-----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, E1aNQL9t6ictErtfC7Tb6Fm1ZhBgAD9kef6g/vu9BEfIRgapax6MZjE5dazsWmcI VT2omyHUaqylsK0fZG2nxw== 0000908737-97-000300.txt : 19970814 0000908737-97-000300.hdr.sgml : 19970814 ACCESSION NUMBER: 0000908737-97-000300 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR CORP CENTRAL INDEX KEY: 0000724051 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 042626079 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11663 FILM NUMBER: 97659611 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6177288500 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 0-11663 CHANCELLOR CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2626079 (State or other jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 745 Atlantic Avenue, Boston, Massachusetts 02111 (Address of principal executive offices) (Zip Code) (617) 728 - 8500 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of June 30, 1997, 20,186,391 shares of Common Stock, $.01 par value per share, and 8,000,000 shares of Series AA Convertible Preferred Stock, $.01 par value per share (with a liquidation preference of $.50 per share or $4,000,000) were outstanding. Chancellor Corporation and Subsidiaries Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 2 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996 3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information 12 Item 1. Legal Proceedings Item 2. Changes in Securities 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 13 1
Chancellor Corporation and Subsidiaries Condensed Consolidated Balance Sheets (In Thousands) June 30, December 31, 1997 1996 -------------- ------------- (unaudited) Assets Cash and cash equivalents $ 226 $ 21 Cash - restricted and escrowed 2,488 3,553 Receivables, net 302 2,563 Leased equipment held for underwriting -- 1,231 Net investment in direct finance leases 567 748 Equipment on operating lease, net of accumulated depreciation of $6,351 and $7,191 254 497 Residual values, net 108 748 Furniture and equipment, net of accumulated depreciation of $2,672 and $2,655 58 121 Other assets, net 1,652 980 -------- -------- $ 5,655 $ 10,462 ======== ======== Liabilities and Stockholders' Deficit Accounts payable and accrued expenses $ 5,032 $ 10,260 Indebtedness: Nonrecourse 714 1,188 Recourse 4,829 3,432 -------- -------- Total liabilities 10,575 14,880 -------- -------- Stockholders' deficit: Convertible preferred stock, Series AA, $.01 par value, 10,000,000 shares authorized, 8,000,000 and 5,000,000 shares issued and outstanding 80 50 Common stock, $.01 par value; 30,000,000 shares authorized, 20,186,391 and 6,567,302 shares issued and outstanding 202 65 Additional paid-in capital 26,612 24,609 Accumulated deficit (31,814) (28,606) -------- -------- (4,920) (3,882) Less: Treasury stock, none and 1,430,911 shares at cost -- (536) -------- -------- Total stockholders' deficit (4,920) (4,418) -------- -------- $ 5,655 $ 10,462 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2.
Chancellor Corporation and Subsidiaries Condensed Consolidated Statements of Operations (In Thousands, Except Per Share Data) Three Months Ended June 30, Six Months Ended June 30, 1997 1996 1997 1996 ------------ ----------- ------------ ----------- (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Rental income $ 218 $ 631 $ 496 $ 1,211 Lease underwriting income 23 191 38 324 Direct finance lease income 101 41 141 79 Interest income 3 17 16 31 Gains from portfolio remarketing 211 400 384 649 Fees from remarketing activities 169 217 518 424 Other income 18 24 18 143 ----------- ----------- ----------- ----------- 743 1,521 1,611 2,861 ----------- ----------- ----------- ----------- Costs and expenses: Selling, general and administrative 2,824 1,314 4,660 2,589 Interest expense 117 149 219 278 Depreciation and amortization 71 298 161 637 Residual value estimate reduction -- -- 709 -- ----------- ----------- ----------- ----------- 3,012 1,761 5,749 3,504 ----------- ----------- ----------- ----------- Net loss before extraordinary item (2,269) (240) (4,138) (643) Extraordinary item - gain on early extinguishment of debt 930 -- 930 -- ----------- ----------- ----------- ----------- Net loss ($1,339) ($240) ($3,208) ($643) =========== =========== =========== =========== Net loss per share: Before extraordinary item ($.24) ($.05) ($.56) ($.13) Extraordinary item .10 -- .13 -- ----------- ----------- ----------- ----------- ($.14) ($.05) ($.43) ($.13) =========== =========== =========== =========== Weighted average common and common equivalent shares 9,664,114 5,136,391 7,412,760 5,136,391 =========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3.
Chancellor Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (In Thousands) Six Months Ended June 30, 1997 1996 ---------- ----------- (unaudited) (unaudited) Cash flows from operating activities: Net loss ($ 3,208) ($64) ------- ------- Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 161 637 Residual value estimate realizations and reductions, net of additions 640 74 Changes in assets and liabilities: Decrease in receivables 2,261 1,714 Increase in other assets (672) (21) Decrease in accounts payable and accrued expenses (5,228) (1,797) ------- ------- (2,838) 607 ------- ------- Net cash used by operating activities (6,046) (36) ------- ------- Cash flows from investing activities: Leased equipment held for underwriting 1,231 (5,485) Net investments in direct finance leases 181 266 Equipment on operating lease 113 630 Investment in Truckscan -- (350) Net change in cash restricted and escrowed 1,065 1,494 Additions to furniture and equipment, net 32 (29) ------- ------- Net cash provided (used) by investing activities 2,622 (3,474) ------- ------- Cash flows from financing activities: Increase in indebtedness - nonrecourse 20 3,873 Increase in indebtedness - recourse 4,074 -- Repayments of indebtedness - nonrecourse (494) (80) Repayments of indebtedness - recourse (2,677) (654) Issuance of preferred stock, net 900 1,021 Issuance of common stock, net 1,806 -- ------- ------- Net cash provided by financing activities 3,629 3,560 ------- ------- Net increase in cash and cash equivalents 205 50 Cash and cash equivalents at beginning of period 21 185 ------- ------- Cash and cash equivalents at end of period $ 226 $ 235 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CHANCELLOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission for interim financial statements. Accordingly, the interim statements do not include all of the information and disclosure required for annual financial statements. In the opinion of the Company's management, all adjustments (consisting solely of adjustments of a normal recurring nature) necessary for a fair presentation of these interim results have been included. Intercompany accounts and transactions have been eliminated. These financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The balance sheet at December 31, 1996 has been derived from the audited consolidated financial statements included in the Annual Report on Form 10-K. The results for the interim period ended June 30, 1997 are not necessarily indicative of the results to be expected for the entire year. 2. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 specifies required disclosures relating to earnings per share data. SFAS 128 is effective for fiscal years ending after December 15, 1997 and earlier application is not permitted. The implementation of these standards is not expected to materially affect the Company's consolidated financial statements. 3. DEBT In April 1997, the Company repaid in advance of their respective terms an intercreditor loan and secured inventory loan. The aggregate amount of this debt on the repayment date was $1,906,000, of which approximately $976,000 was paid in cash and the balance of $930,000 was forgiven. In addition, the Company paid approximately $22,000 in legal and bank fees to complete this transaction. On May 19, 1997, the Company borrowed $1.5 million from the Vice Chairman of the Board of the Company. The loan is evidenced by a promissory note that bears interest at the prime rate plus 2-1/8% (10-3/8% at May 19, 1997) and is guaranteed by the Chairman of the Board of the Company. The Company is also negotiating an additional $2.5 million loan with a bank and a $2.5 million warehouse line of credit facility with a financing institution owned by the Vice Chairman of the Board of the Company. Although there can be no assurance that such financing will occur, management is confident that these additional financing transactions can be closed during the third quarter of fiscal 1997. 