Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Rule 14a-12
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ASTA FUNDING, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title of each class of securities to which transaction applies:
Asta Funding Inc. common stock, par value $0.01 per share.
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(2)
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Aggregate number of securities to which transaction applies:
2,915,721 shares of common stock outstanding (includes 406,867
shares of common stock underlying outstanding employee stock
options with an exercise price less than $13.10 per share) as of
June 25, 2020 (consisting of 6,974,632 shares of common stock
outstanding (including shares of company stock options) as of June
25, 2020 minus 4,058,911 shares held by the Stern Group (as
defined below) (the “Rollover Shares”)).
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
In accordance with Exchange Act Rule 0-11(c), the filing fee of
$4,522.14 was determined by multiplying 0.0001298 by the aggregate
merger consideration of $34,839,292.35. The aggregate merger
consideration was calculated as the sum of (i) the product of (a)
2,508,854 outstanding shares of common stock (excluding shares of
company stock options) as of June 25, 2020 to be acquired in the
merger, multiplied by (b) the per share merger consideration of
$13.10, plus (ii) the product of (x) 406,867 shares of common stock
underlying outstanding employee stock options with an exercise
price of $13.10 or less, multiplied by (y) $4.85, representing the
difference between the $13.10 per share merger consideration and
the $8.25 weighted average exercise price of such options. The
Rollover Shares are not included in the foregoing calculation as
they are being contributed to Parent (as defined below) immediately
prior to the consummation of the merger.
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(4)
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Proposed maximum aggregate value of transaction:
$34,839,292.35
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(5)
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Total fee paid:
4,522.14
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a) (2) and identify the filing for which the
offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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Asta Funding, Inc.
[•], 2020
Dear Stockholder:
You are cordially invited to attend a virtual special meeting of
stockholders of Asta Funding, Inc.
(the “Company” or “we”) to be held
exclusively online via live webcast on [•], 2020 at [•] a.m.,
Eastern time. There will not be a physical meeting location. The
virtual special meeting can be accessed by visiting [•], where you
will be able to listen to the meeting live, submit questions and
vote online. Please note that you will not be able to attend the
virtual special meeting in person at a physical location. We have
chosen to hold a virtual, rather than an in-person, meeting because
we are sensitive to the public health and travel concerns our
stockholders may have and recommendations that public health
officials have issued in light of the evolving novel coronavirus
(“COVID-19”) situation and believe that a virtual stockholder
meeting provides greater access to those who may want to
attend.
At the meeting, you will be asked to:
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consider and vote on a proposal to adopt the Agreement and Plan of
Merger dated as of April 8, 2020, and as amended by Amendment No. 1
on June 25, 2020 (“Amendment No. 1” and together, the “merger
agreement,” unless the context otherwise requires), by and
among the Company, Asta Finance Acquisition Inc.
(“Parent”) and Asta Finance Acquisition Sub Inc., a
wholly-owned subsidiary of Parent (which, along with Parent, is an
affiliate of Gary Stern, the Company’s Chief Executive Officer),
pursuant to which each share of our common stock outstanding at the
effective time of the merger will be converted into the right to
receive $13.10 in cash and we will become a wholly-owned subsidiary
of Parent (the “merger”); and
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consider and vote upon a proposal to approve one or more
adjournments of the virtual special meeting, if necessary or
appropriate, to solicit additional proxies to approve the proposal
to adopt the merger agreement.
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The Company will also transact other such business as may properly
come before the stockholders at the virtual special meeting or any
adjournment or postponement thereof.
If our stockholders adopt the merger agreement and the merger is
completed, you will be entitled to receive $13.10 in cash for each
share of our common stock that you own immediately prior to
completion of the merger (unless you have properly exercised your
appraisal rights with respect to such shares). Upon completion of
the merger, we will become a wholly-owned subsidiary of Parent.
Our board of directors, acting upon the unanimous recommendation of
a special committee of independent and disinterested members of our
board of directors, which committee was formed for the purpose of
evaluating the possible sale of the Company, has (without the
participation of Gary Stern) approved the merger agreement, the
merger and the other transactions contemplated by the merger
agreement and has determined that the merger agreement, the merger
and the other transactions contemplated by the merger agreement are
fair to, and in the best interests of, our stockholders (other than
Gary Stern and members of the Stern Group).
Our board of directors (without the participation of Gary
Stern) recommends that you vote “FOR” the adoption of the
merger agreement and “FOR” approval of the adjournment of
the virtual special meeting, if necessary or
appropriate, to solicit additional proxies to approve the
proposal to adopt the merger agreement.
Approval of the proposal to adopt the merger agreement requires
the affirmative vote of a majority of the outstanding shares of our
common stock entitled to vote thereon.
Your vote is very important, regardless of the number of shares
you own. Whether or not you plan to attend the virtual
special meeting, please complete, date, sign and return, as
promptly as possible, the enclosed proxy card in the enclosed
prepaid envelope, or submit your proxy through the Internet or by
telephone by following the instructions described in the enclosed
proxy statement. The failure to vote your shares of our common
stock will have the same effect as a vote against the proposal to
adopt the merger agreement.
The enclosed proxy statement provides you with information about
the virtual special meeting, the merger agreement, the merger and
other related matters to be considered by the stockholders of the
Company. A copy of the merger agreement is attached as Annex
A to the proxy statement and Amendment No. 1 to the merger
agreement is attached as Annex B to the proxy statement. We
encourage you to read the proxy statement and the merger agreement
carefully and in their entirety prior to voting your shares. You
also may obtain additional information about the Company from
documents we have filed with the Securities and Exchange Commission
by following the instructions listed in the section of the
accompanying proxy statement entitled “WHERE YOU CAN FIND MORE
INFORMATION.”
On behalf of our board of directors, I thank you for your support
and urge you to vote in favor of the adoption of the merger
agreement.
Sincerely,
/s/David Slackman
David Slackman
Chairman of the Special Committee
The accompanying proxy statement is dated [•], 2020 and is first
being mailed, with the form of proxy, to our stockholders on or
about [•], 2020.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER,
PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER,
OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
YOUR
VOTE IS IMPORTANT. PLEASE VOTE ELECTRONICALLY VIA THE INTERNET OR
TELEPHONICALLY OR BY COMPLETING, SIGNING, DATING AND PROMPTLY
RETURNING THE ENCLOSED PROXY CARD, WHETHER OR NOT YOU PLAN TO
ATTEND THE VIRTUAL SPECIAL MEETING. PLEASE DO NOT
SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME. IF THE
MERGER IS APPROVED, YOU WILL RECEIVE A LETTER OF TRANSMITTAL AND
RELATED INSTRUCTIONS TO SURRENDER YOUR SHARE CERTIFICATES. |
Asta Funding, Inc.
NOTICE OF VIRTUAL SPECIAL MEETING OF
STOCKHOLDERS
To Be Held on [•], 2020
TO THE STOCKHOLDERS OF ASTA FUNDING, INC.:
Notice is hereby given that a virtual special meeting of the
stockholders of Asta Funding, Inc., a Delaware corporation (the
“Company”), will be held exclusively online via live
webcast on [•], 2020 at [•] a.m., eastern time, which virtual
special meeting can be accessed by visiting [•] for the following
purposes:
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Merger Proposal. To consider and vote on a proposal to adopt
the Agreement and Plan of Merger (the “merger
agreement”), dated as of April 8, 2020, and as amended on
June 25, 2020, by and among the Company, Asta Finance Acquisition
Inc. (“Parent”) and Asta Finance Acquisition Sub
Inc., a wholly-owned subsidiary of Parent (which, along with
Parent, is an affiliate of Gary Stern, the Company’s Chief
Executive Officer), pursuant to which each share of our common
stock outstanding at the effective time of the merger will be
converted into the right to receive $13.10 in cash and we will
become a wholly-owned subsidiary of Parent (the
“merger”); and
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Adjournment Proposal. To consider and vote upon a proposal
to approve one or more adjournments of the virtual special meeting,
if necessary or appropriate, to solicit additional proxies to
approve the proposal to adopt the merger agreement.
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The Company will also transact other such business as may properly
come before the stockholders at the virtual special meeting or any
adjournment or postponement thereof.
The merger agreement and the merger are more fully described in the
accompanying proxy statement, which you should read carefully in
its entirety before voting.
Our board of directors has fixed the close of business on [•], 2020
as the record date for the determination of stockholders entitled
to notice of, and to vote at, this virtual special meeting and any
adjournment or postponement thereof. Only holders of our common
stock at the close of business on the record date are entitled to
vote at the virtual special meeting.
Our board of directors, acting upon the unanimous recommendation of
a special committee of independent and disinterested members of our
board of directors, which committee was formed for the purpose of
evaluating an offer by Gary Stern to take the Company private, has
(without the participation of Gary Stern) approved the merger
agreement, the merger and the other transactions contemplated by
the merger agreement and has determined that the merger agreement,
the merger and the other transactions contemplated by the merger
agreement are fair to, and in the best interests of, our
stockholders (other than Gary Stern and members of the Stern
Group).
OUR BOARD OF DIRECTORS (WITHOUT THE PARTICIPATION OF GARY
STERN) RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF
THE MERGER AGREEMENT AND “FOR” APPROVAL OF THE ADJOURNMENT
OF THE VIRTUAL SPECIAL MEETING, IF NECESSARY OR
APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES TO APPROVE THE PROPOSAL
TO ADOPT THE MERGER AGREEMENT.
Your vote is very important, regardless of the number of shares
you own. The approval of the adoption of the merger agreement
requires the affirmative vote of the holders of a majority of the
outstanding shares of our common stock. If you abstain or do not
vote on the adoption of the merger agreement, it will have the same
effect as a vote by you against the adoption of the merger
agreement.
Whether or not you plan to attend the virtual special meeting,
please complete, date, sign and return, as promptly as possible,
the enclosed proxy card in the enclosed prepaid envelope, or submit
your proxy through the Internet or by telephone. Properly executed
proxy cards with no instructions indicated on the proxy card will
be voted FOR the adoption of the merger agreement and
FOR approval of the adjournment of the virtual special
meeting, if necessary or appropriate to solicit additional proxies
to approve the proposal to adopt the merger agreement.
If your shares are held in “street name,” which means through a
brokerage firm, bank or other nominee, you should instruct your
broker, bank or other nominee how to vote your shares using the
voting instruction form furnished by your broker, bank or other
nominee. If you do not instruct your broker, bank or other
nominee how to vote, your shares will not be voted on any proposal
on which your broker, bank or other nominee does not have
discretionary authority to vote. This is called a “broker
non-vote.” In these cases, the broker, bank or other nominee can
register your shares as being present at the meeting for the
purposes of determining the presence of a quorum but will not be
able to vote on matters for which specific authorization is
required. If you do not instruct your broker, bank or other
nominee how to vote, it will have the same effect as a vote against
the adoption of the merger agreement.
If you attend the virtual special meeting, you may revoke your
proxy and cast your vote at the virtual special meeting via the
virtual meeting website, even if you have previously returned your
proxy card or submitted your proxy through the Internet or by
telephone. Your attendance at the virtual special
meeting alone will not revoke your proxy.
If you hold your shares in “street name,” you must obtain a
legal proxy from your broker, bank or other nominee in order
to vote at the virtual special meeting.
Please contact your broker, bank or other nominee for instructions
on how to obtain such a legal proxy. If your shares are held by a
broker, bank or other nominee, and you plan to attend the virtual
special meeting, please also have available at the virtual special
meeting this legal proxy and your statement evidencing your
beneficial ownership of our common stock. Instructions on who can
attend and participate via Internet, including how to demonstrate
proof of stock ownership, are posted at www.proxyvote.com. Please
carefully review the instructions in the enclosed proxy statement
and the enclosed proxy card, the information forwarded by your
broker, bank or other nominee, or www.proxyvote.com regarding each
of these options.
Stockholders who do not vote in favor of the adoption of the merger
agreement have the right to demand appraisal of the fair value of
their shares of our common stock, as determined by the Court of
Chancery of the State of Delaware, if the merger is completed, but
only if they perfect their appraisal rights and the other
requirements of the Delaware General Corporation Law are satisfied.
A copy of the Delaware statutory provisions relating to appraisal
rights is attached as Annex D to the proxy statement, and a
summary of these provisions can be found under “Appraisal
Rights” on page 69 in the proxy statement.
The enclosed proxy statement provides you with information about
the virtual special meeting, the merger agreement, the merger and
other related matters to be considered by our stockholders. A copy
of the merger agreement is attached as Annex A to the proxy
statement and Amendment No. 1 to the merger agreement is attached
as Annex B to the proxy statement. We encourage you to read
the proxy statement and the merger agreement carefully and in their
entirety prior to voting your shares. You also may obtain
additional information about the Company from documents we have
filed with the Securities and Exchange Commission by following the
instructions listed in the section of the accompanying proxy
statement entitled “WHERE YOU CAN FIND MORE INFORMATION.”
You should not send any certificates representing shares of our
common stock with your proxy card. Upon completion of the
merger, we will send instructions to you regarding the procedure
for exchanging your stock certificates for the cash merger
consideration.
By order of the Board of Directors,
/s/ Seth Berman
Seth Berman
General Counsel and Secretary
Englewood Cliffs, New Jersey
[•], 2020
ASTA FUNDING, INC.
210 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
(201) 567-5648
PROXY STATEMENT – DATED [•], 2020
GENERAL INFORMATION
PROXY STATEMENT
The enclosed proxy is solicited by the board of directors of Asta
Funding, Inc. (the “Company,” “we” or “us”) for use at the special
meeting of stockholders to be held exclusively online via live
webcast on [•], 2020 at [•] a.m., Eastern time. A stockholder
giving a proxy has the right to revoke it by giving written notice
of such revocation to the Secretary of the Company at any time
before it is voted, by submitting to the Company a duly-executed,
later-dated proxy, or by voting the shares subject to such proxy by
written ballot at the virtual special meeting. The presence at
virtual special meeting of a stockholder who has given a proxy does
not revoke such proxy unless such stockholder files the
aforementioned notice of revocation or votes by written ballot. The
proxy statement is dated [•], 2020.
This proxy statement, the enclosed form of proxy and our Annual
Report on Form 10-K for the year ended September 30, 2019, which
includes our consolidated financial statements, are first being
mailed to stockholders on [•], 2020. All shares represented by
valid proxies pursuant to this solicitation (and not revoked before
they are exercised) will be voted as specified in the proxy. Proxy
cards that are returned signed, but without voting instructions,
will be voted in accordance with the recommendations of the board
of directors. Our board of directors recommends that you vote “FOR”
the adoption of the merger agreement and “FOR” approval of the
adjournment of the virtual special meeting to solicit additional
proxies, if necessary or appropriate, to approve the proposal to
adopt the merger agreement.
The solicitation of proxies may be made by directors, officers and
regular employees of the Company or any of its subsidiaries by
mail, telephone, facsimile or e-mail or in person without
additional compensation payable with respect thereto. Arrangements
will be made with brokerage houses and other custodians, nominees
and fiduciaries to forward proxy-soliciting material to the
beneficial owners of stock held of record by such persons, and we
will reimburse them for reasonable out-of-pocket expenses incurred
by them in so doing. All costs relating to the solicitation of
proxies will be borne by us including expenses in connection with
the preparation and mailing of the proxy statement, form of proxy
and any other material furnished to the stockholders by us in
connection with the Meeting.
The Company has engaged Laurel Hill Advisory Group, LLC (“Laurel
Hill”) to solicit proxies in connection with the virtual special
meeting. Laurel Hill’s fee for its proxy solicitation services is
$6,000, in addition to out-of-pocket expenses. If the Company
authorizes Laurel Hill to commence a telephone solicitation
campaign of retail and selected unvoted stockholders, those
outbound calls will be billed at a rate of $5.50 per contact plus
set up and telephone number look-up charges. Inbound phone calls
received from stockholders will be billed at $5.50 per call.
Important Notice Regarding the Availability of Proxy Materials
for the Special Virtual Meeting of Stockholders to Be Held
on [•].
This proxy statement, the accompanying form of proxy card and
our Annual Report on Form 10-K for the fiscal year ended
September 30, 2019, including financial statements,
are available on the internet
at http://www.astafunding.com. Under the
rules issued by the Securities and Exchange Commission, we are
providing access to our proxy materials both by sending you this
full set of proxy materials and by making our proxy materials
available to you free of charge on the Internet.
Throughout this proxy statement, all references to the
“Company,” “Asta Funding,” “we,” “us,” and “our” refer to Asta
Funding, Inc., unless otherwise indicated or the context otherwise
requires. You are being asked to consider and approve the adoption
of the “merger agreement” which sets forth the terms pursuant to
which the “merger” will be effectuated. In addition to the
Company, Asta Finance Acquisition Inc. and Asta
Finance Acquisition Sub Inc., which we may refer to
as “Parent” and “Merger Sub,” respectively, or collectively
as “Parent Parties” in this proxy statement, are parties to
the merger agreement. Both Parent and Merger Sub are affiliated
with Gary Stern, the Company’s Chief Executive Officer, and
certain family members and affiliates of Gary Stern, which
we may refer to as “the Stern Group,” in this proxy
statement. Lincoln International LLC, who served as
financial advisor to the Special Committee of our
board of directors, may be referred to in this proxy statement as
“Lincoln.”
TABLE OF
CONTENTS
SUMMARY TERM
SHEET
This summary term sheet highlights selected information from
this proxy statement and may not contain all of the information
that is important to you. We encourage you to read carefully the
remainder of this proxy statement, including the attached annexes
and the other documents to which we have referred you, because this
section does not provide all the information that might be
important to you with respect to the merger and the other matters
being considered at the virtual special meeting of
stockholders. See also “Where You Can Find More Information” on
page 107 of this proxy statement. We have included
references to other portions of this proxy statement to direct you
to a more complete description of the topics presented in this
summary.
Parties to
the Merger (page 14)
Asta Funding, Inc.
Asta Funding, Inc., a Delaware corporation, is engaged in several
business segments in the financial services industry including
funding of personal injury claims, through our wholly owned
subsidiaries Sylvave, LLC, Simia Capital, LLC and Arthur Funding
LLC, social security disability advocacy through our wholly owned
subsidiaries GAR Disability Advocates, LLC (“GAR”) and Five Star
Veterans Disability, LLC and the business of purchasing, managing
for our own account and servicing distressed consumer receivables,
including charged off receivables and semi-performing
receivables. Our principal executive offices are located at 210
Sylvan Avenue, Englewood Cliffs, New Jersey 07632. Our telephone
number is (201) 567-5648. Our common stock trades on the
NASDAQ Global Select Market under the symbol “ASFI.” See
“Important Information Regarding Asta”
beginning on page 93 of this proxy statement for a more
detailed discussion of the Company.
Parent Parties
Asta Finance Acquisition Inc. (“Parent”) is a Delaware corporation
formed on December 26, 2019, and Asta Finance Acquisition Sub Inc.
(“Merger Sub”) is a Delaware corporation formed on December 26,
2019 and is a wholly owned subsidiary of Parent. Each of the Parent
and Merger Sub (together, the “Parent Parties”) was formed for
purposes of entering into the merger agreement and consummating the
transactions contemplated by the merger agreement. None of the
Parent Parties has engaged in any business except for activities
incident to its formation and in connection with the transactions
contemplated by the merger agreement. The Parent Parties are
affiliated with the Stern Group. See “Important Information
Regarding the Parent Parties and the Stern
Group” beginning on page 101 of this proxy
statement for a more detailed discussion of the Parent Parties.
The
Purpose of the Virtual Special Meeting of the Stockholders (page
66)
You will be asked to consider and vote upon the proposal to adopt
the Agreement and Plan of Merger, dated as of April 8, 2020, as
amended by Amendment No. 1 to the Agreement and Plan of Merger,
dated June 25, 2020 (“Amendment No. 1” and together, the “merger
agreement,” unless context otherwise requires), by and among
Parent, Merger Sub and the Company. The merger agreement provides
that at the effective time of the merger, Merger Sub will be merged
with and into the Company (the “merger”), with the Company
surviving the merger as a wholly-owned subsidiary of Parent. At the
effective time of the merger, each share of common stock of the
Company (the “Common Stock”) outstanding immediately prior to the
effective time of the merger (other than certain excluded shares
and shares held by any of the Company’s stockholders who are
entitled to and properly exercise appraisal rights under Delaware
law (“dissenting shares”)) will be converted into the right to
receive $13.10 in cash, without interest (the “merger
consideration”), less any applicable withholding taxes, whereupon
all such shares will be automatically canceled and will cease to
exist, and the holders of such shares will cease to have any rights
with respect thereto other than the right to receive the merger
consideration. Shares of Common Stock held by any of the Parent
Parties (including the shares held by the members of the Stern
Group, which shares will be contributed to Parent prior to the
merger) and by the Company or any wholly-owned subsidiary of the
Company will not be entitled to receive the merger
consideration.
Following and as a result of the merger, the Company will become a
privately held company, wholly-owned by Parent, which in turn will
be owned by the following entities and individuals:
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Gary Stern, our Chief Executive Officer, President and Chairman of
our board of directors
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Ricky Stern, our Senior Vice President and President of GAR
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Arthur Stern, our former Chairman Emeritus and former director
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GMS Family Investors LLC, a Delaware limited liability, the sole
manager of which is Ricky Stern
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Emily Stern, the daughter of Gary Stern and sister of Ricky
Stern
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Asta Group, Incorporated, a Delaware corporation owned, in part, by
Gary Stern, Ricky Stern, Arthur Stern, and Emily Stern, and for
which Gary Stern serves as a director
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The Ricky Stern Family 2012 Trust, the Emily Stern Family 2012
Trust, the Ricky Stern 2012 GST Trust, and the Emily Stern 2012 GST
Trust, each of which are trusts for which Gary Stern and Ricky
Stern (or both) serve as trustees
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The
Virtual Special Meeting of Stockholders of Asta
Funding, Inc. (Page 66)
The virtual special meeting of our stockholders will be held
exclusively online via live webcast on [•], 2020 at [•] a.m.,
Eastern time. There will not be a physical meeting location. The
virtual special meeting can be accessed via webcast by visiting
[•], where you will be able to listen to the meeting live, submit
questions and vote online. Please note that you will not be able to
physically attend the virtual special meeting in person. At the
virtual special meeting, our stockholders will be asked to vote on
a proposal to adopt the merger agreement and, if necessary or
appropriate, to approve one or more adjournments of the virtual
special meeting for the purpose of soliciting additional proxies if
there are not sufficient votes to approve the proposal to adopt the
merger agreement.
