-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PbfBL4cVfVAsw0UwOs+ovdxiXVMm8hi9MIy9huX7EHSVoy2pGGLMASQDDXlQ6dOc TbP1EUqzIPZwuano7rtk0A== 0001125282-02-002490.txt : 20020814 0001125282-02-002490.hdr.sgml : 20020814 20020814084235 ACCESSION NUMBER: 0001125282-02-002490 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASTA FUNDING INC CENTRAL INDEX KEY: 0001001258 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 223388607 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26906 FILM NUMBER: 02731715 BUSINESS ADDRESS: STREET 1: 210 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 BUSINESS PHONE: 2015675648 MAIL ADDRESS: STREET 1: 210 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 10QSB 1 b319814_10qsb.txt SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commissions file number: 0-26906 ASTA FUNDING, INC. (Exact name of small business issuer as specified in its charter) Delaware 22-3388607 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 210 Sylvan Ave., Englewood Cliffs, New Jersey 07632 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (201) 567-5648 Former name, former address and former fiscal year, if changed since last report: N/A Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 12 months (or 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 [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 10, 2002, the registrant had approximately 4,047,000 common shares outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] Asta Funding, Inc. Form 10-QSB June 30, 2002 INDEX Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2002 (unaudited) and September 30, 2001 Consolidated Statements of Operations for the three and nine-month periods ended June 30, 2002 and 2001 (unaudited) Consolidated Statements of Cash Flows for the three and nine-month periods ended June 30, 2002 and 2001 (unaudited) Notes to consolidated financial statements (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures PART I. FINANCIAL INFORMATION Item 1. Financial Statements Asta Funding, Inc. and Subsidiaries Consolidated Balance Sheets
June 30, September 30, -------- ------------- 2002 2001 ---- ---- Unaudited Assets Cash $3,763,000 $5,689,000 Restricted cash, net 54,000 53,000 Consumer receivables acquired for liquidation 43,005,000 43,784,000 Auto loans receivable, net 156,000 786,000 Finance receivables 2,526,000 3,086,000 Furniture and equipment, net 292,000 150,000 Repossessed automobiles, net 54,000 171,000 Deferred income taxes 603,000 350,000 Prepaid income taxes -- 596,000 Other assets 745,000 162,000 ----------- ----------- Total assets $51,198,000 $54,827,000 ============ =========== =========== Liabilities and Stockholders' Equity Liabilities Debt $15,345,000 $29,666,000 Other liabilities 3,981,000 2,470,000 Income taxes payable 1,301,000 -- Due to affiliate -- 10,000 -- ------ Total liabilities 20,627,000 32,146,000 ----------------- ----------- ----------- Stockholders' Equity Preferred stock, $.01 par value; authorized 5,000,000; issued and outstanding - none Common stock, $.01 par value; authorized 30,000,000 shares; issued and outstanding - 4,047,000 at June 30, 2002 and 3,996,000 at September 30, 2001 40,000 40,000 Additional paid-in capital 9,996,000 9,751,000 Retained earnings 20,535,000 12,890,000 ----------- ----------- Total stockholders' equity 30,571,000 22,681,000 -------------------------- ----------- ----------- Total liabilities and stockholders' equity $51,198,000 $54,827,000 =========== ===========
See accompanying notes to consolidated financial statements Asta Funding, Inc. and Subsidiaries Consolidated Statements of Operations Unaudited
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended June 30, June 30, June 30, June 30, -------- -------- -------- -------- 2002 2001 2002 2001 ---- ---- ---- ---- Revenues: Interest $8,800,000 $6,717,000 $27,488,000 $16,957,000 Other -- 3,000 96,000 13,000 ---------- ---------- ---------- ---------- 8,800,000 6,720,000 27,584,000 16,970,000 ---------- ---------- ---------- ---------- Expenses: General and administrative 1,374,000 1,579,000 4,704,000 3,860,000 Third-party servicing 1,539,000 837,000 6,261,000 1,516,000 Provision for losses 350,000 50,000 750,000 450,000 Interest 999,000 184,000 3,094,000 449,000 ---------- ---------- ---------- ---------- 4,262,000 2,650,000 14,809,000 6,275,000 ---------- ---------- ---------- ---------- Income before income taxes 4,538,000 4,070,000 12,775,000 10,695,000 Income tax expense 1,822,000 1,635,000 5,129,000 4,295,000 ---------- ---------- ---------- ---------- Net income $2,716,000 $2,435,000 $7,646,000 $6,400,000 ========== ========== ========== ========== Net income per share - Basic $0.67 $0.61 $1.90 $1.61 ---------- ---------- ---------- ---------- - Diluted $0.61 $0.58 $1.72 $1.55 --------- ---------- ---------- ---------- ---------- Weighted average number of shares outstanding - Basic 4,047,000 3,968,000 4,029,000 3,968,000 ---------- ---------- ---------- ---------- - Diluted 4,456,000 4,214,000 4,453,000 4,124,000 --------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements Asta Funding, Inc. and Subsidiaries Consolidated Statements of Cash Flows Unaudited
Nine Months Ended Nine Months Ended June 30, June 30, 2002 2001 ---- ---- Cash flows from operating activities: Net income $7,646,000 6,400,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 90,000 90,000 Provision for losses 750,000 450,000 Deferred income taxes (253,000) 400,000 Changes in: Restricted cash (1,000) -- Repossessed automobiles held for sale 117,000 48,000 Prepaid income taxes 596,000 -- Other assets (583,000) 181,000 Income taxes payable 1,301,000 (4,192,000) Other liabilities 1,511,000 (97,000) ------------ ----------- Net cash provided by operating activities 11,174,000 3,280,000 Cash flows from investing activities: Auto loan principal payments 636,000 1,876,000 Purchase of consumer receivables acquired for liquidation (31,657,000) (30,164,000) Principal collected on receivables acquired for liquidation 32,436,000 18,108,000 Finance receivables (190,000) (2,030,000) Capital expenditures (232,000) (93,000) ------------ ----------- Net cash provided by (used in) investing activities 993,000 (12,303,000) Cash flows from financing activities: Advances from affiliate (10,000) (595,000) Proceeds from exercise of options 238,000 -- Advances under lines of credit, net 8,108,000 5,580,000 Advaces (Repayments) of notes payable, net (22,429,000) 1,198,000 ------------ ----------- Net cash (used in) provided by financing activities (14,093,000) 6,183,000 --------------------------------------------------- ------------ ----------- Decrease in cash (1,926,000) (2,840,000) Cash at the beginning of period 5,689,000 10,488,000 ------------ ----------- Cash at end of period $3,763,000 $7,648,000 ------------ ----------- Supplemental disclosure of cash flow information: Cash paid during the period Interest $675,000 $440,000 Income taxes $3,477,000 $5,790,000