4. PREFERRED STOCK In February 1997, the Board of Directors approved the issuance of 3,000,000 shares of the Company's Series AA Convertible Preferred Stock ("Preferred Stock") at $.30 per share to Vestex, the Company's majority stockholder, in consideration of $900,000 of consulting fees due to Vestex. Each share of Preferred Stock is entitled to the number of votes equal to the number of 5 CHANCELLOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) whole shares of Common Stock into which the shares of Preferred Stock held by Vestex are then convertible. The holders of shares of Preferred Stock shall be entitled to receive cash dividends only to the same extent and in the same amounts as dividends are declared and paid with respect to Common Stock as if the Preferred Stock had been converted to Common Stock in accordance with the provision related to conversion. 5. COMMON STOCK On June 6, 1997, the Company issued 8,333,333 shares of Common Stock to Vestex in consideration of the guarantee by Vestex of certain bank lines of credit in the aggregate of $4,000,000. The Company ascribed a value of $1,000,000 to the guarantee and recorded the value as debt issuance costs. On June 6, 1997, the Company also issued 6,716,667 shares of Common Stock to Vestex in consideration of approximately $806,000 of fees due Vestex which were previously accrued. Of the total 15,050,000 shares issued, 1,430,911 shares were issued from treasury stock. 6. STOCK OPTION PLAN In April 1997, the Board of Directors approved, subject to stockholder approval, the 1997 Stock Option Plan (the "Plan"). The Plan provides for the grant of options to purchase up to 2,500,000 shares of Common Stock to new management, employees and consultants. Vestex will contribute 500,000 shares of Common Stock that it currently owns into the Plan. 7. DIVESTITURE On May 1, 1997, the Company sold its 50% investment in Truckscan LLC to Telescan Technologies LLC ("Telescan"), a party unrelated to the Company. In consideration for its 50% ownership interest, the Company received certain assets from Telescan with an estimated value of $35,000 and a one year promissory note in the amount of $50,000 secured by certain assets of Telescan. In addition, Telescan released the Company from its obligations to make a capital investment in Truckscan LLC of approximately $300,000. 6 CHANCELLOR CORPORATION ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Three Month Period Ended June 30, 1997 vs. June 30, 1996 Revenues. Total revenues for the three month period ended June 30, 1997 was $743,000 as compared to $1,521,000 for the corresponding prior year period, a decrease of $778,000 or 51.2%. For the three month period ended June 30, 1997, rental income decreased by $413,000 or 65.5% as compared to the corresponding prior year period. The decrease in rental income is attributable primarily to the expiration of several leases, including the subsequent disposition of $2.0 million of equipment (based on its original cost). Rental income will continue to decrease until the Company is able to begin adding new equipment to its portfolio. For the three month period ended June 30, 1997, lease underwriting income decreased by $168,000 or 88.0% as compared to the corresponding prior year period. Lease underwriting income decreased due to the origination of only $844,000 of equipment leases, at cost, as compared to origination of $6.7 million of equipment leases, at cost, during the same period last year. For the three month period ended June 30, 1997, direct finance lease income increased by $60,000 or 146.3%, as compared to the corresponding prior year period. The increase in direct finance lease income is attributable to the transfer of 10 leases acquired as a result of the buyout of the intercreditor agreement in April 1997. For the three month period ended June 30, 1997, gains from portfolio remarketing decreased by $189,000 or 47.3% as compared to the corresponding prior year period. The decrease in gains from portfolio remarketing is attributable to the decrease in sales of portfolio assets during the three month period ended June 30, 1997 as compared to the corresponding prior year period. For the three month period ended June 30, 1997, fees from remarketing activities decreased by $48,000 or 22.7% as compared to the corresponding prior year period. This decrease is attributable in part to the lack of remarketing to third parties other than trusts in the current period as compared to the prior year period. Although no fees were attributable to remarketing performed for third parties other than trust investors, management plans to utilize the Company's remarketing expertise to provide such services to third parties. Costs and Expenses. Selling, general and administrative expense for the three month period ended June 30, 1997 was $2,824,000 as compared to $1,314,000 for the corresponding prior year period, an increase of $1,510,000 or 114.9%. As expected, the Company incurred additional legal, accounting and consulting fees of approximately $1,202,000 in connection with the continuing restructuring activities and litigation against certain members of the Company's former management team and directors. Management does not believe it will incur further significant costs in connection with the restructuring of the Company. Additionally, the Company recorded $1,000,000 of debt issuance costs in connection with the guarantee by Vestex of the $4,000,000 bank lines of credit. Although selling, general and administrative expenses increased as a whole, the Company reduced operating costs by approximately $577,000 or 48.0% as compared to the corresponding prior year period. These cost reductions result from the continued restructuring and stabilization efforts by the new management team. Interest expense for the three month period ended June 30, 1997 was $117,000 as compared to $149,000 for the corresponding prior year period, a decrease of $32,000 or 21.5%. The decrease in interest expense is attributable to lower interest rates on recourse debt. Depreciation expense for the three month period ended June 30, 1997 was $71,000 as compared to $298,000 for the corresponding prior year period, a decrease of $227,000 or 76.2%. The decrease is primarily due to the decrease in the operating lease base, resulting from decreases in operating leases originated by the Company over the past year and sale of equipment coming off lease. 7 Extraordinary Item - Gain on Early Extinguishment of Debt. The Company recorded a gain on early extinguishment of debt for the three month period ended June 30, 1997 of $930,000. In April 1997, the Company repaid in advance of their respective terms an intercreditor loan and secured inventory loan. The aggregate amount of this debt on the repayment date was $1,906,000, of which approximately $976,000 was paid in cash and the balance of $930,000 was forgiven. In addition, the Company paid approximately $22,000 in legal and bank fees to complete this transaction. Net Loss. Net loss for the three month period ended June 30, 1997 was $1,339,000 as compared to $240,000 for the corresponding prior year period, an increase of $1,099,000 or 457.9%. The increase in the net loss is attributable to the decrease in revenue components and the net increases in total costs, specifically described above. The increase in the net loss is offset in part by the impact of the gain on early extinguishment of debt. Net loss per share for the three month period ended June 30, 1997 was $.14 per share as compared to $.05 per share for the corresponding prior year period, an increase of $.09 per share or 180.0%. Six Month Period Ended June 30, 1997 vs. June 30, 1996 Revenues. Total revenues for the six month period ended June 30, 1997 was $1,611,000 as compared to $2,861,000 for the corresponding prior year period, a decrease of $1,250,000 or 43.7%. For the six month period ended June 30, 1997, rental income decreased by $715,000 or 59.0% as compared to the corresponding prior year period. The decrease in rental income is attributable primarily to the expiration of several leases, including the subsequent disposition of $2.9 million of equipment (based on its original cost). Rental income will continue to decrease until the Company is able to begin adding new equipment to its portfolio. For the six month period ended June 30, 1997, lease underwriting income decreased by $286,000 or 88.3% as compared to the corresponding prior year period. Lease underwriting income decreased due to the origination of only $1.4 million of equipment leases, at cost, as compared to origination of $9.5 million of equipment leases, at cost, during the same period last year. For the six month period ended June 30, 1997, direct finance lease income increased by $62,000 or 78.5%, as compared to the corresponding prior year period. The increase in direct finance lease income is attributable to the transfer of 10 leases acquired as a result of the buyout of the intercreditor agreement in April 1997. For the six month period ended June 30, 1997, gains from portfolio remarketing decreased by $265,000 or 40.8% as compared to the corresponding prior year period. The decrease in gains from portfolio remarketing is attributable to the decrease in sales of portfolio assets during the six month period ended June 30, 1997 as compared to the corresponding prior year period. For the six month period ended June 30, 1997, fees