having a projected life expectancy at the date of purchase of 24
months or less and generally paid 55 to 80 percent of the death
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benefits of such Policies. The actual amount paid was determined by the Company
through the use of a proprietary formula which weighs various factors. The
Policyholder assigned his or her Policy to the Company, which became the holder
and beneficiary of the Policy and receives the payout upon maturity from the
insurance company.
On May 8, 1995 and July 18, 1995, the Company entered into agreements
with Viaticus, Inc. ("Viaticus"), an affiliate of the CNA Insurance Companies,
providing for the assignment to Viaticus of the benefits under certain of the
insurance policies held by the Company's wholly-owned subsidiaries ALRG and LB
NM.
Under the agreements, ALRG and LB NM received consideration for each of
the assigned Policies when Viaticus received an acknowledgement from the insurer
of the assignment of the Policy. During the fiscal year ended March 31, 1996,
approximately $17.5 million has been received as payment for policies with
completed assignments to Viaticus and there are no outstanding amounts
receivable under the agreements as of March 31, 1996.
In conjunction with the sales to Viaticus, the remaining goodwill and
other intangibles related to the purchases of the viatical business in 1993 and
1991 have been fully amortized. The Company does not currently anticipate any
new purchases of Policies.
EMPLOYEES
At March 31, 1996, the Company and its subsidiaries had 20 full-time
employees. The Company believes its relations with its employees are good and
that there will be no substantial problem in recruiting additional qualified
employees to accommodate future growth.
COMPETITION
While management is not aware of any existing competition for the
short-term financing of purchases by used car dealers at ServNet auctions,
competition could develop from several potential sources. Although banks have
traditionally declined to provide "floor plan" financing for independent used
car dealers for high mileage used cars, they could pose significant competition
if they decided to enter this market. Similarly, most finance companies do not
currently engage in "floor plan" lending, but could move into the business of
providing credit to used car dealers. This particular source of competition is
likely to develop from finance companies who are engaged in purchasing
receivables from used car dealers. These companies frequently have a well
developed understanding of, and established relationships with, dealers, as well
as knowledge of their inventory and other potential collateral.
Although the Company's agreement with ServNet requires ServNet to
promote and encourage its independent member auctions to use the Company's
financing program, particular auctions cannot be required to participate and may
have existing individual in-house financing programs. Participating ServNet
auctions, however, may not provide short-term financing unless either IAP
declines the particular dealer or an in-house financing program previously
existed.
Another source of competition consists of financing plans offered by
other auction companies. Under the ServNet Agreement, the Company has exclusive
access to the participating ServNet auctions. However, other finance companies
and competitive auctions are currently providing off-premises financing to
ServNet dealers. Some of the Company's competitors have substantially greater
financial resources than the Company and are able to offer rates and fees that
are lower and other terms that are more favorable than those offered by the
Company.
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GOVERNMENT REGULATION
Inventory Assistance Program
In each state in which the Company conducts its IAP business, the
Company and/or IAP must obtain a license to do business and/or a certificate of
authority. The Company and/or IAP is duly licensed to conduct its business in
each state in which it conducts its business and all such licenses are current
and in good order. The provision of finance to dealers may be subject to the
addition regulations set forth below under the heading "Installment Contracts
Receivable."
Installment Contracts Receivable
Numerous Federal and State consumer protection laws and related
regulations impose substantial requirements upon lenders and services involved
in consumer finance. These laws include, but are not limited to, the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B and Z, state adaptations of the National Consumer
Act and of the Uniform Consumer Credit Code, state motor vehicle retail
installments sales acts, retail installment sales acts and other similar laws.
Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under Federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Installment Contracts Receivable.
The so-called "Holder in Due Course" Rule of the Federal Trade
Commission (the "FTC Rule"), the provisions of which are generally duplicated by
the Uniform Consumer Credit Code, other state statutes or the common law in
certain states, is intended to defeat the ability of the transferor of a
consumer credit contract (such as the Installment Contracts Receivable), which
transferor is the seller of the goods that gave rise to the transaction, to
transfer such contract free of notice of claims by the debtor thereunder. The
effect of this rule is to subject the assignee of such a contract to all claims
and defenses which the borrower under the contract could assert against the
seller of goods. Most of the Installment Contracts Receivable are subject to the
requirements of the FTC Rule. Accordingly, the Company, as holder of the
Installment Contracts Receivable, may be subject to any claims or defenses that
the purchaser of the auto may assert against the seller of the auto. Such claims
are limited to a maximum liability equal to the amounts paid by the borrower on
the Installment Contracts Receivable. The borrower may also assert the rule to
offset remaining amounts due on the Installment Contracts Receivable as a
defense against any claim brought by the Company against such borrower.
Under most state motor vehicle dealer licensing laws, sellers of motor
vehicles are required to be licensed to sell motor vehicles. Furthermore,
federal odometer regulations promulgated under the Motor Vehicle Information and
Cost Savings Act require that all sellers of new and used vehicles furnish a
written statement signed by the seller certifying the accuracy of the odometer
reading. If a seller was not properly licensed or if an odometer disclosure
statement was not provided to the purchaser of an auto, the borrower may be able
to assert a defense against the seller of the vehicle.
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving a borrower from some
or all of the legal consequences of a default.
In several cases, borrowers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protection provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as
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reasonable or have found that the repossession and resale by the creditors do
not involve sufficient state action to afford constitutional protection to
consumers.
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the Federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
Viatical Settlements
The Company generally purchased Policies only from residents of states
where the Company believes there is no statutory and/or judicial authority
prohibiting the enforcement of the assignment of Policies to assignees without
an insurable interest in the insured. Each state, however, has statutes that
regulate "conducting an insurance business" (or terms to the same effect) and,
although the Company believes there is generally no existing judicial authority
on point, there can be no assurance that some or all of these statutes will not
be interpreted in the future to include viatical settlements and to preclude
purchasers of viatical settlements, which are not insurance companies, from
operating in such states. Such an interpretation would only adversely effect the
Company if it were made to apply retroactively since the Company does not
currently contemplate purchasing additional viatical settlements.
TRADEMARKS
On July 29, 1994, the Company sold certain assets of its viatical
settlements business to National Capital Benefits Corporation ("NCBC"), a
subsidiary of National Capital Management Corporation ("NCMC"). Pursuant to the
agreement, NCBC paid the Company $125,000 and issued to the Company 100,000
shares of the common stock of NCMC. The Company has an option to sell these
shares back to NCMC within 24 months of the sale, at a price of $1.75 per share.
In addition, NCBC agreed to pay a royalty to the Company upon the maturity of
all policies purchased by NCBC during the next four years.
Assets acquired by NCBC included the Company's proprietary client
management software system, all "work in process" and the trade names of both LB
NM and ALRG. Along with certain other assets, the Company retained its existing
accounts receivable and its inventory of owned policies. The Company expects to
hold such inventory through the maturity and collection process. As a result of
this sale, the Company began amortizing the remaining goodwill and intangible
assets associated with the acquisitions of its viatical settlements companies in
proportion to its recognition of revenue from matured policies, until all owned
policies have matured. The effect of such amortization during the fiscal year
ended March 31, 1995 resulted in an amortization expense of approximately
$870,405. In conjunction with the sale to Viaticus, the remaining good will and
other intangibles related to the purchaser of the viatical business in 1993 and
1991, have been amortized during the year ending March 31, 1996.
On July 10, 1996 the Company gave notice to NCBC and NCMC of its
election to sell its shares of NCMC common stock back to NCMC.
ITEM 2. PROPERTIES.
The Company leases approximately 3,050 square feet of office space in
Miami Beach, Florida under a lease expiring in May 1997 at an annual base rent
of $35,652, subject to annual increases that have historically
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been approximately 5%. Under the terms of the Settlement, at closing, the
balance of the lease will be assumed by IAP.
On May 11, 1994, the Company entered into a new lease to consolidate and
expand existing office space. The initial six year term of the lease provides
for annual base rent in each of the first two years of $207,000 for
approximately 11,400 square feet and $325,000 annually thereafter when the
square footage will increase to approximately 17,000 square feet, subject to
increases reflecting changes in the consumer price index. The lease provides for
one four-year renewal period. The lease commenced on August 1, 1994. In
February, 1996 the Company vacated these premises, and is currently using them
for storage. The Company is currently seeking a party to sublease or assume its
lease obligations with respect to these premises. No assurance can be given that
the Company will be able to find such a party or that if the Company finds such
a party, the Company will be able to enter into an arrangement with such party
on terms favorable to the Company.
ITEM 3. LEGAL AND REGULATORY PROCEEDINGS.
On December 26, 1995, Nunzio P. DeSantis, Courtland G. Miller and
Vincent Villanueva ("Plaintiffs") commenced an action (the "Derivative Suit") in
the Delaware Court of Chancery for New Castle County (the "Court") against Steve
Simon, Stephen Raphael and Elie Housman ("Defendants"), and the Company as
nominal defendant seeking, among other things, various injunctions against, and
unspecified damages for, alleged breaches of fiduciary duty, gross mismanagement
and/or gross negligence that may have occurred. Plaintiffs predicated their
claims on allegations concerning the Company's performance, an alleged proposed
spin-off of a subsidiary of the Company, and the repurchase and alleged
additional plans by the Company to repurchase its outstanding 9.5% convertible
subordinated debentures maturing on September 19, 1997. Management believed that
all of these claims were baseless.
On May 3, 1996, the parties submitted a Stipulation of Settlement (the
"Stipulation") to the Court seeking the Court's approval for the settlement of
the Derivative Suit. Pursuant to the Stipulation, current management will resign
and receive on an accelerated basis payments remaining under their respective
employment agreements, enter into consulting agreements with the Company, and
the Company's AutoLend IAP, Inc. subsidiary will be sold to an affiliate of
departing management for consideration that includes settlement of all
intercompany indebtedness and the issuance by IAP of redeemable preferred stock
with a face amount of $1 million. See "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations." In addition the
Stipulation provided for dismissal of the Derivative Suit with prejudice and the
exchange of releases by all parties. See "Item 13 -- Certain Relationships and
Related Transactions."
The Stipulation was distributed to the Stockholders of the Company on or
about May 15, 1996. On June 17, 1996, a single notice of objection to the
proposed settlement was filed with the Court. On June 27, 1996, after a hearing,
at which the objector was represented by counsel and made written and oral
submissions to the Court, Vice Chancellor Steele of the Delaware Chancery Court
entered an order approving the settlement set forth in the Stipulation (the
"Settlement").
As of December 31, 1995, the Company's capital and surplus fell below
the $1 million required by the NASDAQ Stock Market for continued listing. On
April 30, 1996, a delisting hearing was held before the Nasdaq Qualifications
Hearing Panel (the "Panel"). At the hearing, the Company requested a temporary
exception to the capital and surplus requirements. The Panel granted the
Company's request for a temporary exception. However, under the exception, the
Company was required to make a public filing evidencing compliance with the
minimum capital and surplus requirements with the Securities and Exchange
Commission and the NASDAQ Stock Market on or before May 20, 1996. The Company
could not make such a filing, and, on or about May 21, 1996, the Company was
delisted from the NASDAQ Stock Market.
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In May 1996, the Company was impleaded by an insurer into a suit in the
United States Bankruptcy Court for the Middle District of Florida, in which a
bankrupt seeks from the insurer payment of a $1 million death benefit under a
Policy which it asserts the insurer improperly amended to remove it as the
beneficiary without consent of the Bankruptcy Court. Following such amendment,
the Policy was assigned to the Company, which was without notice of any of these
alleged facts. The insurer seeks to recover the death benefit paid under this
Policy from the Company in the event that it is required to pay such death
benefit to the bankrupt. The Company intends to aggressively defend against such
claims and to aggressively assert its own claims against the insurer.
The Company is involved in the causes of action described below as
plaintiff.
In March 1996, the Company commenced an action against Earl A. Van
Dorien, Jr., a former employee of the Company, in the Circuit Court, Dade
County, Florida seeking damages and the return of stolen property in connection
with the deletion from the Company's computer system of certain menu tools,
programs and access tools.
In May 1996 Aurora National Life Assurance Company filed an interpleader
action in the United States District Court for the Southern District of Florida
seeking determination of the proper recipient of benefits under a Policy. The
Policy in question was sold by the Company to Viaticus in May 1995 for $3
million. Although the insured had died in December 1994, neither the Company nor
Viaticus was aware of the maturation of the Policy at the time of the sale. The
Company intends to vigorously assert its claim to the full death benefits. If it
is awarded those benefits, it will have to return the $3 million sale price
previously paid to it by Viaticus for purchase of the policy, leaving the
Company with a $1.5 million net gain.
Management is currently unable to assess the outcome of such litigation
and whether the results thereof would have a material effect on the condition,
financial and otherwise, of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(None)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock and Class A Warrants were quoted on the
NASDAQ Stock Market ("NASDAQ") under the symbols CARS and CARSW, respectively,
through May 22, 1996. The Common Stock has also been listed on the Boston Stock
Exchange (the "BSE") under the symbol OTO, since July 1, 1990. See "Item 3-
Legal and Regulatory Proceedings."
The following table sets forth the range of high and low bid prices for
the Common Stock and Class A Warrants for all quarters for the fiscal years
ended March 31, 1995 and 1996, as reported by NASDAQ. The quotes represent
"Interdealer" prices without adjustment or mark-ups, mark-downs or commissions,
and, in the case of bid prices, may not necessarily represent actual
transactions. The trading volume of the Company's securities fluctuates and may
be limited during certain periods. As a result, the liquidity of an investment
in the Company's securities may be adversely affected.
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<TABLE>
<CAPTION>
COMMON CLASS A
STOCK WARRANTS(1)
------------------- -------------------
HIGH LOW HIGH LOW
FISCAL YEAR ENDING
MARCH 31, 1995
<S> <C> <C> <C> <C>
Quarter ended June 30, 1994.............. $ 4 1/8 $ 2 1/4 $ 1 5/8 $ 3/4
Quarter ended September 30, 1994....... 3 3/4 1 3/4 1 1/8 5/16
Quarter ended December 31, 1994....... 3 1/4 1 3/4 13/16 5/16
Quarter ended March 31, 1995............ 3 1/4 1 5/18 9/16 1/8
FISCAL YEAR ENDING
MARCH 31, 1996
Quarter ended June 30, 1995.............. $ 2 3/8 $ 1 3/8 $ 3/8 $ 5/32
Quarter ended September 30, 1995....... 2 5/8 1 9/16 19/32 3/16
Quarter ended December 31, 1995....... 2 1/16 7/8 19/32 1/8
Quarter ended March 31, 1996............ 1 3/8 7/8 7/16 3/16
</TABLE>
________________________________
(1) Each Class A Warrant entitles the registered holder thereof to purchase one
share of Common Stock and one Class B Warrant through July 30, 1996 at an
exercise price of $4.00, subject to adjustment. Each Class B Warrant entitles
the registered holder thereof to purchase one share of Common Stock from the
date of issuance through July 30, 1996 at an exercise price of $7.00, subject to
adjustment. The Class A Warrants and the Class B Warrants are subject to
redemption at $.05 per Warrant on 30 days' prior written notice, provided the
closing bid price of the Common Stock exceeds $5.50 and $9.70 per share,
respectively, for 30 consecutive business days ending within 15 days of the date
of notice of redemption.
As of June 21, 1996 the last reported sale prices for the Common Stock
was $.9375 based upon a May 22, 1996 trade on NASDAQ and the last reported sales
price for the Class A Warrants was $.18 based upon a May 10, 1996 trade on
NASDAQ.
As of June 21, 1996 there were 4,634,530 shares of Common Stock
outstanding.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data of the Company for the fiscal
years ended March 31, 1996, 1995, 1994, 1993 and 1992 has been derived from the
audited consolidated financial statements and should be read in conjunction with
such consolidated financial statements and the notes thereto. The Company
commenced its viatical settlements business on April 1, 1991. On April 6, 1993,
the Company acquired certain operating assets of American Life Resources
Corporation, a Florida corporation engaged in the viatical settlements business.
