SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
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Commission File Number 0-19799
EXPRESS AMERICA HOLDINGS CORPORATION
------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 86-0670679
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two Renaissance Square, 40 North Central Avenue, 12th Floor, Phoenix, AZ 85004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 417-8100
-----------------------
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 the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
4,877,860 Shares of Common Stock outstanding on May 10, 1996
<PAGE>
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
(a) Condensed Consolidated Financial Statements........................... 3
(b) Notes to Condensed Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 8
PART II. OTHER INFORMATION
Item 1. Legal
Proceedings.................................................................. 12
Item 6. Exhibits and Reports on Form 8-K............................................. 12
Signatures................................................................................. 13
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
EXPRESS AMERICA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
- -------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 700 $ 1,858
Investments 2,377 2,100
Accounts receivable 1,410 1,253
Notes receivable 3,574 3,504
Costs assigned to management contracts acquired, less
accumulated amortization of $1,295 and $638 31,087 31,744
Furniture, fixtures and equipment, less accumulated
depreciation of $1,031 and $868 1,387 1,540
Other assets 2,103 1,496
--------------- -------------
Total assets $ 42,638 $ 43,495
=============== =============
- -------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Liabilities:
Net liabilities of discontinued operations $ 4,917 $ 4,138
Accounts payable and accrued expenses 2,937 3,297
--------------- -------------
Total liabilities 7,854 7,435
--------------- -------------
Redeemable preferred stock - 338
--------------- -------------
Stockholders' equity:
Common stock $.01 par value, authorized
10,000,000 shares, 5,377,860 shares issued
and outstanding 54 54
Less: Treasury stock, 500,000 shares (2,008) (2,008)
Additional paid-in capital 48,759 48,759
Unrealized gain on investments 255 -
Accumulated deficit (12,276) (11,083)
--------------- -------------
Total stockholders' equity 34,784 35,722
--------------- -------------
Total liabilities and stockholders' equity $ 42,638 $ 43,495
=============== =============
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenues:
Management and administrative fees $ 3,011 $ --- $ 5,992 $ ---
Distribution fees 254 --- 466 ---
Investment and other income 224 --- 353 ---
------------ ------------ ------------ -------------
Total revenues 3,489 --- 6,811 ---
------------ ------------ ------------ -------------
- ---------------------------------------------------------------------------------------------------- ------------------------------
Expenses:
General and administrative 2,005 --- 4,180 ---
Selling 1,776 --- 3,123 ---
Amortization 352 --- 702 ---
------------ ------------ ------------ -------------
Total expenses 4,133 --- 8,005 ---
------------ ------------ ------------ -------------
Loss from continuing operations (644) --- (1,194) ---
Loss from operations of discontinued mortgage business --- (76) --- (999)
------------ ------------ ------------ -------------
Net loss $ (644) $ (76) $ (1,194) $ (999)
============ ============ ============ =============
- ---------------------------------------------------------------------------------------------------- ------------------------------
Loss per common share from continuing operations $ (0.13) $ --- $ (0.24) $ ---
============ ============ ============ =============
Net loss per common share $ (0.13) $ (0.02) $ (0.24) $ (0.19)
============ ============ ============ =============
Shares used in per share calculation 4,877,860 4,913,071 4,877,860 5,124,105
============ ============ ============ =============
- ---------------------------------------------------------------------------------------------------- ------------------------------
</TABLE>
4
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,194) $ (999)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss from discontinued operations --- 999
Amortization and depreciation 951 ---
Increase in accounts receivable (249) ---
Decrease in operating liabilities (361) ---
Increase in other operating assets (653) (50)
---------- -----------
Net cash used in operating activities (1,506) (50)
---------- -----------
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sales of furniture, fixtures and equipment 115 ---
Purchases of furniture, fixtures and equipment (208) ---
Cash provided by discontinued operations 779 613
---------- -----------
Net cash provided by investing activities 686 613
---------- -----------
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Redemption of preferred stock (338) (338)
Purchase of treasury stock --- (2,008)
---------- -----------
Net cash used in financing activities (338) (2,346)
---------- -----------
Net decrease in cash and cash equivalents (1,158) (1,783)
Cash and cash equivalents, beginning of period 1,858 3,929
---------- -----------
Cash and cash equivalents, end of period $ 700 $ 2,146
========== ===========
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 35 $ 1,235
Income taxes paid 2 30
Income tax refunds received --- 269
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
Principles of Consolidation. The accompanying condensed consolidated
financial statements of Express America Holdings Corporation (the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for fair presentation have been included. Operating results
for the three and six months ended March 31, 1996 are not necessarily indicative
of the results which may be expected for the fiscal year ending September 30,
1996. For additional information, refer to the consolidated financial statements
and footnotes thereto for the fiscal year ended September 30, 1995 which are
included in the Company's Form 10-K for the fiscal year then ended.