The Merger;
Closing (Page 72)
At the effective time of the merger, Merger Sub will merge with and
into the Company, the separate corporate existence of Merger Sub
will cease and the Company will continue its corporate existence
under Delaware law as the surviving corporation in the Merger. The
certificate of incorporation of the surviving corporation will be
amended and restated in its entirety to be in the form of the
certificate of incorporation attached as Exhibit A to the merger
agreement, until amended in accordance with its terms or by
applicable law. The bylaws of the surviving corporation will be
amended and restated in their entirety to be in the form of the
bylaws attached as Exhibit B to the merger agreement, until amended
in accordance with their terms or by applicable law. The directors
of Merger Sub immediately prior to the effective time of the merger
will be the directors of the surviving corporation and will hold
office until their respective successors are duly elected and
qualified, or their earlier death, incapacitation, retirement,
resignation or removal in accordance with the certificate of
incorporation and bylaws of the surviving corporation. The officers
of the Company immediately prior to the effective time of the
merger will be the officers of the surviving corporation and will
hold office until their respective successors are duly elected or
appointed and qualified, or their earlier death, incapacitation,
retirement, resignation or removal in accordance with the
certificate of incorporation and bylaws of the surviving
corporation.
The merger will become effective at the time (which we refer to as
the “effective time” of the merger) when the Company files a
certificate of merger with the Secretary of State of the State of
Delaware or at such later date or time as Parent and the Company
agree in writing and specify in the certificate of merger in
accordance with the Delaware General Corporation Law (“DGCL”).
The closing of the merger will take place on a date which will be
the second business day after the satisfaction or waiver (to the
extent permitted by applicable law) of the closing conditions
stated in the merger agreement (other than those conditions that by
their nature are to be satisfied at the closing, but subject to the
satisfaction or waiver of such conditions) or at such other time
and date as the Company and Parent may agree in writing.
Treatment of Options
(Page 73)
Except as otherwise agreed to in writing prior to the effective
time of the merger by Parent and a holder of any Company stock
options with respect to any of such holder’s Company stock options,
each Company stock option, whether vested or unvested and whether
with an exercise price per share that is greater or less than, or
equal to, $13.10, that is outstanding immediately prior to the
effective time of the merger, will, as of the effective time of the
merger, become fully vested and be canceled and converted into the
right to receive an amount in cash from the surviving corporation
equal to (a) the product of (i) the excess, if any, of $13.10 over
the exercise price per share of Common Stock subject to such
Company stock option multiplied by (ii) the total number of shares
of Common Stock subject to such Company stock option, without
interest, less (b) such amounts as are required to be withheld or
deducted under applicable tax provisions.
Recommendation of Our Board of
Directors (Page 29)
After deliberation and consultation with its legal advisors, and
acting upon the recommendation of the Special Committee which was
advised by its own legal and financial advisors, our board of
directors has determined (without the participation of Gary Stern)
that the merger agreement, the merger and the other transactions
contemplated by the merger agreement are fair to, and in the best
interests of, our stockholders (other than Gary Stern and members
of the Stern Group). Our board of directors (without the
participation of Gary Stern) recommends that our stockholders vote
FOR the proposal to adopt the merger agreement and
FOR the adjournment proposal. See “Proposal
No. 1—The Merger—Special Factors -
Recommendation of our Board of Directors” beginning on page
29 of this proxy statement for a more detailed
discussion of the recommendation of our board of directors.
Purposes
and Reasons of the Company for the Merger
The Company’s purpose for engaging in the merger is to enable its
stockholders to receive $13.10 per share of Company Common Stock,
which represents a premium of approximately 13.2% to the 30-trading
day average stock price of $11.57 as of June 24, 2020, a
premium of approximately 25.1% to the average closing share price
of our common stock for the 90 days ended on June 24, 2020, a
premium of approximately 42.0% to the average price of our common
stock during the 52 weeks prior to June 24, 2020 and a premium of
approximately 17.6% to the last trading day before the announcement
that the Company, Parent and Merger Sub had entered into an
amendment to the merger agreement, of $11.14.
Opinion of
the Financial Advisor to the Special Committee of Our
Board of Directors (Page 36)
On June 19, 2020, Lincoln rendered its opinion to the Special
Committee of the Board of Directors of Asta Funding, Inc. to the
effect that, as of the date of such opinion and based upon and
subject to the various assumptions made, procedures followed,
matters considered and qualifications and limitations on the scope
of review undertaken by Lincoln as set forth in its written
opinion, the merger consideration of $13.10 per share in cash to be
received by the holders of shares of common stock of Asta Funding,
Inc. (other than Gary Stern and members of the Stern Group) in the
proposed transaction, was fair, from a financial point of view, to
the holders of such shares.
Lincoln’s opinion was directed to the Special Committee (in its
capacity as such) and only addressed the fairness, from a financial
point of view, to the non-Stern Group holders of the merger
consideration to be received by such stockholders in
the proposed transaction and did not address any other aspect or
implication of the proposed transaction, any related transaction or
any other agreement, arrangement or understanding entered into in
connection therewith or otherwise. The summary of Lincoln’s opinion
in this proxy statement is qualified in its entirety by reference
to the full text of its written opinion, which is attached as Annex
C to this proxy statement and describes the procedures followed,
assumptions made, qualifications and limitations on the review
undertaken and other matters considered by Lincoln in connection
with the preparation of its opinion. However, neither Lincoln’s
opinion nor the summary of its opinion and the related analyses set
forth in this proxy statement are intended to be, and do not
constitute, advice or a recommendation to the Special Committee,
any security holder of the Company or any other person as to how to
act or vote with respect to any matter relating to the proposed
transaction or otherwise.
Interests of Our Directors and
Officers in the Merger (Page 26)
In considering the recommendation of our Special Committee and
board of directors with respect to the merger agreement, our
stockholders should be aware that certain of our directors and
executive officers have certain interests in the merger that are
different from, or in addition to, the interests of stockholders
generally. These interests may create potential conflicts of
interest. In particular, as is described elsewhere in this proxy
statement, Gary Stern, who is Chairman of the Board, President and
Chief Executive Officer of the Company, is a director, officer and
stockholder of Parent and will be a controlling stockholder of
Parent after completion of the merger.
Our board of directors was aware of and discussed and considered
these interests when it approved the merger. These interests may
create potential conflicts of interest.
Financing the Merger
In connection with entering into the merger agreement, the Stern
Group has entered into a rollover commitment letter in favor of the
Parent. Pursuant to this commitment letter, the Stern Group has
committed to transfer, contribute and deliver the shares of our
common stock that they directly own to the Parent in exchange for
common stock of the Parent.
Parent entered into a Commitment Letter with Bank Leumi USA, dated
April 3, 2020, as amended on June 25, 2020. Pursuant to this debt
commitment letter, Bank Leumi has committed to provide a loan
facility to Parent for purposes of funding the merger
consideration. The loan is expected to have a floating interest
rate based on 1-month LIBOR plus 150 basis points, but in any
event, no less than 2.7% per annum, and will have an expected
maturity date one month after the closing date of the loan. The
loan is intended to be secured by a valid first-priority perfected
security interest in cash collateral and eligible securities of the
Parent Parties and us.
Gary Stern has executed and delivered a limited guarantee in our
favor as a condition and inducement for us to enter into the merger
agreement. Pursuant to this limited guarantee, Gary Stern is
guaranteeing certain obligations of the Parent Parties in
connection with the merger agreement.
Regulatory Approvals Required for the
Merger (Page 61)
In connection with the merger, we are required to file a
certificate of merger with the Secretary of State of Delaware in
accordance with the DGCL after the approval of the merger agreement
by our stockholders.
Material
U.S. Federal Income Tax Consequences (Page
63)
Generally, the receipt of cash in exchange for our common stock
pursuant to the merger will be a taxable transaction to our
stockholders for U.S. federal income tax purposes. A U.S. holder of
our common stock receiving cash in the merger generally will
recognize gain or loss for U.S. federal income tax purposes in an
amount equal to the difference between the amount of cash received
(before reduction for any applicable withholding taxes) and the
holder’s adjusted tax basis in the shares of our stock surrendered.
A non-U.S. holder of our common stock generally will not be subject
to U.S. federal income tax on the gain recognized upon the receipt
of cash in exchange for our common stock pursuant to the merger
unless the gain is effectively connected with the conduct of a
trade or business in the United States or the non-U.S. holder is a
nonresident alien individual who is present in the United States
for 183 days or more in the taxable year of the merger and certain
other conditions are met.
The tax consequences of the merger to any particular stockholder
may vary depending on his, her or its particular circumstances. Due
to the individual nature of tax consequences, each stockholder is
urged to consult his, her or its own tax advisor as to the specific
tax consequences to such stockholder of the merger, including the
effects of any applicable U.S. federal state, local, foreign,
estate, gift or other tax laws.
Conditions to the Merger
(Page 77)
Conditions to Each Party’s Obligations
Each party’s obligation to complete the merger is subject to the
satisfaction of the following conditions at or prior to the
effective time of the merger, unless waived in writing by all
parties:
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the proposal to adopt the merger agreement has been approved by the
affirmative vote of holders of at least a majority of the
outstanding shares of the Common Stock entitled to vote
thereon;
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the proposal to adopt the merger agreement has been approved by the
affirmative vote of holders of at least a majority of the
outstanding shares of the Common Stock entitled to vote thereon,
other than the Parent, the Stern Group and any other officers and
directors of the Company and any other person having any equity
interest in, or any right to acquire any equity interest in, Merger
Sub or any person of which Merger Sub is a direct or indirect
subsidiary;
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there is no injunction or similar order prohibiting the
consummation of the merger (i) by a governmental entity having
jurisdiction over the business of the Company and its subsidiaries
(other than a de minimis portion of such business) or
(ii) that, if not abided by, would potentially result in criminal
liability; and
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there is no law prohibiting or making illegal the merger (i) by any
governmental entity in a jurisdiction in which the business of the
Company and its subsidiaries is conducted (other than a de
minimis portion of such business) or (ii) that, if not
abided by, would potentially result in criminal liability.
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Conditions to Parent’s and Merger Sub’s
Obligations
The obligation of Parent and Merger Sub to complete the merger is
subject to the satisfaction or waiver by Parent of the following
additional conditions at or prior to the effective time of the
merger:
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the representations and warranties of the Company in the merger
agreement relating to (i) capitalization, (ii) dividends, (iii) the
absence of any material adverse effect since September 30, 2019,
(iv) finder’s and broker’s fees and (v) takeover laws and rights
agreements must be true and correct (except, subject to certain
exceptions, for such inaccuracies as are de minimis)
both when made and as of the closing date of the merger or, with
respect to certain representations and warranties, as of a
specified date;
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the representations and warranties of the Company in the merger
agreement relating to (i) the Company’s subsidiaries, (ii)
corporate authority and (iii) outstanding indebtedness must be true
and correct in all material respects both when made and as of the
closing date of the merger or, with respect to certain
representations and warranties, as of a specified date;
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the other representations and warranties of the Company in the
merger agreement (except those listed in the above preceding bullet
points) must be true and correct both when made and as of the
closing date of the merger or, with respect to certain
representations and warranties, as of a specified date, except
where the failure to be true and correct would not result in a
material adverse effect, as described under “The Merger
Agreement—Conditions to the Merger” beginning on page 77;
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the Company must have performed in all material respects all
obligations that it is required to perform under the merger
agreement prior to the closing date of the merger; and
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the Company must have delivered to Parent an officer’s certificate
stating that the conditions set forth above have been
satisfied.
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Conditions to Our Obligations
Our obligation to complete the merger is subject to the
satisfaction or waiver of the following further conditions at or
prior to the effective time of the merger:
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the representations and warranties of the Parent Parties in the
merger agreement must be true and correct in all material respects
both when made and as of the closing date of the merger (except
with respect to certain representations and warranties made as of a
specified date), except where the failure to be true and correct
would not impair, prevent or delay in any material respect the
ability of any of the Parent Parties to perform its obligations
under the merger agreement;
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the Parent Parties must have performed in all material respects all
obligations that they are required to perform under the merger
agreement prior to the closing; and
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the Parent Parties must have delivered to the Company an officer’s
certificate stating that the conditions set forth above have been
satisfied.
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Restrictions on Solicitations of Other
Offers (Page 79)
The merger agreement provides that, subject to certain exceptions,
until the effective time of the merger (or, if earlier, the
termination of the merger agreement), we must not, and must cause
our subsidiaries and representatives not to:
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initiate, solicit, knowingly encourage, induce or knowingly
facilitate (including by way of furnishing information) or assist
any inquiries or the making, submission, announcement or
commencement of any proposal or offer that constitutes, or could
reasonably be expected to lead to, any acquisition proposal;
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execute or enter into any contract, letter of intent or agreement
in principle relating to, or that could reasonably be expected to
lead to, any acquisition proposal (other than an acceptable
confidentiality agreement);
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enter into any contract or agreement in principle requiring the
Company to abandon, terminate or fail to consummate the merger or
any other transactions contemplated by the merger agreement or
breach its obligations thereunder, or propose or agree to do any of
the foregoing;
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fail to enforce, or grant any waiver under, any standstill or
similar agreement with any person; provided, however, if the
Special Committee determines by resolution in good faith, after
consultation with its outside legal counsel that the failure to do
so would be inconsistent with its fiduciary duties under Delaware
Law, it may release any person from its standstill or similar
obligations solely for purposes of enabling such person to
confidentially submit to the Company’s board of directors an
acquisition proposal;
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engage in, continue or otherwise participate in any discussions or
negotiations regarding, or provide or furnish any non-public
information or data relating to the Company or any of the Company
subsidiaries or afford access to the business, properties, assets,
books and records or personnel of the Company or any of the Company
subsidiaries to any person (other than Parent, Merger Sub, or any
of their respective affiliates or representatives) with the intent
to initiate, solicit, encourage, induce or assist with the making,
submission, announcement or commencement of any proposal or offer
that constitutes, or could reasonably be expected to lead to, any
acquisition proposal; or
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otherwise knowingly facilitate any effort or attempt to make any
acquisition proposal.
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Notwithstanding the foregoing, from the date of the merger
agreement until the date that the Company stockholder approvals
have been obtained, following the receipt by the Company of an
unsolicited bona fide written acquisition proposal,
(i) the Special Committee shall be permitted to participate in
discussions regarding such acquisition proposal solely to the
extent necessary to clarify the terms of such acquisition proposal
and (ii) if the Special Committee determines by resolution in
good faith, after consultation with its outside financial advisors
and outside legal counsel, (A) that such acquisition proposal
constitutes or would reasonably be expected to lead to a superior
proposal and (B) that the failure to take the actions set
forth in clauses (x) and (y) below with respect to such
acquisition proposal would be inconsistent with its fiduciary
duties under Delaware Law, then the Company may, in response to
such acquisition proposal, (x) furnish access and non-public
information with respect to the Company and the Company
subsidiaries to the person who has made such acquisition proposal
pursuant to an acceptable confidentiality agreement (as long as all
such information provided to such Person has previously been
provided to Parent or is provided to Parent prior to or
concurrently with the time it is provided to such Person) and
(y) participate in discussions and negotiations with such
person regarding such acquisition proposal.
Termination of the Merger
Agreement (Page 87)
The merger agreement may be terminated at any time by mutual
written consent prior to the effective time of the merger, whether
before or after stockholder approval has been obtained. In
addition, either the Company or Parent may terminate the merger
agreement if:
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the merger has not been completed by December 31, 2020 (the
“termination date”), as long as the party seeking to terminate the
merger agreement has not breached in any material respect its
obligations under the merger agreement in any manner that was the
primary cause of the failure to consummate the merger on or before
such date;
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any final nonappealable injunction or similar order that
permanently enjoins or otherwise prohibits the consummation of the
merger has been issued (i) by a governmental entity having
jurisdiction over the business of the Company and its subsidiaries
(other than a de minimis portion of such business) or
(ii) that, if not abided by, would potentially result in criminal
liability, and the party seeking to terminate the merger agreement
has used the required efforts to prevent, oppose and remove such
injunction; or
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the proposal to adopt the merger agreement has been submitted to
the stockholders of the Company for approval and the required vote
has not been obtained, provided, that Parent shall not have the
right to terminate the merger agreement if the failure to obtain
the Stockholder Approval is due to the failure of the members of
the Stern Group to vote the shares of Common Stock beneficially
owned or controlled by the members of the Stern Group in favor of
the approval of the adoption of the merger agreement in accordance
with the terms and conditions of the Stern Group Voting
Agreement.
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Parent may terminate the merger agreement:
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if there is a breach, in any material respect, of any
representation, warranty, covenant or agreement on the part of the
Company which would result in a failure of certain conditions
relating to the Company’s representations, warranties, covenants
and agreements to be satisfied and which breach is incapable of
being cured by the termination date, or is not cured within thirty
days following delivery of written notice of such breach, so long
as the Parent is not then in material breach of their
representations, warranties, agreements or covenants contained in
the merger agreement; or
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if the Company’s board of directors or the Special Committee does
not include its recommendation to vote in favor of the proposal to
adopt the merger agreement in this proxy statement or changes its
recommendation, the Company enters into an alternative acquisition
agreement, the Company’s board of directors or the Special
Committee approves or recommends any alternative proposal or
publicly proposes to take any of the previous actions, or a tender
or exchange offer constituting an alternative proposal has been
commenced and the Company has not sent to its stockholders within
ten business days a statement disclosing that the Company’s board
of directors or the Special Committee recommends rejection of such
tender or exchange offer; in each case, so long as Parent
terminates the merger agreement within thirty calendar days of the
occurrence of any of the foregoing
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The Company may terminate the merger agreement:
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if there is a breach, in any material respect, of any
representation, warranty, covenant or agreement on the part of the
Parent Parties which would result in a failure of certain
conditions relating to the Parent Parties representations,
warranties, covenants and agreements to be satisfied and which
breach is incapable of being cured by the termination date, or is
not cured within thirty days following delivery of written notice
of such breach, provided that the Company is not then in material
breach of its representations, warranties, agreements or covenants
contained in the merger agreement;
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prior to the approval of the proposal to adopt the merger agreement
by the Company’s stockholders, in order to enter into a definitive
agreement with respect to a superior proposal, provided that
substantially concurrently with such termination, the Company must
enter into such definitive agreement and pay to Parent the
termination fee described under “The Merger
Agreement —Termination Fees and Expenses;
Reimbursement of Expenses” beginning on page
88 and 89; or
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if (i) all conditions to the Parent Parties’ obligation to
consummate the merger have been satisfied, (ii) the Company has
irrevocably confirmed in writing that all conditions to its
obligation to consummate the merger have been satisfied or the
Company is willing to waive any unsatisfied condition and stands
ready, willing and able to consummate the closing on such date,
(iii) the Parent Parties fail to consummate the merger within three
business days following the date the merger was required to close
and (iv) the Company stood ready, willing and able to consummate
the closing during those three business days.
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Termination Fees and Expenses (Page
88)
The Company will be required to pay to Parent an amount equal to
$400,000 in cash if:
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the Company terminates the merger agreement to enter into an
acquisition agreement related to a superior proposal with a person
or group that made an alternative acquisition proposal that the
Special Committee determined is, or could reasonably be expected to
result in, a superior proposal, subject to certain requirements;
or
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Parent terminates the merger agreement because the Board or any
committee thereof (including the Special Committee) has changed its
recommendation and the event giving rise to such termination is the
submission of an acquisition proposal by a person or group that
made an alternative acquisition proposal that the Special Committee
determined is, or could reasonably be expected to result in, a
superior proposal, subject to certain requirements; or
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the merger agreement is terminated under certain circumstances and,
within twelve months of such termination, the Company enters into a
definitive agreement with respect to an acquisition proposal or an
acquisition proposal is consummated; or
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the Company terminates the merger agreement to enter into an
acquisition agreement related to a superior proposal in any
circumstance other than those referred to above; or
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Parent terminates the merger agreement because the Board or the
Special Committee has changed its recommendation in any
circumstances, other than those referred to above.
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Parent will be required to pay to the Company an amount equal to
$500,000 in cash if the Company terminates the merger
agreement:
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as a result of a material breach by any of the Parent Parties of
the merger agreement that cannot be cured by the termination date
or is not cured within thirty days of notice;
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because (i) the merger is not consummated upon the satisfaction or
waiver of all closing conditions, (ii) the Company has irrevocably
notified Parent in writing that all conditions to its obligation to
complete the merger have been satisfied or that it is willing to
waive any unsatisfied conditions, (iii) the Parent Parties fail to
complete the closing of the merger within three business days
following the date the closing of the merger was required pursuant
to the merger agreement and (iv) the Company has irrevocably
confirmed in writing that it is ready, willing and able to
consummate the merger; or
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because the effective time of the merger has not occurred on or
before the termination date, if, at the time of or prior to such
termination, the Company would have been entitled to terminate the
merger agreement pursuant to the immediately foregoing bullet
point.
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The Company will be required to pay Parent (or one or more of its
designees) the documented out-of-pocket expenses incurred by the
Parent and its respective affiliates in connection with the merger
agreement and the financing and the transactions contemplated
thereby, up to a maximum amount of $250,000, if the Company or
Parent has terminated the merger agreement because the meeting of
the Company’s stockholders has concluded and the approval of the
proposal to adopt the merger agreement by the required vote of the
stockholders has not been obtained. Any such amount may be credited
against a Company termination fee, if any, payable to the
Parent.
Specific Performance (Page 89)
In the event of a breach or threatened breach of any covenant or
obligation in the merger agreement, the non-breaching party will be
entitled (in addition to any other remedy that may be available to
it whether in law or equity, including monetary damages) to a
decree or order of specific performance to enforce the observance
and performance of such covenant or obligation and/or to enforce
specifically the terms and provisions of the merger agreement and
an injunction or injunctions restraining such breach or threatened
breach.
Appraisal Rights (Page 68)
If the merger is completed, under Delaware law, holders of common
stock who do not vote in favor of adopting the merger agreement
will have the right to seek appraisal of the fair value of their
shares of common stock as determined by the Court of Chancery of
the State of Delaware, but only if they comply with all
requirements of Delaware law, which are summarized in this proxy
statement. This appraisal amount could be more than, the same as or
less than the merger consideration. Any holder of common stock
intending to exercise such holder’s appraisal rights, among other
things, must submit a written demand for an appraisal to us prior
to the vote on the adoption of the merger agreement and must not
vote or otherwise submit a proxy in favor of adoption of the merger
agreement. Your failure to follow exactly the procedures specified
under Delaware law will result in the loss of your appraisal
rights.
