-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, nO2nPPF44tfUOmpPGcR7WsSibJmvt5bosIvCLFXD/lqPpWuTdJQThr3rSk8p4IXc 24Bd/u5tfURd8TSgnxiWRg== 0000912057-94-002309.txt : 19940728 0000912057-94-002309.hdr.sgml : 19940728 ACCESSION NUMBER: 0000912057-94-002309 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940531 FILED AS OF DATE: 19940714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDUSTRIAL FUNDING CORP CENTRAL INDEX KEY: 0000857067 STANDARD INDUSTRIAL CLASSIFICATION: 6172 IRS NUMBER: 931013278 STATE OF INCORPORATION: OR FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18071 FILM NUMBER: 94538801 BUSINESS ADDRESS: STREET 1: 2121 S W BROADWAY STE 200 CITY: PORTLAND STATE: OR ZIP: 97201 BUSINESS PHONE: 5032282111 10-Q 1 10-Q - - ------------------------------------------------------------------------------- United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 1994 Commission File No. 0-18071 ---------------- INDUSTRIAL FUNDING CORP. (Exact name of registrant as specified in its charter) OREGON 93-1013278 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2121 S.W. BROADWAY SUITE 100 PORTLAND, OREGON 97201 (Address of principal executive offices, including zip code) (503)228-2111 (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 --- --- ---------------- Outstanding at Class July 13, 1994 ----- ------------- Class A, Without Par Value 1,875,000 shares Class B, Without Par Value 5,625,000 shares (The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date) - - ------------------------------------------------------------------------------- INDUSTRIAL FUNDING CORP. INDEX Part I. Financial Information Item 1. Financial Statements Consolidated Statement of Net Assets 3 Consolidated Statements of Income and Changes in Net Assets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II. Other Information Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INDUSTRIAL FUNDING CORP. UNAUDITED - - -------------------------------------------------------------------------------- Consolidated Statement of Net Assets (liquidation basis) as of May 31, 1994 and Consolidated Balance Sheets (going concern basis) as of May 31, and November 30, 1993
May 31, May 31, November 30, ------------------------------------- (DOLLARS IN THOUSANDS) 1994 1993 1993 - - -------------------------------------------------------------------------------------------------------------- ASSETS: Cash and temporary investments $6,155 $20,185 $6,586 Restricted cash 810 0 800 Short-term investments 23,224 0 18,260 Notes receivable 12,695 19,638 15,869 Nonperforming assets 395 5,707 3,025 Other assets 216 734 55 ------------------------------------- TOTAL $43,495 $46,264 $44,595 ------------------------------------- ------------------------------------- LIABILITIES: Accounts payable and accrued liabilities $784 $688 $619 Reserve for estimated costs during the period of liquidation 4,160 0 0 ------------------------------------- Total liabilities 4,944 688 619 COMMITMENTS AND CONTINGENCIES (Note 3) REDEEMABLE PREFERRED STOCK Series A Cumulative Preferred Stock (without par value, 134,310 shares issued and outstanding - at redemption and liquidation value of $100 per share) 19,559 17,649 18,604 ------------------------------------- Total Liabilites and Redeemable Preferred Stock 24,503 18,337 19,223 SHAREHOLDERS' EQUITY: Preferred stock (10,000,000 shares authorized, 134,310 redeemable preferred shares outstanding) 0 0 0 Common stock: Class A (20,000,000 no par value shares authorized, 1,875,000 outstanding) 0 20,381 20,381 Class B (10,000,000 no par value shares authorized, 5,625,000 outstanding) 0 27,831 27,831 Accumulated deficit 0 (20,285) (22,840) ------------------------------------- Total shareholders' equity 0 27,927 25,372 ------------------------------------- TOTAL $24,503 $46,264 $44,595 ------------------------------------- NET ASSETS IN LIQUIDATION $18,992 $0 $0 ------------------------------------- -------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -3- INDUSTRIAL FUNDING CORP. UNAUDITED - - -------------------------------------------------------------------------------- Consolidated Statements of Income and Changes in Net Assets
For The Three Months Ended For The Six Months Ended May 31, May 31, May 31, May 31, -------------------------- -------------------------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1994 1993 - - ----------------------------------------------------------------------------------------------------------------------------- LIQUIDATION GOING CONCERN LIQUIDATION GOING CONCERN BASIS BASIS BASIS BASIS REVENUE: Net lease revenue $0 $3,360 $0 $7,374 Gain on sale of equipment 0 172 0 1,103 Interest and dividend income 334 0 946 0 Gain (loss) on sale of investments 10 0 (339) 0 Unrealized loss on market value (162) 0 (78) 0 Other revenue 12 383 28 877 -------------------------------------------------------- Total revenue 194 3,915 557 9,354 -------------------------------------------------------- EXPENSES: Net selling, general and administrative 876 1,948 1,820 4,163 Provision for credit loss 0 10 0 55 Interest expense 0 1,530 0 3,821 Loss on sale of assets 0 692 0 692 -------------------------------------------------------- Total expenses 876 4,180 1,820 8,731 -------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS (682) (265) (1,263) 623 ADJUSTMENT FOR LIQUIDATION BASIS 4,160 0 4,160 0 -------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAX BENEFIT (4,842) (265) (5,423) 623 INCOME TAX BENEFIT 0 (2,576) 0 (2,276) -------------------------------------------------------- NET INCOME (LOSS) ($4,842) $2,311 ($5,423) $2,899 -------------------------------------------------------- -------------------------------------------------------- NET INCOME (LOSS) PER SHARE (Exhibit 11.1) ($0.71) $0.24 ($0.85) $0.26 -------------------------------------------------------- --------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -4- INDUSTRIAL FUNDING CORP. UNAUDITED - - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows
For the Six Months Ended May 31, May 31, ------------------------ (DOLLARS IN THOUSANDS) 1994 1993 - - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTVITIES: Net income (loss) ($5,423) $2,899 Adjustments to reconcile net income (loss) to net cash provided by operating activiites: Depreciation and amortization 0 1,807 Provision for credit loss 0 55 Gain on sale of equipment 0 (1,103) Adjustment to liquidation basis 4,160 0 Increase in restricted cash (10) 0 (Increase) decrease in other assets (161) (503) Unrealized loss on short-term investments 78 0 Loss on sale of short-term investments 339 0 Increase (decrease) in accounts payable and other liabilities 164 (2,590) Decrease in deferred income taxes 0 (2,057) Loss on sale of assets 0 692 Other (32) 26 ------------------------ Total adjustments 4,538 (3,673) ------------------------ Net cash used in operating activities (885) (774) ------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Principal payments received on lease receivables 0 27,697 Payments received on sale of equipment 0 8,557 Payments received on nonperforming assets 2,667 0 Increase in short-term investments (20,351) 0 Payments received on sale of short-term investments 14,964 0 Principal payment received on note receivable 3,174 0 Cash received on sale of assets (net of $12,829 cash sold) 0 7,356 Purchase of equipment to be financed 0 (2,773) Initial direct costs - deferred 0 (130) Purchase of property and equipment 0 (81) ------------------------ Net cash provided by investing activities 454 40,626 ------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt 0 (44,311) Decrease in restricted cash 0 23,478 ------------------------ Net cash used in financing activities 0 (20,833) ------------------------ INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS (431) 19,019 CASH AND TEMP. INVESTMENTS AT BEGINNING OF PERIOD 6,586 1,166 ------------------------ CASH AND TEMP. INVESTMENTS AT END OF PERIOD $6,155 $20,185 ------------------------ ------------------------ SUPPLEMENTAL DISCLOSURES: Interest paid $0 $3,890 Income taxes refunded $0 (120) Non-cash - preferred stock dividends accreted 955 955 Non-cash - note receivable from sale of assets 0 19,638
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -5- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION Industrial Funding Corp. (the "Company"), a majority owned subsidiary of IFC Holdings Inc. ("IFC Holdings"), was incorporated in October 1989, as a holding company formed for the purpose of owning Industrial Leasing Corporation ("Industrial Leasing"). During 1992, First City Realty Investment Corp. ("FCRIC"), the Company's previous majority shareholder, transferred all of its interest in the Company to IFC Holdings. The accompanying consolidated financial statements include all of the accounts of the Company and its wholly-owned subsidiary. All significant intercompany transactions and accounts have been eliminated in consolidation. Until May 27, 1993, the business of the Company was providing capital equipment lease financing to small businesses. At that time, the Company completed a sale of substantially all of the assets of Industrial Leasing (the "Asset Sale"), to ILC Acquisition Corp., a wholly-owned subsidiary of Parrish Equipment Partner L.P. ("Parrish"), in a transaction approved by shareholders of the Company on May 17, 1993. Subsequent to the sale, Company activities include: collection of the remaining assets; investment of financial liquid assets; and management of legal proceedings against the Company. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). While these statements reflect all necessary, normal and recurring adjustments, including those required for liquidation basis accounting, which in the opinion of management are required to present fairly, in all material respects, the financial position, results of operations and cash flows of the Company and its subsidiary at May 31, 1994, and for the three and six months then ended, they do not include all information and notes required by generally accepted accounting principles for complete financial statements. Further information is contained in the annual financial statements of the Company and notes thereto, for the year ended November 30, 1993, contained in the Company's Form 10-K, filed with the Commission pursuant to the Securities Exchange Act of 1934. Operating results for the three and six month periods ended May 31, 1994, are not necessarily indicative of the results that may be expected for the full year. See Note 2 regarding a plan of liquidation. NOTE 2. PLAN OF DISSOLUTION AND COMPLETE LIQUIDATION The Board of Directors of the Company approved a Plan of Dissolution and Complete Liquidation (the "Plan of Liquidation") on May 20, 1994. The Board has called a special meeting of the shareholders to be held on approximately August 8, 1994. The effective date of this Plan of Liquidation will be the date on which it is approved and adopted by the shareholders. As of May 31, 1994, IFC Holdings owned 100% of the Class B Common Stock of the company, which represents 75% of the ownership of the Company and 96.8% of the outstanding Common Stock voting rights. As a result, IFC Holdings has a sufficient number of votes to approve the Plan of Liquidation, regardless of the vote of any other shareholders. IFC Holdings has agreed to vote such shares in -6- favor of the proposed Plan of Liquidation and, as a result, approval of the Plan of Liquidation is assured. As a result of the Board's approval of the Plan of Liquidation, the Company's financial statements as of May 31, 1994, and for the three and six months then ended, have been prepared on a liquidation basis. Accordingly, assets have been valued at their estimated net realizable value and liabilities include estimated costs associated with carrying out the Plan of Liquidation. The net adjustment at May 31, 1994 required to convert from a going concern (historical cost) basis to a liquidation basis of accounting was a decrease in the carrying value of net assets of $4.2 million which is included in the consolidated statement of income and changes in net assets (liquidation basis). This decrease in the carrying value of net assets is a result of recording estimated liabilities associated with carrying out the Plan of Liquidation. Under the liquidation basis, the Company has estimated future liabilities associated with carrying out the Plan of Liquidation (see assumptions below). The Company has not reflected future revenues by way of interest or investment income or gains associated with the nonperforming portfolio as such income will be recognized when realized. The statement of net assets as of May 31, and November 30, 1993, and the consolidated statement of income and changes in net assets for the three and six months ended May 31, 1993 have been prepared using the historical cost (going concern) basis of accounting on which the Company has previously reported its financial condition and its results of operations. The conversion of the Company's assets and liabilities to the liquidation basis of accounting requires significant estimates and judgments by management of the Company. A summary of the Plan of Liquidation, and the significant judgments and estimates made, are described below. The Plan of Liquidation calls for the orderly liquidation of the Company over a five year period from the effective date of the Plan of Liquidation. The period may be shortened or lengthened if it is deemed to be in the best interest of the shareholders. The Company may engage in transactions as may be appropriate to its complete liquidation, including the sale, exchange, or other disposition of all or any part of its remaining assets for cash, shares, bonds, or other securities or property, or any combination of the foregoing. Prior to the final distribution of the assets of the Company to its shareholders, the Company will invest its cash or other liquid assets. The Company will also discharge or otherwise provide for all its liabilities and obligations. The Company has made the following assumptions in the valuation of the assets and liabilities of the Company on the liquidation basis of accounting: 1) Short-term investments are carried at their estimated net realizable value. No accrual has been made for future income or loss on investments except for unrealized gains or losses that existed at May 31, 1994, if any. 2) Notes receivable. The Company has the intent and ability to hold this receivable to maturity, which is May 27, 1996. No valuation allowance is deemed necessary. Interest income will be recognized when earned at a rate of 6% per annum. 3) Nonperforming assets are carried at their estimated net realizable value. The Company -7- does not anticipate any additional losses on the aggregate nonperforming assets as of May 31, 1994, therefore, no write-down of these assets was taken. Gains, if any, on the liquidation of the nonperforming assets will be recorded at the time they are realized. The Company estimates that the collection efforts on the nonperforming assets will cease at approximately December 31, 1994; however, this date is subject to change should facts and circumstances change. 4) Preferred stock. Dividends on preferred stock have been accreted through May 31, 1994. Additional dividends will be accreted as earned. 