The condensed consolidated financial statements include the account of
the Company's wholly owned subsidiary, Pilgrim America Group, Inc. ("PAG") and
PAG's subsidiaries, Pilgrim America Investments, Inc., a registered investment
advisor, and Pilgrim America Securities, Inc., a registered broker/dealer
(collectively "Pilgrim America"). Pilgrim America commenced operations upon the
Company's acquisition (the "Acquisition") of certain assets of Pilgrim Group,
Inc. on April 7, 1995. The condensed consolidated financial statements also
include the accounts of the Company's wholly-owned subsidiaries, Express America
Funding Corporation, Express America Mortgage Corporation ("EAMC"), EAMC's
wholly-owned subsidiaries, Wesav Investment Corporation and Wesav Investment
Inc.-2, and the Company's wholly owned mortgage banking subsidiaries.
Prior to April 7, 1995, the Company's principal business consisted of
mortgage banking activities, including the origination, sale, and servicing of
loans collateralized by first mortgages on residential real estate. On February
28, 1995 the Company announced the discontinuance of the remainder of its
mortgage banking operations. Consequently, all of the operating results of the
Company's mortgage banking activities are reported as loss from discontinued
operations.
Subsequent to the Acquisition on April 7, 1995, the continuing
operating activities of the Company consisted primarily of providing investment
management and related services through its subsidiaries to various open-end and
closed-end investment companies operating under the Pilgrim and Pilgrim America
names (the "Funds"). Accordingly, the results of continuing operations reported
in the condensed consolidated financial statements reflect only such activities.
Reclassifications. Certain reclassifications have been made to prior
period financial statements to conform with current period presentation.
6
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Costs Assigned to Management Contracts Acquired. Costs assigned to
management contracts acquired represents the fair value of the investment
management rights acquired in connection with the Acquisition and also
represents the excess of the purchase price (including liabilities assumed) over
the fair value of net assets acquired and resulting costs from the Acquisition.
Such amounts are being amortized on a straight-line basis over 25 years.
(2) INCOME TAXES
Deferred tax assets are initially recognized for differences between
the financial statement carrying amount and the tax bases of assets and
liabilities which will result in future deductible amounts and operating loss
and tax credit carryforwards. A valuation allowance is then established to
reduce that deferred tax asset to the level at which it is "more likely than
not" that the tax benefits will be realized. Realization of tax benefits of
deductible temporary differences and operating loss or credit carryforwards
depends on having sufficient taxable income of an appropriate character within
the carryback and carryforward periods. Sources of taxable income that may allow
for the realizations of tax benefits include (i) taxable income in the current
year or prior years that is available through carryback, (ii) future taxable
income that will result from the reversal of existing taxable temporary
differences, and (iii) future taxable income generated by future operations.
Based on an evaluation of the realizability of the deferred tax asset,
management has determined that it is not more likely than not that the Company
will realize this tax benefit. Accordingly, a tax benefit has not been recorded
in the accompanying condensed consolidated financial statements as of March 31,
1996 and for the three and six months then ended.
(3) LONG TERM DEBT
On January 25, 1996, the Company and its lender entered into a
warehousing credit agreement (the "Agreement"), whereby the lender has agreed to
provide the Company with up to $2,500,000 in financing to repurchase certain
mortgage loans relating to the Company's discontinued mortgage banking business.