Market
Price of the Common Stock and Dividend
Information (Page 100)
The closing price of our common stock on the Global Select Market
of The NASDAQ Stock Market, LLC, which we may refer to as the
NASDAQ Global Select Market, on June 24, 2020, the last trading day
prior to the public announcement of the merger agreement amendment,
was $11.14. The $13.10 that will be paid to holders of our common
stock in exchange for each share of our common stock they hold
represents a premium of approximately 25.1% to the average closing
share price of our common stock for the 90 days ended on June 24,
2020 and a premium of approximately 42.0% to the average price of
our common stock during the 52 weeks prior to June 24,
2020.
QUESTIONS & ANSWERS ABOUT THE
VIRTUAL SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address
briefly some commonly asked questions about the merger, the merger
agreement and the virtual special meeting. These
questions and answers may not address all questions that are
important to you as a stockholder of Asta Funding,
Inc. Please refer to the “Summary Term Sheet” and the more
detailed information contained elsewhere in this proxy statement,
including in its annexes, all of which you should read carefully.
See also “Where You Can Find More Information” beginning on
page 107.
Q:
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Why am I receiving this proxy statement?
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A:
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We have agreed to merge under the terms of a merger agreement that
is described in this proxy statement. A copy of the merger
agreement and Amendment No. 1 to the merger agreement are attached
to this proxy statement as Annex A and Annex B,
respectively. You should carefully read this proxy statement in its
entirety.
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In order for the merger to be completed, stockholders holding a
majority of the outstanding shares of our common stock must vote to
adopt the merger agreement. You are receiving this proxy statement
and proxy card or voting instruction form because you own shares of
our common stock. This proxy statement describes matters on which
we urge you to vote and is intended to assist you in deciding how
to vote your shares of common stock with respect to such
matters.
We will hold a virtual special meeting of stockholders in order to
seek approval of the proposal to adopt the merger agreement and
other related matters on which we urge you to vote. This proxy
statement contains important information about these matters as
well as the virtual special meeting of stockholders. The enclosed
voting materials allow you to vote your shares of our common stock
without attending the virtual special meeting of stockholders.
Your vote is important. We encourage you to vote your shares of
common stock as soon as possible.
Q:
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What is the purpose of the virtual special
meeting?
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A:
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At the virtual special meeting, the holders of our common stock
will act upon the matters outlined in this proxy statement,
including a proposal to adopt the merger agreement and a proposal
to approve one or more adjournments of the virtual special meeting,
if necessary or appropriate, to solicit additional proxies to
approve the proposal to adopt the merger agreement, and in the
discretion of the proxy holders, on any other proposals to be voted
on at the virtual special meeting.
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For specific information regarding the merger agreement and
adjournment, see “Proposal No. 1—The Merger”
beginning on page 14 and “Proposal
No. 2– Adjournment of the
Virtual Special Meeting” on page 104,
respectively.
Q:
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Where and when is the virtual special
meeting?
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A:
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The virtual special meeting of our stockholders will be held
exclusively online via live webcast on [•], 2020 at [•] a.m.,
eastern time. There will not be a physical meeting location. The
virtual special meeting can be accessed via webcast by visiting
[•], where you will be able to listen to the meeting live, submit
questions and vote online. We encourage you to allow ample time for
online check-in, which will open at [*]. Eastern Time. Please note
that you will not be able to physically attend the virtual special
meeting in person.
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Why is the Company merging?
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A:
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After deliberation and consultation with its legal advisors as well
as a special committee of independent and disinterested members of
the board of directors, which committee was formed for the purpose
of evaluating the possible sale of the Company and was advised by
its own legal and financial advisors, our board of directors has
determined (without the participation of Gary Stern) that the
merger agreement, the merger and the other transactions
contemplated by the merger agreement are fair to, and in the best
interests of, our stockholders (other than Gary Stern and members
of the Stern Group).
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How does the board of directors recommend that I vote?
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A:
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Our board of directors (without the participation of Gary Stern)
recommends that our stockholders vote FOR the proposal to
adopt the merger agreement; and FOR the proposal to approve
one or more adjournments of the virtual special meeting, if
necessary or appropriate, to solicit additional proxies to approve
the proposal to adopt the merger agreement. See “Special
Factors—Recommendations of our Board of
Directors” beginning on page 29 of this proxy
statement for a more detailed discussion of the recommendation of
our board of directors.
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What will happen if the merger is not completed?
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If the proposal to adopt the merger agreement is not approved by
the Company’s stockholders, or if the merger is not consummated for
any other reason, the Company’s stockholders will not receive any
payment for their shares in connection with the merger. Instead,
the Company will remain a public company and shares of Common Stock
will continue to be listed and traded on NASDAQ Global Select
Market. Under specified circumstances, the Company may be required
to pay Parent (or one or more of its designees) a termination fee
of $400,000 or the documented out-of-pocket expenses of the Parent
Parties and their affiliates, up to a maximum amount of $250,000,
or Parent may be required to pay the Company a termination fee of
$500,000. See “The Merger Agreement—Termination Fees and
Expenses; Reimbursement of Expenses” beginning on page 88.
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Q:
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What will happen in the merger?
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A:
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We and our businesses will be acquired by Parent in a cash merger
transaction. At the completion of the merger, we will become a
wholly-owned subsidiary of Parent. As a result, shares of our
common stock will no longer be listed on any stock exchange,
including the NASDAQ Global Select Market, or quotation system, and
will be deregistered under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).
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Q:
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Why was the original merger agreement amended?
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A:
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Amendment No. 1 amended the merger agreement to reflect an increase
in the merger consideration from $11.47 per share in cash to $13.10
per share in cash following negotiations between the independent
special committee of our board of directors and the Stern Group.
For more information about the background of and reasons for
Amendment No. 1, see “Special Factors—Background of the
Merger” beginning on page 14 and “Reasons for the Merger and
Recommendation of Our Board of Directors” beginning on page
29.
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Q:
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What will a stockholder of the Company receive if the merger is
completed?
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A:
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In exchange for each share of our common stock owned and
outstanding at the effective time of the merger, each stockholder
will receive a cash payment per share of $13.10 unless such
stockholder properly exercises and does not withdraw its appraisal
rights under the Delaware General Corporation Law, which we may
refer to as the DGCL, with respect to such shares (as described
below). For example, if a stockholder owns 100 shares of common
stock, such stockholder will receive $1,310.00 in cash in exchange
for their shares of common stock. You will not own any shares of
the capital stock in the Company following completion of the
merger.
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Q:
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What will a holder of the Company’s stock options receive if the
merger is completed?
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A:
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Except as otherwise agreed to in writing prior to the effective
time of the merger by Parent and a holder of any Company stock
options with respect to any of such holder’s Company stock options,
each Company stock option, whether vested or unvested and whether
with an exercise price per share that is greater or less than, or
equal to, $13.10, that is outstanding immediately prior to the
effective time of the merger, will, as of the effective time of the
merger, become fully vested and be canceled and converted into the
right to receive an amount in cash from the surviving corporation
equal to (a) the product of (i) the excess, if any, of $13.10 over
the exercise price per share of Common Stock subject to such
Company stock option multiplied by (ii) the total number of shares
of Common Stock subject to such Company stock option, without
interest, less (b) such amounts as are required to be withheld or
deducted under applicable tax provisions
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Q:
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Will I have appraisal rights if I dissent from the
merger?
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A:
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Yes. Under the DGCL, you have the right to seek appraisal of the
fair value of your shares of our common stock, as determined by the
Court of Chancery of the State of Delaware, if the merger is
completed, but only if (a) you do not vote in favor of
adoption of the merger agreement, (b) you deliver a written
demand before the vote (as described elsewhere in this proxy
statement), (c) you continuously hold through the effective
time of the merger the shares for which you demand appraisal and
(d) you meet the other requirements of the DGCL. See “The
Virtual Special Meeting of Stockholders of Asta Funding,
Inc.—Appraisal Rights” beginning on page 68 of this
proxy statement for a more detailed discussion of appraisal rights
and the text of DGCL Section 262 attached as Annex D to
this proxy statement. Failure to follow the procedures set forth in
Section 262 of the DGCL will result in the loss of appraisal
rights.
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Q:
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Should I send in my stock certificates now?
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A:
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No. After the merger is completed you will receive written
instructions from the exchange agent on how to exchange your stock
certificates for the cash merger consideration. Please do not
send in your stock certificates with your proxy.
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Q:
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When do you expect the merger to be completed?
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A:
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We are working toward completing the merger as quickly as
practicable after the virtual special meeting of stockholders and
currently anticipate that the merger will be completed [•].
However, there can be no assurances that the merger will be
completed at all, or if completed, that it will be completed
[•].
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Q:
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Who is entitled to vote at the virtual special
meeting?
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A:
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Our board of directors has fixed the close of business on [____],
2020 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the virtual special meeting
and any adjournment or postponement thereof. Only holders of our
common stock at the close of business on the record date are
entitled to vote at the virtual special meeting.
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Q:
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What is a quorum for the virtual special
meeting?
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A:
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There must be a quorum for the virtual special meeting of
stockholders to be held. The holders of a majority of the issued
and outstanding shares of our common stock entitled to vote,
present in person via the live webcast or represented by a properly
executed and delivered proxy, will constitute a quorum for the
purpose of transacting business at the virtual special meeting of
stockholders. Only holders of record of our common stock on the
record date will be entitled to vote at the virtual special meeting
of stockholders. All shares of our common stock represented at the
virtual special meeting of stockholders, but not voting, including
abstentions, will be counted as present for determining the
presence or absence of a quorum. On the record date, there were [•]
shares of common stock outstanding and entitled to vote. Thus, [•]
shares of common stock must be represented by proxy or by
stockholders present and entitled to vote at the virtual special
meeting to have a quorum.
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Q:
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What vote of the Company’s stockholders is required to adopt the
merger agreement?
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A:
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Approval of the proposal to adopt the merger agreement requires the
affirmative vote of the holders of a majority of the shares of our
common stock outstanding as of the record date. In addition, it is
a condition precedent in the merger agreement that we obtain the
affirmative vote (in person via the live webcast or by proxy) in
favor of the proposal to adopt the merger agreement by the holders
of a majority of the outstanding shares of Common Stock entitled to
vote thereon not owned, directly or indirectly, by the Parent, the
Stern Group, any other officers and directors of the Company or any
other person having an equity interest in, or any right to acquire
an equity interest in, Merger Sub or any entity of which Merger Sub
is a direct or indirect subsidiary.
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Q:
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What vote of the Company’s stockholders is required to adopt the
proposal to adjourn the virtual special meeting, if necessary or
appropriate to solicit additional proxies to approve the proposal
to adopt the merger agreement?
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A:
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Approval of the proposal regarding adjournment of the virtual
special meeting, if necessary or appropriate, to solicit additional
proxies to approve the proposal to adopt the merger agreement
require the approval of a majority of the votes represented by the
shares of our common stock present and entitled to vote
thereon.
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Q:
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What do I need to do now?
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A:
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We urge you to read this proxy statement carefully, including its
annexes, and consider how the merger will affect you. If you are a
stockholder of record, you can ensure your shares are voted at the
special meeting by completing, dating, signing and returning the
enclosed proxy card in the enclosed prepaid envelope or by voting
through the Internet or by telephone. If you hold your shares in
“street name,” you can ensure that your shares are voted at the
special meeting by instructing your broker, bank or other nominee
how to vote, as discussed below. Please do not send in your stock
certificates with your proxy.
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Q:
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How do I cast my vote?
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A:
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If you are the record owner of your shares, you may vote:
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•
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Via Internet by casting your vote at www.proxyvote.com using the
Internet voting instructions printed on your proxy card;
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•
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Via telephone. To submit a proxy by calling the toll-free number on
the proxy card before 11:59 p.m., Eastern Time, on [*], 2020. You
will then be prompted to enter the control number printed on your
proxy card and to follow the subsequent instructions. Submitting a
proxy by telephone is available 24 hours a day;
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•
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By signing and dating each proxy card you receive and returning it
in the enclosed prepaid envelope; or
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|
•
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By casting your vote at the virtual special meeting via
www.proxyvote.com. There will not be a physical meeting location.
Any stockholder can attend the virtual special meeting by visiting
www.proxyvote.com, where stockholders may vote and submit questions
during the meeting. Instructions on who can attend and participate
via Internet, including how to demonstrate proof of stock
ownership, are posted at www,proxyvote.com.
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If you hold your shares in “street name,” you should follow the
procedures provided by your broker, bank or other nominee.
If you return your signed proxy card, but do not mark the boxes
showing how you wish to vote, your shares will be voted FOR
the adoption of the merger agreement and FOR the proposal to
approve the adjournment of the special meeting, if necessary or
appropriate, to solicit additional proxies to approve the proposal
to adopt the merger agreement.
Q:
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If my broker holds my shares in “street name,” will my broker
vote my shares?
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A:
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Yes, but only if you instruct your broker, bank or other nominee
how to vote your shares. You should follow the procedures provided
by your broker, bank or other nominee regarding the voting of your
shares. If you do not provide instruction on how to vote your
shares, your shares will not be voted on the merger proposal and
the effect will be the same as a vote by you against the adoption
of the merger agreement. We urge you to contact your broker, bank
or other nominee promptly to ensure that your vote is counted.
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Q: May I attend the virtual special
meeting and vote in person?
A:
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Yes. All stockholders as of the record date may attend the virtual
special meeting online and holders of our common stock may vote in
person. If your shares of our common stock are held in “street
name,” you must obtain a legal proxy from your broker, bank or
other nominee and bring your statement evidencing your beneficial
ownership of our common stock in order to attend the virtual
special meeting and vote in person via the Internet.
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Whether or not you plan to attend the virtual special meeting,
and unless you hold your shares in “street name,” please submit
your proxy through the Internet or by telephone or complete, date,
sign and return, as promptly as possible, the enclosed proxy card
in the enclosed prepaid envelope.
Q:
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Can I change my vote after I have delivered my proxy?
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A:
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If you submit your proxy through the Internet or by mail, you may
revoke your proxy at any time before the vote is taken at the
virtual special meeting in any of the following ways:
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|
•
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filing an instrument of revocation or a duly executed proxy bearing
a later date by mail to our secretary at 210 Sylvan Avenue,
Englewood Cliffs, New Jersey 07632;
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|
•
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casting your vote at the virtual special meeting via the virtual
meeting website.
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If your shares are not registered in your own name, you will need
additional documentation from your record holder to vote personally
at the virtual special meeting.
Your attendance at the virtual special meeting alone does not
automatically revoke your proxy.
Q:
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What do I do if I receive more than one proxy or set of voting
instructions?
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A:
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If you hold shares of our common stock in “street name” and also
directly as a record holder or otherwise, you may receive more than
one proxy and/or set of voting instructions relating to the special
meeting. Each of these should be voted and returned separately in
accordance with the instructions provided in this proxy statement
in order to ensure that all of your shares of our common stock are
voted.
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Q:
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What happens if I sell my shares of the Company’s common stock
before the virtual special meeting?
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A:
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The record date for stockholders entitled to vote at the virtual
special meeting is earlier than both the date of the virtual
special meeting and the consummation of the proposed merger. If you
transfer your shares of our common stock after the record date but
before the virtual special meeting, unless special arrangements
(such as provision of a proxy) are made between you and the person
to whom you transfer your shares and each of you notifies us in
writing of such special arrangements, you will retain your right to
vote such shares at the virtual special meeting but will transfer
the right to receive the per share merger consideration to the
person to whom you transfer your shares.
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Q:
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Will a proxy solicitor be used?
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A:
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This solicitation is made on behalf of our board of directors. We
have retained Laurel Hill Advisory Group, LLC, which we may refer
to as Laurel Hill, to assist our officers, directors and employees
in the solicitation of proxies for the virtual special meeting of
stockholders. We estimate that we will pay Laurel Hill a fee of
approximately $6,000. We have also agreed to reimburse Laurel Hill
for reasonable administrative and out-of-pocket expenses incurred
in connection with the proxy solicitation and to indemnify Laurel
Hill against certain losses, costs and expenses.
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Q:
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Who can help answer my questions?
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A:
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If you have additional questions about the matters described in
this proxy statement or how to submit your proxy, or if you need
additional copies of this proxy statement, you should contact:
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2 Robbins Lane, Suite 201
Jericho, New York 11753
Banks and Brokers Call (516) 933-3100
All Others Call Toll-Free (888) 742-1305
You may also obtain additional information about us from documents
filed with the SEC by following the instructions in the section
entitled “Where You Can Find More Information” on page
107 of this proxy statement.
Neither the SEC nor any state securities regulatory commission
has approved or disapproved of the merger, passed upon the merits
or fairness of the merger agreement or the transactions
contemplated thereby, including the proposed merger, or passed upon
the adequacy or accuracy of the information contained in this proxy
statement. Any representation to the contrary is a criminal
offense.
PROPOSAL NO.
1—THE MERGER
This section of the proxy statement describes the principal
aspects of the proposed merger. While we believe that this
description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information
that is important to Asta Funding stockholders. You can obtain a
more complete understanding of the merger by reading the merger
agreement and Amendment No. 1 to the merger agreement, copies of
which are attached to this proxy statement as Annex
A and Annex B, respectively. You
are encouraged to read the merger agreement and the other annexes
to this proxy statement carefully and in their entirety.
SPECIAL FACTORS
Parties to
the Merger
Asta Funding, Inc.
Asta Funding, Inc., a Delaware corporation, is engaged in several
business segments in the financial services industry including
funding of personal injury claims, through our wholly owned
subsidiaries Sylvave, LLC, Simia Capital, LLC and Arthur Funding
LLC, social security disability advocacy through our wholly owned
subsidiaries GAR Disability Advocates, LLC and Five Star Veterans
Disability, LLC, and, through our wholly owned subsidiaries
Palisades Collection, LLC, Palisades Acquisition XVI, LLC,
Palisades XIX, LLC, Palisades Acquisitions XXIII, LLC and VATIV
Recovery Solutions, LLC, the business of purchasing, managing for
our own account and servicing distressed consumer receivables,
including charged off receivables, and semi-performing receivables.
For additional information, please visit www.astafunding.com. Our
principal executive offices are located at 210 Sylvan Avenue,
Englewood Cliffs, New Jersey 07632. Our telephone number is
(201) 567-5648. Our common stock trades on the NASDAQ Global
Select Market under the symbol “ASFI.” Please see the section
entitled “Important Information Regarding
Asta” beginning on page 93 of this proxy statement.
Asta Finance Acquisition Inc.
The Parent is a Delaware corporation formed on December 26, 2019
for purposes of entering into the merger agreement and consummating
the transactions contemplated by the merger agreement. The Parent
has not engaged in any business except for activities incident to
its formation and in connection with the transactions contemplated
by the merger agreement. The Parent is affiliated with the Stern
Group. Gary Stern serves as the sole officer and director of the
Parent. Upon consummation of the merger, the stockholders of the
Parent will be the members of the Stern Group, with their
respective holdings being proportional to the shares of our Common
Stock contributed to the Parent. The Parent is the sole stockholder
of Merger Sub and, upon consummation of the merger, will be our
sole stockholder. The address of the Parent is c/o Moomjian, Waite
& Coleman, LLP, 350 Jericho Turnpike, Jericho, NY 11753. Please
see the section entitled “Important Information
Regarding the Parent Parties and the Stern
Group” beginning on page 101 of this proxy statement.
Asta Finance Acquisition Sub Inc.
The Merger Sub is a Delaware corporation formed on December 26,
2019 for purposes of entering into the merger agreement and
consummating the transactions contemplated by the merger agreement.
The Merger Sub has not engaged in any business except for
activities incident to its formation and in connection with the
transactions contemplated by the merger agreement. The Merger Sub
is wholly owned by Parent, and will merge with and into the
Company, with the Company as the surviving corporation. The address
of Merger Sub is c/o Moomjian, Waite & Coleman, LLP, 350
Jericho Turnpike, Jericho, NY 11753. Please see the section
entitled “Important Information Regarding the Parent Parties and
the Stern Group” beginning on page 101 of this proxy
statement.
Background of the Merger
As part of their ongoing oversight and management of the Company’s
business, the board of directors and senior management of the
Company regularly review and assess the Company’s operations,
performance, prospects and strategic direction, and evaluate the
possibility of pursuing various strategic transactions and other
strategic alternatives as part of ongoing efforts to strengthen the
business and enhance stockholder value, while taking into account
economic, regulatory, competitive and other conditions.
On October 30, 2019, Gary Stern, the Chairman, President and Chief
Executive Officer and a major stockholder of the Company, submitted
to the board of directors of the Company a non-binding offer to
acquire all of the outstanding shares of common stock of the
Company at a price of $10.75 per share and take the company private
(sometimes referred to as the “proposed transaction”). In his
initial proposal, Gary Stern stated that he was not interested in
taking the Company private unless the transaction was approved by a
special committee of independent directors and the Company obtained
an affirmative vote of the majority of the minority stockholders,
which include stockholders other than Gary Stern or members of the
Stern Group, in favor of the proposed transaction. Additionally, in
his initial proposal, Gary Stern stated that he was not interested
in selling his shares in the Company to a third party or
participating in any merger or other strategic transaction
involving any third party, and did not intend to vote in his
capacity as a stockholder in favor of any such alternative
transaction.
On October 30, 2019, the board of directors adopted a resolution at
a meeting, in which it appointed a special negotiating committee of
independent and disinterested directors to consider and negotiate
the proposed transaction (“Special Committee”), and appointed David
Slackman (“Mr. Slackman”), Timothy Bishop (“Mr. Bishop”) and
Michael Monteleone (“Mr. Monteleone”) as members of the Special
Committee and appointed Mr. Slackman as Chair of the Special
Committee.
On October 31, 2019, David Slackman interviewed Tannenbaum Helpern
Syracuse & Hirschtritt, LLP (“Tannenbaum”) for the role of
independent legal counsel for the Special Committee.
On November 1, 2019, the Special Committee retained Tannenbaum to
act as legal counsel to the Special Committee.