5) Reserve for estimated costs during the period of liquidation. This amount represents costs that management estimates will be incurred to liquidate the Company. Major assumptions are as follows: a) Nonperforming assets will be liquidated as of December 31, 1994; b) The litigation, (WADE ET. AL., V. INDUSTRIAL ET. AL.) is scheduled to go to trial in September of 1994. Legal costs associated with this litigation have been accrued through October 1994. No accrual has been made as to the resolution of this litigation, as the amount, if any, cannot presently be determined; c) No accrual has been made with regard to the demand of the Company's underwriters that the Company pay the underwriters' attorney fees and costs incurred in connection with their defense of the securities litigation as the Company. Based in part on discussions with counsel, management believes that any liability related to the matter is unlikely to occur; d) Administrative costs have been accrued through May 31, 1996, the anticipated date of the final payment on the note receivable. No costs have been accrued subsequent to May 1996, as the Company currently anticipates all matters will be resolved at that time. All of the above assumptions are subject to change should facts and circumstances change. NOTE 3. CONTINGENCIES There is litigation pending against the Company, Industrial Leasing, the Company's previous majority shareholder, First City, and certain of its former affiliates and subsidiaries, certain directors, certain former directors and officers, its independent auditor, and the underwriters of the December 8, 1989, initial public offering. The class action lawsuits, WADE ET. AL. V. INDUSTRIAL ET. AL., filed January 1992, and a related case BOWER ET. AL. V. BELZBERG ET. AL., filed February 1992, allege violations of federal securities law. The WADE lawsuit also alleged violations under California state law; however, these claims were dismissed by the Court in January 1994. These lawsuits were filed in the United States District Court for the Northern District of California (the "Court"), and allege that plaintiffs were damaged as a result of alleged misstatements and omissions in documents disseminated in connection with the initial public offering and in subsequent communications and -8- public filings by the Company, through February 1991. The Company has retained legal counsel to defend against these actions. Initial discovery has been completed, however, expert discovery is ongoing. Disposition motions by plaintiffs and defendants, including the Company, are pending. The Court has ordered a jury trial of WADE scheduled for September 1994. Plaintiffs allege damages of approximately $22.5 million. The lawsuits could have a material effect on results of operations and financial condition of the Company if adversely determined. As a result of the sale of substantially all of Industrial Leasing's assets on May 27, 1993, plaintiffs moved the Court for a preliminary injunction restraining the Company from withdrawing, transferring, pledging or disposing of any funds or assets received in connection with the Asset Sale, and further moved the Court to supervise the transfer of any such assets. The Court denied plaintiffs' injunction motions. In so doing, the Court stated that plaintiffs were likely to prevail on their Section 11 claims and that, in the absence of the requested injunction, there was a possibility plaintiffs would be irreparably harmed. The preliminary findings of the Court, however, will not control the ultimate determination of liability in connection with the plaintiffs' Section 11 claim. The plaintiffs have filed an appeal with the Ninth Circuit Court of Appeals (the "Court of Appeals"). It is not known when the Court of Appeals will rule on the appeal. On October 6, 1993, the trial judge ordered the WADE and BOWER cases to a settlement magistrate, in an attempt to facilitate a settlement of the securities litigation. There can be no assurance, however, that the securities litigation will be resolved by a settlement between the parties. On June 23, 1994, the Company and the other defendants in WADE moved for summary judgment of the claims asserted by the plaintiffs. Also, on June 23, 1994, plaintiffs moved for summary judgment against the Company solely on plaintiffs' Section 11 claim. Oral argument is currently scheduled to be heard by the Court on these motions on August 8, 1994. The Company has filed a lawsuit against two insurance carriers, demanding coverage against American Home under a directors and officers liability policy in the amount of approximately $5 million (Canadian), and against Continental Insurance under a general liability policy and umbrella policy of approximately $4 million (Canadian) and $16 million (Canadian), respectively. American Home and Continental have each filed answers denying liability. Continental has also filed a counterclaim against the Company, demanding reimbursement of the attorney fees and costs it advanced to the Company in connection with the defense of the securities class action lawsuits under a reservation of rights. As of May 31, 1994, Continental has advanced the Company attorney fees and costs in the amount of approximately $1.6 million. In May 1994, the Company filed a motion for summary adjudication of its claims against American Home. On June 27, 1994, the Court granted the insured plaintiffs' motion for summary judgment against American Home. The Court held the claims asserted in WADE were covered acts under the American Home policy unless it is ultimately determined by a finder of fact that the insureds deliberately defrauded investors or were unjustly enriched from the disclosures identified in WADE. The Court also held that allocation issues remain concerning the Continental policies and the American Home policy. In January 1993, Alex. Brown & Sons and Piper Jaffray, Inc., the underwriters of the -9- Company's initial public offering, filed an action against the Company, demanding that the Company pay the underwriters' attorney fees and costs associated with their defense of the securities litigation, in