<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
for the fiscal year ended March 31, 1999
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-10569
AutoLend Group, Inc.
--------------------
(Exact name of registrant as specified in the charter)
Delaware 22-3137244
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
600 Central SW, Third Floor, Albuquerque, New Mexico 87102
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(505) 768-1000
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.002 par value None
Securities registered pursuant to Section 12(g) of the Act: None.
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 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--- ---
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 the 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. [X]
The number of shares outstanding of the Registrant's Common Stock was zero at
June 28, 1999. In connection with the registrant's plan of reorganization as
confirmed by the Bankruptcy Court on February 3, 1999, and which became
effective on March 5, 1999, the registrant's Common Stock was canceled. The
plan includes a proposal under which new Common Stock of the Registrant may be
issued. See "Item 1. Business."
There was no market value of the voting stock of the registrant held by
nonaffiliates of the registrant on June 28, 1999.
There are no documents incorporated herein by reference.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 after the distribution of securities under a plan confirmed
by a court. Yes X No
--- ---
<PAGE>
TABLE OF CONTENTS
Page
Part I
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 6
Item 3. Legal Proceedings.............................................. 6
Item 4. Submission of Matters to a Vote of Securities Holders.......... 8
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................ 8
Item 6. Selected Financial Data........................................ 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 12
Item 7A. Quantitative and Qualitative Disclosures about Market Risk..... 19
Item 8. Financial Statements and Supplementary Data.................... 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 19
Part III
Item 10. Directors and Executive Officers of the Registrant............ 20
Item 11. Executive Compensation........................................ 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................................... 22
Item 13. Certain Relationships and Related Transactions................ 22
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................... 23
Signatures................................................................... 25
This report should be read in its entirety. No one section of the report deals
with all aspects of the subject matter.
FORWARD-LOOKING INFORMATION
The following discussions include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are not historical
facts; they involve risks and uncertainties that could cause the Company's
results to differ materially from those in the forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development, and results of the Company's business include significant risk
factors inherent in the consummation of any plan in a Chapter 11 bankruptcy
case; e.g., the perceived difficulties from the Company's bankruptcy that could
adversely affect its existing and proposed operations and other difficulties
relating to its Chapter 11 bankruptcy; and the risks relating to the operation
of a gaming business which forms a significant part of the Company's Plan of
Reorganization. From time to time, AutoLend Group, Inc. may publish or
otherwise make available forward-looking statements. All subsequent forward-
looking statements, whether written or oral and whether made by or on behalf of
the Company, are also expressly qualified by these cautionary statements.
<PAGE>
Part I
ITEM 1. BUSINESS.
General
AutoLend Group, Inc. (the "Company"), is a holding company headquartered in
Albuquerque, New Mexico. The Company is currently winding down two businesses
and starting up a third. The Company primarily operates through its
subsidiaries, which are:
AutoLend Corporation, which maintains a residual portfolio of sub-prime
consumer used-car loan contracts purchased from used-car dealers. AutoLend
Corporation ceased purchasing these loans in December 1995. The portfolio of
loans at March 31, 1999, was $0.1 million before reserves and consisted of 25
active accounts.
American Life Resources Group, Inc., and LBNM, Inc., which maintain
portfolios of unmatured life insurance policies purchased from persons with
life-threatening illnesses, a business generically referred to as viatical
settlements. These subsidiaries ceased purchasing these policies in September
1994. The 10 remaining policies had an aggregate face value of $0.8 million
and a net book value of $0.1 million on March 31, 1999.
Since the sale in September 1996 of another subsidiary which provided short-term
"floor" financing to used-car dealers, the Company's activities have been
concentrated on developing a new gaming business (which is now a division of
AutoLend Group, Inc., under the name of Kachina Gaming); resolving certain
obligations and litigation associated with former operations; collecting amounts
due from the outstanding used-car loans; collecting proceeds from the viatical
policies; and resolving the bankruptcy.
As a result of the Company's inability to make repayment on, and resultant
default against, its outstanding Debentures due September 19, 1997, the Company
filed for protection under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the District of New Mexico (the
"Bankruptcy Court") on September 22, 1997. The Company has since been operating
its business under the jurisdiction and supervision of the Bankruptcy Court.
Under Chapter 11, claims against the Company in existence before the filing of
the bankruptcy petition have now been resolved, via the Bankruptcy Court's
confirmation of the Company's Plan of Reorganization, which became effective
March 5, 1999. As a result, the Company now has a positive net equity, and is
freely operating in accordance with its Plan.
Events Leading Up to the Company's Bankruptcy
The losses that forced the Company into bankruptcy were caused primarily by the
business the former management initiated and operated; i.e., purchasing and
maintaining a portfolio of sub-prime consumer car loan contracts. New
management significantly reduced overhead expenses,
1
<PAGE>
including reducing the number of employees and moving the headquarters from
Miami Beach, Florida, to Albuquerque, New Mexico. Other actions also improved
the Company's financial condition, including an exchange offer of our old Common
and Preferred Stock for our outstanding Debentures, purchasing some Debentures
at a discount on the open market, and resolving the expensive lease of the Miami
Beach office space.
In the twelve months between taking control in September 1996 and the Debenture
repayment due date of September 1997, the new management had successfully
eliminated two-thirds of the Debenture debt that had been outstanding when they
took control. However, on September 19, 1997, the remaining principal balance
(plus all accrued interest) of the Debentures became due and payable, requiring
a cash disbursement on that date of approximately $8.6 million, which was still
above the Company's capabilities. Therefore, on September 22, 1997, the Company
filed a voluntary petition for reorganization.
The Resolution of the Bankruptcy
The Company filed its first Disclosure Statement and Plan of Reorganization
(jointly, the "Plan") in January 1998. The Disclosure Statement (as
subsequently amended) was approved by the Bankruptcy Court in September 1998,
and the Plan was mailed to creditors and interest holders in October. They
approved our Plan by vote, which was completed in December 1998. The
Confirmation Hearing was held on February 3, 1999, wherein the Bankruptcy Court
confirmed the Plan, which then became effective on March 5, 1999. At that
point, the Company gained a positive net equity resulting from the restructuring
of the Company's assets and liabilities in accordance with the Plan of
Reorganization. Thus, the Company is no longer classified as a "debtor-in-
possession," and is no longer required to file monthly reports with the
Bankruptcy Court. The Company has adopted fresh-start reporting as described in
"Item 1: Business - Fresh-Start Reporting," and is presently freely operating
in accordance with its approved Plan of Reorganization.
Plan of Reorganization
The material features of the Company's Plan of Reorganization provide for the
cancellation of the $7.2 million principal of convertible subordinated
Debentures and accrued interest thereon, and all of the equity securities as of
March 5, 1999. Unsecured creditors have now received payments for 100 percent
of their allowed claims.
The holders of the Debentures will receive approximately 1.0 million shares of
the Company's Common Stock, $3.0 million in cash, and non-interest bearing,
uncollateralized notes totaling $0.6 million, payable in five annual payments.
The Company is presently in the final stages of verifying the appropriate
disbursements to be made for these Debentures. The appropriate cash has been
escrowed for these forthcoming payments. The Company made the first
distributions related to the Debenture obligation of approximately $1.8 million
during June 1999 and anticipates distributions being substantially completed by
the end of July 1999.
2
<PAGE>
The holders of the canceled Common and Preferred Stock have the right to
purchase defined amounts of new shares of Common Stock during certain periods
beginning on the effective date of the Company's final S-1 Registration
Statement (see "The Offering" below). The price per share of the new Common
Stock is $1.00. The holders of the Company's Class A and B Warrants and Options
have a 12-month period beginning March 5, 1999, to purchase the same number of
shares of Common Stock as originally provided for under the Warrants or Options,
at $4.00 per share. We expect that only a portion of the additional shares as
described above will actually be purchased by existing equity holders, resulting
in projected total Common Stock outstanding of from 1.5 million to 9.0 million
shares. This would result in a total new equity (before the impact of any
interim operating results) from $0.5 million to $8.0 million.
The Offering
A Registration Statement on Form S-1 (the "Registration Statement") was filed on
June 8, 1999, with the Securities and Exchange Commission (the "SEC") to
register the shares of our new Common Stock to be issued in connection with the
Plan of Reorganization. This Registration Statement is still subject to the
normal review process by the staff of SEC and upon completion of such review,
these shares may be issuable under the terms of the Plan of Reorganization.
Pursuant to the Plan of Reorganization, which has been clarified to conform to
the offering as more fully described in the Company's Registration Statement,
the Company is offering shares of new Common Stock (the "Offering") to holders
of old Common and Preferred Stock and Class A and B Warrants, Options, and
Debentures, all of which were canceled on March 5, 1999, under the Plan of
Reorganization.
Specifically, the offering will include 1,040,000 shares of new Common Stock for
Debenture holders; up to 6,079,530 shares of new Common Stock for holders of old
Common Stock; up to 5,780,000 shares of new Common Stock for holders of old
Preferred Stock; up to 2,663,500 shares of new Common Stock for holders of old
Class A and B Warrants; and up to 3,660,000 shares for holders of old Options.
A total of up to 19,223,030 new shares of Common Stock may be issued and
outstanding. However, the Company estimates that between 1.5 and 9.0 million
shares only will be issued as a result of the offering, depending upon the
number of shares subscribed for. Holders of old Common Stock and/or old
Preferred Stock must pay $1.00 per share for any new Common Stock. These
holders have approximately 60 days following the final issuance of the
Registration Statement in which to elect their purchase. Holders of old
Warrants and/or Options have until March 4, 2000, to buy new Common Stock at
$4.00 per share. For a more complete description, refer to the Registration
Statement. The 1,040,000 shares of issuable new Common Stock have been
accounted for as outstanding as no further consideration for this stock will be
received pursuant to the Plan of Reorganization.
3
<PAGE>
Pursuit of Controlling Interest in ITB is Terminated
In October 1996, shortly after new management assumed control of the Company and
in connection with the pursuit of a new business, the Company entered into
negotiations to directly purchase an approximately 25% equity interest (the "ITB
Shares") in International Thoroughbred Breeders, Inc. ("ITB"). At that time,
ITB was listed on the American Stock Exchange and owned and operated Garden
State Park and Freehold Raceway in New Jersey, as well as the former El Rancho
Casino property in Las Vegas, Nevada. ITB was much larger than the Company,
with a net equity of approximately $75.0 million, annual revenues of
approximately $68.0 million, and approximately 700 employees subject to seasonal
variations (according to ITB's then most recent Form 10-Q and Form 10-K).
However, because of the involuntary bankruptcy petition filed against the
Company, which was dismissed effective April 7, 1997, the Company was prevented
from consummating the purchase. As an alternative to the Company's acquisition
of the ITB Shares, Nunzio P. DeSantis (the Company's Chairman and Chief
Executive Officer) and Anthony Coelho (a former Director of the Company) formed
NPD, Inc. ("NPD") to purchase the ITB Shares. In connection with its purchase,
which was effective January 15, 1997, NPD was granted the right to appoint a
majority of the Directors of the Board of ITB.
Concurrently with its formation, NPD had agreed to grant the Company the right
to purchase the ITB Shares from NPD later at the same price NPD had agreed to
pay for the ITB Shares. In August 1997, NPD granted the Company an Option to
purchase the ITB Shares for $4.00 per share. As consideration for this Option,
which was to expire on August 29, 1999, the Company paid NPD $0.2 million and
issued a contingent note for $2.3 million. This note accrued interest at 10
percent per annum and was to be due July 9, 1999.
In a related transaction, the Company loaned $3.0 million to NPD. This loan
accrued interest at 10 percent per annum and was payable on July 9, 1999. It
was secured by the ITB Shares, subject to a prior lien to the seller of the ITB
Shares as security for NPD to pay the balance of the purchase price for the ITB
Shares. The Company also guaranteed up to $2.0 million of NPD's obligation to
pay the remaining portion of the purchase price to the seller of the ITB Shares
and deposited $2.0 million into a cash collateral account to secure the
guarantee.
On June 5, 1998, the Company filed an adversary claim with the New Mexico
Bankruptcy Court against NPD. The NPD claim sought, among other things, the
return of the $2.0 million escrow deposit (plus interest), NPD's payment of the
$3.0 million NPD loan (plus interest), the cancellation of the Option, and the
corresponding cancellation of the Company's obligations under the NPD note. The
Company was also involved in litigation concerning ITB in Delaware Chancery
Court. It addressed many issues outside the scope of the Company's concern, but
included the foregoing issues in the New Mexico Bankruptcy Court.
In September 1998, the Bankruptcy Court approved a settlement of the New Mexico
NPD adversary case, and, in October 1998, the Chancery Court approved a
settlement in the Delaware ITB case. In connection with these settlements, the
Company's Option to purchase the ITB
4
<PAGE>
Shares and the $0.4 million ($2.3 million contingent) note payable to NPD were
canceled; the $2.0 million escrow deposit (plus interest) was returned to the
Company; and $2.3 million of the $3.0 million loan made to NPD was paid to the
Company. This cash, totaling $4.4 million, was received on January 29, 1999. As
a result, the Company recognized a loss associated with this transaction of
approximately $1.4 million during 1999. This loss, however, does not recognize
the potential offsets that may result from the Company's rights to receive a
portion of the funds that NPD may receive from the possible sale of ITB's Las
Vegas real estate. Pursuant to the settlement agreement, the Company has assumed
ITB's office lease in Albuquerque. Effective with the confirmation of the
settlement, and with the exception of the potential receipt of funds from a sale
of the Las Vegas real estate, the Company has no further relationship with ITB.
Similarly, and with the same exception, the Company has no further legal or
financial relationship with NPD.
Proposed New Business
The Company has been considering various prospects to develop a new business
suitable for our situation. In general, any new business development is
difficult. The Company's particular realities impose significant constraints
that make this undertaking even more difficult. These constraints include the
following: the need for an immediate positive cash flow; the need to acquire the
business without paying substantial cash or taking on significant debt; the
handicap of not having actively traded stock to use to procure this business;
and, the requirement that, after launch, the business will not need a
significant capital investment.
The Plan of Reorganization involves developing a new business that consists
primarily of providing gaming devices and gaming machines for certain non-profit
fraternal organizations in New Mexico. In 1997, the New Mexico Legislature
passed the "Gaming Control Act." The Company proposes to provide, supply, and
service gaming devices as described in the Gaming Control Act, and the business
would be regulated by the New Mexico Gaming Control Board as described in the
Gaming Control Act. As of June 18, 1999, legalized gaming in non-profit
organizations has not yet begun in New Mexico; it is presently anticipated that
this will begin in the next 30 to 90 days. The Company has commenced its
efforts in this arena, doing business as Kachina Gaming, which has been
organized as a Division of AutoLend Group, Inc. In connection with these
efforts, the Company has hired a Vice President of Gaming Development and
Marketing.
The Company's management believes it can obtain the proper licenses, gaming
machines, and contracts with non-profit organizations to make this business
viable, and which will allow the Company to meet its obligations. In this
regard, the Company has made application to the New Mexico Gaming Control Board
for licensure as a distributor. Additionally, the Company has signed a number
of contingent contacts with fraternal organizations, whereby the Company would
supply gaming machines to licensed operators. The Company is also holding
discussions with several licensed gaming machine manufacturers with respect to
obtaining such machines. In as much as no distributors have yet commenced such
licensed operations in New Mexico, and
5
<PAGE>
no fraternals have yet commenced regulated gaming here, potential operating
results are unknown, and thus the Company cannot promise success in this
venture.
Fresh-Start Reporting
In accordance with Statement of Position (SOP) 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," the Company has adopted
fresh-start reporting as of March 5, 1999, which gives effect to its emergence
from Chapter 11 and reorganization at that time. The Company's Consolidated
Financial Statements, included elsewhere in this Form 10-K, provide information
regarding the Company's Chapter 11 process and adoption of fresh-start
reporting.
Employees
As of June 28, 1999, the Company and its subsidiaries had six full-time
employees. The Company believes its relations with its employees are good.
ITEM 2. PROPERTIES.
On August 8, 1997, the Company relocated its principal executive offices from
215 Central NW to 600 Central SW, Albuquerque, New Mexico. This space was being
leased from ITB on a month-to-month basis. However, with the consummation of
the settlements referred to in "Item 1. Business - Pursuit of Controlling
Interest in ITB is Terminated," the Company assumed the ITB lease. The lease
terminates on July 31, 2002, and the lease payments are $9,935 per month.
Beginning August 1, 1999 and each August 1 thereafter, the lease payments may be
adjusted according to any changes in the Consumer Price Index. The Company
believes the office space is adequate to meet its needs.
Rent expense for operating leases was approximately $28,000 for the fiscal year
ended March 31, 1999, compared to $14,000 for the fiscal year ended March 31,
1998, and $179,000 for the fiscal year ended March 31, 1997.
ITEM 3. LEGAL PROCEEDINGS.
On September 12, 1996, a complaint was filed against the Company in the United
States District Court for the District of New Mexico by Living Benefits, Inc
(the "Plaintiff"). The complaint alleged that the Company was obligated to the
Plaintiff for more than $1.6 million, with interest at 8.75 percent from June
30, 1992, for "earn-out payments" under a contract between the Plaintiff and the
Company dated March 14, 1992. The Plaintiff was also seeking punitive damages
for bad faith in an undisclosed amount and attorney's fees. On December 30,
1997, the Plaintiff filed a claim for approximately $1.7 million, plus legal
fees and punitive damages,
6
<PAGE>
with the Bankruptcy Court. On April 15, 1998, this suit was turned over to the
jurisdiction of the Bankruptcy Court. The trial began on January 20, 1999. On
January 21, 1999, the Company and the Plaintiff reached a settlement whereby the
Company would pay the Plaintiff $1,525,000. This payment was made on March 9,
1999.
On February 16, 1999, the Company was notified by its counsel that it is subject
to an investigation by the Securities and Exchange Commission (the "SEC") in
connection with certain activities that took place between September 1996 and
September 1997. The Company has cooperated fully with the staff of the SEC to
aid their understanding of the matters of concern. In this regard, the Company
has provided extensive documentation and has made its executives available for
depositions. The Company is unaware of any further requirements with respect to
this issue at this time.
The Company is also involved in the following routine litigation incidental to
the Chapter 11 Bankruptcy Case:
On July 14, 1998, the Company filed an adversary claim against Nunzio P.
DeSantis to recover certain payments made to him and for indemnity. On June 4,
1999, a Motion to Approve Compromise (the "Motion") was filed to resolve this
adversary claim. The deadline for receipt of objections to the Motion is June
28, 1999. The Company has received no notification of any objections as of June
23, 1999. The Motion proposes cancellation of debts owed by the Company to Mr.
DeSantis of $256,230; the contribution to the Company by Mr. DeSantis of
furniture, equipment, and leasehold improvements valued at approximately
$278,000; the transfer of equity securities with a value of at least $500,000 by
Mr. DeSantis to the Company; and, the indemnification of Mr. DeSantis by the
Company from liability under a Non-Compete Agreement between Mr. DeSantis and a
third party, dated March 1995.
On July 14, 1998, the Company filed an adversary claim against Jeffrey Ovington
to recover certain payments made to him. The complaint seeks the possible
return of up to $100,000. A motion to dismiss this claim was filed, and no
objection was received. This claim was dismissed by the Court effective June
17, 1999.
On July 14, 1998, the Company filed an adversary claim against Vincent
Villanueva (a former board member of the Company) to recover certain payments
made to him. The complaint seeks the possible return of up to $39,647. On
April 21, 1999, a motion to dismiss this claim was filed. The deadline for
receipt of objections to the motion has past with no objections filed. The
Company anticipates this claim will be dismissed in July of 1999.
On August 24, 1998, the Company filed an adversary claim against Cozen &
O'Connor, a Philadelphia-based law firm, to recover certain payments. The
complaint sought the possible return of up to $564,000. On March 4, 1999, a
motion was filed to settle this claim by virtue of the elimination of accounts
payable due by the Company to Cozen & O'Connor of $38,896 was filed. The
deadline for objections has passed, and an order was entered by the Court
approving this settlement on March 21, 1999.
7
<PAGE>
On August 24, 1998, the Company filed an adversary claim against Standard
Capital Group, Inc., a California corporation, to recover certain payments. The
complaint sought the possible return of up to $189,000. This claim was settled,
after due notice by approval of the Bankruptcy Court on May 27, 1999; in
connection therewith, the Company has received payment of $37,200.
On November 24, 1998, the State of Florida Department of Revenue asserted a tax
claim under Chapter 199 of the Florida Statutes for the period June 30, 1994
through June 30, 1998 for Intangible Tax of $668,531, and a claim under Chapter
220 for the period March 31, 1993 through March 31, 1997 for Corporate Income
Tax of $42,751. The claim will be litigated in Bankruptcy Court if it cannot be
settled. The Company has accrued an amount that it deems appropriate, that is
far less than the asserted tax claim, based on a recalculation of the tax
according to the Florida Tax Laws and is proceeding, in accordance with the
confirmed Plan of Reorganization to liquidate the claim. The Company is
currently unable to predict with any degree of certainty the final resolution of
the matter.
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.
On March 5, 1999, the Plan of Reorganization became effective, and all of the
Company's outstanding Common Stock, Preferred Stock, and Class A and B Warrants
ceased to exist. Afterwards, the new Common Stock offered will be issued. As
full or partial consideration for the extinguishment of their pre-petition
Debenture rights, 1,040,000 shares will be issued to Debenture holders.
Additionally, other shares may be issued under the per-share subscriptions
defined in the Plan of Reorganization, as follows:
8
<PAGE>
No. of Shares Issuable
(In Thousands)
------------------------------------------
Estimated
Minimum Maximum Low Range
------------- ------------- -------------
Holders of Old Common Stock 0 6,080 533
Holders of Preferred Stock 0 5,780 100
------------- ------------- -------------
Total at $1.00 0 11,860 633
per share
------------- ------------- -------------
Holders of Warrants 0 2,663 0
Holders of Old Options 0 3,660 0
------------- ------------- -------------
Total at $4.00 0 6,323 0
per share
------------- ------------- -------------
Paid Total 0 18,183 633
============= ============= =============
NOTES: (1) The above excludes the 1.0 million shares to be issued to the
Debenture holders.
