<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
THE AEGIS CONSUMER FUNDING GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The aggregate filing fee of $1,400 was calculated in accordance
with Rule 0-11(c)(2) under the Securities Exchange Act of 1934, as
amended, as follows: one-fiftieth of one percent of the aggregate
consideration to be received by the Registrant, $7,000,000, in the
proposed sale transaction.
(4) Proposed maximum aggregate value of transaction:
$7,000,000
(5) Total fee paid:
$1,400
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
THE AEGIS CONSUMER FUNDING GROUP, INC.
200 NORTH COBB PARKWAY, SUITE 428
MARIETTA, GEORGIA 30062
(770) 281-7000
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
------------------------
To Our Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of The Aegis Consumer Funding Group, Inc. (the "Company") will be held
at , local time, on , 1998 at the offices of
, , Georgia for the following purposes:
1. To approve the sale by the Company of its wholly-owned subsidiary,
Systems & Services Technologies, Inc., to Adams, Viner & Mosler, Ltd., an
Illinois limited partnership, and III Associates, a Nevada general
partnership, pursuant to a Stock Purchase Agreement, dated as of January
28, 1998, for $7.0 million in cash.
2. To approve an amendment to the Amended and Restated Certificate of
Incorporation of the Company to increase the number of authorized shares of
common stock, par value $0.01 per share, from 30,000,000 to 75,000,000.
3. To elect Carl Frischling as a Class III director to the Board of
Directors to serve until the 2001 Annual Meeting of Stockholders.
4. To consider and act upon any other business that may properly come
before the Annual Meeting or any adjournment or postponement thereof.
The Board of Directors of the Company has fixed the close of business on
, 1998 as the record date for the determination of stockholders
entitled to receive notice of and to vote at the Annual Meeting or any
adjournment or postponement thereof. Shares of Common Stock can be voted at the
Annual Meeting only if the holder is present at the Annual Meeting in person or
by valid proxy. A copy of the Company's 1997 Annual Report to Stockholders is
being mailed with this Notice and Proxy Statement on or about , 1998
to all stockholders of record on the record date.
By Order of the Board of Directors
Matthew B. Burns,
Chief Executive Officer
, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE MEETING, PLEASE MARK, DATE AND SIGN THE
ENCLOSED PROXY CARD, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
AEGIS, AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 3
THE AEGIS CONSUMER FUNDING GROUP, INC.
200 NORTH COBB PARKWAY, SUITE 428
MARIETTA, GEORGIA 30062
(770) 281-7000
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement (this "Proxy Statement") is being furnished in
connection with the solicitation of proxies on behalf of the Board of Directors
(the "Board of Directors") of The Aegis Consumer Funding Group, Inc. (the
"Company") to be voted at the Annual Meeting of Stockholders (the "Annual
Meeting"), which will be held at , local time, on , 1998 at the
offices of , , Georgia . The purposes of the
Annual Meeting are as follows:
1. To approve the sale by Aegis of its wholly-owned subsidiary,
Systems & Services Technologies, Inc. ("SST"), to Adams, Viner & Mosler,
Ltd., an Illinois limited partnership ("AVM"), and III Associates, a Nevada
general partnership ("III" and, together with AVM, the "Buyers"), pursuant
to a Stock Purchase Agreement, dated as of January 28, 1998 (the "Purchase
Agreement"), for $7.0 million in cash (the "Sale Proposal").
2. To approve an amendment to the Amended and Restated Certificate of
Incorporation of the Company (the "Charter") to increase the number of
authorized shares of common stock, par value $0.01 per share ("Common
Stock"), from 30,000,000 to 75,000,000 (the "Charter Proposal").
3. To elect Carl Frischling as a Class III director to the Board of
Directors to serve until the 2001 Annual Meeting of Stockholders (the
"Director Proposal").
4. To consider and act upon any other business that may properly come
before the Annual Meeting or any adjournment or postponement thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED AND APPROVED EACH OF THE
SALE PROPOSAL, THE CHARTER PROPOSAL AND THE DIRECTOR PROPOSAL, AND RECOMMENDS
THAT AEGIS STOCKHOLDERS VOTE (I) FOR APPROVAL OF THE SALE PROPOSAL, (II) FOR
APPROVAL OF THE CHARTER PROPOSAL, AND (III) FOR APPROVAL OF THE DIRECTOR
PROPOSAL. See "The Sale Proposal -- Recommendations of the Board of Directors;
Reasons for the Sale," "The Charter Proposal" and "The Director Proposal."
RECORD DATE; VOTING RIGHTS; PROXIES
The Board of Directors has fixed the close of business on ,
1998 as the record date (the "Record Date") for determining holders entitled to
notice of and to vote at the Annual Meeting.
As of the Record Date, there were 30,000,000 shares of Common Stock issued
and outstanding, each of which entitles its holder to one vote, and there were
25,128 shares of non-voting preferred stock, par value $0.10 per share, of the
Company (the "Preferred Stock") issued and outstanding. All shares of Common
Stock represented by properly executed proxies will, unless such proxies have
been previously revoked, be voted in accordance with the instructions indicated
in such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF COMMON STOCK
WILL BE VOTED IN FAVOR OF (1) APPROVAL OF THE SALE PROPOSAL, (2) APPROVAL OF THE
CHARTER PROPOSAL, AND (3) APPROVAL OF THE DIRECTOR PROPOSAL. The Company does
not know of any matters other than as set forth herein that are to come before
the Annual Meeting. If any other matter or matters are properly presented for
action at the Annual Meeting, the persons named in the enclosed form of proxy
will have the discretion to vote on such matters in accordance with their best
judgment, unless such authorization is withheld. A stockholder who has given a
proxy may revoke it at any time prior to its exercise by giving written notice
of revocation to the Secretary of the Company, by signing and returning a later
dated proxy, or
<PAGE> 4
by voting in person at the Annual Meeting. However, mere attendance at the
Annual Meeting will not in and of itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting who will determine whether or
not a quorum is present. Shares represented by proxies that are marked "abstain"
will be counted as shares present for purposes of determining the presence of a
quorum on all matters. Brokers holding shares for beneficial owners in "street
name" must vote those shares according to specific instructions they receive
from the owners. However, brokers have discretionary authority to vote on
"routine" matters. Absent specific instructions from the beneficial owners in
the case of "non-routine" matters, the brokers may not vote the shares. "Broker
non-votes" result when brokers are precluded from exercising their discretion on
certain types of proposals. Other than the Director Proposal, none of the
matters being proposed at the Annual Meeting are "routine" matters. Shares that
are voted by brokers on some but not all of the matters will be treated as
shares present for purposes of determining the presence of a quorum on all
matters, but will not be treated as shares entitled to vote at the Annual
Meeting on those matters as to which instructions to vote is not provided by the
owner.
SOLICITATION OF PROXIES
In addition to the solicitation of proxies by mail, the Company may solicit
proxies by personal interview, telephone, telegraph or telefacsimile. The
Company will bear the cost of solicitation of proxies and has retained Corporate
Investor Communications, Carlstadt, New Jersey, to aid in the distribution of
the proxy materials at an estimated cost of $150 plus reimbursement of
reasonable out-of-pocket expenses. On behalf of the Company, Corporate Investor
Communications will reimburse brokers, banks and others who are record holders
of Common Stock for reasonable expenses incurred in obtaining voting
instructions from the beneficial owners thereof.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Common Stock is necessary to
constitute a quorum at the Annual Meeting.
REQUIRED VOTE
The affirmative vote of a majority of the outstanding shares of Common
Stock is required to approve the Sale Proposal and the Charter Proposal.
Accordingly, abstentions and broker or stockholder non-votes will have the same
effect as a negative vote. The approval of the Director Proposal requires a
plurality of the votes cast at the Annual Meeting. For election of a director
pursuant to the Director Proposal, votes that are withheld will be excluded
entirely from the vote and will have no effect. The Company has been informed by
III that PCG Management, Inc., Robert I. Weingarten and Atlas Holdings Group,
Inc. have granted proxies to the Buyers to vote the shares of Common Stock they
own (which, together with the shares of Common Stock held by an affiliate of
III, represents in the aggregate approximately 65.2% of the outstanding shares
of Common Stock as of the date hereof) in favor of the Sale Proposal.
THE MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF THE COMPANY. ACCORDINGLY, THE STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
The date of this Proxy Statement is , 1998.
<PAGE> 5
PROPOSAL NO. 1
SALE OF SST
GENERAL
The Company is the sole stockholder of SST, through which the Company
conducts its loan servicing operations. The loan servicing business contributed
substantially no consolidated gross revenues during the fiscal year ended June
30, 1997 and approximately 36% of the Company's consolidated gross revenues for
the six months ended December 31, 1997. During the fiscal year ended June 30,
1997, the loan servicing business reported a pre-tax net loss of approximately
$1.2 million but, during the six months ended December 31, 1997, reported a
pre-tax net income of approximately $2.3 million.
The Company has entered into the Purchase Agreement for the purpose of
raising working capital while retaining an assignable Repurchase Option (as
defined herein) to repurchase all of the capital stock of SST sold to the
Buyers. In accordance with the terms and conditions of the Purchase Agreement,
the Company is to sell all of the shares of capital stock of SST (the "SST
Shares") to the Buyers for an aggregate of $7.0 million in cash. See
"-- Purchase Price; Use of Proceeds." The Board of Directors believes that the
Sale is in the best interests of the Company and its stockholders. See
"-- Background and Reasons for the Sale." Accordingly, the Board of Directors
has unanimously approved the Sale Proposal and unanimously recommends that the
stockholders vote for the approval of the Sale Proposal.
The following description of the Purchase Agreement is qualified in its
entirety by reference to the full text of the Purchase Agreement, which is
attached hereto as Annex A. Stockholders are urged to read the following
description of the Purchase Agreement, as well as Annex A, carefully and in
their entirety.
INFORMATION ABOUT THE BUYERS
The descriptions of the Buyers set forth below under this caption
"Information About the Buyers" has been furnished to the Company by the Buyers
or their respective representatives, and neither the Company nor any of its
representatives has independently verified the accuracy of such descriptions.
AVM is an Illinois limited partnership which is a registered broker-dealer
and a member of National Association of Securities Dealers. AVM, formed in 1984,
is also registered with the Commodity Futures Trading Commission (the "CFTC")
and National Futures Association as a Futures Commission Merchant. III, a Nevada
general partnership with operations since 1982, is a Commodity Pool Operator and
a Commodity Trading Advisor registered with the CFTC. III is the general partner
of III Limited Partnership, an investment partnership with capital in excess of
$400 million, and III also serves as an advisor for several other offshore
investment funds. There are no affiliations or transactions between the Buyers
and their affiliates, on the one hand, and the Company and its affiliates, on
the other hand, except as hereinafter set forth.
III Offshore Advisors, an affiliate of III, serves as the investment
advisor for The High Risk Opportunities Hub Fund, Ltd. (the "Hub Fund"), which
owned as of the Record Date approximately 44% of the outstanding shares of
Common Stock. The Hub Fund also owns 21 shares of Series C Preferred Stock of
the Company, which is convertible into shares of Common Stock. However, the
Company does not currently have any authorized but unissued shares of Common
Stock to issue upon such conversion. See "The Charter Proposal." Through its
ability to direct investment in the Company through the Hub Fund, as of May 1,
1998, III Offshore Advisors may be deemed a beneficial owner of an aggregate of
approximately 45.6% of the shares of Common Stock. Such percentage of beneficial
ownership is subject to fluctuation because the applicable conversion price of
the Series C Preferred Stock is based upon the market price of Common Stock.
The Hub Fund also owns 946.903 shares of Class D Redeemable Preferred Stock
of the Company. In addition, III Finance Ltd. ("III Finance"), another affiliate
of III, owns additional 16,159.877 shares of Class D Redeemable Preferred Stock
of the Company. Such shares of Class D Redeemable Preferred Stock are redeemable
at the election of the holder thereof at any time. Upon any such election, the
Company has the
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<PAGE> 6
option to pay the redemption price in Common Stock of the Company or cash. On
the date hereof, if the shares of Class D Redeemable Preferred Stock were
redeemed at the election of the holders thereof and the Company opted to issue
Common Stock therefor, an aggregate of approximately 13,576,809 shares would be
issuable.
III Finance is also a creditor of the Company with respect to its $50
million warehouse line of credit, lease warehouse facility and retained yield
line financing. In addition, in connection with its securitization transactions,
the Company's $1.0 billion purchase facility includes a commitment from III
Finance for the purchase of $350 million of trust certificates which are backed
by the Company's finance contracts.
PURCHASE PRICE; USE OF PROCEEDS
Pursuant to the Purchase Agreement, if the Sale is consummated, the Company
will receive an aggregate of $7.0 million in cash (the "Purchase Price"). To
date, the Company has received down payments aggregating the entire $7.0 million
and, therefore, on the closing date, the Buyers shall have no further payment
obligations.
If the Sale is not consummated, the Company will be required to immediately
repay the down payments theretofore received from the Buyers. See
"-- Description of the Purchase Agreement -- Termination." There can be no
assurance that the Company will be able to make such repayment.
The Company has used the proceeds of the Sale for working capital and
general corporate purposes.
BACKGROUND AND REASONS FOR THE SALE
In September 1997, management approached both III Finance and Whitehall
Financial Group, Inc. ("Whitehall") requesting term financing in an amount
between $7.0 million to $7.5 million. Subsequently, meetings were held between
management of the Company and representatives of each such party resulting in
proposals from three third party financial institutions (the "Interested
Parties") and certain of the principals of III Finance (the "Principals"). Each
of the Interested Parties required, as a condition precedent to any such
financing, that III Finance release its existing lien on the capital stock of
SST for the Interested Parties to use the same as collateral for such financing.
III Finance was unwilling to release its existing lien. In response, the
Principals offered to purchase the capital stock of SST with all existing
encumbrances for $3.0 million. Following negotiations with management of the
Company, the Principals increased their offer to $7.0 million. At the time of
such negotiations, the Company was experiencing severe liquidity problems and
was in danger of being in default under its warehouse line of credit and its
financing arrangement with III Finance. The Board of Directors directed
management, with the aid of the Company's then consultant, Whitehall, to
negotiate the proposed terms of the various offers from the Interested Parties
and the Principals. After consideration, it was agreed that the Principals'
offer of $7.0 million for the purchase of 100% of the encumbered SST Shares,
with the Repurchase Option (as defined hereinafter), represented the most
advantageous alternative available to the Company under the then existing
circumstances. On November 10, 1997, the Company and the Principals executed a
letter of intent for the sale of the SST Shares, subject to the execution of a
definitive sale agreement and certain creditor and stockholder approvals.
Management of the Company and the Principals, through their respective counsel,
continued to negotiate the terms of such an agreement, until the negotiations
culminated in the execution of the Purchase Agreement dated as of January 28,
1998. Prior to such date, the Company had received aggregate down payments from
AVM and III for the sale of SST totaling approximately $4.8 million. After
January 28, 1998, the Company received additional down payments of $2.2 million,
so that the Buyers have paid the Purchase Price in full. There can be no
assurance that the Company will be able to exercise or will exercise the
Repurchase Option prior to its expiration on December 31, 1998.
EFFECT OF THE SALE ON THE COMPANY'S STOCKHOLDERS
If the Sale is consummated, the stockholders of the Company will retain
their equity interest in the Company and the Sale will not result in any changes
in the rights of the Company's stockholders.
3
<PAGE> 7
DESCRIPTION OF THE PURCHASE AGREEMENT
The following is a description of the material provisions of the Purchase
Agreement. Such description is qualified in its entirety by reference to the
complete text of the Purchase Agreement, a copy of which is attached hereto as
Annex A. Capitalized terms which are not otherwise defined in this description
or elsewhere in this Proxy Statement have the meaning set forth in the Purchase
Agreement.
Purchased Assets. Subject to the terms and conditions of the Purchase
Agreement, AVM shall purchase 2/7 of the SST Shares for $2.0 million and III
shall purchase 5/7 of the SST Shares for $5.0 million.
Purchase Price; Payment. The Purchase Price is $7.0 million. At the time
of the execution of the Purchase Agreement, AVM had made down payments on the
Purchase Price aggregating $2.0 million and III had made down payments of
approximately $2.8 million. To date, the Company has received downpayments
aggregating the entire $7.0 million Purchase Price.
Closing. The Purchase Agreement provides that the closing is to take place
on the third business day following the date of the Annual Meeting or such later
date as may be agreed upon by the parties.
Representations and Warranties. The Purchase Agreement contains various
customary representations and warranties of the Company and the Buyers. These
include, among others, (i) representations by the Company with respect to its
organization and authority, organization and capital structure of SST, financial
statements, operations since September 30, 1997, availability of assets,
governmental permits, accounts receivable and no violation of applicable laws or
court orders, litigation or regulatory action, and (ii) representations by the
Buyers with respect to organization and authority, investment intent and their
financial ability to consummate the Sale and their purchase of the SST Shares.
Covenants of the Parties. The parties have agreed to a number of covenants
including, among others, the following: (i) from the date of the Purchase
Agreement through the Closing Date, the Company will afford Buyers and their
officers, employees and authorized representatives access during normal business
hours, upon prior reasonable notice, to the offices and records of SST; (ii)
from the date of the Purchase Agreement through the Closing Date, each party
shall refrain from taking any action which would render any representation or
warranty of such party inaccurate as of the Closing Date; and (iii) from the
date of the Purchase Agreement through the earlier of December 31, 1998, the
date on which the repurchase of the SST Shares is consummated and the
termination of the Purchase Agreement, the directors comprising the entire Board
of Directors of SST shall consist of Messrs. Clifford Viner, Warren Mosler and
Matthew B. Burns, President and Chief Executive Officer of the Company, and the
SST Shares may not be voted to expand or contract the size of the Board of
Directors of SST without the prior written consent of the parties to the
Purchase Agreement. Messrs. Viner and Mosler are affiliates of the Buyers.
The parties also agreed as follows: (i) for a period of six years after the
Closing Date, the Company and the Buyers will have access to the books and
records of SST upon reasonable advance notice and during normal business hours;
(ii) each party will treat in confidence all confidential information, and (iii)
each of the parties will pay their own costs and expenses in connection with the
Purchase Agreement.
Repurchase Option. Each of the Buyers granted the Company the option (the
"Repurchase Option") to repurchase all, but not less than all, of the SST Shares
sold to the Buyers on the following terms and conditions: (i) the Repurchase
Option shall be deemed to be granted upon the closing of the Sale; (ii) the
Repurchase Option shall expire on December 31, 1998; (iii) the exercise price of
the Repurchase Option shall be an aggregate of $7.0 million plus a premium
thereon at the rate of 5% per annum from the Closing Date to and including the
date on which such repurchase is consummated, subject to a reduction in
indemnification payments made by the Company; (iv) the sale of the SST Shares to
the Company by the Buyers upon exercise of the Repurchase Option shall be
without any express or implied representation and warranty by the Buyers with
respect to any matter relating to SST or its business, assets and liabilities or
otherwise, provided that upon such sale the Buyers shall be deemed to have
represented and warranted to the Company that they have complied with the
Operating Agreements described below; and (v) the Company may assign the
Repurchase Option, prior to the Expiration Date, to a Seller Group Member
(defined as the Company or one of its affiliates, or one of their respective
successors or assigns) or one or more assignees, acting as one, upon
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<PAGE> 8
written notice to the Buyers, in which event such Seller Group Member or
assignee, as the case may be, shall have the same rights under the Repurchase
Option as the Company but (except in the case of an assignment to a Seller Group
Member) shall not be entitled to further assign such Repurchase Option.
Operating Agreements. Each of the Buyers agreed that from the date of the
Purchase Agreement until the earlier of the Repurchase Closing Date and February
12, 1999, they will cause SST: (i) to operate only in the ordinary course of
business consistent with past practice; (ii) not to declare or pay any dividends
or distribute any assets or make any loans; (iii) not to borrow any money,
permit the assets of SST to become subject to any liens or encumbrances (other
than Permitted Encumbrances), enter into any capital leases or material
operating leases or otherwise incur any material obligation or liability outside
the ordinary course of business consistent with past practice; (iv) not to offer
products or services which are competitive with products and services offered by
the Company or its affiliates on the Closing Date; (v) to apply SST's Net Cash
Flow, on a quarterly basis, to the payment of the outstanding principal balance
on the Secured Loans; (vi) not to reveal or disseminate any trade secrets or
other confidential information pertaining to SST; (vii) not to merge into or
consolidate with any person or sell all or substantially all of its assets;
(viii) to provide the Company with monthly reports with respect to SST's
financial condition, results of operations, cash flow and other reasonably
requested information; (ix) not to pay any amounts to either Buyer or to their
respective affiliates except as provided in clause (v) above, and (x) not to
terminate the employment of John Chappell as President of SST except for cause.
In addition, each of the Buyers agreed that it generally will not
hypothecate, pledge or in any way encumber (other than Permitted Encumbrances),
or sell or otherwise transfer or dispose of, the SST Shares and that, in its
capacity as a stockholder of SST, it will cooperate with the Company to enable
the Company to exercise the Repurchase Option.
The Purchase Agreement also provides that the Company shall retain SST to
service all loans and receivables purchased or originated by the Company or its
affiliates and sold to investment funds advised or managed by III, III Offshore
Advisors or their affiliates on current terms and conditions. The Company and
its affiliates will not pay any servicer for loans purchased or originated by
them and sold to any person other than such funds more than the servicing fee
payable by the Company to SST for comparable services, provided that in the
event the Company sells loans to a third party, the acquirer of such loans must
agree to SST performing loan servicing on such loans.
With respect to certain amounts owed by SST to the Company (the
"Intercompany Debt"), it was agreed that prior to the Closing Date, SST shall
repay to the Company in full, without interest, the Intercompany Debt, provided
that (a) such repayment shall be made only from, and to the extent that SST has
at the end of each of its fiscal quarters prior to the Closing Date, net income
determined in accordance with generally accepted accounting principles
consistently applied and after deduction of payments made on the Secured Loans;
(b) SST shall not be liable for or be obligated to pay to the Company any
amounts in excess of the Intercompany Debt, and (c) the Company shall continue
to provide, at its sole cost, the insurance and employee benefits provided to
SST and its employees at any time during the six months prior to the date of the
Purchase Agreement. If the Sale is consummated, on the Closing Date all
Intercompany Debt not paid by SST on or prior to the Closing Date shall be
discharged and forgiven by the Company on the Closing Date so that on the
Closing Date no amounts shall be due and payable by SST to the Company in
respect of any intercompany indebtedness or charges, provided that if the
Repurchase Option is exercised, the unpaid Intercompany Debt (plus any amounts
expended by the Company in compliance with clause (c) above) shall be payable by
SST in full. No amounts shall be due and payable to the Company or its
affiliates by SST in respect of any tax sharing arrangement or tax indemnity
arrangement which exists or may have existed involving SST or any Company Group
unless and until the Repurchase Option is exercised. On April 24, 1998, the
Buyers granted a one-time waiver to permit SST to pay the Company at any time on
or before June 1, 1998, to the extent that SST has any net income after
deduction of payments made on the outstanding principal balance on the Secured
Loans, up to $455,000 owed by SST to the Company or its affiliates in respect of
any tax sharing arrangement or agreement existing between or among them.
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Conditions to Closing. The obligation of the Company and the Buyers to
consummate the Sale are subject to the satisfaction or waiver on or prior to the
Closing of certain conditions, including the following: (i) there shall have
been no material breach in the performance of any covenant or agreement; (ii)
each party's representations and warranties shall be true and correct in all
material respects as of the Closing Date; (iii) the Sale Proposal shall have
been approved by the stockholders of the Company; (iv) no action, suit,
investigation or proceeding shall have been instituted or threatened to restrain
or prohibit or otherwise challenge the legality or validity of the Sale; (v) the
receipt of all necessary approvals; (vi) each of the lenders who are parties to
the Existing Loan Agreements shall have consented to the Sale in writing; and
(vii) immediately prior to the Closing, the Company and each of its affiliates
shall pay off and settle all obligations of the Company to SST or any affiliate
of SST.
Indemnification. The Purchase Agreement provides that, for a period equal
to the earlier of one year from the closing of the Sale or the Repurchase
Closing Date, each party will hold the other party and its affiliates harmless
against any and all Losses and Expenses incurred by such other party or
affiliate in connection with or arising from any inaccuracy of a representation,
breach of a warranty or covenant, or failure to perform any obligation under the
Purchase Agreement. The liability for indemnification relating to breaches of
warranties and inaccuracies of representations shall only apply if such Losses
and Expenses exceed $200,000 in the aggregate (but if in excess of such amount,
then for the entire amount), but in no event shall such liability exceed an
aggregate of $7.0 million with respect to the Company or the Buyers.
Termination. The Purchase Agreement provides that it can be terminated at
any time prior to the Closing Date (i) by mutual consent of the parties, (ii) by
any party if the Closing shall not have occurred on or before September 30,
1998, or (iii) by the non-breaching party in the event of any material breach of
any of the agreements, representations or warranties contained in the Purchase
Agreement and the failure to cure such breach within seven days after receipt of
notice from the non-breaching party requesting such breach to be cured. Upon
termination, the Company will be required to immediately repay the down payments
theretofore received from the Buyers (without interest for the period ending on
the termination date but with 10% interest per annum thereafter) and if such
termination occurs and the Sale Proposal has not been approved by the
stockholders of the Company, upon the written demand of the Buyers, the Company
shall execute and deliver to Buyers an irrevocable proxy, in form and substance
satisfactory to Buyers, authorizing the Buyers to vote all of the outstanding
voting stock of SST owned, directly or indirectly, by the Company or its
affiliates on any matter coming before the stockholders of SST for a vote;
provided, however, that such proxy shall terminate upon the payment in full by
the Company of the amounts referred to above.
INFORMATION INCORPORATED BY REFERENCE
The information appearing under the following captions set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, a
copy of which is being mailed with this Proxy Statement to the Stockholders, is
incorporated herein by reference:
<TABLE>
<S> <C>
Item 1: Business.
Item 2: Properties.
Item 3: Legal Proceedings.
Item 5: Market for Common Equity and Related Stockholder Matters.
Item 6: Selected Financial Data.
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 8: Financial Statements and Supplementary Data (set forth on
pages F-1 through F-23).
</TABLE>
6
<PAGE> 10
The information appearing under the following captions set forth in the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997,
a copy of which is attached hereto as Annex B, is incorporated herein by
reference:
PART I
Item 1: Consolidated Condensed Financial Statements.
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.
MARKET PRICE OF COMMON STOCK
The Company's Common Stock has been quoted for trading on the Nasdaq OTC
Bulletin Board under the symbol "ACAR" since the delisting of the Common Stock
from the Nasdaq National Market in February 1998. The following table sets
forth, for the periods indicated, the asked and bid prices (or high and low
sales prices prior to the delisting) for the Common Stock as reported on the
Nasdaq OTC Bulletin Board or the Nasdaq National Market, as applicable.
Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
PRICE OF COMMON STOCK
-------------------------
ASKED (HIGH) BID (LOW)
------------ ---------
<S> <C> <C>
Quarter ended September 30, 1997............................ $13/16 $7/16
Quarter ended December 31, 1997............................. 19/32 1/16
Quarter ended March 31, 1998................................ 5/16 5/64
Quarter ending June 30, 1998 (through May 1, 1998).......... 1/4 7/64
</TABLE>
On May 1, 1998, the asked and bid prices of the Common Stock were $ 1/8 and
$ 7/64, respectively. On November 19, 1997, the date immediately preceding the
date on which the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997 was filed with the Securities and Exchange Commission, the asked
and bid prices of the Common Stock were both $ 1/4. Such Annual Report contained
the first public disclosure concerning the execution of a letter of intent with
respect to the sale of SST.
VOTE REQUIRED
Approval of the Sale Proposal requires the affirmative vote of a majority
of the outstanding shares of Common Stock entitled to vote at the Annual
Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF COMMON
STOCK VOTE FOR APPROVAL OF THE SALE PROPOSAL.
PROPOSAL NO. 2
THE CHARTER PROPOSAL
The Board of Directors of the Company has adopted resolutions unanimously
approving and recommending to the Company's stockholders for their approval an
amendment to Section 1, Article Four of the Charter to provide therein for an
increase in the authorized shares of Common Stock to 75,000,000 shares.
The authorized capital stock of the Company currently consists of (i)
30,000,000 shares of Common Stock, all of which were issued and outstanding as
of the Record Date, and (ii) 2,000,000 shares of Preferred Stock, of which
25,128 shares were issued and outstanding as of the Record Date.
On January 13, 1998, the Hub Fund converted 85 of its total 106 shares of
Series C Preferred Stock of the Company into an aggregate of 12,332,783 shares
of Common Stock. At the time of the issuance in February 1996 to their original
purchaser, such 85 shares of Series C Preferred Stock were convertible into
approximately 150,000 shares of Common Stock. Due to the subsequent sharp
decline in the market price of
7
<PAGE> 11
Common Stock, however, the conversion price of the Series C Preferred Stock
(which is based in part upon the market price of Common Stock) also declined
sharply and resulted in the issuance of unanticipated number of shares of Common
Stock upon such conversion.