The Company ceased since December 22, 1995 to purchase Installment Contracts
Receivable and since September 29, 1994 to purchase Policies. On May 20, 1994
the Company commenced its Installment Contracts Receivable business and on March
9, 1995 it commenced its Inventory Assistance Program Business. Accordingly,
results of operations prior to such dates are not indicative of future
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
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<TABLE>
<CAPTION>
FISCAL YEAR
ENDED MARCH 31,
------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Finance charges on installment contracts........... $ 7,808,369 $ 2,718,905 $ -- $ -- $ --
Revenue from matured insurance policies............ 1,326,706 19,937,906 19,835,258 12,022,667 3,071,916
Operating earnings (loss)....................... (1,564,763) 2,750,932 3,504,138 2,069,936 (741,875)
Net interest income (expense)................... (2,686,520) (4,530,910) (4,316,724) (2,439,994) (1,076,189)
Net realized gains (losses) on securities
available for sale......................... 1,137 (1,649,252) (33,578) 681,151 14,680
Net unrealized losses on securities available
for sale................................... -- -- -- (194,814) --
Earnings (loss) before discontinued operations
extraordinary item and cumulative
effect of change in accounting principle... (8,180,657) (4,962,088) (946,164) 116,279 (1,803,384)
Discontinued operations - loss from operations
of discontinued subsidiary net of income
tax benefit................................ (47,595) (67,735) -- -- --
------- -------
Earnings (loss) before extraordinary item and
cumulative effect of change in
accounting principle....................... (8,228,252) (5,029,823) (946,164) 116,279 (1,803,384)
Extraordinary item-net gain on early
extinguishment of debt..................... 7,306,970) 2,030,000 -- -- --
Earnings before cumulative effect of change in
accounting principle...................... (921,282) (2,999,823) (946,164) 116,279 (1,803,384)
Cumulative effect of change in accounting
principle.................................. 176,735 -- -- 194,814 --
Net earnings (loss)............................. (744,547) (2,999,823) (946,164) 311,093 (1,803,384)
Earnings (loss) per share before discontinued
operations, extraordinary item and
cumulative effect of change in
accounting principle....................... (1.77) (1.07) (0.20) 0.02 (0.34)
Earnings (loss) per share on discontinued
operations................................. (0.01) (0.02) -- -- --
----- -----
Earnings (loss) per share before
extraordinary item and cumulative effect
of change in accounting principle.......... (1.78) (1.09) (0.20) 0.02 (0.34)
Earnings per share on extraordinary item-gain
on early extinguishment of debt............ 1.58 0.44 -- -- --
Earnings (loss) per share before cumulative
effect of change in accounting
principle.................................. (0.20) (0.65) (0.20) 0.02) (0.34)
Earnings (loss) per share on cumulative
effect of change in accounting
principle.................................. 0.04 -- -- 0.04 --
Net earnings (loss) per share................... (0.16) (0.65) (.20) 0.06 (0.34)
Average number of shares outstanding............ 4,634,530 4,634,530 4,641,605) 5,339,809 5,308,911)
BALANCE SHEET DATA:
Total Assets.................................... $24,485,089 $55,001,797 $61,382,195 $63,439,211 $65,720,288
Total Liabilities............................... 25,802,009 54,573,500 58,672,134 58,550,483 58,811,996
Total Stockholders' Equity...................... (316,920) 428,297 2,710,061 4,888,728 6,908,292
</TABLE>
- 9 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Although the Company was organized in May 1989, it did not commence its
viatical settlements business until April 1991 when it acquired certain assets
of Living Benefits, Inc. ("LBI") and covenants not to compete from the former
owners of LBI. In April 1993, the Company acquired certain operating assets of
American Life Resources Corporation ("ALRC"), which was also engaged in the
viatical settlements business. ALRC retained the Policies it had purchased prior
to January 14, 1993. Goodwill and intangibles related to these acquisitions were
amortized over the remaining life of the viatical portfolio, extending through
the fiscal year ended March 31, 1996.
The Company commenced purchasing Installment Contracts Receivable in May
1994 and ceased making such purchases in December 1995. The Company commenced
its Inventory Assistance Program in March 1995.
In September 1991, the Company sold $55 million 91/2% Convertible
Subordinated Debentures (the "Debentures"). During the fiscal year ended March
31, 1996, the Company prepaid, without penalty, $28.9 million principal amount
of Debentures, leaving $22.1 million outstanding. Annual interest payments of
approximately $2.1 million are required under the Debentures outstanding as of
March 31, 1996. Debt issuance costs of approximately $3.6 million arising from
the sale of Debentures are being amortized over the six year term, with
applicable amounts of costs amortized as prepayments of debt are made. At March
31, 1996, a balance of $356,681 in debt issuance costs remain to be amortized
through September 1997.
Under the terms of the Settlement, IAP will be sold by the Company. See
"Item 3-Legal Proceedings." Accordingly, for the fiscal years ended March 31,
1996 and 1995, net assets of IAP are included in the Financial Statements as
"Net assets of discontinued operation" and IAP net operating losses are included
as "Discontinued operations -- loss from operations of discontinued subsidiary."
IAP's revenues consist of a non-refundable administrative fee received on the
date of the loan and interest revenue collected and recognized during the time
the loan is outstanding. For the fiscal years ended March 31, 1996 and 1995,
administrative fees and interest revenues totaled $379,667 and $2,163,
respectively.
Effective August 1995, the Company changed the method by which finance
charges are recorded from a cash basis using simple interest calculation to an
accrual basis using the "Rule of 78" interest calculation method. The cumulative
effect on the prior period ending March 31, 1995 was $176,735 net of income
taxes of $117,239. Revenue is recognized on the difference between the gross
cash flow from the Installment Contracts Receivable and the total amount paid by
the Company to acquire the Installment Contracts Receivable. Recognition of
revenue is suspended for any Installment Contracts Receivable that is in default
and is only reinstated upon the curing of the default.
The Company recognizes revenues in its viatical settlements business
upon the death of the insured. See Note 1 of Notes to Consolidated Financial
Statements. Costs associated with the acquisition of a Policy are charged to
operations as revenues are recognized. The ability of the Company to recognize
revenue from the maturity of a Policy depends upon the Company receiving
notification of the Policy maturity from a representative of the insured, which
in some instances may not occur until significantly after the death of the
insured. As a result of the Company's revenue recognition policy, the Company
may experience periods without revenues from the maturity of Policies or
significant fluctuations in operating results from period to period.
- 10 -
<PAGE>
RESULTS OF OPERATIONS
Fiscal Years ended March 31, 1996 and 1995.
During the fiscal year ended March 31, 1996, revenues from Installment
Contracts Receivable increased by $5,089,464, to $7,808,369 from $2,718,905
during the fiscal year ended March 31, 1995. This increase resulted from the
increased size of the Company's portfolio of Installment Contracts Receivable
during the fiscal year ended March 31, 1996 as compared with the fiscal year
ended March 31, 1995. The Company has ceased to purchase Installment Contracts
Receivable since December 1995.
During the fiscal year ended March 31, 1996, viatical revenues decreased
by $18,611,200 to $1,326,706, reflecting the maturity of 12 Policies, from
$19,937,906, reflecting the maturity of 195 Policies, during the fiscal year
ended March 31, 1995. Net viatical revenues for the fiscal year ended March 31,
1996 were $541,858 or 41% of viatical revenues, reflecting costs of $784,848
associated with the Policies that matured during such year. The cost of a Policy
includes the initial purchase price, insurance premiums, and other direct
expenditures, if any, by the Company in connection with the purchase and
maintenance of a Policy. Such costs in excess of the purchase price accounted
for approximately 2% of the face value of Policies that matured during the year
ended March 31, 1996 and March 31, 1995. Net viatical revenues for the year
ended March 31, 1995 were $6,677,650, or 33.5% of viatical revenues, reflecting
costs of $13,260,256. The decrease in policy maturities and net viatical
revenues resulted from the Company's decision not to purchase new Policies after
September 1994, and the sale in May and July 1995 of a total of 225 policies for
approximately $17.5 million to Viaticus, Inc.
During the year ended March 31, 1996 loss from operations of IAP
decreased $20,140 to $47,595, net of income tax benefit of $28,716, from
$67,735, net of income tax benefit of $0 for the year ended March 31, 1995.
During the year ended March 31, 1996, revenues from the Inventory Assistance
Program increased by $377,504 to $379,667, reflecting 2,771 cars financed, from
$2,163, reflecting 24 cars financed, during the year ended March 31, 1995. These
increases reflected the operation of IAP during the full year ended March 31,
1996 as opposed to a single month of the year ended March 31, 1995, and the
growth and development of the IAP program during the year ended March 31, 1996.
General and administrative expenses increased by $3,269,367 to
$9,914,990 during the year ended March 31, 1996, from $6,645,623 during the year
ended March 31, 1995. This increase resulted primarily from increases of
approximately $1,873,000 in costs resulting from the expanded activity of the
Company's Installment Contracts Receivable business during the first three
quarters of the year, $444,000 in legal and professional fees, $226,162 in
severance pay resulting from the Company's downsizing during the third quarter
of 1996, and $219,799 and $173,973 in costs incurred in 1993 and 1994 relating
to the Company's offering of securities and its 1995 organization of an
Australian joint venture, respectively. As a result of the Company's downsizing
during the third quarter of 1996, salary expense was approximately $246,000
during the three months ended March 31, 1996 as compared with approximately
$860,000 during the three months ended September 30, 1995.
Provision for credit losses in connection with the Company's Installment
Contracts Receivable increased to $8,839,461 for the year ended March 31, 1996,
from $1,561,062 for the year ended March 31, 1995. In addition, chargeoffs and
adjustments for credit losses in connection with the Company's Installment
Contracts Receivable increased to $6,388,165 during the year ended March 31,
1996 from $17,062 during the year ended March 31, 1995. These increases
reflected increased loan delinquencies and writeoffs in the Company's portfolio
of consumer finance receivables and were a factor in the Company's decision to
discontinue its purchases of Installment Contracts Receivable.
- 11 -
<PAGE>
During the year ended March 31, 1996, the Company's operating loss
(excluding provision for credit losses) was $1,564,763, as compared with
operating income of $2,750,932 during the year ended March 31, 1995. The
decrease in operating income was primarily attributable to the developments
described above.
For the year ended March 31, 1996, the Company had a net loss of
$744,547 or $.16 per share. For the year ended March 31, 1995, the Company had a
net loss of $2,999,823 or $0.65 per share. The change in net loss was
attributable primarily to the developments described above, coupled with an
increase of $5.3 million in gain on early extinguishment of debt and an increase
of $4.9 million in benefits from income taxes.
Fiscal Years ended March 31, 1995 and 1994.
During the year ended March 31, 1995, revenues from Installment
Contracts Receivable totalled $2,718,905.
During the year ended March 31, 1995, viatical revenues increased 0.5%
to $19,937,906, reflecting the maturity of 195 Policies, from $19,835,258,
reflecting the maturity of 232 Policies, during the year ended March 31, 1994.
Net viatical revenues for the year ended March 31, 1995 were $6,677,650, or
33.5% of revenues, reflecting costs of $13,260,256 associated with such matured
Policies. The cost of a Policy includes the initial purchase price, insurance
premiums, and other direct expenditures, if any, by the Company in connection
with the purchase and maintenance of a Policy. Such costs in excess of the
purchase price accounted for approximately 2% of the face value of Policies that
matured during the year ended March 31, 1995 as compared with 1% of the face
value of Policies that matured during the year ended March 31, 1994. Net
viatical revenues for the year ended March 31, 1994 were $6,508,628, or 32.8% of
revenues, reflecting costs of $13,326,630. The overall increase in Policy
maturities and net revenue relates to the relative age of the overall portfolio
of Policies.
During the year ended March 31, 1995, operating earnings (excluding
provision for credit losses) decreased to $2,750,932, as compared with
$3,404,138 during the year ended March 31, 1994. The decrease in operating
earnings resulted from an increase in general and administrative expenses which
was only partially offset by an increase in revenues from automobile financing
and viatical settlements. General and administrative expenses increased to
$6,645,623 during the year ended March 31, 1995, from $3,004,490 during the year
ended March 31, 1994. The increase was primarily attributable to the increased
salary costs of approximately $1.1 million associated with the expansion of
AutoLend, and certain legal costs associated with entry into a new business
which were only partially offset by reduced advertising expenditures resulting
from the Company's decreased marketing efforts for its viatical settlements
business.
For the year ended March 31, 1995, the Company had a net loss of
$2,999,823 or $.65 per share. For the year ended March 31, 1994, the Company had
a net loss of $946,164 or $.20 per share. The increased net loss resulted
primarily from the costs associated with the expansion of AutoLend which were
only partially offset by the increase in revenues.
- 12 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's viability as a going concern is dependent upon the
successful closing of the Settlement, the restructuring of its obligations and
asset base, and ultimately, a return to profitability. The Company has been
operating at a loss and has incurred operating losses in the last three years.
Management has initiated a plan to terminate certain of its operations and to
improve the profitability of the Company. The Company has ceased since December
22, 1995 to purchase Installment Contracts Receivable and since September 29,
1994 to purchase Policies. During the third quarter of the year ended March 31,
1996 the Company significantly downsized its operations resulting in significant
reductions in salary expense. See "--Results of Operations." In June 1996, the
Company entered into a settlement of the Derivative Suit. In connection with the
closing of the Settlement, the Company will enter into various agreements,
providing for, among other things, the disposition of certain operations, and
the replacement of current management. See "Item 13. Certain Relationships and
Related Transactions."
In September 1996 the Company is obligated to make an interest payment
on the remaining outstanding debentures of approximately $2.1 million. The
outstanding principal amount of the debentures, which is due in September 1997,
will become current debt in September 1996, and without a capital infusion,
refinancing or amendment of the debentures, such current debt will render the
Company insolvent on a balance sheet basis See Note 5 to the Consolidated
Financial Statements for information relating to the Company's debenture
obligations. There was positive cash flow from operations of $8,724,470 for the
year ended March 31, 1996. Although the Company currently has sufficient
liquidity to meet its September 1996 interest obligations under the debentures,
intervening operating losses may prevent the Company from meeting its
obligations to make interest payments, and in September 1997 to repay the
principal under the Debentures as such payments become due. If the Company is
unsuccessful in its efforts to obtain capital or to refinance or amend the
debentures, it may be necessary for the Company to seek the protection of the
bankruptcy laws or to undertake such other actions as may be appropriate to
preserve asset its business.
During the fiscal year ended March 31, 1996 the Company funded a total
volume of 2,771 IAP purchases totalling approximately $13.2 million. At March
31, 1996 the Company's IAP receivable portfolio consisted of 994 loans totalling
approximately $5.1 million.
The Company commenced its purchases of Installment Contracts Receivable
in May 1994 and ceased purchases of Installment Contracts Receivable on December
22, 1995.
During the fiscal year ended March 31, 1996, the Company purchased a
total of approximately 2,600 Installment Contracts Receivable at a cost of
approximately $12.6 million. The Company's portfolio of Installment Contracts
Receivable at March 31, 1996, excluding Installment Contracts Receivable with
respect to which there has been a repossession of the underlying collateral, a
charge-off or the creation of a reserve, consisted of approximately 3,400 active
loans purchased at a cost of approximately $12.0 million.
During the fiscal year ended March 31, 1996, the Company's viatical
settlement business did not purchase any new Policies compared to purchases of
21 Policies with a face value of approximately $1.6 million at a cost of
approximately $1.1 million during the year ended March 31, 1995.
The Company's portfolio of unmatured Policies at March 31, 1996 totaled
19 Policies with a face value of approximately $2.2 million, which Policies were
purchased at a cost of approximately $1.4 million. Policies are recorded on the
Company's balance sheet at cost, with the difference between the face value and
costs associated with the Policies recognized as net revenues as Policies
mature.
On May 8, 1995 and July 18, 1995, ALRG and LB NM, Inc. entered into
Purchase and Sale Agreements (the "Agreements") providing for the assignment of
certain Policies held by the Company to Viaticus, Inc.
- 13 -
<PAGE>
("Viaticus"), a subsidiary of the CNA Insurance Companies. Under the Agreements,
ALRG and LB NM received consideration for each of the assigned policies when
Viaticus received an acknowledgement from the insurer of the assignment of the
policy. During the fiscal year ended March 31, 1996, approximately $17.5 million
has been received as payment for policies with completed assignments to Viaticus
and there are no outstanding amounts receivable under the agreements at March
31, 1996.
During the fiscal year ended March 31, 1996, the Company had cash flow
from operations of $8,724,470 compared to a deficit of $5,842,303 during the
fiscal year ended March 31, 1995 and $1,965,672 during the year ended March 31,
1994. The increase in cash flow from operations is due primarily to decreased
use of cash to fund purchases of Installment Contracts Receivable, proceeds from
the assignment of viatical insurance policies to Viaticus and increased proceeds
from maturities of Policies, which were only partially offset by increased
repurchases of Debentures and an increase in the purchase of IAP loans.
The Company believes it has sufficient funds to finance its currently
contemplated operations for at least the next 12 months but will require
additional funds, if not generated from operations, to finance future growth,
the entering into new businesses and the payment of interest on and repayment of
the Debentures. Auction fundings until the closing of the Settlement are
expected to be funded through proceeds from maturities of outstanding Policies
and Installment Contracts Receivable, cash reserves and Securities Available for
Sale, and proceeds, if any, from the exercise of the Company's outstanding Class
A and Class B Warrants. Since the receipt of such funds is not completely
predictable, the Company may need to acquire additional financing to fund its
anticipated operations beyond such period. Furthermore, in the event that a
closing of the Settlement has not taken place by the interest payment date in
September 1996, the Company may be left with insufficient liquidity to continue
funding its IAP operations. The ability of management to return the Company to
profitable operations and a capacity to meet its obligations on demand is
uncertain. There can be no assurance that management will be able to accomplish
its objectives or that it will enable the Company to become profitable on an
ongoing basis and to continue as a going concern.
During the year ended March 31, 1996, the Company had cash flows from
investing activities of $9,015,309 as compared with cash flows from investing
activities of $8,196,584 during the year ended March 31, 1995 and $377,453
during the year ended March 31, 1994. This increase in cash flows resulted
primarily from the liquidation of a significant portion of the Company's
investment portfolio in order to fund automobile loan purchases.