(2) After the subscriptions are completed, unissued shares from this
offering will total between zero and 18.0 million (and would be
17.6 million shares if the "estimate" above proves to be correct).
Historically, the Company's Common Stock traded under the symbol "AUTL" in the
over-the-counter market on the Electronic Bulletin Board. Until May 21, 1996,
the Common Stock and Class A Warrants were quoted on the Nasdaq Smallcap Market
under the symbols "CARS" and "CARSW," respectively. On that date, the Common
Stock and the Class A Warrants were delisted from the Nasdaq Smallcap Market
because of the Company's failure to meet minimum net equity eligibility criteria
for continued listing. The Common Stock was also listed on the Boston Stock
Exchange under the symbol "OTO" until August 20, 1996, when it was also delisted
for failure to meet that exchange's minimum net equity requirements.
The following table states for the periods indicated the range of high and low
bid prices for the Common Stock and the Class A Warrants as reported on the
Electronic Bulletin Board. As noted above, the old Common Stock was canceled on
March 5, 1999, and the following does not necessarily represent any trading
pattern that may develop for the new Common Stock issued. There were no trades
of the Preferred Stock during the fiscal year ended March 31, 1999, and,
therefore, they have not been reflected in the schedule below. The prices
reflect inter-dealer prices without markup, markdown, or commissions and may not
necessarily represent actual transactions.
9
<PAGE>
<TABLE>
<CAPTION>
Common Stock Class A Warrants (1)
--------------- --------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal Year ended March 31, 1998:
Quarter ended June 30, 1997 $0.56 $0.19 $0.01 $0.01
Quarter ended September 30, 1997 0.22 0.05 --(2) --(2)
Quarter ended December 31, 1997 0.15 0.01 --(2) --(2)
Quarter ended March 31, 1998 0.10 0.01 --(2) --(2)
Fiscal Year ended March 31, 1999:
Quarter ended June 30, 1998 0.07 0.01 --(2) --(2)
Quarter ended September 30, 1998 0.06 0.01 --(2) --(2)
Quarter ended December 31, 1998 0.03 0.01 --(2) --(2)
Quarter ended March 31, 1999 0.10 0.01 --(2) --(2)
</TABLE>
(1) Each Class A Warrant entitled the registered holder thereof to purchase
one share of Common Stock and one Class B Warrant through January 31,
1998, at an exercise price of $4.00 subject to adjustment. Each Class B
Warrant entitled the registered holder thereof to purchase one share of
Common Stock from the date of issuance through January 31, 1998, at an
exercise price of $7.00 subject to adjustment. The Class A and Class B
Warrants were due to expire on January 31, 1998, when the Company was
under the restrictions of the Chapter 11 Bankruptcy Proceeding and was
thus unable to address the issue of extending their expiration date. The
Company 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 The Plan of Reorganization
includes provisions for treatment of the Warrants, as described herein;
specifically all warrants expire on March 4, 2000, and are exercisable at
$4.00.
(2) There were no reported trades of Class A Warrants during these periods.
At March 4, there were 6,079,530 shares of Common Stock outstanding and 80
holders of record. As of March 5, 1999, all outstanding shares of Common Stock
were cancelled pursuant to the Plan of Reorganization. However, these old
shares continue to trade, as they now confer (modified) rights as prescribed in
the Plan of Reorganization.
The Company has paid no dividends on its Common Stock. The Company presently
intends to retain any earnings to finance the development of its future business
as approved in the Plan of Reorganization.
ITEM 6. SELECTED FINANCIAL DATA.
On September 22, 1997, the Company filed for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of New Mexico. On February 3, 1999, the Bankruptcy Court entered an
order confirming the Company's Plan of Reorganization, which became effective on
March 5 1999. In accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7, the Company was required to adopt
fresh-start accounting as of March 5, 1999.
10
<PAGE>
The predecessor Company's financial statements (prior to March 6, 1999) are not
comparable to the reorganized Company's financial statements (subsequent to
March 5, 1999). (See Note 1 to the Company's Consolidated Financial
Statements.) However, for purposes of management's discussion and analysis of
results of operations, the year ended March 31, 1999, is being compared to 1998
since the results of operations are comparable except for the extraordinary item
in 1999, which resulted from the implementation of the Plan of Reorganization.
The following selected financial data of the Company for the fiscal years ended
March 31, 1999, 1998, 1997, 1996, and 1995 has been derived from the Company's
audited consolidated financial statements and should be read in conjunction with
the consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>
Fiscal Years Ended March 31:
---------------------------------------------------------------------
In Thousands (except earnings per share)
1999 1998 1997 1996 1995
---------------- ----------- ------------ ------------ ----------
Statement of Operations Data:
- -----------------------------
<S> <C> <C> <C> <C> <C>
Finance charges on installment contracts $ 117 $ 588 $ 1,671 $ 7,808 $ 2,719
Net revenue from matured insurance policies 248 9 404 542 6,678
---------------------------------------------------------------------
Total net revenues $ 365 $ 597 $ 2,075 $ 8,350 $ 9,397
=====================================================================
Operating earnings/(loss), including
loan loss provisions $ (998) $(1,469) $ (7,402) $(10,404) $ 1,190
Net interest income/(expense) (272) (571) (1,816) (2,687) (4,531)
Write-off of assets and accrual of expenses related
to the consumer loan and viatical businesses (69) (132) (2,109) - -
Insurance policy write-down recapture 536 - - - -
Realized gains/(losses) on sales of marketable
securities - - - 1 (1,649)
Tax offset to loss - - 86 4,936 -
Miscellaneous other income/(expense), net 45 (38) (461) (27) 28
---------------------------------------------------------------------
Results of operations, including interest expense,
before debenture conversion charge (758) (2,210) (11,702) (8,181) (4,962)
Non-cash debenture conversion charge - (6,261) - - -
---------------------------------------------------------------------
Net loss before bankruptcy reorganization expenses,
discontinued operations, extraordinary items,
and cumulative effect of change in
accounting principle (758) (8,471) (11,702) (8,181) (4,962)
Bankruptcy reorganization expenses (492) (212) - - -
Loss on settlement ITB/NPD (1,368) - - - -
---------------------------------------------------------------------
Net loss before discontinued operations
extraordinary items, and cumulative effect of
change in accounting principle (2,618) (8,683) (11,702) (8,181) (4,962)
Discontinued operations:
Earnings/(loss) from operations of
discontinued subsidiary - - (153) (48) (68)
Gain on sale of subsidiary - - 320 - -
Extraordinary items:
Gain as result of reorganization 5,342 - - - -
Net gain on early extinguishment of debt - 3,172 - 7,307 2,030
Cumulative effect of change in accounting principle - - - 177 -
---------------------------------------------------------------------
Net income/(loss) $ 2,724 $(5,511) $(11,535) $ (745) $(3,000)
=====================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Per Share Data:
- ---------------
Fiscal Years Ended March 31:
----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------- ------------- -----------
<S>
Loss per share before bankruptcy reorganization expenses,
discontinued operations, extraordinary items, and <C> <C> <C> <C> <C>
cumulative effect of change in accounting principle * $ (1.40) $ (2.53) $ (1.77) $ (1.07)
Bankruptcy reorganization expenses * (0.04) - - -
Discontinued operations * - 0.04 (0.01) (0.01)
Extraordinary items:
Net gain as a result of reorganization * - - - -
Gain on early extinguishment of debt * 0.53 - 1.58 0.44
Cumulative effect of change in accounting principle * - - 0.04 -
--------------------------------------------------------------------------
Net income/(loss) * $ (0.91) $ (2.49) $ (0.16) $ (0.64)
==========================================================================
Weighted average number of common and common equivalent
shares outstanding * 6,039,391 4,634,530 4,634,530 4,634,530
Balance Sheet Data:
- -------------------
As of March 31:
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------- ------------- ------------
Total Assets $ 5,197 $ 7,640 $ 16,276 $ 24,485 $ 55,002
Total Liabilities 4,629 11,078 28,128 24,802 54,574
Total Stockholders' Equity 568 (3,438) (11,852) (317) 428
* The per share data for 1999 above has not been presented due to the
cancellation of all common stock and common stock equivalents as of March 5,
1999. No stock was outstanding at March 31, 1999.
</TABLE>
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 begin its viatical
settlements business until April 1991, when it acquired certain assets of Living
Benefits, Inc. ("LBI"), including covenants not to compete from LBI's former
owners. In April 1993, the Company acquired certain operating assets of
American Life Resources Corporation (ALR Corp.), which was also engaged in the
viatical settlements business. ALR Corp. retained the viatical insurance
policies it had purchased before January 14, 1993. The Company generally ceased
purchasing these policies in September 1994, and by July 1995, had sold the
majority of policies still outstanding. Goodwill and intangibles related to
these acquisitions were amortized over the remaining life of the policies
portfolio, extending through the fiscal year ended March 31, 1996, when they
were fully amortized. The Company still holds a small residual portfolio of
policies.
The Company commenced purchasing "sub-prime" consumer used-car loans, or
Installment Contract Receivables, in May 1994 through AutoLend Corporation and
ceased purchasing them in December 1995. Loan loss provisions for this business
from May 1994 through March 1997 totaled $13.9 million, on revenues of $12.8
million for the same period. The results of this business were the primary
reason the Company was unable to service its outstanding Debentures which forced
it to file the Bankruptcy Petition.
12
<PAGE>
.The Company commenced its Inventory Assistance Program in March 1995 through
its then wholly-owned subsidiary, AutoLend IAP, Inc. ("IAP"). IAP was
unprofitable and was sold on September 18, 1996. Accordingly, for the fiscal
years ended March 31, 1997, and 1996, net assets of IAP are included in the
Company's financial statements as "Net assets of discontinued operations," and
IAP net operating losses are included as "Discontinued operations-loss from
operations of discontinued subsidiary," net of applicable income tax.
Since the sale of IAP, the Company's business activities have been concentrated
primarily on the development of a new business in the gaming industry, the
resolution of certain obligations and litigation associated with former
operations, the collection of amounts due from the outstanding Installment
Contract Receivables and the collection of proceeds from the viatical policies,
and resolving the Company's bankruptcy reorganization.
Results of Operations
On September 22, 1997, the Company filed for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of New Mexico. On February 3, 1999, the Bankruptcy Court entered an
order confirming the Company's Plan of Reorganization, which became effective on
March 5 1999. In accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7, the Company was required to adopt
fresh-start accounting as of March 5, 1999.
The predecessor Company's financial statements (prior to March 6, 1999) are not
comparable to the reorganized Company's financial statements (subsequent to
March 5, 1999). (See Note 1 to the Company's Consolidated Financial
Statements.) However, for purposes of management's discussion and analysis of
results of operations, the year ended March 31, 1999, is being compared to 1998
since the results of operations are comparable except for the extraordinary item
in 1999 which resulted from the implementation of the Plan of Reorganization.
Fiscal year ended March 31, 1999, compared to fiscal year ended March 31, 1998
The Company recorded a net income of approximately $2.7 million for the year
ended March 31, 1999. Contributing to the net income was an approximately $5.3
gain on debt forgiveness, which was offset by an approximately $1.4 million loss
on the NPD/ITB settlement, an operating loss of $1.0 million, and other expenses
of $0.2 million.
Revenues from Installment Contracts Receivable (consumer used-car loans) were
approximately $0.1 million during the year ended March 31, 1999, which
represented a $0.5 million decrease compared to the $0.6 million realized during
the year ended March 31, 1998. This decrease is a result of the reduced size of
the Company's portfolio of those loans. The Company ceased purchasing new loans
in December 1995, and as loans are paid in full or written off, the portfolio
decreases in size. The cost to collect these loans is not reflected in net
revenue, but as general and administrative expenses. Future revenues from this
portfolio will, in general, decline from their present level.
13
<PAGE>
Net viatical revenues realized from viatical insurance policies in the year
ended March 31, 1999, were $0.2 million, as compared to de minimis revenues in
the year ended March 31, 1998. The increase was due to the maturity of 4
policies. The Company generally ceased purchasing policies after September
1994, and in May and July 1995, sold the majority of its portfolio. Future net
revenues from the remaining portfolio of 10 policies will be irregular,
depending primarily upon the timing of mortality of the insured. Net viatical
revenues from the policies are determined by subtracting the policy cost from
the relevant face value after a policy "matures" (becomes payable by the
insurance company).
General and administrative expenses were $1.8 million during the year ended
March 31, 1999, which represented a reduction of $0.3 million, compared to the
$2.1 million expended during the year ended March 31, 1998. This decrease
resulted primarily from a $0.3 million decrease in the cost of administering and
collecting the portfolio of Installment Contracts Receivable (which is included
in general and administrative expenses). (These amounts exclude the $0.3
million in post-Chapter 11 reorganization costs.)
Provisions for credit losses in connection with the portfolio of Installment
Contracts Receivable for the year ended March 31, 1999 represent a $0.3 million
net recovery of previously charged-off loans, in excess of current period
provisions. This is compared to a net recovery of $41,000 for the year ended
March 31, 1998. This improvement of $0.3 million was primarily the result of
collections on old loans, which had, in the past, been more than six months in
arrears and had therefore been written off, in accordance with the Company's
long-standing procedures.
Operating losses for the year ended March 31, 1999, were $1.0 million, compared
to losses of $1.5 million for the year ended March 31, 1998. In total, the $0.5
million reduction in operating losses were primarily due to (as detailed above)
the reduction in general and administrative expenses (exclusive of
reorganization costs) of $0.3 million and the recovery of bad debt of $0.3
million, which were partially offset by a $0.1 million decrease in total net
revenues.
The impact of non-operating items for the year ended March 31, 1999, was a net
$4.2 million income, compared to a non-operating loss of $3.8 million for the
year ended March 31, 1998. The $4.2 million income for the present period was
primarily due to the $5.3 million gain on debt forgiveness, a viatical policy
write-down recapture of $0.5 million, and interest income of $0.5 million, all
of which was partially offset by a $1.4 million loss on the NPD/ITB settlement,
$0.6 million in accrued interest expense, and $0.1 million in miscellaneous
other expenses. The $3.8 million non-operating loss for the prior year was
primarily due to the non-recurring $6.3 million Debenture conversion charge,
offset by a $3.2 million gain on early extinguishment of debt, plus interest
income of $0.4 million, partially offset by $0.9 million in accrued interest
expense and $0.2 million in other miscellaneous expense.
In addition to the above, for the year ended March 31, 1999, the Company
incurred $0.5 million in reorganization costs related to the bankruptcy
proceedings, compared to $0.2 million in the prior year.
14
<PAGE>
The net effect of the foregoing was a net income of $2.7 million for the year
ended March 31, 1999. The net loss for the same period last year was $5.5
million. The increase in net income of $8.2 million was attributable primarily
to a combination of the following items. During the year ended March 31, 1999,
the Company recorded a $5.3 million gain on debt forgiveness offset by a $1.4
million loss on the NPD/ITB settlement, plus $0.2 million in other non-operating
expense items, and a $1.0 million operating loss, resulting in a total net
income of $2.7 million. During the year ended March 31, 1998, the Company
recorded a non-cash charge for Debenture conversion of $6.3 million offset by a
$3.2 million gain on early extinguishment of debt, an operating loss of $1.5
million and $0.9 million in other non-operating expenses for a total net loss of
$5.5 million.
Fiscal year ended March 31, 1998, compared to fiscal year ended March 31, 1997
While the net loss for the year ended March 31, 1998, was approximately $5.5
million, this loss included a voluntary, non-cash conversion charge of
approximately $6.3 million related to the retirement of certain outstanding
Debentures. Excluding the exchange offer for the Company's Debentures (the
"Exchange Offer"), the Company's earnings were positive (which, as shown in the
"Selected Financial Data" herein, is a result that had not been attained in the
prior four years). Furthermore, the Exchange Offer incurring the $6.3 million
charge resulted in the retirement of $8.3 million in debt, with no cash outlay
by the Company, and further resulted in the improvement of the Company's equity
by approximately $8.0 million.
Revenues on the consumer loan portfolio from Installment Contract Receivables
(consumer used-car loans) were approximately $0.6 million for the fiscal year
ended March 31, 1998, which represented a $1.1 million decrease compared to the
$1.7 million realized for the fiscal year ended March 31, 1997. This decrease
resulted from the reduced size of the Company's loan portfolio.
Net viatical revenues from viatical insurance policies for the fiscal year ended
March 31, 1998, were $9,000, which represents approximately a $0.4 million
decrease compared to the $0.4 million recognized for the fiscal year ended March
31, 1997. The decrease in viatical revenues resulted primarily from the reduced
size of the Company's policy portfolio. During the year ended March 31, 1998,
the aggregate book value of the policies were written down by $0.2 million to an
estimated then current fair market value. At March 31, 1998, the aggregate
estimated current fair market value of the portfolio was $0.3 million.
General and administrative expenses for the fiscal year ended March 31, 1998,
were $2.1 million, compared to $5.9 million expended in the prior year. The
decrease of $3.8 million resulted primarily from reductions in professional
fees, the reduced size of the car loan portfolio, and the effect of the
Company's downsizing in September 1996.
Provisions for credit losses during fiscal year 1998 were de minimus. The
provision for credit losses was $3.6 million for the year ended March 31, 1997.
The decrease in credit loss provisions of approximately $3.6 million was
primarily the result of the shrinking size of the total portfolio.
15
<PAGE>
During the year ended March 31, 1998, the Company's operating loss was $1.5
million, compared to an operating loss of $7.4 million during the year ended
March 31, 1997. The $5.9 million decrease in operating loss was primarily
attributable to the developments described above, including the reduction in
general and administrative expense of $3.8 million and the reduction of $3.6
million in credit loss provisions, partially offset by a decline in net revenues
of $1.5 million, yielding a net improvement of $5.9 million.
Interest expense related to the outstanding Debentures was $0.9 million for the
1998 fiscal year, as compared to $2.1 million for the prior year, resulting in a
$1.2 million improvement.
In connection with Debentures repurchased during the year ended March 31, 1998,
the Company realized a $3.2 million gain on early extinguishment of debt.
As a result of the Exchange Offer, during the year ended March 31, 1998, the
Company recorded a non-cash transaction: a conversion charge of $6.3 million, an
increase to additional paid-in capital of $14.5 million, de minimus increases to
Common and Preferred Stock values, and the elimination of $8.3 million in debt,
all of which resulted in an improvement to net equity of approximately $8.0
million.
Net loss for the year ended March 31, 1998, was $5.5 million, or $0.91 per
share, as compared to a loss of $11.5 million, or $2.49 per share, for the same
period last year. This $6.0 million improvement was due to the factors
discussed above, including a $3.8 million decrease in general and administrative
expenses, a $3.6 million decrease in provision for credit losses, an improvement
of $3.2 million due to early extinguishment of debt, a $1.2 million decrease in
accrued interest expense, and a $2.3 million decrease in write-offs related to
the consumer car loan and viatical settlements businesses, all of which was
partially offset by a $1.5 million decrease in net revenues and a $6.3 million
non-cash charge for the Exchange Offer.
Liquidity and Capital Resources
The Company's immediate viability as a going concern ultimately depends upon the
successful installation of a new line of business and the attainment of
profitability. On September 22, 1997, the Company filed for voluntary
bankruptcy reorganization. On March 5, 1999, the Company's Plan of
Reorganization became effective. Cash flow from operations was a negative $0.7
million for each of the fiscal years ended March 31, 1999 and 1998. At March
31, 1999, the Company had cash and cash equivalents of $4.9 million, and a
positive net equity of $0.6 million. Of the $4.9 million in cash and cash
equivalents on hand at March 31, 1999, approximately $3.0 was escrowed for
payment to former Debenture holders recognized under the Plan of Reorganization.
The Company made the first distributions related to the Debenture obligation of
approximately $1.8 million during June 1999 and anticipates distributions being
substantially completed by the end of July 1999.
The Company's portfolio of Installment Contract Receivables at March 31, 1999,
was $0.1 million, and consisted of 25 active used-car loans. The Company ceased
purchasing Installment
16
<PAGE>
Contracts in December 1995. The Company's portfolio of unmatured viatical
insurance Policies totaled 10 at March 31, 1999, having a combined face value of
$0.8 million and a net book value of $0.1 million. The Company generally ceased
purchasing new Policies in September 1994.
Cash provided by investing activities for the fiscal year ended March 31, 1999,
was $4.9 million, which was primarily the result of the return of the $2.0
million escrow deposit account in connection with the NPD transaction for the
ITB Shares, the $2.3 million partial repayment of the loan to NPD, and the early
redemption of IAP securities of $0.6 million. For the fiscal year ended March
31, 1998, cash used by investing activities was $5.2 million, primarily due to
the funding of the escrow deposit and the loan to NPD.
There was no cash provided by or used in financing activities during the fiscal
year ended March 31, 1999. Cash used in financing activities for the fiscal
year ended March 31, 1998 was $5.7 million, which was primarily due to the early
buy back of Debentures.
In summary, the Company increased its cash and cash equivalents by $4.2 million
during the fiscal year ended March 31, 1999, to a total of $4.9 million. The
increase was largely due to the return of the escrow deposit of $2.0 million,
the partial repayment of the NPD loan of $2.3 million, and the early redemption
of the IAP securities, partially offset by the $0.7 million net use of cash from
operations. In comparison, there was a $11.6 million decrease in cash during
the fiscal year ended March 31, 1998, primarily due to the funding of the escrow
account of $2.0 million, the $3.0 million loan to NPD, the $5.7 million
Debenture buy back, and the $0.7 million net use of cash for operations. During
the fiscal year, the Company's net equity increased substantially, from a
deficit of $3.6 million at March 31, 1998, to a positive $0.6 million at March
31, 1999, an improvement of approximately $4.2 million.
