<PAGE>
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 December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 Commission file number 33-43870
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
(Exact name of registrant as specified in its charter)
TEXAS 13-3641944
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
51 Madison Avenue - Suite 1710, New York, NY 10010
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 576-6456
Securities Registered Pursuant to Section 12(b) of the Act:
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 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
-
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable; see Item 5. - Market for Registrant's Common
Equity and Related Stockholder Matters.
The Exhibit Index begins on page 15.
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TABLE OF CONTENTS
PAGE NO.
PART I
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Item 1. Business 3-5
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of
Security Holders 5
PART II
- -------
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant 12-13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners
and Management 13
Item 13. Certain Relationships and Related Transactions 14
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports 15-18
on Form 8-K
Signatures 19
Appendix A to Annual Report on Form 10-K F-1 to F-17
2
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DEFINITIONS - All capitalized terms not defined herein shall have the meanings
given to them in the Financial Statements attached hereto as Appendix A.
PART I
ITEM 1. BUSINESS
GENERAL
NYLIFE Structured Asset Management Company Ltd. (the "Company" or "SAMCO") is a
limited liability company formed under the laws of the State of Texas on October
18, 1991. A limited liability company offers its equity investors limited
liability protection while providing them with flow through tax treatment.
SAMCO has two members. The principal member is NYLIFE SFD Holding Inc. ("SFD
Holding"), formerly NAFCO Inc. The other member is NYLIFE Depositary Corporation
("NDC"). Both members are Delaware corporations and indirect wholly owned
subsidiaries of New York Life Insurance Company ("New York Life"). Certain
directors and officers of SFD Holding have been designated as managers of SAMCO.
A manager of a limited liability company is similar to a director of a
corporation, and the managers may designate one or more persons as officers of
the limited liability company.
SFD Holding and NDC (collectively, the "Members") have purchased membership
interests of 83.33% and 16.67%, respectively. In 1992, SFD Holding made an
initial capital contribution to SAMCO of 500 shares of $1 par value, nonvoting,
non-convertible, 24.39% cumulative preferred stock of NYLIFE Bridge Investor
Inc. ("NBII"), like SAMCO a subsidiary of SFD Holding. The preferred stock was
originally valued by SAMCO at $5,000,000 which represented SFD Holding's
recorded carrying value for the preferred stock. NBII was liquidated and the
original investment in preferred stock and accumulated dividends were paid to
SAMCO during 1993. On January 15, 1992, NDC made an initial capital contribution
of $1,000,000 in cash. SAMCO had no operations prior to that date.
SAMCO issued three series of secured five-year notes (the "Notes"), at both
floating (Series A and Series B) and fixed (Series C) rates, the net proceeds of
which were used to finance the acquisition of security alarm monitoring
contracts (the "Contracts"). The Contracts acquired consisted of the obligations
and payment rights with respect to monitoring services, and in certain instances
repair and maintenance services, for security alarm systems in homes and light
commercial businesses.
DISPOSITION OF ASSETS AND MATURITY OF SERIES A NOTES
In February 1998, SAMCO sold to WestSec for $15,107,145, the Contracts and
related assets which constituted the collateral securing SAMCO's Series A Notes.
The transaction was consummated pursuant to the Operational Services Agreement
dated November 15, 1991 between SAMCO and Westinghouse Electric Corporation
("Westinghouse"), as amended (the "OSA"). A portion of the proceeds of the sale
were used to pay all outstanding principal and accrued interest on the Series A
Notes on February 17, 1998, the maturity date of such Notes. SAMCO recognized a
gain of approximately $8.0 million on the sale of the Series A Contracts.
3
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DISPOSITION OF ASSETS AND MATURITY OF SERIES B NOTES
In August 1998, SAMCO sold to WestSec the Contracts and related assets which
constituted the collateral securing SAMCO's Series B Notes. The transaction was
consummated pursuant to the OSA and the Consent, Assignment, Assumption, and
Modification Agreement dated December 31, 1996 among SAMCO, Westinghouse and
WestSec (the "Consent Agreement"). The purchase price of the Series B Contracts
was in dispute. The Consent Agreement obligated WestSec to pay the greater of
fair market value, as determined by an independent appraisal firm, or 30 times
the recurring monthly revenue ("RMR") of the Contracts purchased. In the absence
of a third-party appraisal specific to the Series B Contracts on the closing
date, WestSec paid SAMCO $4,722,490 which represented the floor price of 30
times RMR.
SAMCO subsequently drew on a Letter of Credit from Chase Manhattan Bank in the
amount of $2,343,658 which represented (i) the difference between the value of
the Series B Contracts using a multiple of 41 times RMR pursuant to a valuation
of the Series A Contracts in February 1998 by KPMG Peat Marwick LLP and (ii) the
value of so called "person reassignment accounts" (see Item 3 - Legal
Proceedings) at 41 times RMR. A portion of the proceeds of the sale were used to
pay all outstanding principal and accrued interest on the Series B Notes on
August 17, 1998, the maturity date of such Notes. SAMCO recognized a gain of
approximately $3.8 million on the sale of the Series B Contracts.
DISPOSITION OF ASSETS AND DEFEASANCE OF SERIES C NOTES
On December 17, 1998, SAMCO sold to Protection One Alarm Monitoring, Inc., as
successor by merger to WestSec, its remaining security alarm monitoring
contracts and related assets, including those which constituted the collateral
securing SAMCO's Series C Notes. The purchase price for the contracts and
related assets was $29.5 million. SAMCO recognized a gain of approximately $4.8
million on the sale of its remaining Contracts.
The transaction was consummated pursuant to a Settlement Agreement dated
December 17, 1998 between SAMCO and WestSec (the "Settlement Agreement") which
resolved the litigation between the parties described hereafter in Item 3 Legal
Proceedings.
A portion of the proceeds of the sale were used to purchase United States
Government obligations which were deposited with United States Trust Company of
New York (the "Trustee") pursuant to section 7.1(b) of the Indenture. The
securities have an aggregate value that is sufficient to pay principal and
interest to the Series C Noteholders on the remaining distribution dates of
February 16, 1999, May 17, 1999 and at maturity on August 16, 1999. Under
section 7.1(b) of the Indenture, upon the aforesaid deposit and satisfaction of
certain other conditions, SAMCO is entitled to be relieved of its obligations
under the Series C Notes, the Indenture and the Security Agreement. SAMCO is
contractually obligated to obtain a release of the lien of the Security
Agreement not later than March 24, 1999.
INVESTMENT CONTRACTS - 5,035 of the Contracts acquired on June 30, 1993,
November 30, 1993 and February 28, 1994 were not utilized as collateral for the
Company's Series C Notes. These Contracts were sold to WestSec on December 17,
1998.
4
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ITEM 2. PROPERTIES
The Company does not own any material properties and is not a party to any
material leases.
ITEM 3. LEGAL PROCEEDINGS
On March 2, 1998, WestSec filed a state court action against SAMCO in Dallas
County, Texas seeking a determination that it did not have to purchase from
SAMCO what WestSec calls "person reassignment accounts", and that it was
entitled to costs and reasonable attorneys fees. These accounts, WestSec argued,
are "accounts that are with a customer who (1) had an account owned by SAMCO
which was terminated due to the relocation of the customer and (2) entered into
a new security alarm contract with WEC or WestSec at the customer's new location
within 120 days after terminating his or her account at the prior location."
WestSec contended that such accounts were not included within the collateral
securing SAMCO's Notes.
SAMCO contended that it owned these disputed accounts and that either WestSec is
obligated to purchase them under Section 9.1 of the OSA or SAMCO was entitled to
sell them to any party. The dispute was confined to approximately 2,323 accounts
relating to the Series A Notes that matured on February 15, 1998. However, the
dispute extended to other similar accounts relating to the Series B Notes.