Under the terms of the Agreement, the Company may borrow up to 80% of the lesser
of: (i) the repurchase price of the related mortgage loan; (ii) the remaining
principal balance of the mortgage loan; and (iii) the fair market value of the
mortgage loan. Borrowings are collateralized by the related mortgage instruments
and certain other of the Company's assets.
As of March 31, 1996 the Company has borrowed $1.72 million under the
Agreement.
As of March 31, 1996 the Company had not borrowed any funds under its
other credit agreement (the "Pilgrim America Agreement"), which provides for up
to $16 million of term loans for general business purposes and up to $10 million
of loans to finance commissions paid by the Company for sales of certain classes
of shares of the Funds subject to a contingent deferred sales charge. For
additional information on the credit agreement, refer to the consolidated
financial statements and footnotes thereto for the fiscal year ended September
30, 1995 which are included in the Company's Form 10-K for the fiscal year then
ended.
On April 19, 1996 the Company borrowed $1.5 million under the Pilgrim
America Agreement. The proceeds were used for general business purposes.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
The Company is a holding company that, through its wholly-owned
subsidiaries, provides investment management and related services for six
open-end and two closed-end funds (each a "Fund" and collectively the "Pilgrim
America Funds" or the "Funds"). The Company commenced its investment management
operations on April 7, 1995, when it consummated the acquisition (the
"Acquisition") of certain of the assets of Pilgrim Group, Inc. and its
subsidiaries (now known as Atlas Financial Group, Inc. or "Atlas") for $28.1
million and the assumption of certain liabilities.
Prior to the Acquisition, the Company had been engaged in the mortgage
banking business, deriving revenues primarily from mortgage loan servicing and
mortgage loan originations. On February 28, 1995, the Company announced the
discontinuance of all remaining mortgage banking operations and is in the
process of winding down its mortgage operations and selling its remaining
mortgage banking related assets.
Due to the Acquisition and the discontinuance of its mortgage banking
operations, the Company does not believe that results of operations for the
three and six month periods ended March 31, 1996 are comparable to the results
of operations for the same periods in Fiscal 1995. Accordingly, the results of
operations discussed herein are not being compared to the results of the
Company's discontinued mortgage banking operations for the three and six month
periods ended March 31, 1995.
Results of Operations
The Company continued its emphasis on marketing its open-end Funds to
the broker dealer community during the quarter through increased contact with
the broker dealer community. During the period, two additional wholesalers were
hired, bringing the total number of sales and marketing employees to twenty-four
at March 31, 1996.
The following table presents comparative quarterly data regarding Fund
assets under management and Fund sales since the Acquisition on April 7, 1995:
<PAGE>
Pilgrim America Funds
Selected Fund Data (Unaudited)
($000,000)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------
April 7, June 30, September 30, December 31, March 31,
1995 1995 1995 1995 1996
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Direct Sales $ -- $ 2.2 $ 6.8 $ 11.3 $ 31.5
Exchanges In (Out) (1) -- 1.6 0.2 (1.5) (1.8)
Redemptions -- (10.8) (10.7) (9.2) (11.0)
----------- ----------- ----------- ----------- -------------
Net Sales $ -- $ (7.0) $ (3.7) $ 0.6 18.7
=========== =========== =========== =========== =============
Ending Net Assets (2) $ 1,297.0 $ 1,321.3 $ 1,347.7 $ 1,372.6 $ 1,413.1
=========== =========== =========== =========== =============
</TABLE>
(1) Net exchanges from (to) the Company's sponsored money market fund.
(2) Includes dividend reinvestments and market value changes.
Three Months Ended March 31, 1996.
Revenues for the three months ended March 31, 1996 totaled $3.5
million. The major components of the Company's revenues are investment
management and administrative fees and distribution fees. The fees are based on
the average net assets managed by the Company. Net assets under management,
which totaled $1.41 billion at March 31, 1996, increased by $40.5 million during
the quarter. This increase resulted primarily from a $35.3 million increase in
the market value of managed assets and $31.5 million in direct sales of mutual
funds, offset by cash distributions paid to shareholders and Fund share
redemptions (including exchanges to the Company's sponsored money market fund)
of $13.5 million and $12.8 million, respectively.