The Company's primary source of capital has been sales of equity and debt
securities, including its initial equity offering in July 1990, which resulted
in net proceeds of approximately $7.6 million, and a September 1991 sale of
Debentures which resulted in net proceeds of $51.4 million. As a result of
prior year Debenture prepayments without penalty and the Exchange Offer, the
outstanding principal balance of the Debentures was $7.2 million, (plus accrued
interest), at March 4, 1999, prior to the effective date of the Plan of
Reorganization. On March 5, 1999, all outstanding Debenture debt (and accrued
interest) was canceled in conjunction with the Plan of Reorganization. The
Company is presently in the process of completing a Registration Statement with
the SEC. When and if this Registration Statement becomes effective, the Company
may receive additional equity capital, which could be as much as $8.0 million.
However, the amount received could be far lower, and the Company can make no
guarantees as to the success of such registration Statement offering.
Year 2000 Issue
Like any other company, advances and changes in technology can significantly
affect the business and operations of the Company. For example, a challenging
problem is that many computer systems worldwide cannot recognize the year 2000
or years thereafter. No easy
17
<PAGE>
technological "quick fix" has yet been developed for this problem. Not only
might the problem affect a particular company's computers, but a particular
company could also be impacted by problems at other companies, through supplier
relationships, etc.
Fortunately, the Company's present small base of operations is not heavily
dependent upon computers. However, steps are being taken to test and, if
necessary, upgrade computers and software within the Company. The ultimate cost
for completing this process is not yet known, but management does not anticipate
an expenditure of more than $10,000. Testing and any upgrades necessary should
be complete by August 1999. Management feels reasonably confident, in general,
about the Company's level of exposure. However, given the possible rather
drastic scenarios worldwide as discussed in the media, the Company cannot
guarantee that it will not be detrimentally impacted in some way.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS 129"). SFAS 129
establishes standards for disclosing information about an entity's capital
structure. SFAS 129 requires disclosures of the pertinent rights and privileges
of various securities outstanding (stock options, warrants, preferred stock,
debt, and participation rights), including dividend and liquidation preferences,
participant rights, call prices and dates, conversion or exercise prices, and
redemption requirements. Adoption of SFAS 129 has no effect on the Company,
since it currently discloses that information.
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130"). SFAS 130 requires that all
components of comprehensive income and total comprehensive income be reported on
one of the following: a statement of income and comprehensive income, a
statement of comprehensive income, or a statement of stockholders' equity.
Comprehensive income is comprised of net income and all changes to stockholders'
equity, except those due to investments by owners (changes in paid-in capital)
and distributions to owners (dividends).
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of a Business Enterprise ("SFAS 131"). SFAS 131
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas, and major customers. SFAS 131 defines
operating segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision-maker in allocating resources and assessing performance. Adoption of
SFAS 131 has no effect on the Company's current disclosures.
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
No. 133 establishes
18
<PAGE>
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000.
The Company currently does not utilize any derivative or hedging instruments and
therefore believes that there will be no impact from SFAS No. 133 on the
Company's earnings.
SOP 98-5, "Reporting on the Costs of Start-Up Activities," is effective for
fiscal years beginning after December 15, 1998. SOP 98-5 provides guidance on
the financial reporting of start-up costs and organization costs and requires
costs of start-up activities and organization costs to be expensed as incurred.
In conjunction with the adoption of fresh-start accounting, the Company early
adopted the provisions of SOP 98-5 with no significant impact on its
consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On April 21, 1998, the Company informed the accounting firm of KPMG Peat Marwick
LLP ("Peat Marwick") that the Company would not retain it to audit the Company's
financial statements for the fiscal year ended March 31, 1998. Peat Marwick had
been the Company's principal accountants since December 1996. For the fiscal
year ended March 31, 1997, Peat Marwick's opinion was modified due to
uncertainty as to the Company's ability to continue as a going concern. The
Company had no disagreements with Peat Marwick on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. The Company's decision not to continue to retain Peat Marwick was
not based on the expectation that any disagreement would arise for the current
fiscal year.
On April 17, 1998, the Bankruptcy Court approved the Company's selection of
Meyners + Company, LLC, as its principal accountants for the fiscal year ended
March 31, 1998, and thereafter.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table gives certain information regarding the Company's directors
and executive officers. Directors serve until the next annual meeting of
stockholders and until their successors are duly elected and qualified.
Officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Year First
Elected
Name Age Director Position
---- --- __________ ________
<S> <C> <C> <C>
Nunzio P. DeSantis 48 1993 Chairman of the Board,
President, Chief Executive
Officer and Director
Philip J. Vitale, M.D. 53 1992 Director
Jeffrey Ovington 47 N/A Executive Vice President
and Treasurer
</TABLE>
Nunzio P. DeSantis has been Chairman of the Board, President and Chief Executive
Officer of the Company since September 1996. Mr. DeSantis previously served as
Chief Executive Officer and Chairman of the Board of Directors from the
Company's inception in 1989 until his resignation from these positions in
September 1993 and May 1994, respectively. Mr. DeSantis has also served as
Chief Executive Officer and a director of International Thoroughbred Breeders,
Inc. ("ITB"), an American Stock Exchange listed company, since January 1997.
Mr. DeSantis also is President and Chairman of the Board of NPD, Inc., a private
company that owned an approximately 25 percent interest in ITB. Before
September 1995 and for more than five years, Mr. DeSantis was Chairman of the
Board and Chief Executive Officer of Diagnostek, Inc., a New York Stock Exchange
traded company (until its sale in 1995).
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 on
other governing boards and in other governing capacities for Lovelace at various
times from 1980 until 1989, while it was owned by several different entities.
Jeffrey Ovington has been Executive Vice President of the Company since
September 1996. From May 1993 to July 1995, he served in various capacities,
including Executive Vice President, with Diagnostek, Inc., a leading pharmacy
benefit manager with annual revenues in excess of $400 million, which was
acquired by Value Health, Inc. For 14 years prior thereto, he served in various
capacities with Martin Marietta Corp. (now Lockheed-Martin), General Electric
Company, and ITT. The Company has executed an employment letter agreement with
20
<PAGE>
Mr. Ovington, which sets his base salary at $115,000 per year and provides for
severance pay under certain conditions.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table provides information concerning the compensation paid for
fiscal years ended March 31, 1999, 1998, and 1997, to persons who served as
Chairman of the Board, President, Chief Executive Officer, Executive Vice
President, and Treasurer during fiscal year 1999. There was no other executive
officer of the Company who served at the end of fiscal year 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
Name and Long Term All other
Principal Annual Compensation Compensation Compen-
Position sation ($) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Awards Payout
- ------------------------------------------------------------------------------------------------------------------------------------
Year Salary ($) Bonus ($) Other Annual Restricted Securities
Compen- Stock Underlying
sation Award(s) Options/ LTIP
($)(1) ($) SARs (#) Payout($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nunzio P. DeSantis
Chairman of the Board 1999 $237,500 (2) $ - $ - $ - - $ - $ -
President, and Chief 1998 281,250 - - - 2,000,000 - -
Executive Officer 1997 172,000 250,000 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey Ovington
Executive Vice 1999 $156,478 (3) $100,000 (3) $ - $ - - $ - -
President 1998 110,036 - - - - - $ 100,000
and Treasurer 1997 84,790 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Except as indicated, the aggregate amount of perquisites and other personal
benefits paid to the named persons did not exceed the lesser of 10 percent
of each officer's total annual salary and bonus for the fiscal years and
$50,000.
(2) Of the $237,500 listed as salary for Nunzio P. DeSantis, $18,269 was
actually paid, and the balance of $219,231 has been accrued as a contingent
liability pending court approval.
(3) Of the 1999 compensation listed for Mr. Ovington, only $95,661 has actually
been paid to date; the remainder has been accrued as a contingent
liability.
Compensation of Directors
Directors who are not employees of the Company received immediately exercisable
Options to purchase 125,000 shares of the Company's old Common Stock for market
price on the date of issue. In connection with the Plan of Reorganization,
Options to purchase shares of old
21
<PAGE>
Common Stock were canceled, and directors have
the right to exercise their Options to purchase new Common Stock at an exercise
price of $4.00 per share.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
On March 5, 1999, the Company's Plan of Reorganization (the "Plan") became
effective, and all of the outstanding Common Stock, Preferred Stock, Class A and
B Warrants, and Options ceased to exist. It is impossible to predict the post-
confirmation stock ownership by officers, directors, affiliates, 5 percent or
more shareholders, and other "insiders." The Company believes Nunzio P.
DeSantis will exercise his right as a shareholder under the capital call
provisions of the Plan to purchase some or all of the shares available, but the
Company has no information regarding the other shareholders' intentions.
Since the total number of shares outstanding after the S-1 Registration could
vary from about 1.5 million to 9.0 million, predicting the percentage share of a
particular holding or purchase is speculative. Variables affecting the number
of shares post-confirmation include the degree of participation and capital
contribution by holders of old Common and Preferred Stock and Warrants and
Options.
In accordance with the Plan of Reorganization, the former Debenture holders will
be issued, in aggregate, approximately 1.0 million shares of new Common Stock.
There are approximately a half dozen former Debenture holders who will be
receiving stock. The largest such holder may have approximately 66 percent of
these shares issued to Debenture holders, and the second largest holder may have
approximately 25 percent of the 1.0 million shares. Until the total number of
new shares of Common Stock issued as a result of the offering becomes clear, it
cannot be said if either of these holders will hold 5 percent or more of the
total shares. If the sale of the new Common Stock brings in less than $1.1
million in new capital, then the former Debenture holders, in the aggregate,
will own a majority of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's Chairman of the Board, President and Chief Executive Officer
(Nunzio P. DeSantis) has been the second largest holder of the Company's stock
(having directly owned approximately 534,000 shares of old Common Stock, or
approximately nine percent) and also owns a controlling interest in NPD, Inc.,
with which the Company engaged in significant transactions during the year. At
December 31, 1998, the Company owed NPD, Inc. $0.5 million related to the ITB
Option debt obligation, and NPD, Inc. owed $3.4 million for a related loan made
during the fiscal year ended March 31, 1998, including its accrued interest.
Both obligations accrued interest at 10 percent and were to be payable in full,
including accrued and unpaid interest, on July 9, 1999. However, these debt
obligations are now canceled. (See Item 1. Business - Pursuit of Controlling
Interest in ITB is Terminated.")
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.
The following financial statements have been filed with and are included in this
report:
(a)(1) Financial Statements
Independent Auditors' Reports
Consolidated Balance Sheets - March 31, 1999 and 1998
Consolidated Statements of Operations - Twenty-six days ended
March 31, 1999, eleven months and five days ended March 5,
1999, and years ended March 31, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Twenty-six days
ended March 31, 1999, eleven months and five days ended March 5,
1999, and years ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows - Twenty-six days ended
March 31, 1999, eleven months and five days ended March 5,
1999, and years ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts - March 31, 1999,
1998, and 1997
All other schedules have been omitted because they are inapplicable or the
information is provided in the financial statements (including the notes
thereto) included in this annual report.
(b) Reports on Form 8-K
On March 19, 1999, a Current Report on Form 8-K was filed which
discussed the effectiveness on March 5, 1999, of the Company's Plan
of Reorganization confirmed by the Bankruptcy Court on February 3,
1999 (Item 3.) and the settlement of litigation relating to NPD and
ITB, the settlement of the Living Benefits litigation, and an SEC
investigation of the Company (Item 5.).
3.1 Certificate of Incorporation of CAPX Corporation
(prior name of AutoLend Group, Inc.), dated October 29, 1991
23
<PAGE>
3.2 Certificate of Amendment to the Certificate of Incorporation of CAPX
Corporation, changing name to AutoLend Group, Inc., dated February 6, 1995
3.3 Certificate of Designation of AutoLend Group, Inc., dated March 25, 1997
3.4 By-Laws of CAPX Corporation (prior name of AutoLend Group, Inc.)
10.1 Lease Agreement for Registrant's Offices at 600 Central SW, Third Floor,
Albuquerque, New Mexico
10.2 Assignment to, and Assumption by, Registrant of Lease Agreement for
Offices at 600 Central SW, Third Floor, Albuquerque, New Mexico
10.3 Compensatory Letter dated March 30, 1999 from the Registrant to Jeffrey
Ovington
21 Subsidiaries of the Registrant
24
<PAGE>
SIGNATURES
Pursuant to 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: June 29, 1999 By: /s/ Nunzio P. DeSantis
----------------------------------
Nunzio P. DeSantis
Chairman of the Board and
Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- -----------
<S> <C> <C>
/s/ Nunzio P. DeSantis Chairman of the Board, June 29, 1999
---------------------- Chief Executive Officer
Nunzio P. DeSantis (Principal executive officer)
/s/ Jeffrey Ovington Executive Vice President June 29, 1999
-------------------- (principal accounting and
Jeffrey Ovington financial officer)
<S> <C> <C>
/s/ Philip J. Vitale, M.D. Director June 29, 1999
--------------------------
Philip J. Vitale, M.D.
</TABLE>
25
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Annual Financial Statements: Pages
-----
<TABLE>
<CAPTION>
Independent Auditors' Reports.............................................. F-2
<S> <C>
Consolidated Balance Sheets as of March 31, 1999, and March 31, 1998.. F-5
Consolidated Statements of Operations for the Twenty-six days Ended
March 31, 1999, the Eleven Months and Five days ended March 5, 1999
and theYears Ended March 31, 1998 and 1997............................ F-6
Consolidated Statements of Stockholders' Equity/(Deficit) for the
Twenty-six days Ended March 31, 1999, the Eleven Months and Five
days ended March 5, 1999 and the Years Ended March 31, 1998 and 1997.. F-8
Consolidated Statements of Cash Flows for the Twenty-six days
Ended March 31, 1999, the Eleven Months and Five days ended
March 5, 1999 and the Years Ended March 31, 1998 and 1997............. F-9
Notes to Consolidated Financial Statements............................ F-11
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
March 31, 1999, 1998, and 1997........................................ S-1
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
AutoLend Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of AutoLend Group,
Inc. and subsidiaries (the Company), as of March 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity/(deficit),
and cash flows for the twenty-six days ended March 31, 1999 and the eleven
months and five days ended March 5, 1999, and for the year ended March 31, 1998.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
March 31, 1999 and 1998, and the results of its operations and its cash flows
for the twenty-six days ended March 31, 1999 and the eleven months and five days
ended March 5, 1999 and for the year ended March 31, 1998 in conformity with
generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The related 1999 and 1998
financial statement schedule on page S.1 is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic consolidated financial statements, and in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
F-2
<PAGE>
Board of Directors and Stockholders
of AutoLend Group, Inc. and Subsidiaries
The accompanying 1999 and 1998 consolidated financial statements and related
financial statement schedule have been prepared, assuming that the Company will
continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company filed a voluntary petition for bankruptcy for
protection under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the District of New Mexico on September 22, 1997. The
Company's Plan of Reorganization was confirmed on February 3, 1999 and became
effective March 5, 1999. In addition, the Company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 3. The 1999 and 1998 consolidated financial statements and related
financial statement schedule do not include any adjustments that might result
from the outcome of this uncertainty.
/s/Meyners + Company, LLC
Meyners + Company, LLC
Albuquerque, New Mexico
May 7, 1999, except for
Note 17 which is as of
June 23, 1999
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
AutoLend Group, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit), and cash flows of AutoLend Group, Inc. and
subsidiaries for the year ended March 31, 1997. In connection with our audit of
the consolidated financial statements, we also have audited the financial
statement schedule for the year ended March 31, 1997 listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of AutoLend Group, Inc. and subsidiaries for the year ended March 31, 1997, in
conformity with generally accepted accounting principles. Also in our opinion,
the related 1997 financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
The accompanying 1997 consolidated financial statements and related financial
statement schedule have been prepared assuming that the Company will continue as
a going concern. As discussed in Notes 2 and 3 to the consolidated financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency that raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters and
need to restructure its obligations are also described in Notes 2 and 3. The
1997 accompanying consolidated financial statements and related financial
statement schedule do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG LLP
Albuquerque, New Mexico
May 16, 1997
F-4
<PAGE>
<TABLE>
<CAPTION>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1999 and 1998
Registrant Predecessor
1999 1998
------------------- | -----------------
<S> <C> | <C>
|
Assets: |
Cash $ 2,146,759 | $ 769,736
Restricted cash 2,791,178 | -
------------------- | -----------------
|
Cash and cash equivalents $ 4,937,937 | $ 769,736
Other receivables 44,741 | 46,011
Prepaid expenses 16,669 | 167,381
Installment contracts receivable, net 53,795 | 296,209
Purchased insurance policies, net 126,650 | 329,193
Fixed assets, net 17,489 | 39,611
ITB Option, net - | 425,000
Escrow deposit - | 2,000,000
Interest on escrow deposit - | 62,060
Note receivable - NPD, Inc. - | 3,035,292
Interest receivable on note receivable - NPD, Inc. - | 219,215
Securities in IAP, net - | 250,000
------------------- | -----------------
|
Total assets $ 5,197,281 | $ 7,639,708
=================== | =================
|
Liabilities: |
Liabilities subject to compromise: |
Accounts payable $ - | $ 55,276
Accrued interest expensed on debentures - | 1,372,819
Convertible subordinated debentures at face value - | 7,225,000
Allowance for estimated legal fees and settlement costs - | 1,434,944
------------------- | -----------------
|
Total liabilities subject to compromise - | 10,088,039
------------------- | -----------------
|
Liabilities not subject to compromise: |
Accounts payable - Debenture holders 3,043,250 | -
Accounts payable 84,768 | 95,135
Accrued contingent legal fees 270,713 | -
Accrued contingent payroll 406,107 | -
Accrued liabilities 55,814 | 79,674
Other contingent liabilities 244,867 | -
Note payable - Debenture holders 523,300 | -
Accrued interest expense on debentures - | 364,160
Note payable - NPD, Inc. - | 425,000
Accrued interest - NPD, Inc. - | 25,667
------------------- | -----------------
|
Total liabilities not subject to compromise 4,628,819 | 989,636
------------------- | -----------------
|
Total liabilities $ 4,628,819 | $ 11,077,675
------------------- | -----------------
|
Stockholders' Equity/(Deficit): |
Preferred stock, $.002 par value. Authorized 5,000,000 |
shares; 57,800 issued and outstanding at March 31, 1998 - | 116
Common stock, $.002 par value. Authorized 40,000,000 |
shares; issued 6,079,530 shares at March 31, 1998 - | 12,158
Common stock, $.002 par value. Authorized 40,000,000 |
shares; issuable 1,040,000 shares at March 31, 1999 2,080 | -
Additional paid-in capital 690,033 | 20,459,946
Unrealized holding loss - | (590,000)
Accumulated deficit (123,651) | (23,320,187)
------------------- | -----------------
|
|
Total stockholders' equity/(deficit) $ 568,462 | $ (3,437,967)
------------------- | -----------------
|
Total liabilities and stockholders' equity $ 5,197,281 | $ 7,639,708
=================== | =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Registrant Predecessor
--------------- | -------------------------------------------------
Twenty-six | Eleven months and Years ended March 31:
days ended | five days ended -----------------------------
March 31, 1999 | March 5, 1999 1998 1997
--------------- | -------------- ------------- ------------
<S> <C> | <C> <C> <C>
Revenues: |
Finance charges on installment contracts $ 9,322 | $ 108,141 $ 587,616 $ 1,670,663
Revenues from matured insurance policies - | 940,228 69,109 505,292
--------------- | -------------- ----------- ------------
|
|
Gross revenues 9,322 | 1,048,369 656,725 2,175,955
Cost of matured insurance policies - | (692,400) (60,125) (101,285)
--------------- | -------------- ----------- ------------
Total net revenues $ 9,322 | $ 355,969 $ 596,600 $ 2,074,670
|
General and administrative expenses (64,201)| (1,698,089) (2,106,636) (5,851,888)
Provision for credit gain (losses), net 24,000 | 375,000 41,000 (3,625,078)
--------------- | -------------- ----------- ------------
Operating loss $ (30,879)| $ (967,120) $(1,469,036) $ (7,402,296)
--------------- | -------------- ----------- ------------
Other income/(expense): |
Interest income: |
Interest income on cash and cash equivalents 20,766 | 106,338 207,116 333,251
Interest on escrow - | 84,712 - -
NPD, Inc., note receivable - | 278,235 219,215 -
Other income/(expense) 37,200 | (51,265) (204,128) (212,118)
Realized gain/(loss) on sale of securities, net - | (25,440) - (49,853)
Interest expense: |
Debentures - | (638,710) (881,918) (2,148,914)
NPD, Inc., note payable - | (38,958) (25,667) -
Other - | - (27,082) -
Write-down of purchased insurance policies - | - (131,772) (925,300)
Lease termination expense - | (64,725) - (516,000)