The litigation was resolved on December 17, 1998 with the execution of the
Settlement Agreement. As described previously in Item 1 - Business, SAMCO sold
to Protection One Alarm Monitoring, Inc., as successor by merger to WestSec, its
remaining security alarm monitoring contracts and related assets, including
those which constituted the collateral securing SAMCO's Series C Notes. The
purchase price for the contracts and related assets was $29.5 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no organized trading market for the Noteholders or members of the
Company.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding the
Company's financial position as of December 31, 1998, 1997, 1996, 1995 and 1994
and the results of operations for the periods then ended. This information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Financial Statements and
Supplementary Data, which are included in Items 7 and 8 of this Report,
respectively.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $30,591,079 $20,270,016 $23,230,617 $25,979,002 $26,752,768
=========== =========== =========== =========== ===========
Net income (loss) $18,905,634 $ 2,860,543 ($2,459,963) ($2,123,749) $ 133,235
=========== =========== =========== =========== ===========
Cash flow from operations $ 3,635,321 $ 6,884,186 $ 8,613,984 $ 9,683,149 $ 9,064,373
=========== =========== =========== =========== ===========
Notes payable (current and non-current):
Series A $ 0 $11,695,361 $13,506,863 $15,928,365 $18,263,116
=========== =========== =========== =========== ===========
Series B $ 0 $ 4,520,521 $ 5,359,744 $ 6,422,734 $ 7,335,227
=========== =========== =========== =========== ===========
Series C $20,600,090 $24,547,924 $28,845,893 $34,506,447 $40,798,349
=========== =========== =========== =========== ===========
Total assets at December 31 $41,061,243 $49,079,278 $53,601,399 $65,894,252 $77,883,745
=========== =========== =========== =========== ===========
SERIES A
Debt Service Coverage (at 9%) N/A N/A 1.66 1.73 1.83
=========== =========== =========== =========== ===========
Interest Coverage (at 9%) N/A N/A 3.42 3.32 3.26
=========== =========== =========== =========== ===========
Debt Service Coverage (at 11%) N/A N/A 1.50 1.55 1.62
=========== =========== =========== =========== ===========
Interest Coverage (at 11%) N/A N/A 2.80 2.71 2.66
=========== =========== =========== =========== ===========
SERIES B
Debt Service Coverage (at 9%) N/A 3.08 1.86 1.89 1.95
=========== =========== =========== =========== ===========
Interest Coverage (at 9%) N/A 5.71 3.76 3.50 3.38
=========== =========== =========== =========== ===========
Debt Service Coverage (at 11%) N/A N/A 1.68 1.68 1.73
=========== =========== =========== =========== ===========
Interest Coverage (at 11%) N/A N/A 3.08 2.86 2.77
=========== =========== =========== =========== ===========
SERIES C
Debt Service Coverage (at 9%) (*) N/A 1.83 1.89 2.04 1.97
=========== =========== =========== =========== ===========
Interest Coverage (at 9%) N/A 3.79 3.59 3.60 3.24
=========== =========== =========== =========== ===========
</TABLE>
(*) The first required principal payment on the Series C Notes was August 15,
1994.
Financial data for the year ended 1994 reflects the acquisition of Contracts on
February 28, 1994 and the ownership of the Contracts acquired June 30 and
November 30, 1993 for a full year.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES - 1998
The Company's net cash position increased as a result of the
gains on sale of the Company's Contracts. During 1998, the Company paid
scheduled and additional principal of $11.7 million, $4.5 million and $3.9
million to the Series A, Series B, and Series C Noteholders, respectively.
At December 31, 1998 the Company has $18.1 million of cash and cash
equivalents and $22.3 million of United States government securities. The
United States government securities have been deposited with the Trustee for
the specific purpose of paying the remaining principal and interest to the
Series C Noteholders on February 16, 1999, May 17, 1999 and at maturity on
August 16, 1999.
As described below, during 1998, SAMCO sold all of its security alarm
monitoring contracts to Protection One. In 1999, SAMCO's sole source of
revenue will be interest income from its cash and cash equivalents. SAMCO's
remaining obligations include accrued liabilities, ongoing general and
administrative expenses and the debt service on the Series C Notes until
their maturity on August 16, 1999. SAMCO's December 31, 1998 cash and cash
equivalents balance of $18.1 million and its $22.3 million of United States
government securities, in addition to investment interest and principal
payments to be received in 1999, is substantially in excess of its remaining
obligations.
On March 10, 1999, SAMCO distributed $14.7 million to its Members. After the
payment of accrued liabilities, ongoing operating expenses and the remaining
obligations on the Series C Notes, SAMCO expects to return approximately $2.1
million to its Members during 1999.
DISPOSITION OF ASSETS AND MATURITY OF SERIES A NOTES
In February 1998, SAMCO sold to WestSec for $15.2 million, the Contracts and
related assets which constituted the collateral securing SAMCO's Series A Notes.
The transaction was consummated pursuant to the OSA and the Consent Agreement. A
portion of the proceeds of the sale were used to pay all outstanding principal
and accrued interest on the Series A Notes on February 17, 1998, the maturity
date of such Notes. SAMCO recognized a gain of approximately $8.0 million on the
sale of the Series A Contracts.
DISPOSITION OF ASSETS AND MATURITY OF SERIES B NOTES
In August 1998, SAMCO sold to WestSec for $4.7 million, the Contracts and
related assets which constituted the collateral securing SAMCO's Series B Notes.
The transaction was consummated pursuant to the OSA and the Consent Agreement. A
portion of the proceeds of the sale were used to pay all outstanding principal
and accrued interest on the Series B Notes on August 17, 1998, the maturity date
of such Notes. SAMCO recognized a gain of approximately $3.8 million on the sale
of the Series B Contracts.
7
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DISPOSITION OF ASSETS AND DEFEASANCE OF SERIES C NOTES
On December 17, 1998, SAMCO sold to Protection One Alarm Monitoring, Inc., as
successor by merger to WestSec, its remaining security alarm monitoring
contracts and related assets, including those which constituted the collateral
securing SAMCO's Series C Notes. The purchase price for the contracts and
related assets was $29.5 million. SAMCO recognized a gain of approximately $4.8
million on the sale of its remaining Contracts.
A portion of the proceeds of the sale were used to purchase United States
Government obligations which were deposited with United States Trust Company of
New York (the "Trustee") pursuant to the Indenture. As mentioned above, the
securities have an aggregate value that is sufficient to pay principal and
interest to the Series C Noteholders on the remaining distribution dates of
February 16, 1999, May 17, 1999 and at maturity on August 16, 1999. Under the
Indenture, upon obtaining a release of the lien of the Security Agreement, SAMCO
is entitled to be relieved of its obligations under the Series C Notes, the
Indenture and the Security Agreement.
RESULTS OF OPERATIONS - 1998
For the year ended December 31, 1998, SAMCO derived 44% of its income from
monitoring revenues, 54% from gains on the sale of Contracts and the balance
from interest income on short term investments.
The decrease in the Company's monitoring revenues for the year ending December
31, 1998 compared to the corresponding period in 1997 is a result of the sale of
contracts in February, August and December 1998. Accordingly, the related
monitoring fee expense decreased in 1998. Interest expense decreased in 1998 as
the Series A and B Notes matured and the Company continued to pay down scheduled
and additional principal on the Series C Notes. The bad debt expense of $496,136
on the Company's Statement of Operations in 1998 represents actual revenue loss
on attrited Contracts.
The Company's operating expenses included monitoring fees, general and
administrative expenses, including (i) lockbox bank fees, (ii) audit and tax
fees, (iii) printing and mailing of quarterly and annual reports to investors,
(iv) trustee fees, (v) legal and consulting fees, and (vi) subordinated fees and
expenses and state franchise taxes. The Company's other expenses include bad
debt expense, interest expense and amortization of (i) Contracts and (ii) debt
issuance costs. This is consistent with 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES - 1997
The Company's net cash from operating activities decreased as attrition reduced
monitoring revenue from customers. During 1997, the Company paid scheduled and
additional principal of $1,811,501, $839,222 and $4,297,952 to the Series A,
Series B, and Series C Noteholders, respectively.
Attrition, which is the loss of customers, results in decreased cash flow. In
order to control the Company's exposure to attrition and the resulting loss
of revenue, the Company has received from the Servicer certain attrition
guarantees. These guarantees generally provide for the replacement of
Contracts, with either cash or Contracts, by the Servicer if attrition
exceeds certain levels. As of December 31, 1997, the Series A and Series C
Contracts owned
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by the Company are covered by attrition guarantees by the Servicer.
The Company's revenues from Contracts have been sufficient to pay the Servicer
Basic Monitoring Fee, scheduled principal and interest on the Notes, third party
operating expenses, taxes of the Company's Members (but only Member's taxes in
respect of any allocations of taxable income from the Company), subordinated
fees, to establish necessary reserves, if any, and to continue to make
additional principal payments.
Series A and Series B Notes bear interest on the outstanding principal at a per
annum floating rate of 2.50 percentage points above the minimum denomination
five-year certificate of deposit average rate (the "Benchmark CD Rate"), as
reported by the Bank Rate Monitor in its last report of the immediately
preceding calendar quarter, but in no event less than 9% per annum or more than
11% per annum. At December 31, 1997, the Benchmark CD Rate was 5.42%.