The Company's operating expenses, which totaled $4.1 million for the
quarter, include general and administrative expenses of $2.0 million, selling
expense of $1.8 million, and amortization expense of $352 thousand. General and
administrative expenses include compensation and related expenses, occupancy and
other operating expenses related to the Company's investment management
operations and general corporate operations. Selling expenses are related to the
distribution of the Company's open-end Funds and include related salaries,
advertising and promotional expenses, production of marketing materials, and
commissions and fees paid to various broker dealers in connection with the sale
of Fund shares. Amortization expense is primarily amortization of costs assigned
to management contracts acquired.
The Company's net loss for the quarter was $644,000 or $0.13 per share,
all of which was attributable to continuing operations.
The Company recorded no gain or loss from the operations of its
discontinued mortgage business during the three months ended March 31, 1996,
compared to a loss from the discontinued mortgage
9
<PAGE>
business for the quarter ended March 31, 1995 of $76,000. The Company is
continuing to wind down its discontinued mortgage business, and the estimated
related net costs of such activities are included in the Company's condensed
consolidated balance sheets under "Net liabilities of discontinued operations".
Six Months Ended March 31, 1996.
Revenues for the six months ended March 31, 1996 totaled $6.8 million,
comprised primarily of investment management and administrative fees and
distribution fees. Fund assets under management increased by $65.4 million
during the six month period. This increase resulted primarily from a $93.3
million increase in the market value of managed assets and $42.8 million in
direct sales of mutual funds, offset by cash distributions paid to shareholders
and fund share redemptions (including exchanges to the Company's sponsored money
market fund) of $47.2 million and $23.5 million, respectively.
The Company's net loss for the six month period ending March 31, 1996
was $1.2 million or $0.24 per share, all of which was attributable to continuing
operations.
The Company recorded no gain or loss from the operations of its
discontinued mortgage business during the six months ended March 31, 1996,
compared to a loss from the discontinued mortgage business for the same period
ended March 31, 1995 of $1 million.
Liquidity
The Company intends to continue funding its investment management
operations with cash provided by operations and with borrowings obtained under
the Pilgrim America Agreement discussed in Note (3) to the accompanying
condensed consolidated financial statements and in the Company's Annual Report
filed on Form 10-K for the year ended September 30, 1995. Under the Pilgrim
America Agreement, loans may be drawn until June 30, 1996 (the "Borrowing
Termination Date). The Company currently is negotiating an extension to the
Borrowing Termination Date with its lender. Management believes that it will be
successful in extending the Borrowing Termination Date or will be able to secure
other sources of financing to fund its continuing investment management
operations.
The Company finances some of the repurchases of certain mortgages
related to its discontinued mortgage banking operations with funds borrowed
under the warehousing credit agreement discussed in Note (3) to the condensed
consolidated financial statements included herein, and believes that it will
have adequate cash necessary to continue expected future repurchases through
this agreement and through other sources.
Recent Events
Two closed-ends funds managed by the Company's wholly owned subsidiary,
Pilgrim America Investments, Inc. (the "Investment Manager"), recently held
Special Meetings of their Shareholders (each a "meeting") to vote on various
proposals presented in proxies previously mailed to shareholders, all of which
proposals were approved at the respective meetings.
At the meeting for Pilgrim Regional BankShares, Inc., (the "Fund") held
on March 15, 1996, the Fund's shareholders approved, among other proposals, an
amendment to change the Fund's name to
10
<PAGE>
Pilgrim America Bank and Thrift Fund, Inc. and a proposal that the Fund remain a
closed-end investment company.
At the meeting for Pilgrim America Prime Rate Trust (the "Trust") held
on May 2, 1996, the Trust's shareholders approved, among other proposals,
amendments to the Trust's fundamental investment policies to expand its ability
to engage in borrowing transactions to the extent permitted under the Investment
Company Act of 1940, which is currently defined as up to a maximum of 33-1/3% of
a fund's total assets (including the amunt borrowed) less all liabilities other
than borrowings. (As of March 31, 1996 the Trust's net assets were $862.6
million).