Asta Funding, Inc. Notes to Consolidated Financial Statements Note 1: Basis of Presentation Asta Funding, Inc., together with its wholly owned subsidiaries, is a diversified consumer finance company that is engaged in the business of purchasing, managing and servicing non-conforming and distressed consumer receivables. Non-conforming consumer receivables are the obligations of individuals that have incurred credit impairment either at the time the obligation was originated or subsequent to origination. Distressed consumer receivables are the unpaid debts of individuals to banks, finance companies and other credit providers. A large portion of our distressed consumer receivables are MasterCard(R), Visa(R) and other credit card accounts which were charged-off by the issuing banks for non-payment. We also, to a lesser extent, factor commercial invoices and specialize in providing working capital to growing companies with unique financing needs. Typical customers are manufacturers, wholesale distributors and service companies. We are committed to working closely with growth companies to meet their specialized financing needs and anticipate growth in this business by providing prompt and reliable service to our customers. The consolidated balance sheet as of June 30, 2002, the consolidated statements of operations for the three and nine-month periods ended June 30, 2002 and 2001, and the consolidated statements of cash flows for the three and nine-month periods ended June 30, 2002 and 2001, have been prepared by us without an audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of us at June 30, 2002 and September 30, 2001, the results of operations for the three and nine-month periods ended June 30, 2002 and 2001 and the cash flows for the three and nine-month periods ended June 30, 2002 and 2001 have been made. The results of operations for the three and nine-month periods ended June 30, 2002 and 2001 are not necessarily indicative of the operating results for any other interim period or the full fiscal year. Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures required under generally accepted accounting principles have been condensed or omitted from the presented financial statements. We suggest that these financial statements be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2001. Note 2: Principles of Consolidation The consolidated financial statements include the accounts of Asta Funding, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Note 3: Consumer Receivables Acquired for Liquidation: Accounts acquired for liquidation are stated at their net realizable value and consist of consumer loans to individuals throughout the country. Note 4: Finance Receivables: Finance receivables are factored accounts receivable primarily with full recourse. Note 5: Stockholders' Equity: On May 1, 2002, our stockholders approved an increase in the number of shares of common stock authorized from 10,000,000 to 30,000,000 and authorized 5,000,000 shares of preferred stock in one or more series with rights, preferences, privileges and restrictions thereof to be determined by our board of directors at the time of issuance. Asta Funding, Inc. Notes to Consolidated Financial Statements Note 6: Debt: We have a $20 million line of credit with a bank with interest at the prime rate. The credit line is collateralized by portfolios of consumer receivables acquired for liquidation and contains customary financial and other covenants that must be maintained in order for us to borrow funds. This line expires on November 30, 2002. As of June 30, 2002, the outstanding balance under this line of credit was approximately $10.3 million and we were in compliance with all of the covenants under this line of credit. In August 2001, an investment banking firm provided approximately $29.9 million of financing in exchange for a note with interest at LIBOR plus 2% and the right to receive 50% of subsequent collections, net of expenses, from the portfolio collateralizing the obligation, once the note and advances by one of our subsidiaries have been repaid. In December 2001, we purchased one-half of this right to receive subsequent collections for $1.5 million and a third party purchased the other one-half for $1.5 million. The note contains customary financial covenants and other covenants. As of June 30, 2002, the outstanding balance of the note was approximately $4.8 million and we were in compliance with all of the covenants under this note. In January 2002, we purchased a thirty-five percent interest in a consumer receivable portfolio and financed the entire purchase price of $1.6 million through a note to the seller. The note bears interest at fifteen percent. As of June 30, 2002, the outstanding balance of the note was approximately $200,000. Note 7: Income recognition: We recognize income on non-performing and performing consumer receivable portfolios, which are acquired for liquidation, using either the interest method or cost recovery method. Upon acquisition of a portfolio of receivables, management estimates the future anticipated cash flows and determines the allocation of payments based upon this estimate. If management can reasonably estimate the expected amount to be collected on a portfolio and can reasonably determine the timing of such payments based on historic experience and other factors, we use the interest method. If management cannot reasonably estimate the future cash flows, we use the cost recovery method. Under the interest method, we recognize income on the effective yield method based on the actual cash collected during a period and future estimated cash flows and timing of such collections and the portfolio's purchase. The estimated future cash flows are reevaluated quarterly. Under the cost recovery method, no income is recognized until we have fully collected the cost of the portfolio. Interest income from sub-prime automobile loans is recognized using the interest method. Accrual of interest income on loans receivable is suspended when a loan is contractually delinquent more than 60 days. The accrual is resumed when the loan becomes contractually current, and past due interest is recognized at that time. In addition, a detailed review of loans will cause earlier suspension if collection is doubtful. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We are primarily engaged in the business of acquiring, managing, servicing and recovering on portfolios of consumer receivables. These portfolios generally consist of one or more of the following types of consumer receivables: o charged-off receivables - accounts that have been written-off by the originators and may have been previously serviced by collection agencies; o semi-performing receivables - accounts where the debtor is currently making partial or irregular monthly payments, but the accounts may have been written-off by the originators; and o performing receivables - accounts where the debtor is making regular monthly payments that may or may not have been delinquent in the past. We acquire these consumer receivable portfolios at a significant discount to the amount actually owed by the borrowers. We acquire these portfolios after a qualitative and quantitative analysis of the underlying receivables and calculate the purchase price so that our estimated cash flow offers us an adequate return on our acquisition costs and servicing expenses. After purchasing a portfolio, we actively monitor its performance and review and adjust our collection and servicing strategies accordingly. We purchase receivables from credit grantors and others through privately negotiated direct sales and auctions in which sellers of receivables seek bids from several pre-qualified debt purchasers. We pursue new acquisitions of consumer receivable portfolios on an ongoing basis through: o our relationships with industry participants, collection agencies, investors and our financing sources; o brokers who specialize in the sale of consumer receivable portfolios; and o other sources. Asta Funding, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Form 10-QSB contains forward-looking statements within the meaning of the "safe harbor" provisions under section 21E of the Securities and Exchange Act of 1934 and the Private Securities Litigation Act of 1995. We use forward-looking statements in our description of our plans and objectives for future operations and assumptions underlying these plans and objectives. Forward-looking terminology includes the words "may", "expects", "believes", "anticipates", "intends", "forecasts", "projects", or similar terms, variations of such terms or the negative of such terms. These forward-looking statements are based on management's current expectations and are subject to factors and uncertainties which could cause actual results to differ materially from those described in such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Form 10-QSB to reflect any change in our expectations or any changes in events, conditions or