Accordingly, the outstanding principal on the Series B Notes will earn interest
at 9% per annum through May 15, 1998.
Debt Service and Interest Coverage ratios are calculated based on the number of
"active" accounts at the end of the period. An active account is one where the
customer's alarm system is being monitored. Generally, accounts are monitored
until they become 70 days delinquent. As indicated in Item 6 - Selected
Financial Data, the Debt Service and Interest Coverage ratios for the Series C
Notes at December 31, 1997 continues to be consistent with prior years. The Debt
Service and Interest Coverage ratios for the Series B Notes were materially
higher at December 31, 1997 than in prior years. Since the Series B Notes mature
on August 15, 1998, only six months of required principal and interest payments
are used in calculating the respective ratios.
CONTRACT REPURCHASE - SERIES A, SERIES B, AND SERIES C NOTES
At maturity, the Company is obligated to repay the then outstanding principal
balance of the Notes. Pursuant to the Consent Agreement, as each series of
Notes mature, WestSec shall purchase all of the Contracts securing such
series of Notes for an amount equal to the greater of (i) the fair market
value of such Contracts as determined by a nationally recognized independent
valuation firm jointly selected by WestSec and SAMCO; or (ii) thirty (30)
times the recurring monthly fees and charges payable by customers pursuant to
such Contracts. Westinghouse has agreed that if the purchase price payable by
WestSec for a particular Series of Notes is less than the amount of all
principal and accrued and unpaid interest on such series of Notes, upon
notice from SAMCO to Westinghouse, Westinghouse will remit to SAMCO, at the
same time the WestSec price is required to be paid, in immediately available
funds, the amount in excess of the WestSec price so that the total paid to
SAMCO will equal the amount of all principal and accrued and unpaid interest
on such Series of Notes. Such notice shall be given by SAMCO to Westinghouse
at least five business days prior to the stated maturity date of each Series
of Notes.
On May 22, 1997, WestSec furnished to SAMCO an irrevocable and unconditional
letter of credit issued by The Chase Manhattan Bank in favor of SAMCO in the
amount of $85 million (the "LC") in accordance with the Consent Agreement. The
LC secures certain obligations owed to SAMCO under the OSA Agreements and the
Consent Agreement. During 1997, the LC was reduced to $75,994,000 in accordance
with its terms.
9
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In addition, SAMCO and WestSec entered into a letter agreement dated May 21,
1997 memorializing certain collateral agreements and understandings related to
the LC.
The Company does not anticipate the purchase of additional Contracts. As of
December 31, 1997, the Company had no material capital commitments.
Should WestSec become unable to perform any of its contractual obligations with
respect to the Company in the future, there can be no assurance that any third
parties will be available or, even if available, that agreements could be
reached with such third parties for comparable services and at comparable cost.
Such a situation could have a materially adverse impact on the Company.
RESULTS OF OPERATIONS - 1997
For the year ended December 31, 1997, SAMCO derived 98% of its income from
monitoring revenues and the balance from interest income on short term
investments.
The decrease in the Company's monitoring revenues for the year ending December
31, 1997 compared to the corresponding period in 1996 is a result of the
attrition of Contracts in 1997. Accordingly, the related monitoring fee expense
decreased in 1997. An increase in attrition expense was offset by a decrease in
amortization expense as attrition decreases the amortizable base of Contracts.
Interest expense decreased in 1997 as the Company continues to pay down
scheduled and additional principal. The bad debt expense of $834,691 on the
Company's Statement of Operations in 1997 represents actual revenue loss on
attrited Contracts and the potential revenue loss on Contracts with balances
greater than 90 days past due as of December 31, 1997.
Most of the Contracts owned by the Company have a three year term, provide for
automatic renewal and allow the Company to increase the customers' monitoring
fee at certain times after the initial term. The Company has no intention of
increasing monitoring fees in the immediate future.
LIQUIDITY AND CAPITAL RESOURCES - 1996
The Company's net loss for the year ending December 31, 1996 is due primarily to
amortization expense, a non-cash charge against earnings, which resulted
primarily from attrition of certain contracts in 1996. The Company's net cash
from operating activities decreased as attrition reduced monitoring revenue from
customers. During 1996, the Company paid scheduled and additional principal of
$2,421,502, $1,062,990 and $5,660,554 to the Series A, Series B, and Series C
Noteholders, respectively.
Attrition, which is the loss of customers, results in decreased cash flow. In
order to control the Company's exposure to attrition and the resulting loss of
revenue, the Company has received from
10
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Servicer certain attrition guarantees. These guarantees generally provide for
the replacement of Contracts, with either cash or Contracts, by the Servicer
if attrition exceeds certain levels. At December 31, 1996, the Series A,
Series B and Series C Contracts owned by the Company were covered by
attrition guarantees by the Servicer.
Series A and Series B Notes bear interest on the outstanding principal at a per
annum floating rate of 2.50 percentage points above the minimum denomination
five-year certificate of deposit average rate (the "Benchmark CD Rate"), as
reported by the Bank Rate Monitor in its last report of the immediately
preceding calendar quarter, but in no event less than 9% per annum or more than
11% per annum. At December 31, 1996, the Benchmark CD Rate was 5.4%.
Accordingly, the outstanding principal on the Series A and Series B Notes will
earn interest at 9% per annum through May 15, 1997.
11
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RESULTS OF OPERATIONS - 1996
For the year ended December 31, 1996, SAMCO derived 98% of its income from
monitoring revenues and the balance from interest income on short term
investments.
The decrease in the Company's monitoring revenues for the year ending December
31, 1996 compared to the corresponding period in 1995 is a result of the
attrition of Contracts in 1996. Accordingly, the related monitoring fee expense
decreased in 1996. An increase in attrition expense was offset by a decrease in
amortization expense as attrition decreases the amortizable base of Contracts.
Interest expense decreased in 1996 as the Company continues to pay down
scheduled and additional principal. The bad debt expense of $751,164 on the
Company's Statement of Operations in 1996 represents actual revenue loss on
attrited Contracts and the potential revenue loss on Contracts with balances
greater than 90 days past due as of December 31, 1996.
Most of the Contracts owned by the Company have a three year term, provide for
automatic renewal and allow the Company to increase the customers' monitoring
fee at certain times after the initial term. The Company has no intention of
increasing monitoring fees in the immediate future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain directors and officers of SFD Holding have been designated as
Managers of SAMCO. A manager is similar to a director of a corporation, and
may designate one or more persons as officers of the limited liability
company. The principal business occupations during the past five years for
the Managers and officers of SAMCO are set forth below.
Name Age Title
- ---- --- -----
Kevin M. Micucci 39 Manager and President
Jean E. Hoysradt 48 Manager and Vice President of Investment
Jay S. Calhoun 43 Vice President and Treasurer
Scott J. Drath 35 Manager, Vice President, Controller and Secretary
Richard W. Zuccaro 49 Tax Vice President
Jefferson C. Boyce 41 Manager
Kevin M. Micucci became a manager and the President of the Company in February
1996. Previously, he was Vice President of Finance from June 1994 and Vice
President and Controller from October 1991. Mr. Micucci has been a Vice
President of New York Life Insurance Company in the Structured Finance
Department since March 1996; prior thereto, he was Corporate Vice President from
March 1991. Mr. Micucci received a B.S. degree from St. John's University and is
a Certified Public Accountant.
Jean E. Hoysradt has been a Manager and Vice President of Investment of the
Company since January 1992. Ms. Hoysradt has been a Senior Vice President of New
York Life Insurance Company in charge of the Investment Department since March
1992. She was a Vice President in the Investment Department in charge of private
placements from 1990 to 1992. A 1972 graduate of Duke University, Ms. Hoysradt
received her M.B.A. from Columbia University in 1974.
Jay S. Calhoun has been Vice President and Treasurer of the Company since March
1993. Mr. Calhoun is Treasurer and was named Senior Vice President of New York
Life Insurance Company in March 1997. He was named Vice President and Associate
Treasurer of New York Life Insurance Company in March 1992 and, prior to that
time, served as a Corporate Vice President in the Treasury Department. Mr.
Calhoun received a B.A. degree from Princeton University and an M.S. degree in
Business Policy from Columbia University.
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Scott J. Drath has been a Manager, Vice President and Controller of the Company
since October 1996. Mr. Drath has been a Corporate Vice President in the
Structured Finance Department of New York Life Insurance Company since May 1996.