accordance with the Underwriting Agreement entered into by the Company. The Court granted the underwriters' motion for summary judgment, on July 9, 1993, and ordered the Company to pay the underwriters' costs and legal fees as they are incurred. An appeal of this decision is pending before the Court of Appeals. The Company has been advised that as of May 31, 1994 the total amount of expenses incurred by the underwriters was approximately $566,000. Such amount has not been accrued as the Company, based in part on discussions with counsel, believe that any liability related to the matter is unlikely to occur. On March 4, 1994, the underwriter defendants filed a third-party claim in WADE for contribution against one current director, certain former directors, and one former officer of the Company. In their claim, the underwriter defendants seek to shift any damages assessed against them to these present and former directors and officers. On May 18, 1994, the Court dismissed some of these contribution claims against some of the parties. On June 6, 1994, the Court stayed and severed the contribution action, to be adjudicated following the conclusion of WADE. Under Oregon law, the Company may be required to indemnify the officers and directors if this matter is adversely determined. The Company is also a defendant in various lawsuits resulting from normal business activity. In the opinion of management, the disposition of all other such litigation currently pending will not have a material effect on the financial position or results of operation of the Company. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The Company services a nonperforming lease portfolio through collection and disposition activities. This portfolio was specifically excluded from the assets sold by the Company in an asset sale that concluded on May 27, 1993 (the "Asset Sale"). The nonperforming lease portfolio is comprised of leases that either were seriously delinquent or otherwise impaired prior to the Asset Sale and consequently were written down in value to an amount estimated to be equal to their net realizable value. As of May 31, 1994, the aggregate value of the nonperforming portfolio, as reflected on the financial statements of the Company was $395,000, compared to $1.4 million as of February 28, 1994, and compared to $5.7 million at May 31, 1993. The Company plans to continue its collection efforts so long as cash recoveries are deemed by management to exceed the costs of collection and disposition. If the total remaining cash recoveries are less than the remaining value as reflected on the Company's financial statements an additional loss will occur. If the remaining cash recoveries exceed the remaining book value, any subsequent recoveries will be recorded as a gain. The Company anticipates, at May 31, 1994, that the collection efforts may result in gains during the next two fiscal quarters, although it is not possible to predict the extent of such gains. -10- The Company invests cash, derived primarily from the proceeds of the Asset Sale including payments received from the purchaser pursuant to a purchase note (the "Purchase Note"), in accordance with an Investment Policy, primarily in securities issued or guaranteed by the United States government, or mutual funds invested in such securities through financial advisors. These investments are reflected on the Company's balance sheet as short-term investments and are recorded at their net realizable value. During the fiscal quarter ending May 31, 1994, interest rates fluctuated significantly with the result of a general upward movement in interest rates. As a result of this volatility, the Company incurred unrealized losses of $162,000 for the period in its short-term portfolio. Management reviews the performance of these investments on a regular basis, and within the investment limitations as provided in its Investment Policy, makes investment decisions based upon general government bond market conditions. On May 27, 1994, the Company received its scheduled payment of interest and principal under the Purchase Note in the amount of $3.6 million. The Company continues to defend pending litigation as described in Note 3, Contingencies, in Notes to Consolidated Financial Statements, and will continue to incur significant legal costs associated with this defense. The level of costs are expected to increase in the period immediately preceding and during the trial, which is scheduled to commence in September 1994. The Company has included $1.975 million in the adjustment for liquidation basis as estimated legal defense costs for the period June through October 1994. On May 20, 1994, the Board of Directors approved a Plan of Liquidation, which remains subject to shareholder approval. As of May 31, 1994, IFC Holdings Inc. owned 100% of the Class B Common Stock of the Company, which represents 75% of the ownership of the Company and 96.8% of the outstanding Common Stock voting rights of the Company. As a result, IFC Holdings has a sufficient number of votes to approve the Plan, regardless of the vote of any other shareholders. IFC Holdings has agreed to vote such shares in favor of the proposed Plan and, as a result, approval of the Plan is assured. The Company has prepared its financial statements for the three and six month period ended May 31, 1994 on a liquidation