The board of directors adopted a resolution by unanimous written
consent, dated November 2, 2019, that, among other things,
authorize and delegate to the Special Committee the exclusive power
and authority of the board of directors to: (1) establish, approve,
modify, monitor and direct the process and procedures related to
the review and evaluation of the proposed transaction, including
the authority to determine not to proceed with any such process,
procedures, review or evaluation and the authority not to recommend
the proposed transaction; (2) respond to any communications,
inquiries or proposals regarding the proposed transaction; (3)
review, evaluate, investigate, pursue and negotiate the terms and
conditions of the proposed transaction with Gary Stern (sometimes
referred to as “Mr. Stern”) or any other party the Special
Committee deems appropriate; (4) determine on behalf of the board
of directors and the Company whether the proposed transaction is
advisable and is fair to, and in the best interests of, the Company
and its stockholders (or any subset of the stockholders of the
Company that the Special Committee determines to be appropriate);
(5) reject or approve the proposed transaction; (6) recommend to
the board of directors the consummation of the proposed
transaction; (7) review, analyze, evaluate and monitor all
proceedings and activities of the Company related to the proposed
transaction; (8) investigate the Company, the potential buyer, the
proposed transaction and matters related thereto as it deems
appropriate; (9) consider, evaluate, and make recommendations to
the board of directors concerning, other transactions presented to
the Special Committee involving the acquisition of all of the
outstanding common stock of the Company, or similar going private
transactions; (10) retain such financial, legal and other advisers
as the Special Committee may deem to be necessary or appropriate;
and (11) take such other actions as the Special Committee may deem
to be necessary or appropriate for the Special Committee to
discharge its duties.
The board of directors also resolved not to recommend any going
private transaction or any alternative transaction without a prior
favorable recommendation by the Special Committee.
Between November 3, 2019 and November 7, 2019, representatives of
Tannenbaum held discussions with two potential financial advisors
(previously identified by the Special Committee members), who would
be retained as financial advisor to assist the Special Committee in
evaluating and negotiating the proposed transaction and provide an
opinion as to the fairness of any proposed consideration to the
stockholders of the Company (excluding any members of the Stern
Group) in connection with the proposed transaction.
On November 4, 2019, a putative derivative action was filed by
Daniel Litten, on behalf of the Company, asserting claims against
certain current and former directors and officers of the Company
regarding certain transactions occurring between March 2016 through
December 2018 (the “Litten action”).
On November 7, 2019, Tannenbaum reported to the Special Committee
on its discussions with the financial advisor candidates to the
Special Committee. The Special Committee requested that Tannenbaum
contact a third financial advisor candidate, arrange for the three
candidates to meet with the Special Committee and present their
respective proposals for an engagement by the Special
Committee.
On November 13, 2019, the Special Committee held a meeting at the
Tannenbaum offices in New York City, at which representatives of
Tannenbaum were present. During the meeting, the three financial
advisor candidates, Marshall Stevens, Lincoln and Duff &
Phelps, presented their respective proposals for an engagement by
the Special Committee. Representatives from each candidate
presented their background, experience and expertise in mergers and
acquisitions advisory matters, public company transactions, and
going private transactions. In light of Gary Stern’s offer, which
noted that he was not interested in selling his shares in the
Company to a third party or participating in any merger or other
strategic transaction involving any third party, and did not intend
to vote in his capacity as a stockholder in favor of any such
alternative transaction, it was determined that the Special
Committee’s financial advisors would not solicit any other
potential buyers for the Company or alternative transactions. The
members of the Special Committee and Tannenbaum conducted a
vigorous interview with each candidate.
On November 20, 2019, the Special Committee held a telephonic
meeting, at which representatives of Tannenbaum were present, and
discussed and reviewed the three financial advisor candidates
taking into consideration the background, experience and fees of
each candidate. On the basis of Lincoln’s knowledge, background and
deal experience, the Special Committee unanimously selected Lincoln
to serve as its financial advisor for the proposed transaction. The
Special Committee also discussed the Litten action.
On November 22, 2019, the Special Committee entered into an
engagement letter agreement with Lincoln and the Company, in which
the parties agreed that the Special Committee would retain Lincoln
to act as its financial advisor in connection with the proposed
going private transaction.
During November 2019 and December of 2019, representatives of
Lincoln met with members of the Company’s management team both in
person at the Company’s executive offices and telephonically.
Representatives of Lincoln also commenced a review of the Company
and reviewed and analyzed the macroeconomic and competitive
challenges facing the Company and the industries in which the
Company operates.
In early December 2019, following discussions with defense counsel
to the Company and Tannenbaum with respect to the Litten action,
the Special Committee decided to form a subcommittee of the Special
Committee dedicated to evaluating the Litten action as it related
to the proposed transaction (the “Litten action subcommittee”). The
Special Committee determined that Mr. Slackman, a named defendant
in the Litten action, would not be a member of the subcommittee to
the Special Committee and would not take part in these discussions
because he was a defendant in the action. The members of the
subcommittee were Mr. Monteleone and Mr. Bishop.
On December 4, 2019, the Special Committee (with Mr. Monteleone
unavailable and absent) held a telephonic meeting, at which
representatives of Tannenbaum and Lincoln were present.
Representatives of Lincoln discussed their meetings with the
Company’s management team and requested that the Company provide a
seven-year forecast for fiscal years 2020-2026, for purposes of
Lincoln’s preliminary analysis of the Company and the proposed
transaction. The Special Committee informed the representatives of
Lincoln that the Company ordinarily only prepares annual forecasts
and the Company’s management team may not have the capabilities to
provide a seven-year forecast. The Special Committee and
representatives of Lincoln discussed the various segments of the
Company’s business and the outlook for each segment. The Special
Committee discussed that the personal injury division was not
profitable. It was also noted, however, that GAR, as an ongoing
business was somewhat profitable, with low to medium growth. The
Special Committee noted that, although the Company may purchase new
consumer receivable portfolios in future periods, it may not be
able to purchase consumer receivable portfolios domestically at
favorable prices or terms. There was also a discussion at the
meeting between the Company and representatives of Lincoln about
future projected expenses. The Special Committee noted that one of
the benefits of the merger transaction would be that the public
company expenses would be eliminated. Additionally, Mr. Slackman,
Chair of the Special Committee, expressed his view that it would be
unlikely that the Company could find a buyer for the portfolios for
the consumer receivables collection business and that the net
present value of cash flow is most relevant for ascertaining the
value of the Company.
In discussing the requested forecast, Mr. Slackman suggested that
the Chief Financial Officer (“CFO”) of the Company, Steven
Leidenfrost, a disinterested party to the proposed transaction,
have ultimate authority over the forecast, as opposed to Gary
Stern, and that the former CFO of the Company, Bruce Foster, who
had only left the Company in September 2019, could be available to
help with preparing the forecast.
On December 9, 2019, the Company submitted its seven-year forecast
(the “Initial Management Forecast”) to the Special Committee for
its review. The Initial Management Forecast baseline projections
were based on actual 2019 revenues for the first half of fiscal
year 2019.
On December 10, 2019, the Special Committee held a telephonic
meeting, at which representatives of Tannenbaum, representatives of
Lincoln, Steven Leidenfrost, the Company’s CFO, and Monika
Dasgupta, Controller of the Company, were present, to discuss the
Initial Management Forecast. The Special Committee asked Steven
Leidenfrost to provide the assumptions for the Initial Management
Forecast. The Special Committee also discussed the treatment of
certain expenses in the forecast. Additionally, Steven Leidenfrost
noted that while management believed GAR would be profitable, it
would not be experiencing meaningful growth.
On December 15, 2020, representatives of Tannenbaum spoke with the
Company’s general counsel, Seth Berman, and its CFO, Steven
Leidenfrost, to discuss Lincoln’s due diligence requests and,
ongoing accounting matters such as the closing of the books and
quarterly reporting, deferred tax assets and management forecasts
and projections.
On December 16, 2019, the Special Committee held a telephonic
meeting, at which representatives of Tannenbaum and Lincoln were
present. The Special Committee members discussed with
representatives of Lincoln and Tannenbaum the Initial Management
Forecast and the Special Committee’s outlook for the Company. The
Special Committee raised concerns about the Initial Management
Forecast. The Special Committee discussed the viability of certain
divisions of the Company, including GAR and the Five Star Veterans,
Social Security and Disability claims business. In light of the
fact that the Initial Management Forecast presented declining
revenues and no growth assumptions, the discussion then turned to
the possibility of cutting certain corporate expenses. Finally, the
Special Committee discussed with representatives of Lincoln the
appropriate metrics that should be used to value the Company. At
the time of the meeting, members of the Special Committee expressed
their view that it was premature to discuss a valuation for the
Company until management addressed the Special Committee’s concerns
with respect to the Initial Management Forecast.
On December 18, 2019, the Special Committee held a meeting at
Tannenbaum’s offices in New York City, at which representatives of
Tannenbaum and Lincoln were present. The Special Committee reviewed
financial forecasts for the Company prepared by management of the
Company. Representatives of Lincoln provided an update with respect
to Lincoln’s preparation of a preliminary financial analysis of the
Company.
On December 19, 2019, the board of directors met and determined
that the compensation for the Special Committee members for their
service on such committee would be $15,000 for Mr. Bishop and Mr.
Monteleone, respectively, and $30,000 for Mr. Slackman, for his
service as the chair of the Special Committee. This compensation is
consistent with the amounts paid to the members of the Special
Committee in their capacities as members of the board of directors,
and consistent with past payment amounts to those directors who
serve on special committees to the board of the directors.
Representatives of Lincoln also reported to the Special Committee
that on December 17, 2019, as part of Lincoln’s review of the
financial forecasts for the Company, and at the request of the
Special Committee, representatives from Lincoln met with Ricky
Stern and Gary Stern, as members of the Company’s executive team,
and discussed the Company’s corporate expenses and allocation of
costs. A principal concern raised by the members of the Special
Committee with respect to the Initial Management Forecast was its
projection of corporate and public company expenses throughout the
business. This concern was due in large part to the lack of
anticipated growth throughout the Company’s business segments
projected over the 7 years forecasted which was not offset with
meaningful reductions in corporate and public company expenses. The
Special Committee reviewed and approved for Lincoln’s use an
alternative forecast for corporate expenses for Lincoln to use
along with the Initial Management Forecast in its preliminary
financial analysis. At the end of the meeting, representatives of
Lincoln informed the Special Committee that it would be preparing a
preliminary financial analysis of the Company.
On December 27, 2019, the Litten action subcommittee, consisting of
Messrs. Monteleone and Bishop, held a meeting at which
representatives of Tannenbaum were present. The parties discussed a
process for considering whether the claims in the Litten action had
merit in order to determine whether any value should be placed on
the action for the purposes of determining the overall value of the
Company.
On December 30, 2019, the Special Committee held a telephonic
meeting, at which representatives of Tannenbaum and Lincoln were
present. At the meeting, representatives of Lincoln presented
Lincoln’s preliminary financial analysis of the Company using the
Initial Management Forecast and incorporating the alternative
forecast for corporate expenses. Representatives of Lincoln
reviewed with the Special Committee the methodologies in its
preliminary financial analysis, including, among other things, a
preliminary analysis of the high end of the equity value of the
Company, the book value of the Company (which the presentation
noted was for reference only), an illustrative perspective on
potential negotiation positions, the Company’s corporate overhead
expenses, the trading history of the Company’s common stock and an
illustrative analysis of premiums paid in recent transactions in
the diversified financials industry. After a review and discussion
of Lincoln’s preliminary financial analysis, the Special Committee
decided to indicate, in its negotiations with Gary Stern, that the
book value of the Company was a factor that should be considered in
valuing the Company, and at the conclusion of the meeting made the
decision to discuss its views on value with Gary Stern and seek an
increase in price with respect to the proposed transaction from Mr.
Stern.
On December 31, 2019, Mr. Slackman had a teleconference with Gary
Stern, his attorneys, including a representative of Moomjian, Waite
& Coleman, LLP (“MWC”), and representatives of Tannenbaum and
Lincoln. The parties discussed Lincoln’s preliminary financial
analysis of the Company. Mr. Slackman informed Gary Stern that the
book value of the Company was approximately $13.00 per share, and
while the Special Committee understood that other factors would be
considered when determining a reasonable price in the proposed
transaction, the Special Committee requested that he increase his
offer. Gary Stern disagreed with relative importance of book value,
and stated he would not be interested in a transaction at more than
$11.00 per share. Mr. Stern explained that the GAR business, the
Company’s most profitable arm, had suffered a significant decline
in the six months ended on December 31, 2019, which had not been
considered in the Initial Management Forecast. Additionally, Mr.
Stern did not agree that all of the Company’s expenses associated
with being a public company would immediately cease following
consummation of the proposed transaction, Directors and Officers
(“D&O”) insurance and accountant costs would remain, and also
that a high level of fixed costs would result in negative cash flow
at some point during the seven year projection period. In addition,
Mr. Stern stated that he disagreed with the numbers used in the GAR
forecast of the Initial Management Forecast. Ricky Stern, the Chief
Executive Officer of GAR, did not review the GAR portion of the
Initial Management Forecast prior to its distribution to the
Special Committee.
After Gary Stern left the meeting, Mr. Slackman discussed with the
representatives from Tannenbaum and Lincoln the concerns Mr. Stern
raised as to the possibility of outdated numbers and/or assumptions
in the Initial Management Forecast, such as the absence of the
latest actual cash collected for the fiscal period ending December
31, 2019. Of note was the fact that Mr. Stern had not reviewed the
Initial Management Forecast prior to its distribution to the
Special Committee. Since Mr. Stern was an integral part of the
Company’s management team with overall oversight for its businesses
as the President and Chief Executive Officer, the Special Committee
viewed his understanding of the metrics and assumptions used in the
Initial Management Forecast as important and not to be wholly
disregarded, despite Mr. Stern’s position as the principal of the
acquiror in the proposed merger. After a long discussion with the
representatives from Tannenbaum and Lincoln, taking into account,
among other things, the concerns raised as to the numbers and
assumptions used in the Initial Management Forecast, as well as the
concerns regarding projections of corporate and public company
expenses, Mr. Slackman suggested that the Company should revise the
Initial Management Forecast to include more accurate and
supportable assumptions. The Company subsequently prepared and
provided a revised forecast (the “First Revised Management
Forecast”) to the Special Committee. Due to the material changes
from the Initial Management Forecast reflected in the First Revised
Management Forecast, representatives of Lincoln, at the request of
the Special Committee, requested the Company’s management to
provide a memorandum explaining how the First Revised Management
Forecast was formulated.
On January 2, 2020, representatives of Lincoln, Tannenbaum and
Lincoln’s outside counsel held a telephonic meeting at which the
parties discussed the vetting process for the First Revised
Management Forecast delivered by the Company to the Special
Committee. Later that day, Steven Leidenfrost provided the Special
Committee and representatives of Tannenbaum and Lincoln with the
requested explanatory memo. The memorandum described the
assumptions included in the First Revised Management Forecast and
noted that it reflected actual cash collected related to GAR
revenue for the six months ended December 31, 2019. The memorandum
also explained that the First Revised Management Forecast projected
reduced revenue for GAR and income (loss) before taxes.
Additionally, the First Revised Management Forecast re-allocated a
portion of the annual executive salary of GAR’s president as part
of the Company’s corporate overhead expenses, and provided for a 2%
growth rate for GAR beginning in 2022.
On January 3, 2020, the Special Committee held a telephonic meeting
at which representatives of Tannenbaum and Lincoln were in
attendance, and Steven Leidenfrost, Monika Dasgupta and Ricky
Stern, members of the Company’s management team, joined the
meeting. Prior to the management team joining the meeting, Mr.
Slackman reported to the Special Committee his discussions with
Gary Stern on December 31, 2019. The Special Committee, and
representatives of Lincoln and Tannenbaum also discussed the
importance of having the best currently available financial
forecasts for the Company. The Special Committee members and
representatives of Lincoln discussed the differences and
similarities between the Initial Management Forecast and the First
Revised Management Forecast. It was noted that, per the explanatory
memorandum concerning the GAR segment provided to the Special
Committee from the management team, the Initial Management Forecast
and the First Revised Management Forecast included assumptions
around direct expenses, but not corporate expenses. Also, the
Initial Management Forecast and First Revised Management Forecast
differed in that revenue and net income were lower in the First
Revised Management Forecast. Representatives of Lincoln also
reported at this meeting that Gary Stern told representatives of
Lincoln and Mr. Slackman that he was willing to increase his offer
from $10.75 to $11.00 per share. However, the Special Committee
members expressed skepticism that $11.00 was the best and highest
price per share that Gary Stern would offer, based on the previous
preliminary financial analysis reviewed by the Special Committee.
The Special Committee members questioned the appropriateness of a
forecast that reduced revenue without also forecasting reduced
expenses.
After the members of the management team joined the January 3, 2020
meeting, the Special Committee asked the management team to explain
the differences between the Initial Management Forecast and the
First Revised Management Forecast. The members of the management
team explained that the First Revised Management Forecast reflected
the most recent six-month trend for GAR revenue rather than the
trend from the first six-months of fiscal 2019. The most recent
six-month trend indicated that GAR’s revenue was trending lower.
One contributing factor that the management team mentioned was the
fact that there was an acceleration in processing disability
benefit applications by the Federal government, and other industry
factors, which were out of the Company’s control. The Special
Committee requested that members of the management team produce a
revised forecast and consider how it could reduce Company expenses
in later years of the forecast so as to correlate to the reduction
of revenue over the seven year period. The members of the
management team agreed to prepare a revised forecast for the
Company, noting that they had not considered the levels of
operating expenses in light of the forecasted revenue, nor were
future growth assumptions included. At the Special Committee’s
suggestion, management agreed to also use a longer history of GAR’s
cash collections and include future growth assumptions in the
revised forecast.
On January 3, 2020, the Litten action subcommittee held a meeting,
at which representatives of Tannenbaum were present. The parties
further discussed the process of evaluating the Litten action. A
representative from Tannenbaum advised that he would schedule calls
with litigation counsel for the parties involved in the Litten
action to discuss their respective positions concerning the
lawsuit.
On January 6, 2020, in connection with the Litten action,
representatives of Tannenbaum had a conference call with the
Company’s litigation defense counsel, a representative from Pepper
Hamilton LLP (now known as Troutman Pepper Hamilton Sanders LLP),
and with a representative from Abrams & Bayliss LLP, the
litigation defense counsel for Louis Piccolo, Mr. Slackman, Mark
Levenfus and Bruce Foster. The parties discussed the merits of the
claims alleged in the Litten action.
On January 6, 2020, the Company’s management team prepared
revisions to the seven year forecast for GAR and presented the
second revised consolidated seven year forecast for the Company
(the “Second Revised Management Forecast”), along with an
explanatory memorandum, to the Special Committee. The Special
Committee noted that the Second Revised Management Forecast
reflected updated financial information for GAR, but did not yet
address the Special Committee’s concerns around the levels of
forecasted operating expenses in light of a reduction in forecasted
revenue or the need to include future growth initiatives
On or about January 8, 2020, a motion to dismiss the Litten action
complaint was filed on behalf of all individual defendants and the
Company as nominal defendant.
On January 9, 2020, representatives of Tannenbaum held a conference
call with respect to the Litten action with plaintiff’s counsel, a
representative from Faruqi & Faruqi, LLP. At the meeting,
plaintiff’s counsel provided a general view of the Litten action.
Plaintiff’s counsel noted that it was too early in the litigation
process to state the damages or consider the monetary value of the
claims.
On January 10, 2020, the Litten action subcommittee held a
telephonic meeting, at which representatives of Tannenbaum were
present. A representative from Tannenbaum explained that the role
of the Litten action subcommittee was to evaluate the merits of the
Litten action and, if it found the claims to have merit, attempt to
assign some value to those claims in connection with the proposed
transaction. There was then a discussion regarding the specific
claims asserted by the plaintiff in the Litten action. Tannenbaum
then reported on its January 6, 2020 conference call with certain
defense counsel and its January 9, 2020 conference call with
plaintiff’s counsel.
The Litten action subcommittee requested Tannenbaum to prepare a
memorandum on behalf of the Special Committee, analyzing the merits
and potential value, if any, of the Litten action.
On January 16, 2020, the Special Committee held a meeting, at which
members of the Special Committee and representatives of Tannenbaum
and Lincoln were present. At the meeting, representatives of
Lincoln reviewed with the Special Committee its updated preliminary
financial analysis of the Company using the Second Revised
Management Forecast, including, among other things, an updated
preliminary analysis of the equity value of the Company, the book
value of the Company, and the Company’s corporate overhead
expenses. Representatives of Lincoln also reviewed with the Special
Committee a preliminary financial analysis of the Company on a
sum-of-the-parts basis using the Second Revised Management Forecast
for each of the Company’s business segments (including the
Company’s corporate overhead). Lincoln’s updated preliminary
financial analysis, which was based on market data through January
15, 2020, also reflected updated values for the Company’s cash and
marketable securities as of such date. At the meeting, the Special
Committee discussed the Initial Management Forecast, the First
Revised Management Forecast and Second Revised Management Forecast,
as well as the GAR projections set forth therein, and the Special
Committee determined to instruct representatives of Lincoln to use
the Second Revised Management Forecast going forward for purposes
of Lincoln’s future analyses.
On January 17, 2020, Tannenbaum provided the Litten action
subcommittee with the memorandum in which it evaluated the merits
and value, if any, of the Litten action. Tannenbaum concluded that
it believed the claims were unlikely to survive a motion to
dismiss, and that there are likely no meaningful financial damages
associated with the claims. Further, Tannenbaum concluded that it
believed there was a reasonable basis for the Special Committee not
to attribute value to the Litten action in evaluating an adequate
offer price per share in the proposed transaction.
On January 19, 2020, the Litten action subcommittee held a
telephonic meeting, at which representatives from Tannenbaum
attended. A discussion was held concerning the memorandum
previously provided to the Litten action subcommittee. The
subcommittee members advised Tannenbaum that they reviewed certain
documents related to the transactions involved in the complaint.
The subcommittee also agreed that no value should be attributed to
the claims in the Litten action for the purpose of evaluating the
going-private transaction.
A meeting of the full Special Committee was also held on January
19, 2020 following the meeting of the Litten action subcommittee,
at which a representative of Tannenbaum was present. At the
beginning of the meeting, Mr. Monteleone and Mr. Bishop, in their
capacity as members of the Litten action subcommittee, stated that,
in their view, no value should be attributed to the claims in the
Litten action for the purpose of evaluating the going-private
transaction. During the meeting, the Special Committee authorized
Mr. Slackman to request that Gary Stern increase his offer of
$11.00 per share. The Special Committee also authorized Mr.