circumstances on which any forward-looking statement is based. Factors which could cause such results to differ materially from those described in the forward-looking statements include those set forth under "Risk Factors" and elsewhere in, or incorporated by reference into, this Form 10-QSB or other reports filed by us with the Securities and Exchange Commission. These factors include the following: we are dependent on external sources of financing to fund our operations; our substantial debt may adversely affect our ability to obtain additional funds and increase our vulnerability to economic and business downturns; because we are a holding company, our ability to repay our debt will depend upon the level of our cash reserves, the distribution of funds from our subsidiaries and our ability to obtain sufficient additional funds; we may not be able to purchase receivables at favorable prices and are subject to competition for such receivables; we may not be able to recover sufficient amounts on our receivables to fund our operations; the Stern family controls Asta; government regulations may limit our ability to recover and enforce receivables and other risks. Critical Accounting Policies We account for our investments in consumer receivable portfolios, using either: o the interest method; or o the cost recovery method. Generally, each purchase is considered a separate portfolio of receivables and is considered a financial investment. Based upon the expected performance characteristics of the receivables in the portfolio, we determine whether the portfolio should be accounted for using the interest method or the cost recovery method. If we can reasonably estimate the amount to be collected on a portfolio and can reasonably determine the timing of such payments based on historic experience and other factors, we use the interest method. If we cannot reasonably estimate the future cash flows, we use the cost recovery method. The interest method allows us to recognize income on the effective yield of such portfolio based on the actual cash collected during a period and future estimated cash flows and the timing of such collections and the purchase of such portfolios. Under this method, we periodically apply a portion of the actual funds collected as a reduction in the principal amount invested in each specific portfolio and the remainder is recognized as finance income. Generally, these portfolios are expected to amortize over a three to five year period based upon our estimated future cash flows. Historically, a majority of the cash we ultimately collect on a portfolio is received during the first 18 months after acquiring the portfolio, although additional amounts are collected over the remaining period. The estimated future cash flows of the portfolios are reevaluated quarterly. Under the cost recovery method of accounting, no income is recognized until the purchase price of a portfolio has been fully recovered by us. We periodically review our receivable portfolios for impairment based on the estimated future cash flows. Provisions for losses are charged to operations when it is determined that the remaining investment in the receivable portfolio is greater than the estimated future collections. We have not recorded any impairment charges on our consumer receivable portfolios. We typically recognize finance income net of collection fees paid to third-party collection agencies. With respect to several recent purchases of consumer receivable portfolios containing a significant amount of performing and semi-performing accounts, we recognize finance income on accounts that were being serviced by third-party servicers at the gross amounts received by the servicers. The servicing costs for these portfolios are reported as an expense on our income statement. In addition, with respect to specific consumer receivable portfolios we acquired, we agreed to a fifty percent profit sharing arrangement with our lender. However, the entire interest in this profit sharing arrangement was sold to us and a third-party in equal amounts in December 2001. The third-party profit allocation is recorded as interest expense over the estimated term of the related note payable. In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. As a result, all figures are approximations. Results of operations The three-month period ended June 30, 2002, compared to the three-month period ended June 30, 2001 Revenues. During the three-month period ended June 30, 2002, interest income increased $2.1 million or 31.0% to $8.8 million from $6.7 million for the three-month period ended June 30, 2001. The increase in interest income was primarily due to an increase in interest income earned on consumer receivables acquired for liquidation, which resulted from an increase in the average outstanding accounts acquired for liquidation during the period as compared to June 30, 2001. The decrease in other income was due to a decrease in the dollar amount of contracts being serviced as a result of the discontinuation of the purchase and sale of automobile contracts being serviced for the three-months ended June 30, 2002, as compared to the same period in the prior year. General and Administrative Expenses. During the three-month period ended June 30, 2002, general and administrative expenses decreased $205,000 or 13.0% to $1.4 million from $1.6 million for the three-months ended June 30, 2001, and represented 32.3% of total expenses for the three months ended June 30, 2002. The decrease in general and administrative expenses was primarily due to a decrease in direct collection costs associated with consumer receivables that were serviced internally by us during the three-month period ended June 30, 2002, as compared to the same prior year period.. Third-Party Servicing Expenses. During the three-month period ended June 30, 2002, third-party servicing expenses increased $702,000 or 83.9% to $1.5 million from $837,000 for the three months ended June 30, 2001, and represented 36.1% of total expenses for the three months ended June 30, 2002. The increase in third-party servicing expenses was primarily due to servicing costs on consumer receivables that were purchased during the fiscal year ended September 30, 2001 and were not being serviced during the same prior year period. Interest Expense. During the three-month period ended June 30, 2002, interest expense increased $815,000 or 442.9% to $999,000 from $184,000, compared to the same period in the prior year and represented 23.4% of total expenses for the three-month period ended June 30, 2002. The increase was due to an increase in the continuing accrual of the present value of the estimated 25% of subsequent collections payable from a portfolio collateralizing a note payable and an increase in the outstanding borrowings by us under our lines of credit and note payable during the three-month period ended June 30, 2002, as compared to the same period in the prior year. The increase in borrowings was due to the increase in acquisitions of consumer receivables acquired for liquidation during the fourth quarter of the fiscal year ended September 30, 2001. Asta Funding, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provision for Credit Losses. During the three-month period ended June 30, 2002, the provision for credit losses increased $300,000 or 600.0% to $350,000 from $50,000 for the three-months ended June 30, 2001 and represented 8.2% of total expenses. The increase was due to an increase in the provision for credit losses on our financed receivables during the three months ended June 30, 2002, as compared to the same prior year period. The nine-month period ended June 30, 2002, compared to the nine-month period ended June 30, 2001 Revenues. During the nine-month period ended June 30, 2002, interest income increased $10.5 million or 62.1% to $27.5 million from $17.0 million for the nine-month period ended June 30, 2001. The increase in interest income was primarily due to an increase