In connection with the acquisition of LBI in April 1991, the Company
agreed to pay consideration of (i) $500,000 cash; (ii) 158,730 shares of Common
Stock valued at $500,000; and (iii) additional consideration equal to 50% of the
Estimated Net Earnings (as that term is defined in the acquisition agreement) of
LB NM in the fiscal years ending March 31, 1992, 1993 and 1994. This acquisition
was accounted for under the purchase method of accounting, resulting in goodwill
of $1,000,000, which was initially being amortized over a period of 10 years. At
March 31, 1993, the Company accrued $549,258 under the acquisition agreement as
additional consideration which was paid in July 1993. The Company and the
principals of LBI are disputing the remaining amounts of consideration due based
on differences in interpretation of certain computational items set forth in the
acquisition agreement. The Company has accrued an amount based on its
interpretation of the agreement and intends to negotiate a settlement of the
dispute. However, the Company is currently unable to predict with certainty the
final resolution of this matter.
In connection with the acquisition of ALRC in April 1993, the Company
paid a purchase price of $250,000 for the assets, $500,000 for certain
employment and non-competition arrangements with the two principals of ALRC and
incurred transaction costs of $250,000. The Company did not assume any
liabilities or obligations of ALRC, except for certain nominal office lease
obligations. The employment agreements with the two principals of ALRC provided
for employment terms of five years from the date of the acquisition. One
- 14 -
<PAGE>
of the two principals of ALRC was subsequently appointed President, Chief
Executive Officer and Chairman of the Company.
At March 31, 1996, the Company had cash, cash equivalents and securities
available for sale of approximately $3.2 million. A portion of the Company's
available funds may be applied to fund acquisitions of companies or assets of
companies in complementary or related fields. Although the Company from time to
time engages in discussions and negotiations of potential acquisitions, it
currently has no agreements or understandings with respect to any particular
acquisition.
Funds not immediately required for operation of the businesses are
invested in securities available for sale. These investments consist of short
term money market instruments and are immediately available to the Company.
At March 31, 1993, the Company adopted Financial Accounting Standard
Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and, accordingly, began recording its investments in securities
available for sale at fair value. See Notes 1 and 3 of Notes to Consolidated
Financial Statements for additional information about the Company's investment
in securities available for sale.
During the year ended March 31, 1996 the Company had a cash flow deficit
from financing activities of $15,848,000 as compared with a cash flow deficit
from financing activities of $1,970,000 for the year ended March 31, 1995 and a
cash flow deficit of $717,828 for the year ended March 31, 1994. This increase
in the cash flow deficit resulted from an increase in the early extinguishment
of the Company's Debentures.
The Company's primary sources of capital have been sales of equity and
debt securities, including the Company's initial equity offering in July 1990,
which resulted in net proceeds of approximately $7.6 million, and a September
1991 sale of $55 million 9.5% Convertible Subordinated Debentures maturing on
September 19, 1997, which resulted in net proceeds of $51.4 million. During the
fiscal year ended March 31, 1996, the Company prepaid, without penalty $28.9
million principal amount of Debentures leaving $22.1 million outstanding. The
Debentures are convertible into Common Stock at the rate of one share of Common
Stock per $12.25 principal amount. Annual interest payments of approximately
$2.1 million are required under the Debentures outstanding as of March 31, 1996.
Annual interest payments were made in accordance with the terms of the Indenture
in September 1992, 1993, 1994 and 1995. As of March 31, 1996, the Company had
accrued $1,111,369 as interest payable.
In December 1992, the Company announced a plan to utilize up to
$10,000,000 to repurchase its Common Stock and Class A Warrants. During the year
ended March 31, 1993, the Company repurchased 705,700 shares of its Common Stock
at a total cost of $2,746,140, or an average price of $3.89 per share, and
142,000 of its Class A Warrants at a total cost of approximately $227,000, or an
average price of $1.60 per warrant. During the year ended March 31, 1994, the
Company repurchased an additional 165,500 shares of its Common Stock at a total
cost of approximately $718,000, or an average price of $4.34 per share. No
shares of Common Stock or Class A Warrants have been purchased since April 1994.
All shares repurchased were retired during the year ended March 31, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The responses to this item are submitted in a separate section of this
Annual Report on Form 10-K. See Index to Consolidated Financial Statements on
page F-1.
- 15 -
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the
Company's directors and executive officers.
EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Year
First
Elected
Name Age Director Position
---- --- -------- --------
Executive Officers
and Members of
the Board of Directors
Steve Simon.................49 1993 Chairman of the Board, President,
Chief Executive Officer and Director
Helen Porter................47 N/A Executive Vice President and Chief
Operating Officer
Philip J. Vitale, M.D.......49 1992 Director
Robert Granoff..............53 1995 Director
James J. Newman.............44 1995 Director
Drew Sakson.................38 1995 Director
Steve Simon has been the Chairman of the Board of the Company since June
1994, President and a director since May 1993 and Chief Executive Officer of the
Company since September 1993. Mr. Simon also served as Chief Operating Officer
of the Company from May 1993 to September 1993. Mr. Simon has also served as the
President and Chief Operating Officer of AutoLend Corporation since March 1994
and ALRG since April 1993. He was a co-founder of ALRC and has been its
President since ALRC's organization in June 1989. From January 1988 to January
1989, Mr. Simon was a consultant to the insurance industry in the State of
Florida. Mr. Simon is the husband of Helen Porter.
Helen Porter has been Executive Vice President and Chief Operating
Officer of the Company since July 1994 and had been the Vice President -
Operations of the Company since November 1993 and Executive Vice President of
ALRG since April 6, 1993. She was a co-founder of ALRC and has been its
Treasurer and Secretary since its organization in June 1989. From 1980 to 1992,
Ms. Porter was Vice President of Office Specialists, Inc., a national temporary
employment service. Ms. Porter is the wife of Steve Simon.
- 16 -
<PAGE>
Philip J. Vitale, M.D. has been a director of the Company since February
1992. Dr. Vitale has been a doctor of medicine, specializing in urology, at the
Lovelace Medical Center, Albuquerque, New Mexico ("Lovelace") since 1978. Dr.
Vitale served on the Board of Directors of Lovelace from 1985 until 1989, and
served on other governing boards and in governing capacities for Lovelace at
various times from 1980 until 1989, during which time Lovelace was owned by
several different entities. From 1976 until 1978, Dr. Vitale served as Chief
Urologist at Kirtland Air Force Base in Albuquerque.
Robert Granoff has been a director of the Company since December 1995.
Since 1983, Mr. Granoff has served as Vice President of The Paper Wholesaler, a
company involved in wholesale paper distribution and the retail restaurant and
party supply industries. From 1976 to 1993, Mr. Granoff served as President of
Graco Paper, a wholesale paper distributor.
James Newman has been a director of the Company since December 1995.
Since March 1992, Mr. Newman has served as President of The Firm, an independent
manufacturer's representative selling micro computer products nationally. From
1983 through December, 1992, Mr. Newman served as an owner and Vice President of
Sales for Pacific Micro Marketing, an independent manufacturer's representative
in Northern California selling microcomputer products.
Drew Sakson has been a director of the Company since December 1995.
Since 1987, Mr. Sakson has served as President of Drew Sakson Management, Inc.,
a mortgage investments and real estate company. Mr. Sakson has also served as a
manager of Roar L.L.C and Vice President of Midland Hotel L.L.C.
Directors of the Company hold office until the next annual meeting of
stockholders. Officers of the Company hold office at the pleasure of the board
of directors, subject to the terms of employment agreements between the Company
and each of Steve Simon and Helen Porter.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation
for services in all capacities for the fiscal years ended March 31, 1996
("fiscal 1996"), March 31, 1995 and March 31, 1994, of those persons who were,
at the end of fiscal 1996 the Chief Executive Officer and the only other
executive officer whose compensation for fiscal 1996 exceeded $100,000
(collectively, the "Two Named Officers").
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
----------------------------------- ----------------------------------------------
Fiscal Other Annual Awards All Other
Name and Principal Position Year Salary ($) Compensation (1) Options(#)(2) Compensation ($)
- --------------------------- ---- ---------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Steve Simon 1996 174,996 -- 300,000 --
Chairman of the Board 1995 174,996 -- 125,000 --
and Chief Executive 1994 185,396 -- 360,000 --
Officer
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Helen Porter 1996 150,000 -- -- --
Executive Vice President 1995 131,250 -- 300,000 --
and Chief Operating 1994 86,458 -- -- --
Officer
</TABLE>
- -----------
(1) The aggregate amount of prerequisites and other personal benefits paid to
each of the Two Named Officers for fiscal 1996, 1995 and 1994 did not
exceed the lesser of 10% of such officer's total annual salary and bonus
for such fiscal years and $50,000; such amounts are, therefore, not
reflected in the table.
(2) All options held by the Two Named Officers as of the date of the closing
of the Settlement will be terminated and new options will be granted. See
"Item 13-Certain Relationships and Related Transactions."
OPTIONS GRANTED IN THE LAST FISCAL YEAR
The following table sets forth information concerning stock options
grants made during fiscal 1996 to the Two Named Officers. These grants are also
reflected in the Summary Compensation Table. In accordance with SEC rules, a
repricing of outstanding options is treated as a new grant. Also in accordance
with the SEC rules, the hypothetical gains or "option spreads" for each option
grant are shown based on compound annual rates of stock price appreciation of 5%
and 10% from the grant date to the expiration date. The assumed rates of growth
are prescribed by the SEC and are for illustrative purposes only; they are not
intended to predict future stock prices, which will depend upon market
conditions and the Company's future performance. The Company has not granted any
stock appreciation rights.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE
GRANTED AT ASSUMED ANNUAL RATES
TO EMPLOYEES OF STOCK APPRECIATION FOR
OPTIONS IN FISCAL EXERCISE PRICE EXPIRATION OPTION TERM (3)
GRANTED (1) YEAR PER SHARE(2) DATE 5% 10%
----------- ------ -------------- ------ -- ---
<S> <C> <C> <C> <C> <C> <C>
Steve Simon 300,000 100% $1.50 June 16, 2005 $283,002 $717,184
Helen Porter -- -- -- -- -- --
</TABLE>
- -----------
(1) All options held by the Two Named Officers as of the date of the
closing of the Settlement will be terminated and new options will be
granted. See "Item 13-Certain Relationships and Related Transactions."
(2) Options were granted with an exercise price equal to the market price
of the stock at the date of grant.
(3) The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates required by the SEC and therefore are not
intended to forecast possible future appreciation of the stock price.
- 18 -
<PAGE>
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES - 1996
The following table provides information concerning all exercises of
stock options during fiscal 1996 by the Two Named Officers and the fiscal
year-end value of unexercised options on an aggregated basis. The Company has
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ON VALUE OPTIONS AT YEAR END AT YEAR END(2)
EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE (1) EXERCISABLE/UNEXERCISABLE
------------- ------------- ----------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Steve Simon -- -- 376,667/408,333 $0/ $0
Helen Porter -- -- 100,000/200,000 $0/ $0
</TABLE>
- -----------
(1) All options held by the Two Named Officers as of the date of the
closing of the Settlement will be terminated and new options will be
granted. See "Item 13-Certain Relationships and Related Transactions."
(2) Options are "in-the-money" if on March 31, 1996, the market price of
the Common Stock ($1.00) exceeded the exercise price of such options.
The value of such options is calculated by determining the difference
between the aggregate market price of the Common Stock covered by the
options on February 3, 1996 and the aggregate exercise price of such
options.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company will receive $7,500 per
year in directors fees as well as $750 per board meeting or committee meeting
attended. Directors will also each receive options to purchase 50,000 shares of
the Company each year that they serve on the Board, except that they will each
receive options to purchase 75,000 shares for their service from their initial
election to the Board until the first annual meeting of the Company thereafter.
All current Directors have waived payment of fees and award of options in
respect of their service during the fiscal year ended March 31, 1996.
EMPLOYMENT CONTRACTS
On April 2, 1993, ALRG entered into five-year employment agreements with
Steve Simon and Helen Porter. Mr. Simon was employed as president, chief
operating officer and a director of ALRG, and receives a minimum salary of
$125,000 per year, adjusted annually. In May 1993, Mr. Simon was appointed
President and was elected as a director of the Company and in June 1994 Mr.
Simon was appointed Chief Executive Officer of the Company. Ms. Porter was
employed as Executive Vice President of ALRG and receives a minimum salary of
$75,000 per year, adjusted annually. In July 1994, Ms. Porter was appointed
Chief Operating Officer of the Company. Under terms of the Settlement, Steve
Simon and Helen Porter will resign from the Company and amounts remaining under
their respective employment agreements as of the date of their resignations will
be accelerated. See "Item 3 -- Legal Proceedings".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information concerning stock
ownership of all persons known by the Company to own beneficially 5% or more of
the Company's outstanding shares of Common Stock, each director and named
executive officer of the Company and all directors and executive officers of the
Company
- 19 -
<PAGE>
as a group, as of June 21, 1996, on which date the Company had outstanding
4,634,530 shares of Common Stock, excluding treasury shares.
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of
of Beneficial Owner Beneficial Percent
or Identity of Group Ownership(1) of Class Owned
- -------------------- ------------ --------------
<S> <C> <C>
Steve Simon(2)................................... 644,467(3) 13.9%
Helen Porter(2).................................. 201,600(4) 4.2%
Philip J. Vitale, M.D(2)......................... 75,700(5) 1.6%
Robert Granoff(2)................................ 0 *
James Newman(2).................................. 0 *
Drew Sakson(2)................................... 133,340(6) 2.9%
Nunzio P. DeSantis............................... 608,900(7)(8) 13.1%
4500 Alexander Blvd., N.E.
Albuquerque, New Mexico 87107
Courtlandt G. Miller............................. 382,900(8)(9) 8.3%
405 Park Avenue
Sixteenth Floor
New York, New York 10022
J.E. Sheehan & Company, Inc...................... 244,647(10) 5.3%
711 Fifth Avenue
New York, New York 10022
Synalgest, S.A................................... 254,997(10) 5.5%
20 Rue de la Paix, 75002
Paris, France
Banque Degroof Luxembourg, S.A................... 269,388(11) 5.8%
One Place D'armes
1136 Luxembourg
Allen & Company Incorporated..................... 605,248(10) 11.6%
Allen Holding, Inc.
711 Fifth Avenue
New York, NY 10022
All directors and executive officers
as a group (6 persons)......................... 1,055,107(12) 19.3
* Less than 1%.
</TABLE>
- 20 -
<PAGE>
(1) Unless otherwise indicated, each individual who is listed or is part of
the group has sole voting and investment power for the shares listed
below.
(2) c/o AutoLend Group, Inc., 930 Washington Avenue, Miami Beach, Florida
33139.
(3) Includes 576,667 shares issuable upon exercise of options exercisable
within 60 days. Does not include an aggregate of 908,000 shares voted by
Steve Simon as CEO of the Company pursuant to a Voting Trust, with
respect to which Steve Simon has disclaimed beneficial ownership.
(4) Includes 200,000 shares issuable upon exercise of options exercisable
within 60 days.
(5) Includes 8,200 shares held by Dr. Vitale jointly with his wife. Includes
60,000 shares issuable upon exercise of options exercisable within 60
days.
(6) Includes 2,885 shares held by Mr. Sakson jointly with his wife.
(7) Includes 75,000 shares issuable upon exercise of options exercisable
within 60 days. Does not include 51,600 shares owned by the Diagnostek
Charitable Foundation, for which Mr. DeSantis serves as Voting Trustee,
with respect to which Mr. DeSantis has disclaimed beneficial ownership.
(8) All currently owned and after acquired shares held until 1999, subject
to a voting trust (the "Voting Trust") under an agreement with the
Company, pursuant to which Steve Simon, as Chief Executive Officer of
the Company, votes the shares.
(9) Includes 75,000 shares issuable upon exercise of options exercisable
within 60 days.
(10) Represents shares issuable upon exercise of Unit Purchase Options and of
Class A and Class B Warrants issuable upon exercise of Unit Purchase
Options and the Class A and Class B Warrants included therein.
(11) Represents shares issuable upon exercise of a currently exercisable
Warrant.
(12) Includes 836,667 shares issuable upon exercise of option exercisable
within 60 days. Does not include an aggregate of 908,000 shares voted by
Steve Simon as CEO of the Company pursuant to a Voting Trust, with
respect to which Steve Simon has disclaimed beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective as of April 1, 1991, the Company entered into an Acquisition
Agreement, among the Company, Rob T. Worley, Sr. and Rob T. Worley, Jr.
(collectively, the "Worleys"), and Living Benefits, Inc. ("Old LB") pursuant to
which the Company, through its wholly-owned subsidiary, LB NM, acquired certain
assets from Old LB and covenants not to compete from the Worleys. Under the
Acquisition Agreement, Old LB retained the Policies that it had purchased and
the Company acquired substantially all of the other assets of Old LB and
covenants not to compete. The Company did not assume any liabilities or
obligations of Old LB, except for certain nominal lease obligations.
