SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1996 COMMISSION FILE NUMBER 0-17832
Allstate Financial Corporation
(exact name of registrant as specified in its charter)
Virginia 54-1208450
(State of Incorporation) (I.R.S. Employer Identification No)
2700 South Quincy Street, Suite 540, Arlington, VA 22206
(address of principal executive offices) (zip code)
Registrant's Telephone Number, Including Area Code: (703) 931-2274
Indicate by the check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 and 15 of the Securities and Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
2,316,853 Common Shares were outstanding as of March 31, 1996.
<PAGE>
ALLSTATE FINANCIAL CORPORATION
FORM 10-QSB
INDEX
Page
Number
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets at March 31, 1996
and December 31, 1995 1-2
Consolidated Statements of Income Three Months Ended
March 31, 1996 and 1995 3
Consolidated Statements of Shareholders' Equity Three
Months Ended March 31, 1996 and Year Ended
December 31, 1995 4
Consolidated Statements of Cash Flows Three Months Ended
March 31, 1996 and 1995 5-6
Notes to Consolidated Financial Statements 7-9
Item 2 - Management's Discussion and Analysis of Results of
Operations and Financial Conditions 10-19
Part II.
Item 1 - Legal Proceedings 20
Item 4 - Submission of Matters To a Vote of Security Holders 21
Item 5 - Other Information 21
Item 6 - Exhibits and Reports on Form 8-K 21
Signatures 22
<PAGE>
PART I - FINANCIAL INFORMATION
<Page 1>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 734,058 $ 754,295
Receivables:
Finance, net 34,456,843 32,670,706
Purchased life insurance contracts, net 4,451,548 4,292,332
Other 2,792,662 2,756,342
Prepaid expenses 242,593 204,823
Prepaid income taxes 619,278 722,081
Deferred income taxes 893,000 893,000
----------- -----------
TOTAL CURRENT ASSETS 44,189,982 42,293,579
PROPERTY AND EQUIPMENT, Net 530,502 537,629
OTHER ASSETS 2,150,809 2,049,323
----------- -----------
$46,871,293 $44,880,531
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 440,663 $ 292,602
Notes payable 14,414,197 13,516,938
Note payable-related party 103,000 103,000
Credit balances of factoring clients 3,072,799 2,333,729
----------- ----------
TOTAL CURRENT LIABILITIES 18,030,659 16,246,269
NONCURRENT PORTION OF NOTES PAYABLE:
Related parties 58,788 58,788
Convertible Subordinated Notes 4,986,000 2,838,000
Other 7,110 7,110
----------- ----------
TOTAL LIABILITIES 23,082,557 19,150,167
----------- ----------
COMMITMENTS AND CONTINGENCIES
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<Page 2>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 2,000,000
shares with no par value; no shares
issued or outstanding - -
Common stock, authorized 10,000,000 shares
with no par value; issued and outstanding
2,316,853 shares at March 31, 1996 and
2,655,128 at December 31, 1995 40,000 40,000
Additional paid-in-capital 18,852,312 18,852,312
Treasury Stock (785,475 shares) (5,037,717) (2,871,901)
Retained Earnings 9,934,141 9,709,953
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 23,788,736 25,730,364
----------- -----------
$46,871,293 $44,880,531
=========== ===========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<Page 3>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
INCOME:
Earned discounts $2,333,820 $2,877,646
Fees and other income 551,852 406,425
---------- ----------
2,885,672 3,284,071
---------- ----------
EXPENSES:
Compensation and fringe benefits 849,055 807,480
General and administrative expense 612,069 608,238
Interest expense 355,360 258,506
Provision for credit losses 623,659 1,301,100
Commission 89,641 61,871
---------- ----------
TOTAL EXPENSES 2,529,784 3,037,195
---------- ----------
INCOME BEFORE INCOME TAXES 355,888 246,876
INCOME TAXES 131,700 91,000
---------- ---------
NET INCOME $ 224,188 $ 155,876
========== =========
NET INCOME PER SHARE $ .09 $ .05
========== =========
WEIGHTED AVERAGE NUMBER OF SHARES 2,361,461 3,102,328
========= =========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<Page 4>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995
AND THREE MONTHS ENDED MARCH 31, 1996
<CAPTION>
Common Paid in Treasury Retained
Stock Capital Stock Earnings
------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE - January 1, 1995 $40,000 $18,852,312 $ - $9,228,853
Exchange of Convertible
Subordinated Notes
for 447,200 shares
of common stock - - (2,871,901) -
Net Income - - - 481,100
------- ----------- ----------- ----------
BALANCE - December 31, 1995 40,000 18,852,312 (2,871,901) 9,709,953
Exchange of Convertible
Subordinated Notes
for 338,275 shares
of common stock - - (2,165,816) -
Net Income - - - 224,188
------- ----------- ----------- ----------
BALANCE - March 31, 1996 $40,000 $18,852,312 $(5,037,717) $9,934,141
======= =========== =========== ==========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<Page 5>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended March 31,
------------------------------
1996 1995
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 224,188 $ 155,876
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation - net 30,900 34,784
Provision for credit losses 623,659 1,301,100
Changes in operating assets and liabilities:
(Increase)/decrease in other receivables (36,320) 47,529
(Increase) in prepaid expenses
and other current assets (37,770) (51,683)
(Increase)/Decrease in other assets (101,486) 47,038
Increase in accounts payable
and accrued expenses 148,061 75,855
Increase in settlement payable - 1,400,000
(Increase)/decrease in prepaid income taxes 102,803 (293,758)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 954,035 2,716,741
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of finance receivables, including
accounts receivable, secured advances,
repurchases and life insurance contracts (44,817,066) (41,357,923)
Collection of finance receivables, including
accounts receivable, secured advances,
repurchases and life insurance contracts 42,248,054 45,320,351
Increase in credit balances of factoring
clients 739,070 179,571
Purchase of property and equipment (23,773) (69,811)
------------ ------------
NET CASH PROVIDED BY
(OR USED) BY INVESTING ACTIVITIES (1,853,715) 4,072,188
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and
other borrowings 15,824,877 11,575,275
Principal payments on line of credit
and other borrowings (14,927,618) (18,274,070)
Treasury Stock Acquisition Costs (17,816) -
------------ ------------
NET CASH PROVIDED BY OR USED
IN FINANCING ACTIVITIES 879,443 (6,698,795)
------------ ------------
INCREASE (DECREASE) IN CASH (20,237) 90,134
CASH, Beginning of period 754,295 1,763,930
------------ -----------
CASH, End of period $ 734,058 $ 1,854,064
============ ===========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<Page 6>
<TABLE>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<CAPTION>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 355,015 $ 258,506
============ ===========
Income taxes paid $ 28,897 $ 375,000
============ ===========
Supplemental Schedule of
Noncash Activities
Transfer of finance and
other receivables to
other assets $ 280,000 $ -
=========== ==========
Issuance of Convertible
Subordinated Notes in
exchange for Common Stock $ 2,148,000 $ -
=========== ==========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<Page 7>
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General. The consolidated financial statements of Allstate Financial
Corporation (the "Company") included herein are unaudited for all periods
ended March 31, 1996 and 1995; however, they reflect all adjustments which, in
the opinion of management, are necessary to present fairly the results for the
periods presented. Certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Allstate Financial
Corporation believes that the disclosures are adequate to make the information
presented not misleading. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results of
operations to be expected for the remainder of the year.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Allstate Financial Corporation's Annual Report on Form 10-KSB for
the year ended December 31, 1995.
2. Net income per share. Net income per share of common stock has been
computed by dividing net income by the weighted average number of common
shares outstanding during the periods presented. For the quarters ended March
31, 1996 and 1995, weighted average shares outstanding were 2,361,461 and
3,102,328, respectively. At March 31, 1996 and December 31, 1995 there were
23,400 and 42,167 stock options outstanding, respectively, at exercise prices
ranging from $5.375 to $14.00 per share. During the year ended December 31,
1995, 53,470 options and 0 warrants were forfeited. There were no warrants or
options exercised during 1995 or during the three months ended March 31, 1996.
3. Line of credit. As of March 31, 1996 the Company had approximately $11.6
million available under a $25.0 million secured revolving line of credit.
Borrowings under the credit facility bear interest at the bank's base rate
plus .75%. The current maturity date of this credit facility is May 13, 1997.
The Company is subject to restrictive covenants which are typical in revolving
credit facilities of this type.
As of March 31, 1996 Lifetime Options, Inc., a Viatical Settlement
Company ("Lifetime Options"), a wholly owned subsidiary of the Company, had
approximately $1 million available under a $2.0 million revolving line of
credit and an additional $130,000 available under a $4 million availability
from the Company. Lifetime Options' revolving line of credit: (i) is payable
on demand and, if no demand is made, on December 31, 1996; (ii) bears interest
at the prime rate of interest plus 1%; and (iii) is collateralized by specific
purchased life insurance contracts.