in interest income earned on consumer receivables acquired for liquidation, which resulted from an increase in the average outstanding accounts acquired for liquidation as compared to June 30, 2001.The increase in other income was due to a fee earned by us on the sale of certain receivables during the nine-months ended June 30, 2002, which was offset by a decrease in servicing fee income which was due to a decrease in the dollar amount of contracts being serviced as a result of the discontinuation of the purchase and sale of automobile contracts being serviced for the nine-months ended June 30, 2002, as compared to the same period in the prior year. General and Administrative Expenses. During the nine-month period ended June 30, 2002, general and administrative expenses increased $844,000 or 21.9% to $4.7 million from $3.9 million for the nine-months ended June 30, 2001 and represented 31.8% of total expenses for the nine-months ended June 30, 2002. The increase in general and administrative expenses was primarily due to an increase in salaries and other servicing costs associated with an increase in consumer receivables that were purchased during the fiscal year ended September 31, 2001 and nine months ended June 30, 2002 that were serviced internally by us, and were not being serviced internally by us during the same prior year period. Third-Party Servicing Expenses. During the nine-month period ended June 30, 2002, third-party servicing expenses increased $4.8 million or 313.0% to $6.3 million from $1.5 million for the nine months ended June 30, 2001, and represented 42.3% of total expenses for the six months ended June 30, 2002. The increase in third-party servicing expenses was primarily due to servicing costs on consumer receivables that were purchased during the fourth quarter of the fiscal year ended September 30, 2001 and were not being serviced during the same prior year period. Interest Expense. During the nine-month period ended June 30, 2002, interest expense increased $2.6 million or 589.1% to $3.1 million from $449,000 for the nine-month period ended June 30, 2002, compared to the same period in the prior year and represented 20.9% of total expenses for the nine-month period ended June 30, 2002. The increase was due to an increase in the continuing accrual of the present value of the estimated 25% of subsequent collections payable from a portfolio collateralizing a note payable and an increase in the outstanding borrowings by us under our lines of credit and notes payable during the nine-month period ended June 30, 2002, as compared to the same period in the prior year. The increase in borrowings was due to the increase in acquisitions of consumer receivables acquired for liquidation during the fourth quarter of the fiscal year ended September 30, 2001. Provision for Credit Losses. During the nine-month period ended June 30, 2002, the provision for credit losses increased $300,000 or 66.7% to $750,000 from $450,000 for the nine-months ended June 30, 2001 and represented 5.0% of total expenses. The increase was primarily due to an increase in the provision for credit losses on our financed receivables during the nine months ended June 30, 2002, as compared to the same prior year period. Liquidity and Capital Resources Our primary sources of cash from operations include payments on the receivable portfolios that we have acquired. Our primary uses of cash include our purchases of consumer receivable portfolios. We rely significantly upon our lenders and others, including our affiliates, to provide the funds necessary for the purchase of consumer and commercial accounts receivable portfolios. While we maintain a $20 million line of credit, for some significant portfolio purchases, we arrange financing on a transactional basis. While we have historically been able to finance these purchases, we do not have committed loan facilities, other than our $20 million line of credit with a financial institution. As of June 30, 2002, our outstanding debt was $15.3 million. As of June 30, 2002, our cash and cash equivalents decreased to $3.8 million from $5.7 million at September 30, 2001. The decrease in cash and cash equivalents during the nine-month period ended June 30, 2002, was primarily due to an increase in the repayment of debt during the period. Net cash provided by operating activities was $11.2 million during the nine-months ended June 30, 2002, compared to net cash provided by operating activities of $3.3 million during the nine-months ended June 30, 2001. The increase in net cash provided by operating activities was primarily due to an increase in net income and other liabilities and a decrease in income tax payments during the nine-months ended June 30, 2002, as compared to the same period in the prior year. Net cash provided by investing activities was $993,000 during the nine-months ended June 30, 2002, compared to net cash used in investing activities of $12.3 million during the nine-months ended June 30, 2001. The increase in net cash provided by investing activities was primarily due to an increase in collections of consumer receivables acquired for liquidation during the nine-months ended June 30, 2002, compared to the same period in the prior year. Net cash used in financing activities was $14.1 million during the nine-months ended June 30, 2002, compared to net cash provided of $6.2 million during the nine-months June 30, 2001. The increase in net cash used in financing activities was primarily due to an overall increase in debt payments during the nine-months ended June 30, 2002, compared to the same prior year period. The increase in debt payments was due to an increase in principal collections that was used to repay debt on accounts acquired for liquidation during the nine-months ended June 30, 2002, as compared to the nine-months ended June 30, 2001. Asta Funding, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations We have a $20 million line of credit with a bank with interest at the prime rate. The credit line is collateralized by portfolios of consumer receivables acquired for liquidation and contains customary financial and other covenants that must be maintained in order for us to borrow funds. This line expires on November 30, 2002. As of June 30, 2002, the outstanding balance under this line of credit was approximately $10.3 million and we were in compliance with all of the covenants under this line of credit. The outstanding balance is payable from the cash flows of specific portfolios. In August 2001, an investment banking firm provided approximately $29.9 million of financing in exchange for a note with interest at LIBOR plus 2% and the right to receive 50% of subsequent collections, net of expenses, from the portfolio collateralizing the obligation, once the note and advances by one of our subsidiaries have been repaid. In December 2001, we purchased one-half of this right to receive subsequent collections for $1.5 million and a third party purchased the other one-half for $1.5 million. The note contains customary financial covenants and other covenants. As of June 30, 2002, the outstanding balance of the note was approximately $4.8 million and we were in compliance with all of the covenants under this note. The outstanding balance is payable from the cash flows of specific portfolios. In January 2002, we purchased a thirty-five percent interest in a consumer receivable portfolio and financed the entire purchase price of $1.6 million through a note to the seller. The note bears interest at fifteen percent. As of June 30, 2002, the outstanding balance of the note was approximately $200,000. The outstanding balance is payable from the cash flows of specific portfolios. Our cash requirements have been and will continue to be significant. We depend on external financing to acquire consumer receivables. During the nine-months ended June 30, 2002, we acquired consumer portfolios at a cost of approximately $31.7 million. These acquisitions were financed under our existing line of credit and our cash on hand. We anticipate the funds available under our current funding agreements and credit facility as well as funds made available by Asta Group, Incorporated, an affiliate of ours, and cash from operations will be sufficient to satisfy the our estimated cash requirements for at least the next 12 months. If for any reason our available cash otherwise proves to be insufficient to fund operations (because of future changes in the industry, general economic conditions, unanticipated increases in expenses, or other factors), we may be required to seek additional funding. Asta Funding, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Supplementary Information on Accounts Acquired for Liquidation Schedule of Accounts Acquired for Liquidation by Income Recognition Category