Gain on lease termination - | - 266,378 -
Write-down of AutoLend IAP, Inc., securities - | - (160,000) (200,000)
Write-off fixed assets - | (4,570) (3,720) (667,238)
Insurance policy write-down recapture - | 536,390 - -
Debenture conversion charge - | - (6,261,052) -
--------------- | -------------- ----------- ------------
|
|
Total net other income/(expense) $ 57,966 | $ 182,007 $(7,002,630) $ (4,386,172)
--------------- | -------------- ----------- ------------
|
|
Income/(loss) before reorganization costs, benefit from income |
taxes, discontinued operations, and extraordinary items 27,087 | (785,113) (8,471,666) (11,788,468)
Reorganization costs incurred after |
Chapter 11 proceedings (150,738)| (340,829) (211,667) -
Loss on settlement ITB/NPD - | (1,368,117) - -
--------------- | -------------- ----------- ------------
|
|
Loss before benefit from income taxes, discontinued |
operations, and extraordinary items (123,651)| (2,494,059) (8,683,333) (11,788,468)
Benefit from income taxes - | - - 86,082
--------------- | -------------- ----------- ------------
|
|
Loss before discontinued operations, and extraordinary items (123,651)| (2,494,059) (8,683,333) (11,702,386)
|
Discontinued operations: |
Loss from operations of discontinued |
subsidiary, net of income tax benefit of $78,805 - | - - (152,973)
Gain on sale of subsidiary net of income tax expense |
of $164,887 - | - - 320,074
--------------- | -------------- ----------- ------------
|
|
Loss before extraordinary items (123,651)| (2,494,059) (8,683,333) (11,535,285)
|
Extraordinary items: |
Gain as result of reorganization-debentures - | 5,342,026 - -
Gain on early extinguishment of debt, net of |
amortization of deferred costs of $57,000 - | - 3,171,524 -
--------------- | -------------- ----------- ------------
|
|
Net income/(loss) $ (123,651)| $ 2,847,967 $(5,511,809) $(11,535,285)
=============== | ============== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations - continued
<TABLE>
<CAPTION>
Registrant | Predecessor
-------------- |-----------------------------------------
Twenty-six |Eleven months and Years ended March 31:
days ended |five days ended -----------------------
March 31, 1999 | March 5, 1999 1998 1997
-------------- |--------------- ---------- ----------
<S> <C> |<C> <C> <C>
Loss per share before discontinued operations and extraordinary items $ (0.12)|$ (0.41) $ (1.44) $ (2.53)
|
Discontinued operations - | - - 0.04
-------------- |--------------- ---------- ----------
|
|
Loss per share before extraordinary items (0.12)| (0.41) (1.44) (2.49)
|
Extraordinary items: |
Gain as a result of reorganization-debentures - | 0.88 - -
Gain on early extinguishment of debt - | - 0.53 -
-------------- |--------------- ---------- ----------
|
|
|
Net income/(loss) $ (0.12)|$ 0.47 $ (0.91) $ (2.49)
============== |=============== ========== ==========
|
|
Weighted average number of common and common equivalent |
shares outstanding - | 6,079,530 6,039,391 4,634,530
============== |=============== ========== ==========
|
|
Weighted average number of common and common |
equivalent shares issuable 1,040,000 | - - -
============== |=============== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity/(Deficit)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------- ------------
Accumulated
Additional Other
# of $ # of $ Paid-in Comprehensive Accumulated
Shares Amount Shares Amount Capital Income Equity/(Deficit) Total
------- ------ -------- -------- ------- -------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 - $ - 4,634,530 $ 9,269 $ 5,946,904 $ - $ (6,273,093) (316,920)
Net loss - - - - - - (11,535,285) (11,535,285)
------- ----- ---------- -------- ------------ --------- ------------ ------------
Balance at March 31, 1997 - - 4,634,530 9,269 5,946,904 - (17,808,378) (11,852,205)
Common and preferred shares
issued in exchange offer 57,800 116 1,445,000 2,889 14,513,042 - - 14,516,047
Unrealized holding loss - - - - - (590,000) - (590,000)
Net loss - - - - - - (5,511,809) (5,511,809)
------- ----- ---------- -------- ------------ --------- ------------ ------------
Balance at March 31, 1998 57,800 116 6,079,530 12,158 20,459,946 (590,000) (23,320,187) (3,437,967)
Comprehensive income:
Net income eleven months and
five days ended March 5, 1999 - - - - - - 2,847,967 2,847,967
Other comprehensive income;
Unrealized loss on marketable
securities net of
reclassification adjustment - - - - - 590,000 - 590,000
------- ----- ---------- -------- ------------ --------- ------------ ------------
Comprehensive income - - - - - - - 3,437,967
Retirement of old common and
preferred stock according
to the Plan of Reorganization (57,800) (116) (6,079,530) (12,158) (20,459,946) - - (20,472,220)
Application of fresh-start - - - - - - 20,472,220 20,472,220
Issuable new common stock
according to the Plan of
Reorganization - - 1,040,000 2,080 690,033 - - 692,113
------- ----- ---------- -------- ------------ --------- ------------ ------------
Balance at March 5, 1999 - - 1,040,000 2,080 690,033 - - 692,113
Comprehensive income:
Net loss for the twenty-six
days ended March 31, 1999 - - - - - - (123,651) (123,651)
------- ----- ---------- -------- ------------ --------- ------------ ------------
Balance at March 31, 1999 - $ - 1,040,000 $ 2,080 $ 690,033 $ - $ (123,651) $ 568,462
======= ===== ========== ======== ============ ========= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
Registrant Predecessor
-------------- -----------------------------------------------
Twenty-six | Eleven months and Years ended March 31:
days ended | five days ended ----------------------------
March 31, 1999 | March 5, 1999 1998 1997
-------------- | --------------- ------------ ------------
<S> <C> | <C> <C> <C>
Cash flow from operating activities: |
Net income/(loss) $ (123,651) | $ 2,847,967 $ (5,511,809) $(11,535,285)
Adjustments to reconcile net loss to net cash |
flow from operating activities: |
Amortization of intangible assets and debt issuance costs - | - 56,443 242,777
Depreciation expense 1,603 | 18,449 24,464 104,156
Gain on early extinguishment of debt, net of amortization - | - (3,171,524) -
Charge for debenture conversion, net of amortization - | - 6,261,052 -
Loss on settlements ITB/NPD - | 1,368,117 - -
Gain as a result of reorganization-debentures - | (5,342,026) - -
Loss/(gain) on lease termination - | - (266,378) -
Insurance policy write-down recapture - | (536,390) - -
Provision for credit losses, net of recoveries (24,000) | (375,000) (41,000) 3,625,078
Write-off of fixed assets - | 4,570 3,720 667,238
Write-down of purchased insurance policies - | - 131,772 925,300
Write-down of AutoLend IAP, Inc. securities - | - 160,000 200,000
Realized loss on sale of IAP, Inc. securities - | 25,440 - -
Realized gains/(losses) on securities available for sale - | - - 49,853
Gain on sale of subsidiary, IAP, Inc. - | - - (986,961)
Gain on sale of assets - | - - -
Provision for estimated legal fees and settlement costs - | - 200,000 -
Change in net assets of discontinued operations - | - - (1,008,078)
Changes in assets and liabilities: |
Prepaid expenses - | 150,712 (100,567) -
Accounts receivable-matured insurance policies (203) | 739,136 - 1,357,947
Installment contracts receivable 29,376 | 612,038 1,839,844 5,878,710
Interest on escrow deposit - | - (62,060) -
Interest receivable on note receivable - NPD, Inc. - | (216,175) (219,215) -
Purchased insurance policies - | - 52,425 6,494
Consulting agreement - | - 140,000 -
Other assets (38,430) | 39,700 33,101 107,469
Accounts payable and accrued liabilities (1,567,500) | 964,740 (1,719,080) 1,231,445
Accrued interest expense - | 677,668 907,585 2,094,751
Other liabilities - | - 578,402 -
------------ | --------------- ------------ ------------
Cash provided (used) by operating activities $ (1,722,805) | $ 978,946 $ (702,825) $ 2,960,894
------------ | --------------- ------------ ------------
Cash flow from investing activities: |
IAP, Inc. securities $ - | $ 614,560 $ - $ -
Funding of escrow - | - (2,000,000) -
Proceeds from escrow - | 2,000,000 - -
Proceeds from ITB/NPD settlement - | 2,300,000 - -
Loan to NPD - | - (3,035,292) -
Purchase ITB stock option - | - (200,000) -
Proceeds from sale of securities available for sale - | - - 125,000
Proceeds from disposition of IAP - | - - 5,963,388
Proceeds from sale of fixed assets - | - - 185,995
Purchase of fixed assets - | (2,500) - (4,075)
------------ | --------------- ------------ ------------
Cash provided (used) by investing activities $ - | $ 4,912,060 $ (5,235,292) $ 6,270,308
------------ | --------------- ------------ ------------
Cash flow from financing activities: |
Early extinguishment of debt $ - | $ - $ (5,692,079) $ -
------------ | --------------- ------------ ------------
Cash provided (used) in financing activities $ - | $ - $ (5,692,079) $ -
------------ | --------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents $ (1,722,805) | $ 5,891,006 $(11.630,196) $ 9,231,202
Cash and cash equivalents at beginning of period 6,660,742 | 769,736 12,399,932 3,168,730
------------ | --------------- ------------ ------------
Cash and cash equivalents at end of period $ 4,937,937 | $ 6,660,742 $ 769,736 $ 12,399,932
============ | =============== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-9
<PAGE>
.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the eleven months and five days ended March 5, 1999, the following non-
cash investing and financing activities occurred:
The Company converted Debentures with a face value of $7,225,000 and outstanding
interest of $2,375,689 for $3,043,250 cash; uncollateralized notes payable at a
discounted aggregate value of $523,300; 1,040,000 issuable shares of Common
Stock with an aggregate par value of $2,080; and additional paid-in capital of
$690,033. This resulted in an extraordinary gain as a result of reorganization
of $5,342,026.
The ITB/NPD, Inc. settlement was consummated and the Company received $4,446,771
in cash in exchange for the escrow deposit of $2,000,000 and interest of
$146,771; the note receivable - NPD, Inc. of $3,035,292 and interest of
$497,450; the ITB Option net of $200,000 holding losses, for $425,000; and the
note payable - NPD, Inc. of $425,000 and interest of $64,625. This resulted in
a loss of $1,368,117.
As of March 5, 1999, pursuant to the Plan of Reorganization, all outstanding
Common Stock and Preferred Stock, Class A and B Warrants, and Options were
canceled.
There were no non-cash investing or financing activities during the twenty-six
days ended March 31, 1999.
During the year ended March 31, 1998, the following non-cash investing and
financing activities occurred:
The Company purchased an Option to acquire stock in exchange for $200,000 cash
and a note payable with an obligation of $425,000. Additionally, the Company
converted Debentures with a face value of $7,225,000 and outstanding accrued
interest of $1,065,575 for 57,800 shares of Preferred Stock and 1,445,000 shares
of Common Stock, with aggregate par values of $116 and $2,889, respectively.
This resulted in a non-cash conversion charge of $6,261,052.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During the fiscal year ended March 31, 1998, the Company paid $27,082 in
interest. There were no cash payments of interest made during the year ended
March 31, 1999.
F-10
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999, 1998, and 1997
The accompanying consolidated financial statements include the accounts of
AutoLend Group, Inc. and its wholly owned subsidiaries, Autolend
Corporation, American Life Resources Group, Inc., and LB NM, Inc.
(collectively, the "Company").
AutoLend Group, Inc. maintains a residual portfolio of sub-prime, consumer
used-car loans ("Installment Contract Receivables") through its wholly
owned subsidiary, AutoLend Corporation. AutoLend Group, Inc. ceased
purchasing Installment Contract Receivables in December 1995. LB NM, Inc.
and American Life Resources Group, Inc., maintain a residual portfolio of
life insurance policies purchased from persons with life-threatening
illnesses, a business generically referred to as viatical settlements (the
"Policies"). Policies were no longer purchased after September 1994.
The Company's operations for the year ended March 31, 1999, have been
primarily concentrated on resolving the bankruptcy, developing a new
business in the gaming industry (which is a division of AutoLend Group,
Inc., doing business under the name of Kachina Gaming), and collecting
amounts due from the residual consumer loan portfolio as well as the
residual policy portfolio.
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation, Going Concern
The accompanying consolidated financial statements of the Company have been
prepared on a going-concern basis, which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal
course of business.
The Company's consolidated financial statements include the accounts of
AutoLend Group, Inc., and its wholly owned subsidiaries, AutoLend
Corporation, LB NM, Inc., and American Life Resources Group, Inc. No
petition under the United States Bankruptcy Code has been filed for the
subsidiaries.
As a result of the Company's inability to make repayment on, and resultant
default against, its outstanding 9.5 percent Convertible Subordinated
Debentures (the "Debentures"), as described more fully in Note 2, the
Company filed for protection under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the District of
New Mexico (the "Bankruptcy Court") on September 22, 1997. On February 3,
1999, the Bankruptcy Court confirmed a Plan of Reorganization, which became
effective on March 5, 1999.
F-11
<PAGE>
The Company's financial statements as of March 31, 1999 and 1998, have been
presented in conformity with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting By Entities in
Reorganization Under the Bankruptcy Code," issued November 19, 1990 ("SOP 90-
7"). The statement requires that for 1998, a segregation of liabilities
subject to compromise by the Bankruptcy Court as of the bankruptcy filing date
(September 22, 1997) and identification of all transactions and events that
are directly associated with the reorganization of the Company.
The Company filed its first Disclosure Statement and Plan of Reorganization
(jointly, the "Plan") in January 1998. The Disclosure Statement (as
subsequently amended) was approved in September 1998, and the Plan was mailed
to creditors and interest holders in October. Voting was completed in December
1998, and the Confirmation Hearing was held on February 3, 1999. The judge
confirmed the Plan, which became effective March 5, 1999.
Pursuant to SOP 90-7, the Company adopted fresh-start reporting as of March 5,
1999, the date that all material conditions required by the Plan were
satisfied. Under fresh-start accounting, all assets and liabilities are
restated to reflect their reorganized value, which approximates fair value.
Accordingly, all allowances for doubtful accounts, accumulated depreciation
and asset reserves were reduced to zero at March 5, 1999. The Company
determined that the fair value of the assets immediately before March 5, 1999,
approximated carrying value and therefore recognized no reorganization value
in excess of amounts allocable to identifiable assets.
Since fresh-start reporting has been reflected in the accompanying
consolidated balance sheets as of March 31, 1999, certain material aspects of
the balance sheets are not comparable to balance sheets of any prior period,
since the balance sheets as of March 31, 1999 are those of a reorganized
entity. A "black line" has been drawn between the Registrant's balance sheet
and the Predecessor Company's balance sheet.
The following journal entries record the provisions of the Plan and adoption
of fresh-start accounting:
F-12
<PAGE>
<TABLE>
<CAPTION>
Debit Credit
----------- -----------
<S> <C> <C>
a) Entry to record ITB and NPD settlement:
Cash and cash equivalents $ 4,446,771 $ -
Escrow deposit - 2,000,000
Interest on escrow deposit - 146,771
Note receivable-NPD, Inc. - 3,035,292
Interest receivable on note receivable-NPD, Inc. - 497,450
ITB Option - 425,000
NPD note 425,000 -
Accrued interest-NPD, Inc. 64,625 -
Unrealized holding loss - 200,000
Loss on settlement ITB/NPD, Inc. 1,368,117 -
b) Entry to record debt forgiveness:
Convertible subordinated debentures 7,225,000 -
Accrued interest expense on debentures 1,372,819 -
(pre-petition)
Accrued interest expense on debentures 1,002,870 -
(post-petition)
Accounts payable-debenture holders - 3,043,250
Note to debenture holders - 523,300
Common stock (.002) par 1,040,000 shares issuable - 2,080
Additional paid-in capital - 690,033
Gain as result of reorganization-debentures - 5,342,026
c) Entry to record fresh-start accounting:
Common stock (.002) par 6,079,500 shares 12,158 -
Preferred stock (.002) par 57,800 shares 116 -
Additional paid-in capital 20,459,946 -
Accumulated deficit - 20,472,220
d) Reclassification of confirmed liabilities:
Accrued liabilities subject to compromise 162,876 -
Accrued liabilities not subject to compromise - 162,876
</TABLE>
F-13
<PAGE>
The effect of the Plan on the Company's balance sheet as of March 5, 1999 is as
follows:
REORGANIZED AUTOLEND GROUP, INC. AND SUBSIDIARIES
Proforma Consolidated Balance Sheet
March 5, 1999
<TABLE>
<CAPTION>
Precon- Reorganization Fresh Reorganized
firmation Adjustments Start Company
------------- --------------- ------------ -----------
Assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,213,971 $ 4,446,771 (a) $ - $ 6,660,742
Prepaid expenses 16,669 - - 16,669
Installment contracts receivable 59,171 - - 59,171
ITB Option, net 425,000 (425,000)(a) - -
Escrow deposit 2,000,000 (2,000,000)(a) - -
Interest on escrow deposit 146,771 (146,771)(a) - -
Note receivable - NPD, Inc. 3,035,292 (3,035,292)(a) - -
Interest receivable on note receivable - NPD, Inc. 497,450 (497,450)(a) - -
Purchased insurance policies, net 126,447 - - 126,447
Fixed assets, net 19,092 - - 19,092
Other receivables 6,311 - - 6,311
-------------- ------------- ------------- -------------
Total assets $ 8,546,174 $ (1,657,742) $ - $ 6,888,432
============== ============= ============= =============
Liabilities:
Liabilities subject to compromise:
Accounts payable $ 97,079 $ - $ - $ 97,079
Accrued liabilities 162,876 (162,876)(d) - -
Accrued interest expensed on debentures
(pre-petition) 1,372,819 (1,372,819)(b) - -
Convertible subordinated debentures at face value 7,225,000 (7,225,000)(b) - -
Allowance for estimated legal fees and
settlement costs 1,525,000 - - 1,525,000
-------------- ------------- ------------- --------------
Total liabilities subject to compromise 10,382,774 (8,760,695) - 1,622,079
-------------- ------------- ------------- --------------
Liabilities not subject to compromise:
Accounts payable 159,685 - - 159,685
Accounts payable - debenture holders - 3,043,250 (b) - 3,043,250
Contingent liabilities - reorganization 205,304 - - 205,304
Accrued liabilities 479,825 162,876 (d) - 642,701
Accrued interest expense on debentures (post-petition) 1,002,870 (1,002,870)(b) - -
Note to debenture holders - 523,300 (b) - 523,300
NPD, Inc. note 425,000 (425,000)(a) - -
Accrued interest - NPD, Inc. 64,625 (64,625)(a) - -
-------------- ------------- ------------- --------------
Total liabilities not subject to compromise 2,337,309 2,236,931 - 4,574,240
-------------- ------------- ------------- --------------
Total liabilities $ 12,720,083 $ (6,523,764) $ - $ 6,196,319
============== ============= ============= ==============
Stockholders' Equity/(Deficit):
Preferred stock, $.002 par value. Authorized
5,000,000 shares; 57,800 issued
and outstanding $ 116 $ - $ (116)(c) $ -
Common stock, $.002 par value. Authorized
40,000,000 shares; 6,079,530 issued 12,158 - (12,158)(c) -
Common stock $.002 par value. Authorized
40,000,000 shares; 1,040,000 issuable - 2,080 (b) - 2,080
Additional paid-in capital 20,459,946 690,033 (b) (20,459,946)(c) 690,033
Unrealized holding loss (200,000) 200,000 (a) - -
Accumulated deficit (24,446,129) 3,973,909 (a)(b) 20,472,220 (c) -
--------------- ------------- ------------- --------------
Total stockholders' equity/(deficit) $ (4,173,909) $ 4,866,022 $ - $ 692,113
--------------- ------------- ------------- --------------
Total liabilities and stockholders' equity/(deficit) $ 8,546,174 $ (1,657,742) $ - $ 6,888,432
=============== ============= ============= ==============
</TABLE>
F-14
<PAGE>
(b) Basis of Accounting
The Company's consolidated financial statements have been prepared on the
accrual basis of accounting.
(c) Balance Sheet Classification
The accompanying consolidated balance sheets have been presented as
nonclassified. However, assets and liabilities are presented in order of
liquidity.
(d) Consolidation Policy
Intercompany transactions and balances have been eliminated in consolidation.
(e) Cash and Cash Equivalents
Cash and cash equivalents include debt securities, which mature in 90 days or
less from the date of acquisition.
(f) Securities
Securities investments (including options) that the Company has the positive
intent and ability to hold to maturity are classified as held-to-maturity
securities. Securities investments that are bought and held principally to
sell in the near term are classified as trading securities. Securities
investments not classified as either held-to-maturity or trading securities
are classified as available-for-sale securities. Available-for-sale
securities are recorded at fair value and are included in investments and
other assets on the balance sheet, with the change in fair value during the
period excluded from earnings as a separate component of equity. The Company
determines the cost of its investments in securities based on specific
identification.
(g) Recent Accounting Pronouncements and Developments
The Company adopted Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS 129"). SFAS 129
establishes standards for disclosing information about an entity's capital
structure. SFAS 129 requires disclosures of the pertinent rights and
privileges of various securities outstanding (stock options, warrants,
preferred stock, debt, and participation rights), including dividend and
liquidation preferences, participant rights, call prices and dates, conversion
or exercise prices, and redemption requirements. Adoption of SFAS 129 has no
effect on the Company, since it currently discloses that information.
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130"). SFAS 130 requires that all
components of comprehensive income and total comprehensive income be reported
on one of the following:
F-15
<PAGE>
a statement of income and comprehensive income, a
statement of comprehensive income, or a statement of stockholders' equity.
Comprehensive income is comprised of net income and all changes to
stockholders' equity, except those due to investments by owners (changes in
paid in capital) and distributions to owners (dividends).
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of a Business Enterprise ("SFAS 131"). SFAS 131
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas, and major
customers. SFAS 131 defines operating segments as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision-maker in allocating resources and
assessing performance. The Company has generally ceased its current business
segments and is primarily concentrating on the acquisition or development of
new business directions. Therefore, SFAS 131 has no effect on the Company's
current disclosures.
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. The Company currently does not utilize any
derivative or hedging instruments and therefore believes that there will be no
impact from SFAS No. 133 on the Company's earnings.
SOP 98-5, "Reporting on the Costs of Start-Up Activities," is effective for
fiscal years beginning after December 15, 1998. SOP 98-5 provides guidance on
the financial reporting of start-up costs and organization costs and requires
costs of start-up activities and organization costs to be expensed as
incurred. In conjunction with the adoption of fresh-start accounting, the
Company early adopted the provisions of SOP 98-5 with no significant impact on
its consolidated financial statements.
(h) Revenue Recognition
Installment Contract Receivables: Revenues from finance charges on
Installment Contract Receivables (used-car loans) are recognized when earned
and are based on the difference between gross cash flow from an Installment
Contract Receivable and the total amount paid by the Company to acquire the
Contracts. Loan discounts are recorded as unearned income at the time of
initial investment in a loan contract and are amortized over the life of the
loan to revenue. Loan costs are amortized against revenue as an adjustment of
yield.