4. Convertible Subordinated Notes Payable. As of March 31, 1996, the Company
had outstanding $4,986,000 in aggregate principal amount of Convertible
Subordinated Notes issued in exchange for 785,475 shares of common stock of
the Company. The Notes (i) mature on September 30, 2000; (ii) currently bear
interest at the rate of 9.5% per annum which rate may fluctuate in accordance
with the prime rate, but may not fall below 8% nor rise above 10% per annum;
(iii) are convertible into common stock of the Company at the rate of $7.50
per
share; (iv) are subordinated to Senior Indebtedness (as defined) of the
Company and (v) were issued pursuant to an indenture which contains certain
covenants which are less restrictive than those contained in the Company's
secured revolving credit facility. Upon the occurrence of certain change of
control events, holders of the Notes have the right to have their Notes
redeemed at par.
<Page 8>
5. Certain Contingencies. The Company is a defendant in White, Trustee v.
Allstate Financial Corporation pending in the U.S. Bankruptcy Court for the
Western District of Pennsylvania. The Company provided receivables financing
and advances for Lyons Transportation Lines, Inc. ("Lyons"). Lyons was the
subject of a leveraged buy-out and subsequently filed a bankruptcy petition.
In 1991, the Lyon's trustee brought an action against the Company claiming,
inter alia, fraudulent transfer and breach of contract. A summary judgment was
granted in favor of the Company which reduced the fraudulent transfer claim by
$1.6 million. As a consequence, the remaining fraudulent transfer claim was
approximately $1,000,000. The trustee has not actively pursued the breach of
contract claim. In late 1994, the Company reached a settlement agreement with
the Lyons trustee, subject to approval by the bankruptcy court, which would
have released the Company from all claims upon the payment of $300,000. In
connection with the settlement, the Company paid and added $300,000 to the
provision for credit losses in 1994. A creditor in the bankruptcy proceeding,
Sherwin-Williams Company, objected to the proposed settlement amount and, in
March 1995, the objection was sustained by the bankruptcy court. The Company
appealed the order sustaining the objection, but in April 1996 the appellate
court exercised its discretion not to hear the appeal at that time. The
$300,000 previously paid by the Company was returned to the Company in April
1996. Management expects this litigation to resume in the District Court, but
does not believe at this time that the Company has a material exposure on the
fraudulent transfer claim in excess of the previously agreed upon settlement
amount.
In connection with the same transaction, the Company was also named in
January 1994 as a defendant in Sherwin-Williams Company v. Robert Castello et.
al. pending in the United States District Court for the Northern District of
Ohio. Sherwin-Williams is suing all parties with any involvement in the
transaction to recover damages allegedly incurred by Sherwin-Williams in
connection with the leveraged buy-out and the bankruptcy litigation arising
therefrom. Sherwin-Williams asserts that it has or will incur pension fund
liabilities and other liabilities as a result of the transaction in the
approximate amount of $11 million and has asserted claims against the Company
in that amount. The complaint seeks relief against the Company based upon a
claim of "misrepresentation" without a specific identification of the alleged
misrepresentation made by the Company. Management does not believe the
litigation will have a material effect on the financial position or results of
operations of the Company because, in management's opinion, the claims are
without merit. The Company filed a motion to dismiss the claims and a motion
to stay discovery pending a ruling on the motion to dismiss. The motion to
stay discovery was granted and, in March 1996, a federal magistrate
recommended to the District Court that the Company's motion to dismiss be
granted.
The Company is a defendant in Harold B. Murphy, Chapter 7 Trustee v.
Allstate Financial Corporation, et al. pending in the U.S. Bankruptcy Court in
the District of Massachusetts. The Company factored the accounts receivable
of Clearpoint Research Corporation ("CRC") from late 1992 through early 1993.
In July 1993 CRC filed a petition in bankruptcy, after the Company had
collected all amounts owed to it. The bankruptcy trustee has sued the Company
seeking recovery of alleged preferential transfers made during the course of
the factoring relationship. The bankruptcy trustee alleges that the Company
did not properly perfect its security interest in the accounts receivable. No
specific damage amount is specified in the complaint but it is assumed the
bankruptcy trustee is seeking recovery of the full amount of accounts
receivables collected (approximately $4 million). The Company has filed an
answer to the complaint denying the substantive allegations asserted by the
bankruptcy trustee. The Company has also filed a motion to remove the action
to federal district court. The motion is currently pending. The Company
believes it has a number of strong defenses to the complaint and intends to
vigorously defend all claims. The litigation is in a preliminary stage and
the probability of an unfavorable outcome and the potential amount of loss, if
<Page 9>
any, cannot be determined or estimated at this time.
As previously disclosed in the Company's Form 10-QSB for the quarter
ended March 31, 1995, the Company has reached a settlement with the Trustee in
the bankruptcy of Premium Sales Corporation, a former client of one of the
Company's wholly-owned subsidiaries. The settlement is intended to be a full
release of any and all claims between the Company (and its subsidiaries) and
the Trustee including, without limitation, any alleged preference liability of
the Company and its subsidiaries. The settlement was approved by the
bankruptcy court in January 1996. The settlement will become fully effective
and the settlement monies will be disbursed at the time a plan of distribution
in the Premium Sales Corporation bankruptcy is approved by the bankruptcy
court. The impact of this settlement has been reflected in the Company's
financial statements.
Except as described above, the Company is not party to any litigation
other than routine proceedings incidental to its business, and the Company
does not expect that these proceedings will have a material adverse effect on
the Company. From time to time, the Company is required to initiate
litigation to collect amounts owed by former clients, guarantors or obligors.
In connection with such litigation, the Company periodically encounters
counterclaims by defendant(s) for material amounts. Such counterclaims are
typically without any factual basis and, management believes, are usually
asserted for defensive purposes by the litigant.
6. Subsequent Event. The Company was a plaintiff in Allstate
Financial Corporation v. Comerica Bank ("Comerica"). The Company alleged that
Comerica committed intentional fraud by inducing the Company to pay Comerica
out of one of its credits, while withholding from the Company material,
negative information about that credit. On May 13, 1996, a jury found that
Comerica is not liable to the Company. Under Michigan law applicable in the
case, the Company may be liable for Comerica's legal fees and expenses, which
fees and expenses have not at this time been quantified. The adverse jury
verdict may also result in a write down of "other receivables" appearing on
the Company's balance sheet. The foregoing events could have a material
adverse effect on the Company's earnings during the second quarter of 1996.
<Page 10>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The Company's principal business is the discounted purchase of accounts
receivable, usually on a full recourse, full notification basis. In addition,
the Company also makes advances collateralized by inventory, equipment and
real estate (collectively, "Collateralized Advances"). The Company has
elected to more aggressively pursue the making of Collateralized Advances, as
it perceives the need by its targeted customers for such funding and such
funding is not readily available from many of the Company's competitors. As
of March 31, 1996, Collateralized Advances constituted approximately 26% of
the Company's portfolio of finance receivables. On occasion, the Company will
provide other specialized financing structures which satisfy the unique
requirements of the Company's clients. The Company also provides its clients
with letters of guaranty, arranges for the issuance of letters of credit for
its clients and provides other related financial services.
The Company's clients are small- to medium-sized businesses with annual
revenues typically ranging between $600,000 and $50,000,000. The Company's
clients do not typically qualify for traditional bank or asset-based financing
because they are either too new, too small, undercapitalized (or
over-leveraged), unprofitable or otherwise unable to satisfy the requirements
of a bank or traditional, asset-based lender. Accordingly, there is a
significant risk of default and client failure inherent in the Company's
business. The Company addresses these risks in various ways, including: (i)
the Company thoroughly evaluates the collateral to be made available by each
client; (ii) the Company usually collects its factored accounts receivable
directly from account debtors, which are frequently (though not always) large,
creditworthy companies or governmental entities; (iii) the Company purchases,
or takes a first priority security interest in, all accounts receivable of
each client; (iv) the Company takes, whenever available, blanket liens on all
of its clients' other assets and, when making Collateralized Advances, the
Company employs what management believes to be conservative loan-to-value
ratios based on auction or liquidation value appraisals performed by
independent appraisers; (v) the Company requires personal guaranties (either
unlimited guaranties or validity guaranties limited to the validity and
collectibility of factored accounts receivable) from its clients' principals;
(vi) the Company actively monitors its portfolio of purchased accounts
receivable, including the creditworthiness of account debtors and periodically
evaluates the value of other collateral securing Collateralized Advances and
(vii) the Company maintains loss reserves which management believes are
adequate and appropriate for its business. Notwithstanding the foregoing,
clients (and account debtors) may fail and the collateral available to the
Company (together with personal guaranties) may prove insufficient to enable
the Company to recover all amounts due in full.
Lifetime Options, a wholly-owned subsidiary of the Company, provides
financial assistance to individuals facing life-threatening illnesses by
purchasing their life insurance policies at a discount from face value. The
amount of the discount is determined by Lifetime Options based on the size of
the policy being purchased, the maximum life expectancy of the insured, the
amount of the anticipated premiums payable with respect to the policy being
purchased and the anticipated financing cost associated with purchasing and
carrying the policy. In general, the purchase price for a policy is between
55% and 85% of the benefits payable under the policy. Because most of the
life insurance policies purchased by Lifetime Options are underwritten by
highly rated insurance companies (and, in many cases, backed by state guaranty
funds), management of Lifetime Options believes that credit risk is not
material to its business.