Mr. Drath was Director of Accounting for Prins Recycling Corp. from May 1995 to
April 1996. Prior thereto, he was an Assistant Vice President in the Structured
Finance Department of New York Life Insurance Company from April 1994 to May
1995 and a Director of Accounting from September 1991 to April 1994. Mr. Drath
received a Bachelor of Accountancy Degree from George Washington University and
an M.B.A. degree in Finance from New York University.
Richard W. Zuccaro has been Tax Vice President of the Company since January
1992. Mr. Zuccaro has been a Vice President of New York Life Insurance Company
since April 1995, and prior thereto, was a Corporate Vice President from May
1986 to April 1995. Mr. Zuccaro received a B.B.A. degree in Accounting from the
University of Oklahoma.
Jefferson C. Boyce has been a Manager of the Company since June 1993. Mr. Boyce
is Chairman and Chief Executive Officer of Monitor Capital Advisors, Inc., a
subsidiary of New York Life Insurance Company. Prior to assuming this role he
was a Senior Vice President of New York Life Insurance Company in charge of the
MainStay Family of mutual funds and President of NYLIFE Securities Inc. and
NYLIFE Distributors Inc., broker dealers. Mr. Boyce received a B.B.S. degree in
Finance from Baruch College and has completed the Advanced Management Program at
the Harvard Business School.
ITEM 11. EXECUTIVE COMPENSATION
Separate compensation is not paid by the Company to its Managers or to its
officers for serving in such positions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
Amount and Nature
Title of Name and Address of Beneficial Percent of
Class Beneficial Owner Ownership Class
----- ---------------- --------- -----
<S> <C> <C> <C>
- NYLIFE SFD Holding Inc. Voting interest of the 83.33%
51 Madison Avenue Company
New York, NY 10010
- NYLIFE Depositary Corp. Voting interest of the 16.67%
51 Madison Avenue Company
New York, NY 10010
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
14
<PAGE>
Information regarding certain payments to Members of the Company and their
affiliates and certain contractual arrangements and related transactions are
contained in Note 6 to the Financial Statements on pages F-8 through F-17 of
this Form 10-K.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index of Financial Statements included
under Item 8, Appendix A, on page F-2 of this report.
2. All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have
been omitted since either: (1) the information required is disclosed in
the financial statements and the notes thereto; (2) the schedules are
not required under the related instructions; or (3) the schedules are
inapplicable.
3. Exhibits:
Number and Description
Under Regulation S-k
--------------------
The following reflects all applicable Exhibits required under Item 601
of Regulation S-K:
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Organization of Company. *
3.2 Amended Regulations of Company. *
3.3 Amendment to Articles of Organization of Company. *
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1 Indenture. *
4.2 Form of Global Note, included as Exhibit A to Exhibit 4.1. *
4.3 Form of Definitive Note, included as Exhibit B to
Exhibit 4.1. *
4.4 Form of Security Agreement, included as Exhibit C to
Exhibit 4.1. *
4.5 Form of First Supplemental Indenture. *
4.6 Form of Second Supplemental Indenture. *
(10) MATERIAL CONTRACTS
10.1 Revised Form of Escrow Agreement. *
10.2 Operational Services Agreement. *
16
<PAGE>
10.3 Form of Lock-Box Agreement, included as Exhibit D to
Exhibit 4.1. *
10.4 Agreement of Limited Partnership of Westinghouse Security
Systems, L.P. *
10.5 Indemnification Agreement. *
10.6 Consulting Agreement with Coopers & Lybrand. *
10.7 Consulting Agreement with BK Financial, Inc. *
10.8 Consulting Agreement with Capital Recovery, Inc. *
10.9 Letter Agreement among Westinghouse Electric Corporation,
Westinghouse Security Systems, L.P., the Company and NYLIFE
Bridge Investor Inc., dated as of November 15, 1991. *
10.10 Accounts Purchase Agreement dated as of July 15, 1992 among
the Company, Westinghouse Security Systems, L.P. and
Westinghouse Electric Corporation. *
10.11 Accounts Purchase Agreement dated as of September 16, 1992
among the Company, Westinghouse Security Systems, L.P. and
Westinghouse Electric Corporation. *
10.12 Accounts Purchase Agreement dated as of November 19, 1992
among the Company, Westinghouse Security Systems, L.P. and
Westinghouse Electric Corporation. *
10.13 Accounts Purchase Agreement dated as of December 14, 1992
among the Company, Westinghouse Security Systems, L.P. and
Westinghouse Electric Corporation. *
10.14 Demand Subordinated Note from Company to NYLIFE Asset Finance
Corporation dated December 14, 1992. *
10.15 Amendment No. 1, dated as of March 18, 1993 to Accounts
Purchase Agreement dated December 14, 1992 among Westinghouse
Security Systems, L.P., Westinghouse Electric Corporation and
NYLIFE Structured Asset Management Company Ltd. *
10.16 Letter Agreement dated March 18, 1993 amending certain
sections of the Accounts Purchase Agreements dated July 15,
1992, September 16, 1992 and November 19, 1992 among
Westinghouse Security Systems, L.P. and NYLIFE Structured
Asset Management Company Ltd. *
10.17 Accounts Purchase Agreement dated as of June 18, 1993 among
the Company and Westinghouse Electric Corporation. *
17
<PAGE>
10.18 Demand Subordinated Note from Company to NAFCO Inc., formerly
NYLIFE Asset Finance Corporation dated June 30, 1993. *
10.19 Demand Subordinated Note from Company to NAFCO Inc., formerly
NYLIFE Asset Finance Corporation dated November 30, 1993. *
10.20 Demand Subordinated Note from Company to NAFCO Inc., formerly
NYLIFE Asset Finance Corporation dated February 28, 1994. *
10.21 Consent, Assignment, Assumption, Amendment and Modification
Agreement dated December 30, 1996 between NYLIFE Structured
Asset Management Company Ltd.; Westinghouse Electric
Corporation, WestSec, Inc. and Westar Capital, Inc. *
10.22 Letter of Credit No. P-271117 dated May 22, 1997 issued by The
Chase Manhattan Bank (NYLIFE Structured Asset Management
Company Ltd. as Beneficiary and WestSec, Inc. as Applicant). *
10.23 Letter agreement dated May 21, 1997 between NYLIFE Structured
Asset Management Company Ltd. and WestSec, Inc. relating to
Letter of Credit No. P-271117 dated May 22, 1997. *
10.24 Accounts Purchase Agreement dated February 17, 1998 between
WestSec, Inc. and NYLIFE Structured Asset Management Company
Ltd. *
10.25 Accounts Purchase Agreement dated December 17, 1998 between
Protection One Alarm Monitoring, Inc., as successor by merger
to WestSec, Inc. and NYLIFE Structured Asset Management
Company Ltd. *
10.26 Settlement Agreement dated December 17, 1998 between
Protection One Alarm Monitoring, Inc., as successor by merger
to WestSec, Inc. and NYLIFE Structured Asset Management
Company Ltd. *
10.27 Settlement Agreement and Release among BK Financial, Inc.,
Tudor Financial, Inc. and NYLIFE Structured Asset Management
Company Ltd. dated December 11, 1998. *
10.28 Indemnity Agreement from SAMCO to the Trustee dated December
18, 1998. *
18
<PAGE>
(27) FINANCIAL DATA SCHEDULE **
(b) REPORTS ON FORM 8-K:
NONE.
* Previously filed.
** Filed herewith.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NYLIFE Structured Asset Management
Company Ltd.
March 26, 1999 By: /s/ Kevin M. Micucci
--------------------
Kevin M. Micucci
Manager and President (Principal
Executive Officer and Principal
Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities of and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Kevin M. Micucci Manager and President March 26, 1999
- --------------------- (Principal Executive Officer and Principal
Kevin M. Micucci Financial and Accounting Officer)
/s/ Jean E. Hoysradt Manager and Vice President March 26, 1999
- -------------------- of Investment
Jean E. Hoysradt
/s/ Jay S. Calhoun Vice President and Treasurer March 26, 1999
- ------------------
Jay S. Calhoun
/s/ Scott J. Drath Manager, Vice President and March 26, 1999
- ------------------ Controller
Scott J. Drath
/s/ Richard W. Zuccaro Tax Vice President March 26, 1999
- ----------------------
Richard W. Zuccaro
/s/ Jefferson C. Boyce Manager March 26, 1999
- ----------------------
Jefferson C. Boyce
</TABLE>
20
<PAGE>
APPENDIX A TO
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 14 (A) (1) AND (2)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AS OF
DECEMBER 31, 1998, 1997 AND 1996
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
F-1
<PAGE>
Form 10-K -- Item 8 and Item 14 (a) (1) and (2)
NYLIFE Structured Asset Management Company Ltd.