As a result, the Company does not currently have any shares available for
issuance from its authorized shares of the Common Stock. As of the May 1, 1998,
however, there were outstanding under the Company's 1994 and 1996 Stock Option
Plans options to purchase an aggregate of approximately 1,750,000 shares of
Common Stock (the "Options") and warrants to purchase an aggregate of 1,295,032
shares of Common Stock (the "Warrants"). In addition, the issued and outstanding
shares of Preferred Stock (together with the Options and Warrants, the
"Convertible Securities") were convertible into or redeemable for an aggregate
of approximately 20,505,000 shares on such date. Accordingly, the Company does
not have sufficient authorized shares of Common Stock to satisfy its obligations
with respect to the exercise, conversion or redemption of the Convertible
Securities.
The Certificate of Designation of Series C Preferred Stock provides that,
in the event that the Company's authorized but unissued shares of Common Stock
are not sufficient to effect the conversion of all outstanding shares of Series
C Preferred Stock, the Company shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose. Series C Preferred
Stock is scheduled to automatically convert on January 19, 1999 into shares of
Common Stock.
In addition, Class D, Class E and Class F Redeemable Preferred Stock of the
Company are redeemable at any time at the option of the holder thereof for
either cash or shares of Common Stock; however, if the Company is unable to
issue shares of Common Stock upon any request for redemption by the holders
because of an insufficient number of authorized but unissued shares of Common
Stock, the Company would be required to redeem such Preferred Stock for cash or
a new series of Preferred Stock (the "New Preferred Stock") that shall (i) as
nearly as possible have the same rights and other attributes as the Common Stock
and (ii) be convertible automatically into Common Stock upon amendment to the
Company's Amended and Restated Certificate of Incorporation to provide for
sufficient authorization. If the Company is unable to issue shares of Common
Stock upon a request for redemption by the holders of Class D, Class E or Class
F Redeemable Preferred Stock and determines that it is not in the best interest
of the Company to issue shares of the New Preferred Stock therefor, the Company
would be required to redeem for cash but, depending upon the then financial
condition of the Company, it may not be able to make such payment at all or, if
it is able to make such payment, its ability to meet its debt service and
working capital requirements could be materially and adversely affected.
Moreover, for so long as the Company is unable to secure stockholder
approval of the Charter Proposal, the Company will be prohibited from issuing
Common Stock in connection with financing, acquisition or other transactions,
which in turn shall preclude the Company from raising additional equity capital
or effecting acquisitions or other transactions that may be in the best interest
of the Company.
In light of the foregoing, the Board of Directors believes the
authorization of the increase in the number of shares of Common Stock is in the
best interest of the Company's stockholders and is needed for the Company to
meet its obligations to issue Common Stock upon exercise or conversion of the
Convertible Securities and is desirable to enhance the Company's flexibility in
connection with possible future actions, such as public or private offerings of
shares for cash, dividends payable in stock of the Company, possible mergers and
acquisitions, and implementation and continuation of stock-based employee
benefit plans.
The Board of Directors is required to make any determination to issue
shares of Common Stock based on its judgment as to the best interests of the
stockholders and the Company. Although the Board of Directors has no present
intention of doing so, if the stockholders of the Company approve the Charter
Proposal, the Company could issue shares of Common Stock that could make more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or other means. Such shares could be used
to create voting or other impediments or to discourage persons seeking to gain
control of the Company and could also be privately placed with purchasers
favorable to the Board of Directors in opposing such action. The mere existence
of the additional authorized shares could have the effect of discouraging
8
<PAGE> 12
unsolicited takeover attempts. The issuance of new shares also could have a
dilutive effect on the voting power of existing holders of Common Stock and on
earnings per share and could be used to dilute the stock ownership of a person
or entity seeking to obtain control of the Company should the Board of Directors
consider the action of such person or entity not to be in the best interest of
the stockholders and the Company.
While the Company from time to time may consider issuing shares of Common
Stock in connection with acquisitions, the Company currently has no plans,
agreements or understandings for issuing any shares of Common Stock for such
purposes, nor does the Company currently have any plans, agreements or
understandings for otherwise issuing any shares of Common Stock other than in
connection with the Convertible Securities. In addition, the Company currently
has no plans, agreements or understandings for issuing any shares of its already
authorized Preferred Stock. However, if this proposal is approved by the
stockholders, no assurance can be given that the Company will not consider
effecting an equity offering of Common Stock or Preferred Stock or otherwise
issuing such stock in the future for purposes of raising additional capital,
acquiring businesses or assets or otherwise.
Approval of the Charter Proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
at the Annual Meeting. If approved by the stockholders, the amendment to the
Charter will become effective upon filing with the Secretary of State of the
State of Delaware a Certificate of Amendment, which filing is expected to take
place shortly after the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF COMMON
STOCK VOTE FOR APPROVAL OF THE CHARTER PROPOSAL.
PROPOSAL NO. 3
THE DIRECTOR PROPOSAL
The Board of Directors of the Company, consisting of two members, is
divided into three classes. Currently, Class I and Class III each consists of
one director and there is no Class II director. As of December 22, 1997 and
January 21, 1998, Angelo R. Appierto and Felice Cutler resigned as a Class III
and Class I director, respectively. As of the date hereof, the Aegis Board of
Directors has not appointed directors to fill the vacancies created by Mr.
Appierto's and Ms. Cutler's resignations.
At the Annual Meeting, a director will be elected as a Class III director
whose term will expire at the 2001 Annual Meeting of Stockholders. Carl
Frischling, the Company's existing Class III director, has been nominated for
re-election at the Annual Meeting. The shares represented by the enclosed proxy
will be voted in favor of Mr. Frischling unless a vote is withheld from him. If
Mr. Frischling becomes unavailable for any reason or if a vacancy should occur
before the election (which events are not anticipated), the shares represented
by the enclosed proxy may be voted for such other person as may be determined by
the holders of such proxy.
Certain information concerning the Company's directors, including Mr.
Frischling, is set forth below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF COMMON STOCK
VOTE FOR THE ELECTION OF MR. FRISCHLING AS A CLASS III DIRECTOR.
DIRECTORS AND EXECUTIVE OFFICERS
As of December 22, 1997 and January 21, 1998, Angelo R. Appierto and Felice
Cutler resigned as a Class III and Class I Director, respectively. As of the
date hereof, the Board of Directors has not appointed directors to fill the
vacancies created by Mr. Appierto's and Ms. Cutler's resignations.
Since the beginning of the last fiscal year, the Company has either
accepted the resignations of or terminated certain executive officers. These
officers included Gary Peiffer, Joseph Battiato, Angelo R. Appierto and Jorge
Rios, the Company's general counsel, President, Chief Executive Officer and
National Sales Manager, respectively. Furthermore, as of December 16, 1997,
William Henle, Executive Vice President and Chief Operating Officer of the
Company, and, as of December 30, 1997, Dina Penepent,
9
<PAGE> 13
Executive Vice President, Chief Financial Officer and Secretary of the Company,
resigned from their respective positions with the Company.
For information concerning certain recommendation pursuant to which
directors of the Company were appointed, see "Certain Relationships and Related
Transactions" below.
The name, age (as of April 1, 1998), principal occupation, business
experience for at least the past five years and certain other information
concerning each executive officer, director and director nominee are as set
forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Matthew B. Burns........................... 55 Chief Executive Officer and President
Paul D. Fitzpatrick........................ 45 Director (Class I)
Carl Frischling............................ 61 Director (Class III)
</TABLE>
MR. BURNS has served as Chief Executive Officer of the Company since
October 15, 1997. In January 1997, Mr. Burns was appointed to also serve as
President of the Company. From July 1996 to October 1997, Mr. Burns served as
Chief Executive Officer of SST. From November 1993 to April 1995, he served as
Chief Operating Officer of the Company and from May 1995 to June 1996, he served
as an Executive Vice President of the Company in systems development. Prior to
joining the Company, Mr. Burns was Chairman and Chief Executive Officer of
Franklin Pacific, a subsidiary of Franklin Savings Association, from 1988 to
1991. From 1985 to 1987, Mr. Burns was the Chief Operating Officer and Founder
of Merrill Lynch Mortgage Capital Corporation. In 1984, he was principal manager
for all trading and hedging activities related to mortgage products for Shearson
Lehman Mortgage Corporation and from 1981 through 1983 he was involved in
trading and hedging for Shearson Lehman Brothers.
MR. FITZPATRICK has served as a Director of the Company since June 1996.
Mr. Fitzpatrick has served in various capacities at Deutsche Bank AG New York
Branch since 1979, including as Vice President/Credit Risk Review from July 1997
to present; as Vice President/Credit Risk Manager from October 1995 to July
1997; as Vice President/Senior Credit Officer, Private Banking from July 1994 to
September 1995; and as Vice President/Credit Administration from January 1992 to
June 1994. Mr. Fitzpatrick was nominated in connection with a change in control
in the Company, which occurred in February 1996, and elected as a Director to
serve a three year term expiring at the 1999 Annual Meeting of Stockholders.
MR. FRISCHLING has served as a Director of the Company since February 1996.
Mr. Frischling has been a partner of the law firm of Kramer, Levin, Naftalis &
Frankel since September 1994. From September 1992 to August 1994, Mr. Frischling
was a senior partner of the law firm of Reid & Priest. From 1979 to 1992, Mr.
Frischling was a senior partner of the law firm of Spengler Carlson Gubar
Brodsky & Frischling. He also serves as a Director on eleven fund boards of the
AIM Funds, ERD Waste Corp. and on two fund boards of the Lazard Funds. Mr.
Frischling was initially appointed as a Director in February 1996 in connection
with a change in control of the Company, to serve a two year term and is
nominated for re-election at the Annual Meeting.
No family relationship exists between any directors, nominees or executive
officers of the Company.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company,
as well as certain other compensation paid or accrued, for the fiscal years
ended June 30, 1995, 1996 and 1997 to Mr. Angelo R. Appierto, the Company's then
Chairman of the Board of Directors and Chief Executive Officer, the other three
most highly compensated executive officers of the Company who were serving as
executive officers at the
10
<PAGE> 14
end of the last completed fiscal year, and Mr. Matthew B. Burns, then Chief
Executive Officer and Chairman of SST (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------------------- UNDERLYING
FISCAL OTHER ANNUAL # OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) # SARS COMPENSATION(2)
- --------------------------- ------ -------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Angelo R. Appierto(3)...... 1995 $240,500 $ -- $ -- (4) $ --
Chief Executive Officer
and 1996 295,333 706,732(5) -- (6) 3,750
Chairman of the Board 1997 398,672 -- -- 130,000(4)(6) 4,750
Gary D. Peiffer(7)......... 1995 240,500 -- -- 75,000(7) --
General Counsel, 1996 295,333 424,039(5) -- 100,000(7) 3,750
Vice Chairman of the
Board 1997 299,666 -- 80,000(1) -- 1,625
Joseph F. Battiato(8)...... 1995 171,750 -- -- (9) --
President, Director 1996 212,000 300,346(5) -- (10) 3,750
1997 237,000 -- -- 290,000(9)(10) 3,687
Jorge G. Rios (11)......... 1995 95,833 266,860 -- (12) 248,490(13)
Executive Vice President, 1996 112,000 913,625(5) -- (14) 3,750
National Sales Manager 1997 199,500 732,845 -- 185,000(13)(14) 4,750
Matthew B. Burns........... 1995 167,330 -- -- -- --
Chief Executive Officer
and 1996 150,000 110,000 -- -- --
Chairman of SST 1997 150,000 50,000 -- -- --
</TABLE>
- ---------------
(1) The Company has concluded that the aggregate amount of perquisites and
other personal benefits paid to each of the Named Executive Officers did
not exceed the lesser of ten percent (10%) of such officer's annual salary
and bonus for each fiscal year indicated or $50,000, except for Mr. Peiffer
whose debt of $80,000 due and owing to the Company was forgiven upon his
resignation.
(2) For fiscal year 1996 and 1997 amounts reflect Company contributions to the
Company's 401(k) Plan.
(3) Mr. Appierto was terminated as Chairman of the Board and Chief Executive
Officer, effective October 14, 1997. All stock option grants (130,000 in
1997) were terminated. See "Employment Agreements."
(4) Pursuant to the terms of Mr. Appierto's Amended and Restated Executive
Employment Agreement, stock options to purchase 150,000 shares granted
under the Company's 1994 Stock Option Plan (the "1994 Plan") were cancelled
and effective April 1, 1997, fully vested options to purchase 111,423
shares were granted at an exercise price of $2.50 for a term of ten years
from the effective date of grant.
(5) Excludes $300,000, $180,000, $81,000 and $50,000, respectively, of earned
bonuses in fiscal year 1996 which were deferred until December 31, 1996 at
which time such amounts were forfeited by Messrs. Appierto, Peiffer,
Battiato and Rios, respectively. See "Employment Agreements."
(6) Pursuant to the terms of Mr. Appierto's Amended and Restated Executive
Employment Agreement, stock options to purchase 25,000 shares granted under
the 1996 Stock Option Plan (the "1996 Plan") were cancelled and effective
April 1, 1997, options to purchase 18,577 shares (one third (6,193) of
which were fully vested as of June 30, 1997 with the remaining options
vesting at an annual rate of 6,192 each year over the next two years,
ending June 30, 1999, in accordance with the terms of the 1996 Plan) were
granted at an exercise price of $2.50 for a term of 10 years from the
effective date of grant. See "Employment Agreements."
(7) Mr. Peiffer resigned as Vice Chairman of the Board and General Counsel,
effective June 18, 1997. All stock option grants (75,000 in 1995 and
100,000 in 1996) were terminated. See "Certain Relationships and Related
Transactions."
(8) Mr. Battiato resigned as President and a Director, effective September 18,
1997. All option grants (290,000 in 1997) were terminated. See "Certain
Relationships and Related Transactions."
11
<PAGE> 15
(9) Pursuant to the terms of Mr. Battiato's Amended and Restated Executive
Employment Agreement, stock options to purchase 300,000 shares granted
under the 1994 Plan were cancelled and, effective April 1, 1997, fully
vested options to purchase 259,695 shares were granted at an exercise price
of $2.50 for a term of ten years from the effective date of grant. See
"Employment Agreements."
(10) Pursuant to the terms of Mr. Battiato's Amended and Restated Executive
Employment Agreement, stock options to purchase 35,000 shares granted under
the 1996 Plan were cancelled and, effective April 1, 1997, options to
purchase 30,305 shares (one third (10,101) of which were fully vested as of
June 30, 1997 with the remaining shares vesting at an annual rate of 10,102
each year over the next two years, ending June 30, 1999, in accordance with
the terms of the 1996 Plan) were granted at an exercise price of $2.50 for
a term of 10 years from the effective date of grant. See "Employment
Agreements."
(11) Mr. Rios was terminated as Executive Vice President and National Sales
Manager, effective October 17, 1997. All stock option grants (185,000 in
1997) were terminated. See "Employment Agreements."
(12) Pursuant to the terms of Mr. Rios' Amended and Restated Executive
Employment Agreement, stock options to purchase 130,000 shares granted
under the 1994 Plan were cancelled and, effective April 1, 1997, fully
vested options to purchase 133,607 shares were granted at an exercise price
of $2.50 for a term of ten years from the effective date of grant. See
"Employment Agreements."
(13) Reflects amounts paid to the National Financing and Leasing Corporation
("NFL"), an entity controlled by Mr. Rios in connection with the purchase
of certain sales territories where NFL held exclusive rights to act as the
Company's independent marketing broker.
(14) Pursuant to the terms of Mr. Rios' Amended and Restated Executive
Employment Agreement, stock options to purchase 50,000 shares granted under
the 1996 Plan were cancelled, and effective April 1, 1997, options to
purchase 51,393 shares (one third (17,131) of which were fully vested as of
June 30, 1997 with the remaining shares vesting at an annual rate of 17,131
each year over the next two years, ending June 30, 1999, in accordance with
the terms of the 1996 Plan) were granted at an exercise price of $2.50 for
a term of 10 years from the effective date of grant. See "Employment
Agreements."
OPTION GRANTS IN FISCAL YEAR 1997
The following stock options were granted to the Named Executive Officers
during fiscal year 1997.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE PER OPTION TERM
OPTIONS EMPLOYEES IN SHARE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR (%) ($/SH) DATE 5%($) 10%($)
---- ----------- --------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Angelo R. Appierto(1).... 111,423(2) 12.13 2.50 3/31/07 175,183 443,949
18,577(3) 2.02 2.50 3/31/07 29,207 74,017
Gary D. Peiffer(4)....... 111,423(2) 12.13 2.50 3/31/07 175,183 443,949
18,577(3) 2.02 2.50 3/31/07 29,207 74,017
Joseph F. Battiato(5).... 259,695(6) 28.27 2.50 3/31/07 408,302 1,034,717
30,305(7) 3.30 2.50 3/31/07 47,647 120,746
Jorge G. Rios(8)......... 133,607(9) 12.37 2.50 3/31/07 178,617 452,651
51,393(10) 5.59 2.50 3/31/07 80,802 204,768
</TABLE>
- ---------------
(1) Effective October 14, 1997, Mr. Appierto was terminated as Chairman of the
Board and Chief Executive Officer. All stock option grants were terminated.
(2) Effective April 1, 1997, fully vested options to purchase 111,423 shares
were granted at an exercise price of $2.50 for a term of ten years from the
effective date of grant upon the cancellation of stock options to purchase
300,000 shares previously granted under the 1994 Plan. See "Employment
Agreements."
12
<PAGE> 16
(3) Effective April 1, 1997, options to purchase 18,577 shares (one third
(6,193) of which are fully vested as of June 30, 1997 with the remaining
options vesting at an annual rate of 6,192 each year over the next two
years, ending June 30, 1999, in accordance with the terms of the 1996 Plan)
were granted at an exercise price of $2.50 for a term of 10 years from the
effective date upon the cancellation of stock options to purchase 25,000
shares previously granted under the 1996 Plan. See "Employment Agreements."
(4) Effective June 18, 1997, Mr. Peiffer resigned his positions with the
Company as Vice Chairman of the Board and General Counsel. All option
grants were terminated. See "Employment Agreements."
(5) Effective September 18, 1997, Mr. Battiato resigned his positions as
President and a Director of the Company. All stock option grants were
terminated.
(6) Effective April 1, 1997, fully vested options to purchase 259,695 shares
were granted at an exercise price of $2.50 for a term of ten years from the
effective date of grant upon the cancellation of stock options to purchase
300,000 shares previously granted under the 1994 Plan. See "Employment
Agreements."
(7) Effective April 1, 1997, options to purchase 30,305 shares (one third
(10,101) of which are fully vested as of June 30, 1997, with the remaining
options vesting at an annual rate of 10,102 each year over the next two
years, ending June 30, 1999, in accordance with the terms of the 1996 Plan)
were granted at an exercise price of $2.50 for a term of 10 years from the
effective date of grant upon the cancellation of stock options to purchase
35,000 shares previously granted under the 1996 Plan. See "Employment
Agreements."
(8) Effective October 17, 1997, Mr. Rios was terminated as Executive Vice
President and National Sales Manager. All options were terminated.
(9) Effective April 1, 1997, fully vested options to purchase 133,607 shares
were granted at an exercise price of $2.50 for a term of ten years from the
effective date of grant upon cancellation of stock options to purchase
130,000 shares previously granted under the 1994 Plan. See "Employment
Agreements."
(10) Effective April 1, 1997, options to purchase 51,393 shares (one third
(17,131) of which are fully vested as of June 30, 1997 with the remaining
options vesting at an annual rate of 17,131 each year over the next two
years, ending June 30, 1999, in accordance with the terms of the 1996 Plan)
were granted at an exercise price of $2.50 for a term of 10 years from the
effective date of grant upon the cancellation of stock options to purchase
50,000 shares previously granted under the 1996 Plan. See "Employment
Agreements."
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND 1997 FISCAL YEAR-END OPTION
VALUES
The table below sets forth information relating to the exercise of options
during fiscal year 1997 by each Named Executive Officer and the fiscal year-end
value of unexercised options.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT FISCAL YEAR END FISCAL
ACQUIRED (#) YEAR END ($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE
---- ------------ ------------ -------------------- ----------------
<S> <C> <C> <C> <C>
Angelo R. Appierto(2)............. -- -- 111,423/18,577 $0/$0
Gary D. Peiffer(3)................ -- -- 0/0 0/0
Joseph F. Battiato(4)............. -- -- 259,695/30,305 0/0
Jorge G. Rios(5).................. -- -- 133,607/51,393 0/0
</TABLE>
- ---------------
(1) See "Report on Repricing of Options" below and "Option Grants in Fiscal Year
1997" above.
(2) Effective October 14, 1997, Mr. Appierto was terminated as Chairman of the
Board and Chief Executive Officer. All option grants were terminated. See
"Employment Agreements."
13
<PAGE> 17
(3) Effective June 18, 1997, Mr. Peiffer resigned his positions with the Company
as Vice Chairman of the Board and General Counsel. All option grants were
terminated. See "Employment Agreements."
(4) Effective September 18, 1997, Mr. Battiato resigned his positions as
President and a Director. All option grants were terminated. See "Employment
Agreements."
(5) Effective October 17, 1997, Mr. Rios was terminated as Executive Vice
President and National Sales Manager. All option grants were terminated. See
"Employment Agreements."
REPORT ON REPRICING OF OPTIONS
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
MARKET
PRICE OF LENGTH OF
NUMBER OF SHARES STOCK AT THE ORIGINAL
OF COMMON STOCK TIME OF EXERCISE PRICE OPTION TERM
UNDERLYING OPTIONS REPRICING AT TIME OF NEW REMAINING AT
REPRICED OR OR REPRICING OR EXERCISE REPRICING OR
AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
NAME DATE (#) ($) ($) ($) (YEARS)
---- ------ ------------------ ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Angelo R. Appierto......... 4/1/97 111,423 1.25 8.370 2.50 8
4/1/97 18,577 1.25 5.375 2.50 9
Gary D. Peiffer............ 4/1/97 111,423 1.25 8.370 2.50 8
4/1/97 18,577 1.25 5.375 2.50 9
Joseph F. Battiato......... 4/1/97 259,695 1.25 8.370 2.50 8
4/1/97 30,305 1.25 5.375 2.50 9
Jorge G. Rios.............. 4/1/97 133,607 1.25 8.370 2.50 8
4/1/97 51,393 1.25 5.375 2.50 9
</TABLE>
Each of Messrs. Appierto, Peiffer, Battiato and Rios either has resigned or
was terminated from his positions with the Company. All of their options were
terminated as a result.
Compensation Committee Report on Repricing
The Compensation Committee, which is responsible for administering the
Plans, had cancelled stock options previously granted to Messrs. Appierto,
Peiffer, Battiato and Rios and granted new options with different terms,
including a lower exercise price (twice the fair market value per share of
Common Stock on the date of the new grant). Stock options under the Plans were
designed to further compensate and provide an incentive for such employees, and
the Compensation Committee determined that the significant decline in the market
price of Common Stock since the original grant date of the options frustrated
these purposes. In addition, such repricings were partially used as an
inducement to them to enter into their respective restated employment agreements
which, among other things, reduced the terms of their employment agreements to
two years. As a result of the resignations and terminations of such persons, all
of these stock options have since been terminated.
Paul Fitzpatrick
Carl Frischling
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
reviews and approves the salaries and bonuses of the executive officers of the
Company, as well as all grants of options to purchase shares of Common Stock.
14
<PAGE> 18
Objectives
The Committee is charged with the responsibility of reviewing and approving
the compensation structures in employment agreements, whether with the current
executive officers as their employment agreements expire or with new executive
officers.
Employment Agreements
In the past, the Company has entered into employment agreements with its
executive officers. The Committee has considered the advisability of employment
agreements and has determined that, under certain circumstances, their use is in
the best interest of the Company because it facilitates the Company's ability to
attract and retain the services of highly qualified executive officers.
Components of Executive Compensation
The Company's executive compensation program consists of cash and equity
compensation components.
Cash Compensation
Cash compensation is comprised of base salary and annual cash incentive
bonuses. Each of the Named Executive Officers had an employment agreement with
the Company during the past fiscal year which was in place at the time the
Committee was established, but their respective cash compensation levels were
modified pursuant to the terms of the executive officers' respective Restated
Employment Agreements.
The Company has in the past offered its executive officers an opportunity
to earn additional cash compensation in the form of annual bonuses that are
awarded if the Company attains specific performance goals. The Committee
believes that it is appropriate that the Company's executive officers receive
lower compensation when the Company does not attain its specified performance
goals and higher compensation when the Company attains such goals.
Generally, annual bonus amounts are determined pursuant to terms provided
in the applicable employment agreements. The performance goals relating to such
bonuses for fiscal year ended June 30, 1996 were measured in terms of an annual
bonus based on the net pre-tax income as reported by Ernst & Young LLP, the
independent public auditors of the Company. A portion of the bonuses of certain
executive officers earned in 1996 was deferred and subsequently forfeited.
Equity Compensation
Equity compensation is comprised of stock option grants. Stock option
grants reflect the Committee's desire to provide a meaningful equity incentive
for the executives to cause the Company to prosper over the long term. Given the
Company's present cash position, the Committee expects stock options to become a
more significant component of the executive compensation arrangements of the
Company in the future.
Chief Executive Officer Compensation
During the fiscal year ended June 30, 1997, Angelo R. Appierto served as
Chief Executive Officer of the Company. Mr. Appierto's original employment
agreement provided for a base salary of $250,000 in the first year, $275,000 in
the second year, $300,000 in the third year and $350,000 in the fourth and fifth
years. Mr. Appierto was entitled to a bonus ranging from 1% of net pre-tax
income of the Company, if such income was less than $1 million, to 5% of net
pre-tax income, if such income was in excess of $10 million. Mr. Appierto agreed
to defer a portion of his bonus earned in 1996 and subsequently further agreed
to relinquish such portion. Mr. Appierto's restated employment agreement
provided for an annual salary of $300,000. He would have been entitled to a
bonus as described in the information captioned "Employment Agreements" below.
15
<PAGE> 19
Deductibility of Compensation
Section 162(m) of the Code generally limits to $1 million the Company's
federal income tax deduction for compensation paid in any year to its executive
officers, to the extent such compensation is not "performance based" within the
meaning of Section 162(m) The Committee will, in general, seek to qualify
compensation paid to the executive officers for deductibility under Section
162(m).
The Committee will continue to review compensation objectives and structure
of the Company and implement any such changes as it deems appropriate.
Paul Fitzpatrick
Carl Frischling
EMPLOYMENT AGREEMENTS
The Company renegotiated its prior employment agreements with each of the
Named Executive Officers (other than Mr. Burns) with such changes being
effective April 1, 1997. Mr. Appierto's, Mr. Peiffer's and Mr. Battiato's prior
agreements were each for a term of five years commencing March 1, 1994 and Mr.
Rios' prior agreement was for a term of three years commencing July 16, 1994.
Mr. Appierto's and Mr. Peiffer's prior agreements provided for a base salary of
$250,000 in the first year, $275,000 in the second year, $300,000 in the third
year and $350,000 in the fourth and fifth years. Mr. Battiato's prior agreement
provided for a base salary of $175,000 during the first year and $200,000 per
year thereafter. Mr. Rios' prior agreement provided for a base salary of
$100,000 for each year of the term, which was amended to $150,000 effective July
1, 1996. Mr. Rios was entitled to a bonus, based on production volumes, of $25
per finance contract acquired or lease originated less finance contracts or
leases which have defaulted. Each of the prior agreements (other than Mr. Rios'
prior agreement) provided for an annual bonus based on the net pre-tax income
(as defined therein) of the Company. Mr. Appierto was entitled to a bonus
ranging from 1% of net pre-tax income, if such net pre-tax income is less than
$1 million, to 5% of net pre-tax income if such net pre-tax income is in excess
of $10 million. Mr. Peiffer was entitled to a bonus ranging from 2% of net
pre-tax income, if such net pre-tax income is at least $5 million, but less than
$10 million, and 3% of net pre-tax income if such net pre-tax income is at least
$10 million. Mr. Battiato was entitled to a bonus ranging from 4% of the first
$1 million of net pre-tax income in excess of $280,000 plus 1% of net pre-tax
income in excess of $10 million. Notwithstanding the foregoing, for the fiscal
year ended June 30, 1996, Mr. Appierto, Mr. Peiffer, Mr. Battiato and Mr. Rios
each deferred and subsequently agreed to relinquish a portion of the bonuses due
them in the amounts of $300,000, $180,000, $81,000 and $50,000, respectively
($611,000 in the aggregate), pursuant to their respective prior employment
agreements.