The consideration paid by the Company for the Old LB acquisition
consisted of $500,000, plus 158,730 shares of Common Stock of the Company having
an aggregate market value at that time of approximately $500,000, plus an
earn-out equal to 50% of Estimated Net Earnings (as that term is defined in the
Acquisition Agreement) of LB NM in the fiscal years ending March 31, 1992, 1993
and 1994. The purchase price was determined as a result of negotiations between
the parties and was not necessarily based on any objective criteria
- 21 -
<PAGE>
of value, primarily due to the relatively early stage of development of the
industry at the time of the negotiation and the lack of precedent for
independent appraisal or valuation. At March 31, 1993, the Company accrued and
subsequently paid to the Worleys $549,258 as additional consideration. The
principals of Old LB are disputing the amount of contingent consideration
accrued based on differences in interpretation of certain computational items
set forth in the acquisition agreement. The Company estimates that the effect of
these differences, if not resolved in the Company's favor, could result in
additional contingent consideration of up to approximately $350,000 at March 31,
1993.
For the year ended March 31, 1994, the Company accrued an additional
$656,542 as contingent consideration, which amount has been calculated by the
Company based upon its understanding of the interpretation of the computational
items adopted by the principals of LBI. The Company disputes this interpretation
and intends to negotiate a settlement of the dispute. However, the Company is
currently unable to predict with certainty the amount of the earn-out for fiscal
1994.
The amount of contingent consideration is recorded as additional
goodwill when determinable and amortized over any remaining period for goodwill
amortization.
On July 18, 1994, the Company entered into agreements (the
"Agreements"), dated as of July 1, 1994, with respect to all capital stock of
the Company owned or thereafter acquired by Messrs. Nunzio P. DeSantis,
Courtlandt G. Miller and Vincent Villanueva (collectively the "Stockholders").
The Stockholders entered into the Agreements in consideration of each (except
for Mr. Villanueva) receiving director's fees of $22,500 for the previous three
years of service as a director of the Company, and each receiving certain
releases from the Company, agreement that certain options under the Stock Option
Agreement between the Stockholders and the Company will vest and will be
exercisable until July 1, 1996 and agreement that the provisions of the
Company's By-Laws or Articles of Incorporation providing for the indemnification
of officers and directors under the laws of the State of Delaware would continue
to apply to the Stockholders in relation to any future claims relating to their
service with the Issuer.
Pursuant to the Agreements, Steve Simon, as Chief Executive Officer of
AutoLend serves as Voting Trustee, with sole voting power with respect to all
shares of the stock held by the Stockholders until the earlier of (x) his
resignation as Voting Trustee, (y) his ceasing to be CEO of the Company and (z)
July 1, 1999. In the event that Mr. Simon resigns as Voting Trustee or ceases to
be CEO of the Company, the Board of Directors of the Company is empowered to
elect a successor Voting Trustee to serve for the remainder of the term of the
Voting Trust. As of June 21, 1995, the Stockholders held an aggregate of 908,000
shares.
Under the Agreements, the Company also received a release from each of
the Stockholders and a right of first refusal (the "Right") with respect to
sales of the Company's shares by the Stockholders to a transferee or group, that
together with all other sales to such transferee or group made by any
Stockholder either made during the previous thirty day period, or proposed to be
made in the future, aggregate to more than five percent of the issued and
outstanding stock of the Company. The right expires on July 1, 1999.
On June 27, 1996, Vice Chancellor Steele of the Delaware Chancery Court
entered an order approving the Stipulation settling the Derivative Suit. See
"Item 3 - Legal Proceedings." Pursuant to the Stipulation, the action was
dismissed with prejudice. IAP will be sold by the Company to a newly formed
affiliate (the "Affiliate") of Steve Simon and Helen Porter for consideration
including (i) repayment at closing by IAP of all short term intercompany
indebtedness in respect of amounts borrowed by IAP to fund its loans to used car
dealers to buy cars at auction; (ii) the issuance prior to closing to the
Company by IAP of Preferred Stock with a face amount of $1 million and a
cumulative preferred dividend of 11%, with dividend payments beginning 26 months
following issuance, and redemption rights beginning 36 months from issuance at
face amount plus accrued interest; (iii) the deposit at closing by IAP of
$250,000 into escrow in support of the redemption rights;
- 22 -
<PAGE>
and (iv) the representation and warranty by IAP that it has no less than $2
million of common equity, and $5 million in subordinated debt financing as of
the closing.
In addition, IAP will purchase from the Company certain fixed assets for
the book value of those assets as currently recorded on the financial statements
of the Company. Some of the licenses, tradenames, trademarks and software of the
Company used by IAP for its business will be assigned to IAP, with IAP granting
the Company a license of limited duration for the continued use of certain of
such licenses, tradenames, trademarks and software necessary to the Company's
business.
Simultaneously with the closing, the current directors will resign and
elect Nunzio DeSantis to the Board of Directors. Management, including Steve
Simon and Helen Porter, will be paid all amounts remaining under their
employment agreements which will equal the product of the number of months
remaining until the scheduled expiration of the employment agreements in April
1998. Mr. Simon and Ms. Porter will agree to indemnify the Company for any tax
liability resulting from the non-withholding of taxes with respect to such
payments and will place in escrow $25,000 of such payments in support of the
indemnity obligation. To facilitate the management transition and to help the
Company liquidate its current portfolio of loans and viatical settlements, Steve
Simon and Helen Porter will each enter into three year consulting agreements
with the Company, under which they will assist the Company (i) with the
collection of its remaining automobile receivables and (ii) with the maintenance
of its remaining viatical settlement policies. In consideration of their
entering into the consulting agreements, each will receive $210,000 at the
closing. Mr. Simon will also resign as Voting Trustee. The Affiliate has
currently reached agreement in principle with certain providers of equity and
debt financing and expects to proceed with such providers to enter into
definitive agreements after which the closing of the Settlement will occur.
Concurrently with the closing, the plaintiffs, defendants, including the
Company, and certain current and former directors of the Company will exchange
releases.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See Index to Consolidated Financial Statements on page F-1 for list of financial
statements and financial statement schedules.
(a) (3) Exhibits
2.1 Reorganization Agreement between CAP Rx, Ltd. and CAPX
Corporation (2)
3.1 Certificate of Incorporation of CAP Rx, Ltd. (1)
3.2 Memorandum of Association of CAP Rx, Ltd., including
Memorandum of Increase of Share Capital (1)
3.3 Amended By-Laws of CAP Rx, Ltd. (1)
3.4 Certificate of Incorporation of AutoLend Group, Inc.
(12)
3.5 By-laws of AutoLend Group, Inc. (12)
4.1 Form of 9.5% Convertible Subordinated Debenture (2)
- 23 -
<PAGE>
4.2 Warrant Agreement (1)
4.3 Unit Purchase Option (1)
4.4 Stock Purchase Warrant granted to Banque Degroof
Luxembourg, S.A. (2)
4.5 Stock Purchase Warrant granted to Till A. Petrocchi (2)
4.6 Stock Purchase Warrant granted to Steve Simon and Helen
Porter (6)
10.1 Re-insurance Agreement between CAP Rx Insurance, Ltd.
and Planet Insurance Registrant (1)
10.2 Letter Agreement between CAP Rx, Ltd. and Planet
Insurance Registrant (1)
10.3 Administrative Agreement between CAP Rx, Ltd. and
Parker Risk Management (Bermuda) Ltd. (1)
10.4 1989 Incentive and Non-Statutory Stock Option Plan of
the Registrant (1)
10.5 Letter agreement between Westbroke Limited and the
Registrant (2)
10.6 Acquisition Agreement among Rob T. Worley, Sr. and Rob
T. Worley, Jr., Living Benefits, Inc. and CAP Rx, Ltd.
(2)
10.6.1 Addendum to Acquisition Agreement (2)
10.6.2 Second Addendum to Acquisition Agreement (2)
10.7 Employment Agreement between LB NM, Inc. and Rob T.
Worley, Sr. (2)
10.8 Employment Agreement between LB NM, Inc. and Rob T.
Worley, Jr. (2)
10.9 Lease Agreement for space at 6100 Seagull Street, N.E.,
Albuquerque, New Mexico (2)
10.9.1 Addendum to Lease Agreement (2)
10.9.2 Lease Agreement, dated April 15, 1993, for space at
6100 Seagull Street, N.E., Albuquerque, New Mexico (8)
10.9.3 Lease, dated March 17, 1992, between Marbrad, Inc. and
American Life Resources Corporation (8)
10.10 Asset Purchase Agreement between American Life
Resources Group, Inc., American Life Resources
Corporation, Steve Simon and Helen Porter (6)
10.11 Employment Agreement between ALRG and Steve Simon (6)
10.12 Employment Agreement between ALRG and Helen Porter (6)
- 24 -
<PAGE>
10.13 Noncompetition Agreement between ALRG and Steve Simon
(6)
10.14 Noncompetition Agreement between ALRG and Helen Porter
(6)
10.15 Guaranty Agreement made by the Registrant for the
benefit of ALRC, Steve Simon and Helen Porter (6)
10.16 Viatical settlement forms (8)
10.17 Agreement between the Registrant and the McLernon Group
Limited dated December 3, 1993 (9)
10.18 Lease Agreement between Arquitectonica International
Corporation and CAPX Corpora- tion dated May 11, 1994
(10)
10.19 Agreement between Nunzio P. DeSantis and CAPX
Corporation dated as of July 1, 1994
10.20 Agreement between Courtlandt G. Miller and CAPX
Corporation dated as of July 1, 1994
10.21 Agreement between Vincent Villanueva and CAPX
Corporation dated as of July 1, 1994
10.22 Employment Agreement between AutoLend Group, Inc. and
Charley A. Pond (11)
21 Subsidiaries of the Registrant (10)
28.1 Cooperation and Assistance Agreement between Parker
Risk Management (Colorado) Inc. and Health Care
Services, Inc. (1)
(b) Financial Statement Schedules
Independent Auditors' Report
Schedule VIII -- Valuation and Qualifying Accounts - March
31, 1996, 1995 and 1994
All other schedules have been omitted because they are
inapplicable or the information is provided in the financial
statements including notes thereto included in this Annual
Report.
(c) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended March 31, 1996.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form F-1
(Registration No. 33-29251) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1991 and incorporated herein by reference.
- 25 -
<PAGE>
(3) Filed on December 26, 1991 as an exhibit to the Registrant's Post-Effective
Amendment No. 1 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(4) Filed on February 18, 1992 as an exhibit to the Registrant's Post-Effective
Amendment No. 3 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(5) Filed on March 27, 1992 as an exhibit to the Registrant's Post-Effective
Amendment No. 4 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's Current Report on Form 8-K, filed
with the Commission on April 21, 1993 and incorporated herein by reference.
(7) Filed on May 12, 1993 as an exhibit to the Registrant's Post-Effective
Amendment No. 6 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(8) Filed on October 29, 1993 as an exhibit to the Registrant's Post-Effective
Amendment No. 7 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(9) Filed on March 7, 1994 as an exhibit to the Registrant's Post-Effective
Amendment No. 8 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(10) Filed on June 26, 1994 as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1994 and incorporated herein by
reference.
(11) Filed on June 29, 1995 as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1995 and incorporated herein by
reference.
(12) Filed herewith.
- 26 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AUTOLEND GROUP, INC. PAGE
Annual Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets - March 31, 1996 and 1995 F-3
Consolidated Statements of Operations - Years
Ended March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity -
Years Ended March 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows - Years
Ended March 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedules:
Schedule VIII --Valuation and Qualifying Accounts
- - March 31, 1996, 1995 and 1994 S-1
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
AutoLend Group, Inc.
We have audited the accompanying consolidated balance sheets of AutoLend Group,
Inc. (the "Company") as of March 31, 1996 and 1995, and the related statements
of operations, stockholders' equity, and cash flows for the years then ended.
Our audit also included the financial statement schedule listed in the Index at
Item 8. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. The financial statements of the Company for the year ended March 31,
1994 were audited by other auditors whose report, dated May 27, 1994, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such financial statements present fairly, in all material
respects, the financial position of the Company at March 31, 1996 and 1995, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, although management
of the Company has used its best judgment to arrive at its estimate of the
allowance for credit losses and believes that the same is reasonable to cover
the losses inherent in the installment contracts receivable portfolio such
amount could differ materially in the near term.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations and
stockholders' capital deficiency raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Miami, Florida
July 15, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
1996 1995
--------------- ----------
Assets:
<S> <C> <C>
Cash and cash equivalents $ 3,168,730 $ 1,276,951
Securities available for sale 175,000 9,507,640
Accounts receivable - matured insurance policies 1,405,947 4,984,565
Installment contracts receivable 13,760,394 14,818,445
Allowance for credit losses (3,995,296) (1,544,000)
Collateral owned 1,785,743 432,286
-------------- --------------
Installment contracts receivable - net 11,550,841 13,706,731
-------------- --------------
Dealer receivables 477,933 103,767
Purchased insurance policies, face value of $2,171,198 at
March 31, 1996 and $31,910,037 at March 31, 1995 1,445,184 19,248,535
Accrued interest receivable on investments -- 79,499
Goodwill, less accumulated amortization of $2,708,278 at
March 31, 1996 and $1,128,413 at March 31, 1995 -- 1,579,865
Other intangibles, less accumulated amortization of $600,000 at
March 31, 1996 and $293,949 at March 31, 1995 -- 306,051
Debt issuance costs, less accumulated amortization of $3,276,724
at March 31, 1996 and $1,824,690 at March 31, 1995 356,681 1,808,715
Fixed assets, less accumulated depreciation of $397,620 at
March 31, 1996 and $154,650 at March 31, 1995 1,013,173 815,915
Net assets of discountinued operation 4,974,047 115,667
Other 395,486 1,571,663
-------------- --------------
$ 24,485,089 $ 55,001,797
============== ==============
Liabilities:
Accounts payable and accrued liabilities $ 984,098 $ 374,916
Accrued acquisition costs 656,542 656,542
Accrued interest expense 1,111,369 2,542,042
Convertible debentures 22,050,000 51,000,000
Property held for disposition 345,045 67,735
-------------- --------------
Total liabilities 24,802,009 54,573,500
-------------- --------------
Stockholders' Equity:
Preferred stock, $.002 par value. Authorized 5,000,000 shares;
none issued or outstanding -- --
Common stock, $.002 par value. Authorized 40,000,000 shares;
issued 4,634,530 shares at March 31, 1996
and March 31, 1995 9,269 9,269
Additional paid-in capital 5,946,904 5,946,904
Accumulated deficit (6,273,093) (5,528,546)
-------------- --------------
(316,920) 427,627
Unrealized gains (losses) on securities available for sale -- 670
-------------- --------------
Total stockholders' equity (316,920) 428,297
-------------- --------------
$ 24,485,089 $ 55,001,797
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
-------------- ------------- ----------
Revenues:
<S> <C> <C> <C>
Finance charges on installment contracts $ 7,808,369 $ 2,718,905 $ --
Revenues from matured insurance policies 1,326,706 19,937,906 19,835,258
-------------- ------------- --------------
Total revenues 9,135,075 22,656,811 19,835,258
Cost of matured insurance policies 784,848 13,260,256 13,326,630
-------------- ------------- --------------
Net revenues 8,350,227 9,396,555 6,508,628
General and administrative expenses 9,914,990 6,645,623 3,004,490
Provision for credit losses 8,839,461 1,561,062 100,000
-------------- ------------- --------------
Operating earnings (loss) (10,404,224) 1,189,870 3,404,138
-------------- ------------- --------------
Other income:
Interest income on investments 603,356 1,196,095 1,450,128
Gain on sale of viatical trademarks 300,000 -- --
Other 65,337 28,204 --
-------------- ------------- ----------
Total other income 968,693 1,224,299 1,450,128
-------------- ------------- --------------
Other expense:
Interest expense (3,289,876) (5,727,005) (5,766,852)
Loss on sale of viatical portfolio, net of
amortization of $1,844,259 (392,063) -- --
Realized gains (losses) on sales of marketable
securities, net 1,137 (1,649,252) (33,578)
-------------- ------------- ---------------
Total other expense (3,680,802) (7,376,257) (5,800,430)
-------------- ------------- ---------------
Loss before income taxes, extraordinary item and cumulative
effect of change in accounting principle (13,116,333) (4,962,088) (946,164)
Benefit from income taxes 4,935,676 -- --
-------------- ------------- ---------------
Loss before discontinued operations, extraordinary item
and cumulative effect of change in accounting principle (8,180,657) (4,962,088) (946,164)
Discontinued operations - loss from operations of
discontinued subsidiary, net of applicable income tax
benefit $28,716 (47,595) (67,735) --
--------------- -------------- ---------------
Loss before extraordinary item and cumulative effect
of change in accounting principle (8,228,252) (5,029,823) (946,164)
Extraordinary item - gain on early extinguishment of debt,
net of amortization of deferred costs of $947,877 and
income taxes of $4,847,153 7,306,970 2,030,000 --
-------------- ------------- ---------------
Loss before cumulative effect of change in accounting
principle (921,282) (2,999,823) (946,164)
Cumulative effect of change in accounting principle, net
of income taxes of $117,239 176,735 -- --
-------------- ------------- ---------------
Net loss $ (744,547) $ (2,999,823) $ (946,164)
============== ============== ===============
Loss per share before discontinued operations, extraordinary item
and cumulative effect of change in accounting principle $ (1.77) $ (1.07) $ (0.20)
Loss per share on discontinued operations (0.01) (0.02) --
--------------- -------------- ---------------
Loss per share before extraordinary item and cumulative
effect of change in accounting principle (1.78) (1.09) (0.20)
Earnings per share on extraordinary item-gain on early
extinguishment of debt 1.58 0.44 0.00
-------------- ------------- ---------------
Loss per share before cumulative effect of change
in accounting principle (0.20) (0.65) (0.20)
Earnings per share on cumulative effect of change in
accounting principle 0.04 -- --
-------------- ------------- ---------------
Net loss per common share $ (0.16) $ (0.65) $ (0.20)
============== ============= ==============
Weighted average number of common and common
equivalent shares outstanding $ 4,634,530 $ 4,634,530 $ 4,641,605
============== ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
Common Stock Additional on Securities
Paid-In Accumulated Available for Treasury
Shares Amount Capital Deficit Sale Stock Total
---------- -------- ---------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993 5,505,730 $11,011 $9,409,130 $(1,582,559) $(202,714) $(2,746,140) $4,888,728
Common stock repurchased
(165,000 shares) (717,828) (717,828)
Retirement of treasury shares (871,200) (1,742) (3,462,226) 3,463,968 --
Unrealized losses on securities
available for sale (514,675) (514,675)
Net loss (946,164) (946,164)
---------- ------- ----------- ----------- ---------- ------------ -----------
Balance at March 31, 1994 4,634,530 9,269 5,946,904 (2,528,723) (717,389) -- 2,710,061
Unrealized gains on securities
available for sale 718,059 718,059
Net loss (2,999,823) (2,999,823)
---------- ------- ----------- ----------- ---------- ------------ -----------
Balance at March 31, 1995 4,634,530 9,269 5,946,904 (5,528,546) 670 -- 428,297
Net loss (744,547) (670) (745,217)
---------- ------- ----------- ------------ ---------- - ------------ -----------
Balance at March 31, 1996 4,634,530 $ 9,269 $5,946,904 $(6,273,093) $ -- $ -- $ (316,920)
========== ======= ========== ============ ========== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
------------ ------------- ---------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (744,547) $ (2,999,823) $ (946,164)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Amortization of intangible assets and debt issuance costs 2,390,073 1,474,358 879,341
Depreciation expense 259,533 113,499 36,948
Writeoff of fixed asset 36,007 -- --
Gain on early extinguishment of debt, net of amortization (12,154,123) (2,030,000) --
Gain on sale of assets (300,000) -- --
Provision for credit losses 8,839,461 1,561,062 --
Realized losses (gains) on securities available for sale (1,137) 1,649,252 33,578
Change in net assets of discontinued operations (4,858,380) (115,667) --
Changes in assets and liabilities:
Accounts receivable - matured insurance policies 3,578,618 (1,547,942) (317,306)
Installment contracts receivable (6,683,571) (15,267,793) --
Purchased insurance policies 17,803,351 12,536,593 (2,022,962)
Accrued interest receivable 79,499 170,112 364,353
Dealer receivables 1,301,177 (1,287,320) --
Other assets (3,834,513) (1,470,722) (7,827)
Accounts payable and accrued liabilities 609,182 150,749 14,367
Accrued interest expense (1,430,673) (249,383) --
-------------- ------------- ----------
Cash provided by operating activities 8,724,470 (5,842,303) (1,965,672)
-------------- ------------- --------------
Cash flows from investing activities:
Purchases of securities available for sale (14,414,871) (13,400,903) (29,038,077)
Proceeds from sale of securities available for sale 23,922,979 22,352,612 30,760,861
Purchases of fixed assets (492,799) (755,125) (169,009)
Payment of accrued acquisition costs -- -- (549,258)
Acquisition of American Life Resources Corporation -- -- (1,097,064)
Repayment of notes to related parties -- -- 470,000
-------------- ------------- --------------
Cash provided by (used in) investing activities 9,015,309 8,196,584 377,453
-------------- ------------- --------------
Cash flows from financing activities:
Early extinguishment of debt (15,848,000) (1,970,000) --
Repurchase of common stock -- -- (717,828)
-------------- ------------- --------------
Cash used in financing activities (15,848,000) (1,970,000) (717,828)
-------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents 1,891,779 384,281 (2,306,047)
Cash and cash equivalents at beginning of period 1,276,951 892,670 3,198,717
-------------- ------------- --------------
Cash and cash equivalents at end of period $ 3,168,730 $ 1,276,951 $ 892,670
-------------- ------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
AutoLend Group, Inc. ("AutoLend" or the "Company") is a consumer finance
company which, through its wholly-owned subsidiary AutoLend IAP, Inc., is
engaged in the business of providing short term (2 to 6 weeks) financing to
selected used car dealers for purchases of used automobiles at certain regional
auctions throughout the United States (the Inventory Assistance Program, or
"IAP"). The Company's first IAP financing took place on March 9, 1995.