from remarketing activities increased by $94,000 or 22.2% as compared to the corresponding prior year period. This increase is attributable to a continued focus by management on the remarketing of trust assets as they become available for sale. Although no fees were attributable to remarketing performed for third parties other than trust investors, management plans to utilize the Company's remarketing expertise to provide such services to third parties. For the six month period ended June 30, 1997, other income decreased by $125,000 or 87.4% as compared to the corresponding prior year period. The decrease is due primarily to a $101,000 bankruptcy claim settlement recognized in the six month period ended June 30, 1996. Costs and Expenses. Selling, general and administrative expense for the six month period ended June 30, 1997 was $4,660,000 as compared to $2,589,000 for the corresponding prior year period, an increase of $2,071,000 or 80.0%. As expected, the Company incurred additional legal, accounting and consulting fees of approximately $2,166,000 in connection with the continuing restructuring activities and litigation against certain members of the Company's former management team and directors. Management does not believe it will incur further significant costs in connection with the restructuring of the Company. Additionally, the Company recorded $1,000,000 of debt issuance costs in connection with the guarantee by Vestex of the $4,000,000 bank lines of credit. Although selling, general and administrative expenses increased as a whole, the Company reduced operating costs by approximately $918,000 or 37.1% as compared to the corresponding prior year period. These cost reductions result from the continued restructuring and stabilization efforts by the new management team, including the reduction of headcount and general operating costs. 8 Interest expense for the six month period ended June 30, 1997 was $219,000 as compared to $278,000 for the corresponding prior year period, a decrease of $59,000 or 21.2%. The decrease in interest expense is attributable to lower interest rates on recourse debt. Depreciation expense for the six month period ended June 30, 1997 was $161,000 as compared to $637,000 for the corresponding prior year period, a decrease of $476,000 or 74.7%. The decrease is primarily due to the decrease in the operating lease base, resulting from decreases in operating leases originated by the Company over the past year and sale of equipment coming off lease. Extraordinary Item - Gain on Early Extinguishment of Debt. The Company recorded a gain on early extinguishment of debt for the six month period ended June 30, 1997 of $930,000. In April 1997, the Company repaid in advance of their respective terms an intercreditor loan and secured inventory loan. The aggregate amount of this debt on the repayment date was $1,906,000, of which approximately $976,000 was paid in cash and the balance of $930,000 was forgiven. In addition, the Company paid approximately $22,000 in legal and bank fees to complete this transaction. Net Loss. Net loss for the six month period ended June 30, 1997 was $3,208,000 as compared to $643,000 for the corresponding prior year period, an increase of $2,565,000 or 398.9%. The increase in the net loss is attributable to the decrease in revenue components and the net increases in total costs, specifically described above. The increase in the net loss is offset in part by the impact of the gain on early extinguishment of debt. Net loss per share for the six month period ended June 30, 1997 was $.43 per share as compared to $.13 per share for the corresponding prior year period, an increase of $.30 per share or 230.8%. LIQUIDITY AND CAPITAL RESOURCES The Company used cash flow from operations of $6,046,000 during the six month period ended June 30, 1997, in part, due to the net loss of $3,208,000, for the same period, and conversion of approximately $4.0 million of fees due Vestex into recourse debt, preferred stock and common stock. Investing activities, which are primarily related to investments in equipment for lease, provided $2,662,000 during the six month period, in part, due to the sale of equipment coming off lease and the effect of the early termination of the intercreditor loans. Financing activities in the six month period provided $3,629,000, in, part due to the issuance of 3,000,000 shares of the Company's Series AA Convertible Preferred Stock at $.30 per share to Vestex in consideration of $900,000 of consulting fees due Vestex, the conversion of approximately $2.3 million of accrued fees due Vestex into recourse debt and the issuance of 6,716,667 shares of common stock in consideration of approximately $806,000 of accrued fees due Vestex.. The net result of the above activity for the six month period was an increase in cash and cash equivalents of $205,000. Cash and cash equivalents amounted to $226,000 at June 30, 1997 as compared to $235,000 at June 30, 1996. Cash restricted and escrowed amounted to $2.5 million at June 30, 1997 as compared to $3.0 million at June 30, 1996. Withdrawals of restricted cash balances are limited to debt service and working capital allotments, whereas the use of escrowed balances is limited to debt service payments. In February 1997, the Board of Directors approved the issuance of 3,000,000 shares of the Company's Series AA Convertible Preferred Stock at $.30 per share to Vestex in consideration of $900,000 of consulting fees due Vestex. In addition during the first quarter of 1997, the Company received loans from Vestex of approximately $250,000 which are due on demand. 9 In April 1997, the Company executed and delivered (1) the Loan Reduction and Purchase and Assignment Agreement dated as of April 1997 among the Company, its corporate affiliates and/or subsidiaries, Fleet National Bank- Corporate Trust Division, as agent (the "Agent") for the Company's principal recourse lenders, and Vestex, the Company's majority stockholder; (2) release in favor of the principal recourse lenders to be given by Vestex and Brian Adley, Chairman of the Board of Directors of the Company and president of Vestex, individually; (3) release in favor of the principal recourse lenders to be given by the Company, its corporate affiliates and/or subsidiaries; and (4) $1,500,000 Secured Promissory Note given by the Company, its corporate affiliates and/or subsidiaries in favor of Vestex. In April 1997, both an intercreditor loan and secured inventory loan were repaid in advance of their respective terms. The aggregate amount of this debt on the repayment date was approximately $1,906,000 of which approximately $976,000 was paid in cash and the balance of $930,000 was forgiven. In addition, the Company paid approximately $22,000 in legal and bank fees to complete this transaction. The Company's ability to underwrite equipment lease transactions is largely dependent upon the continuing availability of short-term warehouse lines of credit. Management is engaged in a continuing dialogue with several possible alternative inventory lenders which appear to be interested in providing the Company with warehouse financing. If the Company were to lose either of its existing credit lines, or if their availability were reduced, the Company would take immediate steps to replace either or both of them with one or more alternative warehouse facilities. If the Company experienced unexpected delays in putting a new warehouse facility in place, it would temporarily disrupt the Company's ability to underwrite new equipment leases until the new warehouse financing was secured. On May 19, 1997, the Company borrowed $1.5 million from the Vice Chairman of the Board of the Company. The loan is evidenced by a promissory note that bears interest at the prime rate plus 2-1/8% (10-3/8% at May 19, 1997) and is guaranteed by the Chairman of the Board of the Company. The Company is also negotiating an additional $2.5 million loan with a bank and a $2.5 million warehouse line of credit facility with a financing institution owned by the Vice Chairman of the Board of the Company. Although there can be no assurance that such financing will occur, management is confident that these additional financing transactions can be closed during the third quarter of fiscal 1997. On June 6, 1997, the Company issued 8,333,333 shares of Common Stock to Vestex in consideration of the guarantee by Vestex of certain bank lines of credit in the aggregate of $4,000,000. The Company ascribed a value of $1,000,000 to the guarantee and recorded the value as debt issuance costs. On June 6, 1997, the Company also issued 6,716,667 shares of Common Stock to Vestex in consideration of approximately $806,000 of fees due Vestex which were previously accrued. Of the total 15,050,000 shares issued, 1,430,911 shares were issued from treasury stock. The remarketing of equipment has played and will continue to play a vital role in the Company's operating activities. In connection with the sale of lease transactions to investors, the Company typically is entitled to share in a portion of the residual value realized upon remarketing. Successful remarketing of the equipment is essential to the realization of the Company's interest in the residual value of its managed portfolio. It is also essential to the Company's ability to recover its original investment in the equipment in its own portfolios and to recognize a return on that investment. The Company has found that its ability to remarket equipment is affected by a number of factors. The original equipment specifications, current market conditions, technological changes, and condition of the equipment upon its return all influence the price for which the equipment can be sold or re-leased. Delays in remarketing caused by various market conditions reduce the profitability of the remarketing. 