These employment agreements were terminated, and amended and restated
employment agreements (collectively, the "Restated Agreements") were executed,
effective April 1, 1997. The term of each Restated Agreement commenced on April
1, 1997 and would have terminated on April 1, 1999 and each provided for an
annual base salary of $300,000. Mr. Battiato's Restated Agreement provided that
the $125,000 loan made by the Company to Mr. Battiato in 1996 shall be used to
offset the bonus to which he may have become entitled thereunder. See "Certain
Relationships and Related Transactions." Mr. Peiffer's Restated Agreement
provided that in order to repay $80,000 advanced by the Company on his behalf,
his annual salary would be reduced from $300,000 to $260,000 until such advance
has been repaid in full. See "Certain Relationships and Related Transactions."
Mr. Rios' Restated Agreement provided that for the period ended March 31, 1997,
he would be compensated under the terms of his employment agreement dated July
16, 1994. Mr. Rios received $50,000 of the $216,125 to which he was entitled
based on the bonus structure of his July 16, 1994 employment agreement for the
fiscal quarter ended March 31, 1997. Amounts in excess of $50,000 were offset
against the bonus amounts to which he became entitled pursuant to his Restated
Agreement. See "Certain Relationships and Related Transactions."
Each of the Restated Agreements provided for the determination of a bonus
pool to be based on an amount equal to a percentage of Consolidated Net After
Tax Income ("CNATI") and the achievement of
16
<PAGE> 20
certain targets related to Return on Assets ("ROA") for the period commencing on
July 1, 1997 and ending on June 30, 2000 (the "Bonus Period"). ROA was to be
determined by dividing the CNATI for the Bonus Period by Total Assets
(hereinafter defined) for the Bonus Period and dividing that amount by three.
CNATI means, with respect to any fiscal year, the net after-tax income of the
Company from operations currently conducted by the Company (including the
servicing and origination of automobile loans or mortgages) before extraordinary
items as reported on the audited financial statements of the Company with
respect to such period and adjusted as follows: CNATI shall be increased to
eliminate bonuses paid or payable under the Restated Agreements; reduced to
eliminate any gain accrued on sales in such fiscal year with respect to
securitization, whether or not any such securitization was effected in such
fiscal year; increased or reduced without duplication, to give effect to net
cash received or disbursed in connection with securitizations; adjusted to
eliminate any income attributable to securitization of assets by the Company
prior to the securitization designated as "97-1"; and adjusted to provide for
applicable taxes (current or deferred) on such adjustments. Total Assets is
determined by aggregating the total weighted average of assets owned by the
Company during the Bonus Period, whether such assets are owned by the Company
(including its subsidiaries) or by a special purpose vehicle (an entity created
for the purpose of effecting securitizations in which the Company has a retained
interest or which have recourse to the Company and which are not otherwise
reflected as consolidated subsidiaries on the Company's financial statements),
excluding for this purpose assets owned by the Company prior to the
securitization designated as "97-1." The bonus pool was to be allocated by the
then most senior executive among Messrs. Appierto, Battiato, Peiffer and Rios,
in such persons' discretion, among (i) such persons and (ii) the Chief Financial
Officer, any Executive Vice President and such other employees of the Company as
the Chairman shall designate.
Each Restated Agreement provided that the executive would be entitled to
the salary, bonus and benefits at the levels in effect immediately prior to
termination for the remainder of the term of the Restated Agreement (the
"Severance Period") in the event his employment is terminated by the Company
other than for cause, death or disability, or because his Restated Agreement has
not been renewed or extended, or by such executive for good reason (as each term
is defined under the Restated Agreements). Any benefits receivable by the
executive during the Severance Period shall be reduced to the extent benefits of
the same type are received by or made available to the executive during the
Severance Period. In the event the executive's employment is terminated as a
result of death or disability or by the Company for cause, or by the executive
without good reason, or in the event his Restated Agreement is not renewed or
extended, then the Company shall have no further obligations or liabilities to
the executive such that all benefits and salary (excluding bonus and any death
or disability benefits that would otherwise continue past the date of
termination) shall terminate simultaneously with the termination of the
executive's employment other than benefits and salary accrued through the date
of termination. If the employment of the executive is terminated by the Company
without cause or by the executive with good reason (as each term is defined
under the Restated Agreements), he shall be entitled to receive 100% of his
bonus at such time as the bonus otherwise becomes payable. If the employment of
the executive is terminated by the Company for cause or by the executive without
good reason (as each term is defined under the Restated Agreements) (a) during
the first year of the term of his Restated Agreement, the executive's right to
receive any portion of the bonus shall be forfeited or (b) during the second
year of the term of his Restated Agreement, he shall be entitled to receive, at
such time as the bonus otherwise becomes payable, an amount equal to one-half
( 1/2) of the bonus otherwise attributable to him. In the event that, prior to
February 1, 1999, the Company offers to the executive an extension of his
employment for at least one (1) year following the end of the term of his
Restated Agreement on terms substantially similar to those provided therein and
the executive does not accept such offer, the executive shall be entitled to
receive, at the time such bonus otherwise becomes payable, a bonus equal to
two-thirds ( 2/3) of the bonus otherwise attributable to him. In the event that,
prior to February 1, 1999, the Company does not offer to the executive an
extension of his employment for at least one (1) year following the end of the
term of his Restated Agreement on terms substantially similar to those provided
therein, the executive shall be entitled to receive, at the time such bonus
otherwise becomes payable, an amount equal to five-sixths ( 5/6) of the bonus
otherwise attributable to him. Any portion of the bonus not paid to the
executive by operation of his Restated Agreement shall be allocated in such
amounts and to such employees as the Board of Directors may in its discretion
determine. All Restated Agreements contained
17
<PAGE> 21
provisions protecting the confidentiality of information concerning the
Company's business, and do not limit the ability of such executives to compete
with the Company after such executives no longer receive a salary from the
Company. In addition, each Restated Agreement provides for certain insurance and
other benefits for the executive.
Effective June 18, 1997, Mr. Peiffer resigned his positions with the
Company as Vice Chairman of the Board and General Counsel. Mr. Peiffer's
Restated Agreement was terminated in all respects and he agreed to release and
waive any and all claims which he may have against the Company arising under or
pursuant to the Restated Agreement or any prior agreement relating to his
employment with the Company, including but not limited to claims to receive
severance or bonus payments or to exercise options to purchase shares of the
Company's stock. Upon Mr. Peiffer's resignation, the Company cancelled and
declared to be no longer due and owing by him to the Company, $80,000 advanced
by the Company on Mr. Peiffer's behalf. See "Certain Relationships and Related
Transactions".
Effective September 18, 1997, Mr. Battiato resigned his positions with the
Company as President and Director. Mr. Battiato's Restated Agreement was
terminated in all respects including his rights to any bonus payments. Mr.
Battiato's separation terms are currently under negotiation including the
possible repayment of a note in the amount of $125,000. Further all stock
options granted to him, to the extent not previously exercised, were terminated.
See "Certain Relationships and Related Transactions."
Effective October 14, 1997, Mr. Appierto was terminated as Chairman of the
Board and Chief Executive Officer. As of December 22, 1997, Mr. Appierto
resigned as a Class III Director. Mr. Appierto's Restated Agreement was
terminated in all respects including his right to any bonus payments. Further,
all stock options granted to him, to the extent not previously exercised, were
terminated. See "Certain Relationships and Related Transactions."
Effective October 17, 1997, Mr. Rios was terminated as Executive Vice
President and National Sales Manager. His Restated Agreement was terminated in
all respects including his right to any bonus payments. Further, all stock
options granted to him, to the extent not previously exercised, were terminated.
Mr. Rios owes the Company $18,387 under an original note in the amount of
$22,184. Due to the fact that Mr. Rios will not receive any future bonuses from
the Company, the amount outstanding under a $300,000 note will not be repaid to
the Company. See "Certain Relationships and Related Transactions."
Under the terms of each Restated Agreement, stock options previously
granted to such executives under the Plans were cancelled. In consideration of
such cancellation, a reduced number of options in the case of Mr. Appierto, Mr.
Peiffer and Mr. Battiato and an increased number of options in the case of Mr.
Rios were granted. Mr. Appierto's Restated Agreement provided that options to
purchase an aggregate of 150,000 and 25,000 shares of Common Stock of the
Company granted to him pursuant to the 1994 Plan and the 1996 Plan (together,
the "Plans"), have been reduced to 111,423 and 18,577 shares, respectively. Mr.
Rios' Restated Agreement provided that options to purchase 130,000 and 50,000
shares of Common Stock of the Company granted to him pursuant to the 1994 Plan
and the 1996 Plan have been increased to 133,607 and 51,393 shares,
respectively. The terms of the grants remain as set forth in the Plans, except
that the option exercise price per share has been reduced to $2.50, the term of
the option is 10 years from the date of grant (April 1, 1997) and, in the event
of a termination of employment by the Company other than for cause (as defined
under the Restated Agreements) or by the executive for good reason (as defined
under the Restated Agreements), the option shall remain exercisable, to the
extent exercisable as of the effective date of termination, for a period of the
lesser of one year following the effective date of termination and the original
term of such option.
Notwithstanding the foregoing, the agreements entered into on April 26,
1996 by Mr. Appierto, Mr. Peiffer and Mr. Battiato with the Company with respect
to a change of control that occurred in February 1996 remain in full force and
effect for the remainder of the term of the agreements.
The Company entered into an employment agreement with Mr. Burns in October
1995 to serve as Executive Vice President -- Systems and Systems Development.
Pursuant to the agreement, Mr. Burns gave up the right to any bonuses he might
be entitled to under a previous employment agreement with the Company for
finance contracts acquired or leases originated by the Company after July 1,
1995 in exchange
18
<PAGE> 22
for payment by the Company of $110,000. Under this agreement, Mr. Burns was
entitled to a salary of $150,000 for each year of the term. On September 18,
1996, Mr. Burns' employment with the Company terminated and Mr. Burns entered
into an employment agreement to serve as Chairman and Chief Executive Officer of
SST, for a term of five years, subject to extension or reduction in accordance
with the terms of the agreement. Mr. Burns' agreement provides for an annual
base salary of $150,000, subject to adjustment after June 30, 1997 based upon
certain performance targets, and a bonus (i) for the first two years, of the
greater of $50,000 and 3.33% of SST's Net Pre-Tax Income (as defined therein) in
each year it equals or exceeds Performance Targets (as defined therein) and (ii)
thereafter, of 3.33% of Net Pre-Tax Income in each year Net Pre-Tax Income
equals or exceeds performance targets. Mr. Burns' agreement contains provisions
protecting the confidentiality of information concerning SST's business, but
does not limit the ability of Mr. Burns to compete with SST after the conclusion
of its term. In October 1997, Mr. Burns was promoted to the position of Chief
Executive Officer of the Company. At the time of such promotion, SST and Mr.
Burns mutually agreed to terminate the employment agreement.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company or its subsidiaries are not
compensated for their services rendered to the Company in their capacity as
director. Independent directors receive a $25,000 per year retainer, $3,000 plus
expenses for attendance at Board meetings ($1,500 for telephonic meetings of
less than an hour, with discretion to reduce such fee for telephonic meetings of
less than one-half hour) and $1,500 plus expenses for attendance at committee
meetings held on days other than those on which Board meetings are scheduled.
In addition, each independent director who is or becomes a member of the
Board of Directors on or after June 30, 1996, shall automatically be granted a
non-qualified stock option to purchase that number of shares of Common Stock
obtained by multiplying the number of months measured from the commencement of
such director's then term to the expiration of such term, by 833 shares. The
number of months remaining in a director's then term shall be measured from the
first day of the calendar month in which the director's term commenced to the
last day of the calendar month in which the director's term is scheduled to
expire. Options in the amount determined above were granted on July 1, 1996 to
each independent director serving in such capacity on such date. All options
granted in such manner (a) have an exercise price per share equal to 100% of the
fair value of a share on the date of the grant; (b) have a term of ten years;
(c) vest at the rate of 833 shares for each calendar month, counted in the same
manner as the calculation of the amount of shares underlying the option, during
which a director has served in such capacity for the full calendar month or any
portion thereof; (d) terminate (i) 12 months after termination of an independent
director's service as a director of the Company due to the death of such
independent director; or (ii) three months after the independent director ceases
to serve as a director of the Company for any other reason; and (e) are
otherwise on the same terms and conditions as all other options granted pursuant
to the 1996 Plan. Any options which do not vest in accordance with the above
provisions shall terminate.
The Company has a Compensation Committee and an Audit Committee. The
Compensation Committee, which during the fiscal year ended June 30, 1997
consisted of Felice Cutler, Carl Frischling and Paul Fitzpatrick, is responsible
for reviewing all compensation agreements and arrangements for officers of the
Company, including annual incentive awards, and is responsible for administering
the Company's stock options plans. The Audit Committee, which during the fiscal
year ended June 30, 1997 consisted of Felice Cutler, Carl Frischling and Paul
Fitzpatrick, is responsible for recommending to the Board of Directors the
engagement of the independent auditors of the Company and reviewing with the
independent auditors the scope and results of the audit, the internal accounting
controls of the Company, audit practice and the professional services furnished
by the independent auditors. Ms. Cutler resigned as a Class I director as of
January 21, 1998.
During the fiscal year ended June 30, 1997, the Board of Directors held
seventeen (17) meetings, eleven of which were telephonic. In addition, the
Compensation Committee held nine (9) meetings and the Audit Committee held four
(4) meetings. Each of the then current directors of the Company attended all of
the
19
<PAGE> 23
meetings of the Board of Directors and each director serving on a committee
attended all the meetings of such committee upon which each director served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1997, the Company's Compensation
Committee consisted of Felice Cutler, Carl Frischling and Paul Fitzpatrick. For
certain transactions involving the Company and the entity pursuant to whose
recommendation such members of the Compensation Committee were elected to the
Board of Directors, see "Certain Relationships and Related Transactions."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the directors and executive officers of the Company and persons who beneficially
own more than ten percent of the Company's Common Stock (collectively, the
"Reporting Persons") to report their ownership of and transactions in the
Company's Common Stock to the Securities and Exchange Commission (the
"Commission"). Copies of these reports are also required to be supplied to the
Company. The Company believes, upon a review of the copies of such reports
received by the Company and written representations furnished by the Reporting
Persons to the Company, that during the fiscal year ended June 30, 1997 the
Reporting Persons complied with all applicable Section 16(a) reporting
requirements.
STOCK PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative stockholder return on
Common Stock against the cumulative return for the Nasdaq Combined Composite
Index and a peer group selected by the Company on an industry and
line-of-business basis for the period between June 30, 1995 and June 30, 1997.
Such peer group consists of Consumer Portfolio Services, Inc., Eagle Finance
Corp., First Merchants Corp. and Mercury Finance Company. The graph below
provides quarterly price performance analysis assuming that $100 was invested in
the Company's Common Stock and the stocks comprising such index and peer group
on June 30, 1995 and that dividends were reinvested for all companies where
applicable.
<TABLE>
<CAPTION>
Measurement Period Aegis Consumer NASDAQ
(Fiscal Year Covered) Funding Peer Group Composite
<S> <C> <C> <C>
6/30/95 100.000 100.000 100.000
9/30/95 103.226 132.898 111.794
12/31/95 90.323 96.242 112.714
3/31/96 80.645 96.988 117.990
6/30/96 69.355 86.371 126.951
9/30/96 70.968 92.978 131.437
12/31/96 36.297 89.242 138.308
3/31/97 16.935 40.946 130.882
6/30/97 8.871 46.267 154.488
</TABLE>
20
<PAGE> 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 1, 1998, based
on information obtained from the persons named below or from documents filed by
them with the Securities and Exchange Commission (the "Commission"), which
information the Company has not independently verified, with respect to the
beneficial ownership of shares of Common Stock of the Company by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director, nominee for director and
Named Executive Officer and (iii) all of the Company's executive officers and
directors as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS(1) OWNED COMMON STOCK
------------------- ------------ -------------
<S> <C> <C>
High Risk Opportunity Hub Fund Ltd.(2)...................... 14,302,484 45.6%
c/o Admiral Administration
P.O. Box 32021-SMV
Grand Cayman Islands BWI
Gary Winnick(3)............................................. 3,015,341 10.1
c/o PCG Management, Inc.
150 El Camino Drive, Suite 204
Beverly Hills, CA 90212
Greenwich Capital Financial Products, Inc.(4)............... 3,346,792 11.2
600 Steamboat Road
Greenwich, CT 06830
Robert I. Weingarten(5)..................................... 1,732,618 5.8
1999 Avenue of the Stars, Suite 2350
Los Angeles, CA 90067
Palomba Weingarten(5)(6).................................... 1,678,577 5.6
c/o Atlas Holdings Group, Inc.
9595 Wilshire Boulevard
Beverly Hills, CA 90212
Angelo R. Appierto(7)(8).................................... 381,437 1.2
Joseph F. Battiato(8)(9).................................... 335,000 1.1
Gary D. Peiffer(8)(10)...................................... 181,369 *
Matthew B. Burns............................................ 20,000 *
Jorge G. Rios(8)............................................ -- --
Carl Frischling(11)......................................... 49,986 *
Paul D. Fitzpatrick(12)..................................... 35,821 *
All executive officers and Directors as a group (3 105,807 *
persons)(13)..............................................
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. Each beneficial owner's percentage
ownership is determined by assuming that convertible securities, options or
warrants that are held by such person (but not those held by any other
person) and which are exercisable or convertible within 60 days have been
exercised or converted, regardless of whether the Company has a sufficient
number of authorized but unissued shares of Common Stock for such exercise
or conversion.
(2) Includes 1,166,497 shares (estimated on the basis of conversion at a 15%
discount from the 5 days prior average closing bid price) of Common Stock
into which 21 shares of Series C Preferred Stock were then convertible.
(3) Such shares are owned by PCG Management, Inc., an entity of which Gary
Winnick is the Chairman of the Board, Chief Executive Officer and sole
stockholder.
(4) Includes 3,346,792 common stock equivalents.
21
<PAGE> 25
(5) Robert I. Weingarten and Palomba Weingarten are married to each other. The
respective shareholdings for Mr. Weingarten and Mrs. Weingarten each
reflect individual ownership and each such person disclaims beneficial
ownership of stock held by the other.
(6) Such shares are owned by Atlas Holdings Group, Inc., an entity of which
Palomba Weingarten is the Chief Executive Officer, sole Director and
principal stockholder.
(7) Includes 50,000 shares held by the Appierto Irrevocable Family Trust, as to
which shares Mr. Appierto disclaims beneficial ownership.
(8) This person has resigned from or been terminated by the Company.
(9) Represents shares directly held by Patricia Battiato, Mr. Battiato's wife.
Mr. Battiato disclaims beneficial ownership of such shares.
(10) Represents shares directly held by Suzanne C. Peiffer, Mr. Peiffer's wife.
Mr. Peiffer disclaims beneficial ownership of such shares.
(11) Includes 39,986 shares subject to options exercisable within 60 days.
(12) Represents shares subject to options exercisable within 60 days.
(13) See footnotes (11) and (12).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of October 14, 1997, the date of Mr. Appierto's termination, Mr.
Appierto owed the Company $68,754 under an advance of $150,000 of a bonus amount
earned in the fiscal year ended June 30, 1996 that was forfeited during the
fiscal year ended June 30, 1997. Repayment terms are currently under negotiation
with Mr. Appierto. See "Employment Agreements."
Upon Mr. Peiffer's resignation, the Company cancelled and declared to be no
longer due and owing by him to the Company, certain expenses totaling $80,000
advanced by the Company on Mr. Peiffer's behalf. See Employment Agreements."
Mr. Battiato owes the Company $125,000, which was advanced by the Company
on Mr. Battiato's behalf, relating to the modification of his employment
agreement in connection with a change of control of the Company that occurred in
February 1996. This amount remains due and owing, but possible repayment terms
are currently under negotiation with Mr. Battiato. See "Employment Agreements."
Upon Mr. Rios' termination, the remaining balance of $18,387 of an original
balance of $22,184 advanced by the Company on his behalf remains due and payable
by him. Further, an advance, which was due and payable upon the receipt of
future bonuses, in the amount of $300,000 is no longer due and payable. See
"Employment Agreements."
On March 31, 1996, the Company entered into an agreement with Whitehall
(the "Consulting Agreement"), whereby Whitehall was engaged to provide
consulting services to the Company relating to operations, management, financing
and marketing. The Consulting Agreement provides for an annual fee to Whitehall
of $300,000 (subject to adjustment in certain circumstances) plus reasonable and
necessary expenses. Under the terms of the agreement, to date, the Company has
paid $500,000 in fees, plus out of pocket expenses of approximately $40,000.
Whitehall recommended that Carl Frischling and Paul Fitzpatrick be named to the
Company's Board of Directors as of February 1996 as to Mr. Frischling and as of
June 1996 as to Mr. Fitzpatrick.
The Company has engaged Kramer, Levin, Naftalis & Frankel as its primary
legal counsel. Mr. Frischling, one of the Company's directors, is a member of
such firm. No material payments had been made to such firm for the fiscal year
ended June 30, 1997.
22
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OTHER MATTERS
It is not expected that any matters other than those described in this
Proxy Statement will be brought before the Annual Meeting. If any other matters
are presented, however, it is the intention of the persons named in the proxy to
vote the proxy in accordance with the discretion of the persons named in such
proxy.
STOCKHOLDER PROPOSALS
Any stockholder proposal which is intended to be presented at the 1998
annual meeting of stockholders of the Company must be received at the Company's
principal executive offices, 200 North Cobb Parkway, Suite 428, Marietta,
Georgia 30062, Attention: Secretary, by no later than , if such
proposal is to be considered for inclusion in the Company's proxy statement and
form of proxy relating to such meeting. Stockholders who intend to bring
business before the meeting must also comply with the applicable procedures set
forth in the Company's By-laws. The Company will furnish copies of such By-law
provisions upon written request to the Company at the aforementioned address.
INDEPENDENT AUDITORS
It is not presently anticipated that any representatives of Ernst & Young
LLP, the Company's independent auditors for the fiscal year ended June 30, 1997,
will be present at the Annual Meeting.
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<PAGE> 27
ANNEX A
STOCK PURCHASE AGREEMENT
DATED AS OF JANUARY 28, 1998
BETWEEN
THE AEGIS CONSUMER FUNDING GROUP INC.,
ADAMS, VINER & MOSLER, LTD.,
AND
III ASSOCIATES
<PAGE> 28
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1. Definitions................................................. A-1
1.2. Interpretation.............................................. A-4
ARTICLE II
PURCHASE AND SALE OF SHARES; PURCHASE PRICE
2.1. Purchase and Sale of Shares................................. A-5
2.2. Purchase Price.............................................. A-5
2.3. Adjustments................................................. A-5
ARTICLE III
CLOSING
3.1. Closing Date................................................ A-5
3.2. Payment of Purchase Price; Delivery of Shares............... A-6
3.3. Buyer's Additional Deliveries............................... A-6
3.4. Seller's Deliveries......................................... A-6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
4.1. Organization and Authority of Seller........................ A-6
4.2. Organization and Capital Structure of the Company........... A-7
4.3. Subsidiaries and Investments................................ A-7
4.4. Financial Statements........................................ A-7
4.5. Operations Since Balance Sheet Date......................... A-8
4.6. Taxes....................................................... A-9
4.7. Availability of Assets...................................... A-9
4.8. Governmental Permits........................................ A-9
4.9. Real Property............................................... A-9
4.10. Personal Property........................................... A-10
4.11. Intellectual Property; Software............................. A-10
4.12. Accounts Receivable......................................... A-10
4.13. Employee Benefit Plans...................................... A-10
4.14. Employee Relations.......................................... A-11
4.15. Contracts................................................... A-11
4.16. No Violation, Litigation or Regulatory Action............... A-11
4.17. Environmental Matters....................................... A-12
4.18. Insurance................................................... A-12
4.19. Minute Books................................................ A-12
4.20. No Finder................................................... A-12
4.21. Disclosure.................................................. A-12
4.22. Proxy Statement............................................. A-12
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYERS
5.1. Organization of Buyers...................................... A-12
5.2. Authority of Buyers......................................... A-13
5.3. No Finder................................................... A-13
5.4. Investment Representation................................... A-13
5.5. Litigation.................................................. A-13
5.6. Ability to Close............................................ A-13
ARTICLE VI
ACTION PRIOR TO THE CLOSING DATE
6.1. Investigation of the Company by Buyers...................... A-13
6.2. Preserve Accuracy of Representations and Warranties......... A-14
6.3. Consents of Third Parties; Governmental Approvals........... A-14
6.4. Operations Prior to the Closing Date........................ A-14
6.5. Notification by Seller of Certain Matters................... A-14
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Stockholder Meeting......................................... A-14
7.2. Preparation of the Proxy Statement.......................... A-15
7.3. Access to Records after Closing............................. A-15
7.4. Confidential Nature of Information.......................... A-15
7.5. No Public Announcement...................................... A-15
7.6. Expenses.................................................... A-16
7.7. Further Assurances.......................................... A-16
7.8. Repurchase Options.......................................... A-16
7.9. Operating Agreements........................................ A-17
7.10. Use of Proceeds............................................. A-18
7.11. Company Indemnifications; Voting............................ A-18
7.12. Certain Intercompany Debt................................... A-18
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARTIES
8.1. Conditions to Buyers' Obligations........................... A-18
8.2. Conditions to Seller's Obligations.......................... A-19
ARTICLE IX
TAX MATTERS
9.1. Tax Returns................................................. A-19
9.2. Survival of Obligations..................................... A-20
ARTICLE X
INDEMNIFICATION
10.1. Indemnification by Seller................................... A-20
10.2. Indemnification by Buyers................................... A-20
10.3. Notice of Claims............................................ A-21
10.4. Third Person Claims......................................... A-21
</TABLE>
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<TABLE>
<CAPTION>
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ARTICLE XI
TERMINATION
11.1. Termination................................................. A-22
11.2. Notice of Termination....................................... A-22
11.3. Effect of Termination....................................... A-22
ARTICLE XII
GENERAL PROVISIONS
12.1. Notices..................................................... A-22
12.2. Successors and Assigns...................................... A-23
12.3. Entire Agreement; Amendments................................ A-23
12.4. Waivers..................................................... A-23
12.5. Partial Invalidity.......................................... A-24
12.6. Execution in Counterparts................................... A-24
12.7. Governing Law............................................... A-24
12.8. Submission to Jurisdiction.................................. A-24
</TABLE>
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<PAGE> 31
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of January 28, 1998 between The Aegis
Consumer Funding Group Inc., a Delaware corporation ("Seller"), Adams, Viner &
Mosler, Ltd., a limited partnership organized under the laws of Illinois
("AVM"), and III Associates, a general partnership organized under the laws of
Nevada ("Associates") (AVM and Associates being sometimes referred to together
as the "Buyers").
PRELIMINARY STATEMENT
Seller is the owner, beneficially and of record, of all of the issued and
outstanding capital stock of Systems & Services Technologies, Inc., a Delaware
corporation (the "Company"). Seller desires to sell to Buyers, and Buyers desire
to purchase from Seller, all of the capital stock of the Company on the terms
and subject to the conditions set forth herein.
Accordingly, in consideration of the mutual agreements hereinafter set
forth, Buyers and Seller agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1. DEFINITIONS. In this Agreement, the following terms have the
meanings specified or referred to in this Section 1.1 and shall be equally
applicable to both the singular and plural forms.
"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person; provided that the Company shall not be deemed an Affiliate of
Seller.
"AGREED RATE" means the prime or corporate base rate published by Citibank
N.A., New York, New York, as that rate may vary from time to time, or if that
rate is no longer published, a comparable rate.
"ASSOCIATES SHARES" has the meaning specified in Section 2.2(b).
"AVM SHARES" has the meaning specified in Section 2.2(b).
"BALANCE SHEET" has the meaning specified in Section 4.4.
"BALANCE SHEET DATE" means September 30, 1997.
"BUYERS" has the meaning specified in the first paragraph of this
Agreement.
"BUYER ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by either of Buyers under this
Agreement or in connection herewith.
"BUYER GROUP MEMBER" means Buyers, the Company and any Affiliates of either
Buyers and their respective successors and assigns.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. sec.sec. 9601 et seq., and the regulations promulgated
thereunder.
"CLAIM NOTICE" has the meaning specified in Section 10.3.
"CLOSING" means the closing of the transfer of the Shares from Seller to
Buyer.
"CLOSING DATE" has the meaning specified in Section 3.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the second paragraph of this
Agreement.
"COMPANY AGREEMENTS" has the meaning specified in Section 4.16.
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"COMPANY GROUP" means any "affiliated group" (as defined in Section 1504(a)
of the Code without regard to the limitations contained in Section 1504(b) of
the Code) that, at any time on or before the Closing Date, includes or has
included the Company or any Subsidiary or any predecessor of or successor to the
Company or any Subsidiary (or another such predecessor or successor), or any
other group of corporations that, at any time on or before the Closing Date,
files or has filed Tax Returns on a combined, consolidated or unitary basis with
the Company or any Subsidiary or any predecessor of or successor to the Company
or any Subsidiary (or another such predecessor or successor), except for Seller.
"COMPANY PROPERTY" means any real or personal property, plant, building,
facility, structure, underground storage tank, equipment or unit, or other asset
owned, leased or operated by the Company.