<TABLE>
<CAPTION>
INDEX OF FINANCIAL STATEMENTS
<S> <C>
Report of Independent Accountants F-3
Statement of Financial Position as of December 31, 1998 and 1997 F-4
Statement of Operations and Retained Earnings
(Accumulated Deficit) for the Years Ended
December 31, 1998, 1997 and 1996 F-5
Statement of Changes in Members' Capital for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Statement of Cash Flows for the Years Ended December 31, 1998, 1997
and 1996 F-7
Notes to the Financial Statements F-8 to F-17
</TABLE>
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since
either (1) the information required is disclosed in the financial statements and
the notes thereto; (2) the schedules are not required under the related
instructions; or (3) the schedules are inapplicable.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Managers and Members of
NYLIFE Structured Asset Management Company Ltd.
In our opinion, the accompanying statement of financial position and the
related statements of operations and retained earnings (accumulated deficit),
changes in members' capital and of cash flows present fairly, in all material
respects, the financial position of NYLIFE Structured Asset Management
Company Ltd. (the "Company") at December 31, 1998, and 1997, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
March 19, 1999
F-3
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
ASSETS
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 11,090,211 $ 7,633,845
Segregated cash and cash equivalents 7,018,453 4,577,980
Segregated investments in U.S. government securities 22,342,580 --
Security alarm monitoring contracts held for sale (Note 5) -- 11,195,005
Monitoring revenue and interest receivables
(net of allowance of $-0- and $1,143,444, respectively) 609,999 1,715,726
Due from Servicer -- 141,709
Other receivables -- 234,638
------------ ------------
Total current assets 41,061,243 25,498,903
------------ ------------
Security alarm monitoring contracts held for sale (Note 5) -- 22,984,661
Debt issuance costs paid to affiliates
(net of accumulated amortization of $6,353,426 and $5,757,712) -- 595,714
------------ ------------
Total assets $ 41,061,243 $ 49,079,278
============ ============
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES
Monitoring fees payable $ 344,963 $ 639,503
Accounts payable and accrued liabilities 568,507 319,919
Due to Servicer 95,450 --
Due to affiliates (Note 6) 110,753 260,552
Unearned revenue -- 2,471,743
Interest payable (Note 5) 238,735 472,414
Notes payable (Note 5) 20,600,090 18,465,882
------------ ------------
Total current liabilities 21,958,498 22,630,013
------------ ------------
Notes payable (Note 5) -- 22,297,924
------------ ------------
Total liabilities 21,958,498 44,927,937
------------ ------------
MEMBERS' CAPITAL
Contributed capital 6,000,000 6,000,000
Distributions to members (4,586,983) (632,753)
Retained earnings (accumulated deficit) 17,689,728 (1,215,906)
------------ ------------
Total members' capital 19,102,745 4,151,341
------------ ------------
Total liabilities and members' capital $ 41,061,243 $ 49,079,278
============ ============
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income
Monitoring revenue $ 13,552,675 $ 19,899,321 $ 22,844,144
Interest 476,149 370,695 386,473
Gain on sale of security alarm monitoring contracts 16,562,255 -- --
------------ ------------ ------------
Total income 30,591,079 20,270,016 23,230,617
Expenses
Monitoring fees 4,286,014 6,672,621 7,732,543
Interest expense 2,396,774 3,963,054 4,684,855
General and administrative 1,140,198 479,278 379,276
Consulting fees 201,563 285,416 285,416
Asset management fee to affiliate 370,982 490,151 555,971
Equity return fee to affiliate 178,187 217,385 217,385
Bad debt expense 496,136 834,691 751,164
Valuation adjustment of security alarm monitoring contracts 2,019,878 3,440,849 9,924,570
Amortization of debt issuance costs paid to affiliates 595,713 1,026,028 1,159,400
------------ ------------ ------------
Total expenses 11,685,445 17,409,473 25,690,580
------------ ------------ ------------
Net income (loss) 18,905,634 2,860,543 (2,459,963)
Accumulated deficit at beginning of year (1,215,906) (4,076,449) (1,616,486)
------------ ------------ ------------
Retained earnings (accumulated deficit) at end of year $ 17,689,728 $ (1,215,906) $ (4,076,449)
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
NYLIFE NYLIFE Total
SFD Holding Depositary Members'
Inc. Corp. Capital
------------ ----------- ------------
<S> <C> <C> <C>
Balance at January 1, 1996 $ 3,125,709 $ 625,052 $ 3,750,761
Net loss (2,049,887) (410,076) (2,459,963)
------------ ----------- ------------
Balance at December 31, 1996 1,075,822 214,976 1,290,798
Net income 2,383,690 476,853 2,860,543
------------ ----------- ------------
Balance at December 31, 1997 3,459,512 691,829 4,151,341
Net income 15,754,065 3,151,569 18,905,634
Distribution to members (3,295,060) (659,170) (3,954,230)
------------ ----------- ------------
Balance at December 31, 1998 $ 15,918,517 $ 3,184,228 $ 19,102,745
============ =========== ============
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 18,905,634 $ 2,860,543 $ (2,459,963)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of security alarm monitoring contracts (16,562,255) -- --
Valuation adjustment of security alarm monitoring contracts 2,019,878 3,440,849 9,924,570
Amortization of debt issuance costs 595,713 1,026,028 1,159,400
Bad debt expense 496,136 834,691 751,164
Changes in assets and liabilities:
Decrease (increase) in monitoring revenue and interest receivables 609,591 (492,383) (48,568)
Decrease (increase) in due from Servicer 141,709 (116,934) (24,775)
Decrease (increase) in other receivables 234,638 (234,638) --
Decrease in monitoring fees payable to Servicer (294,540) (113,219) (191,147)
Increase (decrease) in accounts payable and accrued liabilities 248,588 (12,450) (2,124)
Increase (decrease) in due to Servicer 95,450 -- (14,351)
(Decrease) increase in due to affiliates (149,799) 73,092 (17,230)
Decrease in unearned revenue (2,471,743) (300,865) (357,010)
Decrease in interest payable (233,679) (80,528) (105,982)
------------ ------------ ------------
Net cash provided by operating activities 3,635,321 6,884,186 8,613,984
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of security alarm monitoring contracts - net
of disposal costs 48,685,244 -- --
Purchase price refunds - investment in security alarm
monitoring contracts 36,800 834,406 45,403
------------ ------------ ------------
Net cash provided by investing activities 48,722,044 834,406 45,403
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on Notes (20,163,716) (6,948,694) (9,145,046)
Purchase of U.S. government securities (22,342,580) -- --
Distribution to members (3,954,230) -- --
------------ ------------ ------------
Net cash used in financing activities (46,460,526) (6,948,694) (9,145,046)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 5,896,839 769,898 (485,659)
Cash and cash equivalents (including segregated cash and
cash equivalents) at beginning of year 12,211,825 11,441,927 11,927,586
------------ ------------ ------------
Cash and cash equivalents (including segregated cash and
cash equivalents) at end of year $ 18,108,664 $ 12,211,825 $ 11,441,927
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 2,630,453 $ 4,043,582 $ 4,790,832
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-7
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION
NYLIFE Structured Asset Management Company Ltd. (the "Company" or "SAMCO") is a
limited liability company formed under the laws of the State of Texas on October
18, 1991. A limited liability company offers its equity investors limited
liability protection while providing them with flow through tax treatment.
SAMCO has two members. The principal member is NYLIFE SFD Holding Inc. ("SFD
Holding"), formerly NAFCO Inc. The other member is NYLIFE Depositary Corporation
("NDC"). Both members are Delaware corporations and wholly owned subsidiaries of
NYLIFE Inc. (a direct wholly owned subsidiary of New York Life Insurance
Company, "New York Life"). Certain directors and officers of SFD Holding have
been designated as managers of SAMCO. A manager of a limited liability company
is similar to a director of a corporation, and may designate one or more persons
as officers of the limited liability company.