10 The Company anticipates it will continue to dedicate substantial resources toward the further development and improvement of its remarketing capabilities and believes that remarketing will continue to be a profit center for the Company. The Company's strategy is to further exploit its remarketing expertise by continuing to develop its ability to sell remarketing services to other lessors, fleet owners, and lessees and also to create a dealer capability under which the Company would buy and resell fleet equipment. The Company is also implementing a plan to expand its brokerage activities through the Internet and the use of other information technologies. The Company's current lines of credit, if renewed or replaced, the renewal of recently expired lines, its expected access to the public and private securities markets, both debt and equity, anticipated new lines of credit (both short-term and long-term and recourse and nonrecourse), anticipated long-term financing of individual significant lease transactions, and its estimated cash flows from operations are anticipated to provide adequate capital to fund the Company's operations for the next twelve months. Although no assurances can be given, the Company expects to be able to renew or timely replace its existing and recently expired lines of credit, to continue to have access to the public and private securities markets, both debt and equity, and to be able to enter into new lines of credit and individual financing transactions. POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company's future quarterly operating results and the market price of its stock may fluctuate. In the event the Company's revenues or earnings for any quarter are less than the level expected by securities analysts or the market in general, such shortfall could have an immediate and significant adverse impact on the market price of the Company's stock. Any such adverse impact could be greater if any such shortfall occurs near the same time of any material decrease in any widely followed stock index or in the market price of the stock of one or more public equipment leasing companies or major customers or vendors of the Company. The Company's quarterly results of operations are susceptible to fluctuations for a number of reasons, including, without limitation, as a result of sales by the Company of equipment it leases to its customers. Such sales of equipment, which are an ordinary but not predictable part of the Company's business, will have the effect of increasing revenues, and, to the extent sales proceeds exceeds net book value, net income, during the quarter in which the sale occurs. Furthermore, any such sale may result in the reduction of revenue, and net income, otherwise expected in subsequent quarters, as the Company will not receive lease revenue from the sold equipment in those quarters. Given the possibility of such fluctuations, the Company believes that comparisons of the results of its operations to immediately succeeding quarters are not necessarily meaningful and that such results for one quarter should not be relied upon as an indication of future performance. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Quarterly Report on Form 10-Q contains certain "Forward-Looking" statements as such term is defined in the Private Securities Litigation Reform Act of 1995 and information relating to the Company and its subsidiaries that are based on the beliefs of the Company's management as well as assumptions used in this report, the words "anticipate," "believe," "estimate," "expect," and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or the Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitation, competitive factors, general economic conditions, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introduction and acceptance, technology changes and changes in industry conditions. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements. 11 Part II. Other Information Item 1. Legal Proceedings The Company is involved in the following legal proceedings: On January 15, 1997, Chancellor filed a complaint in Superior Court, Suffolk County, Massachusetts, alleging that certain of its former officers and directors are liable to the corporation for losses incurred as a result of their negligence, breach of fiduciary duties, unjust enrichment, conversion, and unfair and deceptive trade practices. In addition, Chancellor's complaint seeks the imposition of a constructive trust for the corporation's benefit on various assets that Chancellor claims were wrongfully taken from the corporation by its former officers and directors, as well as recovery of damages arising from legal malpractice allegedly committed by the corporation's former general counsel, and defamatory statements made by one former officer and director to certain of the corporation's customers. Four of the defendants, Stephen G. Morison, David W. Parr, Gregory S. Harper and Thomas W. Killilea, have answered the complaint (denying its allegations), and have filed a counterclaim against Chancellor, and have commenced a third-party action against Brian M. Adley, Vestex Corporation and Vestex Capital Corporation. The counterclaim alleges that Chancellor is liable for breach of certain employment and severance agreements allegedly entered into with the defendants Morison and Harper, and for the abuse of process in connection with the corporation's initiation of this lawsuit. The third-party complaint seeks indemnification and contribution from Adley, Vestex Corporation and Vestex Capital Corporation in connection with the claims raised by Chancellor in the primary action. In addition, the third party complaint seeks recovery of damages from Adley, Vestex Corporation and Vestex Capital Corporation for alleged abuse of process, interference with the contractual relations and deceit. In their answer to the counterclaim the third-party complaint, Chancellor and the third-party defendant have denied the defendants' allegations. The Company is also involved in routine legal proceedings incidental to the conduct of its business. Management believes that none of these legal proceedings will have a material adverse effect on the financial condition or operations of the Company. Item 2. Changes in Securities None Item 3. Defaults Under Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - The following exhibits are filed herewith: 10.1 Loan Reduction and Purchase and Assignment Agreement dated as of April 4, 1997 by and among Fleet National Bank, the lenders named in the agreement, Vestex Capital Corporation, and Chancellor Corporation and its affiliates. (b) Reports on Form 8-K - None 12 Chancellor Corporation SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHANCELLOR CORPORATION /s/ John J. Powell John J. Powell President and Chief Executive Officer DATE: August 13, 1997 13 EX-10.1 2 Exhibit 10.1 LOAN REDUCTION AND PURCHASE AND ASSIGNMENT AGREEMENT This Loan Reduction and Purchase and Assignment Agreement is made as of April 4, 1997 (this "Agreement") by and among FLEET NATIONAL BANK, a national banking association with offices at One Federal Street, Boston, Massachusetts 02110 (the "Agent"), the lenders named on the signature pages hereto (the "Lenders"), VESTEX CAPITAL CORPORATION, a Massachusetts corporation with offices at 12 Waltham Street, Lexington, Massachusetts 02173 ("Vestex") and CHANCELLOR CORPORATION, CHANCELLOR FLEET CORPORATION, CHANCELLOR FINANCIAL SALES AND SERVICES, INC., CHANCELLLOR FLEET REMARKETING, INC., CHANCELLOR ASSET CORPORATION, CHANCELLOR FINANCIALEASE, INC., VALMONT FINANCIAL CORPORATION, CHANCELLOR DATACOMM, INC. ALCO 474N TRUST, CAINS 931D TRUST, CAINS 931E TRUST, CHRYSLER B04E TRUST, CONAGRA 25405 TRUST, CONAGRA 25409 TRUST, DALLAS 38329 TRUST, H.E. BUTT 796C TRUST, KRAFT 79328 TRUST, KRAFT 993C TRUST, PIC B03H TRUST, SATURN BO62 TRUST, SATURN BO63 TRUST, SATURN BO67 TRUST, SHAMROCK 25748 TRUST, TYLER 3110 TRUST, AND WHIRLPOOL 49434 TRUST (the "Borrowers"). W I T N E S S E T H: WHEREAS, the Borrowers, each having a principal place of business at 745 Atlantic Avenue, Boston, Massachusetts 02111, and certain affiliates (collectively, the "Borrowers") of the foregoing from time to time parties, as