On June 30, 1995, IAP and the Company entered into an agreement (the
"ServNet Agreement") with ServNet, Inc. ("ServNet"), an association of 17
independent used car auctions, with a term of ten years, subject to renewals.
Pursuant to the ServNet Agreement, ServNet agreed to use its best efforts to
cause its constituent auctions to enter into agreements ("AutoLend Auction
Agreements") with IAP to allow IAP the exclusive opportunity to provide floor
plan financing for dealers purchasing cars at the participating auctions.
Pursuant to the ServNet Agreement, IAP will pay to ServNet a fee calculated
based on volume or net profits, whichever results in a greater fee.
To date, IAP has entered into AutoLend Auction Agreements with 11
ServNet auctions for ten year terms.
Through its wholly-owned subsidiary AutoLend Corporation, the Company
engaged in the business of purchasing, financing, servicing and collecting
retail installment loan contracts originated by independent and franchised used
automobile dealers ("Installment Contracts Receivable"). The first bulk purchase
of Installment Contracts Receivable was made on May 20, 1994. Based upon an
analysis of market factors and growth potential, as well as an evaluation of the
Company's liquidity and capital resources, since December 22, 1995 the Company
has ceased to purchase Installment Contracts Receivable and since September 29,
1994 to purchase Policies, and does not at this time intend to recommence such
activities.
The Company's other business activity, of which certain assets were sold
by the Company on July 29, 1994 and May 8, 1995 (see note 8), is the purchase
and holding of life insurance policies from individuals facing life-threatening
illnesses, commonly known as the viatical settlement business. The Company
operates this business through its two wholly-owned subsidiaries, LB NM, Inc.
("LB NM"), which acquired the operations of Living Benefits, Inc. ("LBI"), a New
Mexico corporation, on April 1, 1991, and American Life Resources Group, Inc.
("ALRG"), which acquired the operations of American Life Resources Corporation
("ALRC") on April 6, 1993 (see note 7). The Company ceased purchasing new
viatical life insurance policies effective September 29, 1994.
Due to the nature of the Company's business, the accompanying
consolidated balance sheets have been presented as nonclassified. All
significant intercompany transactions and balances have been eliminated in
consolidation.
(b) Discontinued Operation
On December 26, 1995, Nunzio P. DeSantis, Courtland G. Miller and
Vincent Villanueva commenced an action in the State of Delaware against Steve
Simon, Stephen Raphael and Elie Housman and the Company
F-7
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
as nominal defendant, seeking, among other things, various injunctions against,
and unspecified damages for, alleged breaches of fiduciary duty, gross
mismanagement, and/or gross negligence that may have occurred. Management
believed all of these claims to be baseless. On May 3, 1996, the parties
submitted a Stipulation of Settlement to the Court. The Stipulation of
Settlement was distributed to the Stockholders of the Company on or about May
15, 1996. On June 17, 1996 a single notice of objection to the proposed
settlement was filed with the Court. On June 27, 1996, after a hearing, at which
the objector was represented by counsel and made written and oral submissions to
the Court, Vice Chancellor Steele of the Delaware Chancery Court entered an
order approving the settlement set forth in the Stipulation.
Pursuant to the Stipulation of Settlement, current management will
resign, receive the payment remaining under their respective employment
agreement and enter into consulting agreements with the Company. The Company's
Autolend IAP, Inc. subsidiary will be sold to an affiliate of departing
management for consideration including settlement of all intercompany
indebtedness and preferred stock of IAP with a face amount of $1 million.
Accordingly, the operations of IAP have been treated as a discontinued operation
in the accompanying financial statements. As of March 31, 1996 and 1995, the IAP
discontinued operations had the following assets and liabilities:
ASSETS: 1996 1995
---- ----
Cash and cash equivalents $ 187,839 $ 48,224
Dealer receivable 5,043,787 72,695
Other 33,989 1,933
------------- ------------
Total 5,265,615 122,852
LIABILITIES:
Accounts payable and accrued expenses 291,568 7,185
------------- ------------
Net assets of discontinued operations $ 4,974,047 $ 115,667
============= ============
In connection with the Settlement, the net proceeds to be received by
the Company include $1,000,000 in preferred stock and, based upon intercompany
accounts as of March 31, 1996, approximately $5.0 million as settlement of all
intercompany indebtedness. Certain amounts remaining under the employment
agreements of departing management totalling, as of March 31, 1996, of
approximately $677,000 as well as consulting fees of $420,000 will be paid by
the Company. Such amounts, other than the face value of the Preferred Stock are
subject to change based upon the actual date of the closing of the Settlement.
Any resulting net loss from the discontinued operations from March 31, 1996 to
the date of the Settlement is not significant.
(c) Going Concern
The Company's viability as a going concern is dependent upon the
successful closing of the Settlement (as hereinafter defined), the restructuring
of its obligations and asset base, and ultimately, a return to profitability.
The Company has been operating at a loss and has incurred operating losses in
the last three years. Management has initiated a plan to terminate certain of
its operations and to improve the profitability of the Company. The Company has
ceased since December 22, 1995 to purchase installment contracts receivable and
since September 29, 1994 to purchase life insurance policies. During the third
quarter of the year ended March 31, 1996 the
F-8
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
Company significantly downsized its operations resulting in significant
reductions in salary expense. In June 1996 the Company entered into a settlement
of certain stockholder derivative litigation (the "Settlement"). In connection
with the closing of the Settlement, the Company will enter into various
agreements providing for, among other things, the disposition of certain
operations, and the replacement of current management.
In September 1996 the Company is obligated to make an interest payment
on the remaining outstanding debentures of approximately $2.1 million. The
outstanding principal amount of the debentures, which is due in September 1997,
will become current debt in September 1996, and without a capital infusion,
refinancing or amendment of the debentures, such current debt will cause the
Company's current liabilities to be greater than its current assets. See Note 5
for information relating to the Company's debenture obligations. Although the
Company currently has sufficient liquidity to meet its September 1996 interest
obligations under the debentures, intervening operating losses may prevent the
Company from meeting its obligations to make interest payments, and in September
1997 to repay the principal under the Debentures as such payments become due. If
the Company is unsuccessful in its efforts, it may be necessary for it to
undertake such other actions as may be appropriate to preserve asset values.
The Company believes it has sufficient funds to finance its currently
contemplated operations for at least the next 12 months but will require
additional funds, if not generated from operations, to finance future growth,
the entering into new businesses and the payment of interest on and repayment of
the Debentures. Auction fundings until the closing of the Settlement are
expected to be funded through proceeds from maturities of outstanding Policies
and Installment Contracts Receivable, cash reserves and Securities Available for
Sale, and proceeds, if any, from the exercise of the Company's outstanding Class
A and Class B Warrants. Since the receipt of such funds is not completely
predictable, the Company may need to acquire additional financing to fund its
anticipated operations beyond such period. Furthermore, in the event that a
closing of the Settlement has not taken place by the interest payment date in
September 1996, the Company may be left with insufficient liquidity to continue
funding its IAP operations. The ability of management to return the Company to
profitable operations and a capacity to meet its obligations on demand is
uncertain. There can be no assurance that management will be able to accomplish
its objectives or that it will enable the Company to become profitable on an
ongoing basis and to continue as a going concern.
(d) Change in Accounting Principle
Effective July 1, 1995, the Company changed the method by which finance
charges are recorded from the compound interest method of recognizing revenues
to the "Rule of 78" interest calculation method. The cumulative effect on the
prior period ending March 31, 1995 was $176,735 net of income taxes of $117,239.
(e) Use of Estimates:
The preparation of the consolidated 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.
(f) Cash and Cash Equivalents
F-9
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
Cash and cash equivalents include debt securities with maturities of 90
days or less at the time of acquisition.
(g) Securities Available for Sale
Securities available for sale are reported at fair value (based on
quoted market prices) with net unrealized gains and losses reported as a
separate component of stockholders' equity. Realized gains and losses on the
sale of securities available for sale are reported in the Consolidated
Statements of Operations. For the purpose of determining the amount of realized
gains and losses, the Company determines the cost of its investment in
securities based on specific identification.
(h) Revenue Recognition
Automobile Financing: Revenues from finance charges on Installment
Contracts Receivable are recognized as earned. Loan discounts are recorded as
unearned income at the time of initial investment in a loan contract, and such
discounts are amortized to income over the remaining life of the loan. Interest
charges are computed using the "Rule of 78" interest calculation method. Accrual
of interest income on receivable balances is suspended when a loan is delinquent
for thirty days or more. Accrual is resumed when the loan becomes contractually
current, and past-due interest income is recognized at that time. The Company
performs substantially all of the functions associated with origination of the
contracts; effective January 1996, the Company has utilized an outside
contractor to service installment loans. Loan costs are amortized against income
as an adjustment of yield.
Auction Financings: Revenues from auction financings (Dealer
Receivables), consisting of nonrefundable administrative fees are recognized at
the time of contract. Interest income on IAP Dealer Receivables is recorded as
unearned income and amortized over the loan period, which does not usually
exceed six weeks. The Company has experienced no losses on the Dealer
Receivables.
Allowance for Credit Losses: An allowance for credit losses is
maintained at a level which, in management's judgment, is adequate to absorb
credit losses inherent in the Installment Contracts Receivable portfolio. The
amount of the allowance is based on management's evaluation of the
collectibility of the Installment Contracts Receivable portfolio, including the
nature of the portfolio, credit concentrations, specific impaired loans, and
economic conditions. Allowances for impaired loans are generally determined
based on collateral values or the present value of estimated cash flows. Because
of uncertainties associated with regional economic conditions, collateral
values, and future cash flows on impaired loans, it is possible that
management's estimate of credit losses inherent in the Installment Contracts
Receivable portfolio and the related allowance may change materially in the near
term.
The allowance for credit losses is established through provisions
charged to income and is based on management's evaluation of potential losses
after consideration of such factors as current delinquency data, changes in the
Installment Contracts Receivable portfolio composition, economic conditions and
other pertinent factors. Charge-offs are recorded against the allowance when
management believes that the collectibility of the principal is unlikely.
Recoveries of amounts previously charged-off are credited to the allowance.
F-10
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
There are inherent uncertainties in determining the allowance for credit
losses in an Installment Contracts Receivable portfolio. the company has not
been in business long enough for it to gather a sufficient data base of
historical credit loss experience. The concentration of risk, limited historical
contract receivable loss experience, and other factors described above, compound
the uncertainty in the Company management's estimate of the allowance for credit
losses. As a result, the aggregate losses ultimately incurred by the Company
with respect to the Installment Contracts Receivable portfolio may significantly
differ from the allowance for credit losses in the accompanying financial
statements. Management has used its best judgment to arrive at its estimate of
the allowance for credit losses and believes that the same is reasonable to
cover the losses inherent in the Installment Contracts Receivable portfolio at
March 31, 1996 and 1995.
Viatical Settlements: Revenue and cost of revenue is recognized upon the
maturity of a policy (death of the insured). However, the ability to recognize
revenue during the period of policy maturity depends on the Company receiving
notification of policy maturity from a representative of the insured, which, in
some instances, may not occur until significantly after the death of the insured
and after the financial statements have been finalized for the period during
which the policy matured. The Company is unable to estimate the face value and
cost of policies which may have matured but for which no notification has been
received. To the extent policy maturities cannot be recorded in the period the
policy matures due to this delay in notification, the revenue and cost related
to such maturity is recognized in the statements of operations subsequent to the
maturity of the policy.
(i) Goodwill and Debt Issuance Cost Amortization
Intangible assets and goodwill are amortized using the straight-line
method over the expected life. Management periodically reviews the expected life
and any adjustments are made prospectively. Debt issuance costs are amortized
over the life of the related debt.
(j) Income Taxes
The Company calculates income taxes using the asset and liability method
prescribed by Financial Accounting Standards Board Statement No. 109 --
"Accounting for Income Taxes." Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The Company, based on the weight of the available
evidence, provides a valuation allowance on deferred tax assets to the extent it
determines it is more likely than not that deferred tax assets will not be
realized.
(k) Fair Value of Financial Instruments
The Company's financial instruments include securities available for
sale, accounts receivable - matured insurance policies, installment contracts
receivable, dealer receivables, purchased insurance policies, accounts payable
and accrued liabilities and convertible debentures. The fair value of such
financial instruments have been determined using available market information
and interest rates as of March 31, 1996.