Before purchasing each policy, Lifetime Options has each insured's
<Page 11>
medical records reviewed by at least one independent physician who provides
Lifetime Options with an opinion of the insured's life expectancy.
Historically, Lifetime Options typically required up to three independent
reviews but, based on its experience, management of Lifetime Options no longer
believes multiple medical reviews are necessary. To date, the physician
engaged by Lifetime Options has provided life expectancies which, on average,
fairly approximate actual lifespans. However, there is no assurance that the
physician engaged by Lifetime Options will in the future be able to perform as
he has in the past. If the physician engaged by Lifetime Options were to
systematically underestimate life expectancies or if life extending treatments
(or a cure) were found for AIDS (almost all of the life insurance policies
purchased by Lifetime Options to date have been purchased from individuals
with AIDS), there would be a material adverse effect on the earnings of
Lifetime Options. Lifetime Options relies on its independent physician to
assist in monitoring medical advances (and potential medical advances).
Other than Lifetime Options, none of the Company's subsidiaries is
currently engaged in business which could have a material effect on the
Company.
Competition
Continuing competition within the marketplace from banks and asset-based
lenders and newly created finance companies has encroached upon the Company's
potential client base and has negatively affected earned discounts.
Additionally, the Company continues to attract larger clients which often
increases the amount of time needed to negotiate and fund new business. Also,
Collateralized Advances require more in-depth and diverse due diligence which
can further delay the funding of new business. Nonetheless, the Company
believes that its ability to respond quickly and to provide specialized,
flexible and comprehensive financing structures to its clients enables it to
compete effectively. In order to remain competitive, however, the Company is,
where necessary and appropriate, offering lower rates than it has
historically. The Company believes that increased competition may level off
or decline somewhat over time but will for the foreseeable future continue to
exert downward pressure on pricing, especially in the Company's core factoring
business. To counter the downward pressure on pricing, the Company intends to
continue to diversify its sources of income, primarily by continuing its
emphasis on funding relationships which include (in addition to the factoring
of accounts receivable) the making of Collateralized Advances.
Historically, the Company did not expect to maintain a funding
relationship with a client for more than two years; the Company expected that
its clients would ultimately qualify for more competitively priced bank or
asset-based financing within that time period. Therefore, the Company's major
clients have tended to change significantly over time. Today, however,
because the Company is, where necessary and appropriate, offering lower rates
and making Collateralized Advances, it is possible that the duration of the
Company's funding relationships with its clients may be extended. Even if the
Company succeeds in extending the duration of its funding relationships with
its clients, there will not be a corresponding increase in non-current
assets on the Company's balance sheet. This is because it is anticipated that
the Company's funding relationships with its clients will continue to renew no
less frequently than once a year. Although the Company has historically been
successful in replacing major clients, the loss of one or more major clients
and an inability to replace those clients could have a material adverse effect
on the Company.
<Page 12>
Results of Operations
The following table sets forth certain items of income and expense for
the periods indicated and indicates the percentage relationship of each item
to total income.
<TABLE>
For the Three Months Ended March 31,
------------------------------------
1996 1995
----------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME
Earned discounts $2,333,820 80.9% $2,877,646 87.6%
Fees and other income 551,852 19.1 406,425 12.4
---------- ----- ----------- ------
TOTAL INCOME 2,885,672 100.0% 3,284,071 100.0%
---------- ----- ----------- -----
EXPENSE
Compensation and fringe benefits 849,055 29.4 807,480 24.6
General and administrative expense 612,069 21.2 608,238 18.5
Interest expense 355,360 12.3 258,506 7.9
Provision for credit losses 623,659 21.6 1,301,100 39.6
Commissions 89,641 3.1 61,871 1.9
---------- ----- ---------- -----
TOTAL EXPENSES 2,529,784 87.8 3,037,195 92.5
---------- ----- ---------- -----
INCOME BEFORE INCOME TAXES 355,888 12.4 246,876 7.5
INCOME TAXES 131,700 4.6 91,000 2.8
---------- ----- ---------- -----
NET INCOME $ 224,188 7.8% $ 155,876 4.7%
========== ===== ========== =====
NET INCOME PER SHARE $ .09 $ .05
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES 2,361,461 3,102,328
========== ==========
</TABLE>
Total Income. Total income consists of (i) earned discounts and (ii)
fees and other income. "Earned discounts" consist primarily of income from the
purchase of accounts receivable and life insurance policies and income from
Collateralized Advances. "Fees and other income" consist primarily of
application fees, commitment or facility fees, other related financing fees
and supplemental discounts paid by clients who do not sell the minimum volume
of accounts receivable required by their contracts with the Company (including
as a result of "graduating" to a lower cost source of funding).
<Page 13>
The following table breaks down total income by type of transaction for
the periods indicated and the percentage relationship of each type of
transaction to total income.
For the Three Months Ended March 31,
-----------------------------------------
1996 1995
------------------ -------------------
% of % of
Earned Total Earned Total
Income Income Income Income
---------- ------ ---------- ------
Discount on Factored Accounts
Receivable $1,183,864 41.0% $1,619,406 49.3%
Earnings on Collateralized
Advances 775,908 26.9 785,934 23.9
Earnings on Purchased Life
Insurance Policies 155,605 5.4 227,386 6.9
Other Earnings 218,443 7.6 244,920 7.5
---------- ----- ---------- -----
Total 2,333,820 80.9 2,877,646 87.6
Fees and Other Income 551,852 19.1 406,425 12.4
---------- ----- ---------- -----
Total Income $2,885,672 100.0% $3,284,071 100.0%
========== ===== ========== =====
Total income decreased 12.1% in the first three months of 1996 as
compared to the same period in 1995, from $3.3 million to $2.9 million. Earned
discounts from factored accounts receivable decreased 26.9% in the first
quarter of 1996 as compared to 1995, from $1.6 million to $1.2 million.
Earned discounts from factored accounts receivable in the first quarter of
1996 as a percentage of total factored accounts receivable purchased in the
first quarter of 1996 were 3.3%. The comparable percentage in 1995 was 4.99%,
a decrease of 33.8% from 1995 to 1996. The reduction during the first quarter
of 1996 versus 1995 in the average earned discount from factored accounts
receivable is attributable, in large part, to the timing of fundings during
the respective quarters. Stronger business flow during the middle and late
part of the first quarter of 1996 did not enable the Company to recognize the
income from that business in full during the first quarter. In contrast,
stronger business flow during the early part of the first quarter of 1995
enabled the Company to recognize the income from that business in full during
that period. The reduction during the first quarter of 1996 versus 1995 in
the average earned discount from factored accounts receivable also reflects
the downward pressure on pricing from competition in the Company's core
factoring business. In the first quarters of 1996 and 1995, earned discounts
from factored accounts receivable accounted for 41.0% and 49.3%, respectively,
of total income.
Earned discounts from Collateralized Advances decreased 1.3% in the
first quarter of 1996 as compared to the same period in 1995, from $786,000 to
$776,000. In the first quarters of 1996 and 1995, earned discounts from
Collateralized Advances accounted for 26.9% and 23.9%, respectively, of total
income. Collateralized Advances currently bear interest at a rate, on
average, of approximately 2% per month calculated generally on the highest
outstanding amount of the Collateralized Advance during the month. Earned
discounts from Collateralized Advances are required to be paid in cash monthly
in arrears. See Provision for Credit Losses below.
As of March 31, 1996 and December 31, 1995, factored accounts receivable
included on the Company's balance sheet were $27.7 million (67.3%) and $25.2
<Page 14>
million (64.5%), respectively, of gross finance receivables. As of March 31,
1996 and December 31, 1995, Collateralized Advances included on the Company's
balance sheet were $10.5 million (25.5%) and $10.8 million (27.8%),
respectively, of gross finance receivables. The Company intends to pursue its
strategy of making Collateralized Advances in conjunction with its core
factoring business.
Fees and other income increased 40.5% in the first quarter of 1996
compared to 1995 from $406,000 to $552,000. The increase in 1996 is
attributable primarily to increased application and facility fees.
Compensation and Fringe Benefits. Compensation and fringe benefits were
$849,000 (29.4% of total income) and $807,000 (24.6% of total income) in the
first quarters 1996 and 1995, respectively. Executive compensation in the
first quarter of 1996 was $295,000 (10.2% of total income) versus $237,000
(7.2% of total income) in 1995. The increase in executive compensation in the
first quarter of 1996 is attributable to salary continuation payments
associated with the termination of a key employee and costs associated with
replacing that employee.
General and Administrative Expense. In the first quarter of 1996,
general and administrative expense was $612,000 (21.2% of total income) as
compared to $608,000 (18.5% of total income) in the first quarter of 1995.