borrowers and/or guarantors, to certain extensions of credit referenced in that certain Forbearance Agreement, dated as of April 6, 1990, and that certain Loan Agreement, dated as of April 6, 1990 (the "Loan Agreement") executed by certain of the Borrowers, the Agent and the Lenders (the Loan Agreement together with all security documents and all other documents described on Exhibit A attached hereto and made a part hereof, are sometimes referred to hereinafter collectively as the "Loan Documents"); WHEREAS, at the request of the Borrowers, the Lenders have agreed to (i) reduce the aggregate principal amount of the -2- obligations to the Lenders pursuant to the Loan Documents from $2,429,412.89 to $1,500,000, (ii) agree to transfer and assign all of their right, title and interest in and to the Loan Documents (reflecting the reduced amount of the obligations thereunder) to Vestex, and (iii) provide full and complete releases in favor of the Borrowers, in exchange for (x) $523,234.43 from the Borrowers representing the aggregate amount of the principal and interest payments made by the Borrowers from the Collateral Account in two installments, one on or about February 25, 1997 and one on or about March 25, 1997) and (y) full and complete releases in favor of the Agent and each of the Lenders from each of the Borrowers; WHEREAS, at the request of the Borrowers, the Lenders have agreed to assign to Vestex all of their respective right, title and interest in and to the Loan Documents (reflecting the reduced amount of the obligations thereunder) in exchange for (x) $976,765.77 from Vestex and (y) a full and complete release in favor of the Agent and each of the Lenders from Vestex and Brian Adley; WHEREAS, the Borrowers have arranged to obtain financing from Vestex in replacement for the financing currently provided by the Lenders at a reduced per annum rate of interest and on longer amortization terms, and Vestex has agreed to purchase and accept and subsequently reduce the interest rate and lengthen the amortization under, and the Lenders have agreed to sell and assign, all of the Lenders' rights under the Loan Documents, all in accordance with the terms and conditions hereinafter described; WHEREAS, to induce Vestex to purchase the rights under the Loan Documents, the Borrowers have agreed to substitute a promissory note payable jointly and severally by the Borrowers to Vestex reflecting the amended terms and to terminate the Loan Agreement; NOW THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: -3- Section 1. Loan Reduction. In consideration of the payment of $523,234.43 from the Borrowers of which amount the Lenders acknowledge that $523,234.43 has been paid to the Lenders in two installments, one on or about February 25, 1997, the other on or about March 25, 1997 ) and the delivery of full and complete releases by the Borrowers in favor of the Lenders and the Agent, the Lenders agree (i) to reduce the aggregate amount of the total indebtedness of the Borrowers to the Lenders pursuant to the Loan Documents to $1,500,000, and (ii) to transfer the Loan Documents to Vestex in accordance with the terms hereof. Section 2. Assignment to Vestex. In consideration of the payment of $976,765.77 from Vestex and the delivery of full and complete releases by Vestex and Brian Adley in favor of the Lenders and the Agent, the Lenders agree to sell, grant, assign and convey to Vestex, without recourse, representation or warranty of any kind, except as otherwise provided herein, and Vestex hereby accepts, all of the Lenders' right, title and interest in, to and under the Loan Documents (as amended hereunder), including, without limitation, all liens and security interests in all collateral and security for the Borrowers' obligations under the Loan Documents. Section 3. Conditions Precedent. The Lenders' agreements herein are subject to the delivery of the following items by the Borrowers to the Lenders in form and substance satisfactory to the Lenders and its counsel and the Agent: (a) resolutions of the Boards of Directors of the Borrowers authorizing the execution and delivery by the Borrowers of this Agreement and of the other documents and instruments referred to herein; (b) payment of the fees and expenses of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. through the date of closing of this Agreement; (c) payment of the fees and expenses of Fleet National Bank, as Agent to the Lenders, through the date of closing of this Agreement; -4- (d) payment of the fees and expenses of Argus Management Corporation and Equipment Leasing Services, Inc., each as Consultant to the Lenders, through the date of closing of this Agreement; (e) such other documents, instruments, opinions of counsel and other materials that the Lenders, any participant, or their respective counsel may reasonably require; and (f) Releases in the form attached hereto as Exhibits C and D duly executed by each of the Borrowers, Vestex and Brian Adley. Section 4. Representations and Warranties of Agent and Lenders. The Agent and the Lenders each represents and warrants to Vestex that (i) Exhibit A hereto sets forth all of the material documents, instruments and agreements entered into in connection with the Loan Agreement, together with all amendments to the Loan Agreement or any such documents, (ii) there are no written agreements to which the Agent or any of the Lenders is a party which vary the terms of or the priorities of the security interests granted under the Loan Documents which would adversely affect Vestex thereunder, and (iii) the Lenders own the loans evidenced by the Loan Documents for their own accounts, respectively, and none of the Lenders has sold any participations therein or encumbered any or all of its interest in such loans or its security interests and liens evidenced by the Loan Documents. -5- Section 5. Representations and Warranties of Vestex. Vestex represents and warrants to the Agent and the Lenders that (a) Vestex has been and will continue to be solely responsible for the making of its own independent investigation as to: (i) the authorization, execution, legality, validity, effectiveness, genuineness, enforceability and sufficiency of the Loan Documents, (ii) the adequacy or perfection of any security interests held by the Agent or the Lenders in the collateral securing the Borrowers' obligations under the Loan Documents and any liens held by the Agent or the Lenders in any other security therefor, (iii) Vestex has entered into this Agreement on the basis of its own independent investigation and has not relied upon, and will not rely upon, any explicit or implicit written or oral representation, warranty or other statement of the Lenders other than those expressly contained herein, and (b) that Vestex shall cancel all notes or instruments delivered pursuant to Section 6 below and accept from the Borrowers, in replacement of all evidence of the obligations of the Borrowers under the Loan Documents, a promissory note providing for a reduced rate of interest and a longer amortization period. Section 6. Delivery of Loan Documents. Upon satisfaction of each of the conditions precedent set forth in Section 3 above, and upon receipt by the Agent of the payment of $976,765.77 from Vestex, (a) the Lenders shall reduce the amount of the obligations of the Borrowers to the Lenders to $1,500,000 in accordance with Section 1 above, and (b) the Agent shall deliver to Vestex the original of the Secured Promissory Note dated April 6, 1990 in the original principal amount of $8,000,000 payable by certain of the Borrowers to Shawmut Bank, N.A., predecessor in interest to the Agent, endorsed as follows: Pay to the order of Vestex Capital Corporation, without recourse. Fleet National Bank, formerly known as Fleet National Bank of Connecticut, successor by merger to Fleet National Bank of Massachusetts, formerly known as Shawmut Bank, N.A. By: Name: Title: -6- The Agent agrees to use its best efforts to deliver to Vestex within ten (10) business days from the date hereof the originals of all other Loan Documents described on Exhibit A hereto and all original file-stamped secured party copies of the executed UCC financing statements for the locations described on Exhibit B hereto together with executed assignments of same to Vestex in recordable form. Each of the Agent and the Lenders agrees to execute such other documents as Vestex may reasonably request in connection with effecting the transactions contemplated by this Agreement, including, without limitation, releases or assignments of any blocked accounts, cash collateral accounts and the like maintained in connection with the Loan Documents. Section 7. Indemnification. The Agent, the Lenders and Vestex all agree that from and after the date hereof Vestex shall be responsible for all acts and omissions which may hereafter occur with respect to the Loan Documents. Vestex hereby indemnifies and holds the Agent and the Lenders harmless from any liability, damage, cost or expense (including reasonable attorney