On January 15, 1992, SFD Holding and NDC (collectively, the "Members") purchased
membership interests in SAMCO of 83.33% and 16.67%, respectively. SFD Holding
made an initial capital contribution to SAMCO of 500 shares of $1 par value,
non-voting, non-convertible, 24.39% cumulative preferred stock of NYLIFE Bridge
Investor Inc. ("NBII"), a subsidiary of SFD Holding prior to its liquidation on
June 30, 1993. The preferred stock was originally valued by SAMCO at $5,000,000
which represents SFD Holding's recorded carrying value for the preferred stock.
NDC made an initial capital contribution of $1,000,000 in cash. SAMCO had no
operations prior to January 15, 1992.
SAMCO issued secured five year floating rate notes and secured five year
fixed rate notes (the "Notes"), in order to finance the acquisition of security
alarm monitoring contracts (the "Contracts"). Such Contracts consisted of the
obligations and payment rights with respect to monitoring services, and in
certain instances repair and maintenance services, for security alarm systems in
residential homes and light commercial businesses. Security alarm monitoring is
the process of notifying designated parties (either individuals or public
authorities) if an unauthorized entry, fire, medical or other emergency signal
from a customer alarm system is received at a central monitoring station.
All references in these Notes to the Financial Statements to "Servicer" shall
mean Westinghouse Electric Corporation ("Westinghouse") with regard to all
periods prior to December 31, 1996, and WestSec, Inc. ("WestSec"), a
subsidiary of Western Resources, Inc. ("Western") with regard to the period
from January 1, 1997 to November 24, 1997 (see Note 3 regarding the Consent
Agreement). On November 24, 1997, Western, Inc. (the parent of WestSec and
Westar) and Protection One, Inc. ("Protection One") combined their security
service businesses to form the second largest
F-8
<PAGE>
U.S. burglar and fire alarm company. Western owns 80.1% of the combined company.
Subsequent to the combination, Servicer shall mean Protection One.
ACTIVITIES IN 1999
As mentioned in Note 5, during 1998 SAMCO sold all of its security alarm
monitoring contracts to Protection One. In 1999, SAMCO's sole source of
revenue will be interest income from its cash and cash equivalents. SAMCO's
remaining obligations include accrued liabilities, ongoing general and
administrative expenses and the debt service on the Series C Notes until
their maturity on August 16, 1999. SAMCO's December 31, 1998 cash and cash
equivalents balance of $18.1 million and its $22.3 million of United
States government securities, in addition to investment interest and
principal payments to be received in 1999, is substantially in excess of its
remaining obligations.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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 the estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid money market
funds. Such funds invest in short-term obligations of the United States
government. The carrying value of cash and cash equivalents approximates fair
value. As mentioned earlier, SAMCO intends to distribute all remaining cash
and cash equivalents to the Members during 1999.
SEGREGATED CASH AND CASH EQUIVALENTS
Under the terms of the Indenture dated July 15, 1992 between the Company and
U.S. Trust Company of New York (the "Trustee"), cash receipts for each series of
Notes are maintained in a segregated account and used to pay obligations to
Noteholders and fees and expenses related to such series. Such receipts are
invested by the Trustee in highly liquid money market funds. Such funds invest
in short-term obligations of the United States government. The carrying value of
segregated cash and cash equivalents approximates fair value.
SEGREGATED INVESTMENTS IN U.S. GOVERNMENT SECURITIES
Pursuant to section 7.1(b) of the Indenture, short-term investments in
Treasury Notes and Treasury Bills issued by the United States government were
deposited with the Trustee. The securities have an aggregate value that is
sufficient to pay principal and interest to the Series C Noteholders on the
remaining distribution dates of February 16, 1999, May 17, 1999 and at
maturity on August 16, 1999. The carrying value of segregated investments in
U.S. government securities approximates fair value.
DEBT ISSUANCE COSTS PAID TO AFFILIATES
Costs incurred in the issuance of Notes, including underwriting discounts,
offering and organization costs and financial advisory fees, were capitalized
and amortized using the interest method over the life of the Notes. Concurrent
with the sale of its remaining security alarm monitoring contracts in
December 1998, SAMCO expensed its remaining debt issuance costs.
MONITORING REVENUE RECOGNITION
The Company derived its revenues almost exclusively from the receipt of customer
payments for alarm monitoring services. The Company recognized revenue as the
monitoring services were provided (accrual basis). The allowance for
uncollectible monitoring revenue represents receivables greater than 90 days
past due. SAMCO sold all of its security alarm monitoring contracts in 1998
and will therefore have no monitoring revenues in 1999.
MONITORING FEES
Servicer is entitled to payment of 25% of aggregate monthly revenue ("AMR") for
the performance of monitoring services under the Contracts (the "Servicer Basic
Monitor Fee"), the effect of which is that Servicer will receive the Servicer
Basic Monitoring Fee before the Noteholders receive their quarterly payments.
Servicer is also entitled to an additional 10% of AMR for the performance of
such services (the "Servicer Subordinated Monitoring Fee") which is subordinate
to the payment of (i) the Servicer Basic Monitoring Fee, (ii) principal and
interest on the Notes, (iii) taxes on operating income and (iv) administrative
expenses. SAMCO sold all of its security alarm monitoring contracts in 1998
and will therefore have no monitoring fees in 1999.
F-9
<PAGE>
VALUATION ADJUSTMENT OF SECURITY ALARM MONITORING CONTRACTS From inception
through December 31, 1996, the Company's investment in Contracts was
amortized over the estimated lives of the Contracts of approximately 12
years, as adjusted for attrited (terminated) Contracts. Upon attrition of
Contracts, the remaining book value of the Contract is written off. On
December 31, 1996, the Company, under Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS No. 121), reclassified its
Investment in Security Alarm Monitoring Contracts as held for sale. In
accordance with SFAS 121, the Company has reported such Contracts at the
lower of carrying amount or fair value less cost to sell and has discontinued
amortization of the Contracts effective December 31, 1996. The Company
applies SFAS 121 on a contract-by-contract basis. SAMCO sold all of its
security alarm monitoring contracts in 1998.
INCOME TAXES No provision for federal income taxes is recorded in the
financial statements because the Company is not subject to federal income
taxes. The tax effect of its activities accrues to the Members.
NOTE 3 - SALE OF THE SECURITY BUSINESS BY WESTINGHOUSE IN 1996
CONSENT AGREEMENT
On December 30, 1996, Westinghouse sold its security alarm business to WestSec.
In connection with the sale, Westinghouse assigned all of its rights, title and
interest under the Operational Services Agreement (the "OSA") to WestSec, and
WestSec assumed all of Westinghouse's liabilities and obligations under the OSA.
In conjunction with Westinghouse's sale and assignment and WestSec's assumption,
the Company, Westinghouse, WestSec and Westar Capital, Inc. an affiliate of
WestSec ("Westar"), entered into a Consent, Assignment, Assumption, and
Modification Agreement ("the Consent Agreement").
Pursuant to the Consent Agreement, Westar has guaranteed all obligations and
liabilities of WestSec under the OSA and various related agreements
(collectively the "OSA Agreements"), Westinghouse has agreed to remain liable
under certain specified obligations in the OSA Agreements, and Westar has agreed
to furnish to the Company an irrevocable letter of credit to secure certain
obligations of Westar, WestSec and Westinghouse under the OSA Agreements.
CONTRACT PURCHASE
In connection with the Consent Agreement, WestSec committed to purchase, and the
Company committed to sell, the Contracts securing each Series of Notes at fixed
dates in the future for a determinable price; such price is supported by a
letter of credit from WestSec and, subject to certain conditions, guarantees by
Westinghouse. The Company expected to realize a gain on each of these future
sales. As a result of entering into the Consent Agreement, the Company has under
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS No. 121), reclassified its Investment in Security Alarm Monitoring
Contracts as held for sale. In accordance with SFAS 121, the Company reported
such Contracts at the lower of carrying amount or fair value
F-10
<PAGE>
less cost to sell and discontinued amortization of the Contracts effective
December 31, 1996.
LETTER OF CREDIT
The Consent Agreement required WestSec to furnish to SAMCO a clean, irrevocable
and unconditional letter of credit issued by and drawn upon a "AA" rated bank,
in form and substance reasonably satisfactory to SAMCO and Westinghouse, in
favor of SAMCO in the amount of $85 million (the "LC"). The LC secured
obligations of Westar, WestSec and Westinghouse under the OSA Agreements and the
Consent Agreement.
On May 22, 1997, SAMCO received the LC in the aggregate amount of $85,000,000
from The Chase Manhattan Bank. The LC was provided to SAMCO in accordance
with the provisions of the Consent Agreement. The LC secured certain
obligations owed to SAMCO under the Consent Agreement and the OSA Agreements.