basis. Accordingly, assets have been valued at their estimated net realizable value and liabilities include estimated costs associated with carrying out the Plan of Liquidation. The net adjustment at May 31, 1994 required to convert from a going concern (historical costs) basis to a liquidating basis of accounting was a decrease in the carrying value of net assets of $4.2 million, which in included in the statement of consolidated income and changes in net assets (liquidation basis). See Note 2, Plan of Dissolution and Complete Liquidation. In future periods, the Company's net income will consist of current period revenues from cash, investments, note receivable and collection of nonperforming assets, less any adjustment to the estimated expenses based upon actual performance or upon revised estimates. RESULTS OF OPERATIONS THREE MONTHS ENDED MAY 31, 1994 COMPARED TO MAY 31, 1993 As a result of the Asset Sale on May 27, 1993, and the revised presentation of its financial statements for the three months ended May 31, 1994 as a result of the Board approval of the adoption -11- of the Plan of Liquidation, management believes that performance and results of operations are not comparable with prior periods. Revenue for the three months ended May 31, 1994 consisted primarily of interest income, net of a loss on investments for the period, of $194,000, as compared to net lease and other revenue, and gains on sale of equipment of $3.9 million for the same period a year earlier. Operating expenses were $876,000 for the three months ended May 31, 1994, compared to $4.2 million the previous year. Costs incurred in the defense of the securities litigation were $202,000 for the period, which reflects reimbursement from Continental Insurance in the amount of $566,000. Continental has provided the payment under a reservation of rights based on a counterclaim filed against the Company. See Note 3, Contingencies, in Notes to the Consolidated Financial Statements. As a result of the Board's approval of the Plan of Liquidation, the Company's financial statements, for the three and six months ended May 31, 1994, have been prepared on a liquidating basis. Accordingly, assets have been valued at their estimated net realizable value and the liabilities include estimated costs associated with implementing the Plan of Liquidation. The net adjustment required to convert from a going concern basis to a liquidation basis of accounting was a decease in the carrying value of the net assets of $4.2 million, which is included in the consolidated statement of income and changes in net assets (liquidation basis). The Company reports a net loss of $4.8 million the quarter ended May 31, 1994, compared to net income of $2.3 million for the same period a year ago. SIX MONTHS ENDED MAY 31, 1994 COMPARED TO MAY 31, 1993 As a result of the Asset Sale and as a result of the change in the presentation of the Company's financial results from a going concern basis to a liquidation basis for the three and six months ended May 31, 1994, management believes that performance is not comparable with prior periods. Total revenues for the six months ended May 31, 1994 were $557,000 compared to $9.4 million a year earlier. Expenses for the six month period were $1.8 million in 1994, compared to $8.7 million a year earlier. The Company reports a net loss of $5.4 million for the six months ended May 31, 1994, as compared to net income of $2.9 million a year earlier. LIQUIDITY AND CAPITAL RESOURCES The Company has no available short-term or long-term debt facilities. The Company believes that its present cash short-term investments and collection of its notes receivable will allow it to manage the collection of the remaining assets, carry out the Plan of Liquidation, and defend the legal proceedings against the Company. -12- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 3, Contingencies, in Notes to the Consolidated Financial Statements beginning on page 8. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 8-K The Company filed a Form 8-K, related to the Plan of Liquidation, on May 31, 1994. 11.1 Exhibit 11.1 is a statement of computation of per share earnings that includes the preferred stock dividend. -13- SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INDUSTRIAL FUNDING CORP. (Registrant) Date: July 12, 1994 By: /S/ JOHN J. ESTOK ------------- ------------------------------ John J. Estok President and Chief Executive Officer Date: July 12, 1994 By: /S/ JOHN W. PITT ------------- ------------------------------ John W. Pitt Vice-President and Secretary -14- EX-99 2 EXHIBIT 99 - - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 --------------- FORM 8K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 May 31 1994 (Date of earliest event reported) INDUSTRIAL FUNDING CORP. (Exact name of registrant specified in its charter) OREGON 0-18071 93-1013278 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of Incorporation) Indentificaton No.) 2121 S.W. BROADWAY SUITE 100 PORTLAND, OREGON 97201 (Address of principal executive offices, including zip code) (503)228-2111 (Registrant's telephone number, including area code) - - ------------------------------------------------------------------------------- Page 1 of 5 pages PLAN OF DISSOLUTION AND COMPLETE LIQUIDATION OF INDUSTRIAL FUNDING CORP. This Plan of Dissolution and Complete Liquidation (the "Plan") of Industrial Funding Corp., an Oregon corporation ("IFC"), has been approved by the Board of Directors of IFC (the "Board") as being in the best interests of IFC and the holders of its common and preferred stock (the "Shareholders"). The Board has directed that this plan be submitted to the Shareholders in accordance with Or. Rev. Stat. SECTION 60.627 with the recommendation that the Plan be adopted, and has authorized the distribution of a Proxy Statement in connection with the solicitation of proxies. The Board has called a special meeting of the Shareholders to be held on July 20, 1994, at 10:00 a.m. PT to consider and vote upon such proposal. The Board has fixed July 1, 1994, as the record date in connection with such meeting. 