The small increase in the first quarter of 1996 was primarily attributable to
a rise in professional fees offset by decreases in licenses and taxes and
credit and filing fees. In the first quarter of 1996,professional fees were
$247,000 (8.6% of total income) as compared to $174,000 (5.3% of total income)
in the first quarter of 1995. Professional fees increased, in part, due to
on-going litigation and, in part, due to the final resolution of legal
proceedings instituted in prior years.
Interest Expense. Interest expense was $355,000 (12.3% of total income)
versus $259,000 (7.9% of total income) in the first quarter of 1996 and 1995,
respectively. The rise in interest expense is attributable to interest
expense related to the Company's Convertible, Subordinated Notes issued in
September 1995 and January 1996. Interest expense on the Convertible
Subordinated Notes was $110,000 in the first quarter of 1996. The average
daily outstanding balance on the Company's revolving lines of credit was $9.5
million and $9.8 million for the first quarters of 1996 and 1995, respectively
and the average interest rate paid on the Company's revolving lines of credit
was 9.2% in the first quarter of 1996 compared to 9.4% in the first quarter of
1995.
Provision for Credit Losses. Credit loss experience, the adequacy of
underlying collateral, changes in the character and size of the Company's
receivables portfolio and management's judgement are factors used in
determining the provision for credit losses and the adequacy of the allowance
for credit losses. Other factors given consideration in determining the
adequacy of the allowance are the level of related credit balances of
factoring clients and the current and anticipated impact of economic
conditions on the creditworthiness of the Company's clients and account
debtors. To mitigate the risk of credit loss, the Company, among other
things: (i) thoroughly evaluates the collateral to be made available by each
client; (ii) usually collects its factored accounts receivable directly from
account debtors, which are frequently (though not always) large, creditworthy
companies or governmental entities; (iii) purchases, or takes a first priority
security interest in, all accounts receivable of each client; (iv) takes,
whenever available, blanket liens on all of its clients' other assets and,
when making Collateralized Advances, it employs what management believes to be
conservative loan-to-value ratios based on auction or liquidation value
appraisals performed by independent appraisers; (v) almost always requires
<Page 15>
personal guaranties (either unlimited guaranties or guaranties limited to the
validity and collectability of factored accounts receivable) from its clients'
principals, and (vi) actively monitors its portfolio of factored accounts
receivable, including the creditworthiness of account debtors and periodically
evaluates the value of other collateral securing Collateralized Advances.
The provision for credit losses decreased from $1.3 million (39.6% of
total income) in the first quarter of 1995 to $624,000 (21.6% of total income)
in the first quarter of 1996. The Company's provision for credit losses in the
first quarter of 1995 was attributable to a settlement reached by the Company
with the bankruptcy trustee of Premium Sales Corporation, a former client of a
wholly-owned subsidiary of the Company. The settlement is intended to be a
full release of any and all claims between the Company (and its subsidiaries)
and the Trustee. The settlement was approved by the U.S. Bankruptcy Court in
January 1996 and will become fully effective at the time a plan of
distribution in the Premium Sales Corporation bankruptcy is approved by the
U.S. Bankruptcy Court.
As of March 31, 1996 and December 31, 1995 the allowance for credit
losses was 6.5% ($2.7 million) and 6.0% ($2.4 million) of gross finance
receivables, respectively. At March 31, 1996 the accrual of earnings was
suspended on $1.8 million of gross finance receivables as compared to $1.6
million of gross finance receivables at December 31, 1995. In addition,
"other receivables" and "other assets" appearing on the Company's balance
sheet typically do not accrue earnings for financial statement purposes. The
following table provides a summary of the Company's gross finance receivables
(which includes primarily factored accounts receivable, Collateralized
Advances and non-earning receivables), "other receivables" and "other assets"
and information regarding the allowance for credit losses as of the dates
indicated.
As of March 31,
------------------------
1996 1995
--------- ---------
(Dollars in thousands)
Gross Finance Receivables, Other
Receivables and Other Assets Data:
- --------------------------------------
Gross Finance Receivables $41,198 $25,969
Non-Earning Receivables (also included
in Gross Finance Receivables) 1,760 3,580
Other Receivables 2,793 3,341
Other Assets $ 1,912 $ 2,085
(excluding miscellaneous)
Allowance for credit
losses:
- --------------------------------
Balance, January 1 $2,351 $2,511
Provision for credit
losses 624 1,301
Receivables charged off (284) (1,410)
Recoveries - 15
------ ------
Balance, March 31 $2,691 $2,417
====== ======
<Page 16>
Allowance for Credit Losses
as a percent of:
- --------------------------------
Gross Finance Receivables 6.53% 9.31%
Non-Earning Receivables 152.90% 67.51%
Non-Earning Receivables, Other
Receivables and Other Assets 41.62% 26.84%
As a percent of the sum of Gross
Finance Receivables, Other
Receivables and Other Assets:
- --------------------------------
Non-Earning
Receivables 3.83% 11.40%
Other Receivables 6.08% 10.64%
Other Assets 4.17% 6.64%
Although the Company maintains an allowance for credit losses in an
amount deemed by management to be adequate to cover potential losses, no
assurance can be given that the allowance will in fact be adequate or that an
inadequacy, if any, in the allowance could not have a material adverse effect
on the Company's earnings in future periods. Furthermore, although management
believes that its periodic estimates of the value of "other receivables" and
"other assets" are appropriate, no assurance can be given that the amounts
which the Company ultimately collects with respect to other receivables and
other assets will not differ significantly from management's estimates or that
those differences, if any, could not have a material adverse effect on the
Company's earnings in future periods.
Management recognizes that Collateralized Advances entail different, and
possibly greater, risks to the Company than the factoring of accounts
receivable. Risks associated with the making of Collateralized Advances (but
not the factoring of accounts receivable) include, among others (i) certain
types of collateral securing Collateralized Advances may diminish in value
(possibly precipitously) over time (sometimes short periods of time), (ii)
repossessing, safeguarding and liquidating collateral securing Collateralized
Advances may require the Company to incur significant fees and expenses some
or all of which may not be recoverable, (iii) clients may dispose of (or
conceal) the collateral securing Collateralized Advances and (iv) clients or
natural disasters may destroy the collateral securing Collateralized Advances.
The Company attempts to manage these risks, respectively, by (i) engaging
independent appraisers to review periodically the value of collateral securing
Collateralized Advances at intervals established by management based on the
characteristics of the underlying collateral, (ii) employing conservative
loan-to-value ratios which management believes should generally enable the
Company to recover from liquidation proceeds most of the fees and expenses
incurred in connection with repossessing, safeguarding and liquidating
collateral, (iii) using its internal field examiners to inspect collateral
periodically and, when appropriate, engaging independent collateral monitoring
firms to implement appropriate collateral control systems including bonding
certain of the client's employees and (iv) requiring clients to maintain
appropriate amounts and types of insurance issued by insurers acceptable to
the Company naming the Company as the party to whom loss is paid. Although
management believes that the Company has (or third parties acting on behalf of
the Company have) the requisite skill to evaluate, monitor and manage the
risks associated with the making of Collateralized Advances, there can be no
assurance that the Company will in fact be successful in doing so.
Commissions. Commission expense was $90,000 (3.1% of total income) in
the first quarter of 1996 as compared to $62,000 (1.9% of total income) in the
first quarter of 1995. The increase was the result of a larger portion of
<Page 17>
gross finance receivables acquired in 1996 being generated by commissioned
brokers and other professionals to whom the Company paid referral fees.
Impact of Inflation
Management believes that inflation has not had a material effect on the
Company's income, expenses or liquidity during the past three years.
Changes in interest rate levels do not generally affect the income
earned by the Company in the form of discounts charged. Rising interest rates
would, however, increase the Company's cost of borrowed money based on its
current borrowing arrangements which are prime or base rate adjusted credit
facilities.
Changes in Financial Condition
The Company's total assets increased 4.4% to $46.9 million at March 31,
1996 from $44.9 million at December 31, 1994. The increase is primarily the
result of an increase in net finance receivables.
Liquidity and Capital Resources. The Company's principal funding
sources are the collection of factored accounts receivable, retained cash flow
and external borrowings.
As of March 31, 1996, the Company had approximately $11.6 million
available under a $25 million secured revolving line of credit. The credit
facility contains a $5.0 million sub-facility for the issuance of letters of
credit and, as of April 1996, a new $2 million sub-facility (which under
certain circumstances may increase to $4 million) the proceeds of which may be
used by the Company to make advances to clients secured by machinery and
equipment and a new $2.5 million sub-facility the proceeds of which may be
used by the Company to make advances to clients secured by inventory.
Borrowings under the credit facility bear interest at the bank's base rate
plus .75%. The current maturity date of this credit facility is May 13, 1997.
The Company is subject to covenants which are typical in revolving credit
facilities of this type.
As of March 31, 1996, Lifetime Options had approximately $1.0 million
available under a $2.0 million revolving line of credit and an additional
$130,000 available under a $4.0 million availability from the Company.
Lifetime Options' revolving line of credit: (i) is payable on demand and, if
no demand is made, on December 31, 1996; (ii) bears interest at the prime rate
of interest plus 1% and (iii) is collateralized by specific purchased life
insurance contracts.