fees) claimed or asserted against the Agent or the Lenders by Vestex, any Borrower, Brian Adley (collectively, the "Indemnitors") or any Affiliate of any Indemnitor with respect to the Loan Documents or this Agreement. For the purposes hereof, "Affiliate" shall mean, with respect to any Indemnitor, (i) any entity directly or indirectly controlling (including but not limited to all directors and officers, if any, of such entity), controlled by or under direct or indirect common control with any Indemnitor, or (ii) any family member of any Indemnitor who is a natural person. An entity shall be deemed to control a corporation, partnership, trust, joint venture or other enterprise or person if such entity possesses, directly or indirectly, the power (a) to vote 5% or more of the interests having ordinary voting power for such entity, or (b) to direct or cause direction of the management and policies of such corporation, partnership, trust, joint venture, enterprise or person whether through the ownership of voting securities or interest, by contract or otherwise. Section 8. Counterparts. This Agreement may be executed in one or more counterparts, each of which when so executed shall be deemed an original but all such counterparts shall constitute one and the same instrument. Section 9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. Section 10. Other Agreements. Nothing contained herein shall be construed so as to limit or impair the Borrowers' obligations, liabilities and indebtedness to any Lender on account of indebtedness not listed on Exhibit A hereto. -7- IN WITNESS WHEREOF, the parties have executed this Agreement as an instrument under seal as of the day and year first written above. WITNESSED: VESTEX CAPITAL CORPORATION /s/ Derek R. Coulter By: /s/ Brian M. Adley Brian M. Adley Derek R. Coulter Chief Executive Officer Print Name BORROWERS: WITNESSED AS TO ALL SIGNATURES ON BEHALF OF BORROWERS: CHANCELLOR CORPORATION /s/ Derek R. Coulter By: /s/ John J. Powell John J. Powell Derek R. Coulter President Print Name CHANCELLOR FLEET CORPORATION By: /s/ John J. Powell John J. Powell President CHANCELLOR FINANCIAL SALES AND SERVICES, INC. By: /s/ John J. Powell John J. Powell President CHANCELLOR FLEET REMARKETING, INC. By: /s/ John J. Powell John J. Powell President CHANCELLOR ASSET CORPORATION By: /s/ John J. Powell John J. Powell President CHANCELLOR FINANCIALEASE, INC. By: /s/ John J. Powell John J. Powell President -8- VALMONT FINANCIAL CORPORATION By: /s/ John J. Powell John J. Powell President CHANCELLOR DATACOMM, INC. By: /s/ John J. Powell John J. Powell President ALCO 474N TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President CAINS 931D TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President -9- CAINS 931E TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President CHRYSLER B04E TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President CONAGRA 25405 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President CONAGRA 25409 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President DALLAS 38329 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President -10- H.E. BUTT 796C TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President KRAFT 79328 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President KRAFT 993C TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President PIC B03H TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President SATURN BO62 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President -11- SATURN BO63 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President SATURN BO67 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President SHAMROCK 25748 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President TYLER 3110 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President WHIRLPOOL 49434 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: /s/ John J. Powell John J. Powell President -12- AGENT: WITNESSED: FLEET NATIONAL BANK, AS AGENT /s/ Maria Pizzelli By: /s/ Michael Quaile Maria Pizzelli Michael Quaile Print Name Print Name Title: Corporate Trust Officer Address: One Federal Street Boston, MA 02110 LENDERS: WITNESSED: FLEET NATIONAL BANK, AS LENDER /s/ Amy H. Witryoz By: /s/ Cynthia G. Stannard Amy H. Witryoz Cynthia G. Stannard Print Name Print Name Title: Vice President Address: One Federal Street Boston, MA 02110 RELIASTAR LIFE INSURANCE WITNESSED: COMPANY /s/ Chester J. Kennedy By: /s/ Gary L. Jacobson Chester J. Kennedy Gary L. Jacobson Print Name Print Name Title: Authorized Representative Address:100 Washington Ave., So. Minneapolis, MN 55401-2121 -13- WITNESSED: ATLANTIC BANK OF NEW YORK /s/ Arthur Tremblay By: /s/ Charles J. Mcgrath, II Arthur Tremblay Charles J. Mcgrath, II Print Name Print Name Title: Vice President Address: 960 Bank of America New York, NY 10001 WITNESSED: THE CIT GROUP /s/ Robert W. Ihne By: /s/ Hiojia L. Addath Robert W. Ihne Hiojia L. Addath Print Name Print Name Title: Executive Vice President Address: 630 CIT Drive Livingston, NJ WITNESSED: AMRESCO NEW HAMPSHIRE, L.P., f/k/a AMRESCO New Hampshire, Inc. successor in interest to First N.H. Bank /s/ Arthur Gauthier By: /s/ Stephen G. Bernardo Arthur Gauthier Stephen G. Bernardo Print Name Print Name Title: Vice President Address: 10 Dorrance Street, Suite 800 Providence, RI -14- FEDERAL DEPOSIT INSURANCE COMPANY AS ASSIGNEE OF WITNESSED: FIRST MUTUAL By: Print Name Print Name Title: Address: WITNESSED: FB ANNUITY COMPANY By: /S/ David D. Baker David D. Baker Print Name Print Name Title: Portfilio Depart Manager Address: 7373 W. Saginaw Hwy Lansing, MI 48917 WITNESSED: FARM BUREAU MUTUAL INSURANCE COMPANY By: /S/ David D. Baker David D. Baker Print Name Print Name Title: Portfilio Depart Manager Address: 7373 W. Saginaw Hw WITNESSED: FARM BUREAU LIFE INSURANCE By: /S/ David D. Baker David D. Baker Print Name Print Name Title: Portfilio Depart Manager Address: 7373 W. Saginaw Hw Exhibit A 1. Loan Agreement dated as of April 6, 1990, by and between Shawmut Bank, N.A., as agent and the Borrowers; 2. $8,000,000 Secured Promissory Note, dated as of April 6, 1990, made by the Borrowers in favor of Shawmut Bank, N.A. as agent. 3. Forbearance Agreement dated as of April 6, 1990, by and among the Lenders and the Borrowers and the promissory notes, loan agreements and related documents referred to in the schedules and exhibits thereto, including Schedule 1 attached hereto [not available on disk]. 4. Security Agreement, dated as of April 6, 1990. 5. Pledge Agreement, dated as of April 6, 1990. 6. Promissory Notes with respect to "Deferred Payments" in accordance with Letter Agreement dated as of July 25, 1995. Deferred Payment Promissory Note in the principal amount of $80,950.58 payable to the order of Northwestern National Life Insurance Company, predecessor-in-interest to Reliastar Life Insurance; Deferred Payment Promissory Note in the principal amount of $23,128.74 payable to the order of Shawmut Bank, N.A., predecessor-in-interest to Fleet National Bank; Deferred Payment Promissory Note in the principal amount of $3,854.79 payable to the order of Farm Bureau Life Insurance Company of Michigan; Deferred Payment Promissory Note in the principal amount of $3,854.79 payable to the order of F.B. Annuity Company; Deferred Payment Promissory Note in the principal amount of $3,854.79 payable to the order of Farm Bureau Mutual Insurance Company of Michigan; Deferred Payment Promissory Note in the principal amount of $14,918.04 payable to the order of The CIT Group/Equipment Financing, Inc.; and 7. Warrants to purchase common stock dated February 5, 1993: No. 1 - 181,912 shares in favor of Northwestern National Life Insurance, predecessor-in-interest to Reliastar Life Insurance No. 2 - 81,615 shares in favor of The Daiwa Bank Limited No. 3 - 51,975 shares in favor of Shawmut Bank, N.A., predecessor-in-interest to Fleet National Bank No. 4 - 34,651 shares in favor of Atlantic Bank of New York No. 5 - 33,524 shares in favor of The CIT Group/Equipment Financing, Inc. No. 6 - 25,847 shares in favor of First NH Bank, N.A. predecessor-in-interest to AMRESCO New Hampshire, Inc. No. 7 - 13,929 shares in favor of First Mutual of Boston predecessor-in-interest to the FDIC No. 8 - 8,662 shares in favor of FB Annuity Company No. 9 - 8,662 shares in favor of Farm Bureau Life Insurance Company of Michigan No. 10 - 8,662 shares in favor of Farm Bureau Mutual Life Insurance Company of Michigan 8. Amendments, modifications and supplements to the foregoing to which one or more of the Borrowers are parties. The Lenders and/or their predecessors in interest are parties to an Agency, Funding and Collateral Sharing Agreement dated as of April 6, 1990, as amended through the date hereof, with respect to the Lenders' and Agent's agreements regarding taking actions against the collateral and sharing of proceeds of the obligations of the Borrowers and of the collateral. None of the Agent's or Lenders' rights or obligations pursuant to such agreement are being transferred.