As of June 30, 2002 Cost Recovery Interest Method Portfolios Portfolios ---------- ---------- Cummulative Original Purchase Price at 6/30/02 $45,000,000 $110,000,000 Aggregate Managed Portfolios at 6/30/02 $996,000,000 $1,649,000,000 Receivable Carrying Value at 6/30/02 $2,000,000 $41,000,000 Finance Income Earned $4,600,000 $21,700,000 (for the nine months ended 6/30/02) Total cash flows $6,600,000 $52,100,000 (for the nine months ended 6/30/02)
The original purchase price reflects what we paid for the receivables from 1998 through June 30, 2002. The aggregate managed portfolio balance is the aggregate amount owed by the borrowers at June 30, 2002. We purchase consumer receivables at substantial discounts from the face amount. We record interest income on our receivables under either the cost recovery or interest method. The receivable carrying value represents the current basis in the receivables after collections and amortization of the original price. We do not anticipate collecting the majority of the purchased principal amounts. Accordingly, the difference between the carrying value of the portfolios and the gross receivables is not indicative of future revenues from these accounts acquired for liquidation. Since we purchased these accounts at significant discounts, we anticipate collecting only a portion of the face amounts. For the nine-months ended June 30, 2002, we earned interest income of $4.6 million under the cost recovery method because we collected $4.6 million in excess of our purchase price on certain receivable portfolios. In addition, we earned $21.7 million of interest income under the interest method based on actuarial computations on certain portfolios based on actual collections during the period based on what we project to collect in future periods. During the nine-months ended June 30, 2002, we had no significant adjustments to our projected cash flows on the portfolios in which we use the interest method. New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. This statement specifies that certain acquired intangible assets in a business combination be recognized as assets separately from goodwill and that existing intangible assets and goodwill be evaluated for these new separation requirements. The Company does not expect this statement to have a material impact on our consolidated financial position or results of operations. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. In addition, this statement requires that goodwill be tested for impairment at least annually at the reporting unit level. We implemented SFAS No. 142 on January 1, 2002. We do not expect this statement to have a material impact on our consolidated financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. We implemented SFAS No. 144 on January 1, 2002. We do not expect this statement to have a material impact on our consolidated financial position or results of operations. Asta Funding, Inc. Form 10-QSB June 30, 2002 Part II. OTHER INFORMATION Item 1. Legal Proceedings As of the date of this filing, we were not involved in any material litigation in which we are a defendant. We regularly initiate legal proceedings as a plaintiff concerning our routine collection activities. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders We held our annual meeting of shareholders on May 1, 2002. At the meeting, the following persons were elected directors, all of whom were incumbents: Arthur Stern, Gary Stern, Mitchell Herman, Martin Fife, Herman Badillo, General Buster Glosson, Edward Celano and Harvey Liebowitz. Mr. Fife resigned from our Board of Directors for personal reasons on May 8, 2002. Also at the meeting, shareholders voted to ratify the appointment of Richard A. Eisner & Company, LLP as our independent public accountants for fiscal year 2002; to ratify a proposal to amend our Certificate of Incorporation to increase the number of authorized shares of Common from 10,000,000 shares to 30,000,000 shares; to ratify a proposal to amend our Certificate of Incorpoartion to create a new class of "blank check" preferred stock, $.01 par value per share, consisting of 5,000,000 shares and to ratify a proposal to approve our 2002 Stock Option Plan. Shares were voted for the election of directors as follows: Authority Director For Against Withheld -------- --- ------- -------- (1) Gary Stern 3,605,722 30,125 0 (2) Mitchell Herman 3,605,722 30,125 0 (3) Arthur Stern 3,605,722 30,125 0 (4) Martin Fife 2,199,804 1,436,043 0 (5) Herman Badillo 3,614,822 21,825 0 (6) Edward Celano 3,614,022 21,825 0 (7) General Buster Glosson 3,613,822 22,025 0 (8) Harvey Liebowitz 3,615,022 20,825 0 (9) Michael Feinsod 3,615,022 20,825 0 Shares were voted for the ratification of Richard A. Eisner & Company, L.L.P. as independent accountants for fiscal year 2002 as follows: 3,633,620 27 2,200 --------- ------- ------- For Against Abstain Shares were voted for the ratification of the proposal to amend our Certificate of Incorporation to increase the number of authorized shares of Common Stock from 10,000,000 shares to 30,000,000 shares as follows: 3,603,902 31,445 500 --------- ------- ------- For Against Abstain Shares were voted for the ratification of the proposal to amend our Certificate of Incorporation to create a new class of "blank check" preferred stock, $.01 par value per share, consisting of 5,000,000 shares as follows: 2,261,245 76,119 1604 1,296,879 --------- --------- ------- --------- For Against Abstain Unvoted Asta Funding, Inc. Form 10-QSB June 30, 2002 Item 4. Submission of Matters to a Vote of Security Holders (Continued) Shares were voted for the ratification of the proposal to approve our 2002 Stock Option Plan as follows; 2,159,322 173,796 5,850 1,296,879 --------- --------- ------- --------- For Against Abstain Unvoted Item 5. Other Information On May 21, 2002, we entered into an employment agreement with Arthur Stern that will continue until May 21, 2005. The employment agreement provides for a base annual salary of $225,000. Mr. Stern may also be granted an annual bonus at the discretion of the board of directors. If Mr. Stern's employment with us is terminated for "cause," as such term is defined in his employment agreement, we will pay Mr. Stern, the base annual salary and other benefits under the employment agreement through the date of termination of employment. If Arthur Stern's employment with us is terminated for "disability" or "without cause," as such terms are defined in the employment agreement, or upon death, we will pay Arthur Stern or his estate, the base annual salary and other benefits under the employment agreement for the remainder of the three year term. The employment agreement contains certain non-competition covenants and confidentiality provisions. During the term of the employment agreement and for a period of twelve months after the date of termination of the employment agreement, or for such period as we will continue to pay Mr. Stern his base salary and insurance benefits, he will not, in any geographic area in which we do business as of the date of termination of his employment agreement, directly or indirectly compete with or be engaged in the same business as us or our subsidiaries. A copy of the employment agreement is being filed as Exhibit 10.12 hereto. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.12 Employment Agreement dated as of May 21, 2002 by and between Asta Funding, Inc. and Arthur Stern. (b) Reports on Form 8-K We did not file any Reports of Form 8-K during the three-months ended June 30, 2002. Asta Funding, Inc. Form 10-QSB March 31, 2002 Signatures In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASTA FUNDING, INC. (Registrant) Date: August 14, 2002 By: /s/ Gary Stern ------------------ Gary Stern, President, Chief Executive Officer (Principal Executive Officer) Date: August 14, 2002 By: /s/ Mitchell Herman ----------------------- Mitchell Herman, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