1. ADOPTION OF PLAN. The effective date of this Plan (the "Effective Date") shall be the date on which it is approved and adopted by the Shareholders. 2. LIQUIDATION PERIOD. The actions authorized in this Plan shall be accomplished during the period (the "Liquidation Period") commencing on the Effective Date and ending on the fifth anniversary of the Effective Date; provided, however, that the Board may shorten the Liquidation Period if the Board determines that all material assets of IFC have been sold or collected, all liabilities of IFC, fixed or contingent, have been paid, discharged, or adequate provisions have been established therefore, and such a shortening of the Liquidation Period is in the best interests of IFC and its Shareholders or the Board may extend the Liquidation Period if the Board determines that such an extension is necessary to accomplish the foregoing purposes and that such an extension is in the best interest of IFC and it Shareholders. IFC shall cause the adoption of a plan of complete liquidation by Industrial Leasing Corporation which plan shall provide for the complete liquidation of Industrial Leasing Corporation during the Liquidation Period. 3. DISSOLUTION. Not more that 60 days after the Effective Date, appropriate officers of IFC shall execute and deliver for filing articles of dissolution of IFC in accordance with Or. Rev. Stat. SECTION 60.621, thereby limiting the purposes and activities of IFC to those described in Or. Rev. Stat. SECTION 60.637. Following the filing of such articles and for so long as IFC shall continue to exist pursuant to Or. Rev. Stat. 60.637, IFC shall, to the maximum extent permitted by law, continue to have the power and authority to take any of the actions that this Plan would authorize IFC to take during the Liquidation Period. Upon the filing of such articles of dissolution, IFC, its Board, officers, employees, and agents shall hold IFC out as a corporation in dissolution. 4. SALE OR OTHER DISPOSITION OF ASSETS. IFC shall have the authority to engage in such transactions as may be appropriate to its complete liquidation, including, without limitation, the sale, exchange or other disposition of all or any part of its remaining assets for cash, shares, bonds, or other securities or property, or any combination of the foregoing, in one or more transactions, to such persons or entities 2 of 5 and upon such terms and conditions as the Board, or officers, employees or agents of IFC acting pursuant to authority delegated by the Board, shall determine, with no further approvals by the Shareholders except as required by law. IFC shall have the authority to commence and prosecute any proceeding against any party for contribution, indemnification, recoupment of defense costs, or to establish insurance coverage in respect of any cost, expense, loss or damage suffered by IFC by reason of the WADE litigation or any related proceeding upon a determination by the Board, or officers, employees or agents of IFC acting pursuant to authority delegated by the Board, that such proceeding is in the best interests of IFC or its Shareholders; provided, however, that nothing herein shall operate to limit IFC from commencing or prosecuting any other proceeding permitted under Or. Rev. Stat. SECTION 60.637. 5. INVESTMENT POLICY PENDING SHAREHOLDER DISTRIBUTIONS. Prior to the final distribution of the assets of IFC to its Shareholders, IFC shall have the authority to invest its cash or other liquid assets in: money market mutual funds; bank money market funds; bank repurchase agreements collateralized by direct obligations of the United States Government; bank time deposits, certificates of deposit, and bankers' acceptances; investment-grade commercial paper or corporate bonds; securities issued or guaranteed by the United States Government or any agency thereof and mutual funds investing exclusively in the same. 6. PROVISION FOR LIABILITIES. Within the Liquidation Period, IFC shall pay or discharge, or set aside a reserve fund for, or otherwise provide for, all its liabilities and obligations, fixed and contingent, including, without limitation, any liabilities arising by reason of the WADE litigation, related proceedings, and the Parrish Purchase and Sale Agreement. 