"COPYRIGHTS" means United States and foreign copyrights, copyrightable
works, and mask work, whether registered or unregistered, and pending
applications to register the same.
"COURT ORDER" means any judgment, order, award or decree of any foreign,
federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"ENCUMBRANCE" means any lien (statutory or other), claim, charge, security
interest, mortgage, deed of trust, pledge, hypothecation, assignment,
conditional sale or other title retention agreement, preference, priority or
other security agreement or preferential arrangement of any kind or nature, and
any easement, encroachment, covenant, restriction, right of way, defect in title
or other encumbrance of any kind.
"ENVIRONMENTAL LAW" means all Requirements of Laws derived from or relating
to all federal, state and local laws or regulations relating to or addressing
the environment, health or safety, including but not limited to CERCLA, OSHA and
RCRA and any state equivalent thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974 and the
regulations promulgated thereunder.
"ERISA AFFILIATE" means (i) any corporation which at any time on or before
the Closing Date is or was a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as the Company; (ii) any
partnership, trade or business (whether or not incorporated) which at any time
on or before the Closing Date is or was under common control (within meaning of
Section 414(c) of the Code) with the Company; and (iii) any entity which at any
time on or before the Closing Date is or was a member of the same affiliated
service group (within the meaning of Section 414(m) of the Code) as either the
Company, any corporation described in clause (i) or any partnership, trade or
business described in clause (ii) of this paragraph.
"ERISA BENEFIT PLANS" means the Company's Pension Plans and its Welfare
Plans.
"EXCHANGE ACT" has the meaning specified in Section 4.23.
"EXISTING LOAN AGREEMENTS" means the following agreements: Loan and
Security Agreement dated March 14, 1997 between Aegis Auto Finance, Inc. and III
Finance Ltd., as amended, and Amended and Restated Master Loan Agreement dated
April 30, 1997 among Aegis Auto Finance, Inc., Aegis Consumer Finance, Inc. and
III Finance Ltd., as amended.
"EXERCISE PRICE" has the meaning specified in Section 7.8.
"EXPENSES" means any and all expenses incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including court filing
fees, court costs, arbitration fees or costs, witness fees, and reasonable fees
and disbursements of legal counsel, investigators, expert witnesses,
consultants, accountants and other professionals).
"EXPIRATION DATE" has the meaning specified in Section 7.8.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has the meaning specified in Section 4.9.
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"INTELLECTUAL PROPERTY" means Copyrights, Patent Rights, Trademarks and
Trade Secrets and all agreements, contracts, licenses, sublicenses, assignments
and indemnities which relate or pertain to any of the foregoing.
"IRS" means the Internal Revenue Service.
"LEASED REAL PROPERTY" has the meaning specified in Section 4.10.
"LOSSES" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"MATERIAL ADVERSE EFFECT" means any condition, circumstance, change or
effect (or any development that, insofar as can be reasonably foreseen, would
result in any condition, circumstance, change or effect) that is materially
adverse to the assets, business, financial condition, or results of operations
of the Company or Seller, as applicable.
"MULTIEMPLOYER PLAN" has the meaning specified in Section 3(37) of ERISA.
"NET CASH FLOW" means the Company's net cash flow under generally accepted
accounting principles after allowance for all reasonable and necessary capital
expenditures.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C. sec.sec. 651
et seq., and the regulations promulgated thereunder.
"OWNED REAL PROPERTY" has the meaning specified in Section 4.10.
"OWNED SOFTWARE" has the meaning specified in Section 4.12(g).
"PATENT RIGHTS" means United States and foreign patents, patent
applications, continuations, continuations-in-part, divisions, reissues, patent
disclosures, inventions (whether or not patentable or reduced to practice) and
improvements thereto.
"PENSION PLAN" means each "employee pension benefit plan" (as such term is
defined in Section 3(2) of ERISA) maintained by the Company or an ERISA
Affiliate, or with respect to which the Company or an ERISA Affiliate is or will
be required to make any payment, or which provides or will provide benefits to
present or prior employees of the Company or an ERISA Affiliate due to such
employment.
"PERMITTED ENCUMBRANCES" means: (i) liens for taxes and other governmental
charges and assessments arising in the ordinary course of business which are not
yet due and payable, (ii) liens of landlords and liens of carriers,
warehousemen, mechanics and materialmen and other like liens arising in the
ordinary course of business for sums not yet due and payable, (iii) liens
securing the indebtedness represented by the Secured Loans and (iv) liens
securing other existing indebtedness of the Company, including, but not limited
to, the liens and indebtedness set forth and described on Schedule 1.1.
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"PROXY STATEMENT" has the meaning specified in Section 4.23.
"PURCHASE PRICE" has the meaning specified in Section 2.2.
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.
sec.sec. 6901 et seq., and the regulations promulgated thereunder.
"REPURCHASE OPTIONS" has the meaning specified in Section 7.8.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Body (including those pertaining to electrical,
building, zoning, subdivision, land use, environmental and occupational safety
and health requirements) or common law.
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"SECURED LOANS" means the indebtedness of the Company issued under or
pursuant to the Existing Loan Agreements and secured by a lien upon the Shares.
"SEC" means the Securities and Exchange Commission or any successor agency.
"SELLER" has the meaning specified in the first paragraph of this
Agreement.
"SELLER ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by Seller under this Agreement
or in connection herewith.
"SELLER GROUP MEMBER" means Seller and its Affiliates and their respective
successors and assigns.
"SELLER STOCKHOLDER MEETING" has the meaning specified in Section 7.1.
"SHARES" means all of the issued and outstanding shares of capital stock of
the Company.
"SOFTWARE" means computer software programs and software systems, including
all databases, compilations, tool sets, compilers, higher level or "proprietary"
languages, related documentation and materials, whether in source code, object
code or human readable form.
"SUBSIDIARIES" means any corporation, partnership, limited liability
company, joint venture or other entity in which the Company (a) owns, or at any
relevant time owned, directly or indirectly, 50% or more of the outstanding
voting securities or equity interests or (b) is a general partner.
"TAX" (and, with correlative meaning, "TAXES" and "TAXABLE") means:
(i) any federal, state, local or foreign net income, gross income,
gross receipts, windfall profit, severance, property, production, sales,
use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, value-added, transfer, stamp, or
environmental tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority; and
(ii) any liability of the Company for the payment of amounts with
respect to payments of a type described in clause (i) as a result of being
a member of an affiliated, consolidated, combined or unitary group, or as a
result of any obligation of the Company under any Tax Sharing Arrangement
or Tax indemnity arrangement.
"TAX RETURN" means any return, report or similar statement required to be
filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
"TAX SHARING ARRANGEMENT" means any written or unwritten agreement or
arrangement for the allocation or payment of Tax liabilities or payment for Tax
benefits with respect to a consolidated, combined or unitary Tax Return which
Tax Return includes the Company or any Subsidiary.
"TRADEMARKS" means United States, state and foreign trademarks, service
marks, logos, trade dress and trade names (including all assumed or fictitious
names under which the Company is conducting business or has within the previous
five years conducted business), whether registered or unregistered, and pending
applications to register the foregoing.
"TRADE SECRETS" means confidential ideas, trade secrets, know-how,
concepts, methods, processes, formulae, reports, data, customer lists, mailing
lists, business plans, or other proprietary information.
"WELFARE PLAN" means each "employee welfare benefit plan" (as such term is
defined in Section 3(1) of ERISA) maintained by the Company, or with respect to
which the Company is or will be required to make any payment, or which provides
or will provide benefits to present or prior employees of the Company due to
such employment.
1.2. INTERPRETATION. As used in this Agreement, the word "including"
means without limitation, the word "or" is not exclusive and the words "herein",
"hereof", "hereby", "hereto" and "hereunder" refer to this
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Agreement as a whole. Unless the context otherwise requires, references herein:
(i) to Articles, Sections, Exhibits and Schedules mean the Articles and Sections
of and the Exhibits and Schedules attached to this Agreement; (ii) to an
agreement, instrument or other document means such agreement, instrument or
other document as amended, supplemented and modified from time to time to the
extent permitted by the provisions thereof and by this Agreement; and (iii) to a
statute means such statute as amended from time to time and includes any
successor legislation thereto. The Schedules and Exhibits referred to herein
shall be construed with and as an integral part of this Agreement to the same
extent as if they were set forth verbatim herein. Titles to Articles and
headings of Sections are inserted for convenience of reference only and shall
not be deemed a part of or to affect the meaning or interpretation of this
Agreement. References herein to the knowledge of a party or matters or
information known to a party mean the actual knowledge of the officers of such
party.
ARTICLE II
PURCHASE AND SALE OF SHARES; PURCHASE PRICE
2.1. PURCHASE AND SALE OF SHARES. Upon the terms and subject to the
conditions of this Agreement, on the Closing Date, Seller shall sell, transfer,
assign, convey and deliver to Buyers, and Buyers shall purchase from Seller, the
Shares, free and clear of all Encumbrances (except for Permitted Encumbrances).
2.2. PURCHASE PRICE. Subject to Section 2.3, (a) the aggregate purchase
price for the Shares (the "Purchase Price") shall be equal to $7,000,000;
(b) it is understood and agreed that AVM shall purchase and acquire 2/7 of
the Shares (the "AVM Shares") for a purchase price of $2,000,000 and Associates
shall purchase and acquire 5/7 of the Shares (the "Associates Shares") for a
purchase price of $5,000,000; and
(c) it is further understood and agreed that prior to the date hereof AVM
has paid $2,000,000 to Seller as a down payment on the Purchase Price,
Associates has paid $2,782,448.08 to Seller as a down payment on the Purchase
Price (such amounts together being referred to herein as the "Original
Downpayments") and, if Associates is reasonably satisfied that the amount
requested is reasonable and proper in the context of the cash requirements of
Seller, Associates shall, after a written request to Associates from Seller and
within five business days of Associates's receipt of such request, make
additional down payments on the Purchase Price prior to the Closing Date.
Accordingly, on the Closing Date the Buyers payment obligation shall be equal to
the Purchase Price minus the sum of all down payments actually made prior to the
Closing Date ("Remaining Purchase Price").
2.3. ADJUSTMENTS. In the event that the total of the Original
Downpayments plus any additional amounts requested by Seller in accordance with
Section 2.2(c) (the "Requested Downpayments" and together with the Original
Downpayments, the "Total Downpayments") is less than $7,000,000 then: (a) the
Purchase Price shall be equal to the amount of the Total Downpayments; (b) the
total number of Shares to be purchased by Buyers (the "Adjusted Purchased
Shares") shall be determined by multiplying the Shares by a fraction, the
numerator of which is the Total Downpayments and the denominator of which is
$7,000,000; (c) the number of AVM Shares shall equal the Adjusted Purchased
Shares multiplied by a fraction, the numerator of which is $2,000,000 and the
denominator of which is the Total Downpayments; (d) the number of Associates
Shares shall equal the Adjusted Purchased Shares multiplied by a fraction, the
numerator of which is the sum of $2,782,448.08 plus the Requested Downpayments
and the denominator of which is the Total Downpayments; and (e) the references
to $7,000,000 in Sections 7.8(c), 10.1(a) and 10.2(a) shall be deemed to refer
to a dollar amount equal to the Total Downpayments.
ARTICLE III
CLOSING
3.1. CLOSING DATE. The Closing shall take place at 10:00 A.M., local
time, on the third business day following the Seller Stockholder Meeting, or
such later date as may be agreed upon by Buyers and Seller after
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the conditions set forth in Section 8.1 and Section 8.2 have been satisfied, at
the offices of Sidley & Austin, 875 Third Avenue, New York, New York 10022 or at
such other place or at such other time as shall be agreed upon by Buyers and
Seller. The time and date on which the Closing is actually held are sometimes
referred to herein as the "Closing Date."
3.2. PAYMENT OF PURCHASE PRICE; DELIVERY OF SHARES. Subject to
fulfillment or waiver of the conditions set forth in Section 8.1, at the Closing
Buyers shall pay Seller the Remaining Purchase Price by wire transfer of
immediately available funds to the account in the United States specified by
Seller in writing to Buyers at least two business days prior to the Closing and,
subject to fulfillment or waiver of the conditions set forth in Section 8.2,
Seller shall deliver (or authorize delivery) to Buyers stock certificates
representing the Shares, accompanied by a duly executed stock power transferring
the AVM Shares to AVM and the Associates Shares to Associates.
3.3. BUYER'S ADDITIONAL DELIVERIES. Subject to fulfillment or waiver of
the conditions set forth in Section 8.1, at the Closing Buyers shall deliver to
Seller the certificate contemplated by Section 8.2(a), duly executed by the
authorized representative of Buyers.
3.4. SELLER'S DELIVERIES. Subject to fulfillment or waiver of the
conditions set forth in Section 8.2, at Closing Seller shall deliver to Buyers
all the following:
(a) Copies of the Certificate of Incorporation of Seller and the
Company certified as of a recent date by the Secretary of State of the
State of Delaware;
(b) Certificate of the secretary or an assistant secretary of Seller,
dated the Closing Date, in form and substance reasonably satisfactory to
Buyers, as to (i) no amendments to the Certificate of Incorporation of
Seller or the Company since a specified date; (ii) the by-laws of Seller;
(iii) the resolutions of the Board of Directors of Seller and evidence of
the stockholders of Seller authorizing the execution and performance of
this Agreement and the transactions contemplated hereby; and (iv)
incumbency and signatures of the officers of Seller executing this
Agreement and any Seller Ancillary Agreement; and
(c) The certificates contemplated by Sections 8.1(a) and (b), duly
executed by the authorized officer of Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated hereby, Seller represents and warrants to Buyers
that the following shall be true on the Closing Date:
4.1. ORGANIZATION AND AUTHORITY OF SELLER. (a) Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Seller has full corporate power and authority to own or lease
and to operate and use its properties and to carry on its business as now
conducted.
(b) Seller has full corporate power and authority to execute, deliver and
perform this Agreement and all of the Seller Ancillary Agreements. Subject to
approval of the Seller's stockholders, this Agreement has been duly authorized,
executed and delivered by Seller and is the legal, valid and binding obligation
of Seller enforceable in accordance with its terms, and each of the Seller
Ancillary Agreements has been duly authorized by Seller and upon execution and
delivery by Seller will be a legal, valid and binding obligation of Seller
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other laws affecting
the rights of creditors generally and by general principles of equity.
(c) Except as set forth in Schedule 4.1, neither the execution and delivery
by Seller of this Agreement or any of the Seller Ancillary Agreements or the
consummation by Seller of any of the transactions contemplated
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hereby or thereby nor compliance with or fulfillment of the terms, conditions
and provisions hereof or thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any Encumbrance
upon any of the assets or properties of Seller or the Company or any
Subsidiary, under (1) the Certificate of Incorporation or By-laws of Seller
or the Company or any Subsidiary, (2) any note, instrument, agreement,
mortgage, lease, license, franchise, permit or other authorization, right,
restriction or obligation to which Seller or the Company or any Subsidiary
is a party or any of the respective assets or properties of Seller or the
Company or any Subsidiary is subject or by which Seller or the Company or
any Subsidiary is bound, (3) any Court Order to which Seller or the Company
or any Subsidiary is a party or any of the respective assets or properties
of Seller or the Company or any Subsidiary is subject or by which Seller or
the Company or any Subsidiary is bound, or (4) any Requirements of Laws
affecting Seller, the Company or any Subsidiary or their respective assets
or properties; provided that no representation or warranty is made in this
clause (i) with respect to any matter concerning Seller that individually
could not reasonably be expected to have a Material Adverse Effect with
respect to Seller; or
(ii) require the approval, consent, authorization or act of, or the
making by Seller or the Company or any Subsidiary of any declaration,
filing or registration with, any Person.
4.2. ORGANIZATION AND CAPITAL STRUCTURE OF THE COMPANY. (a) The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company is duly qualified to transact
business as a foreign corporation and is in good standing in each of the
jurisdictions listed in Schedule 4.2, except where the failure to be so
qualified or in good standing could not reasonably be expected to have a
Material Adverse Effect on the Company. No other jurisdiction has demanded,
requested or otherwise indicated that the Company is required so to qualify. The
Company has full corporate power and authority to own or lease and to operate
and use its properties and assets and to carry on its business as now conducted.
(b) The authorized capital stock of the Company consists of 3,000 shares of
Common Stock, par value $.01 per share ("Company Common Stock"), of which 100
shares are issued and outstanding and 2,900 shares are unissued and not reserved
for any purpose. Except for this Agreement, there are no agreements,
arrangements, options, warrants, calls, rights or commitments of any character
relating to the issuance, sale, purchase or redemption of any shares of capital
stock of the Company. No holder of Company Common Stock has any preemptive,
stock purchase or other rights to acquire Company Common Stock. All of the
outstanding shares of the Company Common Stock are validly issued, fully paid
and nonassessable and were not issued in violation of any preemptive or similar
rights. Seller is the record and beneficial owner of 100 shares of Company
Common Stock. All of such shares of Company Common Stock are so owned free from
all Encumbrances of any kind except for Permitted Encumbrances.
(c) True and complete copies of the certificate of incorporation and all
amendments thereto, of the By-laws, as amended to date, and of the stock ledger
of the Company have been delivered to Buyer.
4.3. SUBSIDIARIES AND INVESTMENTS. The Company does not, directly or
indirectly, own, of record or beneficially, any outstanding voting securities or
other equity interests in or control any corporation, limited liability company,
partnership, trust, joint venture or other entity.
4.4. FINANCIAL STATEMENTS. Schedule 4.4 contains (i) the unaudited
balance sheet of the Company as of September 30, 1997 (the "Balance Sheet").
Except as set forth therein, the Balance Sheet has been prepared in conformity
with generally accepted accounting principles consistently applied, and presents
fairly the financial position of the Company as of the date thereon and for the
period covered thereby, subject to normal year-end adjustments and the absence
of footnotes.
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4.5. OPERATIONS SINCE BALANCE SHEET DATE. (a) Since the Balance Sheet
Date, there has been:
(i) except for any effect upon the Company of Seller's financial
condition or prospects, no material adverse change in the assets, business,
operations, liabilities, profits or condition of the Company, and to the
knowledge of Seller, no fact or condition exists which might reasonably be
expected to cause such a change in the future; and
(ii) no damage, destruction or loss, whether or not covered by
insurance, or condemnation or other taking adversely affecting any of the
assets, business, operations or condition of the Company.
(b) Since the Balance Sheet Date, except in the ordinary course of business
and in conformity with past practice and except to the extent that it has not
resulted in and could not reasonably be expected to result in a Material Adverse
Effect with respect to the Company, the Company has not:
(i) sold, leased (as lessor), transferred or otherwise disposed of
(including any transfers from the Company to Seller or any of its
Affiliates), or mortgaged or pledged, or imposed or suffered to be imposed
any Encumbrance (other than a Permitted Encumbrance) on, any of the assets
reflected on the Balance Sheet or any assets acquired by the Company after
the Balance Sheet Date, except for inventory and minor amounts of personal
property sold or otherwise disposed of for fair value in the ordinary
course of business consistent with past practice;
(ii) canceled any debts owed to or claims held by the Company
(including the settlement of any claims or litigation) or waived any other
rights held by the Company other than in the ordinary course of business
consistent with past practice;
(iii) paid any claims against the Company (including the settlement of
any claims and litigation against the Company or the payment or settlement
of any obligations or liabilities of the Company) other than in the
ordinary course of business consistent with past practice;
(iv) created, incurred or assumed, or agreed to create, incur or
assume, any indebtedness for borrowed money or entered into, as lessee, any
capitalized lease obligations (as defined in Statement of Financial
Accounting Standards No. 13);
(v) accelerated or delayed collection of notes or accounts receivable
in advance of or beyond their regular due dates or the dates when the same
would have been collected in the ordinary course of business consistent
with past practice;
(vi) delayed or accelerated payment of any account payable or other
liability of the Company beyond or in advance of its due date or the date
when such liability would have been paid in the ordinary course of business
consistent with past practice;
(vii) acquired any real property or undertaken or committed to
undertake capital expenditures exceeding $250,000 in the aggregate;
(viii) made, or agreed to make, any payment of cash or distribution of
assets to Seller or any of its Affiliates;
(ix) instituted any increase in any compensation payable to any
officer or employee of the Company or in any profit-sharing, bonus,
incentive, deferred compensation, insurance, pension, retirement, medical,
hospital, disability, welfare or other benefits made available to officers
or employees of the Company;
(x) made any change in the accounting principles and practices used by
the Company from those applied in the preparation of the Balance Sheets;
(xi) entered into or become committed to enter into any other material
transaction except in the ordinary course of business; or
(xii) prepared or filed any Tax Return inconsistent with past practice
or, on any such Tax Return, taken any position, made any election, or
adopted any method that is inconsistent with positions taken, elections
made or methods used in preparing or filing similar Tax Returns in prior
periods.
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4.6. TAXES. (a) Except where there would be no Material Adverse Effect
with respect to the Company (i) each of the Company and each Company Group has
filed all Tax Returns required to be filed; (ii) all such Tax Returns are
complete and accurate and disclose all Taxes required to be paid by the Company
and each Company Group for the periods covered thereby and all Taxes shown to be
due on such Tax Returns have been timely paid; (iii) all Taxes owed by the
Company or any Company Group have been timely paid; (iv) none of the Company or
any member of any Company Group has waived or been requested to waive any
statute of limitations in respect of Taxes which waiver is currently in effect;
(v) to the knowledge of Seller, there is no action, suit, investigation, audit,
claim or assessment pending or proposed or threatened with respect to Taxes of
the Company or any Company Group and, no basis exists therefor; (vi) all
deficiencies asserted or assessments made as a result of any examination of the
Tax Returns referred to in clause (i) have been paid in full; (vii) all Tax
Sharing Arrangements and Tax indemnity arrangements relating to the Company
(other than this Agreement) shall terminate as of the date hereof and the
Company shall not have any liability thereunder for any Taxes incurred on or
after the date hereof; (viii) there are no liens for Taxes upon the assets of
the Company except liens relating to current Taxes not yet due; (ix) all Taxes
which the Company is required by law to withhold or to collect for payment have
been duly withheld and collected, and have been paid or accrued, reserved
against and entered on the books of the Company and (x) the Company has not been
a member of any Company Group other than a Company Group of which Seller is the
parent and the Company has not had any direct or indirect ownership in any
corporation, partnership, joint venture or other entity.
(b) No transaction contemplated by this Agreement is subject to withholding
under Section 1445 of the Code (relating to "FIRPTA").
(c) No payment or other benefit, and no acceleration of the vesting of any
options, payments or other benefits, can reasonably be expected to be, as a
direct or indirect result of the transactions contemplated by this Agreement, an
"excess parachute payment" to a "disqualified individual" as those terms are
defined in Section 280G of the Code and the Treasury Regulations thereunder. No
payment or other benefit, and no acceleration of the vesting of any options,
payments or other benefits, can, as a direct or indirect result of the
transactions contemplated by this Agreement, reasonably be expected to be (or
under Section 280G of the Code and the Treasury Regulations thereunder be
presumed to be) a "parachute payment" to a "disqualified individual" as those
terms are defined in Section 280G of the Code and the Treasury Regulations
thereunder, without regard to whether such payment or acceleration is reasonable
compensation for personal services performed or to be performed in the future.
4.7. AVAILABILITY OF ASSETS. The assets owned or leased by the Company
constitute all the material assets and properties used in, or necessary for, the
operation of the business of the Company (including all books, records,
computers and computer programs and data processing systems).
4.8. GOVERNMENTAL PERMITS. To the knowledge of Seller, the Company owns,
holds or possesses all material licenses, franchises, permits, privileges,
immunities, approvals and other authorizations from a Governmental Body which
are necessary to entitle it to own or lease, operate and use its assets and to
carry on and conduct its business substantially as currently conducted (herein
collectively called "Governmental Permits").
4.9. REAL PROPERTY. (a) The Company has good and insurable title in fee
simple absolute to all real property owned by the Company (the "Owned Real
Property") and to all buildings, structures and other improvements thereon, in
each case free and clear of all Encumbrances, except for Permitted Encumbrances.
(b) The Company has the right to quiet enjoyment of all real property owned
by third persons of which the Company is lessee (the "Leased Real Property") for
the full term of each such lease (and any renewal option) relating thereto, and
the leasehold or other interest of the Company in such Leased Real Property is
not subject or subordinate to any Encumbrance except for Permitted Encumbrances.
(c) Neither the whole nor any part of the Owned Real Property or any real
property leased, used or occupied by the Company is subject to any pending suit
for condemnation or other taking by any public
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authority, and, to the best knowledge of Seller or the Company, no such
condemnation or other taking is threatened or contemplated.
4.10. PERSONAL PROPERTY. (a) The Company has good title to all of its
assets and properties other than Owned Real Property free and clear of all
Encumbrances, except for Permitted Encumbrances.
4.11. INTELLECTUAL PROPERTY; SOFTWARE. (a) The Company either: (i) owns
the entire right, title and interest in and to the Intellectual Property and
Software included in its assets and properties and material to its business and
operations, free and clear of any Encumbrance; or (ii) has the perpetual,
royalty-free right to use the same.
(b) (i) The Intellectual Property owned by the Company and material to its
business and operations is valid and enforceable; and (ii) the Company is not in
breach of any agreement affecting the Intellectual Property, and has not taken
any action which would impair or otherwise adversely affect its rights in the
Intellectual Property.
(c) (i) No material infringement of any Intellectual Property of any other
Person has occurred or results in any way from the operations, activities,
Software or processes used in the Company's business; (ii) no claim of any
infringement of any Intellectual Property of any other Person has been made or
asserted in respect of the operations of the Company's business; (iii) no
written claim of invalidity of any Copyright, Trademark or Patent Right,
Software or Trade Secret has been made; and (iv) no proceedings are pending or,
to the knowledge of Seller, threatened which challenge the validity, ownership
or use of any Intellectual Property.
(d) To the knowledge of Seller, all employees, agents, consultants or
contractors who have contributed to or participated in the creation or
development of any Intellectual Property or Software on behalf of the Company or
any predecessor in interest thereto either: (i) is a party to a "work-for-hire"
agreement under which the Company is deemed to be the original owner/author of
all property rights therein; or (ii) has executed an assignment or an agreement
to assign in favor of the Company (or such predecessor in interest, as
applicable) of all right, title and interest in such material.
4.12. ACCOUNTS RECEIVABLE. All accounts receivable of the Company have
arisen from bona fide transactions by the Company in the ordinary course of
business. All accounts receivable reflected in the Balance Sheet are good and
collectible in the ordinary course of business at the aggregate recorded amounts
thereof, net of any applicable allowance for doubtful accounts reflected in the
Balance Sheets.
4.13. EMPLOYEE BENEFIT PLANS. (a) With respect to each Pension Plan
subject to Section 302 of ERISA other than any Multiemployer Plan, (i) no
proceeding has been initiated to terminate such plan, (ii) there has been no
"reportable event" (as such term is defined in Section 4043(b) of ERISA) other
than events for which reporting has been waived by applicable regulations, (iii)
no "accumulated funding deficiency" (within the meaning of Section 412 of the
Code), whether or not waived, has occurred, (iv) no person has failed to make a
required installment or any other payment required under Section 412 of the Code
by the applicable due date and (v) neither the Company nor any ERISA Affiliate
has provided or is required to provide security to such plan under Section
401(a)(29) of the Code due to a plan amendment that results in an increase in
current liability. Each Pension Plan which is intended to qualify under Section
401(a) of the Code has been determined to be so qualified by the IRS, and to the
knowledge of Seller no circumstance has occurred or exists which may reasonably
be expected to cause such plan to cease being so qualified.
(b) There is no pending or, to the knowledge of Seller or the Company,
threatened claim in respect of any of the ERISA Benefit Plans other than claims
for benefits in the ordinary course of business. Each of the ERISA Benefit Plans
other than any Multiemployer Plans (i) has been administered in all material
respects in accordance with its terms and (ii) complies in form, and has been
administered in all material respects in accordance, with the requirements of
ERISA and, where applicable, the Code. The Company and each ERISA Affiliate has
complied in all material respects with the health care continuation requirements
of Part 6 of Title I of ERISA. The Company has no obligation under any ERISA
Benefit Plans or otherwise to provide any material health or other welfare
benefits to any prior employees or any other person, except as required by Part
6 of Title I of ERISA. The consummation of the transactions contemplated by this
Agreement will not
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result in any material increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any material compensation or
benefits payable to or in respect of any participant.
4.14. EMPLOYEE RELATIONS. The Company has, to the knowledge of Seller,
complied with all applicable laws, rules and regulations which relate to prices,
wages, hours, discrimination in employment and collective bargaining and is not
liable for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing. Seller and the Company believe that the Company's
relations with the employees of the Company are satisfactory. The Company is not
a party to, and the Company is not affected by or threatened with, any dispute
or controversy with a union or with respect to unionization or collective
bargaining involving the employees of the Company.