EXHIBIT B to Loan Reduction and Purchase and Assignment Agreement UCC Financing Statements Debtor Jurisdiction Date of Filing File No. Chancellor Acquisition Corp. Illinois Secretary of State April 10, 1990 2701859 745 Atlantic Avenue Boston, MA 02111 Chancellor Asset Illinois Secretary of State April 10, 1990 2701860 Management Corp. 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. Illinois Secretary of State April 10, 1990 2701863 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. Illinois Secretary of State April 10, 1990 2701862 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. Illinois Secretary of State April 10, 1990 2701861 745 Atlantic Avenue Boston, MA 02111 Chancellor Acquisition Corp. DuPage County Recorder April 10, 1990 9OU-2088 745 Atlantic Avenue Boston, MA 02111 Chancellor Asset DuPage County Recorder April 10, 1990 9OU-2087 Management Corp. 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. DuPage County Recorder April 10, 1990 9OU-2084 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. DuPage County Recorder April 10, 1990 9OU-2085 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. DuPage County Recorder April 10, 1990 9OU-2086 745 Atlantic Avenue Boston, MA 02111 Chancellor Acquisition Corp. NC Secretary of State April 10, 1990 0668412 745 Atlantic Avenue Boston, MA 02111 Debtor Jurisdiction Date of Filing File No. Chancellor Asset NC Secretary of State April 10, 1990 0668411 Management Corp. 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. NC Secretary of State April 10, 1990 0668408 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. NC Secretary of State April 10, 1990 0668408 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. NC Secretary of State April 10, 1990 0668410 745 Atlantic Avenue Boston, MA 02111 Chancellor Acquisition Corp. Registry-Mecklenberg April 10, 1990 005563 745 Atlantic Avenue County Boston, MA 02111 Chancellor Asset Registry-Mecklenberg April 10, 1990 005562 Management Corp. County 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. Registry-Mecklenberg April 10, 1990 005559 745 Atlantic Avenue County Boston, MA 02111 Chancellor Credit, Ltd. Registry-Mecklenberg April 10, 1990 005560 745 Atlantic Avenue County Boston, MA 02111 Chancellor Fleet Corp. Registry-Mecklenberg April 10, 1990 005561 745 Atlantic Avenue County Boston, MA 02111 Chancellor Acquisition Corp. Tennessee Secretary of State April 16, 1990 761497 745 Atlantic Avenue Boston, MA 02111 Chancellor Asset Tennessee Secretary of State April 16, 1990 761498 Management Corp. 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. Tennessee Secretary of State April 16, 1990 761501 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. Tennessee Secretary of State April 16, 1990 761500 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. Tennessee Secretary of State April 16, 1990 761499 745 Atlantic Avenue Boston, MA 02111 Chancellor Acquisition Corp. Davidson County, Tennessee April 16, 1990 072485 745 Atlantic Avenue Boston, MA 02111 2 Debtor Jurisdiction Date of Filing File No. Chancellor Asset Davidson County, Tennessee April 16, 1990 072484 Management Corp. 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. Davidson County, Tennessee April 16, 1990 072481 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. Davidson County, Tennessee April 16, 1990 072482 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. Davidson County, Tennessee April 16, 1990 072483 745 Atlantic Avenue Boston, MA 02111 Chancellor Asset Texas Secretary of State April 10, 1990 076266 Management Corp. 745 Atlantic Avenue Boston, MA 02111 Chancellor Acquisition Corp. Texas Secretary of State April 10, 1990 076267 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. Texas Secretary of State April 10, 1990 076265 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. Texas Secretary of State April 10, 1990 076264 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. Texas Secretary of State April 10, 1990 076263 745 Atlantic Avenue Boston, MA 02111 Chancellor Asset Clerk of Dallas County, April 10, 1990 002820 Management Corp. Texas 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. Clerk of Dallas County, April 10, 1990 002818 745 Atlantic Avenue Texas Boston, MA 02111 Chancellor Acquisition Corp. Clerk of Dallas County, April 10, 1990 002821 745 Atlantic Avenue Texas Boston, MA 02111 Chancellor Fleet Corp. Clerk of Dallas County, April 10, 1990 002819 745 Atlantic Avenue Texas Boston, MA 02111 Chancellor Corp. Clerk of Dallas County, April 10, 1990 002817 745 Atlantic Avenue Texas Boston, MA 02111 Chancellor Acquisition Corp. Fulton County, GA April 10, 1990 735390 745 Atlantic Avenue Boston, MA 02111 Chancellor Asset Fulton County, GA April 10, 1990 735389 Management Corp. 745 Atlantic Avenue Boston, MA 02111 3 Debtor Jurisdiction Date of Filing File No. Chancellor Corp. Fulton County, GA April 10, 1990 735386 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. Fulton County, GA April 10, 1990 735387 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. Fulton County, GA April 10, 1990 735388 745 Atlantic Avenue Boston, MA 02111 Chancellor Acquisition Corp. Wayne County, MI April 10, 1990 D464453 745 Atlantic Avenue Boston, MA 02111 Chancellor Asset Wayne County, MI April 10, 1990 D464452 Management Corp. 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. Wayne County, MI April 10, 1990 D464455 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. Wayne County, MI April 10, 1990 D464456 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. Wayne County, MI April 10, 1990 D464454 745 Atlantic Avenue Boston, MA 02111 Chancellor Acquisition Corp. April 10, 1990 02541B 745 Atlantic Avenue Boston, MA 02111 Chancellor Asset April 10, 1990 02540B Management Corp. 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. April 10, 1990 02542B 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. April 10, 1990 02543B 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. April 10, 1990 02544B 745 Atlantic Avenue Boston, MA 02111 Chancellor Acquisition Corp. New Jersey Secretary of April 10, 1990 1331116 745 Atlantic Avenue State Boston, MA 02111 Chancellor Asset New Jersey Secretary of April 10, 1990 1331108 Management Corp. State 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. New Jersey Secretary of April 10, 1990 1331110 745 Atlantic Avenue State Boston, MA 02111 4 Chancellor Credit, Ltd. New Jersey Secretary of April 10, 1990 1331114 745 Atlantic Avenue State Boston, MA 02111 Chancellor Corp. New Jersey Secretary of April 10, 1990 1331112 745 Atlantic Avenue State Boston, MA 02111 Chancellor Acquisition Corp. Middlesex County, NJ April 10, 1990 001005 745 Atlantic Avenue Boston, MA 02111 Chancellor Asset Middlesex County, NJ April 10, 1990 001004 Management Corp. 745 Atlantic Avenue Boston, MA 02111 Chancellor Fleet Corp. Middlesex County, NJ April 10, 1990 001003 745 Atlantic Avenue Boston, MA 02111 Chancellor Credit, Ltd. Middlesex County, NJ April 10, 1990 001002 745 Atlantic Avenue Boston, MA 02111 Chancellor Corp. Middlesex County, NJ April 10, 1990 001001 745 Atlantic Avenue Boston, MA 02111