In addition, SAMCO and WestSec entered into a letter agreement dated May 21,
1997 memorializing certain collateral agreements and understandings related
to the LC.
The LC was terminated pursuant to the Settlement Agreement. See "Note 5
- -Security Alarm Monitoring Contracts and Notes Payable."
NOTE 4 - ISSUANCE OF NOTES AND ACQUISITION OF CONTRACTS
SERIES A, SERIES B, AND SERIES C NOTES During the year ended December 31,
1992, SAMCO issued three traunches of its Secured Five Year Notes: Series A,
Floating Rate (the "Series A Notes") in the amount of $25,000,000. At
issuance, the Series A Notes were collateralized by 33,029 Contracts.
During the year ended December 31, 1993, SAMCO issued its Secured Five Year
Notes: Series B, Floating Rate (the "Series B Notes") in the amount of
$9,417,821. At issuance, the Series B Notes were collateralized by 10,768
Contracts.
During the years ended December 31, 1994 and December 31, 1993, SAMCO issued
three traunches of its Secured Five Year Notes: Series C, Fixed Rate (the
"Series C Notes") in the amount of $45,000,000. At issuance, the Series C Notes
were collateralized by 52,840 Contracts.
Interest is payable quarterly on each February 15, May 15, August 15 and
November 15 prior to maturity and on the maturity date. Scheduled principal
payments are calculated to retire 5% of the original principal amount of the
Series A Notes, Series B Notes, and Series C Notes each year. Principal is
payable quarterly on February 15, May 15, August 15 and November 15. In
addition, after payment of all subordinated amounts and the establishment of
necessary reserves, if any, excess cash, if any, is required to be distributed
to Noteholders quarterly as additional principal. The first principal payments
on the Series A, Series B, and Series C Notes were made on February 15, 1993,
August 15, 1993, and August 15, 1994, respectively.
F-11
<PAGE>
The Series A and Series B Notes bear interest on the outstanding principal at a
per annum floating rate of 2.50 percentage points above the minimum denomination
five-year certificate of deposit average rate, as reported by Bank Rate Monitor
in its last report of the immediately preceding calendar quarter, but in no
event less than 9% per annum or more than 11% per annum. Accordingly, at
December 31, 1997, the rate on the Series A and Series B Notes was 9%.
The Series C Notes bear interest on the outstanding principal at a per annum
rate of 9%.
ATTRITION GUARANTEES- SERIES A, SERIES B, AND SERIES C NOTES
Westinghouse, as seller of Contracts to the Company, had the obligation to
provide guarantees that capped the Company's exposure to attrition. Such
guarantees generally capped attrition at 0% for a period of time after
acquisition followed by a period of time during which attrition is capped
annually at certain percentages. During the period when a 0% attrition
guarantee was in effect, Westinghouse generally had the option to replace
attrited accounts either with cash (in an amount equal to the original
purchase price paid to Westinghouse for the attrited account) or with
replacement Contracts. Among other things, a replacement Contract must be
current in all payments due from the customer and must have a RMR not less
than the attrited account being replaced. A 0% attrition guarantee provides
that SAMCO may lose no more than three months of revenue for each attrited
Contract. Pursuant to the Consent Agreement, all Contracts originally
purchased by the Company were to be covered by attrition guarantees provided
by the Servicer.
Attrition guarantees for Contracts owned by the Company were as follows:
SERIES A - During 1993, 1994, 1995, and 1996, approximately one-half of the
Series A Contracts had guarantees capping attrition while the balance were no
longer under guarantee. The guaranteed Contracts had attrition caps of 7%, 7%,
8%, 8% in 1993, 1994, 1995, and 1996, respectively. Pursuant to the Consent
Agreement, all Series A Contracts were guaranteed for 1997 and for the period
January 1, 1998 to February 15, 1998, with attrition caps of 9% and 1.125%,
respectively.
SERIES B - For the Series B Contracts, Servicer guaranteed (i) that during the
seven-month period ending October 31, 1993, attrited accounts would not exceed
0%; and (ii) during each of the four 12 month periods commencing on November 1,
1993 and ending on October 31, 1997, attrited accounts will not exceed 9.25%.
Westinghouse had the option during the period when its 0% attrition guarantee
was in effect to replace attrited accounts either with cash (in an amount equal
to the original purchase price paid to Westinghouse for the attrited account) or
with replacement Contracts. When the 9.25% attrition guarantee is in effect,
Servicer must replace attrited accounts with Contracts.
SERIES C - For the Series C Contracts acquired on June 30, 1993, Servicer
guaranteed (i) that during the 12 month period ending June 30, 1994, attrited
accounts would not exceed 0%; and (ii) during each of the four 12 month periods,
commencing on July 1, 1994 and ending on June
F-12
<PAGE>
30, 1998, attrited accounts will not exceed 10%; and (iii) during one final
three month period commencing on July 1, 1998 and ending on October 31, 1998,
attrited accounts will not exceed 2.5%.
For the Series C Contracts acquired on November 30, 1993 and February 28, 1994,
the respective 0%, 12 month guarantee periods expired on November 30, 1994 and
February 28, 1995; the respective 10%, 12 month guarantee periods were from
December 1, 1994 to November 30, 1998 and from March 1, 1995 to February 28,
1999.
For the Series C Contracts, Westinghouse had the option during the period when
its 0% attrition guarantee was in effect to replace attrited accounts either
with cash (in an amount equal to the original purchase price paid to
Westinghouse for the attrited account) or with replacement Contracts; provided,
however, that Westinghouse could not have replaced more than half of the
Contracts which became attrited accounts in any calendar month with cash.
Pursuant to the Consent Agreement, WestSec replaced all Series C accounts above
an attrition cap of 10% with Contracts. When the 10% attrition guarantee is in
effect, the Servicer was to replace attrited accounts with Contracts.
During 1997 and 1998, gross attrition for each series exceeded the respective
attrition guarantee caps. Attrited accounts in excess of the caps were replaced
by the Servicers in accordance with the applicable attrition guarantees.
INVESTMENT CONTRACTS - 5,035 of the Contracts acquired on June 30, 1993,
November 30, 1993 and February 28, 1994 were not utilized as collateral for the
Company's Series C Notes. The attrition guarantees for these Contracts were
identical to those of the Series C Contracts described above.
NOTE 5 - SECURITY ALARM MONITORING CONTRACTS AND NOTES PAYABLE
DISPOSITION OF ASSETS AND MATURITY OF SERIES A NOTES
In February 1998, SAMCO sold to WestSec for $15,107,145, the Contracts and
related assets which constituted the collateral securing SAMCO's Series A Notes.
The transaction was consummated pursuant to the OSA and the Consent Agreement. A
portion of the proceeds of the sale were used to pay all outstanding principal
and accrued interest on the Series A Notes on February 17, 1998, the maturity
date of such Notes. SAMCO recognized a gain of approximately $8.0 million on the
sale of the Series A Contracts.
Concurrent with the sale, SAMCO and WestSec instructed The Chase Manhattan Bank
to reduce the letter of credit to $54,338,000 in accordance with its terms.
DISPOSITION OF ASSETS AND MATURITY OF SERIES B NOTES
In August 1998, SAMCO sold to WestSec the Contracts and related assets which
constituted the collateral securing SAMCO's Series B Notes. The transaction was
consummated pursuant to the OSA and the Consent Agreement. The purchase price of
the Series B Contracts was in dispute.
F-13
<PAGE>
The Consent Agreement obligated WestSec to pay the greater of fair market value,
as determined by an independent appraisal firm, or 30 times the recurring
monthly revenue ("RMR") of the Contracts purchased. In the absence of a
third-party appraisal specific to the Series B Contracts on the closing date,
WestSec paid SAMCO $4,722,490 which represented the floor price of 30 times RMR.
SAMCO subsequently drew on a Letter of Credit from Chase Manhattan Bank in the
amount of $2,343,658 which represents (i) the difference between the value of
the Series B Contracts using a multiple of 41 times RMR pursuant to a valuation
of the Series A Contracts in February 1998 by KPMG Peat Marwick LLP and (ii) the
value of so called "person reassignment accounts" (see Note 4) at 41 times RMR.
A portion of the proceeds of the sale were used to pay all outstanding principal
and accrued interest on the Series B Notes on August 17, 1998, the maturity date
of such Notes. SAMCO recognized a gain of approximately $3.8 million on the sale
of the Series B Contracts.