F-11
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
At March 31, 1996, the fair value of the 9.5% Convertible Subordinated
Debentures Due 1997 was approximately $11,025,000 compared to the carrying value
of $22,050,000. The fair value of all other financial instruments was not
materially different than their carrying value.
(l) Earnings per Share
Earnings per common and common equivalent share is computed based on the
weighted average number of common shares and, if dilutive, common equivalent
shares (options and warrants) outstanding during the period.
(m) New Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those asstes to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. SFAS
NO. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicated that the carrying amounts of an asset may not
be recoverable. SFAS No. 121 will apply to the company for the year ended March
31, 1997. The Company has not assessed the impact of adopting this
pronouncement.
The FASB has also issued Statement of Financial Accounting Standards No.
123, "Accounting for StockBased Compensation" ("SFAS No. 123"). This statement
defines a fair value based method of accounting for employee stock options. This
statement also permits a company to continue to measure compensation costs for
their stock option plan using the intrinsic value based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS No. 123 requires disclosure of the pro
forma net income and earnings per share that would be recorded if the fair value
method was utilized the Company plans to continue to utilize the provisions of
APB No. 25 to account for such compensation costs, and will provide the pro
forma disclosures required by SFAS No. 123 in the fiscal year 1997 financial
statements.
(n) Reclassification
Certain 1995 and 1994 amounts have been reclassified to conform to the
1996 presentation.
(2) INSTALLMENT CONTRACTS RECEIVABLE
At March 31, 1996 and 1995 Installment Contracts Receivable consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Installment contracts receivable $ 19,247,551 $ 25,200,314
Unearned finance charges (5,487,157) (10,381,869)
Allowance for credit losses (3,995,296) (1,544,000)
Collateral owned 1,785,743 432,286
--------------- ---------------
Installment contracts receivable, net $ 11,550,841 $ 13,706,731
=============== ===============
A summary of the allowance for credit
losses is as follows:
</TABLE>
F-12
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Balance - beginning of period $ 1,544,000 $ --
Provision for losses 8,839,461 1,561,062
Charge offs and adjustments (6,388,165) (17,062)
--------------- ----------------
Balance - end of period $ 3,995,296 $ 1,544,000
=============== ===============
</TABLE>
Most of the Company's Installment Contracts Receivable are due from
dealers in the Southeast, West and Northeast regions of the United States. To
some extent, realization of the receivables will be dependent on local economic
conditions. The Company holds vehicle titles as collateral for all contracts
receivable until such contracts are paid in full.
(3) SECURITIES AVAILABLE FOR SALE
Securities Available for Sale at March 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- -----------------------------
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
Marketable equity securities........ $ 175,000 $ 175,000 $ -- $ --
U.S. Treasury notes................. -- -- 8,974,781 8,975,451
Mutual funds........................ -- -- 532,189 532,189
----------- ---------- ------------- -------------
.................................... $ 175,000 $ 175,000 $ 9,506,970 $ 9,507,640
----------- -------------
Net unrealized losses on
securities available for
sale............................. 0 670
----------- -------------
.................................... $ 175,000 $ 9,507,640
=========== =============
</TABLE>
F-13
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
Realized gains and losses were as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Realized gains............................. $ 1,137 $ 115,621 $ 932,737
Realized losses............................ -- (1,764,873) (966,315)
------------- ----------- ---------
$ 1,137 $(1,649,252) $ (33,578)
======== ============ ===========
</TABLE>
(4) INCOME TAXES
In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109), "Accounting for Income Taxes," SFAS No. 109
superseded APB Opinion No. 11, and required a change from the deferred method to
the liability method of computing deferred income taxes. Under the liability
method, deferred taxes are adjusted for tax rate changes as they occur. Deferred
income tax assets and liabilities are computed annually for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rules applicable for the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
A reconciliation of the Company's actual income tax expense (benefit) to
that computed using the U.S. Federal statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)..................... (253,146) $(1,019,940) $ (321,696)
Increase (decrease) in income taxes resulting from:
Amortization of goodwill............................. (401,590) 246,483 68,785
Net operating loss................................... (255,052) 815,730 249,053
Allowance for doubtful accounts...................... 922,423 524,960 --
Capital losses (gains)............................... (113,318) (564,379) --
Other................................................ 100,683 (42,273) 3,858
--------- ------------ -------------
Total income tax expense.................... $ -- $ -- $ --
=============== ================= ================
</TABLE>
F-14
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at March 31, 1996 and 1995 are presented
below:
<TABLE>
<CAPTION>
MARCH 31
1996 1995
---- ----
Deferred tax assets:
<S> <C> <C>
Bad debt reserve................................................. $ 1,503,430 $618,637
Capital loss carryover........................................... 482,445 624,635
Net operating loss............................................... -- 216,852
Bond discount amortization....................................... -- 28,872
Other............................................................ 250,724 1,851
----------- -----------
2,236,599 1,490,847
----------- -----------
Deferred tax liabilities:
Net basis of fixed assets........................................ 60,208 33,499
Other............................................................ 12,077 12,077
----------- -----------
Gross deferred tax liabilities................................... 72,285 45,576
----------- -----------
Net deferred tax asset (liability)........................................ 2,164,314 1,445,271
Valuation allowance for deferred tax assets............................... (2,164,314) (1,445,271)
----------- ----------
Net deferred tax asset (liability)........................................ $ - $ -
=========== ===========
</TABLE>
There was no change in the total valuation allowance for the years ended
March 31, 1996 and 1995.
(5) CONVERTIBLE SUBORDINATED DEBENTURES
On September 19, 1991, the Company received net proceeds of $51.4
million from the issuance of $55.0 million of 9.5% Convertible Subordinated
Debentures (the "Debentures"). During the fiscal year ended March 31, 1996, the
Company has prepaid without penalty $28.9 million principal at a cost of $15.8
million plus accrued interest, resulting in a gain on early extinguishment of
Debentures of $13.1 million. For fiscal year ended March 31, 1995, the Company
prepaid without penalty $4.0 million principal at a cost of $2.0 million plus
accrued interest and recorded a gain on early extinguishment of Debentures of
$2.0 million. The outstanding balance of convertible subordinated Debentures is
$22.1 million at March 31, 1996.
The Debentures which mature September 19, 1997, are convertible by the
holders into the Company's common stock at the rate of one common share per
$12.25 principal amount. In addition, the Company may require conversion
beginning September 19, 1993 if the common stock market price exceeds $15.00 per
share for 20 consecutive days. There were no conversions during the years ended
March 31, 1996 and 1995. The Debentures are subordinated to any current or
future senior debt and require annual interest payments. At March 31, 1996,
accrued interest on the outstanding Debentures was $1,111,369.
Debt issuance costs arising from the issuance of Debentures in the
original amount of $3.6 million have been amortized over the 6 year term and, as
prepayments of Debentures have occurred, applicable amounts of
F-15
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
debt issuance costs have been amortized. A balance of $356,681 in debt issuance
costs remain at March 31, 1996.
(6) STOCKHOLDERS' EQUITY
On July 31, 1990, the Company made a public offering of 900,000 units at
$10 each, each unit consisting of three common shares and three redeemable Class
A warrants. Total proceeds from the sale of these units was $9,000,000 less
offering costs of $1,815,591. In addition, the underwriters for the public
offering exercised an option to purchase 50,000 units to cover over-allotments.
Total proceeds from the sale of these units was $500,000 less underwriting
discounts and commissions of $57,750. The underwriters also received an option
to purchase 90,000 units at $12 per unit exercisable over a period of two years
commencing July 31, 1993.
Each Class A warrant entitles the registered holder to purchase one
common share and one redeemable Class B warrant at an exercise price of $4.00
through July 30, 1996. Each Class B warrant entitles the registered holder to
purchase one common share at $7.00 from the date of issuance through July 30,
1996. The Class A and Class B warrants are subject to redemption at $0.05 per
warrant on 30 days prior written notice provided the closing bid price of the
common shares exceeds $5.50 and $9.70 per share, respectively, for 30
consecutive business days ending within 15 days of the date of notice of
redemption. During the year ended March 31, 1993, 151,500 Class A warrants and
44,500 Class B warrants were exercised. A total of 1,000 Class A warrants were
exercised during the year ended March 31, 1992. In addition, the Company
repurchased 142,000 Class A warrants at a total cost of $227,355. At March 31,
1996, there were 2,555,500 Class A warrants and 108,000 Class B warrants
outstanding.
The Company has a stock option plan under which both incentive and
non-qualified stock options may be granted for the purchase of up to 2,500,000
shares of common stock. For options granted as incentive stock options under the
plan, the exercise price must be at least equal to the fair market value on the
date of the grant. The exercise price for non-qualified options may be less than
fair market value. The options expire at various time ranging from five to ten
years.
The options are summarized as follows:
<TABLE>
<CAPTION>
NUMBER PRICE RANGE
------ -----------
<S> <C> <C>
Options outstanding at March 31, 1991 and 1992................... 110,000 $3.00 - $3.30
Granted...................................................... 100,000 $6.00 - $6.60
----------
Options outstanding at March 31, 1993............................ 210,000 $3.00 - $6.60
Granted...................................................... 410,000 $4.25 - $5.09
----------
Options outstanding at March 31, 1994............................ 620,000 $3.00 - $6.60
Granted...................................................... 750,000 $1.50 - $3.00
----------
Options outstanding at March 31, 1995............................ 1,370,000 $1.50 - $6.60
Granted...................................................... 495,000 $1.50 - $1.63
---------
Options outstanding at March 31, 1996............................ 1,865,000 $1.50 - $6.60
</TABLE>
In connection with the Company's issuance of Debentures (note 5), the
Company granted to the distribution agent a warrant to purchase 269,388 shares
of common stock exercisable at $12.25 per share through September 18, 1996. The
Company has also granted warrants to individuals to purchase 25,000 common
shares at $3.00 per share through March 11, 2001 and 20,000 common shares at
$12.25 through September 18, 2001.
F-16
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
On December 14, 1992, the Company announced a plan to allocate up to
$10,000,000 for the repurchase of its common stock and Class A warrants. At
March 31, 1993 the Company had repurchased 705,700 shares of its common stock at
a total cost of $2,746,140. During the year ended March 31, 1994, the Company
repurchased an additional 165,500 shares of its common stock at a total cost of
$717,828. At the direction of the Board of Directors, all such shares
repurchased under this plan were returned to the status of authorized, but
unissued. The Company has no current plans to acquire additional shares.
(7) ACQUISITIONS
On April 6, 1993, the Company acquired certain operating assets of ALRC.
Under the terms of the agreement, the Company paid a total of $1,000,000 for
certain tangible and intangible assets of ALRC, including employment agreements
and covenants not to compete by the principals of ALRC, and certain transaction
costs. These intangible assets included goodwill of $433,591, amortized over the
remaining life of the viatical portfolio (see note 8).
Effective April 1, 1991, the Company acquired certain equipment,
covenants not to compete and the future operations of LBI. The acquisition
agreement provides for the payment of contingent consideration based on a share
of the profits of LBI's business. No contingent consideration payment was
required for the year ended March 31, 1992. At March 31, 1993, the Company
accrued $549,258 as contingent consideration for fiscal year 1993, which was
paid on July 19, 1993. The Company and the principals of LBI are disputing the
remaining amounts of consideration due based on differences in interpretation of
certain computational items set forth in the acquisition agreement. The Company
has accrued an amount based on its interpretation of the agreement and intends
to negotiate a settlement of the dispute. However, the Company is currently
unable to predict with certainty the final resolution of this matter.
(8) SALE OF CERTAIN ASSETS
On July 29, 1994, the Company sold certain assets of its viatical
settlements business to National Capital Benefits Corporation ("NCBC"), a
subsidiary of National Capital Management Corporation ("NCMC"). Assets acquired
by NCBC include the Company's proprietary client management software system, all
"work in process" and the trade names of both LBNM and ALRG. The Company
received consideration of $125,000 and 100,000 common shares of NCMC. The sale
agreement provides the Company with an option exercisable within 24 months of
the sale through July 28, 1996, to sell these shares back to NCMC at a price of
$1.75 per share. In addition, the Company is entitled to receive commissions on
certain transactions should they occur within 48 months of the sale agreement.
Commissions received during the year ending March 31, 1996 were not significant.
On May 8, 1995 and July 18, 1995, ALRG and LBNM entered into agreements
with Viaticus, Inc. ("Viaticus"), a subsidiary of the CNA Insurance Companies,
under which ALRG and LBNM agreed to assign to Viaticus certain viatical
insurance policies. Under the terms of the agreements, upon receipt by Viaticus
of satisfactory acknowledgement by the insurer, payment of a predetermined
amount for each policy would be remitted to the Company. During fiscal year
ended March 31, 1996, approximately $17.5 million has been received as payment
for policies with completed assignments to Viaticus, and there are no
outstanding amounts receivable under the agreements at March 31, 1996.
F-17
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
In conjunction with the sales to Viaticus, the remaining goodwill and
other intangibles related to the purchases of the viatical business in 1993 and
1991 (see note 7), have been fully amortized during the year ending March 31,
1996.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases its office space and certain equipment under
noncancelable operating leases that expire at various times over the next five
years. The Company leases approximately 3,050 square feet of office space in
Miami Beach, Florida under a lease expiring in May 1997 at a base rent of
$35,652, subject to annual increases that have historically been approximately
5%.
Additional office space in the vicinity was leased effective May 1994
under a 6-year lease which includes annual rent commencing August 1994 of
$207,000 in each of the first two years and $325,000 annually thereafter, when
the square footage will increase to approximately 17,000 square feet subject to
increases reflecting changes in the consumer price index. The lease provides for
one four-year renewal period. In February 1996, the Company vacated these
premises. The Company is currently seeking a party to sublease or assume its
lease obligations with respect to these premises. No assurance can be given that
the Company will be able to find such a party or that if the Company finds such
a party, the Company will be able to enter into an arrangement with such party
on terms favorable to the Company.
Rental expense for operating leases was $306,335, $224,574 and $67,911
for the years ended March 31, 1996, 1995 and 1994 respectively.
Future minimum lease payments for noncancelable operating leases with
initial or remaining lease terms in excess of one year as of March 31, 1996 are:
Year ending March 31,
1997 $ 358,095
1998 346,485
1999 325,000
2000 325,000
2001 81,250
--------------------
Total minimum lease payments $ 1,435,830
=================
In connection with the acquisition of ALRC in April 1993 (see note 7),
the Company entered into employment agreements with each of the two principals
of ALRC. The five year agreements are with the Chief Executive Officer and Chief
Operating Officer of the Company and provide for minimum annual compensation of
$125,000 and $75,000, with annual cost of living adjustments.
In May 1996, the Company was impleaded by an insurer into a suit in the
United States Bankruptcy Court for the Middle District of Florida, in which a
bankrupt seeks from the insurer payment of a $1 million death benefit under a
Policy which it asserts the insurer improperly amended to remove it as the
beneficiary without consent of the Bankruptcy Court. Following such amendment,
the Policy was assigned to the Company, which was without notice of any of these
alleged facts. The insurer seeks to recover the death benefit paid under this
F-18
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
Policy from the Company in the event that it is required to pay such death
benefit to the bankrupt. The Company intends to aggressively defend against such
claims and to aggressively assert its own claims against the insurer.
As of December 31, 1995, the Company's capital and surplus fell below
the $1 million required by the NASDAQ Stock Market for continued listing. On
April 30, 1996, a delisting hearing was held before the Nasdaq Qualifications
Hearing Panel (the "Panel"). At the hearing, the Company requested a temporary
exception to the capital and surplus requirements. The Panel granted the
Company's request for a temporary exception. However, under the exception, the
Company was required to make a public filing evidencing compliance with the
minimum capital and surplus requirements with the Securities and Exchange
Commission and the NASDAQ Stock Market on or before May 20, 1996. The Company
could not make such a filing, and, on or about May 21, 1996, the Company was
delisted from the NASDAQ Stock Market.
The Company is involved in the causes of action described
below as plaintiff.
In March 1996 the Company commenced an action against a former employee
of the Company, in the Circuit Court, Dade County, Florida seeking damages and
the return of stolen property in connection with the deletion from the Company's
computer system of certain menu tools, programs and access tools.
In May 1996 Aurora National Life Assurance Company filed an interpleader
action in the United States District Court for the Southern District of Florida
seeking determination of the proper recipient of benefits under a Policy. The
Policy in question was sold by the Company to Viaticus in May 1995 for $3
million. Although the insured had died in December 1994, neither the Company nor
Viaticus was aware of the maturation of the Policy at the time of the sale. The
Company intends to vigorously assert its claim to the full death benefits. If it
is awarded those benefits, it will have to return the $3 million sale price
previously paid to it by Viaticus for purchase of the policy.
F-19
<PAGE>
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 thereto duly authorized.
AUTOLEND GROUP, INC.
Date: July 15, 1996 By: /s/ Steve Simon
----------------
Steve Simon
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Steve Simon Chairman of the Board and July 15, 1996
- -------------------------- Chief Executive Officer
Steve Simon (Principal Executive Officer)
/s/ Helen Porter Executive Vice President and July 15, 1996
- -------------------------- Chief Operating Officer
Helen Porter (principal accounting officer)
/s/ Philip J. Vitale, M.D. Director July 15, 1996
- ---------------------------
Philip J. Vitale, M.D.