EX-10.12 3 b319814_ex10-12.txt Exhibit 10.12 Asta Funding, Inc. Form 10-QSB March 31, 2002 THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of the 21st day of May, 2002 by and between ASTA FUNDING, INC., a Delaware corporation, with offices at 210 Sylvan Ave., Englewood Cliffs, NJ 07632 (the "Company") and ARTHUR STERN, an individual residing at 3333 Henry Hudson Parkway, Riverdale, New York 10463 (the "Employee") W I T N E S E T H: WHEREAS, the parties desire to enter this Agreement to set forth the terms of the Employee's continued employment by the Company. NOW, THEREFORE, in consideration of the mutual premises and covenants set forth herein and for other good and value consideration, the receipt, adequacy and legal sufficiency of which are hereby acknowledged, the Company and the Employee mutually agree as follows: 1. Employment Duties. (a) Employment. The Company agrees to continue to employ the Employee, and the Employee agrees to accept continued employment with the Company, on the terms and conditions set forth in this Agreement. (b) Scope of Duties. During the Employment Period (as defined herein), the Employee shall devote his business time, attention and energy to the business, and to seeking improvement in the profitability, of the Company. During the Employment Period, the Employee shall serve as Executive Vice President of the Company and its subsidiaries and shall have the authority to perform and shall perform all of the duties that are customary for the office of Executive Vice President of the Company, subject at all times to the control and direction of the President and the Board of Directors of the Company, and shall perform such services as typically are provided by the Executive Vice President of a corporation and such other services consistent therewith as shall be assigned to him from time to time by the President or the Board of Directors of the Company. Employee shall also continue to serve as Chairman of the Board of Directors of the Company for such period as he continues to be duly elected to such position by the shareholders of the Company. (c) Service. During the Employment Period, the Employee shall perform his duties in a diligent manner; shall not engage in activities which are or could be detrimental to the existing or future business of the Company and its subsidiaries; and shall observe and conform to all laws, customs, and standards of business ethics and honest business practices. The Employee shall be requested, and does hereby agree, to be a full time employee of the Company during the Employment Period. During the Employment Period, the Employee shall not engage in any other business activity which, in the reasonable judgement of the Company's Board of Directors, conflicts with the duties of the Employee hereunder, whether or not such activity is pursued for gain, profit or other pecuniary advantage; provided, however, that it is understood that this Section 1(c) shall not preclude the Employee from making passive investments in other companies or from serving as Vice President of Asta Group, Inc. (d) Professional Standards. Recognizing and acknowledging that it is essential for the protection and enhancement of the name and business of the Company and its subsidiaries and the good will pertaining thereto, the Employee shall perform his duties under this Agreement professionally and in accordance with the standards established by the Company from time to time; and the Employee shall not act, and shall refrain from acting, in any manner that could harm or tarnish the name, business or income of the Company and its subsidiaries or the good will pertaining thereto. 2. Compensation. (a) Base Salary. For all services rendered by the Employee during the Employment Period, the Company shall pay the Employee a base salary ("Base Salary") in the amount of $225,000 on an annualized basis, payable in accordance with the Company's customary payment policies and periods. The Employee's Base Salary may be increased as determined by the Board of Directors of the Company in its sole discretion. (b) Bonuses. During the Employment Period, the Employee shall be eligible to receive bonuses as determined by the Board of Directors of the Company in its sole discretion. (c) Stock Options. During the Employment Period, the Employee shall be eligible to receive stock options as determined by the Board of Directors of the Company in its sole discretion. (d) Benefits. During the Employment Period, the Employee and/or the Employee's dependents, as the case may be, shall be entitled to participate (subject to eligibility requirements) in the employee benefit plans generally available to other similarly situated employees of the Company and the Employee shall be entitled to the fringe benefits and perquisites made generally available to other similarly situated employees of the Company. The Company reserves the right to modify, change or terminate its benefit plans, fringe benefits and perquisite plans and programs from time to time in the discretion of the Board of Directors of the Company. (e) Vacation. During the Employment Period, the Employee shall be entitled to an annual vacation of fifteen (15) working days for each full calendar year of employment hereunder, which may be taken all at once or from time to time; provided, however, that: (i) the Employee shall schedule such vacation time so as to mitigate the adverse effects to the Company of the Employee's absence; (ii) the Employee shall give the Company at least thirty days (30) days notice of consecutive vacation days in excess of five (5) to be taken by the Employee at any one time; and (iii) up to one (1) week unused vacation time during the calendar year may be carried over and used by the Employee in the following calendar year. 3. Non-Competition. (a) In view of the Employee's knowledge of the trade secrets and other proprietary information relating to the business of the Company, its subsidiaries and their respective customers which the Employee has heretofore obtained and is expected to obtain during the period the Employee is employed under this Agreement (the "Employment Period"), and in consideration of the Employee's employment hereunder, the Employee agrees: (i) that he will not during the Employment Period Participate In (as such term hereinafter defined) any other business or organization if such business or organization now is or shall then be competing with or be of a nature similar to the business of the Company or its subsidiaries; and (ii) (A) for a period of twelve (12) months after the Termination Date (as defined in Section 6) due to a termination of this Agreement for Cause (as defined herein) or (B) for such period as the Company shall continue to pay to the Employee his Base Salary and health insurance benefits in accordance with Section 8(b) after a termination of the Employee's employment Without Cause (as defined below) or for Disability (as defined below), he will not, in any geographic area in which the Company or any of its subsidiaries does business as of the Termination Date, compete with or be engaged in the same business as, or Participate In, any other business or