7. DISTRIBUTIONS TO SHAREHOLDERS. Subject to the limitations on the declaration and payment of dividends and the repurchase of capital stock arising under law, including such limitations as may arise by reason of the pendency of the WADE litigation and related proceedings, IFC shall, at such time and in such manner as the Board shall deem appropriate, but in any event within the Liquidation Period, distribute its assets to its Shareholders to the end that, by the end of the Liquidation Period, IFC shall have distributed all its assets, including proceeds of sales, exchanges or other dispositions, to its Shareholders. Subject to the limitations on the declaration and payment of dividends and the repurchase of capital stock arising under law, including such limitations as may arise by reason of the pendency of the WADE litigation and related proceedings, but as soon as is reasonably practicable, IFC shall, at such times and in such manner as the Board shall deem appropriate, pay the cumulative preferred stock dividends which have accrued in respect of IFC's Series A Cumulative Preferred Stock and redeem or otherwise repurchase all issued and outstanding shares of such Series A Cumulative Preferred Stock. If, in the judgment of the Board, such a course appears advisable, IFC may incur indebtedness to such persons and entities, in such amounts and on such terms and conditions as the Board shall determine, to permit IFC to make 3 of 5 distributions of cash to Shareholders. The preceding sentence shall not operate to limit the power of IFC to incur indebtedness under any other circumstances. 8. TRANSFER OF ASSETS TO TRANSFEREE ENTITIES. If, in the judgment of the Board, such a course appears advisable, IFC may distribute assets of IFC to its Shareholders by transferring such assets to one or more partnerships, trusts, corporations or other entities, each a "Transferee Entity," and distributing interests in such Transferee Entity or Entities to the Shareholders. If the Board deems it to be advisable, the general partner (or its directors or officers, if any) of any Transferee Entity that is a partnership, the trustee of any Transferee Entity that is a trust, the directors or officers of any Transferee Entity that is a corporation or the persons with comparable rules and any other type of Transferee Entity may be officers, directors or employees of IFC or any of its subsidiaries or persons or entities (including subsidiaries) otherwise controlling, controlled by, or under common control with IFC. 9. METHODS FOR DISTRIBUTIONS TO SHAREHOLDERS. Any distributions to Shareholders may be made by way of prorated dividends or other distributions of cash, securities or other property, tender or exchange offers for shares of IFC's stock or repurchases or redemptions of, or privately negotiated exchanges of IFC's assets for, such shares. 10. RESTRICTIONS ON SELF-DEALING. Commencing on the Effective Date, IFC shall not sell, exchange, or otherwise dispose of any of its remaining assets to any director, officer, employee, or agent of IFC. Except for the exercise of stock options previously granted by the Board and for sales of the capital stock of IFC to IFC as contemplated under Paragraphs 7 and 9 of this Plan, no director, officer or employee of IFC shall purchase or sell any shares of the capital stock of IFC during the Liquidation Period. 11. AMENDMENT OF PLAN. The Board may modify or amend this Plan at any time without Shareholder approval if it determines that such action would be in the best interest of IFC or its Shareholders. If any amendment or modification appears necessary and, in the judgment of the Board, will materially and adversely affect the interest of its Shareholders, such an amendment or modification shall be submitted to the Shareholders for approval. 12. AUTHORIZATION TO BOARD AND OFFICERS. The Board and officers of IFC are authorized to approve such changes to the terms of any of the transactions referred to herein, to interpret any of the provisions of this Plan, and to make, execute and deliver such other agreements, conveyances, assignments, transfers, certificates and other documents and to take such other actions as the Board and such officers deem necessary or desirable in order to carry out the provisions of this Plan and effect the complete liquidation and dissolution of IFC in accordance with Section 60.627 and other applicable sections of the Oregon Revised Statutes. 4 of 5 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INDUSTRIAL FUNDING CORP. (Registrant) Date: May 31, 1994 By: /S/ JOHN J. ESTOK ------------------ John J. Estok President and Chief Executive Officer 5 of 5 EX-11. 3 EXHIBIT 11.1 INDUSTRIAL FUNDING CORP. - - ------------------------------------------------------------------------------- Exhibit 11.1
For The Three Months Ended For The Six Months Ended May 31, May 31, May 31, May 31, -------------------------- -------------------------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1994 1993 - - ----------------------------------------------------------------------------------------------------------------------------- LIQUIDATION GOING CONCERN LIQUIDATION GOING CONCERN BASIS BASIS BASIS BASIS Net income ($4,842) $2,311 ($5,423) $2,899 Cumulative preferred stock dividend (478) (478) (955) (955) -------------------------------------------------------- Earnings on common stock ($5,320) $1,833 ($6,378) $1,944 Average number of common shares outstanding 7,500 7,500 7,500 7,500 -------------------------------------------------------- Earnings per common share ($0.71) $0.24 ($0.85) $0.26 -------------------------------------------------------- --------------------------------------------------------
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