/s/ Robert Granoff Director July 15, 1996
-----------
Robert Granoff
/s/ James Newman Director July 15, 1996
-----------
James Newman
/s/ Drew Sakson Director July 15, 1996
-----------
Drew Sakson
<PAGE>
SCHEDULE VIII
<TABLE>
<CAPTION>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
March 31, 1996, 1995 and 1994
Balance at Charged to Amount on
Beginning Costs and Balance
Description of Period Expenses Sheet
- ----------- --------- -------- -----
<S> <C> <C> <C>
Year ended March 31, 1996
Intangible assets - accumulated amortization $ 293,949 $ 306,051 $ 600,00
Goodwill - accumulated amortization 1,128,413 1,579,865 2,708,278
Debt issuance costs - accumulated amortization 1,824,690 1,452,034 3,276,724
Year ended March 31, 1995
Intangible assets - accumulated amortization $ 120,000 $ 173,949 $ 293,949
Goodwill - accumulated amortization 431,957 696,456 1,128,413
Debt issuance costs - accumulated amortization 1,220,737 603,953 1,824,690
Year ended March 31, 1994
Intangible assets - accumulated amortization $ -- $ 120,000 $ 120,00
Goodwill - accumulated amortization 213,778 218,179 431,957
Debt issuance costs - accumulated amortization 679,575 541,162 1,220,737
</TABLE>
S-1
INDEX OF EXHIBITS
PAGE
----
CERTIFICATE OF INCORPORATION ............................................. 1
BY-LAWS .................................................................. 13
EXHIBIT 3.4
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
-----------------------------
I , EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE , DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "CAPX CORPORATION", CHANGING ITS NAME FROM "CAPX CORPORATION" TO
"AUTOLEND GROUP, INC.", FILED IN THIS OFFICE ON THE SIXTH DAY OF FEBRUARY, A.D.
1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
-------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7398830
DATE: 02-07-95
- 1 -
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
CAPX CORPORATION
ADOPTED IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW
It is hereby certified that:
1. The present name of the corporation (the "Corporation") is CAPX
Corporation.
2. The Certificate of Incorporation of the Corporation was filed with
the Secretary of State of Delaware on May 23, 1989.
3. Article FIRST of the Certificate of Incorporation of the Corporation
is hereby amended to read in its entirety as follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is AutoLend Group, Inc.
4. The foregoing amendment was declared advisable by the board of
directors of the Corporation pursuant to a resolution duly adopting the
amendment on November 18, 1994, and was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law by the
affirmative vote of the stockholders of the Corporation.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Steve Simon, its President, and J. Michael Mayerfeld, its Assistant
Secretary, this 2 day of February, 1995. AUTOLEND GROUP, INC.
By: /s/ Steve Simon
---------------
Steve Simon, President
Attest:
/s/ J. Michael Mayerfeld
- ------------------------
J. Michael Mayerfeld
Assistant Secretary
- 3 -
<PAGE>
State of Delaware
Office of Secretary of State
I, MICHAEL HAWKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "CAPX CORPORATION" FILED IN THIS OFFICE ON THE TWENTY-NINTH DAY
OF OCTOBER, A.D. 1991, AT 9 O'CLOCK A.M.
* * * * * * * * * *
/s/ Michael Harkins
- -------------------
Michael Harkins, Secretary of State
AUTHENTICATION: #3218389
DATE: 10-29-1991
- 4 -
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CAPX CORPORATION
The undersigned, being over the age of eighteen (18), in order to form
a corporation for the purposes hereinafter stated, under and pursuant to the
provisions of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: The name of the corporation is CAPX Corporation.
SECOND: The registered office of the Corporation is to be located at 32
Loockerman Square Suite L-100, Dover, Delaware 19901. The name of its registered
agent at that address is The Prentice-Hall Corporation System, Inc. County of
Kent.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall be authorized to issue is 45,000,000 shares, of which
40,000,000 shall be designated Common Stock having a par value of $.002 per
share (the "Common Stock") and 5,000,000 shall be designated Preferred Stock
having a par value of $.002 per share (the "Preferred Stock").
- 5 -
<PAGE>
Each Common Stockholder shall be entitled to one vote for each share of
Common Stock held of record on all matters as to which Common Stockholders shall
be entitled to vote.
Each share of Common Stock issued and outstanding shall be identical in
all respects one with each other such share, and no dividends shall be paid on
any shares of Common Stock unless the same dividend is paid on all shares of
Common Stock outstanding at the time of such payment. Except for and subject to
those rights expressly granted to Preferred Stockholders or, except as may be
provided by the laws of the State of Delaware, the Common Stockholders shall
have exclusively all other rights of stockholders, including, without
limitation, (i) the right to receive dividends, when and as declared by the
Board of Directors of the Corporation, out of assets lawfully available
therefor, and (ii) in the event of any distribution of assets upon a liquidation
or otherwise, the right to receive ratably and equally, together with the
holders of the Preferred Stock, if any, all the assets and funds of the
Corporation remaining after the payment to the holders of the Preferred Stock,
if any, of the specific amounts which they are entitled to receive upon such
liquidation.
The Board of Directors is hereby expressly authorized to provide for,
designate and issue, out of the authorized but unissued shares of Preferred
Stock, one or more series of Preferred Stock, subject to the terms and
conditions set forth herein. Before any shares of any such series are issued,
the Board of Directors shall fix, and hereby is expressly empowered to fix, by
resolution or resolutions, the following provisions of the shares of any such
series:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the par
value thereof;
- 6 -
<PAGE>
(b) whether the shares of such series shall have voting rights or
powers, in addition to any voting rights required by law, and, if so, the terms
of such voting rights or powers, which may be full or limited;
(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
or any other class or any other series of this class;
(d) whether the shares of such series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or any other series of
this class or any other securities and, if so, the price or prices or the rate
or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and condition or exchange;
- 7 -
<PAGE>
(h) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(i) the conditions or restrictions, if any, to be effective while
any shares of such series are outstanding upon the creation of indebtedness of
the Corporation or upon the issue of any additional stock, including additional
shares of such series or of any other series of this class or of any other
class; and
(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof. The powers, designations, preferences and
relative, participating, optional or other special rights of each series of
Preferred Stock, and the qualifications, limitations or restrictions thereof, if
any, may differ from those of any and all other series at any time outstanding.
The Board of Directors is hereby expressly authorized from time to time to
increase (but not above the total number of authorized shares of Preferred
Stock) or decrease (but not below the number of shares thereof then outstanding)
the number of shares of stock of any series of Preferred Stock designated to any
one or more series of Preferred Stock.
- 8 -
<PAGE>
FIFTH: The name and address of the incorporator is as follows:
NAME ADDRESS
---- -------
Marc S. Goldfarb Bachner, Tally, Polevoy & Misher
380 Madison Avenue
New York, New York 10017
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders: (1) The number of directors of the Corporation
shall be such as from time to time shall be fixed by, or in the manner provided,
in the by-laws. Election of directors need not be by ballot unless the by-laws
so provide.
(2) The Board of Directors shall have power without
the assent or vote of the stockholders:
(a) to make, alter, amend, change, add to or repeal the ByLaws of
the Corporation; to fix and vary the amount to be reserved for any proper
purpose; to authorize and cause to be executed mortgages and liens upon all
or any part of the property of the Corporation; to determine the use and
disposition of any surplus or net profits; and to fix the times for the
declaration and payment of dividends; and
(b) to determine from time to time whether, and to what extent,
and at what times and places, and under what conditions and regulations, the
accounts and books of the Corporation (other than the stock ledger) or any
of them, shall be open to the inspection of the stockholders.
(3) The directors in their discretion may submit any contract or
act for approval or ratification at any annual meeting of the stockholders or at
any meeting of the stockholders called for the purpose of considering any such
act or contract, and any contract
- 9 -
<PAGE>
or act that shall be approved or be ratified by the vote of the holders of a
majority of the stock of the Corporation which is represented in person or by
proxy at such meeting and entitled to vote thereat (provided that a lawful
quorum of stockholders be there represented in person or by proxy) shall be as
valid and as binding upon the Corporation and upon all the stockholders as
though it had been approved or ratified by every stockholder of the Corporation,
whether or not the contract or act would otherwise be open to legal attack
because of directors' interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-lays from time to time
made by the stockholders; provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would have been valid if such
by-laws had not been made.
SEVENTH: Any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative (whether or not by or
in the right of the Corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
incorporator, employee or agent of another corporation, partnership, joint
venture, trust, or other enterprise shall be entitled to be indemnified by the
Corporation to the full extent then permitted by law or to the extent that a
court of competent jurisdiction shall deem proper or permissible under the
circumstances, whichever is greater against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement incurred by him in
connection with such action, suit or proceeding. Such right of indemnification
shall inure whether or not the claim
- 10 -
<PAGE>
asserted is based on matters which antedate the adoption of this Article
SEVENTH. Such right of indemnification shall continue as to a person who has
ceased to be a director, officer, incorporator, employee, or agent and shall
inure to the benefit of the heirs and personal representatives of such person.
EIGHTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on application in a summary way
of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or a class of stockholders of the Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
NINTH: The personal liability of directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph 7 of Subsection (b) of
Section 102 of the
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General Corporation Law of the State of Delaware as the same may be amended and
supplemented.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
IN WITNESS THEREOF, I have hereunto signed my name and affirm that the
statements made herein are true under the penalties of perjury, this 28th day of
October, 1991.
/s/ Mark S. Goldfarb
--------------------
Marc S. Goldfarb
Bachner, Tally, Polevoy & Misher
380 Madison Avenue
New York, New York 10017
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EXHIBIT 3.5
CAPX CORPORATION
Incorporated Under the
Laws of the State of Delaware
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting.
The annual meeting of the stockholders of CAPX Corporation (hereinafter
called the "Corporation") for the election of directors and for the transaction
of such other business as may come before the meeting shall be hold on the date
and at the time fixed, from time to time, by the directors, provided, that the
first annual meeting shall be held on a date within thirteen months after the
organization of the Corporation, and each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting.
Section 2. Special Meeting.
Special meetings of the stockholders, unless otherwise prescribed by
statute, may be called at any time by the Board or the Chairman of the Board or
the President. The Board of Directors shell call a special meeting of the
stockholders when requested in writing by stockholders holding not less than 10%
of the outstanding stock of the Corporation; such written request shell state
the object of the meeting proposed to be held.
Section 3. Notice of Meetings.
Notice of the place, date and time of the holding of each annual and
special meeting of the stockholders and, in the case of a special meeting, the
purpose or purposes thereof shall be given personally or by mail in a postage
prepaid envelope to each stockholder entitled to vote at such meeting, not less
than ten (10) nor more then sixty (60) days before the date of such meeting,
and, if mailed, it shall be directed to him at such stockholder at his address
as it appears on the records of the Corporation, unless he shall have filed with
the Secretary of the Corporation a written request that notices to him be mailed
to some other address, in which case it shall be directed to him at some other
address. If mailed, such notice shall be deemed to be delivered when deposited
in United States mail so addressed with
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postage thereon prepaid. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in person
or by proxy and shall not, at the beginning of such meeting, object to the
transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy. Unless the Board shall fix after the
adjournment a new record date for an adjourned meeting, notice of such adjourned
meeting need not be given if the time and place to which the meeting shall be
adjourned were announced at the meeting at which the adjournment is taken. At
the adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 4. Place of Meetings.
Meetings of the stockholders may be held at such place, within or
without the State of Delaware, as the Board or other officer calling the same
shall specify in the notice of such meeting, or in a duly executed waiver of
notice thereof.
Section 5. Quorum.
At all meetings of the stockholders the holders of a majority of the
votes of the shares of stock of the Corporation issued and outstanding and
entitled to vote shall be present in person or by proxy to constitute a quorum
for the transaction of any business, except when stockholders are required to
vote by class, in which event a majority of the issued and outstanding shares of
the appropriate class shall be present in person or by proxy, or except as
otherwise provided by statute or in the Certificate of Incorporation. In the
absence of a quorum, the holders of a majority of the votes of the shares of
stock present in person or by proxy and entitled to vote, or if no stockholder
entitled to vote is present, then any officer of the Corporation may adjourn the
meeting from time to time. At any such adjourned meeting at which a quorum may
be present any business may be transacted which might have been transacted at
the meeting as originally called.
Section 6. Organization.
At each meeting of the stockholders the Chairman of the Board, or in
his absence or inability to act, the President, or in the absence or inability
to act of the Chairman of the Board and the President, a Vice President, or in
the absence of all the
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foregoing, any person chosen majority of those stockholders present, shall act
as chairman of the meeting. The Secretary, or, in his absence or inability to
act, the Assistant Secretary or any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business.
The order of business at all meetings of the stockholders shall be as
determined by the chairman of the meeting.
Section 8. Voting.
Except as otherwise provided by statute, the Certificate of
Incorporation, or any certificate duly filed in the office of the Secretary of
State of Delaware, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for every shareof such stock standing in his name on the record of
stockholders of the Corporation on the date fixed by the Board as the record
date for the determination of the stockholders who shall be entitled to notice
of and to vote at such meeting; or if such record date shall not have been so
fixed, then at the close of business on the day next preceding the day on which
the meeting is held, or each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for him by a proxy
signed by such stockholder or his attorney-in-fact. Any such proxy shall be
delivered to the secretary of such meeting at or prior to the time designated in
the order of business for so delivering such proxies. No proxy shall be valid
after the expiration of three years from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where an irrevocable proxy is
permitted by law. Except as otherwise provided by statute, these By-Laws, or the
Certificate of Incorporation, any corporate action to be taken by vote of the
stockholders shall be authorized by a majority of the total votes, or when
stockholders are required to vote by class by a majority of the votes of the
appropriate class, cast at a meeting of stockholders by the holders of shares
present in person or represented by proxy and entitled to vote on such action.
Unless required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by written ballot. On a vote by
written ballot, each ballot shall be signed by the stockholder voting or by his
proxy, if there be such proxy, and shall state the number of shares voted.
Section 9. List of Stockholders.
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The officer who has charge of the stock ledger of the Corporation, or
the transfer agent of the Corporation's stock, if there be one then acting,
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held, at
the place where the meeting is to be held, or at the office of the transfer
agent. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 10. Inspectors.
The Board may, in advance of any meeting of stockholders, appoint one
or more inspectors to act at such meeting or any adjournment thereof. If the
inspectors shall not be so appointed or if any of them shall fail to appear or
act, the chairman of the meeting may, and on the request of any stockholder
entitled to vote thereat shall, appoint inspectors. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors shall
determine the number of shares outstanding and the voting power of each, the
number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors.
Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided in the Certificate of Incorporation, any
action required by Subchapter VII of the General Corporation Law, to be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents
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in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in this State, its principal
place of business, or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers.
The business and affairs of the Corporation shall be managed by the
Board. The Board may exercise all such authority and powers of the Corporation
and do all such lawful acts and things as are not by statute or the Certificate
of Incorporation or by these By-Laws directed or required to be exercised or
done by the stockholders.
Section 2. Number, Qualification, Election and Term of Office.
The number of directors of the Corporation shall be fixed from time to
time by the vote of a majority of the entire Board then in office and the number
thereof may thereafter by like vote be increased or decreased to such greater or
lesser number (not less than three) as may be so provided, subject to the
provisions of Section 11 of this Article II. All of the directors shall be of
full age and need not be stockholders. Except as otherwise provided by statute
or these By-Laws, the directors shall be elected at the annual meeting of the
stockholders for the election of directors at which a quorum is present, and the
persons receiving a plurality of the votes cast at such meeting shall be
elected. Each director shall hold office until the next annual meeting of the
stockholders and until his successor shall have been duly elected and qualified,
or until his death, or until he shall have resigned or have been removed, as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Certificate of Incorporation.
Section 3. Place of Meetings.
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Meetings of the Board may be held at such place, within or without the
State of Delaware, as the Board may from time to time determine or as shall be
specified in the notice or waiver of notice of such meeting.
Section 4. Annual Meeting.
The Board shall meet for the purpose of organization, the election of
officers and the transaction of other business, as soon as practicable after
each annual meeting of the stockholders on the same day and at the same place
where such annual meeting shall be held. Notice of such meeting need not be
given. Such meeting may be held at any other time or place (within or without
the State of Delaware) which shall be specified in a notice thereof given as
hereinafter provided in Section 7 of this Article II.
Section 5. Regular Meetings.
Regular meetings of the Board shall be held at such time and place as
the Board may from time to time determine. If any day fixed for a regular
meeting shall be a legal holiday at the place where the meeting is to be held,
then the meeting which would otherwise be held on that day shall be held at the
same hour on the next succeeding business day. Notice of regular meetings of the
Board need not be given except as otherwise required by statute or these
By-Laws.
Section 6. Special Meetings.
Special meetings of the Board may be called by two or more directors of
the Corporation or by the Chairman of the Board or the President.
Section 7. Notice of Meetings.