As of March 31, 1996 and December 31, 1995, the Company had outstanding
approximately $4,986,000 and $2,838,000, respectively, in aggregate principal
amount of Convertible Subordinated Notes issued in exchange for shares of the
Company's common stock. The Convertible Subordinated Notes outstanding at
December 31, 1995 were issued in exchange for 447,200 shares of common stock
and the Convertible Subordinated Notes outstanding at March 31, 1996 were
issued in exchange for 785,475 shares of common stock (including the 447,200
shares of common exchanged prior to December 31, 1995). The Notes (i) mature
on September 30, 2000; (ii) currently bear interest at the rate of 9.5% per
annum which rate may fluctuate in accordance with the prime rate, but may not
fall below 8% nor rise above 10% per annum; (iii) are convertible into common
stock of the Company at the rate of $7.50 per share; (iv) are subordinated to
Senior Indebtedness (as defined) of the Company and (v) were issued pursuant
to an indenture which contains certain covenants which are less restrictive
than those contained in the Company's secured revolving credit facility. Upon
the occurrence of certain change of control events, holders of the Notes have
the right to have their Notes redeemed at par.
<Page 18>
At March 31, 1996 and December 31, 1995, the Company had working capital
of $26.2 million and $26.0 million, respectively, and a ratio of current
assets to current liabilities of 2.45 to 1 and 2.60 to 1, respectively.
Subsequent to March 31, 1996, the Company's lenders provided the Company
with a new $2.5 million inventory sub-facility and a new $2.0 equipment sub-
facility (which under certain circumstances may increase to $4.0 million), in
each case, within the Company's $25.0 million secured revolving line of
credit. The Company believes that internally generated funds and borrowings
under its current or a replacement credit facility will be sufficient to
finance the Company's future funding requirements for the near term. If,
however, an unexpectedly high portion of the Company's potential new business
includes Collateralized Advances (especially Collateralized Advances secured
by assets other than equipment), internally generated funds and borrowings
under the Company's existing credit facility may not be sufficient to fund
such new business. Under such circumstances the Company would attempt to
negotiate the borrowing base in its existing credit facility to allow the
Company to borrow greater amounts from its primary lender(s) and thereby
support the growth in Collateralized Advances. If those negotiations were
unsuccessful, there is no assurance that the Company could attract sufficient
capital to enable the Company to pursue its strategy of making additional
Collateralized Advances.
<Page 19>
PART II -OTHER INFORMATION
ITEM 1. -LEGAL PROCEEDINGS
The Company is a defendant in White, Trustee v. Allstate Financial
Corporation pending in the U.S. Bankruptcy Court for the Western District of
Pennsylvania. The Company provided receivables financing and advances for
Lyons Transportation Lines, Inc. ("Lyons"). Lyons was the subject of a
leveraged buy-out and subsequently filed a bankruptcy petition. In 1991, the
Lyon's trustee brought an action against the Company claiming, inter alia,
fraudulent transfer and breach of contract. A summary judgment was granted in
favor of the Company which reduced the fraudulent transfer claim by $1.6
million. As a consequence, the remaining fraudulent transfer claim was
approximately $1,000,000. The trustee has not actively pursued the breach of
contract claim. In late 1994, the Company reached a settlement agreement with
the Lyons trustee, subject to approval by the bankruptcy court, which would
have released the Company from all claims upon the payment of $300,000. In
connection with the settlement, the Company paid and added $300,000 to the
provision for credit losses in 1994. A creditor in the bankruptcy proceeding,
Sherwin-Williams Company, objected to the proposed settlement amount and, in
March 1995, the objection, was sustained by the bankruptcy court. The Company
appealed the order sustaining the objection, but in April 1996 the appellate
court exercised its discretion not to hear the appeal at that time. The
$300,000 previously paid by the Company was returned to the Company in April
1996. Management expects this litigation to resume in the District Court, but
does not believe at this time that the Company has a material exposure on the
fraudulent transfer claim in excess of the previously agreed upon settlement
amount.
In connection with the same transaction, the Company was also named in
January 1994 as a defendant in Sherwin-Williams Company v. Robert Castello et.
al. pending in the United States District Court for the Northern District of
Ohio. Sherwin-Williams is suing all parties with any involvement in the
transaction to recover damages allegedly incurred by Sherwin-Williams in
connection with the leveraged buy-out and the bankruptcy litigation arising
therefrom. Sherwin-Williams asserts that it has or will incur pension fund
liabilities and other liabilities as a result of the transaction in the
approximate amount of $11 million and has asserted claims against the Company
in that amount. The complaint seeks relief against the Company based upon a
claim of "misrepresentation" without a specific identification of the alleged
misrepresentation made by the Company. Management does not believe the
litigation will have a material effect on the financial position or results of
operations of the Company because, in management's opinion, the claims are
without merit. The Company filed a motion to dismiss the claims and a motion
to stay discovery pending a ruling on the motion to dismiss. The motion to
stay discovery was granted and, in March 1996, a federal magistrate
recommended to the District Court that the Company's motion to dismiss be
granted.
The Company is a defendant in Harold B. Murphy, Chapter 7 Trustee v.
Allstate Financial Corporation, et al. pending in the U.S. Bankruptcy Court in
the District of Massachusetts. The Company factored the accounts receivable
of Clearpoint Research Corporation ("CRC") from late 1992 through early 1993.
In July 1993 CRC filed a petition in bankruptcy, after the Company had
collected all amounts owed to it. The bankruptcy trustee has sued the Company
seeking recovery of alleged preferential transfers made during the course of
the factoring relationship. The bankruptcy trustee alleges that the Company
did not properly perfect its security interest in the accounts receivable. No
specific damage amount is specified in the complaint but it is assumed the
bankruptcy trustee is seeking recovery of the full amount of accounts
receivables collected (approximately $4 million). The Company has filed an
answer to the complaint denying the substantive allegations asserted by the
bankruptcy trustee. The Company has also filed a motion to remove the action
<Page 20>
to federal district court. The motion is currently pending. The Company
believes it has a number of strong defenses to the complaint and intends to
vigorously defend all claims. The litigation is in a preliminary stage and
the probability of an unfavorable outcome and the potential amount of loss, if
any, cannot be determined or estimated at this time.
As previously disclosed in the Company's Form 10-QSB for the quarter
ended March 31, 1995, the Company has reached a settlement with the Trustee in
the bankruptcy of Premium Sales Corporation, a former client of one of the
Company's wholly-owned subsidiaries. The settlement is intended to be a full
release of any and all claims between the Company (and its subsidiaries) and
the Trustee including, without limitation, any alleged preference liability of
the Company and its subsidiaries. The settlement was approved by the
bankruptcy court in January 1996. The settlement will become fully effective
and the settlement monies will be disbursed at the time a plan of distribution
in the Premium Sales Corporation bankruptcy is approved by the bankruptcy
court. The impact of this settlement has been reflected in the Company's
financial statements.
Except as described above, the Company is not party to any litigation
other than routine proceedings incidental to its business, and the Company
does not expect that these proceedings will have a material adverse effect on
the Company. From time to time, the Company is required to initiate
litigation to collect amounts owed by former clients, guarantors or obligors.
In connection with such litigation, the Company periodically encounters
counterclaims by defendant(s) for material amounts. Such counterclaims are
typically without any factual basis and, management believes, are usually
asserted for defensive purposes by the litigant.
ITEM 4. -SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. -OTHER INFORMATION
None.
ITEM 6(a). -EXHIBITS
Amendment to Exhibit 10.7 - Revolving Credit and Security Agreement
dated as of May 13, 1994, among the Company, the Lenders party thereto
and IBJ Schroder Bank & Trust Company (as Lender and as Agent), as
amended to March 4, 1996.
Ninth Amendment dated as of April 26, 1996
ITEM 6(b). -REPORTS ON FORM 8-K
None.