The Trust has entered into a credit agreement dated May 10, 1996 which
allows it to borrow up to $215 million with the ability to expand the commitment
to $285 million. Management believes that approximately 85% of the committed
amount will be invested continually in accordance with the Trust's investment
policies. The Trust will only borrow if the Investment Manager believes that the
costs of borrowing will be exceeded by the total return of the related
investments.
The Trust's shareholders also approved an amendment to the investment
management agreement between the Trust and the Investment Manager to provide
that the Trust pay the Investment Manager at the current rate schedule based on
the expanded base of assets (the Trust's average daily net assets plus the
proceeds of any outstanding borrowings). Based on current asset levels and the
current rate schedule, the Trust will pay the Investment Manager a combined
0.75% on the proceeds of its borrowings for investment management and
administrative services which will be provided to the Trust.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company acquired its now discontinued mortgage banking operation
from the Resolution Trust Corporation ("RTC") on May 16, 1991 following a
competitive bidding process. The Company previously disclosed that the RTC filed
a complaint in the United States District Court, District of Arizona on December
8, 1995, against the Company, Rauscher Pierce Refsnes, Inc., Smith Barney,
Harris Upham & Co., Incorporated and five individuals and their spouses
including the current CEO and CFO of the Company and two former officers of the
Company. The complaint alleges various irregularities in the bidding process and
the closing of the acquisition. The RTC has asked for at least $20 million in
actual damages and at least $60 million in punitive damages from all defendants.
The Company also is aware that the United States Attorney, District of
Arizona, had been investigating this matter. On February 22, 1996, the Company
was informed that the United States Attorney had completed the investigation and
will not pursue the matter.
The Company filed an Answer and a Motion to Dismiss with respect to the
RTC action on February 16, 1996. The Motion to Dismiss states that most of the
claims asserted by the RTC including the claim for punitive damages are
defective as a matter of law and must be dismissed. The Answer contains both
denials and affirmative defenses to the remaining claims asserted by the RTC.
The Company believes that it has strong meritorious defenses and it
will continue to vigorously defend itself against the RTC's claims.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Third Amendment to Credit Agreement dated as of April 19,
1996, by and among Pilgrim America Group, Inc., and First Bank
National Association.
27.0 Financial Data Schedules
(b) Reports on Form 8-K.
During the fiscal quarter ended March 31, 1996, the Company filed one
Current Report on Form 8-K, relating to events occurring on February
16, 1996 and February 22, 1996.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
EXPRESS AMERICA HOLDINGS CORPORATION
Date: May 14, 1996 By: /s/ James R. Reis
-------------------------
James R. Reis
Vice-Chairman and Chief Financial Officer
(Principal Accounting Officer)
13
EXHIBIT A:
THIRD AMENDMENT
TO
CREDIT AGREEMENT
----------------
THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment") dated as of April
19, 1996, by and among PILGRIM AMERICA GROUP, INC., a Delaware corporation (the
"Company"), and FIRST BANK NATIONAL ASSOCIATION, a national banking association
(the "Bank").
WITNESSETH THAT:
WHEREAS, the Company and the Bank are parties to a Credit Agreement
dated as of April 28, 1995, as amended by the First Amendment to Credit
Agreement dated as of May 31, 1995 and the Second Amendment to Credit Agreement
dated as of August 28, 1995 (as so amended, the "Credit Agreement"); and
WHEREAS, the Company and the Bank have agreed to further amend the
Credit Agreement upon the terms and conditions herein set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Defined Terms. Unless otherwise defined herein, each
capitalized term used herein shall have the meaning ascribed thereto in the
Credit Agreement.
2. Amendment to Credit Agreement. The Credit Agreement is amended
as follows:
(a) Sections 6.16, 6.17, 6.18, 6.19, 6.20, 6.21 and 6.22 are
deleted in their entirety, and the following are substituted therefor:
Section 6.16 Leverage Ratio. The Borrower will not permit the
Leverage Ratio to be more than 1.0 to 1.0 at any time.