Notice of each special meeting of the Board (and of each regular
meeting for which notice shall be required) shall be given by the Secretary as
hereinafter provided in this Section 7, in which notice shall be stated the time
and place (within or without the State of Delaware) of the meeting. Notice of
each such meeting shall be delivered to each director either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held or by first-class mail, postage
prepaid, addressed to him at his residence, or usual place of business, at least
three days before the day on which such meeting is to be held. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail.
Notice of any such meeting
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need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him. Except
as otherwise specifically required by these By-Laws, a notice or waiver of
notice of any regular or special meeting need not state the purposes of such
meeting.
Section 8. Quorum and Manner of Acting.
A majority of the entire Board shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and, except as otherwise expressly required by statute
or the Certificate of Incorporation, the act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board. Any one or more members of the Board or any committee thereof may
participate in a meeting of the Board or such committee by means of a conference
telephone or similar communications equipment allowing all participants in the
meeting to hear each other at the same time and participation by such means
shall constitute presence in person at a meeting. In the absence of a quorum at
any meeting of the Board, a majority of the directors present thereat, or if no
director be present, the Secretary, may adjourn such meeting to another time and
place, or such meeting, unless it be the annual meeting of the Board, need not
be held. At any adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as originally
called. Except as provided in Article III of these By-Laws, the directors shall
act only as a Board and the individual directors shall have no power as such.
Section 9. Organization.
At each meeting of the Board, the Chairman of the Board (or, in his
absence or inability to act, the President, or, in his absence or inability to
act, another director chosen by a majority of the directors present) shall act
as chairman of the meeting and preside thereat. The Secretary (or, in his
absence or inability to act, any person appointed by the chairman) shall act an
secretary of the meeting and keep the minutes thereof.
Section 10. Resignations.
Any director of the Corporation may resign at any time by giving
written notice of his resignation to the Board or Chairman of the Board or the
President or the Secretary. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified
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therein, immediately upon its receipt; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 11. Vacancies.
Vacancies, including newly created directorships, may be filled by a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in this Section for the filling
of other vacancies.
Section 12. Removal of Directors.
Except as otherwise provided in the Certificate of Incorporation or in
these By-Laws, any director may be removed, either with or without cause, at any
time, by the affirmative vote of a majority of the votes of the issued and
outstanding shares of stock entitled to vote for the election of the
stockholders called and held for that purpose, or by a majority vote of the
Board of Directors at a meeting called for such purpose, and the vacancy in the
Board caused by any such removal may be filled by such stockholders or
directors, as the case may be, at such meeting, and if the stockholders shall
fail to fill such vacancy, such vacancy shall be filled in the manner as
provided by these By-Laws.
Section 13. Compensation.
The Board shall have authority to fix the compensation, including fees
and reimbursement of expenses, of directors for services to the Corporation in
any capacity, provided no such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Section 14. Action by the Board.
To the extent permitted under the laws of the State of Delaware, any
action required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
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ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive and Other Committees.
The Board may by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of two or more of
the directors of the Corporation. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the Committee. Any such committee, to the
extent provided in the resolution, shall have and may exercise the powers of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that in the absence or disqualification of any
member of such committee or committees, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board to act
at the meeting in the place of any such absent or disqualified member. Each
committee shall keep minutes of its proceedings and shall report such minutes to
the Board when required.
Section 2. General.
A majority of any committee may determine its action and fix the time
and place of its meetings, unless the Board shall otherwise provide. Notice of
such meetings shall be given to each member of the committee in the manner
provided for in Article II, Section 7. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
ARTICLE IV
OFFICERS
Section 1. Number and Qualifications.
The officers of the Corporation shall include the Chairman of the
Board, the President, one or more Vice Presidents (one or more of whom may be
designated Executive Vice President or Senior Vice President), the Treasurer,
and the Secretary. Any two or more offices may be held by the same person. Such
officers shall
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be elected from time to time by the Board, each to hold office until the meeting
of the Board following the next annual meeting of the stockholders, or until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board may from time to time elect a Vice Chairman
of the Board, and the Board may from time to time elect, or the Chairman of the
Board, or the President may appoint, such other officers (including one or more
Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers), as
may be necessary or desirable for the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the appointing authority.
Section 2. Resignation.
Any officer of the Corporation may resign at any time by giving written
notice of his resignation to the Board, the Chairman of the Board, the President
or the Secretary. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 3. Removal.
Any officer or agent of the Corporation may be removed, either with or
without cause, at any time, by the vote of the majority of the entire Board at
any meeting of the Board or, except in the case of an officer or agent elected
or appointed by the Board, by the Chairman of the Board or the President. Such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
Section 4. Vacancies.
A vacancy in any office, whether arising from death, resignation,
removal or any other cause, may be filled for the unexpired portion of the term
of the office which shall be vacant, in the manner prescribed in these By-Laws
for the regular election or appointment to such office.
Section 5. a. The Chairman of the Board.
The Chairman of the Board, if one be elected, shall, if present,
preside at each meeting of the stockholders and of the Board and shall be an ex
officio member of all commit-
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tees of the Board. He shall perform all duties incident to the office of
Chairman of the Board and such other duties as may from time to time be assigned
to him by the Board.
b. The Vice Chairman of the Board.
The Vice Chairman of the Board, if one be elected, shall have such
powers and perform all such duties as from time to time may be assigned to him
by the Board or the Chairman of the Board and, unless otherwise provided by the
Board, shall in the case of the absence or inability to act of the Chairman of
the Board, perform the duties of the Chairman of the Board and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
Chairman of the Board.
Section 6. The President.
The President shall be the chief operating and executive officer of the
Corporation and shall have general and active supervision and direction over the
business and affairs of the Corporation and over its several officers, subject,
however, to the direction of the Chairman of the Board and the control of the
Board. If no Chairman of the Board is elected, or at the request of the Chairman
of the Board, or in the case of his absence or inability to act, unless there be
a Vice Chairman of the Board so designated to act, the President shall perform
the duties of the Chairman of the Board and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the Chairman of the
Board. He shall perform all duties incident to the office of President and such
other duties as from time to time may be assigned to him by the Board or the
Chairman of the Board.
Section 7. Vice Presidents.
Each Executive Vice President, each Senior Vice President and each Vice
President shall have such powers and perform all such duties as from time to
time may be assigned to him by the Board, the Chairman of the Board, or the
President. They shall, in the order of their seniority, have the power and may
perform the duties of the Chairman of the Board and the President.
Section 8. The Treasurer.
The Treasurer shall be the chief financial officer of the Corporation
and shall exercise general supervision over the receipt, custody and
disbursement of Corporate funds. He shall have such further powers and duties as
may be conferred upon him from time to time by the President or the Board of
Directors. He
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shall perform the duties of controller if no one is elected to that office.
Section 9. The Secretary.
The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal be a facsimile, as hereinafter provided) and affix and attest the seal
to all other documents to be executed on behalf of the Corporation under its
seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board, the Chairman of the Board, or the President.
Section 10. Officer's Bonds or Other Security.
If required by the Board, any officer of the Corporation shall give a
bond or other security for the faithful performance of his duties, in such
amount and with such surety or sureties as the Board may require.
Section 11. Compensation.
The compensation of the officers of the Corporation for their services
as such officers shall be fixed rom time to time by the Board, provided,
however, that the Board may delegate to the Chairman of the Board or the
President the power to fix the compensation of officers and agents appointed by
the Chairman of the Board or the President, as the case may be. An officer of
the Corporation shall not be prevented from receiving compensation by reason of
the fact that he is also a director of the Corporation, but any such officer who
shall also be a director
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shall not have any vote in the determination of the amount of compensation paid
to him.
ARTICLE V
INDEMNIFICATION
Section 1. Right to Indemnification.
The corporation shall indemnify and hold harmless, to the fullest
extent permitted by applicable law as it presently exists or may hereafter be
amended, any person who was or is made or is threatened to be made a party or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that he,
or a person for whom he is the legal representative, is or was a director or
officer of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against all liability
and loss suffered and expenses (including attorneys' fees) reasonably incurred
by such person. The corporation shall be required to indemnify a person in
connection with a proceeding (or part thereof) initiated by such person only if
the proceeding (or part thereof) was authorized by the Board of Directors of the
corporation.
Section 2. Prepayment of Expenses.
The corporation shall pay the expenses (including attorneys' fees)
incurred in defending any proceeding in advance of its final disposition,
provided, however, that the payment of expenses incurred by a director or
officer in advance of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by the director or officer to repay all amounts
advanced if it should be ultimately determined that the director or officer is
not entitled to be indemnified under this Article or otherwise.
Section 3. Claims.
If a claim for indemnification or payment of expenses under this
Article is not paid in full within sixty days after a written claim therefor has
been received by the corporation, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the corporation shall have the burden of proving that the
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claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
Section 4. Non-exclusivity of Rights.
The rights conferred on any person by this Article V shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, these by-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 5. Other Indemnification.
The corporation's obligation, if any, to indemnify any person who was
or is serving at its request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, enterprise or nonprofit
entity shall be reduced by any amount such person may collect as indemnification
from such other corporation, partnership, joint venture, trust, enterprise or
nonprofit enterprise.
Section 6. Amendment or Repeal.
Any repeal or modification of the foregoing provisions of this Article
V shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNT, ETC.
Section 1. Execution of Contracts.
Except as otherwise required by statute, the Certificate of
Incorporation or these By-Laws, any contracts or other instruments may be
executed and delivered in the name and on behalf of the Corporation by such
officer or officers (including any assistant officer) of the Corporation as the
Board may from time to time direct. Such authority may be general or confined to
specific instances as the Board may determine. Unless authorized by the Board or
expressly permitted by these By-Laws, an officer or agent or employee shall not
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it pecuniarily liable for any
purpose or to any amount.
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Section 2. Loans.
Unless the Board shall otherwise determine, either (a) the Chairman of
the Board, the Vice Chairman of the Board or the President, singly, or (b) a
Vice President, together with the Treasurer, may effect loans and advances at
any time for the Corporation or guarantee any loans and advances to any
subsidiary of the Corporation, from any bank, trust company or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, or guarantee of
indebtedness of subsidiaries of the Corporation, but no officer or officers
shall mortgage, pledge, hypothecate or transfer any securities or other property
of the Corporation, except when authorized by the Board.
Section 3. Check, Drafts, etc.
All checks, drafts, bills of exchange or other orders for the payment
of money out of the funds of the Corporation, and all notes or other evidences
of indebtedness of the Corporation, shall be signed in the name and on behalf of
the Corporation by such persons and in such manner as shall from time to time be
authorized by the Board.
Section 4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositories as the Board may from time to time designate or
as may be designated by any officer or officers of the Corporation to whom such
power of designation may from time to time be delegated by the Board. For the
purpose of deposit and for the purpose of collection for the account of the
Corporation, checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation may be endorsed, assigned and delivered
by any officer or agent of the Corporation, or in such manner as the Board may
determine by resolution.
Section 5. General and Special Bank Accounts.
The Board may from time to time authorize the opening and keeping of
general and special bank accounts with such banks, trust companies or other
depositories as the Board may designate or as may be designated by any officer
or officers of the Corporation to whom such power of designation may from time
to time be delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not
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inconsistent with the provisions of these By-Laws, as it may deem expedient.
Section 6. Proxies in Respect of Securities of Other Corporations.
Unless otherwise provided by resolution adopted by the Board of
Directors, the Chairman of the Board, the President, or a Vice President may
from time to time appoint an attorney or attorneys or agent or agents, of the
Corporation, in the name and on behalf of the Corporation to cast the votes
which the Corporation may be entitled to cast as the holder of stock or other
securities in any other corporation, any of whose stock or other securities may
be held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing, in the name of
the Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal, or otherwise
all such written proxies or other instruments as he may deem necessary or proper
in the premises.
ARTICLE VII
SHARES, ETC.
Section 1. Stock Certificates.
Each holder of shares of stock of the Corporation shall be entitled to
have a certificate, in such form as shall be approved by the Board, certifying
the number of shares of the Corporation owned by him. The certificates
representing shares of stock shall be signed in the name of the Corporation by
the Chairman of the Board or the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and sealed with the seal of the Corporation (which seal may be a facsimile,
engraved or printed); provided, however, that where any such certificate is
countersigned by a transfer agent other than the Corporation or its employee, or
is registered by a registrar other than the Corporation or one of its employees,
the signature of the officers of the Corporation upon such certificates may be
facsimiles, engraved or printed. In case any officer who shall have signed or
whose facsimile signature has been placed upon such certificates shall have
ceased to be such officer before such certificates shall be issued, they may
nevertheless be issued by the Corporation with the same effect as if such
officer were still in office at the date of their issue.
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Section 2. Books of Account and Record of Shareholders.
The books and records of the Corporation may be kept at such places
within or without the state of incorporation as the Board of Directors may from
time to time determine. The stock record books and the blank stock certificate
books shall be kept by the Secretary or by any other officer or agent designated
by the Board of Directors.
Section 3. Transfer of Shares.
Transfers of shares of stock of the Corporation shall be made on the
stock records of the Corporation only upon authorization by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation may hold any such stockholder of record liable for calls and
assessments and the Corporation shall not be bound to recognize any equitable or
legal claim to or interest in any such share or shares on the part of any other
person whether or not it shall have express or other notice thereof. Whenever
any transfers of shares shall be made for collateral security and not
absolutely, and both the transferor and transferee request the Corporation to do
so, such fact shall be stated in the entry of the transfer.
Section 4. Regulations.
The Board may make such additional rules and regulations, not
inconsistent with these By-Laws, as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer agents or one or more transfer clerks and one or more
registrars and may require all certificates for shares of stock to beat the
signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the
Corporation shall immediately notify the Corporation of any loss, destruction or
mutilation of such certificate, and the
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Corporation may issue a new certificate of stock in the place of any certificate
theretofore issued by it which the owner thereof shall allege to have been lost,
stolen, or destroyed or which shall have been mutilated, and the Board may, in
its discretion, require such owner or his legal representative to give the
Corporation a bond in such sum, limited or unlimited, and in such sum, limited
or unlimited, and in such form and with such surety or sureties as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate, or the issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Board, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Delaware.
Section 6. Fixing Date for Determination of Stockholders of Record.
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and which record date: (1) in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty nor less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determined stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at
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the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE VIII
OFFICES
Section 1. Principal or Registered Office.
The principal registered office of the Corporation shall be at such
place as may be specified in the Certificate of Incorporation of the Corporation
or other certificate filed pursuant to law, or if none be so specified, at such
place as may from time to time be fixed by the Board.
Section 2. Other Offices.
The Corporation also may have an office or offices other than said
principal or registered office, at such place or places either within or without
the State of Delaware.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board.
ARTICLE X
SEAL
The Board shall provide a corporate seal which shall contain the name
of the Corporation, the words "Corporate Seal" and the year and State of
Delaware.
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ARTICLE XI
AMENDMENTS
Section 1. Shareholders.
These By-Laws may be amended or repealed, or new By-Laws may be
adopted, at any annual or special meeting of the stockholders, by a majority of
the total votes of the stockholders or when stockholders are required to vote by
class by a majority of the appropriate class, in person or represented by proxy
and entitled to vote on such action; provided, however, that the notice of such
meeting shall have been given as provided in these By-Laws, which notice shall
mention that amendment or repeal of these ByLaws, or the adoption of new
By-Laws, is one of the purposes of such meeting.
Section 2. Board of Directors.
These By-Laws may also be amended or repealed or new By-Laws may be
adopted, by the Board at any meeting thereof; provided, however, that notice of
such meeting shall have been given as provided in these By-Laws, which notice
shall mention that amendment or repeal of the By-Laws, or the adoption of new
ByLaws, is one of the purposes of such meetings. By-Laws adopted by the Board
may be amended or repealed by the stockholders as provided in Section 1 of this
Article XI.
ARTICLE XII
MISCELLANEOUS
Section 1. Interested Directors.
No contract or other transaction between the Corporation and any other
corporation shall be affected and invalidated by the fact that any one or more
of the Directors of the Corporation in or are interested in or is a Director or
officer or are Directors or officers of such other corporation, and any Director
or Directors, individually or jointly, may be a party or parties to or may be
interested in any contract or transaction of the Corporation or in which the
Corporation is interested; and no contract, act or transaction of the
Corporation with any person or persons, firm or corporation shall be affected or
invalidated by the fact that any Director or Directors of the Corporation is a
party or are parties to or interested in such contract, act or transaction, or
in any way connected with such person or persons, firms or associations, and
each and every person who may become a Director of the Corporation is hereby
relieved from any liability that might otherwise exist from contracting with the
Corporation
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for the benefit of himself, any firm, association or corporation in which he may
be in any way interested.
Section 2. Ratification.
Any transaction questioned in any stockholders' derivative suit on the
grounds of lack of authority, defective or irregular execution, adverse interest
of director, officer or stockholder, nondisclosure, miscomputation, or the
application of improper principles or practices of accounting, may be ratified
before or after judgment, by the Board of Directors or by the stockholders in
case less than a quorum of Directors are qualified, and, if so ratified, shall
have the same force and effect as if the questioned transaction had been
originally duly authorized, and said ratification shall be binding upon the
Corporation and its stockholders, and shall constitute a bar to any claim or
execution of any judgment In respect of such questioned transaction.
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