Slackman to preliminarily accept an offer that is no less than
$11.00 per share as a basis to negotiate the merger agreement.
Following the meeting, Mr. Slackman and Gary Stern discussed
increasing Mr. Stern’s offer, and Mr. Stern agreed to offer $11.05
per share, which Mr. Slackman preliminarily accepted on behalf of
the Special Committee as a basis to negotiate the merger
agreement.
On January 20, 2020, counsel for the Stern Group, MWC, sent a draft
merger agreement to Tannenbaum.
From January 20, 2020 until the execution of the merger agreement
on April 8, 2020, the Special Committee, Mr. Stern and their
respective legal advisors exchanged several drafts of, and engaged
in numerous discussions and negotiations concerning the terms of,
the merger agreement and the Stern Group voting agreement.
Significant areas of discussion and negotiation included the amount
of the merger consideration; the scope and terms of the
representations, warranties and covenants, including the interim
operating restrictions; the circumstances in which the Company
would be permitted to terminate the agreement and the
termination-related fees payable in connection therewith; and the
consequences for certain breaches of the agreement.
On January 24, 2020, the Special Committee held a telephonic
meeting, at which representatives of Tannenbaum were present. A
representative from Tannenbaum discussed the most recent draft of
the merger agreement, which he distributed to the Special Committee
on January 23, 2020. The representative from Tannenbaum discussed
the remaining open issues in the merger agreement and answered
questions posed by the Special Committee members. Following the
meeting, Tannenbaum distributed a revised draft of the merger
agreement to MWC.
On January 30, 2020, representatives of Tannenbaum and Mr.
Monteleone, in his capacity as a member of the Company's Audit
Committee and the Special Committee, had a telephonic conference
call. The membership of the Company's Audit Committee and the
Special Committee consists of the same individuals, i.e., Messrs.
Slackman, Monteleone and Bishop. These members, in their capacities
as members of the Audit Committee and the Special Committee,
requested the Company's management to prepare a new forecast and
include in the forecast a business plan to address the previously
requested growth initiatives, as the prior forecasts did not plan
for any meaningful growth, which both the Special Committee and
Audit Committee regarded as a concern for the future outlook of the
Company, and to reflect the proper alignment of forecasted expenses
with forecasted revenue in light of the projected decline in
revenues and net income.
From February 3, 2020 through February 12, 2020, members of the
Special Committee and representatives of Tannenbaum held numerous
conversations with members of the Company’s management team to
discuss the development of a new seven-year forecast for the
Company and a new business plan. The new forecast would address the
existing concerns of the Special Committee about expenses and
future growth, and would include the available financial results of
the first fiscal quarter of 2020.
On February 7, 2020, MWC sent a revised draft of the merger
agreement to Tannenbaum.
On February 17, 2020, in light of the discussions between the
members of the Special Committee and the Company’s management team
between February 3, 2020 and February 12, 2020, Steven Leidenfrost
distributed to the Special Committee and representatives of
Tannenbaum, a third, and final, revised seven-year forecast (the
“Final Management Forecast”) and supporting memorandum detailing
assumptions used and processes utilized in developing such
forecast. The Final Management Forecast included revenue associated
with future growth plans, including plans for a new business
segment to be involved in small business lending, and an alignment
of forecasted operating expenses with forecasted revenue. As a
result, the Final Management Forecast addressed the concerns raised
by the Special Committee, as well as the Audit Committee.
The Final Management Forecast was prepared by numerous members of
the Company’s management team. David Cavill, Director of Business
Intelligence prepared the Final Management Forecast for the
Company’s Consumer Receivables business. Monika Dasgupta, Corporate
Controller, prepared the Company’s business segments portion of the
Final Management Forecast, including GAR, Five Star Veterans
Disability LLC (“Five Star”) and Personal Injury, and corporate
portion of the Final Management Forecast, which includes certain
non-allocated administrative costs, interest income and various
other non-operating income and expenses and assets including cash
and cash equivalents, investments in equity securities and
available-for-sale debt securities, settlement receivable, property
and equipment, goodwill, deferred taxes and other assets. Ricky
Stern, as Senior Vice President and President of GAR reviewed and
approved the GAR and Five Star forecast. Lou Piccolo, a member of
the Company’s board of directors who is not a member of the Special
Committee provided consulting services to the Company in preparing
the Small Business Lending business plan. Key assumptions and
forecast information with respect to such Small Business Lending
plan were reviewed with Gary Stern, in his capacity as the
President and Chief Executive Officer of the Company. Gary Stern,
in his role as President and Chief Executive Officer, provided
strategic directions, and assumptions regarding the Personal Injury
business, Consumer Receivables business and overhead expenses. Gary
Stern also reviewed and approved the final forecasted results used
in the Final Management Forecast. Steven Leidenfrost, Chief
Financial Officer, reviewed the Final Management Forecast for
accuracy within the forecasted worksheet, and overall
reasonableness. Mr. Leidenfrost also reviewed and approved the
assumptions used by David Cavill, Louis Piccolo and Monika
Dasgupta. Ricky Stern reviewed and approved the assumptions
used for GAR and Five Star.
On February 18, 2020, the Special Committee and a representative
from Tannenbaum held a telephonic meeting to discuss the Final
Management Forecast and explanatory memorandum from Steven
Leidenfrost on behalf of the Company.
On February 21, 2020, the Final Management Forecast was approved by
the Special Committee for Lincoln’s use and shared with
representatives of Lincoln.
On February 27, 2020, Seth Berman, general counsel to the Company,
sent Tannenbaum a revised draft of the merger agreement, which
included comments from the Company’s Accounting Department.
Tannenbaum forwarded such draft to MWC.
On February 29, 2020, the Special Committee entered into an
amendment (the “Engagement Letter Amendment No. 1”) to the
engagement letter agreement with Lincoln, dated November 22, 2019
with Lincoln, to increase the fees to be paid to Lincoln as a
result of the additional work conducted by Lincoln in connection
with the several revised management forecasts that the Special
Committee asked Lincoln to review.
On March 13, 2020, the Special Committee held a telephonic meeting,
at which representatives of Tannenbaum and Lincoln were present. At
the meeting, representatives of Lincoln reviewed with the Special
Committee its updated preliminary financial analysis of the Company
using the Final Management Forecast, including an updated
preliminary financial analysis of the items Lincoln reviewed with
the Special Committee in Lincoln’s previous presentation on January
16, 2020. Representatives of Lincoln also discussed with the
Special Committee its preliminary financial analysis of the
proposed small business lending segment, identified by Company
management in the Final Management Forecast. Lincoln’s preliminary
financial analysis, which was based on market data through March
12, 2020, also reflected the actual results of the Company,
including its cash position, through December 31, 2019, and the
value of the Company’s marketable securities as of March 12, 2020,
which had increased significantly. The Special Committee then
discussed with representatives of Lincoln the current offer price
of $11.05 per share, as compared to the preliminary financial
analysis in Lincoln’s presentation, which included an indicated
equity value range for the Company of $11.28 to $11.68 per share.
After discussion, the Special Committee determined that the current
offer price of $11.05 per share was insufficient based on the
improvement in the Company’s balance sheet. The Special Committee
authorized Mr. Slackman and Mr. Monteleone to contact Gary Stern
and request that his offer be increased.
Following the Special Committee meeting on March 13, 2020, Mr.
Slackman, Mr. Monteleone and a representative of Lincoln had a
telephonic meeting with Gary Stern to discuss the Special
Committee’s determination that the $11.05 offer price was
insufficient and to present the case to Mr. Stern for increasing
his offer for the Company. Mr. Stern proposed $11.25 per share, and
Messrs. Slackman and Monteleone told Mr. Stern that the Special
Committee would not consider such price. Messrs. Slackman and
Monteleone asked Mr. Stern to increase his $11.05 offer by $0.59 to
$11.64 per share, but Mr. Stern was unwilling to agree to such an
increase. Following an extensive discussion, Mr. Stern agreed to
increase his offer to $11.47 per share, which reflected an increase
of $0.42 per share that was equal to the per share increase in the
cash and cash equivalents, investments and available-for-sale
securities on the Company’s balance sheet as of December 31, 2019
as compared to September 30, 2019. Messrs. Slackman and Monteleone
agreed to present this price to the Special Committee at its next
meeting.
On March 16, 2020, the Special Committee held a telephonic meeting
with representatives of Lincoln and Tannenbaum present. Mr.
Slackman reported on the discussion with Gary Stern, in which he
offered $11.47 per share. After much discussion, the Special
Committee unanimously approved Mr. Stern’s latest offer of $11.47
per share. On March 16, 2020, a representative from Tannenbaum
communicated to Mr. Stern’s counsel that the Special Committee
supported Mr. Stern’s $11.47 per share offer.
On March 19, 2020, Mr. Stern called Mr. Slackman to discuss the
impact of COVID-19 on the Company’s collection efforts with respect
to several categories of receivables and Mr. Stern’s belief that an
$11.47 per share offer price was not justified by the current
operating and economic environment. Over the next several days, Mr.
Stern’s counsel and lawyers from Tannenbaum had several
teleconferences to discuss COVID-19, the merger process and the
offer price. In the last of those discussions, Mr. Stern agreed
that he would not withdraw his $11.47 offer or try to negotiate a
lower price.
On March 26, 2020, the Special Committee held a telephonic meeting
with representatives of Tannenbaum to discuss the state of the
draft merger agreement and open issues therewith.
From April 3 through April 7, 2020, counsel for the Stern Group,
the Company and the Special Committee continued to negotiate the
merger agreement. At this time, certain open issues remained on the
draft merger agreement, including the amount of the termination
fees. On April 6, 2020, the members of the Special Committee were
given a draft of the merger agreement and ancillary documents in
substantially final form. On April 7, 2020, the parties came to an
agreement on all of the open issues and a revised draft of the
merger agreement was distributed to the members of the Special
Committee, the Company, the Stern Group and each party’s respective
legal and financial advisors.
On April 8, 2020, the Special Committee held a meeting at which
representatives of Tannenbaum and Lincoln were present.
Representatives of Tannenbaum discussed the process and procedures
undertaken by the Special Committee and their fiduciary duties.
Representatives of Lincoln delivered Lincoln’s opinion as to the
fairness of the merger consideration of $11.47 per share in cash to
be received by the holders of shares of Company common stock (other
than Gary Stern and members of the Stern Group) in the proposed
transaction. Following the delivery of Lincoln’s opinion, the
Special Committee, after discussions on the merits of the proposed
transaction, unanimously approved the resolution to recommend the
board of directors approve the proposed transaction and determined
that the merger and the other transactions contemplated by the
merger agreement are advisable and are fair to, and in the best
interests of, the Company and the Company stockholders (other than
Gary Stern and members of the Stern Group).
Following the Special Committee meeting, the board of directors
held a telephonic meeting to hear and discuss the Special
Committee’s unanimous recommendation as to the proposed
transaction. The board of directors thereafter (without the
participation of Gary Stern) determined that the merger and the
other transactions contemplated by the merger agreement are
advisable and are fair to, and in the best interests of, the
Company and the Company’s stockholders (other than Gary Stern and
members of the Stern Group) and approved the merger agreement and
the merger and the other transactions contemplated by the merger
agreement. The board of directors also (without the participation
of Gary Stern) resolved that the merger agreement be submitted for
consideration by the stockholders of the Company at a special
meeting of stockholders and recommended (without the participation
of Gary Stern) that the stockholders of the Company vote to adopt
the merger agreement.
Later that same day, the Company and Parent, Merger Sub and the
applicable Stern Group members executed the merger agreement and
the ancillary documents thereto.
On the evening of April 8, 2020, the Company issued a joint press
release and filed a Current Report on Form 8-K announcing the
merger transaction and the execution of the merger agreement.
In light of the execution of the merger agreement, on April 14,
2020, the parties to the Litten action entered into a joint
stipulation and submitted a proposed order to stay proceedings in
the Litten action until the earlier of: (i) an announcement by the
Company of the completion or cancellation of the merger; or (ii)
June 30, 2020. The court granted the parties’ stipulation and
proposed order the same day.
On May 22, 2020, RBF Capital, LLC (“RBF”), a stockholder owning
approximately 8.9% of the outstanding shares of the Company,
provided the Company with an offer letter to buy the outstanding
shares of the Company for $13.00 per share (“RBF Proposal”). This
information was also disclosed in a Schedule 13D, filed on May 22,
2020.
On May 26, 2020, the Special Committee held a telephonic meeting,
at which representatives of Tannenbaum were present. The Special
Committee and representatives of Tannenbaum discussed the RBF
Proposal. The Special Committee and Tannenbaum discussed the terms
of the Agreement and Plan of Merger relating to other acquisition
proposals and options for potential next steps in light of the RBF
Proposal. After lengthy discussions, it was determined that
the representatives from Tannenbaum would have a discussion with
counsel for each of the Stern Group and RBF and that the Special
Committee would meet again on May 29, 2020.
Following the May 26, 2020 Special Committee meeting,
representatives of Tannenbaum had separate discussions with RBF and
its counsel, the Company’s counsel, and with the Stern Group’s
counsel.
On May 28, 2020, the Company’s securities counsel received two
letters and a draft complaint from attorneys for certain
stockholders in connection with the Company's preliminary proxy
statement, filed May 7, 2020, which were subsequently shared with
the Special Committee. The letters and draft complaint
contained allegations regarding the adequacy of disclosures in the
preliminary proxy statement, particularly with respect to the
disclosures relating to financial projections.
On May 29, 2020, the Special Committee held a telephonic meeting,
at which representatives of Tannenbaum were present. At the
meeting, the Special Committee and representatives of Tannenbaum
continued to discuss the RBF Proposal. The Special Committee
discussed the potential re-engagement and role of Lincoln in
connection with the RBF Proposal. Representatives from Tannenbaum
then reported on their conversation with RBF and stated that RBF
provided information concerning its background and how long it
would take to conduct diligence, if the Company was willing to
share information with RBF. The representatives of Tannenbaum then
reported on their discussions with counsel for the Company, as well
as counsel for the Stern Group.
The Special Committee also discussed how to ascertain whether the
members of the Stern Group would be willing to sell their
respective shares to a third party. After further discussion, the
Special Committee asked representatives of Tannenbaum, as its
counsel, to request counsel for the Stern Group to formally state
whether or not the members of the Stern Group were interested in
selling shares in response to the RBF Proposal. The Special
Committee also requested that the Tannenbaum representatives ask
counsel for the Stern Group whether the Stern Group was willing to
have a discussion with RBF concerning its proposal. The Special
Committee also discussed the potential outcomes of a vote of the
Company’s minority stockholders with respect to the Stern Group’s
current proposal in light of the RBF Proposal.
The Special Committee also discussed the two letters and draft
complaint received by the Company, and shared with the Special
Committee, from attorneys for certain stockholders concerning the
adequacy of disclosures in the preliminary proxy statement. The
Special Committee noted that those concerns would be considered in
the amended proxy statement.
On May 29, representatives from Tannenbaum had a call with the
Stern Group’s counsel to discuss the RBF Proposal and their
position with respect thereto.
On June 1, 2020, the Special Committee received a formal letter
from Mr. Stern, on behalf of the Stern Group and pursuant to the
Special Committee’s request, which reiterated the Stern Group’s
position stated in its original offer letter that the Stern Group
was not interested in selling its shares in the Company or
participating in a merger or other strategic transaction with a
third party and would not vote its shares in favor of such a
transaction
On June 2, 2020, the Special Committee held a telephonic meeting,
at which representatives of Tannenbaum were present. During the
meeting, the representatives of Tannenbaum reported on their
discussions with the Stern Group’s counsel, as well as the June 1,
2020 letter from Mr. Stern. The Special Committee further discussed
the Stern Group’s position, as set forth in the letter.
The Tannenbaum representatives also reported that the Stern Group’s
counsel preferred that the Special Committee communicate with RBF
with respect to the RBF Proposal rather than the Stern Group doing
so. A representative of Tannenbaum requested that the Stern Group
confirm in writing that it would not view the Special Committee’s
communications with RBF to constitute a breach of the merger
agreement, and counsel for the Stern Group agreed to provide such
confirmation and did so in writing on June 2, 2020. Following
a discussion, the Special Committee determined by unanimous vote to
authorize Mr. Slackman to conduct such discussions with RBF on
behalf of the Special Committee, with Tannenbaum as counsel to the
Special Committee, after the written confirmation was received from
the Stern Group’s counsel.
The Special Committee and representatives of Tannenbaum also
discussed various potential scenarios relating to the RBF Proposal,
which would depend upon the outcome of the Special Committee’s
discussions with representatives of RBF and the Stern Group.
Additionally, there were discussions about the Special Committee’s
duties and responsibilities in connection with responding to the
RBF Proposal.
On June 4, 2020, the Special Committee held a telephonic meeting,
at which representatives of Tannenbaum were present. At the
meeting, the Special Committee discussed a draft non-disclosure
agreement, to be executed by RBF and its affiliates and the
Company, in connection with preliminary discussions regarding the
RBF Proposal. Such draft agreement had been distributed to the
Special Committee prior to the meeting. The Special Committee then
discussed the potential role of Lincoln in assisting the Special
Committee with evaluating the RBF Proposal, if they were to
re-engage Lincoln. Among the topics that were discussed were
whether or not the Special Committee should request an updated
opinion from Lincoln in light of the RBF Proposal, as well as
whether further information was needed from the Company.
Following this discussion, the Special Committee directed Mr.
Slackman and the representatives from Tannenbaum to have a
preliminary conversation with representatives of Lincoln to update
them on the new developments concerning RBF. It was also decided
that after Mr. Slackman conferred with RBF, the Special Committee
should meet with representatives of Lincoln to discuss what further
steps the Special Committee and Lincoln should take.
On June 4, 2020, the Company entered into a non-disclosure
agreement with RBF and its affiliate, to govern any preliminary
discussions between the Company and RBF and its affiliates.
On June 5, 2020, Mr. Slackman and a representative of Tannenbaum
had a telephonic meeting with RBF and Richard Fullerton, President
of RBF, and RBF’s counsel. During the meeting, Mr. Fullerton
discussed some of the reasons why RBF was interested in acquiring
the Company. Mr. Slackman and a representative from Tannenbaum
informed the RBF representatives that Gary Stern reiterated to the
Special Committee his previously stated position of not being
willing to sell his shares in the Company to a third party. Mr.
Fullerton inquired if that included the whole Stern Group or just
Gary Stern and the representative of Tannenbaum reported that it
included the entire Stern Group. Mr. Fullerton expressed his view
that RBF raising its $13.00 per share offer would be futile in
light of the Stern Group’s position. Mr. Slackman and the
representative of Tannenbaum asked Mr. Fullerton if RBF would be
supportive of an increased offer from the Stern Group in light of
their position that they did not intend to sell their shares
of the Company’s stock to a third party. Mr. Fullerton
responded that there could be a number that RBF would be willing to
sell at, but did not indicate what that number was. Mr. Slackman
and the Tannenbaum representative then asked if the RBF team would
be interested in joining a call hosted by the Special Committee
with the Stern Group regarding the RBF Proposal and/or a potential
increased offer that the Special Committee would seek from the
Stern Group. The RBF team indicated that they would be interested
in participating in such a discussion.
On June 8, 2020, the Special Committee held a telephonic
meeting, at which representatives of Tannenbaum were present. Mr.
Slackman and a representative of Tannenbaum reported on the call
they had on June 5, 2020 with RBF and Richard Fullerton, President
of RBF, and RBF’s counsel. Following the discussion of the RBF
meeting, the Special Committee members authorized Mr. Slackman to
participate in the call with the RBF team and the Stern Group,
along with representatives from Tannenbaum.
The next item of discussion at this meeting was the re-engagement
of Lincoln to advise the Special Committee in evaluating the RBF
Proposal and to potentially render an opinion as to the fairness of
the RBF Proposal. The Special Committee determined that it
would re-engage Lincoln and planned to hold a meeting at which
representatives of Lincoln would be present to discuss with the
Special Committee its request for an opinion with respect to the
RBF Proposal. The Special Committee authorized Mr. Slackman
to reach out to representatives of Lincoln to express the Special
Committee’s interest in re-engaging Lincoln and to ask
representatives of Lincoln to propose terms to the Special
Committee for Lincoln’s re-engagement.
The Special Committee also discussed different strategies for
negotiating with both RBF and the Stern Group in light of the terms
of the merger agreement.
On June 10, 2020, Mr. Slackman and a representative of Tannenbaum
had a call with Gary Stern, counsel for the Stern Group, Richard
Fullerton from RBF and its counsel, which was arranged at the
request of the Special Committee. During the call, Mr. Fullerton
explained why he did not believe $11.47 was adequate consideration
in connection with the merger. Mr. Stern reiterated the Stern
Group’s position that, even in light of RBF’s current $13.00 per
share offer for the Company, the members of the Stern Group were
not interested in selling their respective shares in the Company to
a third party under any circumstances. After considerable
discussion among the parties, the call ended with no agreement in
place and no indication that RBF or the Stern Group were interested
in continuing the discussions.
Following the meeting with the RBF team and the Stern Group team, a
representative of Tannenbaum had a call with the Stern Group’s
counsel, at which the representative from Tannenbaum asked if the
Stern Group was receptive to increasing its offer above $11.47 per
share. The Stern Group’s counsel reported that Mr. Stern might be
receptive to offering a higher price closer to $13.00 per share or
slightly more. During this call, the representative from Tannenbaum
informed Stern Group’s counsel that the Special Committee intended
to re-engage Lincoln as its financial advisor to assist it with the
evaluation of RBF’s $13.00 per share offer and/or any other
subsequent offer made by the Stern Group.
Later that same day, following the call with the Stern Group’s
counsel, a representative of Tannenbaum and Mr. Slackman had a call
with Mr. Fullerton from RBF. During this call, Mr. Fullerton
informed Mr. Slackman and the representative of Tannenbaum that RBF
disagreed with the $11.47 price as a fair price, and that RBF would
support a $13.50 per share offer. Mr. Fullerton also indicated that
RBF was open to a price below $13.50.
Also on June 10, 2020, following the call with Mr. Fullerton, Mr.
Slackman had a call with Mr. Stern. During the call, Mr. Stern
questioned why re-engaging Lincoln was required, to which Mr.
Slackman advised Mr. Stern to talk to his counsel and have his
counsel contact a representative of Tannenbaum. They also discussed
the possibility of Mr. Stern raising his offer to $13.00 or more
per share.