4.15. CONTRACTS. (a) Except where there would be no Material Adverse
Effect on the Company, the Company is not a party to or bound by:
(i) any guarantee of the obligations of customers, suppliers,
officers, directors, employees, Affiliates or others; or
(ii) any agreement which provides for, or relates to, any interest
rate or foreign currency swap, cap, collar, hedge or insurance agreements,
or options or forwards on such agreements, or other similar agreements for
the purpose of managing the interest rate and/or foreign exchange risk
associated with its financing.
(b) Each of the leases, contracts and other agreements referred to in
Sections 4.10, 4.11, 4.13, and 4.15 (collectively, the "Company Agreements")
constitutes a valid and binding obligation of the parties thereto and is in full
force and effect and except for those Company Agreements which by their terms
will expire prior to the Closing Date or are otherwise terminated prior to the
Closing Date in accordance with the provisions hereof) will continue in full
force and effect after the Closing, in each case without breaching the terms
thereof or resulting in the forfeiture or impairment of any rights thereunder
and without the consent, approval or act of, or the making of any filing with,
any other party. The Company has fulfilled and performed its obligations under
each of the Company Agreements in all material respects, and the Company is not
in, or alleged in writing to be in, breach or default under, nor is there or is
there alleged in writing to be any basis for termination of, any of the Company
Agreements and, to the knowledge of Seller, no other party to any of the Company
Agreements has breached or defaulted thereunder, and no event has occurred and
no condition or state of facts exists which, with the passage of time or the
giving of notice or both, would constitute such a default or breach by the
Company or by any such other party except where such event or condition would
not have a Material Adverse Effect on the Company. The Company is not currently
renegotiating any of the Company Agreements or paying liquidated damages in lieu
of performance thereunder. Complete and correct copies of each of the Company
Agreements have heretofore been delivered or made available to Buyer by Seller.
4.16. NO VIOLATION, LITIGATION OR REGULATORY ACTION.
Except as disclosed in Schedule 4.16,
(i) to the knowledge of Seller, the assets of the Company and their
uses comply with all applicable Requirements of Laws and Court Orders,
except where such non-compliance would not have a Material Adverse Effect
on the Company;
(ii) to the knowledge of Seller, the Company has complied with all
Requirements of Laws and Court Orders which are applicable to its assets or
business, except where such non-compliance would not have a Material
Adverse Effect on the Company;
(iii) there are no lawsuits, claims, suits, proceedings or
investigations pending or, to the knowledge of Seller or the Company,
threatened against or affecting the Company nor, to the knowledge of Seller
or the Company, is there any basis for any of the same, and there are no
lawsuits, suits or proceedings pending in which Seller is the plaintiff or
claimant; and
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(iv) there is no action, suit or proceeding pending or, to the
knowledge of Seller or the Company, threatened which questions the legality
or propriety of the transactions contemplated by this Agreement.
4.17. ENVIRONMENTAL MATTERS. To the knowledge of Seller, (i) the
operations of the Company comply with all applicable Environmental Laws, except
where non-compliance would not have a Material Adverse Effect on the Company;
and
(ii) the Company has obtained all environmental, health and safety
Governmental Permits necessary for the operation of its business, and all such
Governmental Permits are in full force and effect and the Company is in
compliance with all terms and conditions of such permits, except where
non-compliance would not have a Material Adverse Effect on the Company.
4.18. INSURANCE. The Company has insurance coverage which is customary
with regard to the nature and size of its business with reputable insurance
carriers. Seller shall (and shall cause the Company to) keep or cause such
insurance or comparable insurance to be kept in full force and effect through
the Closing Date. Seller has complied (or has caused the Company to comply) in
all material respects with each of such insurance policies and, to the knowledge
of Seller, has not failed to give any notice or present any claim thereunder in
a due and timely manner.
4.19. MINUTE BOOKS. True and complete copies of the minute books of the
Company have been delivered to Buyer. Such minute books contain true and
complete records of all meetings and other corporate action taken by the Board
of Directors and stockholders of the Company.
4.20. NO FINDER. Neither Seller, the Company nor any Person acting on its
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated by
this Agreement.
4.21. DISCLOSURE. None of the representations or warranties of Seller
contained herein, and none of the other information or documents furnished to
Buyer or any of its representatives by Seller or the Company or their
representatives pursuant to the terms of this Agreement, is, in the light of the
circumstances under which they are made or furnished, false or misleading in any
material respect or omits to state a fact herein or therein necessary to make
the statements herein or therein not misleading in any material respect.
4.22. PROXY STATEMENT. None of the information to be included in the
proxy statement (the "Proxy Statement") to be prepared for and relating to the
Seller Stockholder Meeting (as defined in Section 7.1) will, at the time of the
mailing of the Proxy Statement, the time of the Seller Stockholder Meeting or on
the Closing Date, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all material
respects with the provisions of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); provided that Buyers' rights with respect to this Section
4.22 shall be limited to the recovery of Loss and Expense incurred by Buyers by
reason of actions by shareholders of Seller based upon allegations that this
Section 4.22 has been breached by Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYERS
As an inducement to Seller to enter into this Agreement and to consummate
the transactions contemplated hereby, Buyers hereby represents and warrants to
Seller and agrees as follows:
5.1. ORGANIZATION OF BUYERS. AVM is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Illinois
and has full partnership power and authority to own or lease and to operate and
use its properties and assets and to carry on its business as now conducted.
Associates is a general partnership organized and validly existing under the
laws of the State of Nevada and has full partnership powers and authority to own
or lease its properties and assets and to carry on its business as now
conducted.
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5.2. AUTHORITY OF BUYERS. Each Buyer has full power and authority to
execute, deliver and perform this Agreement and all of the Buyer Ancillary
Agreements. The execution, delivery and performance of this Agreement and the
Buyer Ancillary Agreements by AVM have been duly authorized and approved by
AVM's general partner. The execution, delivery and performance of this Agreement
and the Buyer Ancillary Agreements by Associates have been duly authorized and
approved by Associates' general partner. This Agreement has been duly
authorized, executed and delivered by each Buyer and is the legal, valid and
binding agreement of each Buyer enforceable in accordance with its terms, and
each of the Buyer Ancillary Agreements has been duly authorized by each Buyer
and upon execution and delivery by each Buyer will be a legal, valid and binding
obligation of each Buyer enforceable in accordance with its terms.
Neither the execution and delivery of this Agreement or any of the Buyer
Ancillary Agreements or the consummation of any of the transactions contemplated
hereby or thereby nor compliance with or fulfillment of the terms, conditions
and provisions hereof or thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under (1) the Limited Partnership Agreement of AVM or the
Partnership Agreement of Associates, (2) any material note, instrument,
agreement, mortgage, lease, license, franchise, permit or other
authorization, right, restriction or obligation to which either Buyer is a
party or any of its properties is subject or by which either Buyer is
bound, (3) any Court Order to which either Buyer is a party or by which
either of them is bound or (4) any Requirements of Laws affecting either
Buyer; or
(ii) require the approval, consent, authorization or act of, or the
making by either Buyer of any declaration, filing or registration with, any
Person.
5.3. NO FINDER. Neither AVM, Associates nor any Person acting on their
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated by
this Agreement.
5.4. INVESTMENT REPRESENTATION. Buyers understand that the Shares have
not been registered under the Securities Act of 1933 and that the Shares are
being acquired by AVM and Associates, respectively, for their own account for
investment, and not with a view to the sale or distribution of any part thereof
without registration under the Securities Act of 1933 or pursuant to an
applicable exemption therefrom.
5.5. LITIGATION. There is no action, suit or proceeding pending, or, to
the knowledge of either Buyer, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement.
5.6. ABILITY TO CLOSE. Each Buyer has sufficient assets to perform its
obligations under this Agreement.
ARTICLE VI
ACTION PRIOR TO THE CLOSING DATE
The respective parties hereto covenant and agree to take the following
actions between the date hereof and the Closing Date:
6.1. INVESTIGATION OF THE COMPANY BY BUYERS. Seller shall afford and
cause the Company to afford to the officers, employees and authorized
representatives of Buyers (including their independent public accountants and
attorneys) complete access during normal business hours, upon prior reasonable
notice, to the offices, properties, employees, attorneys, accountants and
business and financial records (including computer files, retrieval programs and
similar documentation) of the Company to the extent Buyers shall deem necessary
or desirable and shall furnish, and shall cause the Company to furnish, to
Buyers or their authorized representatives such additional information
concerning the assets, business and the operations of the Company as shall be
reasonably requested. Buyers agree that such investigation shall be conducted in
such a manner as not to interfere unreasonably with the operations of the
Company. If during an investigation made by Buyers or their representatives
hereunder they discover facts which contradict any of the representations and
warranties of Seller hereunder, Buyers shall promptly notify Seller of such
facts. No investigation made by
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Buyers or their representatives hereunder or notice to Seller pursuant to the
preceding sentence shall affect the representations and warranties of Seller
hereunder or the rights of Buyer in respect of any breach thereof.
6.2. PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
parties hereto shall refrain from taking any action which would render any
representation or warranty of such party contained in Article IV or V of this
Agreement inaccurate as of the Closing Date. Each party shall promptly notify
the other of any action, suit or proceeding that shall be instituted or
threatened against such party to restrain, prohibit or otherwise challenge the
legality of any transaction contemplated by this Agreement. Seller shall
promptly notify Buyers of (i) any lawsuit, claim, proceeding or investigation
that is threatened, brought, asserted or commenced against the Company and (ii)
any other event or matter which becomes known to Seller and would cause any
other representation or warranty contained in Article IV to be untrue in any
material respect.
6.3. CONSENTS OF THIRD PARTIES; GOVERNMENTAL APPROVALS. (a) Seller will
(and will cause the Company to) act diligently and reasonably to secure, before
the Closing Date, the consent, approval or waiver, in form and substance
reasonably satisfactory to Buyers, from any party to the Existing Loan
Agreements, any other agreement to which the Seller is a party or by which it is
bound or any Company Agreement required to be obtained to permit the
consummation of the transactions contemplated by this Agreement or to otherwise
satisfy the conditions set forth in Section 8.1(e); provided that (i) neither
Seller, the Company nor Buyers shall have any obligation to offer or pay any
consideration in order to obtain any such consents or approvals; and (ii)
neither Seller nor the Company shall make any agreement or understanding
affecting the assets or business of the Company as a condition for obtaining any
such consents or waivers except with the prior written consent of Buyers. During
the period prior to the Closing Date, Buyers shall act diligently and reasonably
to cooperate with Seller and the Company to obtain the consents, approvals and
waivers contemplated by this Section 6.3(a).
(b) During the period prior to the Closing Date, Seller and Buyers shall
(and Seller shall cause the Company to) act diligently and reasonably, and shall
cooperate with each other, in making any required filing or notification and in
securing any consents and approvals of any Governmental Body required to be
obtained by them in order to permit the consummation of the transactions
contemplated by this Agreement, or to otherwise satisfy the conditions set forth
in Section 8.1(d); provided that neither Seller nor the Company shall make any
agreement or understanding affecting the assets or business of the Company as a
condition for obtaining any such consents or approvals except with the prior
written consent of Buyer.
6.4. OPERATIONS PRIOR TO THE CLOSING DATE. The parties agree that for the
period from the date hereof through the earlier of the Expiration Date, the
Repurchase Closing Date and any date on which this Agreement is terminated
pursuant to Section 11.1, the number of directors comprising the whole Board of
Directors of the Company shall be three, who shall be Clifford Viner, Warren
Mosler and Matthew Burns. During such period, the Shares shall not be voted to
expand or contract the size of such Board, remove Mr. Mosler, Mr. Viner or Mr.
Burns from the board or elect anyone to replace any of them without the prior
written consent of all of the parties.
6.5. NOTIFICATION BY SELLER OF CERTAIN MATTERS. During the period prior
to the Closing Date, Seller will promptly advise Buyers in writing of (i) any
Material Adverse Change in the Company or the condition of its assets,
properties or business, (ii) any notice or other communication from any third
Person alleging that the consent of such third Person is or may be required in
connection with the transactions contemplated by this Agreement, and (iii) any
material default under any Company Agreement or event which, with notice or
lapse of time or both, would become such a default on or prior to the Closing
Date and of which Seller or the Company has knowledge.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. STOCKHOLDER MEETING. Seller shall call a meeting of its stockholders
(the "Seller Stockholder Meeting") for the purpose, among others, of voting for
the transactions contemplated hereby. Seller shall use its best efforts to hold
the Seller Stockholder Meeting on or prior to March 31, 1998. Seller shall,
through its
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Board of Directors, recommend to its stockholders approval of such transactions
and shall not withdraw such recommendation; provided, however, that such Board
of Directors shall not be required to make, and shall be entitled to withdraw,
such recommendation if such Board of Directors concludes in good faith on the
basis of the written advice of its outside counsel that the making of, or the
failure to withdraw, such recommendation would violate the fiduciary obligations
of such Board of Directors under applicable law.
7.2. PREPARATION OF THE PROXY STATEMENT. The Seller shall promptly
prepare and file with the SEC the Proxy Statement. The Seller shall use its best
efforts to satisfy the comments of the SEC with regard to the Proxy Statement in
order that the Proxy Statement may be mailed to Seller's stockholders in
accordance with the Exchange Act and the rules and regulations thereunder.
7.3. ACCESS TO RECORDS AFTER CLOSING. (a) For a period of six years after
the Closing Date, Seller and its representatives shall have reasonable access to
all of the books and records of the Company to the extent that such access may
reasonably be required by Seller in connection with matters relating to or
affected by the operations of the Company prior to the Closing Date or the
exercise of the Repurchase Options. Such access shall be afforded by Buyers upon
receipt of reasonable advance notice and during normal business hours. Seller
shall be solely responsible for any costs or expenses incurred by it pursuant to
this Section 7.3(a). If Buyers shall desire to dispose of any of such books and
records prior to the expiration of such six-year period, Buyers shall, prior to
such disposition, give Seller a reasonable opportunity, at Seller's expense, to
segregate and remove such books and records as Seller may select.
(b) For a period of six years after the Closing Date, Buyers and their
representatives shall have reasonable access to all of the books and records
relating to the Company which Seller or any of its Affiliates may retain after
the Closing Date. Such access shall be afforded by Seller and its Affiliates
upon receipt of reasonable advance notice and during normal business hours.
Buyers shall be solely responsible for any costs and expenses incurred by it
pursuant to this Section 7.3(b). If Seller or any of its Affiliates shall desire
to dispose of any of such books and records prior to the expiration of such
six-year period, Seller shall, prior to such disposition, give Buyers a
reasonable opportunity, at Buyers' expense, to segregate and remove such books
and records as Buyers may select.
(c) In the event that the Repurchase Option is exercised, after the
Repurchase Closing Date (as defined below) the term Seller in this Section 7.3
shall mean AVM and Associates and the term Buyers shall mean the party
exercising the Repurchase Option.
7.4. CONFIDENTIAL NATURE OF INFORMATION. Each party agrees that it will
treat in confidence all documents, materials and other information which it
shall have obtained regarding the other party during the course of the
negotiations leading to the consummation of the transactions contemplated hereby
(whether obtained before or after the date of this Agreement), the investigation
provided for herein and the preparation of this Agreement and other related
documents, and, in the event the transactions contemplated hereby shall not be
consummated, each party will return to the other party all copies of nonpublic
documents and materials which have been furnished in connection therewith. Such
documents, materials and information shall not be communicated to any third
Person (other than, in the case of Buyers, to its counsel, accountants,
financial advisors or lenders, and in the case of Seller, to its counsel,
accountants or financial advisors). No Person shall use any confidential
information in any manner whatsoever except solely for the purpose of evaluating
the proposed purchase and sale of the Shares or the negotiation or enforcement
of this Agreement or any agreement contemplated hereby; provided that after the
Closing Buyers and the Company may use or disclose any confidential information
to the extent reasonable and necessary in the operation of the Company and its
business. The obligation of each party to treat such documents, materials and
other information in confidence shall not apply to any information which (i) is
or becomes lawfully available to such party from a source other than the
furnishing party, (ii) is or becomes available to the public other than as a
result of disclosure by such party or its agents, (iii) is required to be
disclosed under applicable law or judicial process, but only to the extent it
must be disclosed,(iv) such party reasonably deems necessary to disclose in
order to obtain any of the consents or approvals contemplated hereby or (v) all
parties agree may be disclosed.
7.5. NO PUBLIC ANNOUNCEMENT. Neither Buyers nor Seller shall (nor shall
Seller permit the Company to), without the approval of the other, make any press
release or other public announcement concerning the
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transactions contemplated by this Agreement, except as and to the extent that
any such party shall be so obligated by law or the rules of any stock exchange
or quotation system, in which case the other party shall be advised and the
parties shall use their best efforts to cause a mutually agreeable release or
announcement to be issued; provided that the foregoing shall not preclude
communications or disclosures necessary to implement the provisions of this
Agreement or to comply with the accounting and SEC disclosure obligations.
7.6. EXPENSES. Each party hereto will pay all costs and expenses incident
to its negotiation and preparation of this Agreement and to its performance and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with, including the fees, expenses and disbursements of
its counsel, accountants and investment bankers. All costs and expenses, if any,
incurred by the Company in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Company.
7.7. FURTHER ASSURANCES. From time to time following the Closing, Seller
shall execute and deliver, or cause to be executed and delivered, to the Company
such other bills of sale, deeds, endorsements, assignments and other instruments
of conveyance and transfer as Buyers or the Company may reasonably request or as
may be otherwise necessary to more effectively convey and transfer to, and vest
in, the Company, and put the Company in possession of, any part of the assets or
properties of the Company not in its possession on the Closing Date.
7.8. REPURCHASE OPTIONS. Each of the Buyers hereby grants to the Seller
an option (the "Repurchase Options") to repurchase all, but not less than all,
of the Shares. The Repurchase Options shall having the following further terms
and conditions:
(a) the Repurchase Options shall be deemed to be granted on and as of
the Closing Date upon, and subject to, the actual closing of the
transactions called for by this Agreement;
(b) the Repurchase Options shall expire on December 31, 1998 (the
"Expiration Date");
(c) the exercise price of the Repurchase Options shall be an aggregate
of $7,000,000 plus an accretion thereon at the rate of 5% per annum from
the Closing Date to and including the date on which such repurchase is
consummated in accordance with clauses (d) and (e) below (the "Exercise
Price"), reduced by the amount of any payments actually made by Seller to
either of Buyers pursuant to Section 10.1 of this Agreement prior to the
Repurchase Closing Date, provided that, in no event, shall the Exercise
Price be less than $1;
(d) Seller may exercise the Repurchase Options (but only
simultaneously and for all of the Shares) by written notice of such
exercise which is actually delivered to each of the Buyers prior to the
Expiration Date, which notice shall specify a closing date (the "Repurchase
Closing Date") for such repurchase (which shall be no less than ten
business days nor more than thirty business days after such delivery);
(e) on the Repurchase Closing Date (i) AVM shall duly transfer all of
its right, title and interest in and to the AVM Shares to Seller in
exchange for the payment to AVM of its proportional share of the Exercise
Price which shall be wire transferred in immediately available funds by
Seller to an account designated by AVM to Seller at least one business day
prior to the Repurchase Closing Date and (ii) Associates shall duly
transfer all of its right, title and interest in and to the Associates
Shares to Seller in exchange for the payment to Associates of its
proportionate share of the Exercise Price which shall be wire transferred
in immediately available funds by Seller to an account designated by
Associates to Seller at least one business day prior to the Repurchase
Closing Date;
(f) the sale to Seller by AVM and Associates of the Shares upon
exercise of the Repurchase Options shall be without any express or implied
representation and warranty by AVM and Associates with respect to any
matter relating to the Company or its business, assets and liabilities or
otherwise, except that upon such sale AVM and Associates shall be deemed to
have represented and warranted to Seller that each of them severally, have
complied with Section 7.9 of this Agreement; and
(g) Seller may assign the Repurchase Options to a Seller Group Member
or one or more other assignees, acting as one, upon written notice
delivered to Buyers prior to the Expiration Date, in which event such
assignee shall have the same rights under the Repurchase Options as Seller
but, except in the
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case of an assignment to a Seller Group Member, shall not be entitled to
further assign such Repurchase Options.
7.9. OPERATING AGREEMENTS. From and after the date hereof and to the
earlier of the Repurchase Closing Date or February 12, 1999:
(a) AVM and Associates each severally agree to cause the Company:
(i) to operate only in the ordinary course of business consistent
with past practices;
(ii) not to declare or pay any dividends or distribute any assets
or make any loans;
(iii) not to borrow any money, permit the assets of the Company to
become subject to any liens or encumbrances (other than Permitted
Encumbrances), enter into any capital leases or material operating
leases or otherwise incur any material obligation or liability outside
the ordinary course of business consistent with past practices;
(iv) not to offer products or services which are competitive with
products and services offered by Seller or its Affiliates on the Closing
Date;
(v) to apply the Company's Net Cash Flow, on a quarterly basis, to
the payment of the outstanding principal balance on the Secured Loans;
(vi) except in accordance with Section 7.4, not to reveal or
disseminate any trade secrets or other confidential information
pertaining to the Company;
(vii) not to merge into or consolidate with any Person or sell all
or substantially all of its assets to any Person;
(viii) to provide Seller with monthly reports on the Company's
financial condition, results of operations, cash flow and other
financial information reasonably requested by Seller;
(ix) not to pay any amounts to either of Buyers or to their
respective Affiliates except as provided in clause (v) above; and
(x) not to terminate the employment by the Company of John Chappell
as its President except for "cause" as such term is defined in the
Employment Agreement between the Company and Mr. Chappell dated
September 18, 1996.
(b) Each of AVM and Associates severally agrees that it will not
hypothecate, pledge or in any way encumber the Shares (other than for
Permitted Encumbrances) and will not, except as provided in Section 7.8,
sell or otherwise transfer or dispose of any Shares or any portion thereof
or any interest therein; provided that AVM and Associates may grant to III
Finance Ltd. and/or one or more investment funds managed by III Offshore
Advisors an option to purchase the Shares so long as such option is
subordinate to the Repurchase Options and cannot be exercised on or prior
to the Expiration Date (unless the Repurchase Option has been exercised, in
which case such option cannot be exercised on or prior to the applicable
Repurchase Closing Date).
(c) Each of AVM and Associates severally agrees that it shall, in its
capacity as a stockholder of the Company, fully cooperate with Seller to
enable Seller to exercise the Repurchase Options in Seller's sole and
absolute discretion and shall not take any action, directly or indirectly,
in such capacity, to prevent Seller from exercising such discretion or
consummating the exercise of the Repurchase Options; provided that nothing
in this clause (c) or elsewhere in this Agreement shall be deemed to bar
any investment fund (including but not limited to III Finance Ltd.) advised
or managed by Associates, III Offshore Advisors or their Affiliates (or bar
Associates, AVM, or III Offshore Advisors as agent of any such fund) from
exercising any right or taking or refraining from taking any action as
stockholder, lender or otherwise pursuant to the Existing Loan Agreements
(including, without limitation, the foreclosure of any lien on or security
interest in the Shares or the right to accelerate any loan or loans
outstanding under any such Existing Loan Agreement or the exercise of any
other right which may arise upon the occurrence or continuance of an event
of default thereunder) or otherwise or subject either of Buyers to
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any liability to Seller or its stockholders in the event of the exercise of
any such right or taking or refraining from taking any such action.
(d) Seller shall retain the Company, and the Company shall accept its
retention, to service all loans and receivables purchased or originated by
Seller and its Affiliates and sold to investment funds advised or managed
by Associates, III Offshore Advisors or their Affiliates on current terms
and conditions (including fees and other compensation). Seller and its
Affiliates agree not to pay any servicer for loans purchased or originated
by Seller and its Affiliates and sold to any Person other than such funds
more than the servicing fee payable by Seller to the Company for comparable
services; provided, however, that in the event Seller sells loans to a
third party, the acquirer of such loans must agree to the Company
performing loan servicing of such loans.
7.10. USE OF PROCEEDS. The Purchase Price shall be utilized by Seller as
working capital for general corporate purposes.
7.11. COMPANY INDEMNIFICATIONS; VOTING. Buyers agree that (a) they shall
not permit or cause the Company to take any action to reduce the scope or nature
of indemnification provided on the date hereof by the Company to directors,
officers and employees of the Company, (b) they shall cause the Company to
maintain any insurance in force on the date hereof which provides such
indemnification and (c) at the Seller Stockholder Meeting they will vote any
shares of Common Stock of Seller for which either of them have the power to vote
(by proxy or otherwise) for the transactions provided for herein.
7.12. CERTAIN INTERCOMPANY DEBT. The parties agree and acknowledge that,
on the date hereof, the Company owes to Seller inter-company indebtedness of
$150,000 and no more (the "Intercompany Debt"). From and after the date hereof
and prior to the Closing Date, the Company shall repay to Seller in full,
without interest, the Intercompany Debt, provided that (a) such repayment shall
be made only from, and to the extent that the Company has at the end of each of
its fiscal quarters prior to the Closing Date, net income (as shown on its
regularly prepared quarterly financial statements) determined in accordance with
generally accepted accounting principles consistently applied and after
deduction of the payments required by Section 7.9(a)(v); (b) the Company shall
not be liable for or be obligated to pay to Seller any amounts in excess of the
Intercompany Debt; and (c) Seller shall continue to provide, at its sole cost,
the insurance and employee benefits provided to the Company and its employees at
any time during the six months prior to the date of this Agreement. If the
transactions provided for in ARTICLE II of this Agreement are consummated, on
the Closing Date all Intercompany Debt not paid by the Company on or prior to
the Closing Date shall be discharged and forgiven by Seller on the Closing Date
so that on the Closing Date no amounts shall be due and payable by the Company
to Seller in respect of any intercompany indebtedness or charges, provided that
if the Repurchase Option is exercised in accordance with Section 7.8, the unpaid
Intercompany Debt (plus any amounts expended by Seller in compliance with clause
(c) above) shall be payable by the Company in full. No amounts shall be due and
payable to Seller or its Affiliates by the Company in respect of any Tax Sharing
Arrangement or Tax indemnity arrangement which exists or may have existed
involving the Company or any Company Group unless and until the Repurchase
Option is exercised in accordance with Section 7.8.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARTIES
8.1. CONDITIONS TO BUYERS' OBLIGATIONS. The obligation of Buyers to close
the purchase the Shares pursuant to this Agreement shall be subject to the
satisfaction (or waiver by Buyers), on or prior to the Closing Date, of the
following conditions:
(a) There shall have been no material breach by Seller in the
performance of any of its covenants and agreements herein; each of the
representations and warranties of Seller contained or referred to herein
shall be true and correct in all material respects on the Closing Date as
though made on the Closing Date, except for changes therein specifically
permitted by this Agreement or resulting from any transaction expressly
consented to in writing by Buyers or any transaction permitted by Section
6.4; and there shall have been delivered to Buyers a certificate to such
effect, dated the Closing Date, signed on
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behalf of Seller by the President or any Vice President of Seller, in
addition to the other deliveries specified in Section 3.4.
(b) The holders of at least a majority of the outstanding Common Stock
of Seller shall have voted in favor of the transactions provided for herein
at the Seller Stockholder Meeting.
(c) No action, suit, investigation or proceeding shall have been
instituted or threatened to restrain or prohibit or otherwise challenge the
legality or validity of the transactions contemplated hereby.
(d) The parties shall have received all approvals and actions of or by
all Governmental Bodies which are necessary to consummate the transactions
contemplated hereby, which are either specified in Schedule 4.1 or
otherwise required to be obtained prior to the Closing by applicable
Requirements of Laws or which are necessary to prevent a material adverse
change in the assets, business, operations, liabilities, profits or
condition (financial or otherwise) of the Company.
(e) Each of the lenders who are parties to the Existing Loan
Agreements shall have consented to, in writing, the transactions provided
for herein.
(f) Seller and each of its Affiliates shall pay off and settle all
obligations of Seller to the Company or to any Affiliate of the Company.
8.2. CONDITIONS TO SELLER'S OBLIGATIONS. The obligations of Seller to
sell the Shares pursuant to this Agreement shall be subject to the satisfaction
(or waiver by Seller), on or prior to the Closing Date, of the following
conditions:
(a) There shall have been no material breach by Buyers in the
performance of any of their covenants and agreements herein; each of the
representations and warranties of Buyers contained or referred to in this
Agreement shall be true and correct in all material respects on the Closing
Date as though made on the Closing Date, except for changes therein
specifically permitted by this Agreement or resulting from any transaction
expressly consented to in writing by Seller or any transaction contemplated
by this Agreement; and there shall have been delivered to Seller a
certificate to such effect, dated the Closing Date and signed on behalf of
each of Buyers by their respective authorized representatives, in addition
to the other deliveries specified in Section 3.3.
(b) No action, suit or proceeding by any Governmental Body shall have
been instituted or threatened to restrain, prohibit or otherwise challenge
the legality or validity of the transactions contemplated hereby.
(c) Each of the lenders who are parties to the Existing Loan
Agreements shall have consented to, in writing, the transactions provided
for herein.