F-16
<PAGE>
The accrual of interest revenue on receivable balances (recognition of
revenue) is suspended when a loan is delinquent for 30 days or more. The
accrual is resumed when the loan becomes contractually current and past-due
interest revenue is then recognized. The Company initially performed, in
house, all functions associated with origination, servicing, and collection of
the contracts; however, since January 1996, the Company has used an outside
contractor to service the Installment Contract Receivables.
Allowance for Credit Losses - Installment Contract Receivables: 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 Contract
Receivables portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the Installment Contract Receivables
portfolio, including the nature of the portfolio and specific impaired loans.
Allowances for impaired loans are generally determined based on aging,
collateral values, or present value of estimated cash flows.
The allowance for credit losses is established through provisions charged to
income and is based on management's evaluation of potential losses after
considering such factors as current delinquency data, changes in the
Installment Contract Receivables portfolio, and other pertinent factors.
Charge-offs are recorded against the allowance when management believes that
the collectibility of the principal is unlikely.
There are inherent uncertainties in determining the allowance for credit
losses in a long-established Installment Contract Receivables portfolio.
Additionally, the somewhat limited duration of historical experience for this
specific portfolio compounds these uncertainties. As a result, the aggregate
losses ultimately incurred by the Company for the Installment Contract
Receivables portfolio may differ from the allowance for credit losses in the
accompanying consolidated financial statements. Management has used its best
judgment to arrive at its estimate of the allowance for credit losses, and
believes that it is reasonable to cover the losses inherent in the Installment
Contract Receivables portfolio at March 31, 1998. Due to fresh-start
accounting, there is no allowance at March 31, 1999.
Purchased Insurance Policies: Revenue and cost of revenue are recognized upon
the maturity of a policy (death of the insured). Unmatured Policies are
carried, at estimated market value, as an investment asset. The cost of a
Policy includes the initial purchase price, insurance premiums, and other
direct expenditures paid by the Company for the purchase and maintenance of
the Policy. Revenues are accounted for as "Gross Revenues" (i.e., before
deduction of costs) and as "Net Revenues" (after deduction of costs). Net
Revenues are combined with revenues from other business operations in
calculating the Company's "Total Net Revenues."
The ability to recognize matured policy revenue during the period in which a
Policy matures depends on the Company's receiving notification of its maturity
from a representative of the insured. In some instances, notification may not
occur until significantly after the insured's death and after the consolidated
financial statements have been finalized for the period in which the Policy
matured. To the extent Policy maturities cannot be recorded in the period
F-17
<PAGE>
the Policy matures, the revenue and cost related to the maturity are
recognized in the consolidated statement of operations after the maturity of
the Policy.
Allowance for Credit Losses - Purchased Insurance Policies: The allowance is
established through provisions charged to income and is based on management's
evaluation of potential losses after consideration of present value of the
face value of the Policy less the present value of any future obligations
relating to the Policy. Charge-offs are recorded against the allowance when
management believes that the collectibility of the Policy is unlikely.
(i) Debt Issuance Cost Amortization
Debt issuance costs are amortized over the life of the related debt. At March
31, 1999 and 1998, all debt issuance costs had been fully amortized.
(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 an offsetting valuation allowance against
deferred tax assets to the extent it determines it is highly possible that any
such deferred tax assets will not be usable.
(k) Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable,
Installment Contract Receivables, purchased Policies, accounts payable,
accrued liabilities, and the note payable to the Debenture holders. The fair
values of these financial instruments have been determined using available
market information and interest rates as of March 31, 1999. All of the
Company's financial instruments are held for non-trading purposes.
At March 31, 1998, the fair value of the Debentures, which were due in
September 1997 and not paid, was substantially less than the carrying value of
$7.2 million plus accrued interest, based on the uncertainty of the Company's
ability to continue as a going concern. The Company's management was unable
to determine with any precision or certainty what the fair value was at that
time; however, the Company repurchased Debentures at a discount from face
value during the year ended March 31, 1998. The fair values of all other
financial instruments were not materially different from their carrying
values.
F-18
<PAGE>
(l) Earnings per Share
Primary earnings per share amounts are computed based on the weighted average
number of shares issuable for the twenty-six days ended March 31, 1999, which
were 1,040,000, on the weighted average number of shares outstanding for the
eleven months and five days ended March 5, 1999, which were 6,079,530, and on
the weighted average number of shares outstanding for 1998, which were
6,039,391 shares. There were no Options or Warrants outstanding at March 31,
1999. However, the effects of the rights of the holders of old Options and
Warrants pursuant to the Plan of Reorganization were anti-dilutive. At March
31, 1998, Options and Warrants outstanding totaled 6,323,500. At March 31,
1998, the effects of Options outstanding for 3,660,000 shares of Common Stock
were anti-dilutive. Therefore, fully diluted earnings per share amounts for
1999 and 1998 are not presented because they do not differ significantly from
primary earnings per share.
(m) Use of Estimates
The preparation of the Company's consolidated financial statements conforms
with generally accepted accounting principles, and requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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.
(2) Voluntary Bankruptcy and Plan of Reorganization
On September 22, 1997, AutoLend Group, Inc. filed for protection under Chapter
11 of the United States Bankruptcy Court due to its inability to make scheduled
principal and interest payments on its Debentures.
The related Disclosure Statement was approved by the Bankruptcy Court in
September 1998 and, together with its Plan of Reorganization ("the Plan"), was
mailed to its creditors and other interest holders in October 1998. They
approved the Plan and on February 3, 1999, the Bankruptcy Court confirmed the
Plan, which became effective on March 5, 1999. The confirmed Plan provided for
the following:
Class of unsecured creditors - as of the date of this report, these creditors
----------------------------
have now received 100% of their allowed claims.
Holders of Debentures - will receive 1,040,000 shares of new Common Stock,
---------------------
plus aggregate up-front cash payments of $3,043,250 and notes payable in the
aggregate amount of $624,000 (undiscounted) in exchange for $7,225,000 in
principal value of Debenture debt and $2,375,689 in accrued interest (see Note
17).
F-19
<PAGE>
Holders of Old Common Stock - will have the right to purchase up to one share
---------------------------
of new Common Stock for each share of old Common Stock they own, for $1.00 per
new common share. These holders have 60 days following the final issuance of
the Registration Statement to elect their purchase.
Holders of Old Preferred Stock - will have the right to purchase up to 100
------------------------------
shares of new Common Stock for each share of Preferred Stock they own, for
$1.00 per new common share. These holders have 60 days following the final
issuance of the Registration Statement to elect their purchase.
Holders of New Common Stock - will have the right to purchase a pro rata
---------------------------
portion of the aggregate number of shares of new Common Stock not purchased by
the holders of old Common and Preferred Stock during the initial offering
period, for $1.00 per share. In addition, each holder of new Common Stock has
the option to purchase any amount of any remaining shares of new Common Stock,
not otherwise purchased by holders of new Common Stock, on a pro rata basis at
$1.00 per share. These holders can exercise their rights 61 to 90 days
following the final issuance of the Registration Statement.
Holders of Class A and Class B Warrants - For one year after March 5, 1999,
---------------------------------------
holders of Class A and Class B Warrants may purchase up to the same number of
shares of new Common Stock that they could have purchased of the old Common
Stock pursuant to the Warrants for $4.00 per new Common Share.
Holders of Options - For one year after March 5, 1999, holders of Options to
------------------
purchase shares of old Common Stock may purchase the same number of shares of
new Common Stock that they could have purchased of old Common Stock pursuant
to their Options for $4.00 per new Common Share.
(3) Going Concern
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. Realization of a major portion
of the assets is dependent upon the Company's ability to meet its future capital
and financing requirements and the success of future operations. The Company's
Plan proposes developing a new business, which consists primarily of providing
gaming devices and machines to certain non-profit organizations in New Mexico.
The Company cannot, however, assure the future profitability and magnitude of
the gaming business or any other business it may pursue, as they are yet
unproven. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
(4) Debentures and Exchange Offer
On October 22, 1996, the Company initiated its offer to exchange Common Stock,
$.002 par value per share ("Common Stock"), and 14 percent cumulative
convertible Preferred Stock,
F-20
<PAGE>
$.002 par value per share ("Preferred Stock"), for its outstanding Debentures
("Exchange Offer"). On April 8, 1997, the Exchange Offer expired, and the
Company issued an aggregate of 1.4 million shares of its Common Stock and 57,800
shares of its Preferred Stock in exchange for $7.2 million in principal amount
of Debentures. Pursuant to the Exchange Offer, the Company issued 855,205 shares
of Common Stock valued at $0.5625 per share and 57,800 shares of its Preferred
Stock valued at $100 per share in excess of the original conversion privilege
offered by these Debentures. As a result, during the year ended March 31, 1998,
the Company recorded a non-cash transaction: a conversion charge of $6.3
million, an increase to additional paid-in capital of $14.5 million, and an
increase in the Common Stock of $2,889 and Preferred Stock of $116. In addition,
accrued interest on the Debentures, totaling $1.1 million, was canceled.
During the 12 months ended March 31, 1998, and excluding the Exchange Offer, the
Company repurchased Debentures representing $8.9 million in combined principal
amount and accrued interest for $5.7 million in cash, which resulted in a gain
of $3.2 million.
As a result of the Exchange Offer and the subsequent Debenture repurchases, the
balance of Debentures and interest on March 31, 1998, were $7.2 million in
principal and $1.7 million in interest. All outstanding principal became due on
the remaining Debentures on September 19, 1997; however, this payment was not
made. Effective March 5, 1999, in conjunction with the Company's Plan, all
remaining Debentures, and any interest accrued thereon, were canceled.
(5) Option to Purchase ITB Shares
The Option - In August 1997, the Company was granted an Option to purchase up to
- ----------
an approximately 25 percent equity interest (the "ITB Shares") in International
Thoroughbred Breeders, Inc. ("ITB"), for $4.00 per share from NPD, Inc. ("NPD"),
an affiliated company, controlled by Nunzio P. DeSantis and Anthony Coelho, one
of the Company's directors. As consideration for this Option, which was to
expire on August 29, 1999, the Company paid NPD $0.2 million and issued it a
contingent note for $2.3 million. This note accrued interest at 10 percent per
annum and was to be due July 9, 1999. ITB owned and operated Garden State Park
and Freehold Raceway in New Jersey (horse racing tracks) and owns the former El
Rancho Casino property in Las Vegas, Nevada.
Related Loan Transaction - In a related transaction, the Company loaned $3.0
- ------------------------
million to NPD. This loan accrued interest at 10 percent per annum and was
payable on July 9, 1999. It was secured by the ITB Shares, subject to a prior
lien to the seller of the ITB Shares as security for NPD to pay the balance of
the purchase price for the ITB Shares. The Company also guaranteed up to $2.0
million of NPD's obligation to pay the remaining portion of the purchase price
to the seller of the ITB Shares, and deposited $2.0 million into a cash
collateral account to secure the guarantee.
Related Litigation - On June 5, 1998, the Company filed an adversary claim with
- ------------------
the New Mexico Bankruptcy Court against NPD. The NPD claim sought, among other
things, the return
F-21
<PAGE>
of the $2.0 million escrow deposit (plus interest), NPD's payment of the $3.0
million NPD loan (plus interest), the cancellation of the Option, and the
corresponding cancellation of the Company's obligations under the NPD note. The
Company was also involved in litigation concerning ITB in Delaware Chancery
Court. It addressed many issues outside the scope of the Company's concern but
included the foregoing issues in the New Mexico Bankruptcy Court.
In September 1998, the Bankruptcy Court approved a settlement of the New Mexico
NPD adversary case, and, in October 1998, the Chancery Court approved a
settlement in the Delaware ITB case. In connection with these settlements, the
Company's option to purchase the ITB Shares and the $0.4 million ($2.3 million
contingent) note payable to NPD were canceled; the $2.0 million escrow deposit
(plus interest) was returned to the Company; and $2.3 million of the $3.0
million loan made to NPD was paid to the Company. As a result, the Company
recognized a loss associated with this transaction of approximately $1.4 million
during 1999. This loss, however, does not recognize the potential offsets that
may result from the Company's rights to a portion of the funds that NPD may
receive from the possible sale of ITB's Las Vegas real estate. Also pursuant to
the settlement agreement, the Company has assumed ITB's office lease in
Albuquerque, New Mexico.
On January 29, 1999, this settlement was consummated, and $4.4 million in cash
was received. Effective with the consumation of the settlement, and with the
exception of the potential receipt of funds from the sale of the Las Vegas real
estate, the Company has no further relationships with ITB. Similarly, and with
the same exception, the Company has no further legal or financial relationship
with NPD, Inc.
(6) Preferred Stock
In connection with the Exchange Offer (see Note 4), effective April 8, 1997, the
Company issued 57,800 shares of newly created Preferred Stock with a stated
value of $100 per share. Dividends are at an annual rate of 14 percent on the
stated value, payable quarterly, at the option of the Company, in cash, Common
Stock, Preferred Stock, or a combination thereof. Dividends must be paid on
Preferred Stock before any dividends can be paid on Common Stock.
At March 5, 1999, the effective date of the Company's Plan, dividends in arrears
on the Preferred Stock were approximately $1.6 million, or $28 per share. Under
the Plan, the Preferred Stock and any associated dividends have been cancelled
in exchange for certain rights to purchase Common Stock in the reorganized
Company (see Note 2).
(7) Discontinued Operations
One of the Company's subsidiaries, AutoLend IAP, Inc. ("IAP"), was sold on
September 18, 1996, to its departing management forming the company Auction
Finance Group, Inc. ("AFG"). The Company received full, undiscounted payment in
cash for all IAP's receivables outstanding, and also received cash payment for
the book value of equipment and fixtures used in the
F-22
<PAGE>
business. In addition, the Company received shares of IAP's Preferred Stock.
These shares of Preferred Stock had a face value of $1.0 million, bearing
interest at 11 percent. If the face value and accrued interest were not repaid
to the Company in full at the end of three years, the Company could convert the
Preferred Stock into Common Stock equal to 51 percent of IAP at the date of
conversion. At March 31, 1998, management of the Company was negotiating with
the new owners of IAP for the early repayment of the Preferred Stock. Since no
agreement has been executed, the fair value of the investment was reduced to
$250,000; this amount represents the escrow deposit available to guarantee the
redemption of the stock.
Because of the Company's need to maximize and expedite the receipt of cash for
its creditors, the Company explored the possibility of an early redemption of
its IAP securities by giving some discount as consideration for an immediate
cash payment from AFG. An amount of $600,000, plus some partial interest, was
offered by AFG, and on July 17, 1998, the Company, through its bankruptcy
counsel, received a letter indicating that such funds were on deposit and ready,
pending the Bankruptcy Court's approval of the transaction. On the same day,
the Company filed a motion with the Bankruptcy Court [the Debtor's Motion to
Approve Compromise (IAP Note)] to approve the transaction. On July 20, 1998, a
Notice of Filing was filed with the Bankruptcy Court. On August 21, 1998, the
Bankruptcy Court approved the motion. On September 30, 1998, the IAP redemption
was consummated, for which $614,560 in cash was received and a loss of $25,440
was realized by the Company.
As a result of the sale of IAP, the past results of operations of IAP have been
treated as a discontinued operation in the accompanying consolidated financial
statements. No interest expense has been allocated to discontinued operations.
Summarized results of IAP included in the accompanying consolidated financial
statements are as follows:
Fiscal Years Ended March 31:
----------------------------------------
1999 | 1998 1997
------------ | ----------- -----------
|
|
Revenue $ - | $ - $ 825,706
Net loss - | - (152,973)
Loss per common share - | - (0.03)
(8) Restricted Cash
As of March 31, 1999, $2,791,178 of the Company's cash balance was restricted
pursuant to the terms of the Company's Plan.
(9) Installment Contract Receivables
At March 31, 1999 and 1998, Installment Contract Receivables consisted of the
following:
F-23
<PAGE>
<TABLE>
<CAPTION>
1999 (1) 1998
---------------- | ----------------
|
<S> <C> | <C>
Installment contracts receivable $ 55,531 | $ 541,803
Unearned finance charges (1,736) | (80,211)
---------------- | ----------------
Installment contracts receivable, net of |
unearned finance charges 53,795 | 461,592
Collateral owned - | 22,286
Allowance for credit losses - | (187,669)
---------------- | ----------------
|
Installment contracts receivable, net $ 53,795 | $ 296,209
================ | ================
</TABLE>
A summary of the allowance for credit losses on the Installment Contracts
Receivable is as follows:
<TABLE>
<CAPTION>
Twenty-six | Eleven months Years ended March 31:
days ended | and five days -----------------------------------
March 31, | ended
1999 (1) | March 5, 1999 1998 1997
----------------------- | ----------------- --------------- ----------------
|
|
<S> <C> | <C> <C> <C>
Balance - beginning of period $ - | $ 187,669 $ 1,068,545 $ 3,995,296
Provision for losses, net of (24,000) | (375,000) (41,000) 3,625,078
recoveries |
Charge offs and adjustments 24,000 | 264,748 (839,876) (6,551,829)
----------------------- | ----------------- --------------- ----------------
Balance - end of period $ - | $ 77,417 $ 187,669 $ 1,068,545
======================= | ================= =============== ================
</TABLE>
(1) In connection with the adoption of fresh-start accounting, the allowance for
credit losses of $77,417 was reduced to zero at March 5, 1999.
Most of the Company's Installment Contract Receivables are due from consumers in
the Southeast, West, and Northeast regions of the United States. To some
extent, realization of the receivables will depend on local economic conditions.
The Company holds vehicle titles as collateral for all contracts receivable
until the contracts are paid in full.
(10) Purchased Insurance Policies
At March 31, 1999 and 1998, the face values of the policies held were $800,919
and $1,879,420, respectively. The historical cost, including capitalized
acquisition costs, of these policies at March 31, 1999 and 1998 was $639,211 and
$1,386,265, respectively. A summary of the allowance for credit losses on the
purchased insurance policies is as follows:
F-24
<PAGE>
<TABLE>
<CAPTION>
Twenty-six | Eleven months Years ended March 31:
days ended | and five days -------------------------------------
March 31, | ended
1999 (1) | March 5, 1999 1998 1997
----------------------- | ----------------- --------------- -------------------
|
|
<S> <C> | <C> <C> <C>
Balance - beginning of period $ - | $ 1,057,072 $ 925,300 $ -
Provision for recoveries, write-downs |
and valuation allowance - | (544,511) 131,772 925,300
----------------------- | ----------------- --------------- -------------------
Balance - end of period $ - | $ 512,561 $ 1,057,072 $ 925,300
======================= | ================= =============== ===================
</TABLE>
(1) In connection with the adoption of fresh-start accounting, the allowance
for credit losses of $512,561 was reduced, against the carrying cost of the
purchased insurance policies, to zero at March 5, 1999.
(11) Securities
At March 31, 1998, certain securities classified as available-for-sale were
written down to their estimated realizable values, because, in the opinion of
management, the decline in market value of those securities is considered to be
other than temporary.
No securities were classified as trading or held-to-maturity at March 31, 1999
and 1998. Investments in available-for-sale securities are summarized as
follows at March 31:
<TABLE>
<CAPTION>
1998
--------------------------------------
Corporate
Stock Option Debt
(ITB) (IAP Stock)
----------------- -----------------
<S> <C> <C>
Fair market value, beginning of period $ 625,000 $ 800,000
Permanent impairment - (160,000)
Unrealized losses (200,000) (390,000)
----------------- -----------------
Fair market value, end of period $ 425,000 $ 250,000
================= =================
</TABLE>
The stock option was cancelled on March 5, 1999 (see Note 5), resulting in a
realized loss of $200,000. On September 30, 1998, the IAP stock was redeemed
for $614,560 resulting in a realized loss of $25,440 (see Note 7). There were
no realized gains or losses on securities for the year ended March 31, 1998.
(12) Comprehensive Income
Other comprehensive income is comprised of the following:
F-25
<PAGE>
<TABLE>
<CAPTION>
Years ended March 31:
Twenty-six | Eleven months and ------------------------------
days ended | five days ended
March 31, 1999 | March 5, 1999 1998 1997
------------------ | ----------------- --------------- -------------
<S> <C> | <C> <C> <C>
|
Unrealized loss on securities: |
Loss arising during year $ - | $ - $ (590,000) $ -
Less reclassification adjustment for |
losses included in net income - | 590,000 - -
------------------ | ----------------- --------------- -------------
|
Net loss recognized in other |
comprehensive income - | 590,000 (590,000) -
------------------ | ----------------- --------------- -------------
Other comprehensive income $ - | $ 590,000 $ (590,000) $ -
================== | ================= =============== =============
</TABLE>
Comprehensive income is the total of net income plus all other changes in net
assets arising from non-owner sources, which are referred to as other
comprehensive income. An analysis of changes in components of accumulated other
comprehensive income is presented in the consolidated statement of
stockholders'equity/(deficit).
(13) Fixed Assets
For the fiscal year ended March 31, 1999, furniture and fixtures as well as
computers and software are stated at their estimated fair value as a result of
the adoption of fresh-start accounting. Depreciation is computed by using the
straight-line method over five years, the estimated useful life of the asset(s).
A summary of fixed assets and accumulated depreciation recorded for the fiscal
years ended March 31, 1999, and 1998, is as follows:
<TABLE>
<CAPTION>
1999 | 1998
------------------ | -----------------
|
<S> <C> | <C>
Furniture and fixtures $ 2,601 | $ 27,809
Computers and software 16,491 | 80,416
------------------ | -----------------
Gross book value 19,092 | 108,225
Less: accumulated depreciation (1,603) | (68,614)
------------------ | -----------------
Total net book value $ 17,489 | $ 39,611
================== | =================
</TABLE>
In connection with the adoption of fresh-start accounting, the accumulated
depreciation was reduced to zero at March 5, 1999.