5 EXHIBIT C RELEASE Release executed as of April ____, 1997, by each of the undersigned (the "Releasors") in favor of Fleet National Bank, as agent (the "Agent"), and Reliastar Life Insurance Company, the CIT Group/Equipment Financing, Inc., Atlantic Bank of New York, Inc., Farm Bureau Life Insurance Company of Michigan, Inc., F.B. Annuity Company, Farm Bureau Mutual Insurance Company of Michigan, Fleet National Bank, The Federal Deposit Insurance Corporation, and AMRESCO New Hampshire, L.P. (collectively, the "Lenders" and, together with the Agent, the "Releasees"). WITNESSETH: WHEREAS, Releasees, Releasors and others have entered into a Loan Reduction and Purchase and Assignment Agreement, dated as of the date hereof (the "Settlement Agreement") and this Release is being executed pursuant to Section 3(f) of the Settlement Agreement. NOW THEREFORE, in consideration of one dollar ($1.00), the consideration set forth in the Settlement Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Releasors, with the intention of binding their respective heirs, executors, administrators, legal representatives, successors and assigns, do hereby expressly remise, release and forever discharge Releasees, their respective officers, directors, shareholders, agents, servants, employees, attorneys, predecessors in interest, successors and assigns from all debts, liabilities, obligations, claims, demands, actions, accounts, covenants, contracts, agreements, promises, omissions, damages and causes of action whatsoever, of every name, nature, and description, both in law and in equity, or which may result 2 from the existing state of things, that Releasors ever had or may now have, known or unknown, direct or indirect, absolute or contingent, or might subsequently accrue to Releasors or any of them or that anyone claiming through or under any of them may have, or claim to have, which arise under or in any way relate to any of the Loan Documents (as defined in the Settlement Agreement) or the subject matter of the Settlement Agreement, against any one or more of the Releasees or their respective officers, directors, shareholders, agents, servants, employees, attorneys, predecessors in interest, successors or assigns. This Release shall forever settle, adjust, and discharge all claims of Releasors against Releasees designated above. Releasors voluntarily and knowingly execute this release with the intent of effecting the extinguishment of obligations as hereinabove designated. The Releasors have read this Release and understand all of its terms. The undersigned have executed the same voluntarily and with full knowledge of its significance. EXECUTED as an instrument under seal the day and year first above written. BORROWERS: WITNESSED AS TO ALL SIGNATURES ON BEHALF OF BORROWERS: CHANCELLOR CORPORATION By: John J. Powell President Print Name CHANCELLOR FLEET CORPORATION By: John J. Powell President CHANCELLOR FINANCIAL SALES AND SERVICES, INC. By: John J. Powell President CHANCELLOR FLEET REMARKETING, INC. By: John J. Powell President CHANCELLOR ASSET CORPORATION By: John J. Powell President CHANCELLOR FINANCIALEASE, INC. By: John J. Powell President -3- VALMONT FINANCIAL CORPORATION By: John J. Powell President CHANCELLOR DATACOMM, INC. By: John J. Powell President ALCO 474N TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President CAINS 931D TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President -4- CAINS 931E TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President CHRYSLER B04E TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President CONAGRA 25405 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President CONAGRA 25409 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President DALLAS 38329 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President -5- H.E. BUTT 796C TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President KRAFT 79328 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President KRAFT 993C TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President PIC B03H TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President SATURN BO62 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President -6- SATURN BO63 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President SATURN BO67 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President SHAMROCK 25748 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President TYLER 3110 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President WHIRLPOOL 49434 TRUST By: CHANCELLOR FLEET CORPORATION, AS TRUSTEE By: John J. Powell President EXHIBIT D RELEASE Release executed as of April 4, 1997, by each of the undersigned (the "Releasors") in favor of Fleet National Bank, as agent (the "Agent"), and Reliastar Life Insurance Company, the CIT Group/Equipment Financing, Inc., Atlantic Bank of New York, Inc., Farm Bureau Life Insurance Company of Michigan, Inc., F.B. Annuity Company, Farm Bureau Mutual Insurance Company of Michigan, Fleet National Bank, The Federal Deposit Insurance Corporation, and AMRESCO New Hampshire, L.P. (collectively, the "Lenders" and, together with the Agent, the "Releasees"). WITNESSETH: WHEREAS, Releasees, Releasors and others have entered into a Loan Reduction and Purchase and Assignment Agreement, dated as of the date hereof (the "Settlement Agreement") and this Release is being executed pursuant to Section 3(f) of the Settlement Agreement. NOW THEREFORE, in consideration of one dollar ($1.00), the consideration set forth in the Settlement Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Releasors, with the intention of binding their respective heirs, executors, administrators, legal representatives, successors and assigns, do hereby expressly remise, release and forever discharge Releasees, their respective officers, directors, shareholders, agents, servants, employees, attorneys, predecessors in interest successors and assigns from all debts, liabilities, obligations, claims, demands, actions, accounts, covenants, contracts, agreements, promises, omissions, damages and causes of action whatsoever, of every name, nature, and description, both in law and in equity, or which may result from the existing state of things, that Releasors ever had or may now have, known or unknown, direct or indirect, absolute or contingent, or might subsequently accrue to Releasors or any of them or that anyone claiming through or under any of them may have, or claim to have, which arise under or in any way relate to any of the Loan Documents (as defined in the Settlement Agreement) or the subject matter of the Settlement Agreement, against any one or more of the Releasees or their respective officers, directors, shareholders, agents, servants, employees, attorneys, predecessors in interest, successors or assigns. This Release shall forever settle, adjust, and discharge all claims of Releasors against Releasees designated above. Releasors voluntarily and -2- knowingly execute this release with the intent of effecting the extinguishment of obligations as hereinabove designated. The Releasors have read this Release and understand all of its terms. The undersigned have executed the same voluntarily and with full knowledge of its significance. EXECUTED as an instrument under seal the day and year first above written. WITNESS: /s/Derek Coulter VESTEX CAPITAL CORPORATION Derek Coulter By: /s/Brian M. Adley Brian M. Adley Print Name Print Name Title: CEO & Chairman WITNESS: /s/Derek Coulter /s/Brian M. Adley Derek Coulter Brian Adley Print Name EX-27 3
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 226 0 302 0 0 0 2,730 (2,672) 5,655 0 5,543 0 80 202 (5,202) 5,655 0 1,611 0 5,530 0 0 219 (4,138) 0 (4,138) 0 930 0 (3,208) (.43) (.43)
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