Section 6.17 Cash Flow Leverage Ratio. The Borrower will not
permit the Cash Flow Leverage Ratio, as of the last day of any month
beginning with September 30, 1997, to be more than 4.0 to 1.0.
Section 6.18 Fixed Charge Coverage Ratio. The Borrower will
not permit the Fixed Charge Coverage Ratio, as of the last day of any
month beginning with September 30, 1997, for the Measurement Period
ending on that date, to be less than 1.50 to 1.00.
Section 6.19 Minimum Cash Balances and Cash Equivalents. The
Borrower will not permit the sum of Cash Balances and Cash Equivalents
to be less than zero at any time.
Section 6.20 Minimum Fund Balances. The Borrower will not
permit the sum of the Net Asset Values of all Advisory Funds at any
time to be less than the greater of (a) $1,250,000,000 or (b) ninety
percent of the sum of such Net Asset Values at the end of the most
recently
14
<PAGE>
completed fiscal quarter (or, in the case of a measurement at the end
of any fiscal quarter, the preceding fiscal quarter).
Section 6.21 EBITDA Margin. The Borrower will not permit the
EBITDA Margin, as the last day of any month beginning with September
30, 1997, for the Measurement Period ending on that date, to be less
than 25.0%.
Section 6.22 Loss Limitation. The Borrower and its
Subsidiaries, on a consolidated basis, shall not as at the end of any
month through December, 1995 have a cumulative net loss for the period
from the Acquisition Date through the end of such month of more than
$2,000,000. In addition, the Borrower and its Subsidiaries, on a
consolidated basis, shall not as at the end of any month during the
Borrower's fiscal year ending September 30, 1996 have cumulative
negative EBITDA of more than $1,500,000 for the period from the
beginning of such fiscal year through the end of such month.
(b) A new Section 6.24 is added to the Agreement, which
reads as follows:
Section 6.24 FY 1997 EBITDA. The Borrower and its
Subsidiaries, on a consolidated basis, shall at each date set forth
below have cumulative positive EBITDA for the period from October 1,
1996 through such date of not less than the amount set forth below
opposite such date:
Date Cumulative FYTD EBITDA
-------------------------------------------------
December 31, 1996 $ 250,000
March 31, 1997 $1,500,000
June 30, 1997 $3,000,000
September 30, 1997 $5,000,000
3. Waiver. The Company has informed the Bank that it has failed to
comply with the Minimum EBITDA Margin requirement of Section 6.21 for certain
Measurement Periods ended on or before March 31, 1996. The Company has requested
that the Bank waive such failure to comply with Section 6.21. The Bank hereby
waives the Company's failure to comply with the requirement described above for
the periods set forth above. The foregoing waiver is limited to the express
terms thereof, and shall not be construed as a waiver by the Bank of any other
term, condition, representation or covenant applicable to the Company under the
Credit Agreement or any other Loan Document. The Bank reserves all rights and
remedies available to it under the Credit Agreement, the Loan Documents and
applicable law with respect to any Default or Event of Default that may now
exist or may hereafter arise.
4. Conditions to Effectiveness of this Amendment. This Amendment shall
become effective when the Bank shall have received this Amendment, duly executed
by the Company, provided the following conditions are satisfied:
(a) Before and after giving effect to this Amendment, the
representations and warranties of the Company in Article IV of the
Credit Agreement shall be true and correct as though made on the date
hereof, except for changes that are permitted by the terms of such
agreement.
15
<PAGE>
(b) After giving effect to this Amendment, no Default and no
Event of Default shall have occurred and be continuing.
(c) No material adverse change in the business, assets,
financial condition or prospects of the Company shall have occurred
since April 28, 1995.
(d) The Company shall have paid to the Bank the amendment fee
required pursuant to Section 8.2 of the Credit Agreement.
(e) The Bank shall have received the Acknowledgments attached
hereto duly executed by Express America Holdings Corporation, Pilgrim
America Securities, Inc., and Pilgrim America Investments, Inc.