Later that day, the Special Committee received a letter from
counsel to the Stern Group. The letter stated that Mr. Stern and
the Stern Group believed that there was no reasonable basis for the
Special Committee to conclude that the RBF Proposal constituted, or
could reasonably be expected to lead to, a Superior Proposal, as
that term is defined in the merger agreement. Thus, the Stern Group
was ready, willing and able to proceed with the merger agreement on
its current terms. Nevertheless, the letter stated that the Stern
Group was prepared to increase its offer to $12.00 per share.
The letter further stated that if the Stern Group were to so
increase its offer, it did not anticipate that the Special
Committee would waste the parties’ time or the Company’s money
consulting with a financial advisor given the increased amount of
the offer over the $11.47 offer for which the Special Committee had
already received a fairness opinion.
On June 11, 2020, the Special Committee held a telephonic meeting,
at which representatives of Tannenbaum were present. Mr. Slackman
and a representative of Tannenbaum reported on the numerous
discussions they had with members of the RBF team and the Stern
Group team on June 10, 2020. The Special Committee then discussed
the letter it received from the Stern Group’s counsel on June 10,
2020, regarding the $12.00 offer. Representatives of
Tannenbaum advised the Committee that they believed Mr. Stern’s
counsel’s position was without merit, and that the Special
Committee was not precluded under the merger agreement from
considering the RBF Proposal or from seeking further advice from
Lincoln.
At this meeting, the Special Committee also discussed when to
re-engage Lincoln, and what Lincoln’s role would be with respect to
advising the Special Committee in evaluating the RBF Proposal, or
any new proposal by Mr. Stern. The Special Committee
discussed the proposed terms of Lincoln’s re-engagement, which had
been set forth in a draft engagement letter and sent to the Special
Committee members prior to the meeting. The Special Committee
determined that it would re-engage Lincoln while the Special
Committee simultaneously continued to try to negotiate a deal
between Mr. Stern and RBF in which Mr. Stern would substantially
increase his offer. The Special Committee determined to schedule a
meeting at which representatives of Lincoln would be present to
discuss with the Special Committee the RBF Proposal and whether the
Special Committee would request an opinion with respect to the RBF
Proposal. The Special Committee authorized Mr. Slackman to reach
out to representatives of Lincoln to invite them to the next
Special Committee meeting.
The Special Committee asked a representative of Tannenbaum to talk
to MWC, counsel to the Stern Group, to inquire as to whether the
Stern Group would still consider making a $13.00 per share offer,
since the representative from MWC indicated in the earlier call
that he was willing to communicate that request to the Stern Group.
Additionally, the Special Committee authorized Mr. Slackman and a
representative of Tannenbaum to talk to RBF to determine what price
per share it would consider fair and would support from the Stern
Group.
On June 11, 2020, following the Special Committee meeting,
representatives of Tannenbaum spoke to counsel for the Stern Group,
to discuss a process for the Special Committee to operate as the
negotiating agent to bring the Stern Group and RBF to a negotiated
transaction at a price acceptable to the Special Committee and
RBF. Later that day, representatives of Tannenbaum spoke to
counsel and asked whether the Stern Group would be agreeable to a
price substantially in excess of $11.47 but less than the $13.50
per share price that RBF had asked for in an earlier call, if the
Special Committee were to negotiate with RBF and get them to
support an increased offer from the Stern Group. Counsel said the
Stern Group was open to the Special Committee attempting to
negotiate an increased price acceptable to the Stern Group and
RBF.
On June 12, 2020, Mr. Slackman and a representative of Tannenbaum
had a call with Richard Fullerton from RBF and his counsel,
whereby, after an extensive discussion, Mr. Fullerton advised that
he believed $13.10 would be a fair price that RBF would fully
support, and he would agree to rescind the RBF Proposal and enter
into a voting agreement at that price. Following this discussion,
representatives from Tannenbaum had a call with Stern Group
counsel, in which they informed Stern Group counsel that RBF would
be agreeable to a $13.10 per share offer from the Stern Group.
Stern Group counsel informed the representatives from Tannenbaum
that they would discuss this price with Mr. Stern.
Between June 12 and 14, 2020, Mr. Slackman had a number of
discussions with Louis Piccolo, a member of the board of directors.
In his first discussion with Mr. Piccolo, in which Mr. Piccolo
inquired about the status of the negotiations, Mr. Slackman
explained why he thought Mr. Stern should increase his per share
offer price. Following this call, Mr. Piccolo spoke to Mr.
Stern and reported to Mr. Slackman that Mr. Stern did not want to
increase his offer above $12.00 per share. Mr. Slackman explained
to Mr. Piccolo that Mr. Stern probably would not obtain the
requisite votes of the minority stockholders to approve an offer
price of $12.00, in light of the RBF Proposal of $13.00. Mr.
Piccolo later informed Mr. Slackman that he had a further
conversation with Mr. Stern in which Mr. Piccolo reiterated the
points raised by Mr. Slackman in support of an increased offer by
Mr. Stern. Following these discussions, on June 14, 2020, Mr.
Stern informed Mr. Slackman that he was open to increasing the
Stern Group’s offer to $13.00 per share or higher.
On the morning of June 15, 2020, a representative from Tannenbaum
received an email from the Stern Group’s counsel stating that
Mr. Stern was not inclined to raise his offer to the levels being
requested and that, if he were to raise his offer, he felt that
$12.00 per share was a fair price, substantially higher than the
price he originally offered and at the high end of the indicated
equity value range of the Company included in Lincoln’s
presentation to the Special Committee on April 8, 2020. This
email was shared with the members of the Special Committee.
Later that morning, a representative of Tannenbaum received another
email from the Stern Group’s counsel stating that Mr. Stern
believed that it might be helpful if the Special Committee could
facilitate another all hands call with RBF to see if some
resolution could be reached. Following receipt of this email
and the distribution of the email to the members of the Special
Committee, Mr. Slackman called a representative from Tannenbaum to
discuss the possibility of Mr. Slackman calling Mr. Stern to report
their discussions with RBF and the $13.10 proposed offer price. The
representative of Tannenbaum agreed that Mr. Slackman should call
Mr. Stern to discuss and negotiate an increased offer price from
Mr. Stern of $13.10 per share which the Special Committee believed
was attractive and which Mr. Fullerton indicated was the minimum
amount RBF would accept.
Immediately following this call, Mr. Slackman called Mr. Stern and
described his call with RBF from Friday, June 12, 2020, and the
$13.10 price point recommended by RBF. Mr. Slackman urged Mr. Stern
to agree to the price of $13.10 per share and not continue to
negotiate for a lower price. Mr. Stern acquiesced and stated he
would have his lawyer contact representatives from Tannenbaum.
Shortly thereafter, a representative of Stern Group’s counsel
called a representative from Tannenbaum and informed him that the
Stern Group was willing to increase its offer to $13.10 per
share.
Later in the day on June 15, 2020, the Special Committee held a
telephonic meeting, at which representatives of Tannenbaum and
Lincoln were present. Prior to representatives of Lincoln joining
the meeting, Mr. Slackman and a representative from Tannenbaum
reported to the Special Committee the foregoing discussions,
leading up to the $13.10 offer made by the Stern Group. In the
discussion that followed, the members of the Special Committee
stated that the price of $13.10 per share was a very favorable
price for the stockholders in light of the previous offer of $11.47
per share and the financial analyses that Lincoln had performed
with respect to that offer. In the course of a discussion amongst
the members of the Special Committee and the representatives of
Tannenbaum, regarding the next steps, it was suggested that RBF
should be asked to enter into a voting agreement in which it would
agree to vote its shares in favor of the going private deal from
the Stern Group at $13.10.
After representatives of Lincoln joined the meeting,
representatives from Lincoln and the Special Committee discussed
the status of the Company’s financials for the quarter ended March
31, 2020. The Special Committee then inquired about Lincoln
delivering an updated opinion with respect to the fairness of the
$13.10 per share offer from the Stern Group. Representatives
of Lincoln described the process for providing an updated opinion
and also explained what information Lincoln would need from the
Company in order to render an opinion. During the course of this
meeting, members of the Special Committee and representatives of
Lincoln discussed the assumptions set forth in the RBF Proposal in
support of its assessment of the value of the Company.
After the representatives of Lincoln left the meeting, there was a
further conversation about RBF’s valuation of the Company. It was
decided that Mr. Slackman should request that representatives of
Lincoln be ready to discuss RBF’s assumptions and assessment of the
value of the Company at its next meeting with the Special
Committee.
There was then further extensive discussion about the assumptions
RBF was making in its Schedule 13D filing, and members of the
Special Committee expressed the view that these assumptions were
not applicable to evaluating the overall value of the Company,
particularly to bidders other than RBF. In their discussions,
members of the Special Committee noted, among other things, that
because of the age of the portfolios being carried by the Company’s
business segments, they would not be easy to price or sell. Mr.
Monteleone noted, that while RBF was in a unique position to reduce
costs by taking on some of the responsibilities of the Company’s
current management, other acquirors of the Company would not
necessarily be in a similar position to reduce such expenses.
Additionally, it was noted by members of the Special Committee that
the RBF Proposal was preliminary, and that due diligence outside of
publicly available information had not yet been conducted by RBF,
and as such, the offer was not necessarily a true or accurate
indication of the value of the Company.
On June 15, 2020, following the Special Committee meeting, the
Special Committee entered into a second amendment (the “Engagement
Letter Amendment No. 2”) to the engagement letter agreement with
Lincoln, dated November 22, 2019, and as amended on February 29,
2020, to increase the fees to be paid to Lincoln as a result of the
additional work conducted by Lincoln related to the revised merger
consideration of $13.10 per share offered by Mr. Stern and the
Special Committee’s evaluation of such offer. On June 17,
2020, the Company’s Chief Financial Officer informed
representatives of Lincoln that following his review, the Final
Management Forecast had been updated to include the Company’s
actual results of the quarter ended March 31, 2020 and that there
were no material changes to such Final Management Forecast.
The Company’s Chief Financial Officer provided a certificate to
representatives of Lincoln on June 19, 2020 as to the assumptions
used in the Final Management Forecast.
On June 19, 2020, the Special Committee held a telephonic meeting,
at which representatives of Tannenbaum and Lincoln were present.
Prior to representatives of Lincoln joining the meeting,
representatives from Tannenbaum discussed the process going forward
in light of the $13.10 per share offer made by Mr. Stern following
the Special Committee’s negotiations with RBF. Additionally, prior
to representatives of Lincoln joining the meeting, the Special
Committee discussed the updated financial analysis prepared by
Lincoln, which served as an update to the financial analysis
presented to the Special Committee on April 8, 2020. The Special
Committee noted that the updated financial analysis reflected that
the range of values per share were $11.31 (low), $12.07 (mid),
$12.91 (high), which were below the $13.10 price per share that the
Stern Group was willing to offer. The Special Committee also
discussed, among other things, the portion of the updated financial
analysis which contained a summary of the key changes from the
April 8, 2020 presentation by Lincoln. For further information
regarding Lincoln's presentation to the Special Committee dated
June 19, 2020, see “Special Factors -- Opinion of the Financial
Advisor to the Special Committee of Our Board of Directors”
beginning on page 36.
Once representatives of Lincoln joined the meeting, representatives
of Lincoln delivered to the Special Committee Lincoln’s opinion to
the effect that, as of the date of such opinion and based upon and
subject to the various assumptions made, procedures followed,
matters considered and qualifications and limitations on the scope
of review undertaken by Lincoln as set forth in its written
opinion, the merger consideration of $13.10 per share in cash to be
received by the holders of shares of Company common stock (other
than Gary Stern and members of the Stern Group) in the proposed
transaction, was fair, from a financial point of view, to the
holders of such shares. Representatives of Lincoln also reviewed
with the Special Committee the updated financial analysis.
The Special Committee and representatives of Lincoln discussed the
assumptions identified by RBF at the time it made its offer of
$13.00 per share, and it was noted that RBF had not conducted
diligence outside of publicly available information. Prior to
leaving the meeting, the Special Committee members then requested a
written copy of Lincoln’s opinion.
After representatives of Lincoln left the meeting, the Special
Committee members continued to discuss the $13.10 offer. It
was noted that the Stern Group’s offer was above the high end of
the range of values in the updated financial analysis and appeared
to be a favorable price for stockholders. After a lengthy
discussion, the Special Committee, upon motion made and duly
seconded, unanimously approved a resolution to recommend that the
board of directors approve the proposed transaction at $13.10 per
share and determined that the merger and the other transactions
contemplated by the amended merger agreement were advisable and
fair to, and in the best interests of, the Company and the
Company’s stockholders (other than Gary Stern and members of the
Stern Group). Subsequently that day, the full board of
directors of the Company met by teleconference, without the
participation of Gary Stern, and determined that the merger and the
other transactions contemplated by the amended merger agreement
were advisable and fair to, and in the best interests of, the
Company and the Company’s stockholders (other than Gary Stern and
members of the Stern Group).
On June 25, 2020, the Company, Parent and Merger Sub executed
Amendment No. 1. Additionally, in connection with the execution of
the Amendment No. 1, RBF entered into a Settlement and Voting
Agreement with the Company (“RBF voting agreement”), pursuant to
which RBF has, among other things, agreed to vote the shares of
Common Stock beneficially owned by it, or that may become
beneficially owned by it during the term of the agreement, in favor
of adopting of the merger agreement, and any other matters
necessary for consummation of the merger and the other transactions
contemplated by the merger agreement. RBF and its affiliates
beneficially own 8.9% of the outstanding shares of the Company, or
approximately 23.3% of the outstanding shares of Common Stock of
the Company entitled to vote thereon not owned, directly or
indirectly, by the Parent, the Stern Group, any officers and
directors of the Company or any other person having an equity
interest in, or any right to acquire an equity interest in, Merger
Sub or any entity of which Merger Sub is a direct or indirect
subsidiary. Accordingly, RBF’s anticipated vote in favor of
the merger represents approximately 46.6% of the vote required by
holders of shares of Common Stock of the Company entitled to vote
thereon not owned, directly or indirectly, by the Parent, the Stern
Group, any officers and directors of the Company or any other
person having an equity interest in, or any right to acquire an
equity interest in, Merger Sub or any entity of which Merger Sub is
a direct or indirect subsidiary.
On July 7, 2020, in light of the further developments since April
14, 2020 described herein, the parties to the Litten action
submitted a joint stipulation extending the stay in that matter
until the earlier of (i) an announcement by the Company of the
completion or cancellation of the merger; or (ii) September 30,
2020, and the Court entered an order granting the parties’ joint
stipulation on July 8, 2020.
Interests of Our Directors and
Executive Officers in the Merger
Certain executive officers of the Company and members of our board
of directors may be deemed to have interests in the merger that are
different from or in addition to the interests of our stockholders
generally. Our board of directors was aware of these interests and
considered them, among other matters, in approving the merger
agreement and the merger. Described below are the interests of the
current executive officers of our management and members of our
board of directors.
|
●
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Ricky Stern and his father, through the Parent, would own the
Company.
|
|
●
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The dismissal of the Litten action for certain of the Company’s
officers and directors, including Gary Stern, Ricky Stern, Mr.
Slackman and Louis A. Piccolo.
|
With regard to our directors serving on the Special Committee and
the Board (other than Mr. Stern), areas where their interests may
differ from those of stockholders in general relate to the impact
of the transaction on the directors’ outstanding equity awards and
the provision of indemnification and insurance arrangements
pursuant to the merger agreement and the Company’s certificate of
incorporation, bylaws and indemnification agreements, which reflect
the fact that, by their service on the Board, they may be subject
to claims arising from such service. Because of their existing
compensation arrangements, the differences in interests for our
executive officers involve the possible receipt of the following
types of payments and benefits that may be triggered by or
otherwise relate to the merger:
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•
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cash payments under executive officer severance agreements;
|
|
•
|
the treatment of executive officer equity awards;
|
|
•
|
the provision of indemnification and insurance arrangements
pursuant to the merger agreement; and
|
|
•
|
the
provision of indemnification and insurance arrangements pursuant to
the merger agreement; and
|
These interests are described in more detail below, and certain of
them are quantified in the tables below. In addition, Parent has
the right, under the merger agreement, to negotiate and enter into
agreements with other executive officers prior to the closing of
the merger pursuant to which our executive officers would roll over
some or all of their shares of Common Stock or Company options into
Parent equity interests, though no agreements, arrangements or
understandings with respect to any such potential investment exist
between the Parent Parties and any executive officer (other than
Gary Stern and Ricky Stern) as of the date of this proxy
statement.
Payments to the Special Committee
The members of the Special Committee evaluated and negotiated the
merger agreement and evaluated whether the merger is in the best
interests of the Company’s unaffiliated stockholders. Mr. Stern did
not participate in the deliberations of the Special Committee
regarding the merger agreement and the transactions contemplated by
the merger agreement. The members of the Special Committee were
aware of these differing interests and considered them, among other
matters, in evaluating and negotiating the merger agreement and the
merger and in recommending to the stockholders that the merger
agreement be adopted. See “Special Factors—Background of the
Merger” beginning on page 14 and “Special Factors—Reasons
for the Merger and Recommendation of Our Board of
Directors” beginning on page 29 for a further discussion
of these matters. You should take these interests into account in
deciding whether to vote “FOR” the proposal to adopt the merger
agreement.
In consideration of the time and effort required of the members of
the Special Committee in connection with evaluating strategic
alternatives available to the Company, the proposed merger
(including negotiating the terms and conditions of the merger
agreement), and possible negotiations with parties making
alternative acquisition proposals, the Board (excluding Gary Stern)
determined that each member of the Special Committee received a
$15,000, during the duration of their service on the Special
Committee plus out of pocket expenses. The Chairman of the Special
Committee received $30,000, plus out of pocket expenses. These fees
are not dependent on the closing of the merger or on the Special
Committee’s or the Board’s approval of, or recommendations with
respect to, the merger or any other transaction. As of the date of
the filing of this proxy statement, the aggregate amount paid to
the Chairman of the Special Committee for his service on the
Special Committee was approximately $30,000, and the aggregate
amount paid to each of the other Special Committee members for
their service on the Special Committee was approximately
$15,000.
Payments to Directors and Executive Officers
Severance and Change-in-Control Benefits
None of our Named Executive Officers are currently providing
services under an employment agreement, and upon a termination by
the Company, they would not receive severance benefits pursuant to
any formal plan or program currently in place. Prior to his
resignation, Mr. Foster was a party to an employment agreement with
us. His employment agreement provided for severance benefits upon
an involuntary termination by the Company. However, no severance
benefits became payable to Mr. Foster in connection with his
voluntary resignation from the Company on September 22, 2019.
Outstanding Option Awards at Fiscal Year-End
The following table provides information on exercisable options
held by the Named Executive Officers on June 30, 2020. As of June
30, 2020 none of the Named Executive Officers held unvested stock
option or stock awards. More information can be found in the
Company’s Annual Report on Form 10-K, for the fiscal year ended
September 30, 2019, as amended.
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|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Option
Exercise Price
($)
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of Stock
That
Have Not Vested
(#)
|
|
|
Market Value
of Shares or Units of Stock That
Have Not Vested ($)
|
|
Gary Stern
|
|
|
60,000 |
|
|
|
- |
|
|
$ |
7.63 |
|
12/15/20
|
|
|
- |
|
|
|
- |
|
|
|
|
100,000 |
|
|
|
- |
|
|
$ |
7.77 |
|
12/13/21
|
|
|
- |
|
|
|
- |
|
|
|
|
50,000 |
|
|
|
- |
|
|
$ |
8.49 |
|
12/12/23
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
Ricky Stern
|
|
|
10,000 |
|
|
|
- |
|
|
$ |
8.36 |
|
12/22/21
|
|
|
- |
|
|
|
- |
|
|
|
|
20,000 |
|
|
|
- |
|
|
$ |
9.57 |
|
12/18/22
|
|
|
- |
|
|
|
- |
|
|
|
|
20,000 |
|
|
|
- |
|
|
$ |
8.49 |
|
12/12/23
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
Seth Berman
|
|
|
30,000 |
|
|
|
- |
|
|
$ |
7.63 |
|
12/15/20
|
|
|
- |
|
|
|
- |
|
|
|
|
30,000 |
|
|
|
- |
|
|
$ |
7.77 |
|
12/13/21
|
|
|
- |
|
|
|
- |
|
|
|
|
20,000 |
|
|
|
- |
|
|
$ |
9.57 |
|
12/18/22
|
|
|
- |
|
|
|
- |
|
|
|
|
20,000 |
|
|
|
- |
|
|
$ |
8.49 |
|
12/12/23
|
|
|
- |
|
|
|
- |
|
The merger agreement provides that, unless otherwise agreed by
Parent and a holder of outstanding options, as of the effective
time of the merger, each of the outstanding options, whether vested
or unvested, will be cancelled and will entitle the holder thereof
to receive, as soon as reasonably practicable after the effective
time (but in any event no later than the first payroll date after
the effective time), an amount in cash equal to the product of (i)
the total number of shares subject to the option immediately prior
to the effective time times (ii) the excess, if any, of the per
share merger consideration over the exercise price per share under
such option, less any required withholding taxes.