organization which competes with or is engaged in the same business as the Company or its subsidiaries with respect to any service offered or activity engaged in up to the Termination Date, except that in each case the provisions of this Section 3 will not be deemed breached merely because the Employee owns not more than 2% of the outstanding common stock of a corporation, if, at the time of its acquisition by the Employee, such stock is listed on a national securities exchange, is reported on NASDAQ, or is regularly traded in the over-the-counter market by a member of a national securities exchange. (b) The term "Participate In" shall mean: "directly or indirectly, for his own benefit or for the benefit of any other enterprise, own, manage, operate, control or loan money to (provided that an investment in debt instruments issued pursuant to an effective registration statement under the Securities Act of 1993, as amended shall not be deemed to be a loan), or participate in the ownership, management, operation, or control of, or be connected as a director, officer, employee, partner, agent, or otherwise with, or acquiesce in the use of his name in." (c) During the Employment Period and, in the case of the termination of the Employee's employment for Cause only, for a period one (1) year after the Termination Date, the Employee will not directly or indirectly: (i) Reveal the name of, solicit, use or interfere with, or endeavor to entice away from the Company (or any of its subsidiaries) any of their customers, vendors, or employees; or (ii) Employ or engage any person or entity who or which, at any time up to the Termination Date, was an employee or agent of the Company or its subsidiaries without the prior written consent of the Company. (d) The Employee agrees that the provisions of this Section 3 and Sections 4 and 5 are necessary and reasonable to protect the Company in the conduct of its business. If any restriction contained in this Section 3 or in Sections 4 or 5 shall be deemed by a court of competent jurisdiction to be invalid, illegal, or unenforceable by reason of the extent, duration, or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope, or other provisions hereof, and in its reduced from such restriction shall then be enforceable in the manner contemplated hereby. 4. Confidential Information. All confidential information which the Employee may now possess, may obtain during or after the Employment Period, or may create prior to the end of the Employment Period relating to the business of the Company or its subsidiaries or of any of their respective customers or vendors shall not be published, disclosed, or made accessible by him to any other person, firm, corporation or entity, either during or after the Employment Period or used by him during or after the Employment Period (except in the business and for the benefit of the Company or its subsidiaries), without the prior written consent of the Company. The Employee shall return all tangible evidence of such confidential information to the Company prior to or at the end of the Employment Period. 5. Rights of the Company. (a) Any interest in copyrights, copyrightable works, developments, discoveries, designs and processes, patents, patent applications, inventions and technological innovations (collectively, "Inventions") which the Employee (i) owns, conceives of or develops, alone or with others, (A) relating to the business of the Company or its subsidiaries or any business in which the Company (or its subsidiaries) contemplates being engaged or (B) which anticipate research or development of the Company or its subsidiaries, or (ii) conceives of or develops utilizing the time, material, facilities or information of the Company or its subsidiaries, in either case during the Employment Period, shall belong to the Company. (b) As soon as the Employee owns, conceives of or develops any Invention, the Employee shall immediately communicate such fact in writing to the Board of Directors of the Company. Upon the request of the Company, the Employee shall, without further compensation but at the Company's expense (subject to clause (i) below) execute all such assignments and other documents (including applications for trademarks, copyrights and patents and assignments thereof) and take all such other action as the Company may reasonably request, including obtaining spousal consents or waivers, (i) to vest in the Company all right, title and interest of the Employee in and to such Inventions, free and clear of all liens, mortgages, security interests, pledges, charges and encumbrances ( the Employee to take such action, at his expense, as is necessary to remove all such liens) and (ii) if patentable or copyrightable, to obtain patents or copyrights (including extensions and renewals) therefor in any and all jurisdictions in and outside the United States in the name of the Company or in such other names(s) as the Company shall determine. 6. Employment Period. The Employment Period shall commence on the date of this Agreement and shall continue for a three year period ending on May 20, 2005, or such earlier date on which any of the following events occurs (the "Termination Date"): (a) the death of the Employee; (b) the voluntary resignation of the Employee; (c) the termination by the Board of Directors of the Employee's employment for Disability (as hereinafter defined); (d) the termination by the Board of Directors of the Employee's employment for Cause (as hereinafter defined); or (e) the termination by the Board of Directors of the Employee's employment Without Cause (as hereafter defined) 7. Definitions Relating to Termination (a) Disability The term "Disability" shall mean any physical or mental condition of the Employee which, in the reasonable discretion of the Board of Directors, after consultation with the Employee's physician, materially impairs the Employee's ability to render the services to be performed by him hereunder for a period of 180 consecutive days or for at least 240 days in any consecutive 360 day period. (b) Cause The term "Cause" shall mean the good faith finding by the Board Directors of the Company upon resolution adopted by it of the existence of any one of the following: (i) The Employee's failure or refusal to perform specific written directives consistent with his duties and responsibilities as set forth in Section 1 hereof, which lack of performance is not cured within 15 days after written notice thereof or 30 days if at the 15th day and thereafter the Employee is diligently attempting to cure; (ii) Conviction of a felony or of any crime involving moral turpitude or fraud; (iii) The commission by the Employee of any willful or intentional act which the Employee reasonably should have contemplated would have the effect of injuring the reputation, financial condition, business or business relationships of the Company (and its subsidiaries, individually or taken as a whole) and/or the Employee; or (iv) Any material breach (not covered by any of the clauses (i) through (iii) hereof) of any of the provisions of this Agreement, if such breach is not cured within 30 days after written notice thereof to by the Board of Directors. (c) Without Cause The term "Without Cause" shall mean a determination of the Board of Directors to terminate the Employee for any reason other than death, Disability or for Cause. 