(d) The holders of at least a majority of the outstanding Common Stock
of Seller shall have voted in favor of the transactions provided for herein
at the Seller Stockholder Meeting.
(e) The parties shall have received all approvals and actions of or by
all Governmental Bodies necessary to consummate the transactions
contemplated hereby, which are required to be obtained prior to the Closing
by applicable Requirements of Laws.
ARTICLE IX
TAX MATTERS
9.1. TAX RETURNS. Seller shall file or cause to be filed when due (taking
into account all extensions properly obtained) all Tax Returns that are required
to be filed by or with respect to the Company for taxable years or periods
ending before the Closing Date and Seller shall remit (or cause to be remitted)
any Taxes due in respect of such Tax Returns, and Buyers shall file or cause to
be filed when due all Tax Returns that are required to be filed by or with
respect to the Company for taxable years or periods ending on or after the
Closing Date and Buyers shall remit (or cause to be remitted) any Taxes due in
respect of such Tax Returns.
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9.2. SURVIVAL OF OBLIGATIONS. Notwithstanding anything to the contrary in
this Agreement, and notwithstanding Article X of this Agreement, the obligations
of the parties set forth in this Article IX shall be unconditional and absolute
and shall remain in effect until the expiration of all applicable statutes of
limitation; provided that Buyers and Seller agree to enter into negotiations in
good faith to amend appropriately the provisions of this Article IX in the event
of the exercise of the Repurchase Options.
ARTICLE X
INDEMNIFICATION
10.1. INDEMNIFICATION BY SELLER. (a) Seller agrees to indemnify and hold
harmless each Buyer Group Member from and against any and all Losses and
Expenses incurred by such Buyer Group Member in connection with or arising from:
(i) any breach by Seller of any of its covenants in this Agreement or
in any Seller Ancillary Agreement;
(ii) any failure of Seller to perform any of its obligations in this
Agreement or in any Seller Ancillary Agreement; or
(iii) any breach of any warranty or the inaccuracy of any
representation of Seller contained or referred to in this Agreement or any
certificate delivered by or on behalf of Seller pursuant hereto;
provided that without limitation of Seller's indemnification obligations
under clause (i) or (ii) of this subsection (a), Seller shall be required
to indemnify and hold harmless under clause (iii) of this subsection (a)
with respect to Loss and Expense incurred by Buyer Group Members as a
result of inaccuracies only if such Loss and Expense exceeds $200,000 in
the aggregate, but if in excess of such amount, then for the entire amount
of such Loss and Expense without deduction; and provided further that
Sellers' total liability under this Section 10.1 shall not exceed an
aggregate of $7,000,000.
(b) The indemnification provided for in this Section 10.1 shall terminate
on the earlier of the Repurchase Closing Date or the first anniversary of the
Closing Date (and no claims shall be made by any Buyer Group Member under this
Section 10.1 thereafter), except that the indemnification by Seller shall
continue as to:
(i) the representations and warranties set forth in Sections 4.2(b),
4.6, 4.9 and 4.10 and the covenants of Seller set forth in Sections 7.4,
7.5, 7.6, and 7.10, as to all of which no time limitation shall apply; and
(ii) any Loss or Expense of which any Buyer Group Member has notified
Seller in accordance with the requirements of Section 10.3 on or prior to
the date such indemnification would otherwise terminate in accordance with
this Section 10.1, as to which the obligation of Seller shall continue
until the liability of Seller shall have been determined pursuant to this
Article X, and Seller shall have reimbursed all Buyer Group Members for the
full amount of such Loss and Expense in accordance with this Article X.
10.2. INDEMNIFICATION BY BUYERS. (a) Buyers severally agree to indemnify
and hold harmless each Seller Group Member from and against any and all Loss and
Expense incurred by such Seller Group Member in connection with or arising from:
(i) any breach by Buyers of any of their respective covenants or
agreements in this Agreement or in any Buyer Ancillary Agreement;
(ii) any failure by either Buyer to perform any of their respective
obligations in this Agreement or in any Buyer Ancillary Agreement; or
(iii) any breach of any warranty or the inaccuracy of any
representation of Buyers contained or referred to in this Agreement or in
any certificate delivered by or on behalf of Buyers pursuant hereto;
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provided that, without limitation of Buyers' indemnification obligations
under clauses (i) and (ii) of this subsection (a), Buyers shall be required
to indemnify and hold harmless under clause (iii) of this subsection (a)
with respect to Loss and Expense incurred by Seller Group Members only if
such Loss and Expense exceeds $200,000 in the aggregate, but if in excess
of such amount, then for the entire amount of such Loss and Expense without
deduction and provided further that Buyers' total liability under this
Section 10.2 shall not exceed an aggregate of $7,000,000.
(b) The indemnification provided for in this Section 10.2 shall terminate
on the earlier of the Repurchase Closing Date or the first anniversary of the
Closing Date (and no claims shall be made by Seller under this Section 10.2
thereafter), except that the indemnification by Buyers shall continue as to:
(i) the covenants of Buyers set forth in Sections 7.4, 7.5, 7.6, 7.8
and 7.9, as to all of which no time limitation shall apply; and
(ii) any Loss or Expense of which Seller has notified Buyers in
accordance with the requirements of Section 10.3 on or prior to the date
such indemnification would otherwise terminate in accordance with this
Section 10.2, as to which the obligation of Buyers shall continue until the
liability of Buyers shall have been determined pursuant to this Article X,
and Buyers shall have reimbursed all Seller Group Members for the full
amount of such Loss and Expense in accordance with this Article X.
10.3. NOTICE OF CLAIMS. (a) Any Buyer Group Member or Seller Group Member
(the "Indemnified Party") seeking indemnification hereunder shall give to the
party obligated to provide indemnification to such Indemnified Party (the
"Indemnitor") a notice (a "Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in connection
herewith upon which such claim is based; provided, that (i) a Claim Notice in
respect of any action at law or suit in equity by or against a third Person as
to which indemnification will be sought shall be given promptly after the action
or suit is commenced; and (ii) failure to give such notice shall not relieve the
Indemnitor of its obligations hereunder except to the extent it shall have been
materially prejudiced by such failure.
(b) In calculating any Loss or Expense there shall be deducted (i) any
insurance recovery in respect thereof (and no right of subrogation shall accrue
hereunder to any insurer, and (ii) the amount of any tax benefit to the
Indemnified Party (or any of its Affiliates) with respect to such Loss or
Expense (after giving effect to the tax effect of receipt of the indemnification
payments).
(c) After the giving of any Claim Notice pursuant hereto, the amount of
indemnification to which an Indemnified Party shall be entitled under this
Article X shall be determined: (i) by the written agreement between the
Indemnified Party and the Indemnitor; (ii) by a final judgment or decree of any
court of competent jurisdiction; or (iii) by any other means to which the
Indemnified Party and the Indemnitor shall agree. The judgment or decree of a
court shall be deemed final when the time for appeal, if any, shall have expired
and no appeal shall have been taken or when all appeals taken shall have been
finally determined. The Indemnified Party shall have the burden of proof in
establishing the amount of Loss and Expense suffered by it.
(d) Any indemnification payment hereunder with respect to any Loss or
Expense shall be an amount which is sufficient to compensate the indemnified
party for the amount of such Loss or Expense, after taking into account all
increases in federal, state, local, foreign or other Taxes payable by the
indemnified party as a result of the receipt of such payment (by reason of such
payment being included in income, resulting in a reduction of tax basis, or
otherwise increasing such Taxes payable by the indemnified party at any time).
10.4. THIRD PERSON CLAIMS. The Indemnitor shall have the right to conduct
and control, through counsel of its choosing, the defense, compromise or
settlement of any such third Person claim, action or suit against such
Indemnified Party as to which indemnification will be sought by any Indemnified
Party from any Indemnitor hereunder if the Indemnitor has acknowledged and
agreed in writing that, if the same is adversely determined, the Indemnitor has
an obligation to provide indemnification to the Indemnified Party in respect
thereof, and in any such case the Indemnified Party shall cooperate in
connection therewith and shall furnish
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such records, information and testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may be reasonably requested by the
Indemnitor in connection therewith; provided that the Indemnified Party may
participate, through counsel chosen by it and at its own expense, in the defense
of any such claim, action or suit as to which the Indemnitor has so elected to
conduct and control the defense thereof. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay, settle or compromise any such
claim, action or suit, provided that in such event the Indemnified Party shall
waive any right to indemnity therefor hereunder unless the Indemnified Party
shall have sought the consent of the Indemnitor to such payment, settlement or
compromise and such consent was unreasonably withheld, in which event no claim
for indemnity therefor hereunder shall be waived.
ARTICLE XI
TERMINATION
11.1. TERMINATION. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated at any time prior to the
Closing Date:
(a) by the mutual consent of Buyers and Seller;
(b) by Buyers or Seller if the Closing shall not have occurred on or
before September 30, 1998 (or such later date as may be mutually agreed to
by Buyers and Seller);
(c) by Buyers in the event of any material breach by Seller of any of
Seller's agreements, representations or warranties contained herein and the
failure of Seller to cure such breach within seven days after receipt of
notice from Buyer requesting such breach to be cured; or
(d) by Seller in the event of any material breach by Buyers of any of
Buyers' agreements, representations or warranties contained herein and the
failure of Buyers to cure such breach within seven days after receipt of
notice from Seller requesting such breach to be cured.
11.2. NOTICE OF TERMINATION. Any party desiring to terminate this
Agreement pursuant to Section 11.1 shall give notice of such termination to the
other parties to this Agreement.
11.3. EFFECT OF TERMINATION. In the event that this Agreement shall be
terminated pursuant to this Article XI, all further obligations of the parties
under this Agreement (other than Sections 7.4, 7.6 and 12.8 and Article X) shall
be terminated without further liability of any party to the others, provided
that (a) Seller shall immediately upon termination return to Buyers all down
payments made on the Purchase Price hereunder (without interest for the period
ending on the termination date but with 5% interest per annum thereafter); (b)
if such termination occurs and, for any reason, the stockholders of the Seller
have not duly approved the transactions provided for herein in accordance with
applicable Delaware law, upon the written demand of the Buyers, the Seller shall
execute and deliver to Buyers an irrevocable proxy, in form and substance
satisfactory to Buyers, authorizing Buyers to vote all of the outstanding voting
stock of the Company owned, directly or indirectly, by the Seller or its
Affiliates on any matter coming before the stockholders of the Company for a
vote, such proxy to terminate upon the payment in full by Seller of the amounts
referred to in clause (a) of this Section 11.3; and (c) nothing herein shall
relieve any party from liability for its willful breach of this Agreement.
ARTICLE XII
GENERAL PROVISIONS
12.1. NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (i) when
delivered personally, (ii) if transmitted by facsimile when
A-22
<PAGE> 53
confirmation of transmission is received, or (iii) if sent by registered or
certified mail, return receipt requested, or by private courier when received;
and shall be addressed as follows:
If to Buyers, to:
Adams, Viner & Mosler, Ltd.
III Associates
250 Australian Avenue South
West Palm Beach, Florida 33401
Facsimile No.: (561) 655-6871
Attention: Warren Mosler
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Facsimile No.: (312) 853-7036
Attention: William D. Kerr
If to Seller, to:
The Aegis Consumer Funding Group Inc.
200 North Cobb Parkway
Suite 428
Marietta, Georgia 30062
Facsimile No.: 770-281-7102
Attention: Matthew Burns
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Facsimile No.: (212) 715-8000
Attention: Peter S. Kolevzon, Esq.
or to such other address as such party may indicate by a notice delivered to the
other party hereto.
12.2. SUCCESSORS AND ASSIGNS. (a) Except as set forth in Section 7.8(g),
the rights of any party under this Agreement shall not be assignable by such
party without the written consent of the other parties.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and permitted assigns. The successors and
permitted assigns hereunder shall include without limitation, in the case of
Buyers, any permitted assignee as well as the successors in interest to such
permitted assignee (whether by merger, liquidation (including successive mergers
or liquidations) or otherwise). Nothing in this Agreement, expressed or implied,
is intended or shall be construed to confer upon any Person other than the
parties and successors and assigns permitted by this Section 12.3 any right,
remedy or claim under or by reason of this Agreement.
12.3. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Exhibits and
Schedules referred to herein and the documents delivered pursuant hereto contain
the entire understanding of the parties hereto with regard to the subject matter
contained herein or therein, and supersede all prior agreements, understandings
or letters of intent between or among any of the parties hereto. This Agreement
shall not be amended, modified or supplemented except by a written instrument
signed by an authorized representative of each of the parties hereto.
12.4. WAIVERS. Any term or provision of this Agreement may be waived, or
the time for its performance may be extended, by the party or parties entitled
to the benefit thereof. Any such waiver shall be validly and sufficiently given
for the purposes of this Agreement if, as to any party, it is in writing signed
by an
A-23
<PAGE> 54
authorized representative of such party. The failure of any party hereto to
enforce at any time any provision of this Agreement shall not be construed to be
a waiver of such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of any party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to constitute a waiver of any other or subsequent breach.
12.5. PARTIAL INVALIDITY. Wherever possible, each provision hereof shall
be interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability without invalidating the remainder of
such provision or provisions or any other provisions hereof, unless such a
construction would be unreasonable.
12.6. EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be considered an original instrument, but
all of which shall be considered one and the same agreement, and shall become
binding when one or more counterparts have been signed by each of the parties
hereto and delivered to each of Seller and Buyers.
12.7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of New York.
12.8. SUBMISSION TO JURISDICTION. Seller and Buyers hereby irrevocably
submit in any suit, action or proceeding arising out of or related to this
Agreement or any of the transactions contemplated hereby to the non-exclusive
jurisdiction of the United States District Court for the Southern District of
New York and the jurisdiction of any court of the State of New York located in
New York City and waive any and all objections to jurisdiction that they may
have and any claim or objection that any such court is an inconvenient forum.
Each party consents to service of process upon it with respect to any such
action or proceeding by registered mail, return receipt requested, and by any
other means permitted by applicable laws and rules.
A-24
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
ADAMS, VINER & MOSLER, LTD.
By: AVM Associates, general partner
By /s/ WARREN B. MOSLER
------------------------------------
Name: Warren B. Mosler
Title: General Partner
III ASSOCIATES
By: Cheyenne, Inc., general partner
By /s/ ROBERT H. FASULO
------------------------------------
Name: Robert H. Fasulo
Title: Secretary/Treasurer
THE AEGIS CONSUMER FUNDING
GROUP INC.
By /s/ MATTHEW B. BURNS
------------------------------------
Name: Matthew B. Burns
Title: Chief Executive Officer
A-25
<PAGE> 56
ANNEX B
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-25714
THE AEGIS CONSUMER FUNDING GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR 22-3008867
ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
200 NORTH COBB PARKWAY, SUITE 428, MARIETTA, GEORGIA 30062
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(770) 281-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [
].
As of March 11, 1998, 30,000,000 shares of the issuer's common stock were
outstanding.
================================================================================
<PAGE> 57
THE AEGIS CONSUMER FUNDING GROUP, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited):
Consolidated Condensed Statements of Financial
Condition -- December 31, 1997 and June 30, 1997............ B- 3
Consolidated Condensed Statements of Operations -- three and
six months ended December 31, 1997 and 1996................. B- 4
Consolidated Condensed Statements of Cash Flows -- six
months ended December 31, 1997 and 1996..................... B- 5
Notes to Consolidated Condensed Financial Statements........ B- 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... B- 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities....................................... B-25
Item 3. Defaults upon Senior Securities............................. B-25
Item 5. Other information........................................... B-25
Item 6. Exhibits and Reports on Form 8-K............................ B-26
SIGNATURES............................................................ B-27
</TABLE>
B-2
<PAGE> 58
PART I. FINANCIAL INFORMATION:
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THE AEGIS CONSUMER FUNDING GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents................................... $ 2,797,795 $ 4,492,591
Automobile finance receivables, net......................... 26,627,444 34,654,507
Retained interests in securitized receivables............... 20,321,644 33,329,946
Other assets, including fixed assets........................ 10,000,277 11,005,696
------------ ------------
$ 59,747,160 $ 83,482,740
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Warehouse credit facilities................................. $ 19,637,067 $ 17,407,004
Notes payable............................................... 33,968,509 36,812,869
Advances on proposed sale of SST............................ 2,950,000 --
Accounts payable and accrued expenses....................... 11,460,451 15,808,781
------------ ------------
Total liabilities...................................... 68,016,027 70,028,654
------------ ------------
Subordinated debentures, net................................ -- 24,031,746
------------ ------------
Stockholders' equity (deficit):
Common stock, $.01 par value; 30,000,000 shares authorized;
17,677,217 shares issued and outstanding.................. 176,772 176,772
Preferred stock, $0.10 par value; 2,000,000 shares
authorized:
Series C, 1,100 shares designated; 920 shares issued; 106
shares outstanding..................................... 11 11
Series D, 21,350 shares designated; 21,107 shares issued
and outstanding........................................ 2,110 --
Series E, 2100 shares designated; 2000 shares issued and
outstanding ........................................... 200 --
Series F, 2100 shares designated; 2000 shares issued and
outstanding............................................ 200 --
Paid-in capital............................................. 47,449,704 22,303,034
Retained deficit since date of recapitalization (March 1,
1992)..................................................... (55,897,864) (33,057,477)
------------ ------------
Total stockholders' equity (deficit)................... (8,268,867) (10,577,660)
------------ ------------
$ 59,747,160 $ 83,482,740
============ ============
</TABLE>
B-3
<PAGE> 59
THE AEGIS CONSUMER FUNDING GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Servicing fee income.................... $ 3,010,327 $ -- $ 6,781,374 $ --
Fees and commissions earned............. 14,411 23,987 46,782 70,542
Gains (losses) from securitization
transactions.......................... 2,697,576 (577,793) 5,610,941 9,771,326
Write down of retained interests in
securitized receivables............... (11,461,787) (29,000,000) (11,461,787) (31,000,000)
Interest income......................... 2,323,815 6,961,086 5,379,001 12,175,510
Other income............................ 279,881 60,306 770,763 138,985
------------ ------------ ------------ ------------
(3,135,777) (22,532,414) 7,127,074 (8,843,637)
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Salaries and other employee costs....... 4,051,060 1,908,489 10,042,077 4,439,833
Provision for credit losses............. 3,862,949 6,043,350 4,975,658 6,579,525
Interest expense........................ 2,477,590 4,214,327 5,844,943 7,227,800
Other expenses.......................... 5,730,026 2,806,842 9,083,583 5,099,895
------------ ------------ ------------ ------------
16,121,626 14,973,008 29,946,261 23,347,053
------------ ------------ ------------ ------------
Net loss before income tax benefit...... (19,257,403) (37,505,422) (22,819,187) (32,190,690)
Income tax benefit...................... -- (10,606,120) -- (8,427,030)
------------ ------------ ------------ ------------
Net loss................................ $(19,257,403) $(26,899,302) $(22,819,187) $(23,763,660)
------------ ------------ ------------ ------------
Net loss available to common
stockholders.......................... $(19,257,403) $(26,957,780) $(22,819,187) $(23,897,183)
------------ ------------ ------------ ------------
Basic and Diluted Earnings Per Share
(1.50)................................ $ (1.09) $ (1.68) $ (1.29) $
------------ ------------ ------------ ------------
Weighted Average Number of Shares Used
in the Calculation of Basic and
Diluted Earnings Per Share............ 17,677,217 16,066,631 17,677,217 15,923,853
------------ ------------ ------------ ------------
</TABLE>
B-4
<PAGE> 60
THE AEGIS CONSUMER FUNDING GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (22,819,187) $ (23,763,660)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Amortization and depreciation expense.................. 479,446 534,143
Write off of leasehold improvements.................... 453,100 --
Provision for credit losses, net....................... 4,975,658 6,579,525
Unrealized gains on securitization transactions........ -- (12,109,339)
Write down of retained interests in securitized
receivables.......................................... 11,461,787 31,000,000
(Increase) decrease in automobile finance receivables
portfolio............................................ 4,147,640 (177,992,496)
(Increase) decrease in other assets.................... 864,919 (2,028,142)
Increase (decrease) in accounts payable and accrued
expenses............................................. (4,348,330) 6,540,387
Decrease in income taxes payable....................... -- (9,188,444)
------------- -------------
Net cash used in operating activities............. (4,784,967) (180,428,026)
------------- -------------
Cash flows from investing activities:
Distributions from retained interests in securitized
receivables............................................ 1,546,515 1,735,129
Additional payments to securitized receivable trusts...... -- (3,099,659)
Acquisition of fixed assets............................... (792,047) (2,771,438)
------------- -------------
Net cash provided by (used in) investing
activities...................................... 754,468 (4,135,968)
------------- -------------
Cash flows from financing activities:
Proceeds from borrowings under warehouse credit
facilities............................................. 161,022,588 403,297,298
Repayment of borrowings under warehouse credit
facilities............................................. (158,792,525) (222,281,263)
Proceeds from subordinated debt........................... -- 20,167,467
Proceeds from borrowings under notes payable.............. -- (17,186,942)
Repayment of borrowings under notes payable............... (2,844,360) 5,000,000
Proceeds from advances on proposed sale of SST............ 2,950,000 --
Purchase of treasury stock................................ -- (340,000)
------------- -------------
Net cash provided by financing activities......... 2,335,703 188,656,560
------------- -------------
Net (decrease) in cash and cash equivalents................. (1,694,796) 4,092,566
Cash and cash equivalents, beginning of period.............. 4,492,591 3,090,624
------------- -------------
Cash and cash equivalents, end of period.................... $ 2,797,795 $ 7,183,190
------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest............................................... $ 4,813,627 $ 4,586,897
------------- -------------
Income taxes........................................... $ 50,125 $ 98,300
------------- -------------
</TABLE>
B-5
<PAGE> 61
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments necessary for a fair
statement of the results for the interim periods. Results for interim periods
are not necessarily indicative of the results for a full year. The consolidated
financial statements included herein have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"SEC"). Pursuant to interim accounting disclosure rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The organization and business of the Company, accounting
policies followed by the Company and other information are contained in the
notes to the Company's consolidated financial statements filed as part of the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997.
This quarterly report should be read in conjunction with such Annual Report on
Form 10-K.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings Per Share, which is effective for annual and interim
financial statements issued for periods ending after December 15, 1997. SFAS No.
128 was issued to simplify the Standards for calculating earnings per share
("EPS") previously found in APB No. 15, Earnings Per Share. SFAS 128 replaces
the presentation of primary EPS with a presentation of basic EPS. The new rules
also require dual presentation of basic and diluted EPS on the face of the
statement of operations for companies with a complex capital structure. For the
Company, basic EPS excludes the dilutive effects of stock options and certain
nonvested Incentive Stock Options. Diluted EPS for the Company will reflect all
potential dilutive securities (similar to fully diluted EPS under Accounting
Principles Board Opinion No. 15).
2. COMPANY OPERATIONS AND LIQUIDITY
As reflected in the accompanying statement of financial condition as of
December 31, 1997 and the consolidated condensed statement of operations for the
six months then ended, the Company has suffered substantial losses during such
periods and, accordingly, substantial reductions in stockholders' equity. These
negative financial trends have resulted primarily from (i) material increases in
delinquencies and losses on owned and managed finance contracts acquired since
the Company's inception and, to a lesser extent, (ii) one time charges relating
to the consolidation of the Company's operations and relocation of
administrative functions to Marietta, Georgia.
As a result of increasingly high rejection rates and backlog in risk
default insurance claims processing by the Company's insurance provider, the
Company's expected receipts from retained interests in securitized receivables
has been reduced or delayed. Furthermore, the Company is facing severe liquidity
problems due to the lack of committed operating capital.
In October and November 1997, III Finance Ltd. ("III Finance"), High Risk
Opportunities Fund Ltd. ("HRO") and Greenwich Capital Financial Products, Inc.
converted their subordinated debentures of the Company to preferred stock of the
Company. The conversion of debt to equity reduces the Company's annual debt
service requirements by approximately $3.0 million. Payment of preferred stock
dividends, if any, are subject to the approval of the Board of Directors. See
Note 5.
In November 1997, the Company entered into negotiations to sell the stock
of its servicing subsidiary, Systems & Services Technologies, Inc. ("SST"), for
$7.0 million to Adams, Viner & Mosler, Ltd. and III Associates (collectively
referred to as the "Purchasers"), subject to shareholder approval. The Company
received advances on the sale of SST totaling $2.95 million through December 31,
1997. In connection with
B-6
<PAGE> 62
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
the sale, the Company has a repurchase option, expiring on December 31, 1998, to
repurchase SST for $7.0 million plus a 5% premium. See Note 6.
To further address liquidity problems, the Company is executing its
strategic business plan to (1) reduce operating overheads and expenses through
consolidation of operations, (2) develop and implement new products and fee
based services to enhance operating revenues, and (3) complete the sale of its
interest in SST. Further, the Company is working closely with its funding
source, III Finance, to ensure continued funding for new originations and to
sustain continued operations. See Note 3.
There can be no assurance that the Company's efforts to alleviate its
liquidity problems and restore its operations to profitability will be
successful. If the Company is unsuccessful in its efforts, it may be unable to
meet its obligations, which raises substantial doubt about the Company's ability
to continue as a going concern. If the Company is unable to continue as a going
concern and is forced to liquidate assets to meet its obligations, the Company
may not be able to recover the recorded amounts of such assets. The Company's
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
3. WAREHOUSE AND OTHER CREDIT FACILITIES
Through December 31, 1997, the Company securitized an aggregate amount of
$543.3 million in seven securitization transactions under its $1.0 billion
purchase facility. Future securitizations under the purchase facility ($456.7
million as of December 31, 1997) are subject to customary conditions and are
uncommitted. The purchase facility provides for initial financing through the
Company's $75.0 million warehouse line as the finance contracts are acquired and
subsequently sold into the purchase facility.
As of December 31, 1997, the Company was in technical default of net worth
covenants under its $75 million warehouse line and its Retained Yield Line
("RTY") Financing provided by III Finance. On February 26, 1998, the warehouse
line was reduced to $50 million and the Company obtained waivers of such
defaults for all of its facilities with III Finance through March 31, 1998. See
Note 6.
A lease line with III Finance expired December 31, 1997 with approximately
$5.2 million outstanding. The Company is currently negotiating extending the
maturity date of that facility through December 31, 1998.
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to various other legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management of the
Company, the amount of any ultimate liability with respect to these actions will
not materially affect the results of operations, cash flows or financial
position of the Company.
5. CAPITAL STOCK
On October 16, 1997, III Finance and HRO converted $21.3 million of the
Company's 12% convertible subordinated debenture (the "Debenture") into $21.1
million of the Company's 12.75% non-voting Cumulative Convertible Preferred
Stock, Series D ("Series D Preferred Shares"). The Series D Preferred Shares are
redeemable at the holder's option, in which event the Company may pay the
holder's in common stock at $1.26 per share or in cash.
On November 10, 1997, the remaining subordinated debt holder, Greenwich
Capital Financial Products, Inc., converted $4.0 million of subordinated debt of
the Company into $4.0 million of Cumulative Preferred Stock of the Company
("Series E and F Preferred Shares"). The debt was converted into 2,000 shares
each of Series E and F Preferred Shares with a 12.0% dividend and a redemption
value of $4.0 million. The Series E Preferred Shares are redeemable at the
holder's option, in which event the Company may pay the holder's in
B-7
<PAGE> 63
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
common stock at $1.26 per share or in cash and the Series F Preferred Shares are
redeemable at the holder's option into common stock at $2.00 per share or in
cash.
See Note 6 with the respect to conversion of Series C Preferred Stock into
common shares. No warrants that were issued and outstanding at December 31, 1997
have been exercised as of February 27, 1998.
6. SUBSEQUENT EVENTS
On January 13, 1998, HRO, with III Offshore Advisors acting as investment
advisor, converted 85 shares of the Company's Series C Preferred Stock into
12,322,783 shares of Common Stock at a conversion price of $0.7968 per share.
According to HRO's Schedule 13-D filing, HRO directly owns 13,135,987 shares of
the Company's common stock through HRO's ownership of the 21 remaining
outstanding shares of the Company's Series C Preferred Stock, and indirectly
owns an additional 3,047,700 shares of the Company's common stock.
On January 28, 1998, the Company executed a Stock Purchase Agreement for
the sale of the stock of SST. During the period January 1, 1998 through February
27, 1998, the Company has received additional down payments under the Stock
Purchase Agreement of $3.1 million (a total of $6.05 million since entering into
preliminary negotiations for the sale of SST in November 1997). Under the terms
of the Agreement, the Company is restricted from utilizing any net cash flow of
SST from and after the effective date of the Agreement (provided that the sale
Agreement is ratified by stockholders approval) until the repurchase option is
exercised.
As a result of the Company's inability to satisfy The Nasdaq Stock Market's
minimum bid requirement of $1.00 per share, or its alternative test of $4.0
million in net tangible assets and $3.0 million in market value of public float,
the Company's stock was delisted from Nasdaq effective at the close of business
on Friday, February 5, 1998. The Company retains the right to apply to be
relisted on Nasdaq should the Company satisfy Nasdaq's listing requirements.