The following table sets forth, as of June 30, 2020, for each of
our directors and executive officers holding stock options: (a) the
aggregate number of shares of Company common stock subject to
vested stock options and the value of such vested stock options, on
a pre-tax basis, at the per share merger consideration; (b) the
aggregate number of unvested stock options that will vest in
connection with the merger, assuming the director or executive
officer remains employed by the Company at the effective time of
the merger, and the value of those unvested stock options, on a
pre-tax basis, at the per share merger consideration; (c) the
aggregate number of shares of Company common stock subject to
vested and unvested stock options for each individual, assuming the
director or executive officer remains employed by the Company at
the effective time of the merger; and (d) the aggregate amount of
consideration that we expect to pay to all such individuals with
respect to their stock options in connection with the merger.
|
|
Number of
Securities
Underlying
Unexercised
Options #
Exercisable
|
|
|
Options
Exercise
Price
|
|
|
Option
Expiration
|
|
|
Options
Exercise
|
|
|
Merger
Consideration
Price
|
|
|
Merger
Consideration
|
|
|
Merger
Compensation
|
|
Directors:
|
|
#
|
|
|
$
|
|
|
Date
|
|
|
Amount
|
|
|
$
|
|
|
Amount
|
|
|
Amount
|
|
Louis Piccolo
|
|
|
30,000 |
|
|
$ |
7.63 |
|
|
12/15/2020
|
|
|
$ |
228,900.00 |
|
|
$ |
13.10 |
|
|
$ |
393,000.00 |
|
|
$ |
164,100.00 |
|
|
|
|
35,000 |
|
|
$ |
7.77 |
|
|
12/13/2021
|
|
|
$ |
271,950.00 |
|
|
$ |
13.10 |
|
|
$ |
458,500.00 |
|
|
$ |
186,550.00 |
|
|
|
|
37,500 |
|
|
$ |
9.57 |
|
|
12/18/2022
|
|
|
$ |
358,875.00 |
|
|
$ |
13.10 |
|
|
$ |
491,250.00 |
|
|
$ |
132,375.00 |
|
Total
|
|
|
102,500 |
|
|
|
|
|
|
|
|
|
$ |
859,725.00 |
|
|
|
|
|
|
$ |
1,342,750.00 |
|
|
$ |
483,025.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Slackman
|
|
|
30,000 |
|
|
$ |
7.63 |
|
|
12/15/2020
|
|
|
$ |
228,900.00 |
|
|
$ |
13.10 |
|
|
$ |
393,000.00 |
|
|
$ |
164,100.00 |
|
|
|
|
5,000 |
|
|
$ |
7.77 |
|
|
12/13/2021
|
|
|
$ |
38,850.00 |
|
|
$ |
13.10 |
|
|
$ |
65,500.00 |
|
|
$ |
26,650.00 |
|
|
|
|
7,500 |
|
|
$ |
9.57 |
|
|
12/18/2022
|
|
|
$ |
71,775.00 |
|
|
$ |
13.10 |
|
|
$ |
98,250.00 |
|
|
$ |
26,475.00 |
|
Total
|
|
|
42,500 |
|
|
|
|
|
|
|
|
|
$ |
339,525.00 |
|
|
|
|
|
|
$ |
556,750.00 |
|
|
$ |
217,225.00 |
|
Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seth Berman
|
|
|
30,000 |
|
|
$ |
7.63 |
|
|
12/15/2020
|
|
|
$ |
228,900.00 |
|
|
$ |
13.10 |
|
|
$ |
393,000.00 |
|
|
$ |
164,100.00 |
|
|
|
|
30,000 |
|
|
$ |
7.77 |
|
|
12/13/2021
|
|
|
$ |
233,100.00 |
|
|
$ |
13.10 |
|
|
$ |
393,000.00 |
|
|
$ |
159,900.00 |
|
|
|
|
20,000 |
|
|
$ |
9.57 |
|
|
12/18/2022
|
|
|
$ |
191,400.00 |
|
|
$ |
13.10 |
|
|
$ |
262,000.00 |
|
|
$ |
70,600.00 |
|
|
|
|
20,000 |
|
|
$ |
8.49 |
|
|
12/12/2023
|
|
|
$ |
169,800.00 |
|
|
$ |
13.10 |
|
|
$ |
262,000.00 |
|
|
$ |
92,200.00 |
|
Total
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
$ |
823,200.00 |
|
|
|
|
|
|
$ |
1,310,000.00 |
|
|
$ |
486,800.00 |
|
Combined Total
|
|
|
245,000 |
|
|
|
|
|
|
|
|
|
$ |
2,022,450.00 |
|
|
|
|
|
|
$ |
3,209,500.00 |
|
|
$ |
1,187,050.00 |
|
Recommendation of Our Board of Directors
After deliberation and consultation with its legal advisors, and
acting upon the recommendation of the Special Committee, which
retained and was advised by its own financial and legal advisors,
our board of directors has determined (without the participation of
Gary Stern) that the merger agreement, the merger and the other
transactions contemplated by the merger agreement are advisable and
are fair to, and in the best interests of, our stockholders (other
than Gary Stern and members of the Stern Group). Our board of
directors recommends (without the participation of Gary Stern) that
our stockholders vote FOR the proposal to adopt the merger
agreement and FOR the adjournment proposal.
In considering the recommendation of our board of directors with
respect to the merger agreement, you should be aware that certain
of our directors and executive officers have interests in the
merger that are different from, or are in addition to, the
interests of our stockholders. Please see the section entitled
“Special Factors—Interests of Our Directors and Executive
Officers in the Merger” beginning on page 26 of
this proxy statement.
Reasons
for the Merger and Recommendation of Our Board of Directors
At a meeting held on June 19, 2020 our board of directors, acting
upon the unanimous recommendation of the Special Committee, without
the participation of Gary Stern, approved the merger agreement, as
amended, the merger and the other transactions contemplated by the
merger agreement and determined that the merger agreement, the
merger and the other transactions contemplated by the merger
agreement are advisable and are fair to, and in the best interests
of, our stockholders (other than Gary Stern and members of the
Stern Group), approved the execution and delivery by the Company of
the merger agreement and the consummation of the merger
transactions, resolved that the merger agreement be submitted for
consideration by the stockholders at the virtual special meeting
and recommended that our stockholders vote FOR adopting the
merger agreement.
In making its recommendation, our board of directors (without the
participation of Gary Stern) considered the recommendation of the
Special Committee. In addition, our board of directors and the
Special Committee consulted with our outside legal and financial
advisors and our senior management team at various times, and
considered a number of factors, in its analysis of the fairness of
the merger to the unaffiliated stockholders, that they believed
supported their decision to approve and recommend the merger and
the merger agreement, including the following principal
factors:
|
●
|
the merger consideration of $13.10 per share represents a premium
of approximately 13.2% to the 30-trading day average stock price as
of June 24, 2020, the last trading day before the merger was
approved;
|
|
●
|
the merger consideration of $13.10 per share represents a premium
of approximately 51.5% to the 30-trading day average stock price as
of April 7, 2020, the last trading day before the merger was
announced.
|
|
●
|
the Company Common Stock traded as low as $6.51 during the 52 weeks
prior to the announcement of the execution of the merger agreement
Amendment No. 1 on June 25, 2020;
|
|
●
|
The fact that if the Company were to stay public, the stock price
could experience significant declines and trade at prices
substantially below the offer price for the foreseeable future;
|
|
●
|
the opinion of Lincoln delivered to the Special Committee on June
19, 2020, to the effect that, as of the date of such opinion and
based upon and subject to the various assumptions made, procedures
followed, matters considered and qualifications and limitations on
the scope of review undertaken by Lincoln as set forth in its
written opinion, the merger consideration of $13.10 per share in
cash to be received by the holders of shares of Company common
stock (other than Gary Stern and members of the Stern Group) in the
proposed transaction, was fair, from a financial point of view, to
the holders of such shares. A copy of such written opinion is
included as Annex C to this proxy statement and described in the
section entitled “Special Factors— Opinion of the Financial
Advisor to the Special Committee of Our Board of Directors”
beginning on page 36;
|
|
●
|
the fact that the merger consideration finally agreed to was the
result of multiple negotiated increases with Mr. Stern from his
initial offer of $10.75 per share;
|
|
●
|
the fact that the Special Committee and the board of directors
believed that the $13.10 per share price to be paid in respect of
each share of Company Common Stock was the highest price that Gary
Stern would be willing to pay and represented the best value
reasonably available to the Company’s unaffiliated
stockholders;
|
|
●
|
the fact that the Special Committee and the board of directors
believed that the Company’s unaffiliated stockholders could not, as
a practical matter, receive more than the Stern Group’s offer of
$13.10 per share in light of the Stern Group’s advising the Special
Committee in writing that they were not interested in selling any
shares in the Company to a third party or participating in any
merger or other strategic transaction involving any third party,
and did not intend to vote in their capacity as stockholders in
favor of any such transaction;
|
|
●
|
the fact that the $13.10 offer was above the high end of the range
of indicated equity values provided in the updated financial
analysis prepared by Lincoln and presented to the Special Committee
on June 19, 2020;
|
|
●
|
the probability that it could take a considerable period of time,
if ever, before the trading price of the Company common stock would
reach and sustain at least the per share merger consideration value
of $13.10, as adjusted for present value;
|
|
●
|
the Special Committee’s analyses that the merger is more favorable
to the Company’s stockholders than the possible alternatives to the
merger, including seeking to continue to execute the Company’s
existing business plan;
|
|
●
|
the Special Committee’s consideration of the current state of the
economy, the stock market and financial markets and its assessment
of the state of the industry in which the Company operates, the
competitive landscape, customer relationships, organic and
non-organic growth opportunities, the capital expenditures that
would be required to maintain or enhance the Company’s competitive
position, the need to meet customer demands and the uncertainty
surrounding forecasted economic conditions, both in the near term
and the long term as well as generally and within the Company’s
industry in particular, as compared to the certainty of all-cash
merger consideration;
|
|
●
|
the likelihood that the merger would be completed based on, among
other things (not in any relative order of importance):
|
|
o
|
Parent’s agreement to use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable law to
consummate the merger and the other transactions contemplated by
the merger agreement;
|
|
o
|
Parent’s offer not being subject to a financing contingency;
|
|
o
|
receipt of a debt commitment letter, as amended, the terms thereof
and the reputation of the financial institution named therein,
which increase the likelihood of the debt financing being available
(see “The Merger—Financing the Merger” beginning on page
61
|
|
o
|
the likelihood and anticipated timing of completing the proposed
merger in light of the scope of the conditions to completion,
including that there were no anticipated significant regulatory
approvals that are required to close the merger;
|
|
o
|
Mr. Stern’s execution of a limited guarantee in the Company’s
favor, guaranteeing, subject to the limitations described therein,
the payment of certain payment obligations that may be owed by
Parent Parties pursuant to the merger agreement, including the
payment of any reverse termination fee that may become payable
following termination of the merger agreement in specified
circumstances, subject to an overall cap of $600,000.
|
|
o
|
the fact that the merger agreement provides that, in the event of a
failure of the merger to be consummated under certain
circumstances, Parent will pay the Company a $500,000 termination
fee, as described under “The Merger Agreement – Termination Fees
and Expenses – Parent Termination Fees” beginning on page 88;
and
|
|
o
|
the Company’s ability, under certain circumstances pursuant to the
merger agreement, to seek specific performance to prevent breaches
of the merger agreement, as described under “The Merger
Agreement – Specific Performance” beginning on page 89 and
enforce specifically the terms of the merger agreement;
|
|
●
|
the ability of the Special Committee, prior to approval by the
Company’s stockholders, to withhold, withdraw or modify its
recommendation to stockholders concerning the transactions
contemplated by the merger agreement in connection with a superior
proposal or if any event or circumstance becomes known to the board
of directors that is material to the Company and its subsidiaries,
taken as a whole, that was not known or reasonably foreseeable (or
the impact of which was not known or reasonably foreseeable) to the
board of directors or the Special Committee, if the board of
directors determines in good faith, after consultation with outside
legal counsel and upon recommendation thereof by the Special
Committee, that the failure to so withhold, withdraw or modify its
recommendation would be reasonably likely to be inconsistent with
its fiduciary duties (subject to Parent’s ability to terminate the
merger agreement and collect the termination fee), as described
under “The Merger Agreement—Restrictions on Solicitations of
Other Offers” beginning on page 79;
|
|
●
|
the fact that the voting agreement entered into by the members of
the Stern Group with Parent will terminate automatically if the
merger agreement is terminated in accordance with its terms;
|
|
●
|
the fact that the largest unaffiliated stockholder, RBF, has
entered into a voting agreement pursuant to which it will vote in
favor of the transactions and further, that the voting agreement
will terminate automatically if the merger agreement is terminated
in accordance with its terms;
|
|
●
|
the rights of Company stockholders to demand appraisal of their
shares and receive payment of the “fair value” of such shares
pursuant to Section 262 of the DGCL if they comply in all respects
with Section 262 of the DGCL and the absence of any closing
conditions in the merger agreement related to the exercise of
appraisal rights by Company stockholders;
|
|
●
|
the lack of anticipated growth in the Company’s forecasts and
business plan over the next few years;
|
|
●
|
the fact that the consideration to be paid in the proposed merger
is all cash, which provides certainty of value and liquidity to the
unaffiliated stockholders and allows the unaffiliated stockholders
not to be exposed to the risks and uncertainties relating to the
prospects of the Company (including the prospects described in
management’s projections summarized under “Special
Factors—Management Estimates” beginning on page 45);
|
|
●
|
Tannenbaum advising the Special Committee that there is unlikely to
be any merit to the Litten action, and as a result, the Litten
action subcommittee determined to attribute no value to the Company
in connection with the Litten action;
|
|
●
|
the unpredictable nature of several of the Company’s business
segments;
|
|
●
|
the Company’s largest historical sources of revenue and cash-flow,
consumer receivables, being in run-off and the portfolios shrinking
each quarter as collections are made;
|
|
●
|
the value of the Company’s cash and cash-equivalents and securities
held-for sale on its balance sheet;
|
|
●
|
the difficulty of continuing to service the Company’s business
segments and portfolios while trying to reduce head-count and
expenses while maintaining profitability;
|
|
●
|
the possibility that it could take a considerable period of time
before, and that there could be significant uncertainty as to
whether, the trading price of Company Common Stock would reach and
sustain a trading price of at least equal to the per share merger
consideration of $13.10, as adjusted for present value, following
any withdrawal of the Stern Group’s offer;
|
|
●
|
the fact that the merger consideration of $13.10 per share for the
Common Stock represents a premium of approximately 42% to the
average price of our common stock during the 52 weeks prior to June
24, 2020.
|
|
●
|
the fact that after a long process, following the announcement of
Gary Stern’s offer on November 1, 2019 until July 24, 2020, RBF’s
$13.00 per share offer was made and no other unaffiliated third
party offers were made to purchase the outstanding shares of the
Company Common Stock, except for the RBF $13.00 per share offer,
which RBF, despite negotiations with the Special Committee, did not
raise;
|
|
●
|
the fact that Mr. Stern and the members of the Stern Group are not
interested in selling their shares in the Company or participating
in a merger or other strategic transaction with a third party and
have disclosed in writing that they would not vote their shares in
favor of such a transaction; and
|
|
●
|
the fact that the merger and the merger agreement are subject to
approval by the Company’s stockholders, including the holders of a
majority of the outstanding shares of Common Stock entitled to vote
thereon not owned, directly or indirectly, by the Parent, the Stern
Group, any other officers and directors of the Company or any other
person having an equity interest in, or any right to acquire an
equity interest in, Merger Sub or any entity of which Merger Sub is
a direct or indirect subsidiary.
|
The Special Committee and our board of directors (without the
participation of Gary Stern) also weighed the factors described
above against the following factors and risks that generally
weighed against entering into the merger agreement (not in any
relative order of importance):
|
●
|
the merger would preclude the Company’s stockholders from having
the opportunity to participate in the future performance of the
Company’s assets and any potential future appreciation of the value
of our common stock;
|
|
●
|
the merger agreement imposes restrictions on soliciting competing
acquisition proposals from third parties;
|
|
●
|
the termination fee to be paid to Parent under the circumstances
specified in the merger agreement, which, while as a percentage of
the equity value of the Company not owned by the Stern Group is
within a customary range for similar transactions, may discourage
other parties that might otherwise have an interest in a business
combination with, or an acquisition of, the Company, or may reduce
the price offered by such other parties in a competing bid (see
“The Merger Agreement—Termination Fees and
Expenses” beginning on page 88);
|
|
●
|
the Company’s large balance of cash and cash equivalents and
available for sale debt securities;
|
|
●
|
the restrictions on the conduct of the Company’s business prior to
the completion of the merger, which, subject to specific
exceptions, could delay or prevent the Company from undertaking
capital expenditures and business opportunities it would otherwise
undertake absent the pending completion of the merger, as described
under “The Merger Agreement—Conduct of Business
Prior to Closing” beginning on page 76;
|
|
●
|
the fact that significant costs are involved in connection with
entering into and completing the merger and substantial time and
effort of management is required to complete the merger,
potentially resulting in disruptions to the operation of the
Company’s business;
|
|
●
|
the fact that the announcement and pendency of the merger, or
failure to complete the merger, may cause substantial harm to
relationships with the Company’s employees, suppliers and
customers;
|
|
●
|
the fact that, while the Company expects that the merger will be
consummated, there can be no assurance that all conditions to the
parties’ obligations to complete the merger agreement will be
satisfied, and, as a result, the merger may not be consummated;
|
|
●
|
the risk that the debt financing contemplated by the debt
commitment letter will not be obtained, resulting in the Parent
Parties’ not having sufficient funds to complete the
transaction;
|
|
●
|
the effects that a failure to consummate the merger could have on
the price of the Company’s common stock and on the market’s
perceptions of the Company’s prospects;
|
|
●
|
the fact that certain key members of senior management might choose
not to remain employed with the Company prior to the completion of
the merger; and
|
|
●
|
the fact that the receipt of cash in exchange for shares of Company
common stock pursuant to the merger generally will be a taxable
transaction for U.S. federal income tax purposes for the Company’s
stockholders that are U.S. holders (other than Gary Stern and
members of the Stern Group).
|
In the course of reaching the determinations and decisions and
making the recommendations described above, that the merger is
substantively and procedurally fair to the Company’s unaffiliated
stockholders, our board of directors (without the participation of
Gary Stern) and the Special Committee also considered the following
factors relating to the procedural safeguards that our board of
directors and the Special Committee implemented to permit the
Special Committee to effectively represent the interests of the
Company’s unaffiliated stockholders:
|
●
|
the fact that the Special Committee, which consisted of three
independent and disinterested directors, met, along with the
independent legal counsel to the Special Committee and Special
Committee’s independent financial advisors, twenty-five times
between October 30, 2019, the date the committee was formed, and
June 19, 2020;
|
|
●
|
the recognition by the Special Committee that it had the authority
not to recommend the merger or any other transaction to the board
of directors;
|
|
●
|
the recognition by the independent directors that they,
collectively representing a majority of the board of directors, had
the authority not to approve the merger or any other
transaction;
|
|
●
|
the fact that, other than their receipt of board of directors’ fees
and their interests described under “Special Factors -
Interests of Our Directors and Executive Officers in the
Merger” beginning on page 26, and the interests of Mr. Slackman
relating to the dismissal of the Litten action, as described in
“Special Factors - Background of the Merger” on page
14, members of the Special Committee do not have interests in the
merger different from, or in addition to, those of the Company’s
stockholders generally;
|
|
●
|
the Special Committee’s negotiations with both Mr. Stern and RBF,
which, among other things, resulted in an increase in the offer
price from $10.75 per share of Company common stock to $13.10 per
share of Company common stock;
|
|
●
|
the Special Committee’s complete independence in selecting its own
legal and financial advisors;
|
|
●
|
although the Special Committee and the Company did not retain any
representative to act solely on behalf of the unaffiliated
stockholders for purposes of negotiating a transaction or preparing
a report, the fact that the Special Committee was advised by
Lincoln, as financial advisor, and by Tannenbaum, as legal
advisor;
|
|
●
|
the Special Committee’s causing of the management of the Company to
revise and justify their forecasts on several occasions;
|
|
●
|
the extensive time permitted to conduct due diligence, investigate
the value of the Litten action, and analyze and negotiate increases
in the Stern Group’s various offers and the RBF $13.00 per share
offer; and
|
|
●
|
the fact that each of the members of the Special Committee
(comprised of all independent and disinterested directors)
unanimously voted to recommend to the board of directors that it,
and thereafter the board of directors (other than Gary Stern)
unanimously voted to, approve and declare advisable the merger
agreement, the merger and the transactions contemplated by the
merger agreement, and declare that it is fair to and in the best
interests of the Company and the unaffiliated stockholders of the
Company that the Company enter into the merger agreement and
consummate the merger on the terms and subject to the conditions
set forth in the merger agreement.
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In considering the recommendation of our board of directors with
respect to the proposal to adopt the merger agreement, you should
be aware that our directors and executive officers may have
interests in the merger that are different from, or in addition to,
yours. The Special Committee and our board of directors were aware
of and considered these interests, among other matters, in
evaluating and negotiating the merger agreement and the merger, and
in recommending that the merger agreement be adopted by the
stockholders of the Company. See the section entitled “Special
Factors—Interests of Our Directors and Executive Officers in
the Merger” beginning on page 26 of this proxy
statement.
In the course of reaching its decision to recommend to the board of
directors that it approve and declare advisable the merger
agreement, the merger and the transactions contemplated therein,
the Special Committee did not seek to determine a pre-merger going
concern value for the Common Stock to determine the fairness of the
merger consideration to the Company’s unaffiliated stockholders.
Further, the Special Committee did not consider net book value,
which is an accounting concept, as a primary factor in assessing
the fairness of the merger to the Company and its unaffiliated
stockholders, because of its belief that net book value is not a
material indicator of the value of the Company as a going concern
but rather is indicative of historical acquisition costs and
therefore not a relevant measure in the determination of the
fairness of the merger. Net book value does not take into account
the prospects of the Company, contingent liabilities, market
conditions, trends in the industries in which the Company operates,
the business risks inherent in those industries or the probability
that such net book value could be achieved in a liquidation or
other similar restructuring. Further, the Special Committee did not
believe that net book value on its own accurately reflects the
Company’s present market value. The Special Committee believes that
the trading price of the Common Stock represents the best available
indicator of the Company’s going concern value and that the merger
consideration is fair to the Company’s unaffiliated
stockholders.
The Special Committee was not aware of any firm offers made by any
unaffiliated person, other than the Stern Group, during the past
two years for a merger, sale or other transfer of all or any
substantial part of the Company’s assets, or purchase of the
Company’s securities that would enable the holder to exercise
control of the Company.
The foregoing discussion of the information and factors considered
by the Special Committee and our board of directors in reaching
their conclusions and recommendations in connection with the
fairness of the merger to the Company’s unaffiliated stockholders
are not intended to be exhaustive, but includes the material
factors considered by the Special Committee and the board of
directors. In view of the variety of factors considered in
connection with its evaluation of the fairness of the merger and
the complexity of these matters, the Special Committee and our
board of directors did not find it practicable to, and did not
attempt to, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination and
recommendation. In addition, individual directors may have given
different weights to different factors. The Special Committee and
our board of directors did not undertake to make any specific
determination as to whether any factor, or any particular aspect of
any factor, supported or did not support its ultimate
determination. The Special Committee based its recommendation to
our board of directors on the totality of the information presented
and our board of directors considered all of the foregoing factors
as a whole and based its recommendation on the totality of the
information presented.