<Page 21>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, The Company has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ALLSTATE FINANCIAL CORPORATION
Date: May 14, 1996 Lawrence M. Winkler
------------ -------------------
Lawrence M. Winkler
Secretary/Treasurer
Chief Financial Officer
<TABLE> <S> <C>
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<CIK> 0000852220
<NAME> ALLSTATE FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 734058
<SECURITIES> 0
<RECEIVABLES> 41701053
<ALLOWANCES> 2690498
<INVENTORY> 0
<CURRENT-ASSETS> 44189982
<PP&E> 1315371
<DEPRECIATION> 784868
<TOTAL-ASSETS> 46871293
<CURRENT-LIABILITIES> 18030659
<BONDS> 0
0
0
<COMMON> 40000
<OTHER-SE> 23748736
<TOTAL-LIABILITY-AND-EQUITY> 46871293
<SALES> 0
<TOTAL-REVENUES> 2885672
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1550765
<LOSS-PROVISION> 623659
<INTEREST-EXPENSE> 355360
<INCOME-PRETAX> 355888
<INCOME-TAX> 131700
<INCOME-CONTINUING> 224188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 224188
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</TABLE>
Exhibit 10.7
NINTH AMENDMENT
TO
REVOLVING CREDIT AND SECURITY AGREEMENT
NINTH AMENDMENT ("Ninth Amendment") dated as of April 26,
1996 to (i) Revolving Credit and Security Agreement dated as of
May 13, 1994 (as amended and waived to the date hereof and as may
be further amended, supplemented, modified or waived from time to
time, the "Loan Agreement") by and among ALLSTATE FINANCIAL
CORPORATION, a corporation organized under the laws of the
Commonwealth of Virginia ("Borrower"), IBJ SCHRODER BANK & TRUST
COMPANY ("IBJS"), the other lenders party to the Loan Agreement
(IBJS, and each of the other lenders which may now or in the
future be a party to the Loan Agreement, the "Lenders") and IBJS,
as agent for the Lenders (IBJS, in such capacity, the "Agent")
and (ii) Security Agreement dated as of May 13, 1994 (as amended
and waived to the date hereof and as may be further amended,
supplemented, modified or waived from time to time, the "Security
Agreement") by and among Agent and RECEIVABLE FINANCING
CORPORATION, LIFETIME OPTIONS, INC., A VIATICAL SETTLEMENT
COMPANY, BUSINESS FUNDING OF AMERICA, INC., PREMIUM SALES
NORTHEAST, INC., BUSINESS FUNDING OF FLORIDA, INC., SETTLEMENT
SOLUTIONS, INC. and AFC HOLDING CORPORATION (each of which
individually is referred to as a "Guarantor" and, collectively,
the "Guarantors").
BACKGROUND
Borrower has requested that Agent and Lenders amend certain
provisions of the Loan Agreement and the Agent and the Lenders
are willing to do so on the terms and conditions hereafter set
forth.
NOW, THEREFORE, in consideration of any loan or advance or
grant of credit heretofore or hereafter made to or for the
account of Borrower by Lenders, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms not otherwise
defined herein shall have the meanings given to them in the Loan
Agreement.
2. Amendment to Loan Agreement. Subject to satisfaction of
the conditions precedent set forth in Section 4 below, the Loan
Agreement is hereby amended as follows:
(a) Section 1.2 of the Loan Agreement is hereby amended as
follows:
(i) the following defined terms are hereby added in their
appropriate alphabetical order:
"Additional Equipment Value Advances" shall mean the
Advances made pursuant to Section 2.2A(a) hereof.
"Additional Equipment Value Borrowing Period" shall have
the meaning set forth in Section 2.2A(a) hereof.
"Eligible Client Funded Inventory" shall have the
meaning set forth in Section 2.2B(a) hereof.
"Inventory Borrowing Base" shall have the meaning set
forth in Section 2.2B(a).
"Inventory Collateral Assignment of Security" shall mean
the agreement executed by Borrower in favor of Agent pursuant to
which all rights of Borrower under each Inventory Collateral
Funding Repayment Agreement and related documents (including all
UCC-1 Financing Statements) are collaterally assigned to Agent
for its benefit and the benefit of the Lenders.
"Inventory Collateral Funding Repayment Agreement" shall
mean an Inventory Collateral Funding Repayment Agreement and such
other agreements in substantially the forms attached hereto as
Exhibit 1.2(d) entered into between Borrower and a Client,
together with such modifications thereto as Borrower may from
time to time deem appropriate or desirable and such other
agreements to be approved by Agent in its sole reasonable
discretion; provided, however, that, no such modifications can be
made without Agent's approval following the occurrence and during
the continuance of an Event of Default, such approval not to be
unreasonably withheld.
"Inventory Value Advances" shall mean Advances made
pursuant to Section 2.2B(a) hereof.
"Inventory Value Borrowing Period" shall have the
meaning set forth in Section 2.2B(a) hereof.
"Maximum Additional Equipment Value Advance Amount"
shall mean (i) during the Additional Equipment Value Borrowing
Period, the sum of (x) $2,000,000 and (y) an amount equal to the
actual principal amount of Equipment Value Advances repaid (other
than regularly scheduled monthly amortization payments) or
prepaid during the Additional Equipment Value Borrowing Period
not to exceed $2,000,000 and (ii) on and after April 1, 1996, the
aggregate outstanding principal amount of Additional Equipment
Value Advances made pursuant to Section 2.2A.
"Maximum Inventory Value Advance Amount" shall mean
$2,500,000.
<PAGE>
"Ninth Amendment" shall mean the Ninth Amendment to
Revolving Credit and Security Agreement dated as of April 26,
1996.
"Ninth Amendment Effective Date" shall mean the date on
which all of the conditions set forth in Section 4 of the Ninth
Amendment are satisfied or waived in writing by Agent.
(ii) the following defined terms are hereby amended in
their entirety to provide as follows:
"Advances" shall mean and include, without duplication,
the Revolving Advances, the Inventory Value Advances, the
Equipment Value Advances, the Additional Equipment Value Advances
and Letters of Credit.
"Maximum Revolving Advance Amount" shall mean
$25,000,000.00 less the sum of (x) outstanding Equipment Value
Advances, (y) outstanding Additional Equipment Value Advances and
(z) outstanding Inventory Value Advances.
"Other Documents" shall mean the Revolving Credit Note,
Stock Pledge Agreements, Guaranty, Security Agreement, Collateral
Assignment of Security, Equipment Collateral Assignment of
Security, Inventory Collateral Assignment of Security and any and
all other agreements, instruments and documents, including,
without limitation, guaranties, pledges, powers of attorney,
consents, and all other writings heretofore, now or hereafter
executed by Borrower and/or delivered to Agent or any Lender in
respect of the transactions contemplated by this Agreement.
"Revolving Advances" shall mean Advances made other than
Letters of Credit but inclusive of Equipment Value Advances,
Additional Equipment Value Advances and Inventory Value Advances.
(iii) Clause (p) of the definition of "Eligible
Receivables" is hereby amended by deleting the words "15% of
Tangible Net Worth" appearing therein and inserting in lieu
thereof the words "15% of the sum of Tangible Net Worth and the
aggregate principal amount of outstanding Convertible, Senior
Subordinated Notes".
(b) Section 2.1(a) of the Loan Agreement is hereby amended
by inserting "(other than Equipment Value Advances, Additional
Equipment Value Advances and Inventory Value Advances)" after the
words "Revolving Advances" appearing in the third line thereof.
(c) Section 2.2(a) of the Loan Agreement is hereby amended
by deleting the last sentence thereof in its entirety and
inserting the following in lieu thereof:
"Any repayment (other than regularly scheduled monthly
amortization payments) or prepayment of Equipment Value
<PAGE> Advances made after the end of the Equipment
Value Borrowing Period shall be applied in inverse order
of maturity to the then remaining monthly amortization
of Equipment Value Advances."
(d) Section 2.2(b) of the Loan Agreement is hereby amended
by (x) replacing clause (ii)(1) thereof in its entirety with "(i)
the aggregate principal amount of Equipment Value Advances
outstanding shall not exceed the lesser of" and (y) by deleting
the word "and" appearing immediately before clause (ii)(2)
thereof and inserting immediately after the figure "$25,000,000"
appearing at the end thereof the following:
", and (3) the sum of the aggregate principal amount of
Equipment Value Advances outstanding and the aggregate
principal amount of Additional Equipment Value Advances
outstanding shall not exceed $4,924,167 less regularly
scheduled monthly amortization payments on and after the
Ninth Amendment Effective Date with respect to Equipment
Value Advances and Additional Equipment Value Advances".
(e) The Loan Agreement is hereby amended by inserting the
following new Sections 2.2A and 2.2B immediately after Section
2.2:
"2.2A Additional Equipment Value Advances. (a) Subject
to the terms and conditions of this Agreement, each
Lender, severally and not jointly, agrees to make loans
to Borrower ("Additional Equipment Value Advances") to
permit Borrower to make loans or advances to Clients
secured by Client Funded Equipment in aggregate amounts
outstanding at any time equal to such Lender's
Commitment Percentage of the lesser of (i) the Maximum
Additional Equipment Value Advance Amount, (ii) eighty-
five percent (85%) of the aggregate amount from time to
time outstanding of actual cash advances by Borrower to
Clients which is secured by Client Funded Equipment or
(iii) sixty percent (60%) of the liquidation value of
such Client Funded Equipment; provided, however, that
under no circumstances shall Additional Equipment Value
Advances be made against Client Funded Equipment unless
Borrower has recorded on its books and records and
actually made advances or loans to a Client pursuant to
the applicable Collateral Funding Repayment Agreement.
Additional Equipment Value Advances shall only be made
on and after the Ninth Amendment Effective Date and on
or prior to March 31, 1997 (the "Additional Equipment
Value Borrowing Period"). During the Additional
Equipment Value Borrowing Period, Borrower may use the
Additional Equipment Value Advances by borrowing,
repaying and reborrowing, all in accordance with the
terms and conditions hereof. The proceeds of each
Additional Equipment Value Advance requested by Borrower
shall, to the extent Lenders make such Additional <PAGE>
Equipment Value Advance, be made available to Borrower
on the day so requested by way of credit to Borrower's
Operating Account, or such other bank as Borrower may
designate following notification to Agent, in
immediately available federal or other immediately
available funds. The aggregate principal amount of
Additional Equipment Value Advances outstanding on the
last day of the Equipment Value Borrowing Period will be
amortized on the basis of a thirty-six (36) month
amortization schedule and shall be payable in equal
monthly installments commencing on March 31, 1997 and on
the last day of each month thereafter with the balance
payable upon the expiration of the Term, subject to
acceleration upon the occurrence of an Event of Default
under this Agreement or termination of this Agreement.