(14) Income Taxes
A reconciliation of the Company's actual income tax benefit to that computed
using the United States federal statutory rate of 34 percent is as follows:
F-26
<PAGE>
<TABLE>
<CAPTION>
Years ended March 31:
Twenty-six | Eleven months and ---------------------------------------
days ended | five days ended
March 31, 1999 | March 5, 1999 1998 1997
------------------ | ----------------- --------------- ----------------------
<S> <C> | <C> <C> <C>
|
Computed "expected" tax (benefit) expense |
Increase (decrease) in income taxes $ (42,042) | $ 1,023,687 $ (1,874,012) $ (3,921,997)
resulting from: |
Non-deductible (includable) debt to |
stock conversion |
Amortization of goodwill - | (1,816,289) 2,131,472 -
Change in valulation allowances - | - - 223,225
Other (15,500) | (207,119) - -
Limitation of net operating loss 4,035 | 53,615 - -
carryforward |
Total income tax expense 53,507 | 946,106 (257,460) 3,698,772
------------------ | ----------------- --------------- ---------------------
$ - | $ - $ - $ -
================== | ================= =============== =====================
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
liabilities at March 31, 1999 and 1998, are presented as follows:
<TABLE>
<CAPTION>
1999 | 1998
------------------- | ---------------------
Deferred tax assets: |
<S> <C> | <C>
Bad debt reserve $ 29,883 | $ 91,392
Capital loss carryover 920,148 | 203,227
Net operating loss 3,565,402 | 5,617,126
Deferred compensation 62,075 | -
Valuation reserve on investment |
and insurance policies 197,849 | 487,493
------------------- | ---------------------
Subtotal: gross deferred tax assets $ 4,775,357 | $ 6,399,238
------------------- | ---------------------
|
Deferred tax liabilities: |
Other 1,700 | 18,575
------------------- | ---------------------
Subtotal: gross deferred tax $ 1,700 | $ 18,575
liabilities |
------------------- | ---------------------
|
Net deferred tax asset, before valuation |
allowance $ 4,773,657 | $ 6,380,663
Valuation allowance for deferred tax (4,773,657) | (6,380,663)
assets |
Total net deferred tax asset $ - | $ -
=================== | =====================
</TABLE>
(15) Stockholders' Equity
On July 31, 1990, the Company made a public offering of 900,000 units at $10
each, with each unit consisting of three Common Shares and three redeemable
Class A Warrants. Total proceeds from the sale of these units were $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 Option units were $500,000, less
underwriting discounts and commissions of $57,750. The underwriters also
received an additional Option to purchase 90,000 units at $12 per unit,
exercisable over two years commencing on July 31, 1993; this additional Option
expired unexercised.
F-27
<PAGE>
Each Class A Warrant entitled the registered holder to purchase one Common Share
and one redeemable Class B Warrant at an exercise price of $4.00 through its
expiration date. Each Class B Warrant entitled the registered holder to
purchase one Common Share at $7.00 from the date of issuance through its
expiration date. The Class A and Class B Warrants were subject to redemption at
$0.05 per Warrant on 30 days' prior written notice if 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. 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 At March 31, 1998, 2,555,500 Class A Warrants and
108,000 Class B Warrants were outstanding. A majority of the Warrants were due
to expire on January 31, 1998, when the Company was under the restrictions of
the Chapter 11 Bankruptcy proceeding and was thus unable to address the issue of
extending their expiration date. However, these Warrants were canceled pursuant
to the confirmed Plan of Reorganization. The holders of the Company's Class A
and B Warrants and Options have a 12-month period, beginning March 5, 1999, to
purchase the same number of shares of Common Stock as originally provided for
under the Warrants or Options at $4.00 per share.
The Company has a stock option plan under which both incentive and non-qualified
stock Options may be granted to purchase up to 4,500,000 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.
All presently outstanding Options are now exercisable at $4.00 and expire as of
March 4, 2000.
<TABLE>
<CAPTION>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999, 1998, and 1997
The options are summarized as follows:
1999 1998 1997
-------------------------------- --------------------------- -------------------------------
Weighted- | Weighted- Weighted-
# of Average | # of Average # of Average
Shares Exercise Price | Shares Exercise Price Shares Exercise Price
--------------- -------------- | ----------- -------------- ----------- --------------
<S> <C> <C> | <C> <C> <C> <C>
Outstanding at beginning of year 3,660,000 $ 0.74 | 1,100,000 $ 2.47 1,865,000 $ 2.77
Granted - - | 2,720,000 0.19 525,000 2.65
Plan of reorganization (1) (3,660,000) (0.74)| - - - -
Forfeited - - | (160,000) 3.25 (1,290,000) 2.98
--------------- ------------- | ------------ ------------- ----------- --------------
|
Outstanding at end of year - - | 3,660,000 0.74 1,100,000 2.47
|
Options exercisable at year end - - | 3,660,000 - 820,000 -
</TABLE>
(1) Under the Plan of Reorganization options outstanding as of the effective
date, March 5, 1999, have been cancelled. However, option holders have the
right to purchase the same number of shares of new Common Stock at a price of
$4.00 per share. The right to purchase new shares ends March 4, 2000.
F-28
<PAGE>
(16) Net Operating Loss Carryforwards
As of March 31, 1999, the Company had available unused capital loss carry-
forwards and operating loss carry-forwards that may provide future tax benefits,
which expire as follows:
<TABLE>
<CAPTION>
Unused Capital Federal Unused Net State Unused Net
Year of Loss Operating Loss Operating Loss
Expiration Carryforwards Carryforwards Carryforwards
- ---------------- ------------------- ------------------------------ ------------------------------
<S> <C> <C> <C>
2000 $ 1,359,000 $ - $ -
2002 1,023,000 - 6,116,000
2003 - - 220,000
2004 - - 2,939,235
2012 - 6,078,000 -
2013 - 220,000 -
2019 - 2,939,235 -
------------------- ------------------------------ ------------------------------
Total $ 2,382,000 $ 9,237,235 $ 9,275,235
=================== ============================== ==============================
</TABLE>
Capital loss carryforwards arise due to losses incurred on the disposal of
capital assets and may be used to offset future capital gains associated with
the disposal of capital assets (but may not be used to offset ordinary income).
Net operating loss carryforwards are the result of prior (and current) years'
operations, which had recorded a net loss in terms of income tax computations.
In general, operating loss carryforwards can be used to offset future operating
profits, thus negating the necessity to pay corresponding future income taxes
(until the loss carryforwards become used up or expire). Any such future
operating profits (which might realize these tax benefits) could be derived
internally, or could be derived from acquiring additional assets, or from the
purchase of another qualified business entity through the acquisition of its
stock. If there is a substantial change in ownership involved, tax benefits
could be reduced. Other limiting factors may also apply.
With the Plan now effective, net operating loss carryforwards listed above have
been reduced in total by $5.3 million due to debt forgiveness associated with
the stock offer, and the remainder is intact and usable. At a combined federal
and state corporate statutory tax rate of 38.6 percent, the remaining losses
can, in a valid situation, result in the cancellation of a requirement to pay
approximately $3.5 million in federal and state income taxes, either immediately
in one year or spread out over many years. The capital loss carryforwards have
not been reduced by the Plan. The requirements to utilize such loss
carryforwards are strict and the possibilities for usage are limited.
(17) Commitments and Contingencies
Note Payable Debenture Holders. As a result of the Debenture debt forgiveness,
uncollateralized notes aggregating $624,000 (undiscounted) were received by the
Debenture
F-29
<PAGE>
holders. These notes are payable in five equal annual payments of
$124,800. For financial statement presentation, these notes have been
discounted based on an interest rate of 6%, resulting in an unamortized discount
of $100,700. These notes have been recorded at their discounted value of
$523,300.
Securities and Exchange Commission. On February 16, 1999, the Company was
notified by its counsel that it is subject to an investigation by the Securities
and Exchange Commission (the"SEC") in connection with certain activities that
took place between September 1996 and September 1997. The Company has
cooperated fully with the staff of the SEC to aid their understanding of the
matters of concern. In this regard, the Company has provided extensive
documentation and has made its executives available for depositions. The
Company is unaware of any further requirements with respect to this issue at
this time.
Albuquerque Office Lease. On August 8, 1997, the Company relocated its
principal executive offices from 215 Central NW to 600 Central SW, Albuquerque,
New Mexico. This space was being leased from ITB on a month-to-month basis. In
February 1999, the Company assumed the ITB lease, which resulted in scheduled
lease payments of $119,220 per year for the fiscal years ending 2000 and 2001,
and $39,740 for the fiscal year ending 2002. The lease terminates on July 31,
2002, and the lease payments are $9,935 per month. Beginning August 1, 1999 and
each August 1 thereafter, the lease payments may be adjusted according to any
changes in the Consumer Price Index. The Company believes the office space is
adequate to meet its needs.
Miami Office Lease. The Company had previously leased approximately 17,000
square feet of office space in Miami Beach, Florida, under a six-year non-
cancelable lease, effective May 1994. In February 1996, the Company moved out
of these premises. At September 30, 1997, approximately 35 months of the lease
remained at a cost of $341,250 per year. On January 28, 1998, the Bankruptcy
Court approved a settlement with the landlord, dated October 31, 1997, which
released the Company from its obligations under the lease. The Company paid the
landlord $105,850 (including funds already on deposit) in complete satisfaction
of all claims. The Company had provided a lease loss accrual of $516,000 during
fiscal year 1997 for the rent payments and other lease-related expenses called
for under the lease. Because of the Bankruptcy Court-approved settlement with
the landlord, a gain on settlement of the Miami lease of $266,378 was recorded
for the fiscal year ended March 31, 1998. In September 1998, the Bankruptcy
Court approved a settlement with the sublessee for $64,725.
Rent expense for operating leases was approximately $28,000 for the fiscal year
ended March 31, 1999, compared to $14,000 for the fiscal year ended March 31,
1998, and $179,000 for the fiscal year ended March 31, 1997.
Installment Receivables. The Company is currently considering a sale of a
portfolio of installment receivables, which are non-performing and which have
been fully reserved, to an independent third party. There is also a sales- and
use-tax refund opportunity applicable to those receivables because the borrower
defaulted. The Company is currently pursuing a potential refund of some of
these taxes. The amounts relating to these events are not readily determinable,
and recovery is not certain. Therefore, these consolidated financial statements
do not reflect the potential financial impact related to these activities.
Living Benefits, Inc. Litigation. On September 12, 1996, a complaint was filed
against the Company in the United States District Court for the District of New
Mexico by Living Benefits,
F-30
<PAGE>
Inc. (the "Plaintiff"). The complaint alleges that
the Company is obligated to the Plaintiff for more than $1.6 million, with
interest at 8.75 percent from June 30, 1992, for "earn-out payments" allegedly
owed under a contract between the Plaintiff and the Company dated March 14,
1992. The Plaintiff is also seeking punitive damages for bad faith in an
undisclosed amount and attorney's fees. On December 30, 1997, the Plaintiff
filed a claim for approximately $1.7 million, plus legal fees and punitive
damages, with the Bankruptcy Court. On April 15, 1998, this suit was turned
over to the jurisdiction of the Bankruptcy Court. On January 21, 1999, the
Company and the Plaintiff reached a settlement whereby the Company would pay the
Plaintiff $1,525,000. This payment was made on March 9, 1999.
AutoLend Group, Inc. v. NPD, Inc. On June 5, 1998, the Company filed Adversary
No. 98-1136M, a complaint to recover certain transfers pursuant to 11 U.S.C.
(S)548. In the complaint, the Company has requested relief as follows:
avoidance of certain transfers from the Company to NPD, Inc., pursuant to 11
U.S.C. (S)548(a); the return to the Company of the $2.0 million deposited plus
accrued interest, in the cash collateral escrow account in connection with the
Brennan bankruptcy to secure the Company's guarantee obligation, and a
requirement that NPD release the Company from the note payable to NPD; the
return of the $200,000 cash paid to NPD for the ITB option; repayment of the
$3.0 million which the Company lent to NPD; and pre- and post-judgment interest,
costs, and attorneys fees. This adversary was settled by the Bankruptcy Court
in conjunction with the October 1998 Delaware ITB settlement, and the
corresponding January 1999 receipt of $4.4 million in cash by the Company (see
Note 5).
AutoLend Group, Inc. v. Nunzio P. DeSantis. On July 14, 1998, the Company filed
an adversary claim against Nunzio P. DeSantis to recover certain payments made
to him and for indemnity. On June 4, 1999, a Motion to Approve Compromise (the
"Motion") was filed to resolve this adversary claim. The deadline for receipt
of objections to the Motion is June 28, 1999. The Company has received no
notification of any objections as of June 23, 1999. The Motion proposes
cancellation of debts owed by the Company to Mr. DeSantis of $256,230; the
contribution to the Company by Mr. DeSantis of furniture, equipment, and
leasehold improvements with a proposed value of approximately $278,000; the
transfer of equity securities with a value of at least $500,000 by Mr. DeSantis
to the Company; and, the indemnification of Mr. DeSantis by the Company from
liability under a Non-Compete Agreement between Mr. DeSantis and a third party,
dated March 1995.
AutoLend Group, Inc. v. Jeffrey Ovington. On July 14, 1998, the Company filed
an adversary claim against Jeffrey Ovington to recover certain payments made to
him. The complaint seeks the possible return of up to $100,000. A motion to
dismiss this claim was filed, and no objection was received. This claim was
dismissed by the Court effective June 17, 1999.
AutoLend Group, Inc. v. Vincent Villanueva. On July 14, 1998, the Company filed
an adversary claim against Vincent Villanueva to recover certain payments made
to him. The complaint seeks the possible return of up to $39,647. On April 21,
1999, a motion to dismiss this claim was filed. The deadline for receipt of
objections to the motion has past with no objections filed. The Company
anticipates this claim will be dismissed in July of 1999.
F-31
<PAGE>
AutoLend Group, Inc. v. Cozen & O'Connor. On August 24, 1998, the Company filed
an adversary claim against Cozen & O'Connor, a Philadelphia-based law firm, to
recover certain payments. The complaint sought the possible return of up to
$564,000. On March 4, 1999, a motion was filed to settle this claim by virtue
of the elimination of accounts payable of $38,896 due by the Company to Cozen &
O'Connor. The deadline for objections has passed, and an order was entered by
the Court approving this settlement on March 21, 1999.
AutoLend Group, Inc. v. Standard Capital Group, Inc. On August 24, 1998, the
Company filed an adversary claim against Standard Capital Group, Inc., a
California corporation, to recover certain payments. The complaint sought the
possible return of up to $189,000. This claim was settled, after due notice by
approval of the Court on May 27, 1999. In connection therewith, the Company has
received payment of $37,200.
Florida Tax Claim. On November 24, 1998, the State of Florida Department of
Revenue asserted a tax claim under Chapter 199 of the Florida Statutes for the
period June 30, 1994 through June 30, 1998 for Intangible Tax of $668,531, and a
claim under Chapter 220 for the period March 31, 1993 through March 31, 1997 for
Corporate Income Tax of $42,751. The claim will be litigated in Bankruptcy
Court if it cannot be settled. The Company has accrued an amount that it deems
appropriate that is far less than the asserted tax claim, based on a
recalculation of the tax according to the Florida Tax Laws and is proceeding, in
accordance with the confirmed Plan of Reorganization to liquidate the claim.
The Company is currently unable to predict with any degree of certainty the
final resolution of the matter.
F-32
<PAGE>
Schedule II
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
March 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Balance at Charged to Amount on
Beginning Costs and Fresh-start Balance
of Period Expenses Adjustment Sheet
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Description:
- ------------
Year ended March 31, 1999:
Intangible assets - accumulated amortization $ 600,000 $ - $ (600,000) $ -
Goodwill - accumulated amortization 2,708,278 - (2,708,278) -
Debt issuance costs - accumulated amortization 3,575,944 - (3,575,944) -
Year ended March 31, 1998:
Intangible assets - accumulated amortization $ 600,000 $ - $ - $ 600,000
Goodwill - accumulated amortization 2,708,278 - - 2,708,278
Debt issuance costs - accumulated amortization 3,519,501 56,443 - 3,575,944
Year ended March 31, 1997:
Intangible assets - accumulated amortization $ 600,000 $ - $ - $ 600,000
Goodwill - accumulated amortization 2,708,278 - - 2,708,278
Debt issuance costs - accumulated amortization 3,276,724 242,777 - 3,519,501
</TABLE>
S-1
<PAGE>
EXHIBIT 3.1
PAGE 1
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
INCORPORATION OF "CAPX CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-NINTH
DAY OF OCTOBER, A.D. 1991, AT 9 O'CLOCK A.M.
[SEAL APPEARS HERE]
/s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9596471
DATE: 02-25-99
<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
<PAGE>
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").
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 be
-2-
<PAGE>
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;
(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
-3-
<PAGE>
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
-4-
<PAGE>
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;
(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.
-5-
<PAGE>
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.
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
-6-
<PAGE>
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 By-laws
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 of ratification at any annual meeting of the shareholders or at any
meeting of the stockholders called for the purpose of considering any such act
or contract, and any contract 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
-7-
<PAGE>
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-laws 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
-8-
<PAGE>
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 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
-9-
<PAGE>
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 General Corporation Law of the State of Delaware as the same
may be amended and supplemented.
-10-
<PAGE>
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 28/th/ day
of October, 1991.
/s/ Marc Goldfarb
--------------------------------
Marc S. Goldfarb
Bachner, Tally, Polevoy & Misher
380 Madison Avenue
New York, New York 10017
-11-
<PAGE>
EXHIBIT 3.2
PAGE 1
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.
[SEAL APPEARS HERE] /s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9596470
DATE: 02-25-99
<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
<PAGE>
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.
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
-2-
<PAGE>
EXHIBIT 3.3
PAGE 1
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
DESIGNATION OF "AUTOLEND GROUP, INC." FILED IN THIS OFFICE ON THE TWENTY-FIFTH
DAY OF MARCH, A.D. 1997, AT 4.O'CLOCK P.M.
[SEAL APPEARS HERE]
/s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9596469
DATE: 02-25-99
<PAGE>
AUTOLEND GROUP, INC.
CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES AND PRIVILEGES OF
14% CUMULATIVE CONVERTIBLE PREFERRED STOCK
------------------------------------------
The undersigned, being the duly appointed Chairman and Chief Executive
Officer and the Secretary of AUTOLEND GROUP, INC., a Delaware corporation (the
"Corporation"), do hereby certify that the following Certificate of Designation
of Rights, Preferences and Privileges of Two Hundred Fifty Thousand (250,000)
shares of $.002 par value, 14% Cumulative Convertible Preferred Stock of the
Corporation was unanimously adopted and approved by the Board of Directors of
the Corporation at duly convened meeting on October 10, 1996.
The rights, preferences, privileges and other matters relating to the
Two Hundred Fifty Thousand (250,000) shares of $.002 par value, 14% Cumulative
Convertible Preferred Stock of the Corporation is as follows:
I. DESIGNATION. Two Hundred Fifty Thousand (250,000) shares of the
-----------
authorized Preferred Stock of the Corporation are hereby designated as "14%
Cumulative Convertible Preferred Stock, $.002 par value" ("Preferred Stock")
with the rights, preferences and privileges specified hereunder.
II. DIVIDENDS.
---------
(a) The holders of the outstanding shares of the Preferred Stock
shall be entitled to receive as and when declared by the Board of Directors,
dividends at an annual rate equal to annual interest of 14% on the Stated
Amount. Such dividends shall accrue and be payable on a quarterly basis on March
15, June 15, September 15 and December 15 of each year commencing September 15,
1996 (a "Dividend Payment Date") to the holders of record of the Preferred Stock
at the close of business on the fifteenth business day immediately preceding the
Dividend Payment Date for which the determination of holders of the Preferred
Stock is being made (a "Record Date"). Dividends shall be payable, at the option
of the Corporation, in (i) cash; (ii) shares of Common Stock, par value $.002
per share, of the Corporation ("Common Stock"); (iii) shares of Non-Voting
Common Stock, par value $.002 per share, of the Corporation ("Non-Voting Common
Stock"); (iv) shares of Preferred Stock; or (v) any combination of the
foregoing. Common Stock and Non-Voting Common Stock used for the payment of
dividends shall be valued on the basis of its Market Price as of the Record
Date. Preferred Stock used for the payment of dividends shall be valued on the
basis of its Stated Amount. Any dividend or portion thereof that is not paid on
the applicable Dividend Payment Date shall accrue and be cumulative from such
Dividend Payment Date until the date paid. No interest shall accrue on any
unpaid dividend.
(b) Unless and until all dividends on the outstanding shares of
Preferred Stock that shall have accrued and are payable
<PAGE>
as of any date shall have been paid, no dividend or other distribution may be
paid on account of any Junior Securities.
(c) The term "Stated Amount" shall mean One Hundred Dollars ($100)
for each share of Preferred Stock. The term "Junior Securities" means the Common
Stock, the Non-Voting Common Stock, any securities of the Corporation ranking on
a parity with the Common Stock and the Non-Voting Common Stock as to dividend
rights and rights on liquidation, winding up and dissolution and any other
securities of the Corporation which by their express terms are junior in right
of preference or payment to the Preferred Stock as to dividend rights and rights
on liquidation, winding up and dissolution. The term "Market Price" means, as of
any day, the average of the high and low sales prices of the Common Stock on
such day on the New York Stock Exchange or the American Stock Exchange (or if
the Common Stock shall not then be listed on either such exchange, such average
on the principal (determined by highest volume averaged for a period of twenty
consecutive business days prior to the day as to which "Market Price" is being
determined) national securities exchange (as defined in the Securities Exchange
Act of 1934, as amended) on which the Common Stock may then be listed) or, if
there shall have been no sales on such exchange or exchanges on such day, the
averages of the high and low sales prices of the Common Stock on such day on the
NASDAQ National Market System or, if the Common Stock are not included on the
NASDAQ National Market System, the average of the bid and asked prices at the
end of such day or, if the Common Stock shall not be so listed, the average of
the bid and asked prices at the end of the day in the over-the-counter market as
reported by NASDAQ, as reported by the National Quotation Bureau, Inc. or any
successor organization, in each such case, averaged for a period of 20
consecutive business days prior to the day as to which "Market Price" is being
determined.