As of December 31, 1997, the Company was in technical default under its $75
million warehouse line and its RTY Financing provided by III Finance for failing
to meet certain net worth requirements. On February 26, 1998 the warehouse line
was reduced to $50 million and the Company obtained waivers of net worth
covenants for all of its facilities with III Finance through March 31, 1998. In
connection with the waiver, III Finance agreed to allow the Company to incur a
shortfall of what the Company owes III Finance on its monthly pay-downs, not to
exceed $500,000.
7. PRO FORMA INFORMATION
As discussed in Notes 2 and 6, the Company entered into an Agreement for
the sale of the stock of SST. The accompanying pro forma condensed statement of
financial condition and condensed statement of operations gives effect to the
transaction as if it had occurred as of June 30, 1997 and the repurchase option
had expired unexercised. It has been assumed that the proceeds from the sale
have been used to reduce liabilities.
B-8
<PAGE> 64
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
PRO FORMA CONDENSED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Assets.............................................. $59,747 $55,044
------- -------
Liabilities......................................... 68,016 60,442
Stockholders' equity (deficit)...................... (8,269) (5,398)
------- -------
Total liabilities and stockholders' equity
(deficit)......................................... $59,747 $55,044
======= =======
</TABLE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Revenues............................................ $ 7,127 $ 439
Expenses............................................ 29,946 25,563
-------- --------
Net income(loss) before gain........................ $(22,819) $(25,124)
On sale of SST stock
Gain on sale of SST stock........................... -- 2,871
-------- --------
Net income (loss)................................... $(22,819) $(22,253)
-------- --------
Basic and Diluted Earnings Per Share................ $ (1.29) $ (1.26)
======== ========
</TABLE>
Pro forma information related to the period ended December 31, 1996 was not
considered relevant as SST's operations were in the process of being
established.
B-9
<PAGE> 65
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements contained in this Management's Discussion and Analysis
of Financial Condition and Results of Operations contain "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that future results covered
by the forward-looking statements will be achieved. The Company cautions readers
of this Quarterly Report on Form 10-Q that a number of important factors could
cause the Company's actual results, performance or achievements in fiscal year
ending June 30, 1998 and beyond to differ materially from the results,
performance or achievements expressed in, or implied by, such forward-looking
statements.
The following discussion and analysis of financial condition and results of
operations of the Company relates to the six months and three months ended
December 31, 1997 and 1996 and should be read in conjunction with the Company's
Consolidated Condensed Financial Statements and Notes thereto included elsewhere
in this quarterly report. The unaudited results for the three and six months
ended December 31, 1997 are not necessarily indicative of results to be expected
for the entire fiscal year.
OVERVIEW
The Company is a specialty consumer finance company engaged in acquiring,
securitizing and servicing finance contracts originated by dealers in connection
with the sale of late-model used and, to a lesser extent, new cars to consumers
with sub-prime credit. Since commencing the acquisition of finance contracts in
May 1992 through December 31, 1997, the Company has acquired approximately $1.37
billion of finance contracts, of which $1.19 billion have been securitized in
twenty-four offerings of asset-backed securities.
The following table illustrates the Company's finance contract acquisition
volume, total revenue, securitization activity and servicing portfolio during
the past nine fiscal quarters.
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
---------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1996 1996 1996 1996 1997
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Number of finance contracts acquired during
period.......................................... 8,190 10,569 12,037 15,401 14,584 8,992
Average finance contract balance................. $ 12.2 $ 12.4 $ 12.4 $ 12.3 $ 12.3 $ 12.6
Aggregate value of finance contracts acquired
during period................................... $100,582 $128,781 $149,612 $190,843 $179,933 $110,580
Gains from securitization transactions(1)(2)..... $ 7,424 $ 12,759 $ 10,824 $ 10,349 $ (578) $ 5,979
Gains from whole loan sales...................... $ 64 $ 111 $ 290 $ -- $ -- $ 37
Net interest (expense) income.................... $ 1,021 $ 546 $ 993 $ 2,129 $ 2,747 $ 2,894
Revenue(3)(4).................................... $ 6,946 $ 10,341 $ 11,916 $ 10,675 $(26,747) $ 4,765
Finance contracts securitized during period...... 85,368 130,138 149,274 $173,258 4,870 $238,393
Finance contracts sold during period............. 1,801 2,752 2,250 -- -- 15,000
Servicing portfolio(at period end)(5)............ 287,481 401,704 500,694 645,551 759,304 783,757
<CAPTION>
FOR THE QUARTERS ENDED
----------------------------------
JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997
--------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of finance contracts acquired during
period.......................................... 8,745 8,724 2,874
Average finance contract balance................. $ 12.6 $ 12.8 $ 12.7
Aggregate value of finance contracts acquired
during period................................... $110,485 $112,044 $ 36,417
Gains from securitization transactions(1)(2)..... $ 5,797 $ 2,913 $ 2,698
Gains from whole loan sales...................... $ -- $ -- $ --
Net interest (expense) income.................... $ 1,931 $ (312) $ (154)
Revenue(3)(4).................................... $ (5,291) $ 6,886 $ (5,613)
Finance contracts securitized during period...... 148,814 87,316 66,974
Finance contracts sold during period............. -- -- --
Servicing portfolio(at period end)(5)............ 813,055 838,067 874,685(6)
</TABLE>
- ---------------
(1) Excludes gains from whole loan sales of finance contracts.
(2) The quarters ended December 31, 1995 through December 31, 1997 are before
write downs of $3.1 million, $1.5 million, $3.5 million, $2.0 million, $29.0
million, $4.4 million,$13.6 million,$0, and $11.5 million respectively,
taken on prior retained interests in securitized receivables.
(3) Revenue is net of interest expense and includes the write-downs on retained
interests in securitized receivables.
(4) The quarter ended March 31, 1997 has been restated to reflect a $4.4 million
write down on retained interests in securitization receivables resulting
from a correction of an error discovered in the Company's valuation model,
relating to such quarter, during the valuation process for the June 30, 1997
quarter. Through September 1997, excludes finance contracts in bankruptcy,
authorized for repossession and in repossession and still eligible for
reinstatement.
B-10
<PAGE> 66
(5) Includes all finance contracts except those considered inactive, fully
liquidated, having balances less than $1,000 or where default insurance has
been rejected or paid.
REVENUES
The Company's primary sources of revenues consist of three components:
gains from securitization transactions, servicing fees and interest income.
Gains or Losses from Securitization Transactions and Write-Downs on
Retained Interest in Securitized Receivables. The Company warehouses the
finance contracts it acquires and periodically sells them to a trust, which in
turn sells assetbacked securities to investors. By securitizing its finance
contracts, the Company is able to lock in the difference ("gross spread")
between the annual rate of interest paid by the consumer ("APR") on the finance
contracts acquired and the interest rate on the asset-backed securities sold
("Certificate Rate"). When the Company securitizes its finance contracts, it may
record a gain or loss from securitization transactions and, if appropriate,
establish an asset referred to as retained interest in securitized receivables.
Gains or losses from securitization transactions are equal to (i) the
retained interest, if any, in the securitized receivables, (ii) the difference
between the net proceeds from the securitization and the cost (including the
cost of Vender's Single Interest Insurance Policy ("VSI Policy") and credit
default premiums ("RDI") to the Company) of the finance contracts sold, and
(iii) reserve funds, if required.
During the six months ended December 31, 1997, the Company did not record
any additions to retained interest in securitized receivables.
The Company reviews on a quarterly basis the retained interest in
securitized receivables. If actual experience differs from the Company's
assumptions or to the extent that market and economic changes occur that
adversely impact the assumptions utilized in determining the retained interest
in securitized receivables, the Company records a charge against earnings (See
"Results of Operations"). Because the Company's current assumptions utilized in
evaluating its retained interest in securitized receivables incorporate (i)
market discount rates, (ii) expected default rates over the life of the
securitization trust, (iii) expected prepayments by the obligors, and (iv)
expected recovery rates on the underlying collateral, and differ from the
original assumptions, the Company sustained large write downs in prior
recordings of retained interest in securitized receivables.
As of December 31, 1997, the market discount rate utilized in determining
the retained interest in securitized receivables was based on the Company's
estimate of the yield required by a third party purchaser of such instrument.
The Company's prepayment assumptions are based primarily on the age of the
portfolio of finance contracts and prior prepayment history. The Company bases
its default assumptions on anticipated losses after considering the performance
characteristics of the Company's finance contract portfolio to date. The
Company's default assumptions are based on estimated repossession rates,
anticipated proceeds from the liquidation of repossessed vehicles, proceeds from
VSI Policy coverage and recoveries from the Company's RDI insurance.
Increasingly high insurance claim rejection rates and a backlog in RDI
claims processing by the Company's insurance provider has resulted in shortfalls
to the trusts which in turn has caused a shortfall in the release to the Company
of retained interests that the Company had anticipated receiving.
Servicing Fee Income. Servicing fees are earned at a contracted rate,
based on the receivable balance outstanding, from the owner of the asset.
Subsequent to securitization, the Company continues to service the securitized
finance contracts, for which it recognizes servicing fees over the life of the
securitization. SST services the finance contracts of the Company, which are
eliminated in consolidation, and certain securitization trusts. Servicing fee
income includes fees earned on subservicing agreements with third party
servicers.
Interest Income. Interest income consists of: (i) interest income earned
on finance contracts, (ii) interest income earned on leases (the Company ceased
funding leases in the quarter ended September 30, 1995), (iii) the accretion of
finance contract acquisition discounts net of related capitalized costs and (iv)
the
B-11
<PAGE> 67
amortization of capitalized costs net of origination discounts for leases. Other
factors influencing interest income during a given fiscal period include (a) the
annual percentage rate of the finance contracts acquired, (b) the aggregate
principal balance of finance contracts acquired and funded through the Company's
warehouse credit facilities prior to securitization, (c) the length of time such
finance contracts are funded by the warehouse credit facilities prior to
securitization, and (d) defaults on finance contracts owned by the Company.
Finance contract acquisition growth has a significant impact on the amount of
interest income earned by the Company.
The following table provides information for each of the Company's rated
securitizations:
<TABLE>
<CAPTION>
WEIGHTED
REMAINING AVERAGE WEIGHTED RETAINED
BALANCE AT FINANCE AVERAGE INTEREST IN
ORIGINAL DEC. 31, CONTRACT CERTIFICATE CURRENT GROSS NET SECURITIZED
BALANCE 1997 RATE(1) RATE(1) RATINGS SPREAD(1)(2) SPREAD(1)(3) RECEIVABLES(13)
-------- ---------- -------- ----------- ------- ------------ ------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aegis Auto
Receivables Trust,
Series:
1994-A............... $ 18,539 $ 1,495 20.28% 7.74% A+(4) 12.54% 8.70% $ 380
1994-2............... 23,251.. 2,965 19.82 8.04 A+(4) 11.78 8.12 720
1994-3............... 21,000(5) 3,560 19.66 9.46 A+(4) 10.20 6.46 1,040
1995-1............... 21,000(5) 4,363 20.41 8.60 A+(4) 11.81 8.46 1,070
1995-2............... 54,000(5) 13,747 19.94 7.16 A+(4) 12.78 8.98 4,240
1995-3............... 60,000(5) 17,992 20.04 7.09 A+(4) 12.95 10.12 5,210
1995-4............... 70,000(5) 23,639 19.88 6.65 B-(4) 13.23 10.41 7,480
1996-1............... 92,000(5) 35,647 20.13 8.44(6) (7) 11.69 8.89 --
1996-2............... 105,000(5) 48,278 20.10 8.93(8) (9) 11.17 8.40 --
1996-3............... 110,000(5) 59,015 20.20 8.82(10) (11) 11.40 8.75 --
Aegis Auto Owners
Trust.............. 148,347.. 67,312 20.14 6.53 (12) 13.61 10.87 --
</TABLE>
- ---------------
(1) Percentages as of closing date.
(2) Difference between the Weighted Average APR on finance contracts and the
Weighted Average APR on the trust certificates (the "Weighted Average
Certificate Rate").
(3) Difference between Weighted Average APR on finance contracts and the
Weighted Average Certificate Rate, net of servicing and trustee monthly
fees and annualized issuance costs that include underwriting fees and
hedging gains or losses, if any.
(4) Indicates ratings by Duff & Phelps.
(5) Includes prefunded amounts which were transferred to the related trust by
the end of the quarter for 1995-1, 1995-2, 1995-3, 1995-4, 1996-1, 1996-2,
1996-3 and by the first week of the next quarter for 1994-3.
(6) The Weighted Average Certificate Rate is composed of the following: the
Class A certificate rate is 8.39%, the Class B certificate rate is 7.86%
and the Class C certificate rate is 12.14%.
(7) The 1996-1 Securitization has Class A Notes rated CCC by Duff & Phelps and
B by Fitch; Class B Notes rated CCC by Duff & Phelps and CCC by Fitch and
Class C Notes rated CCC by Duff & Phelps and CCC- by Fitch.
(8) The Weighted Average Certificate Rate is composed of the following: the
Class A certificate rate is 8.9%, the Class B certificate rate is 8.4% and
the Class C certificate rate is 11.65%.
(9) The 1996-2 Securitization has Class A notes rated CCC by Duff & Phelps and
CCC+ by Fitch; Class B notes rated CCC by Duff and Phelps and CC+ by Fitch
and Class C notes rated CCC by Duff & Phelps and CC by Fitch.
B-12
<PAGE> 68
(10) The weighted average Certificate Rate is composed of the following: the
Class A certificate is 8.8%, the Class B certificate is 8.3% and the Class
C certificate is 11.1%.
(11) The 1996-3 Securitization has Class A notes rated CCC by Duff & Phelps and
B- by Fitch; Class B notes rated CCC by Duff & Phelps and CC+ by Fitch and
Class C notes rated CCC by Duff & Phelps and CC by Fitch.
(12) The Owner Trust Facility has Class A notes rated AAA by Standard & Poor's
and Aaa by Moody's and Class B certificates rated Ba1 by Moody's.
(13) The sum of the retained interest in securitized receivables in the above
table is $20.14 million which excludes approximately $180,000 of retained
interests relating to transactions entered into prior to 1994.
The following table provides information for each of the Company's
securitization under its $1.0 billion purchase facility:
<TABLE>
<CAPTION>
WEIGHTED
REMAINING AVERAGE WEIGHTED
BALANCE AT FINANCE AVERAGE
ORIGINAL DEC. 31, CONTRACT CERTIFICATE GROSS NET
SECURITIZATION BALANCE 1997 RATE(1) RATE(1) SPREAD(1)(2) SPREAD(1)(3)
-------------- -------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1997-1................ $238,693 $148,453 20.43% 9.5%(4) 10.93% 8.46%
1997-2................ 37,163 25,505 20.67 9.75(5) 10.92 8.48
1997-3................ 38,475 28,522 20.73 9.53(6) 11.20 8.81
1997-4................ 74,721 57,314 20.40 9.38(7) 11.22 8.62
1997-5................ 48,128 40,719 20.6 9.18(8) 11.39 8.91
1997-6................ 39,189 35,314 20.5 9.32(9) 11.17 8.69
1997-7................ 66,974 64,766 20.4 9.06(10) 11.34 8.55
</TABLE>
- ---------------
(1) Percentages as of closing date.
(2) Difference between the Weighted Average APR on finance contracts and the
Weighted Average Certificate Rate.
(3) Difference between Weighted Average APR on finance contracts and the
Weighted Average Certificate Rate, net of servicing and trustee fees.
(4) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.3% and the Class B Certificate rate is 13.73%
(5) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.5% and the Class B Certificate rate is 13.9%.
(6) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.25% and the Class B Certificate rate is
13.8%.
(7) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.1% and the Class B Certificate Rate is 13.6%.
(8) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 6.90% and the Class B Certificate rate is
13.41%.
(9) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.05% and the Class B Certificate Rate is
13.54%.
(10) The weighted average Certificate is composed solely of the Class A
Certificate except for 1997-7 in which a single Class A Certificate was
issued.
RESULTS OF OPERATIONS
Six Months Ended December 31, 1997 Compared To Six Months Ended December 31,
1996
Revenues. As described below under "Gains or Losses from Securitization
Transactions," "Write Downs of Retained Interest in Securitized Receivables,"
"Servicing Fee Income" and "Interest Income,"
B-13
<PAGE> 69
revenues increased to $7.1 million for the six months ended December 31, 1997
from ($8.8) million for the six months ended December 31, 1996, an increase of
$15.9 million.
Gains or Losses from Securitization Transactions. Gains from
securitization transactions were $5.6 million for the six month period ended
December 31, 1997 compared with $9.8 million for the six months period ended
December 31, 1996.
Write Downs of Retained Interest in Securitized Receivables. The Company
revalues its retained interests in securitized receivables quarterly using
anticipated future experience on the respective underlying securitization
trust's finance contract performance. When the actual experience differs from
the original assumptions utilized in the initial valuation in a detrimental
direction, the Company can incur permanent losses in the carrying value of these
assets. The write down of retained interests in securitized receivables during
the six month period ended December 31, 1997 is a result of the Company's
current assumptions utilized in evaluating its retained interests in securitized
receivables, which incorporate higher discount and expected default rates over
the life of the securitization trust, lower recovery rates on the underlying
collateral and higher prepayment rates than expected, compared to the levels
used in the comparable period a year ago. Write downs of retained interests in
securitized receivables were $11.5 million for the six-month period ended
December 31, 1997 compared with $31.0 million in the prior year.
Servicing Fee Income. Servicing fee income was $6.7 million for the six
months ended December 31, 1997 compared with no servicing fee income for the six
months ended December 31, 1996. This increase is a result of the Company's
servicing subsidiary, SST, operating in the 1997 period; SST was in its
developmental stages in the comparable prior period.
Interest Income. Interest income decreased to $5.4 million for the six
months ended December 31, 1997 from $12.2 million for the six months ended
December 31, 1996, a decrease of $6.8 million or 55.7%. The decrease in interest
income is attributed to (i) the lower average amount of loans held for
securitization for the six months ended December 31, 1997 as compared to the
same period in 1996, and (ii) the increase in the number of non performing
finance contracts in the finance contracts portfolio.
In addition, the Company recorded interest income of approximately $412,000
and $733,000 for the six months ended December 31, 1997 and 1996, respectively,
on the lease portfolio, a decrease of approximately $321,000. The decrease is
attributed to the amortization in the lease portfolio.
Operating Expenses. Operating expenses increased to $29.9 million for the
six months ended December 31, 1997 from $23.3 million for the six months ended
December 31, 1996, an increase of $6.6 million or 28.3%. The increase in
operating expenses was primarily driven by (i) one time charges of $2.4 million
relating to the consolidation of operations and relocation of the Company's
administrative functions to Marietta, Georgia, and (ii) a $5.6 million increase
in Salaries and Employee Costs primarily attributable to the operation of SST
which was in formation during the comparable period in 1996.
Interest Expense. Interest expense decreased to $5.8 million for the six
months ended December 31, 1997 from $7.2 million for the six months ended
December 31, 1996, a decrease of $1.4 or 19.4%, as a result of the decreased
financing required to maintain loans held for securitization in the Company's
warehouse facilities due to lower loan origination volumes. The decrease in
interest expense is primarily attributable to the Company's warehouse credit
facilities, which had a lower monthly average outstanding balance and interest
rates during the most recent six-month period.
Salaries and Other Employee Costs. Salaries and other employee costs
increased to $10.0 million for the six months ended December 31, 1997 from $4.4
million for the six months ended December 31, 1996, an increase of $5.6 million
or 127.2%. The increase is attributable primarily to the growth in the employee
base at SST to support its expanding operations.
Provision for Credit Losses. The provision for credit losses decreased to
$5.0 million for the six months ended December 31, 1997 from $6.6 for the six
months ended December 31, 1996, a decrease of $1.6 million or 24.2%. The current
provision for credit losses is affected by: (i) the Company's volume of finance
contracts acquired; (ii) the increase in delinquent automobile finance
receivables (as discussed below); and (iii) the
B-14
<PAGE> 70
change in the Company's historical loss ratios. These changes also resulted in
an increase in the Company's reserve rate as a percentage of total automobile
finance receivables held on the Company's balance sheet.
All Other Operating Expenses. All other operating expenses increased to
$9.1 million for the six months ended December 31, 1997 from $5.1 million for
the six months ended December 31, 1996, an increase of $4.0 million or 78.4 %.
The significant components of the increase in all other operating expenses
include $2.4 million of restructuring charges related to the move of the
Company's administrative offices to Marietta, Georgia and one-time severance and
other employee costs, and a $900,000 write off of capitalized costs related to
certain of the Company's financing arrangements. In addition, the Company's
general and administrative expenses increased to support the Company's expanding
loan servicing processing center (SST).
Taxes on Income. For the six months ended December 31, 1997 and 1996, the
Company recorded no income tax expenses or benefits.
Net (Loss) Income. The Company recognized a net loss of $22.8 million for
the six months ended December 31, 1997. The net loss resulted from several
factors including: (i) a write down of $11.5 million in retained interest in
securitized receivables; (ii) a $2.4 million dollar charge related to the move
of the Company's facilities to Marietta, Georgia, (iii) a $900,000 write off of
capitalized costs related to certain of the Company's financing arrangements and
(iv) operating losses incurred while the Company rebuilds its finance contract
volume.
Three Months Ended December 31, 1997 Compared To Three months ended December 31,
1996
Revenues. As described below under "Gains or Losses from Securitization
Transactions," "Write Downs of Retained Interest in Securitized Receivables,"
"Servicing Fee Income" and "Interest Income," revenues before write downs on
retained interests in securitized receivables increased $1.8 million to $8.3
million for the three month period ended December 31, 1997 compared with the
prior year.
Gains or Losses from Securitization Transactions. Gains from
securitization transactions were $2.7 million for the three month period ended
December 31, 1997 compared with a loss of $600,000 for the three month period
ended December 31, 1996.
Write Downs of Retained Interest in Securitized Receivables. The Company
revalues its retained interests in securitized receivables quarterly using
estimated future experience on the respective underlying securitization trust's
finance contract performance. When the actual experience differs from the
original assumptions utilized in the initial valuation in a detrimental
direction, the Company can incur permanent losses in the carrying value of these
assets. The write down of retained interests in securitized receivables during
the three month period ended December 31, 1997 is a result of the Company's
current assumptions utilized in evaluating its retained interests in securitized
receivables, which incorporate higher discount and expected default rates over
the life of the securitization trust, lower recovery rates on the underlying
collateral and higher prepayment rates compared to the levels used in the
comparable period a year ago. Write downs of retained interests in securitized
receivables were $11.5 million for the three-month period ended December 31,
1997 compared with $29.0 million in the prior year.
Servicing Fee Income. Servicing fee income increased to $3.0 million for
the three months ended December 31, 1997 from no revenues for the three months
ended December 31, 1996. This increase is a result of the Company's servicing
subsidiary, SST, operating in the 1997 period; SST was in its developmental
stages in the comparable prior period.
Interest Income. Interest income decreased to $2.3 million for the three
months ended December 31, 1997 from $7.0 million for the three months ended
December 31, 1996, a decrease of $4.7 million or 67.1%. The decrease in interest
income is attributed to (i) the lower average amount of loans held for
securitization for the three month period ended December 31, 1997 as compared to
the same period in 1996 resulting in lower interest income, and (ii) the
increase in the number of non performing finance contracts in the finance
contracts' portfolio.
B-15
<PAGE> 71
In addition, the Company recorded interest income of approximately $163,000
and $220,000 for the three months ended December 31, 1997 and 1996,
respectively, on the lease portfolio, a decrease of approximately $57,000. The
decrease is attributed to the amortization in the lease portfolio.
Operating Expenses. Operating expenses increased to $16.1 million for the
three months ended December 31, 1997 from $15.0 million for the three months
ended December 31, 1996, an increase of $1.1 million or 7.3%. The increase in
operating expenses was primarily driven by one-time charges of $2.4 million
relating to the restructuring of the Company, consolidation of operations and
relocation of the Company's administrative functions to Marietta, Georgia.
Interest Expense. Interest expense decreased to $2.5 million for the three
months ended December 31, 1997 from $4.2 million for the three months ended
December 31, 1996, a decrease of $1.7 million or 40.5%, as a result of the
decreased financing required to maintain loans held for securitization in the
Company's warehouse facilities due to lower loan origination volumes and more
efficient securitization processes. The decrease in interest expense is
primarily attributable to the Company's warehouse credit facilities, which had a
lower monthly average outstanding balance and interest rates during the
three-month period ended December 31, 1997.
Salaries and Other Employee Costs. Salaries and other employee costs
increased to $4.0 million for the three months ended December 31, 1997 from $1.9
million for the three months ended December 31, 1996, an increase of $2.1
million or 110.5%. The increase is attributable primarily to the growth in the
employee base at SST to support its expanding operations.
Provision for Credit Losses. The provision for credit losses decreased to
$3.9 million for the three months ended December 31, 1997 from $6.0 for the
three months ended December 31, 1996, a decrease of $2.1 million or 35.0%. The
current provision for credit losses is affected by: (i) the Company's volume of
finance contracts acquired; (ii) the increase in delinquent automobile finance
receivables; and (iii) the change in the Company's historical loss ratios. These
changes also resulted in an increase in the Company's reserve rate as a
percentage of total automobile finance receivables held on the Company's balance
sheet.
All Other Operating Expenses. All other operating expenses increased to
$5.7 million for the three months ended December 31, 1997 from $2.8 million for
the three months ended December 31, 1996, an increase of $2.9 million or 103.6
%. The significant components of the increase in all other operating expenses
include $2.4 million of restructuring charges related to the move of the
Company's administrative offices to Marietta, Georgia and a $900,000 write off
of capitalized costs related to certain of the Company's financing arrangements.
In addition, the Company's general and administrative expenses increased to
support the Company's expanding loan servicing processing center (SST).
Taxes on Income. For the three months ended December 31, 1997, the Company
recorded no income tax expenses or benefits. The Company recorded a tax benefit
of $10.6 million, net of a $5.1 million valuation adjustment, for the three
months ended December 31, 1996.
Net (Loss) Income. The Company recognized a net loss of $19.3 million for
the three months ended December 31, 1997. The net loss resulted from several
factors including: (i) a write down of $11.5 million in retained interest in
securitized receivables; (ii) a $2.4 million adjustment for costs related to the
move of the Company's facilities to Marietta, Georgia, (iii) a $900,000 write
off of capitalized costs relating to certain of the Company's financing
arrangements and (iv) operating losses incurred while the Company rebuilds its
finance contract volume.
FINANCIAL CONDITION
Automobile Finance Receivables, Net. Automobile finance receivables
consist of finance contracts held for sale, finance contracts held for
investment (including vehicles held in the repossession process) and the
Company's lease portfolio. The Company ceased originating lease contracts in the
first quarter of its 1996 fiscal year.
B-16
<PAGE> 72
Automobile finance receivables, net of allowance for credit losses,
decreased to $26.6 million at December 31, 1997 from $34.7 million at June 30,
1997, a decrease of $8.1 million or 23.3%. Automobile finance contracts
decreased to $26.2 million at December 31, 1997 from $30.4 million at June 30,
1997, a decrease of $4.2 million or 13.6%. Automobile leases decreased to $8.9
million at December 31, 1997 from $11.2 million at June 30, 1997, a decrease of
$2.3 million or 20.5%. The allowance for credit losses increased to $8.5 million
at December 31, 1997 from $6.9 million at June 30, 1997, an increase of $1.6
million or 23.2%. The increase in reserve for credit losses can be attributed to
management's current view of aged receivables and the likelihood of collection.
Retained Interests in Securitized Receivables. The following table
provides historical data regarding the retained interests in securitized
receivables for the periods shown:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED -----------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997
---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance...................................... $ 70,243 $33,330 $ 32,532
Additions.............................................. 13,709 -- --
Amortization........................................... (1,622) (798) (748)
Write downs............................................ (49,000) -- (11,462)
-------- ------- --------
Ending balance......................................... $ 33,330 $32,532 $ 20,322
======== ======= ========
</TABLE>
DELINQUENCY EXPERIENCE
The following tables reflect the delinquency experience of finance
contracts acquired, including those sold in whole finance contract sales or
securitization, by the Company at the dates shown:
<TABLE>
<CAPTION>
FINANCE CONTRACT PORTFOLIO
------------------------------------------
AT DECEMBER 31, AT JUNE 30,
1997 1997
------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Principal balance outstanding..................... $874,685(3) $813,055(1)
Number of finance contracts outstanding........... 86,848(3) 75,847(1)
Delinquent loans
31-59 days...................................... $ 87,769 10.0% $ 71,008 8.7%
60-89 days...................................... 33,544 3.8% 21,831 2.7%
90 days and over................................ 21,449(4) 2.5% 4,781 0.6%
-------- ---- -------- ----
Total................................... 142,762 16.3% 97,620 12.0%
Finance contracts in repossession or bankruptcy... 174,720(5) 20.0% 69,485(2) 8.5%
-------- ---- -------- ----
Grand Total............................. $317,482 36.3% $167,105 20.5%
======== ==== ======== ====
</TABLE>
- ---------------
(1) Excludes contracts for which notice of intent to liquidate has expired and
those having an outstanding balance less than or equal to $500.