8. Effect of Termination (a) If the Employee's employment is terminated by the Company for Cause or the Employment Period expires, then the Employee shall be paid the Employee's Base Salary and other benefits hereunder through the Termination Date and the Company shall have no further obligations to the Employee. (b) If the Employee's employment is terminated Without Cause, for Disability or upon the Employee's death, then (i) the Employee or his estate, as applicable, shall continue to be paid the Employee's Base Salary through May 20, 2005, and (ii) the Company shall continue to provide to the Employee and his eligible dependents health insurance coverage through May 20, 2005. (c) Irrespective of the basis for the termination of the Employee's employment with the Company, all benefits (including fringe benefits), if any, due the Employee hereunder shall cease as of the Termination Date, other than (i) COBRA rights which shall continue to the extent provided thereunder, (ii) Base Salary, if applicable, to the extent provided in Section 8(b), (iii) health insurance coverage, if applicable, to the extent provided in Section 8(b), and (iv) rights under any stock options the Employee may have been granted. 9. Arbitration. Except with respect to the Company's right to seek injunctive or equitable relief, any controversy, dispute, or claim between the Employee and the Company arising out of or relating to this Agreement, the Employee's employment by the Company, the cessation of the Employee's employment with the Company, or any matter relating to the foregoing, shall be submitted to and settled by arbitration in the State of New Jersey, in accordance with the then current rules of the American Arbitration Association or any successor thereto. Within ten (10) days after a request for arbitration by one party to the other, the Company and the Employee shall each select one arbitrator. Within ten (10) days after the second of such arbitrators has been selected, the two arbitrators thereby selected shall choose a third arbitrator who shall be the Chairman of the panel. If the first two arbitrators selected cannot agree upon a third arbitrator, the American Arbitration Association shall name the third arbitrator. The arbitrators may grant injunctions or other relief in such dispute or controversy. In the arbitration, the parties shall be entitled to pre-hearing discovery. The decision of the arbitrators shall be final, conclusive and binding on the parties to the arbitration. In connection with such arbitration and the enforcement of any award rendered as a result thereof, the parties hereto irrevocably consent to the personal jurisdiction of the federal and state courts located in New Jersey, and further consent that any process or notice of motion or other application to the said Courts or Judges thereof may be served inside or outside the State of New Jersey by registered mail or personal service, provided a time period of at least twenty (20) days for appearance is allowed. The Company shall not be required to seek injunctive relief from the arbitrators but may seek such injunctive relief in a court proceeding. The terms of this Section 9 shall apply to all disputes, controversies and claims, including, without limitation, any rights or claims the Employee may have under the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1954, the Equal Pay Act, or any other federal, state, or local laws, rules or regulations relating to employment discrimination or otherwise in any way pertaining to the Employee's employment or termination thereof. This Section 9 shall survive the termination (by expiration or otherwise) of this Agreement. 10. Modification. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, and may be modified only by a written instrument duly executed by each party. 11. Notices. Any notice or communication to be given hereunder by any party to the other shall be in writing and shall be deemed to have been given when personally delivered or transmitted by facsimile, or three (3) days after the date sent by registered or certified mail, postage prepaid, as follows: (a) if to the Company, addressed to it at: 210 Sylvan Avenue Englewood Cliffs, NJ 07632 Attention: Chairman with copies to: Lowenstein Sandler P.C. 65 Livingston Avenue Roseland, NJ 07068 Attn: John D. Schupper, Esq. (b) If to the Employee, addressed to him at: 3333 Henry Hudson Parkway Riverdale, New York 10463 or to such other persons or addresses as may be designated in writing by the party to receive such notice. 12. Waiver. Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing. 13. Assignment. The Employee's rights and obligations under this Agreement shall not be transferable by assignment or otherwise. The Company may assign its rights and obligations hereunder to any of its subsidiaries or affiliates. The Company will provide notice of such assignment to the Employee. 14. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure of the benefit of the Employee and his heirs and personal representatives, and shall be binding upon the Company and inure to the benefit of the Company, its subsidiaries and affiliates and their respective successors and assigns. 16. Headings. The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 17. Injunctive Relief. As it would be very difficult to measure the damages, which would result to the Company from a breach of any of the covenants contained in Section 3, 4 or 5 of this Agreement, in the event of such a breach, the Company shall have the right to have such covenants specifically enforced by a court of competent jurisdiction. The Employee hereby recognizes and acknowledges that irreparable injury or damage shall result to the business of the Company in the event of a breach or threatened breach by the Employee of the terms and provisions of Section 3, 4 or 5. Therefore, the Employee agrees that the Company shall be entitled to an injunction-restraining the Employee from engaging in any activity constituting such breach or threatened breach. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company at law or in equity for such breach or threatened breach, including, but not limited to, recovery of damages from the Employee and, if the Employee is still employed by the Company, terminating the employment of Employee in accordance with the terms and provisions hereof. 18. Governing Law. Any and all claims, controversies or actions arising out of this Agreement or the Employee's employment with the Company, including, without limitation, tort claims, shall be governed by and construed in accordance with the laws of the State of New Jersey, without reference to choice of law principles thereof. 19. Attorney's Fees. If a legal action or other proceeding is brought for enforcement of this Agreement because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorney's fees and cost incurred, in addition to any other relief to which they may be entitled. 20. Severability. The provisions of this Agreement are severable and should any provision hereof be void, voidable or unenforceable under any applicable law, such void, voidable or unenforceable provision shall not affect or invalidate any other provision of this Agreement, which shall continue to govern the relative rights and duties of the parties as though the void, voidable or unenforceable provision were not a part hereof. 21. Survival. All warranties, representations, indemnities, covenants and other agreements of the parties hereto shall survive the execution, delivery and termination of this Agreement and shall, notwithstanding the execution, delivery and termination of this Agreement, continue in full force and effect. 22. Acknowledgment. The Employee specifically acknowledges that: the Employee has read and understands all of the terms of this Agreement; in executing this Agreement, the Employee does not rely on any inducements, agreements, promises or representations of the Company or any agent of the Company, other than the terms and conditions specifically set forth in this Agreement; the Employee has had an opportunity to consult with independent counsel with respect to the execution of this Agreement; and that the Employee has made such investigation of the facts pertaining to this Agreement and of all the matters pertaining hereto as he deems necessary. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement on the day and year first above written. ASTA FUNDING, INC. By: /S/ Gary Stern -------------------- /S/ Arthur Stern -------------------- Arthur Stern
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