III. VOTING RIGHTS. Except as otherwise required by law, a holder of
-------------
Preferred Stock shall not be entitled to vote on any matter upon which a holder
of Common Stock or other capital stock of the Corporation is entitled to vote,
nor shall a holder of Preferred Stock be entitled to receive notice of any
meeting of stockholders of the Corporation in accordance with the By-Laws of the
Corporation.
IV. CONVERSION.
----------
(a) The Corporation shall have the right, at its sole option and in
its sole discretion, to cause the conversion in whole or in part of the
outstanding shares of Preferred Stock (the "Conversion Right"), at any time from
and after the date of initial issuance of the Preferred Stock until the
Redemption Date, if any, into such number of fully-paid and non-assessable
shares of Non-Voting Common Stock (other than fractional shares, which shall be
disregarded for all purposes) as shall be determined for each share of Preferred
Stock being converted by dividing (i) the sum of the Stated Amount plus all
accrued and unpaid dividends by (ii) the Market Price for the Non-Voting Common
Stock, or, if there shall
-2-
<PAGE>
then be no Market Price for the Non-Voting Common Stock, then the Market Price
for the Common Stock determined in accordance with clause (c) of Article II
hereof within fifteen (15) days from the date notice of conversion is given in
accordance with clause (d) of this Article IV. Under no circumstances shall the
holders of the Preferred Stock have the right, at their option, to convert the
shares of Preferred Stock held by them into shares of Non-Voting Common Stock or
Common Stock.
(b) In the event of the conversion of only a part of the then
outstanding shares of Preferred Stock, the Corporation shall effect such
conversion pro rata among the outstanding shares of Preferred Stock based upon
the number of shares held by each holder thereof.
(c) In the event the Corporation shall merge, consolidate or take any
other similar action in which the Non-Voting Common Stock shall be exchanged for
securities or assets, whether of the Corporation or of another entity, the
Preferred Stock shall be convertible into such other securities or assets as if
the Preferred Stock had been converted into Non-Voting Common Stock immediately
prior to such merger, consolidation or such other similar action.
(d) If the Corporation exercises its Conversion Right pursuant to
clause (a) of this Article IV, all holders of record of shares of Preferred
Stock shall be given written notice not less than thirty (30) nor more than
sixty (60) days from the date on which the Corporation shall exercise its
Conversion Right (the "Conversion Date"). Such notice shall specify the
Conversion Date, the number of shares of Non-Voting Common Stock into which each
share of Preferred Stock is convertible, and the place designated for exchanging
shares of Preferred Stock for shares of Non-Voting Common Stock. On or before
the Conversion Date, each holder of preferred Stock shall surrender his
certificate or certificates for all such shares to the Corporation or the
transfer agent at the place designated in such notice, and thereafter shall
receive certificates for the number of shares of Non-Voting Common Stock to
which such holder is entitled as determined in accordance with clause (a) of
this Article IV. Immediately after the Conversion Date, all certificates
representing shares of Preferred Stock and shall be deemed cancelled by the
Corporation, and any holder of preferred Stock who fails to deliver his
certificate or certificates for Conversion shall be entitled only to receive
shares of Non-Voting Common Stock to which such holder would be entitled had
delivery of his certificate or certificates been surrendered for conversion on
or prior to the Conversion Date.
(e) The Corporation shall undertake to amend its Certificate of
Incorporation, subject to obtaining requisite Stockholder approval, to authorize
a class of Non-Voting Common Stock which shall have such characteristics and
benefits as are afforded the Common Stock other than the right to vote. In the
event the Corporation shall not have authorized a class of Non-Voting Common
Stock on or prior to the Conversion Date, the
-3-
<PAGE>
Preferred Stock shall be converted into fully-paid and non-assessable shares of
Common Stock in lieu of Non-Voting Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued Non-Voting
Common Stock or Common Stock, as the case may be, solely for issuance upon
conversion of shares of Preferred Stock as herein provided, such number of
shares of Non-Voting Common Stock or Common Stock, as the case may be, as shall
be issuable from time to time upon the conversion of all of the shares of
Preferred Stock at that time issued and outstanding.
V. REDEMPTION.
----------
(a) The Corporation may at any time it may lawfully do so, at its sole
option and in its sole discretion, redeem in whole or in part the Preferred
Stock by paying in cash therefor a sum equal to the Stated Amount per share of
Preferred Stock, together with any declared but unpaid dividends on such shares
up to the Redemption Date (such total amounts are hereinafter referred to as the
"Redemption Price").
(b) (i) In the event of any redemption of only a part of the then
outstanding Preferred Stock, the Corporation shall effect such redemption pro
rata among the outstanding shares of Preferred Stock based upon the number of
shares held by each holder thereof.
(ii) At least thirty (30) days, but no more than sixty (60) days
prior to the date fixed for any redemption of the Preferred Stock (the
"Redemption Date"), written notice shall be given to each holder of record of
the Preferred Stock to be redeemed, notifying such holder of the redemption to
be effected, specifying the number of shares to be redeemed from such holder,
the Redemption Date, the Redemption Price, the place at which payment may be
obtained and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Except as provided in
subsection (b) (iii) of this Article V, on or after the Redemption Date, each
holder of Preferred Stock to be redeemed shall surrender to the Corporation his
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price
of such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(iii) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates), shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
-4-
<PAGE>
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally available for redemption of
shares of Preferred Stock on any Redemption Date are insufficient to redeem the
total number of shares of Preferred Stock to be redeemed on such date, those
funds which are legally available will be used to redeem the maximum possible
number of such shares ratably among the holders of such shares to be redeemed.
The shares of Preferred Stock not redeemed shall remain outstanding and entitled
to all rights and preferences provided herein. At any time thereafter when
additional funds of this Company are legally available for the redemption of
shares of Preferred Stock, such funds will immediately be used to redeem the
balance of the shares which the Corporation has become obligated to redeem on
any Redemption Date but which it has not redeemed.
VI. LIQUIDATION, DISSOLUTION, ETC. In the event of any liquidation,
-----------------------------
dissolution or winding up (either voluntary or involuntary) of the Corporation,
the holders of Preferred Stock shall be entitled to receive for each share of
Preferred Stock then held, after payment by the Corporation of all sums due
creditors, an amount equal to the Stated Amount plus all declared but unpaid
dividends before any amount shall be paid to holders of Junior Securities. If
the assets and funds thus distributable among the holders of Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of Preferred Stock in proportion to the amount of such stock
owned by each such holder. After such payment shall have been made in full to
the holders of Preferred Stock, the Preferred Stock shall not be entitled to
receive any remaining assets or funds of the Corporation.
VII. MISCELLANEOUS.
-------------
(a) The Preferred Stock is not entitled to any preemptive or
subscription rights in respect of any securities of the Corporation.
(b) Whenever holders of Preferred Stock are entitled to receive
notice from the Corporation by reason of the terms set forth herein, notice
shall be given by first-class mail, postage prepaid to each holder of record at
the close of business on the business day next preceding the day on which notice
is given, at the address last shown on the records of the Corporation for each
holder or given by such holder to the Corporation for the purpose of notice or
if no such address appears or is given, at the place where the principal
executive office of the Corporation is located.
(c) Except as may otherwise be required by law, the shares of
Preferred Stock shall not have any powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this Certificate and in the Certificate of Incorporation.
-5-
<PAGE>
(d) The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
(e) If any voting powers, preferences and relative, participating,
optional and other special rights of the Preferred Stock and qualifications,
limitations and restrictions thereof set forth in this Certificate are invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of the Preferred Stock and qualifications,
limitations and restrictions thereof set forth in this resolution (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable voting powers, preferences and relative, participating, optional
and other special rights of the Preferred Stock and qualifications, limitations
and restrictions thereof shall, nevertheless, remain in full force and effect,
and no voting powers, preferences and relative, participating, optional or other
special rights of the Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any other
such voting powers, preferences and relative, participating, optional or other
special rights of the Preferred Stock and qualifications, limitations and
restrictions thereof unless so expressed herein.
The undersigned Chairman and Chief Executive Officer and the Secretary
of AutoLend Group, Inc. hereby make this Certificate, declaring and certifying
that this is the duly authorized act and deed of the Corporation and the facts
herein stated are true, and accordingly, have hereunto set their hand on this
24/th/ day of March, 1997.
AUTOLEND GROUP, INC.
By: /s/ Nunzio P. DeSantis
-------------------------------
Nunzio P. DeSantis, Chairman
and Chief Executive Officer
Attest:
/s/ E. Gerald Riesenbach
- -------------------------------
E. Gerald Riesenbach, Secretary
-6-
<PAGE>
EXHIBIT 3.4
CAPX CORPORATIONCAPX 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
(herein called the "Corporation") for the election of directors and for the
transaction of such other business as may come before the meeting shall be
held 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 shall 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 shall 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 than sixty (60) days
before the date of such meeting, and, if mailed, it shall be directed to
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 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
<PAGE>
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 foregoing, any person chosen by a
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 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 share of such stock standing in his name
on the record of stockholders of the Corporation on the date fixed by the
Board as the record
-2-
<PAGE>
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.
--------------------
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 a 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
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,
-3-
<PAGE>
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 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, Qualifications, 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.
-4-
<PAGE>
Section 3. Place of Meetings.
-----------------
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 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.
-5-
<PAGE>
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 as 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 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
-6-
<PAGE>
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 thereof.
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 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.
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 meeting, 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 her in shall be
deemed to
-7-
<PAGE>
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 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.
-8-
<PAGE>
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 committees 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 shall perform the duties of
controller if no one is elected to that office.
Section 9. The Secretary.
-------------
The Secretary shall
-9-
<PAGE>
(a) keep or cause to be kept in one or more books provided for
that 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 from 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 shall not
have any vote in the determination of the amount of compensation paid to
him.
ARTICLE V
INDEMNIFICATION
Section 5.1. 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
-10-
<PAGE>
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 less 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 5.2. 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 5.3. 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 claimant was not entitled to the requested
indemnification or payment of expenses under applicable law.
Section 5.4. 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 5.5. 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 5.6. 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.
-11-
<PAGE>
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.
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. Checks, 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.
-12-
<PAGE>
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 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.
-13-
<PAGE>
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
bear 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 certificates, and the 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 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,
-14-
<PAGE>
or the issuance of any 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 held; (2) the record date for determining
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 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.
-15-
<PAGE>
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.
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 By-Laws, 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 By-Laws, 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 is or are interested in
or is a Director or officer or are Directors or officers
-16-
<PAGE>
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 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.
-17-
<PAGE>
EXHIBIT 10.1
BERGER BRIGGS REAL ESTATE & INSURANCE, INC.
215 THIRD STREET, S.W.-P.O. DRAWER K
ALBUQUERQUE, NEW MEXICO 87103
(505)247-0444
Lease
This Indenture, made this 10/th/ day of July, 1997, by and between 600
Central Partners, hereinafter, whether singular or plural, masculine, feminine,
or neuter, designated as "Landlord", which expression shall include Landlord's
heirs, executors, administrators, assigns, and successors in interest, and
International Thoroughbred Breeders, Inc., hereinafter, whether singular or
plural, masculine, feminine, or neuter, designated as "Tenant", which expression
shall include all Tenants, jointly and severally, and shall include Tenant's
heirs, executors, administrators, assign, and successors in interest,
WITNESSETH:
I. DEMISE OF PREMISES. Landlord, for and in consideration of the covenants and
agreements herein contained to be kept and performed by Tenant, Tenant's heirs,
executors, administrators, assigns, and successors in interest, and upon the
terms and conditions herein contained, does hereby let, lease and demise to
Tenant the following-described premises situate in Albuquerque, in the County of
Bernalillo, State of New Mexico, to-wit: Suite 300 (the entire third floor) at
the Quickel Building, located at 600 Central SW, containing approximately 9,935
square feet of rentable space, as shown on attached Exhibit A.
Landlord agrees, prior to commencement of the Lease, at Landlord's sole
expense, to perform the work described and illustrated in detail on the attached
Exhibit A. If additional alterations are required by Tenant and the cost to
Landlord for remodeling exceeds $90,000, then such cost for additional
alterations will be borne solely by Tenant and any delays due to additional
alterations will not suspend commencement of the lease.
Parking: Included in the monthly rental stated below, Tenant shall have the
-------
exclusive use of seven (7) parking spaces in the enclosed, covered parking
structure and seven (7) parking spaces in the adjacent surface parking lot.
II. TERM OF LEASE. The term of this lease shall be for a period of five (5)
years, commencing August 1, 1997 and ending July 31, 2002. If the first day of
occupancy occurs other than August 1, 1997, rent will be prorated at $286.00
per day.
III. RENT. Tenant, for and in consideration of this Lease and the demise of the
said premises by Landlord to Tenant, hereby agrees and covenants with Landlord
to pay as rent and deposit for the said premises, without notice or demand in
the following manner, to-wit:
A minimum of Five Hundred Ninety-Seven Thousand Nine Hundred Seventy and
no/100 Dollars ($597,970.00) with CPI adjustments to be calculated as stated
below. Upon execution of this Lease Tenant shall pay $18,580.00; $10,000.00 -
---------- ----------
representing lease deposit to be held
Landlord Initial D.P. Tenant Initial J.Z.
------ ------
1
<PAGE>
by Landlord during the term of this lease to guarantee performance of all
covenants and conditions of this Lease. Said deposit shall be refunded in whole
or in part depending on the condition of the premises at the expiration of the
term and upon Tenant's full performance of all covenants and conditions
contained herein; the balance of $ 8,580.00 represents advance payment of
----------
August, 1997 rent. Commencing September 1, 1997 and on the first of every month
up to and including January 1, 1998, unless Tenant has expanded into the entire
leased space, Tenant shall pay $ 8,580.00 as advance monthly rent for the
----------
occupied portion of the leased premises. Commencing no later than February 1,
1998 and on the first of every month up to and including July 1, 1999, Tenant
shall pay $ 9,935.00 as advance monthly rent for the entire third floor. The
----------
advance monthly rent will be adjusted as of August 1, 1999 and annually
thereafter by the percentage change in the Consumer Price Index (CPI), All Urban
Consumers, U.S. Cities Average, all items, between the first and last months of
the immediately preceding adjustment period. In no event shall the adjusted
rental amount during any twelve-(12) month period be less than that of the
immediately preceding twelve (12) month period. At such time as the adjusted
rent amount can be determined, Tenant shall immediately pay to Landlord the
additional rent, which has accrued under this adjustment provision, and
thereafter pay the adjusted amount as advance monthly rent.
Late fee: A late charge equal to 10% of the amount that is late will be
--------
charged for any payment past 10 days from due date.
All of the rent shall be paid by Tenant to Landlord or Landlord's order in
lawful money of the United States at Berger Briggs Real Estate & Insurance, 215
------------------------------------------
Third St. SW, P.O. Drawer K. Albuquerque, NM 87103, or at such other place as
- --------------------------------------------------
Landlord may designate from time to time for this purpose.
IV. USE OF PREMISES. Tenant, for and in consideration of this lease and the
demise of the said premises by Landlord to Tenant, hereby agrees and covenants
with Landlord to use and occupy the said premises for the purpose of general
office use and for no other purpose without first obtaining the written consent
of Landlord therefore; to conform and comply with all applicable municipal,
state, and federal ordinances, laws, rules, and regulations in governing
tenant's specific use of the said premises; and not to use or suffer to be used
the said premises in any manner in contravention of any applicable municipal,
state, or federal ordinances, laws, rule, or regulation, or so as to create any
nuisance, or so as to tend to increase the existing rate of fire insurance for
the said demised premises.
V. CONDITION OF PREMISES AND REPAIRS. Tenant, for and in consideration of the
Lease and the demise of the said premises, hereby agrees and covenants with
Landlord that Tenant will examine the said premises prior to the occupancy
hereof, and will know the condition thereof, and acknowledges that Tenant
received the said demised premises in good order and condition, and that no
representation or warranty as to the condition or repair of the said premises
has been made by Landlord, and, at the expiration of the term of this Lease, or
any renewal or extension thereof, Tenant will yield up peaceably the said
premises to Landlord in as good order and condition as when the same were
entered upon by Tenant, loss by fire or
Landlord Initial D.P. Tenant Initial J.Z.
----- -----
2
<PAGE>
inevitable accident, damage by the elements, and reasonable use and wear
excepted; that Tenant will keep the said premises in good order and repair
during the term of this Lease, or any extension or renewal thereof, at Tenant's
own expense and will repair and replace promptly any and all damage caused by
tenant, its agents or invitees, including damage to glass, that may occur from
time to time; that Tenant hereby waives any and all right to have such repairs
or replacements made by Landlord or at the Landlord's expense; and that, if
Tenant fails to make such repairs and replacements promptly, or, if such repairs
and replacements have not been made within fifteen (15) days after the
occurrence of damage, Landlord may, at Landlord's option, make such repairs and
replacements, and Tenant hereby agrees and covenants to repay the cost thereof
to Landlord on demand.
Landlord and Tenant agree that Landlord shall be responsible at Landlords
sole cost and expense for repairs, replacements and maintenance to the HVAC
system, electrical/lighting, plumbing, elevator, roof, exterior windows,
building security, and any structural components of the building. Upon occupancy
of the premises by Tenant, Tenant shall be responsible for repairs and
maintenance to the interior of the leased premises, reasonable use and wear
excepted, and except for those repair and maintenance obligations which are
Landlord's responsibility as set forth herein.
VI. LIABILITY OF LANDLORD. Tenant, for and in consideration of this Lease and
the demise of the said premises, hereby agrees and covenants with Landlord that
Landlord shall not be liable for any damage to persons or property arising from
any cause whatsoever, which shall occur in any manner in or about the said
premises, and Tenant hereby agrees to indemnify and save harm-less Landlord from
any and all claims and liability for damage to persons or property arising from
any cause whatsoever, which shall occur in any manner in or about the said
premises. Further, Tenant hereby agrees and covenants with Landlord that
Landlord shall not be liable for any damage to any property or effects therein
or thereon, caused by leakage from the roof of said premises or by bursting,
leakage, or overflowing of any waste pipes, water pipes, tanks, drains, or
stationary washstands or by reason of any damage whatsoever caused by water from
any source whatsoever, and Tenant hereby agrees and covenants to indemnify and
save harmless Landlord from any and all claims and liability for any damage to
any property or effects therein or thereon, unless such damage has been caused
by landlord's negligence.
VII. LIABILITY OF TENANT. Landlord shall indemnify and save harmless Tenant
against any lost or liability arising out of Owner's, it's successors, agents or
employees negligence. No such indemnification shall be required with respect to
losses or liabilities arising by reason of the affirmative negligence of Tenant,
his successors, agents, employees or assigns. Tenant shall not be liable for any
damages to Landlord's property and effects caused by leakage from the roof,
waste and water pipes, tanks, drains, washstands or any other water sources or
structural defects.
VIII. WAIVER OF SUBROGATION. Notwithstanding anything in this Lease to the
contrary, each party hereby releases the other party, its agents and employees,
to the extent that the
Landlord Initial D.P. Tenant Initial J.Z.
----- -----
3
<PAGE>
releasing party is, or is required hereunder to be, insured under its insurance
policies, from any and all liability, for any loss or damage which may by
inflicted upon the property of such party, notwithstanding that such loss or
damage shall have arisen out of negligent or other tortious act or omission of
the other party, its agents or employees; each and every policy of property
insurance of the party so releasing shall contain a clause to the effect that
such release shall not affect the said policy or the right of the insured to
recover thereunder, or an express waiver of the insurer's right of subrogation.
IX. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS. Tenant, for and in consideration
of the Lease and the demise of the said premises, hereby agrees and convenants
with Landlord, that Tenant shall not make, or suffer or permit to be made, any
alterations, additions, or improvements whatsoever in or about the said demised
premises in excess of $500 per calendar quarter without first obtaining the
written consent, which shall not be unreasonably withheld, of Landlord therefor;
provided, however, that such consent, shall be subject to the express condition
that any and all alterations, additions, and improvements shall be done at
Tenant's own expense and in accordance and compliance with all applicable
municipal, state and federal ordinances, laws, rules, and regulations, and that
Tenant hereby covenants and agrees with Landlord that in doing and performing
such work Tenant shall do and perform the same at Tenant's own expense, in
conformity and compliance with all applicable municipal, state, and federal
ordinances, laws, rules, and regulations and that no liens of mechanics,
material men, labors, architects, artisans contractors, sub-contractors, or any
other lien of any kind whatsoever shall be created against or imposed upon the
said demised premises, or any part thereof, and that Tenant shall indemnify and
save harmless Landlord from any and all liability and claims for damages of
every kind and nature which might be made or judgments rendered against Landlord
or against said demised premises on account of or arising out of such
alterations, additions, or improvements.
X. OWNERSHIP OF ALTERATIONS, ADDITIONS, AND IMPROVEMENTS. Tenant, for and in
consideration of this Lease and the demise of the said premises, hereby agrees
and covenants with Landlord that any and all alterations, additions, and
improvements, except shelving and moveable furniture, made at Tenant's own
expense after having first obtained the written consent, if required, which
shall not be unreasonably withheld of Landlord therefore, in accordance with the
provisions contained in Paragraph IX, hereof, if attached to the walls, floors,
or premises, shall immediately vest in Landlord and all such alterations,
additions, and improvements shall remain on the said premises and shall not be
removed by Tenant at the termination of this Lease. The shelving and/or moveable
furniture, which Tenant is privileged to remove, must be removed by Tenant at
Tenant's sole expense, restoring the premises to its original conditions, on or
before the termination of the Lease.