Any repayment or prepayment of Additional Equipment
Value Advances made after the end of the Additional
Equipment Value Borrowing Period shall be applied in
direct order of maturity to the then remaining monthly
amortization of Additional Equipment Value Advances.
(b) The agreement of Lenders to make each Additional
Equipment Value Advance is subject to satisfaction of
the following conditions precedent: (i) receipt by Agent
of (1) copies of all documentation and appraisals
required to be delivered by a Client to Borrower
pursuant to the applicable Collateral Funding Repayment
Agreement, (2) evidence that such Client has obtained
insurance covering the theft, destruction or other loss
of the Client Funded Equipment and (3) such other
documentation and evidence that Agent may reasonably
request, including, without limitation, copies of UCC-1
financing statements filed in accordance with Section
6.10 hereof or evidence that such financing statements
have been filed in accordance therewith and (ii) after
giving effect thereto (1) the aggregate principal amount
of Additional Equipment Value Advances outstanding shall
not exceed the lesser of (i) the Maximum Additional
Equipment Value Advance Amount, (ii) eighty-five percent
(85%) of the aggregate amount from time to time
outstanding of actual cash advances made by Borrower to
Clients which is secured by Client Funded Equipment in
accordance with the Collateral Funding Repayment
Agreement or (iii) sixty percent (60%) of the
liquidation value of such Client Funded Equipment, (2)
the aggregate outstanding Advances shall not exceed
$25,000,000, and (3) the sum of the aggregate principal
amount of Equipment Value Advances outstanding and the
aggregate principal amount of Additional Equipment Value
Advances outstanding shall not exceed $4,924,167 less
regularly scheduled monthly amortization payments on and
after the Ninth Amendment Effective Date with respect to
Equipment Value Advances and Additional Equipment Value
Advances."
<PAGE>
"2.2B Inventory Value Advances. (a) Subject to the
terms and conditions of this Agreement, each Lender,
severally and not jointly, agrees to make loans to
Borrower ("Inventory Value Advances") to permit Borrower
to make loans or advances to Clients secured by Eligible
Client Funded Inventory (as defined below) in aggregate
amounts outstanding at any time equal to such Lender's
Commitment Percentage of the lesser of (i) the Maximum
Inventory Value Advance Amount or (ii) (x) to the extent
(but only to the extent) that the aggregate amount from
time to time outstanding of actual cash advances by
Borrower to Clients which is secured by Eligible Client
Funded Inventory is equal to or less than fifty percent
(50%) of the liquidation value of such Eligible Client
Funded Inventory, thirty percent (30%) of the aggregate
amount from time to time outstanding of such actual cash
advances by Borrower to Clients secured by such Eligible
Client Funded Inventory and (y) to the extent (but only
to the extent) that the aggregate amount from time to
time outstanding of actual cash advances by Borrower to
Clients which is secured by Eligible Client Funded
Inventory exceeds 50% of the liquidation value of such
Eligible Client Funded Inventory, twenty-five percent
(25%) of the aggregate amount from time to time
outstanding of such actual cash advances by Borrower to
Clients secured by such Eligible Client Funded Inventory
(the sum of preceding clauses (ii)(x) and (y), the
"Inventory Borrowing Base"); provided, however, that
under no circumstances shall Inventory Value Advances be
made against Eligible Client Funded Inventory unless
Borrower has recorded on its books and records and
actually made advances or loans to a Client pursuant to
the applicable Inventory Collateral Funding Repayment
Agreement. "Eligible Client Funded Inventory" shall
mean, with respect to any Client, all of such Client's
raw materials inventory and finished goods inventory to
the extent (i) Borrower provides Agent with a written
description thereof in reasonable detail and a written
request that such inventory be treated as Eligible
Client Funded Inventory and (ii) Agent does not, within
two business days of its receipt of such description and
request, notify Borrower in writing that, in the
exercise of Agent's sole, reasonable discretion, such
inventory (or a specified portion thereof) does not
constitute Eligible Client Funded Inventory.
Notwithstanding the foregoing, Borrower acknowledges and
agrees that dynamic random access memory chips shall not
constitute Eligible Client Funded Inventory unless Agent
(in the exercise of its sole and absolute discretion)
affirmatively consents thereto in writing.
Inventory Value Advances shall only be made on and after
the Ninth Amendment Effective Date and on or prior to
<PAGE>
the last day of the Term (the "Inventory Value
Borrowing Period"). During the Inventory Value
Borrowing Period, Borrower may use the Inventory Value
Advances by borrowing, repaying and reborrowing, all in
accordance with the terms and conditions hereof. The
proceeds of each Inventory Value Advance requested by
Borrower shall, to the extent Lenders make such
Inventory Value Advance, be made available to Borrower
on the day so requested by way of credit to Borrower's
Operating Account, or such other bank as Borrower may
designate following notification to Agent, in
immediately available federal or other immediately
available funds. The aggregate principal amount of
Inventory Value Advances outstanding on the last day of
the Term shall be payable in full upon the expiration of
the Term, subject to acceleration upon the occurrence of
an Event of Default under this Agreement or termination
of this Agreement.
(b) The agreement of Lenders to make each Inventory Value
Advance is subject to satisfaction of the following
conditions precedent: (i) receipt by Agent of (1) copies
of all documentation and appraisals required to be
delivered by a Client to Borrower pursuant to the
applicable Inventory Collateral Funding Repayment
Agreement, (2) evidence that such Client has obtained
insurance covering the theft, destruction or other loss
of the Client Funded Inventory, (3) a copy of a duly
executed inventory management or inventory control
agreement among Borrower, the applicable Client and
DiversiCorp, Inc. (or another third party collateral
monitoring firm selected by Borrower and reasonably
satisfactory to Agent) and (4) such other documentation
and evidence that Agent may reasonably request,
including, without limitation, copies of UCC-1 financing
statements filed in accordance with Section 6.10 hereof
or evidence that such financing statements have been
filed in accordance therewith and (ii) after giving
effect thereto (1) the aggregate principal amount of
Inventory Value Advances outstanding shall not exceed
the lesser of (i) the Maximum Inventory Value Advance
Amount or (ii) the Inventory Borrowing Base, and (2) the
aggregate outstanding Advances shall not exceed
$25,000,000."
(f) Section 2.4 of the Loan Agreement is hereby amended in
its entirety to provide as follows:
"2.4 Maximum Advances (other than Equipment Value
Advances, Additional Equipment Value Advances
and Inventory Value Advances).
The aggregate balance of Advances (other than Equipment
Value Advances, Additional Equipment Value Advances and
<PAGE> Inventory Value Advances) outstanding at any time
shall not exceed the lesser of (x) the Maximum Revolving
Advance Amount and (y) the Borrowing Base."
(g) The Loan Agreement is hereby amended by inserting the
following new Sections 2.5A and 2.5B immediately after Section
2.5:
"2.5A Maximum Additional Equipment Value Advances. The
aggregate balance of the Additional Equipment Value
Advances outstanding at any time shall not exceed the
lesser of (i) the Maximum Additional Equipment Value
Advance Amount, (ii) eighty-five percent (85%) of the
aggregate amount from time to time outstanding of actual
cash advances by Borrower to Clients secured by Client
Funded Equipment or (iii) sixty percent (60%) of the
liquidation value of such Client Funded Equipment."
"2.5B Maximum Inventory Value Advances. The aggregate
balance of the Inventory Value Advances outstanding at
any time shall not exceed the lesser of (i) the Maximum
Inventory Value Advance Amount or (ii) the Inventory
Borrowing Base."
(h) Section 2.6 of the Loan Agreement is hereby amended in
its entirety to provide as follows:
"2.6 Repayment of Excess Advances. The aggregate balance
of Advances (other than Equipment Value Advances,
Additional Equipment Value Advances and Inventory Value
Advances), Equipment Value Advances, Additional
Equipment Value Advances and Inventory Value Advances,
as the case may be, outstanding at any time in excess of
the maximum permitted under Section 2.4, Section 2.5,
Section 2.5A or Section 2.5B, as applicable, shall be
immediately due and payable without the necessity of any
demand, at the Payment Office, whether or not a Default
or Event of Default has occurred."
(i) Clause (i) of Section 2.8 of the Loan Agreement is
hereby amended by inserting "(other than Equipment Value
Advances, Additional Equipment Value Advances and Inventory Value
Advances)" after the words "Revolving Advances" appearing
therein.
(j) The second sentence of Section 2.10(c) of the Loan
Agreement is hereby amended by inserting "(other than Equipment
Value Advances, Additional Equipment Value Advances and Inventory
Value Advances)" after the words "Revolving Advances" appearing
therein.