DISPOSITION OF ASSETS AND DEFEASANCE OF SERIES C NOTES
On December 17, 1998, SAMCO sold to Protection One Alarm Monitoring, Inc., as
successor by merger to WestSec, its remaining security alarm monitoring
contracts and related assets, including those which constituted the collateral
securing SAMCO's Series C Notes. The purchase price for the contracts and
related assets was $29.5 million. SAMCO recognized a gain of approximately $4.8
million on the sale of its remaining Contracts.
The transaction was consummated pursuant to a Settlement Agreement dated
December 17, 1998 between SAMCO and WestSec (the "Settlement Agreement") which
resolved the litigation between the parties described hereafter in "Note 7-Legal
Proceedings."
A portion of the proceeds of the sale were used to purchase United States
Government obligations which were deposited with United States Trust Company
of New York (the "Trustee") pursuant to section 7.1(b) of the Indenture
between SAMCO and the Trustee dated July 15, 1992 (the "Indenture"). The
securities have an aggregate value that is sufficient to pay principal and
interest to the Series C Noteholders on the remaining distribution dates of
February 16, 1999, May 17, 1999 and at maturity on August 16, 1999. Under
section 7.1(b) of the Indenture, upon the aforesaid deposit and satisfaction
of certain other conditions, SAMCO is entitled to be relieved of its
obligations under the Series C Notes, the Indenture and the Security
Agreement between SAMCO and the Trustee dated July 15, 1992 (the "Security
Agreement"). The Security Agreement describes the collateal securing the
Notes and the Trustee's security interest therein. SAMCO is contractually
obligated to obtain a release of the lien of the Security Agreement not later
than March 24, 1999. (See Note 8 - Subsequent Events).
F-14
<PAGE>
CARRYING AMOUNT OF SECURITY ALARM MONITORING CONTRACTS HELD FOR SALE
The carrying amount of SECURITY ALARM MONITORING CONTRACTS HELD FOR SALE in the
Statement of Financial Position at December 31, 1997 included Contracts
collateralizing Series A, B and C Notes as follows:
<TABLE>
<CAPTION>
- ---------------------------------------- ----------------------
1997
<S> <C>
- ---------------------------------------- ----------------------
Series A $ 7,821,211
- ---------------------------------------- ----------------------
Series B 3,373,794
- ---------------------------------------- ----------------------
Series C 21,121,879
-----------
- ---------------------------------------- ----------------------
Total (*) $32,316,884
- ---------------------------------------- ----------------------
</TABLE>
(*) Excludes 5,035 Contracts acquired from the June 30, 1993, November 30, 1993,
and February 28, 1994 acquisitions which are NOT collateral for any series of
Notes and therefore are not subject to the Indenture. The carrying amount of
these contracts at December 31, 1997 is $1,862,782.
Prior to the reclassification of the Contracts as held for sale effective
December 31, 1996, the Contracts were being amortized over an estimated life of
12 years, as adjusted for attrited Contracts. Amortization expense for the
period January 1, 1996 to December 30, 1996 for Series A, B and C Contracts was
$2,286,671, $877,422 and $6,208,558, respectively.
INTEREST PAYABLE and NOTES PAYABLE in the Statement of Financial Position at
December 31, 1998 and December 31, 1997 include amounts relating to Series A, B
and C Notes as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
Series C
-----------
<S> <C>
Interest payable $ 238,735
===========
Notes payable - current $20,600,090
Notes payable - non-current -0-
-----------
Total $20,600,090
===========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
Series A Series B Series C Total
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Interest payable $ 135,538 $ 52,389 $ 284,487 $ 472,414
=========== ========== =========== ===========
Notes payable - current $11,695,361 $4,520,521 $ 2,250,000 $18,465,882
Notes payable - non-current -- -- 22,297,924 22,297,924
----------- ---------- ----------- -----------
Total $11,695,361 $4,520,521 $24,547,924 $40,763,806
=========== ========== =========== ===========
</TABLE>
F-15
<PAGE>
NOTE 6 - RELATED PARTIES
DUE TO AFFILIATES in the Statement of Financial Position at December 31, 1998
and December 31, 1997, includes (i) the asset management fee payable to SFD
Holding of $78,867 and $115,567, respectively (ii) the equity return fee payable
to SFD Holding of $31,886 and $54,346, respectively, and professional fees paid
by SFD Holding on SAMCO's behalf of $-0- and $90,639, respectively.
UNDERWRITING DISCOUNTS
NYLIFE Securities Inc. (a wholly owned subsidiary of NYLIFE Inc.), the sales
agent, received Underwriting Discounts equal to 4% of the gross proceeds of the
Notes.
FINANCIAL ADVISORY FEE
SFD Holding received a Financial Advisory Fee equal to 2% of gross proceeds of
the Notes for its assistance in structuring the issuance of Notes and the
acquisition of Contracts.
OFFERING AND ORGANIZATION REIMBURSEMENT
SFD Holding received an Offering and Organizational Expense allowance of 2% of
the gross proceeds of the Notes. Any Offering and Organizational Expenses which,
when aggregated with Underwriting Discounts and the Financial Advisory Fee,
exceeded 8% of the gross proceeds of the Notes, were paid by SFD Holding.
EQUITY RETURN FEE
For providing equity (through an affiliate) to Westinghouse Security Systems,
L.P., a partnership formed in 1991 to acquire Contracts, SFD Holding is entitled
to receive annually (but paid quarterly), an amount equal to .75% of the first
12 full months of AMR. This payment is subordinate to the payment of (i) the
Servicer Basic Monitoring Fee, (ii) principal and interest on the Notes, (iii)
taxes on operating income and (iv) administrative expenses.
ASSET MANAGEMENT FEE
SFD Holding is entitled to receive an annual asset management fee equal to 1% of
the product of (A) the purchase price multiple of the Contracts then securing
the Notes, and (B) the average monthly monitoring revenues for the Contracts
then securing the Notes, with the product multiplied by (C) the aggregate number
of Contracts then securing the Notes. Such fee is subordinate to the payment of
(i) the Servicer Basic Monitoring Fee, (ii) principal and interest on the Notes,
(iii) the Servicer Subordinated Monitoring Fee, (iv) taxes on operating income,
(v) administrative expenses and (vi) the equity return fee.
NOTE 7 - LEGAL PROCEEDINGS
On March 2, 1998, WestSec filed a state court action against SAMCO in Dallas
County, Texas seeking a determination that it does not have to purchase from
SAMCO what WestSec calls "person reassignment accounts," and that it is entitled
to costs and reasonable attorneys fees. These accounts, WestSec argues, are
"accounts that are with a customer who (1) had an account owned by SAMCO which
was terminated due to the relocation of the customer and (2) entered
F-16
<PAGE>
into a new security alarm contract with WEC or WestSec at the customer's new
location within 120 days after terminating his or her account at the prior
location." WestSec contends that such accounts are not included within the
collateral securing SAMCO's Notes.
As discussed previously in Note 5, the dispute was resolved pursuant to the
Settlement Agreement.
NOTE 8 - SUBSEQUENT EVENTS
DISTRIBUTION TO SERIES C NOTEHOLDERS
On February 16, 1999, SAMCO distributed $2,102,568 to the Series C Noteholders
which included (i) interest at an annualized rate of 9.00%, (ii) the required
quarterly principal repayment of 1.25%, and (iii) additional principal repayment
of 0.024%. Subsequent to this distribution, the outstanding principal amount of
the Series C Notes is $18,964,835.
DISTRIBUTION TO MEMBERS
On March 10, 1999, SAMCO distributed $12,249,510 and $2,450,490 to SFD Holding
and NDC, respectively.
DEFEASANCE OF SERIES C NOTES
On March 19, 1999, SAMCO obtained a release of the lien of the Security
Agreement as required by Section 7.1(b) of the Indenture and was therefore
relieved of its obligations under the Series C Notes, the Indenture and the
Security Agreement.
F-17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 18,108,664
<SECURITIES> 22,342,580
<RECEIVABLES> 609,999
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,061,243
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,061,243
<CURRENT-LIABILITIES> 21,958,498
<BONDS> 20,600,090
0
0
<COMMON> 0
<OTHER-SE> 19,102,745
<TOTAL-LIABILITY-AND-EQUITY> 41,061,243
<SALES> 0
<TOTAL-REVENUES> 30,591,079
<CGS> 0
<TOTAL-COSTS> 4,286,014
<OTHER-EXPENSES> 5,002,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,396,774
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,905,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,905,634
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