XI. ASSIGNMENT AND SUBLETTING. Tenant, for and in consideration of this Lease
and the demise of the said premises, hereby agrees and covenants with Landlord
that neither Tenant nor Tenant's heirs, executors, administrators, assigns, or
successors in interest shall assign this Lease or sublet the said demised
premises, in whole or in part, without first obtaining the written consent,
which shall not be unreasonably withheld, of Landlord therefor;
Landlord Initial D.P. Tenant Initial J.Z.
----- -----
4
<PAGE>
that no assignment of this Lease or any subletting of the said demised premises,
in whole or in part, shall be valid, except by and with the written consent of
Landlord first obtained, which shall not be unreasonably withheld; that the
consent of Landlord to any such assignment or subletting shall not operate to
discharge Tenant, or any one of them, or Tenant's heirs, executors,
administrators, assigns or successors in interest from their liability upon the
agreements and covenants of this Lease,and Tenant, Tenant's heirs, executors,
administrators, assigns, and successors in interest shall remain liable for the
full and complete performance of all of the terms, conditions, covenants, and
agreements herein contained; that any consent of Landlord to any such assignment
or subletting shall not operate as a consent to further assignment or subletting
or as a waiver of this covenant and agreement regarding assignment and
subletting; and that following any such assignment or subletting, the assignee
and/or sublet shall be bound by all of the terms, conditions, covenants, and
agreements herein contained including the covenant regarding assignment and
subletting. Landlord and Tenant hereby grant Nunzio P. DeSantis and/or assigns
an option to assume this Lease under the same terms and conditions contained
herein.
XII. UTILITY AND OTHER CHARGES. Landlord and Tenant agree that the leased
premises is offered on a "full service" basis, including all utilities and
janitorial service five (5) days weekly, Monday through Friday. Tenant hereby
agrees and covenants with Landlord to pay promptly other charges including but
not limited to telephone, television and other services, which may be incurred
in connection with Tenant's use of the said premises, and to save harmless
Landlord therefrom. Landlord and Tenant agree that no additional charges will be
assessed for normal after hours and weekend use of the HVAC system. If after
hours use becomes excessive, Landlord reserves the right to negotiate with
Tenant for reasonable charges for any future after hours and weekend use.
XIII. LANDLORD'S RIGHT OF ENTRY AND TO MAKE ALTERATIONS, ADDITIONS, AND
IMPROVEMENTS. Tenant, for and in consideration of the Lease and the demise of
the said premises, hereby agrees and covenants with Landlord that Landlord,
Landlord's heirs, executors, administrators, assigns, agents, attorneys, and
successors in interest shall have the right at any time upon reasonable advance
notice to Tenant, to enter upon the said premises to inspect the same and to
make any and all improvements,alterations, and additions of any kind whatsoever
upon the said premises, providing such improvements, alterations, and additions
are reasonably necessary or convenient to which the said premises are being put
at the time, but at no time shall Landlord be compelled or required to make any
improvements alterations, or additions. However, Landlord shall not unreasonably
disrupt Tenant in exercising the rights as above. Landlord covenants that Tenant
upon performing all of its covenants, agreements and conditions of this lease,
shall have quiet and peaceful possession of the premises as against anyone
claiming by or through Landlord.
XIV. TAXES, OTHER ASSESSMENTS, AND INSURANCE. Tenant and Landlord hereby
covenant and agree that all taxes and other assessments of whatsoever kind and
nature which have been or may be levied upon the said demised premises and upon
any alterations, additions, and improvements thereon shall be paid by Landlord
at the time when the same shall
Landlord initial D.P. Tenant initial J.Z.
----- -----
5
<PAGE>
become due and payable, and that all taxes and other assessments of whatsoever
kind and nature which have been or may be levied upon the personal property
located upon the said demised premises shall be paid by Tenant at the time when
the same shall become due and payable. Tenant, for and in consideration of this
Lease and the demise of the said premises, hereby agrees and covenants with
Landlord to carry and maintain in full force and effect during the term of this
Lease and any extension or renewal thereof at Tenant's expense public liability
insurance covering bodily injury and property damage liability, in a form and
with an insurance company acceptable to Landlord, with single limit coverage of
not less than $1,500,000.00, for the benefit of both Landlord and Tenant as
protection against all liability claims arising from the premises, causing
Landlord to be named as an additional-named insured on such policy of insurance,
and delivering a copy thereof to Landlord. Fire and extended coverage insurance
upon all buildings, residences, alterations, additions, and improvements upon
the said premises shall be provided for by Landlord, and fire and extended
coverage insurance upon all of the contents and other personal property situated
upon the said premises shall be provided for by Tenant.
XV. HOLDING OVER. Tenant, for and in consideration of this Lease and the demise
of the said premises, agrees and covenants with Landlord than no holding over by
Tenant after the expiration of this Lease, or any renewal or extension thereof,
whether with or without the consent of Landlord, shall operate to extend or
renew this Lease, and that any such holding over shall be construed as a tenancy
from month to month at the monthly rental which shall have been payable at the
time immediately prior to when such holding over shall have commenced and such
tenancy shall be subject to all the terms, conditions, covenants, and agreements
of this Lease.
XVI. BANKRUPTCY AND CONDEMNATION. Tenant, for and in consideration of the Lease
and the demise of the said premises, hereby agrees and covenants with Landlord
that should Tenant, or any one of them, make an assignment for the benefit of
creditors or should be adjudged a bankrupt, either by voluntary or involuntary
proceedings, or if otherwise a receiver should be appointed by any court of
competent jurisdiction for Tenant because of any insolvency, the occurrence of
any such event shall be deemed a breach of this Lease, and, in such event,
Landlord shall have the option to forthwith terminate this Lease and re-enter
the said demised premises and take possession thereof, whereupon Tenant shall
quit and surrender peaceably the said demised premises to Landlord. In no event
shall this Lease be deemed an asset of Tenant, or any one of them, after
adjudication in bankruptcy, the appointment of a receiver, or the assignment for
the benefit of creditors. Further, Tenant hereby covenants and agrees with
Landlord that in the event the said demised premises, or any part thereof, are
taken, damaged consequentially or otherwise, or condemned by public authority,
this Lease shall terminate, as to the part so taken, as of the date title shall
vest in the said public authority, and the rental reserved shall be adjusted so
that Tenant shall be required to pay for the remainder of the term that portion
of the rent reserved in the proportion that the said demised premises remaining
after the taking, damaging, or condemnation bears to the whole of the said
demised premises before taking, damaging, or condemnation. All damages and
payments resulting from the said taking, damaging, or condemnation of the said
Landlord Initial D.P. Tenant Initial J.Z.
----- -----
6
<PAGE>
demised premises shall accrue to and belong to Landlord, and Tenant shall have
no right to any part thereof. If more than 30% of the leased premises becomes
unavailable for use for more than 30 calendar days from written notice due to
fire, flooding, condemnation or other event causing the property to be
uninhabitable, Tenant shall have the right to cancel this Lease in its entirety
with written notification to Landlord.
XVII. DESTRUCTION. Tenant, for and in consideration of the Lease and the demise
of the said premises, agrees and covenants with Landlord that if at any time
during the term of this Lease, or any extension or renewal thereof, the said
demised premises shall be totally or partially destroyed by fire, earthquake, or
other calamity, then Landlord shall have the option to rebuild or repair the
same, provided such rebuilding or repairing shall be commenced within the period
of thirty days after notice in writing to Landlord of such destruction or
damage, and to rebuild or repair the same in as good condition as they were
immediately prior to such calamity. In such case, a just and proportionate part
of the rental herein specified shall be abated until such demised premises shall
have been rebuilt and repaired. In case, however, Landlord shall within thirty
days following notice in writing to him of such damage elect not to rebuild or
repair said premises, Landlord shall so notify Tenant and, thereupon, this Lease
shall terminate and become null and void.
XVIII. SIGNS. Landlord and Tenant covenant and agree that Tenant may at
Tenant's own expense erect and maintain a sign or signs to carry out the purpose
for which Tenant is leasing the said demised premises provided, however, the
location, type and design of all exterior signs shall be first approved in
writing by Landlord, which shall not be unreasonably withheld. Upon the
expiration of this Lease, or any renewal or extension thereof, Tenant shall
remove such sign or signs, and shall repair any damage to the premises caused
thereby at Tenant's sole expense. Further, at any time within thirty days prior
to the termination of this Lease, or any renewal or extension thereof, Landlord
shall have the right to place upon any part of said demised premises any "For
Rent" or "For Lease" signs that Landlord may select.
XIX. TERMINATION AND REMEDIES. It is understood and agreed between Landlord
and Tenant that if the rent specified above, or any part thereof, shall be in
arrears or unpaid on the day of payment, then Landlord will give Tenant ten (10)
days written notice to cure such default.
It is understood and agreed between Landlord and Tenant that if default
shall be made in any of the covenants or agreements contained in this Lease,
other than rent, Landlord will give Tenant thirty (30) days written notice
unless Landlord and Tenant mutually agree to extend such period, to cure such
default. If Tenant shall remain in possession of the premises after the above
required notice period, and such default has not been cured, it shall be lawful
for the Landlord to declare the said term ended and re-enter the premises to
expel, remove, or put out Tenant; and to repossess and enjoy the same premises
again as in its first and former state.
If at any time the term shall be declared ended at such election of
Landlord, Tenant agrees to surrender and deliver the premises peaceably to the
Landlord. If Tenant shall remain in possession of the premises after the
required notice period specified above, Tenant shall be
Landlord Initial D.P. Tenant Initial J.Z.
----- -----
7
<PAGE>
deemed guilty of a forcible entry and detainer of the premises under the laws of
the State of New Mexico and shall be subject to eviction and removal under due
process of law.
It is understood and agreed between Landlord and Tenant that at any time after
such termination the Landlord may re-lease the premises or any part thereof,
for such term and on such conditions as the Landlord, in his sole discretion,
may determine, and may collect and receive the rent thereafter. In the event
Landlord re-leases the premises, it is understood and agreed that the term may
be greater or lesser than the period which constituted the term of this Lease,
and the conditions may include free rent or other concessions which may be
reasonably required to induce another party to lease the premises. Landlord
agrees to work in good faith to release the premises to mitigate economic loss
to Landlord and Tenant.
It is also understood and agreed that no such termination of this Lease shall
relieve Tenant of its liabilities and obligations under this Lease, and such
liabilities and obligations shall survive any such termination. In the event of
any such termination, whether or not the premises have been re-leased, the total
remaining balance of the rent which would be due and payable for the remainder
of the term of this Lease, less the net proceeds of any re-leasing effected by
the Landlord, shall become due and payable as liquidated damages of Tenant's
default. The net proceeds shall be calculated as the gross dollar amount of the
new lease less any expenses Landlord incurred in re-leasing the premises
including but not limited to all repossession costs, brokerage commissions,
legal and attorney fees, alteration costs and expense of preparation for such
re-leasing.
It is understood and agreed that Tenant will pay all costs, reasonable
attorney's fees and reasonable expenses incurred by Landlord in enforcing the
covenants of this Lease. If a suit is brought by any party to this Lease to
enforce the covenants and terms of this Lease, the prevailing party shall be
entitled to reasonable attorney fees and costs to be assessed by the court.
Landlord's right of lien does not extend to personal property within the
demised premises which is leased by tenant.
XX. FAILURE TO TERMINATE. Tenant, for and in consideration of this Lease and
the demise of the said premises, agrees and covenants, with Landlord that
failure, neglect, or omission of Landlord to terminate this Lease for any one or
more breaches of any of the covenants hereof remaining unresolved, shall not be
deemed a consent by Landlord of such breach and shall not stop, bar, or prevent
Landlord from thereafter terminating this Lease, either for such violation, or
for any unresolved prior or subsequent violation of any covenant hereof.
XXI. BINDING ON HEIRS, EXECUTORS, ADMINISTRATORS, ASSIGNS, AND SUCCESSORS IN
INTEREST. It is convenanted and agreed by and between the parties hereto that
the covenants and agreements herein contained shall extend to and be binding
upon the heirs, executors, administrators, assigns, and successors in interest
of the parties to this Lease.
Landlord Initial D.P. Tenant Initial J.Z.
----- -----
8
<PAGE>
XXII. THIS LEASE EMBODIES ALL AGREEMENTS BETWEEN THE PARTIES. It is covenanted
and agreed by and between the parties hereto that this lease incorporates all of
the agreements, covenants, and understandings between the parties hereto
concerning the subject matter hereof, and that all such covenants agreements,
and understandings have been merged into this written Lease. No prior agreement
or understanding, verbal or otherwise, of the parties or their agents shall be
valid or enforceable unless embodied in this Lease.
XXIII. COMMISSION. Landlord, for and in consideration of this Lease, hereby
agrees that Berger Briggs Real Estate & Insurance, Inc. are Brokers of Record
and as such are entitled to a six percent (6%) commission, plus applicable New
Mexico State Sales Tax, to be paid by Landlord to said Berger Briggs Real Estate
& Insurance, Inc. upon occupancy by tenant and three percent (3%) commission
payable by Landlord upon the date of any renewals or extensions of this lease
which are executed between the Landlord and Tenant, unless an existing
management agreement states otherwise.
XXIV. OPTION TO RENEW. Landlord hereby grants Tenant two (2) each five (5) year
options to renew this Lease under the same terms and conditions contained herein
except rent which shall be adjusted annually thereafter by the percentage change
in the Consumer Price Index (CPI). All Urban Consumers, US Cities Average, all
items, between the first and last months of the immediately preceding adjustment
period. In no event shall the adjusted rental amount during any twelve-(12)
month period be less than that of the immediately preceding twelve-(12) month
period. At such time as the adjusted rent amount can be determined, Tenant shall
immediately pay to Landlord the additional rent, which has accrued under this
adjustment provision, and thereafter pay the adjusted amount as advance monthly
rent. Tenant must notify Landlord in writing not less than ninety (90) days
prior to the expiration of this Lease.
XXV. AMENDMENTS. It is covenanted and agreed by and between the parties hereto
that this Lease shall not be altered, changed, or amended except by instrument
in writing executed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the day and
year first above written.
600 CENTRAL PARTNERS INTERNATIONAL THOROUGHBRED
BREEDERS INC.
By: /s/ [SIGNATURE ILLEGIBLE]^^ By: /s/ Joseph Zappala
-------------------------- -----------------------
Title: Partner Name: Joseph Zappala
------------------------
By: ________________________ Title: Director
Title: ________________________
Landlord Initial D.P. Tenant Initial J.Z.
----- -----
9
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
[FLOOR PLAN APPEARS HERE]
D.P.
<PAGE>
[LETTERHEAD OF JAYNES CORPORATION GENERAL CONTRACTORS APPEARS HERE]
[LOGO OF JAYNES APPEARS HERE]
July 7, 1997
Berger Briggs
215 Third Street SW
Albuquerque New Mexico 87103
ATTN: Alan Vincioni
RE: I.T.B. Lease Space
Dear Mr. Vincioni:
Items to be included:
- --------------------
1. All labor, material, equipment and supervision for the work as described
below.
2. Demolition to include:
a. Remove approximately two hundred thirty lineal feet of existing stud
wall.
b. Remove approximately eight hundred fifty square yards of carpet.
c. Cut opening for one new window in the exterior wall.
d. Cut opening in roof for seven new skylights.
3. An allowance of Four Thousand Three Hundred ($4,300.00) has been included
for casework.
4. Furnish and install six new four foot by four foot skylights and one four
foot by eight foot skylight.
5. Reuse existing doors and hardware as possible, and install two new double
doors and hardware furnished by tenant (I.T.B.).
6. Install approximately two hundred lineal feet metal stud wall with
sheetrock on each side.
7. Install ceramic tile on new restroom floors.
8. An allowance of Eight Thousand Dollars ($8,000.00) has been included for
the cost of labor and material for the new carpet.
9. Acoustic ceiling repair as required.
10. Painting of all walls and doors has been included.
11. Install two new restrooms. Restrooms will be installed back to back.
Ceramic tile and base to be furnished and installed on floors of bathrooms.
Any additional ceramic wall tile to be installed at tenant's (I.T.B.)
expense. Contract includes installation of one set of tenant (I.T.B.)
furnished lavatory, sink and steam unit, and one set of Jaynes' furnished
lavatory and sink.
12. Electrical to include new power outlets per code requirements in the new
walls and installation of tenant (I.T.B.) furnished fixtures in lobby.
Jaynes will upgrade existing light fixtures in lobby.
Items to be excluded:
- --------------------
1. New mechanical system if required.
2. Electrical service upgrade if required. D.P.
3. Architectural and engineering fees.
4. Performance and payment bond.
<PAGE>
5. The cost of the work as specified above is Ninety Thousand Dollars and No
Cents ($90,000.00) which includes 5.8125% Gross Receipts Tax.
Should you have any questions or require any additional information please feel
free to contact me.
Respectfully,
/s/ George D. Rice
George D. Rice DP
Chief Estimator
<PAGE>
EXHIBIT 10.2
ASSIGNMENT AND ASSUMPTION OF
----------------------------
LEASE AGREEMENT
---------------
This Assignment and Assumption of Lease Agreement ("Agreement") made this
28 day of January, 1999, by and between International Thoroughbred Breeders,
Inc. ("ITB"), as Tenant, and AutoLend Group, Inc. ("AutoLend"), as Assignee.
R E C I T A L S
A. ITB, as Tenant, is party to a Lease Agreement dated July 10, 1997 (the
"Lease"), with 600 Central Partners, as Landlord.
B. ITB possesses all right, title, and interest in and to the Lease, as
tenant, and desires to assign and transfer the Lease to Assignee, and Assignee
desires to accept said assignment and transfer upon the terms and conditions
hereinafter set forth.
C. So far as is known, ITB and the Landlord have no claims against one
another by reason of said Lease.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein set forth, and other good and valuable consideration, the
receipt of which is acknowledged,
IT IS AGREED:
1. Assignment. Pursuant to Paragraph XI of the Lease, Nunzio P. DeSantis
hereby exercises the authority granted to him, and hereby designates AutoLend
Group, Inc. as Assignee. ITB hereby assigns and transfers to Assignee any and
all of ITB's right, title and interest in and to the Lease. The foregoing
assignment,
Assignor Initial CCC Assignee Initial NDS
----- -----
1
<PAGE>
assumption and transfer is made without any recourse whatsoever to ITB and
without any representation and warranties expressed or implied of any nature
whatsoever.
2. Acceptance and indemnification. Assignee hereby accepts the foregoing
assignment and transfer and promises and agrees to perform all covenants,
stipulations, agreements, and obligations under the Lease accruing on and after
the date of this Agreement. Assignee shall indemnify and hold ITB harmless from
any and all claims, demands, actions, causes of action, suits, proceedings,
damages, liabilities and costs and expenses of every nature whatsoever and
relating to the Lease or the premises demised thereunder arising on or after the
date of this Agreement.
3. Conditions. This Agreement is a requirement and is entered into in
accordance with the Order Approving Compromise (ITB Transaction) entered in the
United States Bankruptcy Court for the District of New Mexico on September 10,
1998.
4. Agreement binding. This Agreement shall be binding upon the successors
and assigns of the parties. The parties shall execute and deliver such further
and additional instruments, agreements, and other documents as may be necessary
to evidence or carry out the provisions of this Agreement.
Assignor Initial CCC Assignee Initial NDS
----- -----
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above written.
Assignor:
INTERNATIONAL THOROUGHBRED
BREEDERS, INC.
By: /s/ Christopher C. Casters
------------------------------
Name: Christopher C. Casters
------------------------
Title: Secretary
-----------------------
Assignee:
AUTHOLEND GROUP, INC.
By: /s/ Nunzio P. DeSantis,
------------------------------
NUNZIO P. DESANTIS, in his
capacity as President
/s/ Nunzio P. DeSantis,
---------------------------------
NUNZIO P. DESANTIS, Individually
3
<PAGE>
[LETTERHEAD OF AUTOLEND GROUP, INC.]
- --------------------------------------------------------------------------------
EXHIBIT 10.3
Mr. Jeff Ovington March 30, 1999
via hand delivery
Dear Jeff:
This letter is to document and memorialize your present employment status at
Autolend. Your present position is that of Executive Vice President of our
Company, and your basic arrangements are as follows:
* base salary of $115,000 per year
* car allowance of $600 per month
* paid vacation of 4 weeks per year
* company-paid group insurance coverage for you and your immediate
family, including medical and dental
* eleven months severance pay in case of your termination for any
reason other than
1) termination for gross negligence or criminal misconduct; or
2) your quitting or voluntarily leaving of your own accord
(however, #2 does not apply if there is a change in control of
the company)
I appreciate your contribution to the company, and look forward to building it
up in the future.
Sincerely,
/s/ Nunzizo DeSantis
Nunzizo DeSantis
Chairman & CEO
CC. P. VITALE
<PAGE>
EXHIBIT 21
SUBSIDIARIES
of
AUTOLEND GROUP, INC.
1. Autolend Corporation
2. American Life Resources Group, Inc.
3. LBNM, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-05-1999
<CASH> 6,660,742
<SECURITIES> 0
<RECEIVABLES> 65,482
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,092
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,888,432
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,080
<OTHER-SE> 690,033
<TOTAL-LIABILITY-AND-EQUITY> 6,888,432
<SALES> 0
<TOTAL-REVENUES> 1,048,369
<CGS> 692,400
<TOTAL-COSTS> 1,698,089
<OTHER-EXPENSES> 1,854,946
<LOSS-PROVISION> (375,000)
<INTEREST-EXPENSE> 677,668
<INCOME-PRETAX> (2,494,059)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 5,342,026
<CHANGES> 0
<NET-INCOME> 2,847,967
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> MAR-06-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,937,937
<SECURITIES> 0
<RECEIVABLES> 98,536
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 17,489
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,197,281
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,080
<OTHER-SE> 566,382
<TOTAL-LIABILITY-AND-EQUITY> 5,197,281
<SALES> 0
<TOTAL-REVENUES> 9,322
<CGS> 0
<TOTAL-COSTS> 64,201
<OTHER-EXPENSES> 150,738
<LOSS-PROVISION> (24,000)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (123,651)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (123,651)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