(k) Section 2.12(a) of the Loan Agreement is hereby amended
by deleting the words "and/or Equipment Value Advance" after the
words "Revolving Advance" appearing in the first sentence thereof
<PAGE>
and inserting in lieu thereof the words ", Equipment Value
Advance, Additional Equipment Value Advance and/or Inventory
Value Advance".
(l) Section 2.12 (e) of the Loan Agreement is hereby
amended by deleting the words "and, subject to Section 2.2
hereof, Equipment Value Advances, as applicable," after the words
"Revolving Advances" appearing in the first sentence thereof and
inserting in lieu thereof the words "and, subject to Sections
2.2, 2.2A and 2.2B hereof, to Equipment Value Advances,
Additional Equipment Value Advances and Inventory Value Advances,
as the case may be, as applicable,".
(m) Clauses (i), (ii), (iii) and (iv) of Section 2.12(f) of
the Loan Agreement and Sections 2.12(g) and 2.12(h) of the Loan
Agreement are hereby amended by inserting the words ", Equipment
Value Advances, Additional Equipment Value Advances and/or
Inventory Value Advances (as the case may be)" immediately after
the words "Revolving Advances" each place they appear therein.
(n) Clauses (i), (vi), (vii), (viii) and (xi) of Section
4.15(f)(2) of the Loan Agreement are hereby amended by inserting
", the Inventory Collateral Funding Repayment Agreements, if
any," after the words "the Collateral Funding Repayment
Agreements, if any," each place they appear.
(o) Section 4.15(g) of the Loan Agreement is hereby amended
by inserting the words ", the Inventory Collateral Funding
Repayment Agreements, if any," after the words ", the Collateral
Funding Repayment Agreements, if any," appearing in the second
sentence thereof.
(p) Section 4.16 (c) of the Loan Agreement is hereby
amended by (x) redesignating clause (iii) thereof as clause (v)
and (y) inserting the following new clauses (iii) and (iv) after
clause (ii) thereof:
", (iii) deposit proceeds of Additional Equipment Value
Advances made pursuant to Section 2.2A hereof for use in
accordance with the provisions of Section 2.2A hereof, (iv)
deposit proceeds of Inventory Value Advances made pursuant
to Section 2.2B hereof for use in accordance with Section
2.2B hereof"
(q) Section 6.10 of the Loan Agreement is hereby amended by
deleting the words "and applicable Collateral Funding Repayment
Agreement, if any" and inserting the words ", applicable
Collateral Funding Repayment Agreement and/or applicable
Inventory collateral Funding Repayment Agreement, if any," in
lieu thereof.
(r) Section 7.5(d) of the Loan Agreement is hereby amended
by deleting the words "or Collateral Funding Repayment
Agreements" appearing before clause (i) thereof and inserting the
<PAGE> words ", Collateral Funding Repayment Agreements, if any,
or Inventory Collateral Funding Repayment Agreements, if any," in
lieu thereof.
(s) Section 7.5(d)(ii) of the Loan Agreement is hereby
amended by deleting the words "or Collateral Funding Repayment
Agreement, as the case may be" and inserting the words "or, if
applicable, its Collateral Funding Repayment Agreement or its
Inventory Collateral Funding Repayment Agreement," in lieu
thereof.
(t) Section 8.2(c) of the Loan Agreement is hereby amended
by deleting the words "or Section 2.5 hereof, as applicable" and
inserting the words ", Section 2.5, Section 2.5A or Section 2.5B,
as applicable" in lieu thereof.
(u) Section 9.2 of the Loan Agreement is hereby amended by
replacing the word "and" immediately before subsection "(d)" with
"," and inserting a new subsection "(e)" to read in its entirety
as follows:
"and (e) a schedule of loans made by Borrower to its
Clients which are secured by Eligible Client Funded
Inventory stating the name of the Client to which such
loans are made and the dollar amount thereof".
(v) Section 10.13 of the Loan Agreement is hereby amended
by inserting the words "or Inventory Collateral Assignment of
Security," after the words "Equipment Collateral Assignment of
Security".
(w) Clause (ii) of Section 15.2(b) of the Loan Agreement is
hereby amended by inserting the words ", the Maximum Additional
Equipment Value Advance Amount, the Maximum Inventory Value
Advance Amount" after the words "Maximum Equipment Value Advance
Amount" appearing therein.
3. Subject to satisfaction of the conditions precedent set
forth in Section 4 below, the Security Agreement is hereby
amended as follows:
(a) Section 3(b) of the Security Agreement is hereby
amended by inserting the words "and Inventory Collateral
Funding Repayment Agreement" after the words "Collateral
Funding Repayment Agreement".
(b) Clauses (i), (vi), (vii), (viii) and (xi) of Section
6(2) of the Security Agreement are hereby amended by
inserting the words "Inventory Collateral Funding Repayment
Agreements, if any," after the words "Collateral Funding
Repayment Agreements, if any," each place they appear.
4. Conditions of Effectiveness. This Ninth Amendment shall
become effective as of the date first above written (the "Ninth
<PAGE>
Amendment Effective Date") upon receipt by the Agent of
(i) this Ninth Amendment duly executed by Borrower and the
Required Lenders and consented to by each of the Guarantors, (ii)
three (3) copies of the Inventory Collateral Assignment of
Security duly executed by Borrower, (iii) a copy of the Inventory
Collateral Funding Repayment Agreement in the form attached as
Exhibit A hereto (which form shall, on the Ninth Amendment
Effective Date, be deemed to be Exhibit 1.2(d) attached to the
Loan Agreement (without further action by Borrower, Agent or any
Lender)) and (iv) a payment for the ratable benefit of the
Lenders of an amendment fee in the amount of $7,500.
5. Representations and Warranties. Borrower hereby
represents and warrants as of the Ninth Amendment Effective Date
as follows:
(a) This Ninth Amendment and the Loan Agreement, as
amended hereby constitute the legal, valid and binding
obligations of Borrower and are enforceable against
Borrower in accordance with their respective terms.
(b) After giving effect to this Ninth Amendment, Borrower
hereby reaffirms all covenants, representations and
warranties made in the Loan Agreement and agrees that all
such covenants, representations and warranties shall be
deemed to have been remade as of the Ninth Amendment
Effective Date.
(c) No Event of Default or Default has occurred and is
continuing or would exist after giving effect to this Ninth
Amendment.
(d) Borrower has no defense, counterclaim or offset to
the Obligations.
6. Effect on the Loan Agreement and the Security Agreement.
(a) Upon the effectiveness of Sections 2 and 3 hereof, each
reference in the Loan Agreement or the Security Agreement, as the
case may be, to "this Agreement," "hereunder," "hereof," "herein"
or words of like import shall mean and be a reference to the Loan
Agreement or the Security Agreement, as the case may be, as
amended hereby.
(b) Except as specifically amended herein, the Loan
Agreement, the Security Agreement and all other documents,
instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Ninth
Amendment shall not operate as a waiver of any right, power or
remedy of Agent and Lenders, nor constitute a waiver of any
provision of the Loan Agreement, the Security Agreement or any
<PAGE>
other documents, instruments or agreements executed and/or
delivered under or in connection therewith.
7. Governing Law. This Ninth Amendment shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns and shall be governed by and
construed in accordance with the laws of the State of New York.
8. Headings. Section headings in this Ninth Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Ninth Amendment for any other purpose.
9. Counterparts; Telecopy Signatures. This Ninth Amendment
may be executed by the parties hereto in one or more
counterparts, each of which taken together shall be deemed to
constitute one and the same instrument. Any signature delivered
by a party by facsimile transmission shall be deemed to be an
original signature hereto.
IN WITNESS WHEREOF, the parties hereto, by their duly
authorized officers, have executed this Ninth Amendment as of the
day and year first above written.
IBJ SCHRODER BANK & TRUST COMPANY
as Agent and Lender
By:_______________________
Name:
Title:
NATIONAL CANADA FINANCE CORP., a Lender
By:_______________________
Name:
Title:
By:_______________________
Name:
Title:
ALLSTATE FINANCIAL CORPORATION
By: ___________________________
Name: Craig Fishman
Title: Senior Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
CONSENTED AND AGREED TO:
LIFETIME OPTIONS, INC., A
VIATICAL SETTLEMENT COMPANY
By: ___________________________
Name: Craig Fishman
Title: President
PREMIUM SALES NORTHEAST, INC. AFC HOLDING CORPORATION
By: ___________________________ By:______________________________
Name: Craig Fishman Name: Craig Fishman
Title: Senior Vice President Title: Senior Vice President
RECEIVABLE FINANCING CORPORATION
By: ___________________________
Name: Craig Fishman
Title: Senior Vice President
BUSINESS FUNDING OF FLORIDA, INC.
By: ___________________________
Name: Craig Fishman
Title: Senior Vice President
BUSINESS FUNDING OF AMERICA, INC.
By: ___________________________
Name: Craig Fishman
Title: Senior Vice President
SETTLEMENT SOLUTIONS, INC.
By:______________________________
Name: Craig Fishman
Title: Senior Vice President