(2) Excludes finance contracts in bankruptcy, authorized for repossession and in
repossession and still eligible for reinstatement.
(3) Includes all finance contracts except those considered inactive, fully
liquidated, have balances less than $1,000, or where risk default insurance
has been rejected or paid.
(4) At December 31, 1997, includes delinquent loans in the 90 to 120 days
category (see (5) below).
(5) At December 31, 1997, this amount represents contracts in bankruptcy and
delinquent loans more than 120 days.
B-17
<PAGE> 73
CREDIT LOSS AND REPOSSESSION EXPERIENCE
An allowance for credit losses is maintained for all finance contracts held
for sale and for all finance contracts held for investment. Management evaluates
the reasonableness of the assumptions employed by reviewing credit loss
experience, delinquencies, repossession trends, the size of the finance contract
portfolio and general economic conditions and trends. If necessary, assumptions
are changed to reflect historical experience to the extent it deviates
materially from that which was assumed.
If a delinquency exists and default is deemed inevitable or the collateral
is in jeopardy, the Company's collections department will initiate appropriate
collection efforts that may include repossession of the financed vehicle.
Bonded, insured outside repossession agencies are used to secure involuntary
repossessions. In most jurisdictions, notice to the borrower of the Company's
intention to sell the repossessed automobile is required, whereupon the borrower
may exercise certain rights to cure his or her default or redeem the automobile.
Following the expiration of the legally required notice period, the repossessed
vehicle is sold at a wholesale auto auction, usually within 150 days of the
repossession. The Company monitors vehicles set for auction, and procures an
appraisal under the VSI Policy prior to sale. Liquidation proceeds are applied
to the borrower's outstanding obligation under the finance contract. Loss
deficiency claims under the VSI Policy and credit default insurance policy are
appropriately filed.
The Company has experienced claim denials under the RDI policies, which it
is contesting. If it is unsuccessful in its efforts, the Company may experience
an adverse financial impact. The Company reports the remaining deficiency as a
net charge-off against the allowance for credit losses for automobile finance
receivables owned by the Company. For finance contracts held in securitization
trusts, charge-offs are accounted for in accordance with the underlying pooling
and servicing agreements.
Through the fiscal year ended June 30, 1996, its finance contract portfolio
was unseasoned. Accordingly, delinquency and charge-off rates in the portfolio
may not have fully reflected the rates that would apply when the average holding
period for finance contracts in the portfolio is longer. In the quarter ended
December 31, 1997, the Company's liquidated and defaulted receivables rate
increased to 33.4% from 22.1% in the fiscal year ended June 30, 1997 and from
13.1% in the fiscal year ended June 30, 1996. Additionally, the Company's net
charge-offs as a percentage of the average principal balance outstanding for the
three months ended December 31, 1997 increased to 23.2% from 12.1% in the fiscal
year ended June 30, 1997 and from 6.6% in the fiscal year ended June 30, 1996.
The increase in default rates from June 30, 1997 to December 31, 1997 can be
attributed to the change in the definition of a defaulted receivable in the
purchase facility to 90 days delinquent from other pooling and servicing
arrangements which define receivables defaulted at either 120 days or 180 days.
The causes for the increase for the Company's net charge-off rate is due to the
(i) increase in defaulted receivables, (ii) deterioration in the Company's
recovery rates from the disposition of repossessed vehicles, and (iii) slower
than expected settlement of credit default insurance claims. Without decreasing
the delinquency and/or charge-off rates in the portfolio, the Company's ability
to obtain credit or securitize its finance contracts would continue to have an
adverse effect on the Company's results of operations and financial condition.
B-18
<PAGE> 74
The following table shows the Company's repossession and loss experience
for its managed finance contract portfolio for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
JUNE 30,(*) ENDED DECEMBER 31,
-------------------- ------------------
1996 1997 1997
-------- -------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average principal balance outstanding(1)............ $304,394 $624,341 $719,955
Balance of liquidated and defaulted
receivables(2).................................... $ 39,932 $138,008 $120,330
Recoveries(3) and (4)............................... 16,039 46,952 28,275
-------- -------- --------
Gross charge-off(5)................................. 23,893 91,056 92,055
Credit default insurance approvals(6)............... 3,849 15,611 8,600
-------- -------- --------
Net charge-offs..................................... $ 20,044 $ 75,445 $ 83,455
-------- -------- --------
Liquidated and defaulted receivables as a percentage
of average principal balance outstanding(7)....... 13.1% 22.1% 33.4%
Gross charge-offs as a percentage of average
principal balance outstanding(7).................. 7.6 14.6 25.6
Net charge-offs as a percentage of average principal
balance outstanding(7)............................ 6.6 12.1 23.2
</TABLE>
- ---------------
(1) Arithmetic mean of beginning and ending outstanding principal balance,
excluding defaulted receivables, of finance contracts acquired including
those previously sold in securitization transactions.
(2) Defaults recognized in accordance with the terms underlying the specific
pooling and servicing agreements.
(3) Includes proceeds from collateral liquidations, property insurance claims,
rebates, borrowers and other sources.
(4) Includes recoveries on liquidated and defaulted receivables recognized in
prior periods.
(5) Balance of liquidated and defaulted receivables minus recoveries.
(6) Value of credit insurance approvals.
(7) December 31, 1997 percentages are annualized.
(8) The amounts and percentages for the fiscal years ended June 30, 1996 and
1997 have been restated from previously reported information to reflect the
change in definition and timing of defaulted receivables.
The Company has prepared analyses, based on its own credit experience and
available industry data, to identify the relationship between finance contract
delinquency and default rates at the various stages of a finance contract
repayment term. The results of these analyses, which have been incorporated into
the Company's methodology of determining gains and losses from securitization
transactions, suggest that the probability of a finance contract becoming
delinquent or going into default is highest during the "seasoning period" that
occurs between the sixth and the eighteenth month payment period after the
acquisition date.
A greater portion of the Company's finance contract acquisition volume is
expected to fall into the "seasoning period" described above, which may cause a
rise in the overall finance contract portfolio delinquency and default rates,
without regard to underwriting performance. Assuming no changes in any other
factors that may affect delinquency and default rates, the Company believes this
trend should stabilize or reverse when the volume of mature finance contracts
(with lower delinquency and default rates) is sufficient to offset the total
finance contract portfolio delinquency and default rates.
The Company believes delinquencies and losses can be partially mitigated by
introducing stricter credit standards together with improved processes. During
the fiscal year ended June 30, 1997, the Company dedicated approximately $3.0
million of working capital to the development and implementation of its own
servicing company through its wholly owned subsidiary, Systems and Services
Technology, Inc. ("SST").
B-19
<PAGE> 75
While SST was developing, the Company contracted for certain collection
functions through a sub-servicing agreement with its third party servicer,
American Lenders Facility, Inc.("ALFI"). Through this arrangement the Company
assumed responsibility for all customer contact with respect to all existing
leases and with respect to finance contracts that were included in the Company's
December 1994 securitization transaction and all finance contracts acquired
thereafter. In addition, the Company assumed responsibility for liquidation
activities on its entire finance contract portfolio (including securitized
finance contracts) at such time. In January 1997, SST began servicing a portion
of the Company's finance contracts from the time of acquisition. As of March
1997, SST was awarded the servicing on all of the Company's finance contracts
simultaneously with their acquisition. By the end of May 1997, SST was servicing
approximately 76.9% of the Company's managed finance contract portfolio. SST
does not perform any servicing on the Company's lease portfolio. The Company
continues to perform collection functions under its sub-servicing agreement with
ALFI on 22.5% of the remaining finance contracts serviced by ALFI. There can be
no assurance that the performance of the Company's portfolio will be maintained,
or that the rate of future defaults and/or losses will be consistent with prior
experience or at levels that will not adversely affect the Company's
profitability. On November 10, 1997, the Company agreed in principle subject to
approval by the stockholders and certain creditors of the Company, to sell up to
all of the outstanding stock of its wholly owned subsidiary, SST. The Company
intends to continue to have SST service its finance contracts. (See "Liquidity
and Capital Resources").
With respect to the Company's owned portfolio, the Company does not record
its provision for credit losses based on a percentage of the Company's finance
contract portfolio outstanding because percentages can be favorably affected by
large balances of recently acquired finance contracts. The Company utilizes
actual dollar levels of delinquencies and charge-offs and analyzes the data on a
"static pool" basis. The Company's goal is to complete the liquidation process
as quickly as possible. The Company has experienced delays in liquidating its
repossessed vehicles caused by events at its servicers and custodians in
providing a perfected title to the Company's liquidating agents. It is currently
working with these parties to improve the title tracking processes. Upon receipt
of the perfected title, the Company's re-marketing group can schedule the
vehicle to be liquidated, typically within five business days. All repossessed
vehicles are sold at wholesale auction. The Company is responsible for the costs
of repossession, transportation and storage.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires substantial cash to support its operating
activities. The principal cash requirements include (i) amounts necessary to
acquire automobile finance contracts pending disposition, primarily through
securitization, (ii) cash held from time to time in restricted spread accounts
to support securitization and other securitization expenses, and (iii) cash
required to operate its servicing operations. The Company also uses material
amounts of cash for operating expenses and debt service. The Company has
operated on a negative cash flow basis and experienced a $67.5 million loss in
the eighteen-month period ended December 31, 1997. The Company has funded its
negative operating cash flows principally through borrowings from financial
institutions, sales of equity securities and most recently, advances in
connection with the proposed sale of SST, its servicing subsidiary (subject to
stockholder approval). There can be no assurance that the Company will have
access to capital markets in the future or that financing will be available to
satisfy the Company's operating and debt service requirements or to implement
its business plan and to operate on a positive cash flow basis. If these
resources are not available on terms acceptable to the Company, the Company may
have to further curtail operations that may result in a new restructuring plan
or in discontinuing its operations.
The Company's external capital resources primarily consist of its $75.0
million warehouse credit facility ($50 million effective February 26, 1998) and
the Company's $1.0 billion purchase facility. When the Company securitizes
finance contracts through its purchase facility, it repays a portion of its
outstanding warehouse indebtedness with the proceeds from such securitization,
making such portion available for future borrowing. The terms under the purchase
facility provide the Company with a periodic securitization strategy. In the six
months ended December 31, 1997, the Company completed 3 securitizations totaling
$154.3 million under the terms of the purchase facility. Since establishing the
purchase facility in March 1997, the Company has sold an aggregate amount of
$543.3 million and expects to securitize finance contracts periodically during
B-20
<PAGE> 76
the year. There can be no assurances that transactions under the purchase
facility will be successfully completed. The Company also continues to seek
additional arrangements with financial institutions with respect to the
disposition of its portfolio assets through securitization, whole loan sale or
other exit strategies. In addition, the Company, in the past, had been able to
borrow against its retained interests in securitized receivables to provide
liquidity. To further enhance the Company's liquidity, its wholly owned
subsidiary, SST, began its servicing operations. As a servicer of the Company's
finance contracts sold in the securitization process, SST receives its fee for
services rendered to the respective trusts directly from those trusts prior to
any other distributions. As servicer for the finance contracts held for sale and
held for investment, the Company has reduced its overall cost to service these
finance contracts, thus enhancing its liquidity.
The Company executed a Stock Purchase Agreement (the "Agreement"), dated as
of January 28, 1998, for the sale of the outstanding stock of its servicing
subsidiary, for $7.0 million to Adams, Viner & Mosler, Ltd., and III Associates
(collectively referred to as the "Purchasers"), subject to stockholder approval.
The Agreement grants the Company the option to repurchase SST at any time on or
before December 31, 1998, for $7.0 million plus a 5% premium. Under the terms of
the Agreement, the Company is restricted from utilizing any net cash flow of SST
from and after the effective date of the Agreement (provided that the Agreement
is ratified by Company's stockholders) until the repurchase option is exercised.
The Company had received advances on the sale of SST of $2.95 million as of
December 31, 1997. The Company has subsequently received additional advances
totaling $3.1 million through February 27, 1998. It is expected that SST will
continue to service the Company's finance contracts subsequent to the sale. The
Company does not expect to record a gain on this transaction unless and until
the consummation of the sale pursuant to the terms of the Agreement.
The following table sets forth the major components of the increase
(decrease) in cash and cash equivalents for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
1996 1997
---------------- ------------
<S> <C> <C>
Net cash used in operating activities....................... $(180,428,026) $(4,784,967)
Net cash (used in) provided by investing activities......... (4,135,968) 754,468
Net cash provided by financing activities................... 188,656,560 2,335,703
------------- -----------
Net increase (decrease) in cash and cash equivalents........ $ 4,092,566 $(1,694,796)
------------- -----------
</TABLE>
Net cash used in operating activities primarily represents cash flows
utilized to support the Company's on-going operations which include (i) the
acquisition of finance contracts (including capitalized acquisition costs), net
of cash proceeds of sales (including through securitization and repayments from
automobile finance receivables), (ii) costs to maintain its production,
marketing, re-marketing and collection activities, and (iii) in the case of the
six months ended December 31, 1997, the costs of relocating the Company's
headquarters from New Jersey to Georgia. The source of cash used to acquire
finance contracts is generated primarily by financing activities under the
Company's warehouse credit facilities.
The Company's cash flows and results of operations may be affected
adversely by rising interest rates. The Company's warehouse credit facilities
are at floating rates of interest, and increases in rates cannot immediately be
passed on to consumers, whose finance contracts are at fixed rates of interest.
In addition, rising interest rates result in a decrease in the Company's net
spreads on securitization transactions, thereby decreasing future projected cash
flows from retained interests in securitized receivables. Furthermore, the
Company's discount rate utilized in determining its borrowing base may also
rise, decreasing the amount available to borrow. Moreover, interest rates
charged by the Company may be more significantly affected by factors other than
prevailing interest rates, most notably geographic distribution and varying
state interest rate limitations.
In connection with its securitization transactions, the Company enters into
pooling and servicing agreements (the "Agreements") in which its finance
contracts are sold to a trust which, in turn, sells securities to investors. The
terms of the Agreements generally require that the excess servicing cash flows
of the finance contracts be retained in a bank account under the control of the
trustee (the "Reserve Fund") until the
B-21
<PAGE> 77
Reserve Fund meets predetermined deposit requirements. Any cash flows in excess
of Reserve Fund requirements are released to the Company on a monthly basis. For
the six months ended December 31, 1996 and 1997, the Company received $1.74
million and $1.55 million respectively, in excess servicing cash flows from
Reserve Funds. In the event that the finance contracts owned by the Trusts fail
to meet predetermined delinquency and loss performance measures, the Agreements
require that the Trustee retain excess servicing cash flows until the Reserve
Fund attains pre-set incrementally higher levels of credit enhancement. The
predetermined performance measures are not always maintained on a consistent
monthly basis, thus deferring the release of the cash flows to the Company from
the Reserve Fund of the applicable Trust. In addition, certain of the Agreements
required the Company to deposit additional cash into the Trust's Reserve Fund if
its initial minimum required levels were not met within a predetermined time
frame. For the six months ended December 31, 1996 the Company paid additional
cash contributions to certain Reserve Funds of $3.1 million and none for the
period ended December 31, 1997.
The purchase facility includes a commitment from III Finance for the
purchase of $350.0 million of trust certificates. The Certificates are backed by
the Company's finance contracts and are unrated. The $75.0 million warehouse
line ($50 million as of February 26, 1998) supports the purchase facility. As of
December 31, 1997, the Company securitized an aggregate amount of $543.3 million
in seven securitization transactions under its $1 billion purchase facility.
Future securitizations under the purchase facility ($456.7 million as of
December 31, 1997) are subject to customary conditions and are uncommitted. The
purchase facility provides for initial financing through the warehouse line as
the finance contracts are acquired and subsequently sold, generally on a monthly
basis, into the purchase facility.
The Company's current $50.0 million warehouse line supporting the purchase
facility, provides the Company with a two year (expiring the sooner of March 13,
1999 or an event of default as defined thereunder) warehouse line bearing
interest at LIBOR plus 3% from the date the loan is made with borrowing limits
of the lesser of $50.0 million or the sum of (A) 100% of the outstanding
principal amount of finance contracts and (B) the lesser of 90% of the
outstanding principal amount of non-conforming finance contracts (which
percentages are reduced to 80% and 70%, respectively, if the Company's
automobile insurer fails to maintain an A.M. Best Company rating of "A" or
better (defined by A.M. Best Company as an "excellent" rating regarding the
insurer's financial strength and ability to meet its obligations to
policyholders)) and $1.0 million plus 92% (declining 1% per month for each month
the receivable is outstanding past 180 days) of the outstanding principal amount
of uninsured automobile finance contracts. Proceeds from borrowings under this
warehouse facility may be used for the purpose of acquiring automobile finance
contracts in accordance with the Company's underwriting guidelines. Concurrent
with the closing of the warehouse line in March 1997, the Company's warehouse
credit facility for originating lease transactions was amended to reduce it from
$50 million to the then outstanding balance and no additional borrowing is
allowed under the facility. In addition, the Company had a $50.0 million
warehouse credit facility with III Finance dedicated to the purchase of HUD
Title I Loans which expired in November 1997.
As of December 31, 1997, the Company was in technical default of net worth
covenants under its $75 million warehouse line and its Retained Yield Line
("RTY") Financing provided by III Finance. On February 26, 1998, the warehouse
line was reduced to $50 million and the Company obtained waivers for such
defaults on all of its facilities with III Finance through March 31, 1998.
The lease line with III Finance expired January 3, 1998. The Company is
currently negotiating extending the term of the lease warehouse facility through
December 31, 1998.
For the fiscal year ended June 30, 1997 and for the six months ended
December 31, 1997, the Company securitized approximately $565.3 million and
$154.3 million, respectively, of finance contracts and used the net proceeds to
pay down borrowings under its warehouse credit facilities.
On October 16, 1997, the holder's of the Debenture converted the Debenture
into non-voting Cumulative Convertible Preferred Stock, Series D ("Series D
Preferred Shares"). The Series D Preferred Shares has a 12.75% dividend and a
redemption value of approximately $21.1 million, and is convertible at the
holder's option, in which event the Company can pay common stock at $1.26 per
share (a total of 16,751,412 shares of common stock) or cash.
B-22
<PAGE> 78
On November 10, 1997, Greenwich Capital Financial Products, Inc., converted
the Company's $4.0 million subordinated debt into Cumulative Preferred Stock
("Series E and F Preferred Shares"). The debt, with a face value of $4.0 million
and an interest rate of 12% was converted into 2,000 shares each of Series E and
F Preferred Shares with a 12.0% dividend and a redemption value of $4.0 million.
The Series E Preferred Shares are redeemable at the holder's option into common
stock at $1.26 per share or for cash, at the Company's election, and the Series
F Preferred Shares are convertible into common stock at $2.00 per share or for
cash.
Strategic Plan. During the second quarter of its current fiscal year, the
Company began to execute its strategic plan (the "Plan") to address the current
operating losses and liquidity issues. The plan calls for reductions in the
Company's overhead by consolidation of operations from Jersey City, New Jersey
to Marietta, Georgia. Included in Other Expenses in the December 31, 1997
Statement of Operations is a $2.4 million restructuring charge related to the
consolidation of operations to Marietta, Georgia. The $2.4 million includes
approximately $1.4 million of payroll related cost, $369,000 in equipment lease
terminations, $293,000 in cost related to abandonment of the New Jersey
leasehold improvements, $250,000 in establishment of new accounting systems and
procedures and $60,000 in moving costs. The consolidation to Georgia will result
in space reductions of approximately 50,000 square feet in its leased offices in
New Jersey and California.
Management is currently negotiating terminations of these leases with the
owners.
In addition to the consolidation to the Georgia office, the Plan also
called for substantial reductions in the work force related to management,
production, California servicing, and field representatives. The following table
details the significant decreases in the Company's work force:
<TABLE>
<CAPTION>
EMPLOYEES AT EMPLOYEES AT
DEPARTMENT SEPTEMBER 30, 1997* FEBRUARY 27, 1998*
- ---------- ------------------- ------------------
<S> <C> <C>
Management................................................ 41 15
Production (Origination).................................. 120 65
California Servicing...................................... 180 50
Field Representatives..................................... 60 0
--- ---
498 228
--- ---
</TABLE>
- ---------------
* Excludes SST employees due to the proposed sale of SST.
Based on management estimates, staffing reductions and downsizing of space
requirements should reduce operating expenses by approximately one-half and
still allow the production facility to operate at a capacity of up to 2,500
loans per month.
The Plan also calls for development and implementation of new products and
fee based services to enhance operating revenues. Fee based services include
subcontracting the Company's origination services to other companies to enhance
operating revenues by utilizing the current excess capacity. There can be no
assurances that the Company will be successful in raising the necessary capital,
alleviate its liquidity problems and restore its operations. If the Company is
unsuccessful in its efforts, it will be unable to meet its obligations and will
not be able to continue as a going concern.
INFLATION
While inflation has not had a material impact upon the Company's results of
operations, there can be no assurance that the Company's business will not be
affected by inflation in the future. Increases in the inflation rate generally
result in increased interest rates and can be expected to result in increases in
the Company's operating expenses. As the Company borrows funds at variable rates
and generally acquires finance contracts at an average interest rate of
approximately 20.2%, increased interest rates will increase the borrowing costs
of the Company, and such increased borrowing costs may not be offset by
increases in the interest rates with respect to finance contracts acquired.
B-23
<PAGE> 79
SEASONALITY
The Company's operations are affected to some extent by seasonal
fluctuations. Finance contract acquisitions tend to increase in March through
June and September and October, while finance contract acquisitions are lowest
in December and January. Delinquencies also tend to be higher during certain
holiday periods, particularly at calendar year end.
B-24
<PAGE> 80
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) -- Not Applicable
(b) -- (c) On October 16, 1997, III Finance Ltd. and The High Risk
Opportunities Hub Fund Ltd., the holder's of $21,333,333 principal amount at
maturity of 12% Exchangeable Subordinated Notes due 2004 of Aegis Auto Finance,
Inc. (the "Notes"), exchanged the Notes for non-voting Class D Convertible
Preferred Stock of the Company (the "Class D Preferred"). The Class D Preferred
has a 12.7518% dividend rate and a redemption value of approximately $21.1
million. On November 12, 1997, Greenwich Capital Financial Products, Inc.
("Greenwich"), the holder of $4 million of subordinated debt of the Company
issued pursuant to a Credit Agreement dated May 16, 1996 between the Company, as
borrower, certain of its subsidiaries, as guarantors, and Greenwich, as lender,
exchanged such debt for $2 million redemption value of each of the Company's
non-voting Class E Redeemable Preferred Stock and non-voting Class F Redeemable
Preferred Stock, each carrying a dividend rate of 12% (respectively, the "Class
E Preferred" and the "Class F Preferred").
The Certificates of Designations, Preferences and Rights for the Class D
Preferred, the Class E Preferred and the Class F Preferred create classes of
securities which rank prior to the Company's common stock, par value $.01 per
share (the "Common Stock"), as to distributions of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, and
as to dividends.
Each of these transactions was exempt from registration pursuant to either
Section 3 (a) (9) or 4 (1) of the Securities Act of 1933, as amended. Each
holder of a share of Class D Preferred, Class E Preferred or Class F Preferred
is entitled to cause the Company to redeem such stock, in which event the
Company has the option (i) to issue to such redeeming holder Common Stock of the
Company valued at $1.26 per share in the case of the Class D Preferred and Class
E Preferred or $2.00 per share in the case of the Class F Preferred, in each
case having an aggregate value equal to the preferred stock's redemption value,
or (ii) to pay the redeeming holder in cash the current market value of the
Common Stock that would have been issued under clause (i). In addition the
Company has the right, at its option, to redeem the Class D Preferred, the Class
E Preferred and the Class F Preferred for cash equal to such stock's redemption
value, in which it must also issue to the holder warrants to purchase that
number of shares of Common Stock that would have been issued pursuant to clause
(i) of the preceding sentence for an aggregate exercise price equal to the
redemption value of the preferred stock being redeemed. If the Class D
Preferred, Class E Preferred and Class F Preferred were all presented for
redemption by the holder's, and the Company elected to issue Common Stock in
respect of such redemptions, the Company would be required to issue
approximately 16.75 million, 1.59 million and 1 million shares of Common Stock,
respectively, representing 48.66%, 9.19% and 5.35% of the Common Stock, giving
effect in each case only to the redemption of such class of preferred stock. As
of the date of issuance of this report there are 30 million shares of common
stock authorized and outstanding, therefore such redemption can not be
accomplished without amending the certificate of incorporation of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of December 31, 1997, the Company was in technical default under its $75
million warehouse line and its RTY Financing provided by III Finance for failing
to meet certain net worth requirements. On February 26, 1998 the warehouse line
was reduced to $50 million and the Company obtained waivers of such defaults for
all of its facilities with III Finance through March 31, 1998. In connection
with the waiver, the Company can incur a shortfall of what it owes III Finance
on its monthly pay-downs, not to exceed $500,000.
ITEM 5. OTHER INFORMATION -- MANAGEMENT CHANGES
Effective December 16, 1997, William F. Henle exercised his right under an
employment agreement, not to relocate with the Company to Georgia and resigned
his post as Chief Operating Officer, for good cause as defined under his
employment agreement.
B-25
<PAGE> 81
Effective December 31, 1997, Dina L. Penepent resigned her post as the
Company's Chief Financial Officer, citing personal reasons.
ITEM 6.(A) EXHIBITS
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
- ----------- ----------- ----
<S> <C> <C>
10.105.12.1 AGREEMENT dated February 26, 1998 by and between AEGIS
CONSUMER FINANCE, INC. and AEGIS AUTO FINANCE, INC. as
Borrowers and III FINANCE, LTD. as Lender...................
10.108.1 Stock Purchase Agreement dated as of January 28, 1998
between The Aegis Consumer Funding Group, Adams, Viner &
Mosler, Ltd. and III Associates.............................
27 Financing Data Schedule.....................................
</TABLE>
(B) REPORTS ON FORM 8-K
On February 11, 1998, the Company filed a current report on Form 8-K,
reporting certain information with regard to the conversion of 85 shares of
Series C Preferred Stock into Shares of Common Stock.
B-26
<PAGE> 82
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE AEGIS CONSUMER FUNDING GROUP, INC.
By: /s/ MATHEW B. BURNS
--------------------------------------
Mathew B. Burns
Chief Executive Officer
Signing on behalf of the registrant
and as principal financial and
accounting officer.
Date: March 16, 1998
B-27
<PAGE> 83
THE AEGIS CONSUMER FUNDING GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
------------------------
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints Matthew B. Burns and Cyril Means, and each
of them, with full power of substitution and resubstitution, to vote all shares
of Common Stock of The Aegis Consumer Funding Group, Inc. (the "Company") which
the undersigned is entitled to vote at the Company's Annual Meeting of
Stockholders to be held at the offices of , Georgia
, on the day of , 1998, at local time, and at
any adjournment or postponement thereof, hereby ratifying all that said proxies
or their substitutes or resubstitutes may do by virtue hereof, and the
undersigned authorizes and instructs said proxies to vote as follows:
1. APPROVAL OF THE SALE PROPOSAL: To approve the sale by the Company of its
wholly-owned subsidiary, Systems & Services Technologies, Inc., to Adams, Viner
& Mosler, Ltd., an Illinois limited partnership, and III Associates, a Nevada
general partnership, pursuant to the Stock Purchase Agreement relating thereto
for $7.0 million in cash.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
2. APPROVAL OF THE CHARTER PROPOSAL: To approve an amendment to the Amended and
Restated Certificate of Incorporation of the Company to increase the number of
authorized shares of common stock, par value $0.01 per share, from 30,000,000 to
75,000,000.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
3. APPROVAL OF THE DIRECTOR PROPOSAL: To elect Carl Frischling to Class III of
the Board of Directors for a term of three years.
<TABLE>
<S> <C>
[ [ ] WITHHOLD
] FOR AUTHORITY
</TABLE>
and, in his or her discretion, upon any other matter that may properly come
before the meeting or any adjournment or postponement thereof.
(Continued and to be dated and signed on the other side.)
<PAGE> 84
(continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDERS. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
RECEIPT OF THE NOTICE OF ANNUAL MEETING AND OF THE PROXY STATEMENT AND
ANNUAL REPORT OF THE COMPANY ANNEXED TO THE SAME IS HEREBY ACKNOWLEDGED.
Dated: ,
1998
------------------------------------
------------------------------------
(SIGNATURE OF STOCKHOLDER)
------------------------------------
(SIGNATURE OF STOCKHOLDER)
Your signature should appear the
same as your name appears herein. If
signing as attorney, executor,
administrator, trustee or guardian,
please indicate the capacity in which
signing. When signing as joint
tenants, all parties to the joint
tenancy must sign. When the proxy is
given by a corporation, it should be
signed by an authorized officer.