5. Acknowledgments. The Company and the Bank acknowledge that, as
amended hereby, the Credit Agreement remains in full force and effect
with respect to the Company and the Bank, and that each reference to
the Credit Agreement in the Loan Documents shall refer to the Credit
Agreement as amended hereby. The Company confirms and acknowledges that
it will continue to comply with the covenants set out in the Credit
Agreement and the other Loan Documents, as amended hereby, and that its
representations and warranties set out in the Credit Agreement and the
other Loan Documents, as amended hereby, are true and correct as of the
date of this Amendment, except as otherwise disclosed in writing to the
Bank. The Company further represents and warrants that (i) the
execution, delivery and performance of this Amendment by the Company is
within its corporate powers and has been duly authorized by all
necessary corporate action; (ii) this Amendment has been duly executed
and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms (subject to limitations as to enforceability
which might result from bankruptcy, insolvency, or other similar laws
affecting creditors' rights generally) and (iii) the conditions set
forth in paragraphs 4(a), 4(b) and 4(c) of this Amendment have all been
satisfied.
6. General.
(a) The Company agrees to reimburse the Bank upon demand for
all reasonable expenses (including reasonable attorneys fees and legal
expenses) incurred by the Bank in the preparation, negotiation and
execution of this Amendment and any other document required to be
furnished herewith, and to pay and save the Bank harmless from all
liability for any stamp or other taxes which may be payable with
respect to the execution or delivery of this Amendment, which
obligations of the Company shall survive any termination of the Credit
Agreement.
(b) This Amendment may be executed in as many counterparts as
may be deemed necessary or convenient, and by the different parties
hereto on separate counterparts, each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but
one and the same instrument.
(c) Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining portions hereof or affecting the
validity or enforceability of such provisions in any other
jurisdiction.
16
<PAGE>
(d) This Amendment shall be governed by, and construed in
accordance with, the internal law, and not the law of conflicts, of the
State of Minnesota, but giving effect to federal laws applicable to
national banks.
(e) This Amendment shall be binding upon the Company and the
Bank and their respective successors and assigns, and shall inure to
the benefit of the Company and the Bank and the successors and assigns
of the Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to Credit Agreement to be executed as of the day and year first above written.
PILGRIM AMERICA GROUP, INC.
By /s/
--------------------------
Its__________________________
FIRST BANK NATIONAL
ASSOCIATION
By /s/
-----------------------------
Its__________________________
17
<PAGE>
THE UNDERSIGNED, EXPRESS AMERICA HOLDINGS CORPORATION, HEREBY (1)
AGREES THAT EACH REFERENCE TO THE CREDIT AGREEMENT OR WORDS OF SIMILAR IMPORT
CONTAINED IN THE PLEDGE AGREEMENT DATED AS OF APRIL 28, 1995 (THE "PLEDGE
AGREEMENT") BY THE UNDERSIGNED TO FIRST BANK NATIONAL ASSOCIATION SHALL BE A
REFERENCE TO THE CREDIT AGREEMENT AS AMENDED BY THE FOREGOING AMENDMENT, (2)
CONFIRMS THAT THE PLEDGE OF THE STOCK OF PILGRIM AMERICA GROUP, INC. AND ITS
OTHER OBLIGATIONS UNDER THE PLEDGE AGREEMENT SHALL REMAIN IN FULL FORCE AND
EFFECT AFTER GIVING EFFECT TO THE FOREGOING AMENDMENT, (3) CONFIRMS AND
ACKNOWLEDGES THAT ITS REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 4 OF
THE PLEDGE AGREEMENT ARE TRUE AND CORRECT AS OF THE DATE OF THE FOREGOING
AMENDMENT, (4) AGREES THAT EACH REFERENCE TO THE CREDIT AGREEMENT AND THE
OBLIGATIONS OR WORDS OF SIMILAR IMPORT CONTAINED IN THE GUARANTY DATED AS OF
APRIL 28, 1995 (THE "GUARANTY") BY THE UNDERSIGNED TO FIRST BANK NATIONAL
ASSOCIATION SHALL BE A REFERENCE TO THE CREDIT AGREEMENT AS AMENDED BY THE
FOREGOING AMENDMENT, (5) CONFIRMS THAT ITS OBLIGATIONS UNDER THE GUARANTY SHALL
REMAIN IN FULL FORCE AND EFFECT AFTER GIVING EFFECT TO THE FOREGOING AMENDMENT,
AND (6) CONFIRMS AND ACKNOWLEDGES THAT ITS REPRESENTATIONS AND WARRANTIES SET
FORTH IN SECTION 16 OF THE GUARANTY ARE TRUE AND CORRECT AS OF THE DATE OF THE
FOREGOING AMENDMENT.
EXPRESS AMERICA HOLDINGS
CORPORATION
By /s/
---------------------------
Its________________________
18
<PAGE>
THE UNDERSIGNED, PILGRIM AMERICA INVESTMENTS, INC., HEREBY (1) AGREES
THAT EACH REFERENCE TO THE CREDIT AGREEMENT OR WORDS OF SIMILAR IMPORT CONTAINED
IN THE SECURITY AGREEMENT DATED AS OF APRIL 28, 1995 (THE "SECURITY AGREEMENT")
BY THE UNDERSIGNED TO FIRST BANK NATIONAL ASSOCIATION SHALL BE A REFERENCE TO
THE CREDIT AGREEMENT AS AMENDED BY THE FOREGOING AMENDMENT, (2) CONFIRMS THAT
THE SECURITY INTEREST IN THE ASSETS OF THE UNDERSIGNED AND ITS OTHER OBLIGATIONS
UNDER THE SECURITY AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT AFTER GIVING
EFFECT TO THE FOREGOING AMENDMENT, (3) CONFIRMS AND ACKNOWLEDGES THAT ITS
REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 23 OF THE SECURITY AGREEMENT
ARE TRUE AND CORRECT AS OF THE DATE OF THE FOREGOING AMENDMENT, (4) AGREES THAT
EACH REFERENCE TO THE CREDIT AGREEMENT AND THE OBLIGATIONS OR WORDS OF SIMILAR
IMPORT CONTAINED IN THE GUARANTY DATED AS OF APRIL 28, 1995 (THE "GUARANTY") BY
THE UNDERSIGNED TO FIRST BANK NATIONAL ASSOCIATION SHALL BE A REFERENCE TO THE
CREDIT AGREEMENT AS AMENDED BY THE FOREGOING AMENDMENT, (5) CONFIRMS THAT ITS
OBLIGATIONS UNDER THE GUARANTY SHALL REMAIN IN FULL FORCE AND EFFECT AFTER
GIVING EFFECT TO THE FOREGOING AMENDMENT, AND (6) CONFIRMS AND ACKNOWLEDGES THAT
ITS REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 16 OF THE GUARANTY ARE
TRUE AND CORRECT AS OF THE DATE OF THE FOREGOING AMENDMENT.
PILGRIM AMERICA INVESTMENTS,
INC.
By /s/
--------------------------
Its_______________________
19
<PAGE>
THE UNDERSIGNED, PILGRIM AMERICA SECURITIES, INC., HEREBY (1) AGREES
THAT EACH REFERENCE TO THE CREDIT AGREEMENT OR WORDS OF SIMILAR IMPORT CONTAINED
IN THE SECURITY AGREEMENT DATED AS OF APRIL 28, 1995 (THE "SECURITY AGREEMENT")
BY THE UNDERSIGNED TO FIRST BANK NATIONAL ASSOCIATION, SHALL BE A REFERENCE TO
THE CREDIT AGREEMENT AS AMENDED BY THE FOREGOING AMENDMENT, (2) CONFIRMS THAT
THE SECURITY INTEREST IN THE ASSETS OF THE UNDERSIGNED AND ITS OTHER OBLIGATIONS
UNDER THE SECURITY AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT AFTER GIVING
EFFECT TO THE FOREGOING AMENDMENT, AND (3) CONFIRMS AND ACKNOWLEDGES THAT ITS
REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 23 OF THE SECURITY AGREEMENT
ARE TRUE AND CORRECT AS OF THE DATE OF THE FOREGOING AMENDMENT.
PILGRIM AMERICA SECURITIES,
INC.
By /s/
--------------------------
Its_______________________
20
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<NAME> Express America Holdings
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0
0
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