Based upon the foregoing, the board of directors and Special
Committee believes that the merger agreement, the merger and the
other transactions contemplated by the merger agreement, are fair
to, and in the best interest of, the Company’s unaffiliated
stockholders.
Purposes and Reasons of the Company
for the Merger
The Company’s purpose for engaging in the merger is to enable its
stockholders to receive $13.10 per share of Company Common Stock,
which represents a premium of approximately 13.2% to the 30-trading
day average stock price of $11.57 as of June 24, 2020, a premium of
approximately 25.1% to the average closing share price of our
common stock for the 90 days ended on June 24, 2020, a premium of
approximately 42.0% to the average price of our common stock during
the 52 weeks prior to June 24, 2020 and a premium of approximately
17.6% to the last trading day before the announcement that the
Company, Parent and Merger Sub had entered into Amendment No. 1, of
$11.14. The Company believes its long-term objectives can best be
pursued as a private company. The Company has determined to
undertake the merger at this time based on the conclusions,
determinations and reasons of the Special Committee and the board
of directors described in detail above under “Special
Factors—Background of the Merger” beginning on page 14
and “Special Factors—Recommendation of Our Board of
Directors; Special Factors—Reasons for the Merger and
Recommendation of our Board of Directors” beginning on page
29.
Purposes and Reasons of the Parent
Parties and the Stern Group for the Merger
Each of the Parent Parties and the Stern Group is making the
statements included in this section solely for the purpose of
complying with the requirements of Rule 13e-3 and related rules
under the Exchange Act. The views of each of the Parent Parties and
the Stern Group should not be construed as a recommendation to any
Company stockholder as to how that stockholder should vote on the
proposal to adopt the merger agreement.
If the merger is completed, the Company will become a wholly-owned
subsidiary of Parent, and the Company Common Stock will cease to be
publicly traded. The purpose of the merger is to effectuate the
transactions contemplated by the merger agreement. Each of the
Parent Parties and the Stern Group believe that structuring the
transaction in such manner is preferable to other alternative
transaction structures because (i) it will enable Parent to
directly acquire all of the outstanding shares of the Company at
the same time and (ii) it will allow the Company to cease to be a
publicly registered and reporting company.
Each of the Parent Parties and the Stern Group believe that it is
in the best interests of the Company to operate as a privately held
entity. Given the changing nature of the Company’s business,
particularly as it relates to the run-off of the consumer
receivable portfolios, the increased regulatory scrutiny, and the
high expense and declining benefit of being a public company
without having been successful at unlocking stockholder value, the
Parent Parties and the Stern Group believe that now is an opportune
time to take the Company private. The Parent Parties and the
Stern Group believe that, as a privately held entity, the Company
will have greater operational flexibility to pursue alternatives
that it would not have as a public company, and management will be
able to concentrate on long-term growth, reducing the focus on the
quarter-to-quarter performance often emphasized by the public
equity market’s valuation of the Common Stock. Each of the Parent
Parties and the Stern Group also believe that the merger will
provide the Company with flexibility to pursue transactions with a
risk profile that may be unacceptable to many public stockholders,
and that these transactions can be more effectively executed as a
private company. As a result of being privately held, the Company
will also enjoy certain additional efficiencies, such as a
reduction of the time devoted by its management and certain other
employees to compliance with the reporting and other requirements
applicable to a public company.
Parent Parties’ and the Stern Group’s Position as to the
Fairness of the Merger
Each of the Parent Parties and the Stern Group is making the
statements included in this section solely for the purpose of
complying with the requirements of Rule 13e-3 and related rules
under the Exchange Act. The views of each of the Parent Parties and
the Stern Group should not be construed as a recommendation to any
Company stockholder as to how that stockholder should vote on the
proposal to adopt the merger agreement.
The Parent Parties and the Stern Group have interests in the merger
that are different from, and in addition to, those of the other
security holders of the Company, including the interests that are
described under “—Interests of Our Directors and Executive
Officers in the Merger.” In light of these different interests,
and the fact that Gary Stern is an officer and director of the
Company and Ricky Stern is an officer of the Company, the board of
directors established a Special Committee consisting solely of
independent and disinterested directors who are not affiliated with
any of the Stern Group or the Parent Parties, are not employees of
the Company or any of its affiliates and have no financial interest
in the merger different from, or in addition to, the Company’s
stockholders (other than their interests described under
“Special Factors—Interests of Our Directors and Executive
Officers in the Merger” beginning on page 26) to negotiate
with, among others, the Parent Parties, with the assistance of
independent legal and financial advisors. None of the Parent
Parties nor the Stern Group participated in the deliberations of
the Special Committee or the board of directors regarding, or
received advice from the Company’s legal advisors or financial
advisors as to, the substantive or procedural fairness of the
merger to the Company’s unaffiliated stockholders. For these
reasons, each of the Parent Parties and the Stern Group does not
believe that their interests in the merger influenced the decision
of the Special Committee or the board of directors with respect to
the merger agreement or the merger.
None of the Parent Parties nor Stern Group has performed, or
engaged a financial advisor to perform, any valuation or other
analysis for the purposes of assessing the fairness of the merger
to the Company’s unaffiliated stockholders. Based on the knowledge
and analysis of each of the Parent Parties and the Stern Group of
available information regarding the Company, as well as discussions
with the Company’s senior management regarding the Company and its
business and the factors considered by, and the analysis and
resulting conclusions of, the Board and the Special Committee
discussed under “Special Factors—Reasons for the Merger
and Recommendation of our Board of Directors” beginning on page
29, each of the Parent Parties and the Stern Group, believes that
the merger is substantively and procedurally fair to the Company’s
unaffiliated stockholders. In particular, each of the Parent
Parties and the Stern Group believes that the proposed merger is
substantively and procedurally fair to the Company’s unaffiliated
stockholders based on its consideration of the following factors,
among others:
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the Special Committee determined, by unanimous vote of all members
of the Special Committee, and the board of directors determined, by
the vote of all members of the board of directors (other than Mr.
Stern, who did not participate in such determination), that the
transactions contemplated by the merger agreement, including the
merger, are advisable and are fair to, and in the best interests
of, the Company’s unaffiliated stockholders;
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the current and historical market prices of the Common Stock,
including the market performance of the Common Stock relative to
the common stock of other participants in the industries in which
the Company operates and general market indices, and the fact that
the merger consideration of $13.10 per share for the Common Stock
represents a premium of approximately 25.1% to the average closing
share price of our common stock of $10.47 for the 90 days ended on
June 24, 2020 and a premium of approximately 42.0% to the average
price of our common stock of $9.22 during the 52 weeks prior to
June 24, 2020;
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the merger consideration of $13.10 per share represents a premium
of approximately 51.5% to the 30-trading day average stock price as
of April 7, 2020, the last trading day before the merger was
announced.
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the $13.10 per share merger consideration and the other terms and
conditions of the merger agreement resulted from arm’s-length
negotiations among the Parent Parties and their advisors, the
Special Committee and its advisors, and RBF and its advisors;
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the merger consideration is all cash, allowing the Company’s
unaffiliated stockholders to immediately realize a certain and fair
value for all of their shares of Common Stock and, as a result, to
no longer be exposed to the various risks and uncertainties related
to continued ownership of Common Stock;
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notwithstanding that the opinion of Lincoln was provided solely for
the information and assistance of the Special Committee and none of
the Parent Parties are entitled to, and did not, rely on such
opinions, the fact that the Special Committee received an opinion
from Lincoln to the effect that, as of the date of such opinion and
based upon and subject to the various assumptions made, procedures
followed matters considered and qualifications and limitations on
the scope of review undertaken by Lincoln as set forth in its
written opinion, the $13.10 per share in cash to be received by the
holders shares of Common Stock of the Company (other than Gary
Stern and members of the Stern Group) in the proposed
transaction, was fair, from a financial point of view, to the
holders of such shares;
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the fact that the Parent Parties have obtained committed debt
financing for the merger from nationally recognized financing
source with a limited number of conditions to the consummation of
the debt financing and the absence of a financing condition in the
merger agreement;
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the merger agreement requires that it be adopted not only by the
affirmative vote of the holders of at least a majority of the
outstanding shares of the Common Stock, but also the affirmative
vote of the holders of at least a majority of the outstanding
shares of the Common Stock held by stockholders entitled to vote
thereon other than the Parent Parties, the Stern Group and any
other officers and directors of the Company or any other person
having any equity interest in, or any right to acquire any equity
interest in, Merger Sub or any person of which Merger Sub is a
direct or indirect subsidiary;
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the Special Committee consists solely of directors who are not
officers or employees of the Company or any of its subsidiaries and
are not affiliated with the Parent Parties or the Stern Group, and,
other than receipt of reasonable and customary fees for attending
meetings and their other interests described under “—Interests
of Our Directors and Executive Officers in the Merger,” to the
knowledge of the Parent Parties, such directors have no financial
interest in the merger different from, or in addition to, the
Company’s unaffiliated stockholders;
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the Company’s ability, under certain circumstances, to terminate
the merger agreement in order to enter into a definitive agreement
providing for a superior proposal, subject to paying a termination
fee of $400,000 (see “The Merger Agreement—Termination Fees and
Expenses; Company Termination Fee” beginning on page
88);
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the Special Committee retained and received advice from Lincoln, as
financial advisor, and Tannenbaum, as legal advisor, each of which
has extensive experience in transactions similar to the merger;
and
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the availability of appraisal rights under Delaware law to holders
of Common Stock who do not vote in favor of the adoption of the
merger agreement and who comply with all of the required procedures
under Delaware law, which allows such holders to seek appraisal of
the fair value of their stock as determined by the Court of
Chancery of the State of Delaware.
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The foregoing discussion of the factors considered by each of the
Parent Parties and the Stern Group in connection with the fairness
of the merger is not intended to be exhaustive but is believed to
include material factors considered by them. The Parent Parties and
the Stern Group did not find it practicable to, and did not,
quantify or otherwise attach relative weights to the foregoing
factors in reaching their position as to the fairness of the
merger. Rather, each of the Parent Parties and the Stern Group made
its fairness determination after considering all of the foregoing
factors as a whole. The Parent Parties and the Stern Group believe
these factors provide a reasonable basis upon which to form their
belief that the merger is fair to the Company’s unaffiliated
stockholders. This belief should not, however, be construed as a
recommendation to any Company stockholder to vote in favor of the
proposal to adopt the merger agreement. None of the Parent Parties
nor the Stern Group make any recommendation as to how stockholders
of the Company should vote their shares of Common Stock on the
proposal to adopt the merger agreement.
Opinion of
the Financial Advisor to the Special Committee of
Our Board of Directors
On June 19, 2020, Lincoln rendered its opinion to the Special
Committee of the board of directors of the Company to the effect
that, as of the date of such opinion and based upon and subject to
the various assumptions made, procedures followed, matters
considered and qualifications and limitations on the scope of
review undertaken by Lincoln as set forth in its written opinion,
the merger consideration of $13.10 per share in cash to be received
by the holders of shares of common stock of the Company (other than
Gary Stern and members of the Stern Group) in the proposed
transaction, was fair, from a financial point of view, to the
holders of such shares.
Lincoln’s opinion was directed to the Special Committee (in its
capacity as such) and only addressed the fairness, from a financial
point of view, to the non-Stern Group holders of the merger
consideration to be received by such stockholders in
the proposed transaction and did not address any other aspect or
implication of the proposed transaction, any related transaction or
any other agreement, arrangement or understanding entered into in
connection therewith or otherwise. The summary of Lincoln’s opinion
in this proxy statement is qualified in its entirety by reference
to the full text of its written opinion, which is attached as Annex
C to this proxy statement and describes the procedures followed,
assumptions made, qualifications and limitations on the review
undertaken and other matters considered by Lincoln in connection
with the preparation of its opinion. However, neither Lincoln’s
opinion nor the summary of its opinion and the related analyses set
forth in this proxy statement are intended to be, and do not
constitute, advice or a recommendation to the Special Committee,
any security holder of the Company or any other person as to how to
act or vote with respect to any matter relating to the proposed
transaction or otherwise.
In arriving at its Opinion, Lincoln, among other things:
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discussed the terms and circumstances surrounding the proposed
transaction with the Special Committee and its legal counsel, and
certain members of management of the Company;
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met with the Special Committee, and met with certain members of
management of the Company at the Company’s offices in Englewood
Cliffs, New Jersey, in each case to discuss the business, financial
outlook and prospects of the Company;
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reviewed the merger agreement and a draft of Amendment No. 1, dated
June 18, 2020;
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reviewed a letter addressed to Lincoln by management of the Company
which contained, among other things, representations regarding the
accuracy of the information, data and other materials (financial or
otherwise) provided to, or discussed with, Lincoln by or on behalf
of the Company, dated June 19, 2020;
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reviewed the Company’s annual reports and audited financial
statements on Form 10-K filed with the U.S. Securities and Exchange
Commission (the “SEC”) for the fiscal years ended September 30,
2015 through September 30, 2019 and the Company’s unaudited interim
financial statements on Form 10-Q filed with the SEC for the three
and six months ended March 31, 2020;
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reviewed the Company’s unaudited business segment financial
statements and pro forma financial information for the fiscal years
ended September 30, 2018 through September 30, 2019 and the three
and six months ended March 31, 2020, which the Company’s management
identified as being the most current financial statements
available;
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reviewed the Final Management Forecast for the Company and each of
its business segments, provided to Lincoln by management of the
Company and approved for Lincoln’s use by the Company and the
Special Committee;
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reviewed and discussed with the Special Committee the Final
Management Forecast and certain extensions thereof through the
fiscal year ending September 30, 2029 with respect to the Company’s
consumer receivables segment, and through the fiscal year ending
September 30, 2028 with respect to the Company’s corporate overhead
(for purposes of this section, the “Extended Management
Projections”);
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reviewed the financial terms of the proposed transaction and
compared those terms with the financial terms of certain business
combinations and other transactions as of the date hereof, that
Lincoln deemed relevant;
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reviewed certain financial and other information for the Company,
and compared that data and information with certain stock trading,
financial and corresponding data and information for companies with
publicly traded securities as of the date hereof, none of which is
directly comparable to the Company, that Lincoln deemed
relevant;
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performed certain valuation and comparative analyses including a
discounted cash flow analysis and an analysis of selected public
companies that Lincoln deemed relevant; and
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considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that
Lincoln deemed relevant.
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In preparing its Opinion, Lincoln relied upon and assumed the
accuracy and completeness of all of the financial, accounting,
legal, tax and other information Lincoln reviewed, and Lincoln did
not assume any responsibility for the independent verification of
any of such information. With respect to the Final Management
Forecast and other financial information provided to Lincoln by
management of the Company, Lincoln assumed that they were
reasonably prepared in good faith on a basis reflecting the best
currently available estimates and judgments of the management of
the Company as to the future financial results of the Company and
the other matters covered thereby. With respect to the Extended
Management Projections, Lincoln reviewed and discussed such
projections and other financial information with the Special
Committee, and Lincoln was advised by the Special Committee and
assumed, that the Extended Management Projections were a reasonable
basis upon which to evaluate the proposed transaction. At the
direction of the Special Committee, Lincoln used the Final
Management Forecast and the Extended Management Projections in
performing its analyses and in arriving at its Opinion. Lincoln
assumed no responsibility for the assumptions, estimates and
judgments on which the Final Management Forecast, the Extended
Management Projections, the interim financial statements and other
financial information were based, and Lincoln expressed no opinion
with respect to the Final Management Forecasts, the Extended
Management Projections, or the interim financial statements and
other financial information. In addition, Lincoln was not requested
to make, and did not make, an independent evaluation or appraisal
of the assets or liabilities (contingent, derivative, off-balance
sheet or otherwise) of the Company or Parent, or any of their
respective subsidiaries, nor was Lincoln furnished with any such
evaluations or appraisals. Lincoln did not undertake an independent
analysis of any potential or actual litigation, possible unasserted
claims or other contingent liabilities, to which the Company was,
is or may be a party or was, is or may be subject, or of any
possible unasserted claims or other contingent liabilities to which
the Company was, is or may be a party or was, is or may be subject.
With regard to the information provided to Lincoln by the Company,
Lincoln relied upon the assurances of management of the Company
that they were unaware of any facts or circumstances that would
make such information materially incomplete or misleading. Lincoln
also assumed that there was no material change in the assets,
liabilities, business, condition (financial or otherwise), results
of operations or prospects of the Company since the date of the
most recent financial statements made available to Lincoln. With
the Special Committee’s consent, Lincoln also assumed that in the
course of obtaining any necessary regulatory and third party
consents, approvals and agreements for the proposed transaction, no
modification, delay, limitation, restriction or condition would be
imposed that would have an adverse effect on the Company or the
proposed transaction, and that the proposed transaction would be
consummated in accordance with the terms of the amended merger
agreement and other documents made available to Lincoln, without
waiver, modification or amendment of any term, condition or
agreement therein that was material to Lincoln’s analysis.
Lincoln was not requested to, and did not, seek alternative
candidates for a transaction with the Company. Lincoln relied upon
the fact that the proposed transaction would be consummated in a
manner that complies in all respects with all applicable federal
and state statutes, rules and regulations. Representatives of the
Company have advised Lincoln, and Lincoln further assumed, that the
final terms of the draft Amendment No. 1 and the proposed
transaction would not vary materially from those set forth in the
copies or drafts, as applicable, reviewed by Lincoln. Lincoln’s
Opinion was and is necessarily based on financial, economic, market
and other conditions as they existed on and the information made
available to Lincoln as of the date thereof. Although subsequent
developments may affect Lincoln’s Opinion, Lincoln does not have
any obligation to update, revise or reaffirm its Opinion. Lincoln’s
opinion noted that, as the Special Committee was aware, the credit,
financial and stock markets, and the industry in which the Company
operates, have experienced and may continue to experience
volatility and Lincoln expressed no view or opinion as to any
potential effects of such volatility on the Company or the proposed
transaction.
It is understood that Lincoln’s Opinion was for the use and benefit
of the Special Committee in connection with the proposed
transaction. Neither Lincoln’s Opinion nor any other advice or
information provided by Lincoln, whether oral or written, may be
disclosed, reproduced, disseminated, summarized, quoted from or
referred to, in whole or in part, without Lincoln’s prior written
consent, except that the Company may reproduce a copy of Lincoln’s
Opinion in full in any document that is required to be filed with
the SEC and required to be mailed by the Company to holders of
shares of Company common stock relating to the proposed
transaction. Lincoln’s Opinion only addressed the fairness from a
financial point of view of the merger consideration to be received
by the non-Stern Group holders in the proposed transaction and did
not address any other terms, aspects or implications of the
proposed transaction, or any agreements, arrangements or
understandings entered into in connection with the proposed
transaction or otherwise. In addition, Lincoln’s Opinion did not
address the relative merits of the proposed transaction as compared
to other transaction structures, transactions or business
strategies that may be available to the Company or the Special
Committee, nor did it address or constitute a recommendation
regarding the decision of the Special Committee to recommend the
proposed transaction, or the decision of the Board to authorize the
execution of Amendment No. 1 or to engage in the proposed
transaction. Lincoln’s Opinion was authorized for issuance by the
Fairness Opinion Committee of Lincoln. Lincoln’s Opinion does not
constitute advice or a recommendation to the Special Committee, the
Company or any security holder as to how it should act or vote on
any matter relating to the proposed transaction or otherwise.
Lincoln expressed no opinion as to what the market price or value
of the shares of Company common stock would be after the
announcement of the proposed transaction. Lincoln also expressed no
opinion about the amount or nature of the compensation to the
Company’s officers, directors or employees, or class of such
persons in connection with the proposed transaction relative to the
merger consideration in the proposed transaction or otherwise.
Lincoln Presentations
Lincoln delivered presentations to the Special Committee on
December 30, 2019, January 16, 2020, March 13, 2020, April 8, 2020
and June 19, 2020 (together, the “Lincoln Presentations”). The
summaries of the Lincoln Presentations in this proxy statement are
qualified in their entirety by reference to the full text of the
Lincoln Presentations, copies of which have been attached as
exhibits to the transaction statement on Schedule 13E-3. For
further information regarding the Final Management Forecast and the
Extended Management Projections, see the full text of the June 19,
2020 Lincoln Presentation, a copy of which has been attached as an
exhibit to the transaction statement on Schedule 13E-3.
Summary of Lincoln’s Financial Analysis
Set forth below is a summary of the material financial analyses in
the June 19, 2020 Presentation reviewed by Lincoln with the Special
Committee on June 19, 2020 in connection with rendering Lincoln’s
Opinion. The following summary, however, does not purport to be a
complete description of the analyses performed by Lincoln. The
order of the analyses described and the results of these analyses
do not represent relative importance or weight given to these
analyses by Lincoln. Except as otherwise noted, the following
quantitative information, to the extent that it is based on market
data, is based on market data that existed on or before June 18,
2020 and is not necessarily indicative of then-current market
conditions.
The following summary of Lincoln’s financial analyses includes
information presented in tabular format. Several
financial analyses were employed and no one method of analysis
should be regarded as critical to the overall conclusion reached.
Each analytical technique has inherent strengths and weaknesses,
and the nature of the available information may further affect the
relevance of particular techniques. Each of the analyses conducted
was carried out to provide a particular perspective of the merger
consideration. In order to fully understand the analyses, the
tables must be read together with the full text of each summary.
The tables are not intended to stand alone and alone do not
constitute a complete description of Lincoln’s financial
analyses. Considering the tables below without considering
the full narrative description of Lincoln’s financial analyses,
including the methodologies and assumptions underlying such
analyses, could create a misleading or incomplete view of such
analyses. Lincoln did not form a conclusion as to whether any
individual analysis, when considered in isolation, supported or
failed to support its opinion as to the fairness of the merger
consideration. Lincoln did not place any specific reliance or
weight on any individual analysis, but instead, concluded that its
analyses, taken as a whole, supported its opinion.
For purposes of its analyses, Lincoln reviewed a number of
financial metrics including:
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EBIT—means earnings before interest and taxes;
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EBITDA—generally, the amount of the relevant company’s earnings
before interest, taxes, depreciation and amortization for a
specified time period;
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Enterprise value—generally, the value as of a specified date of the
relevant company’s outstanding equity securities (taking into
account its options and other outstanding convertible securities)
plus the value as of such date of its net debt (the value of its
outstanding indebtedness, preferred stock and capital lease
obligations less the amount of cash on its balance sheet); and
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Equity Value—generally, the value as of a specified date of the
relevant company’s outstanding equity securities (taking into
account its options and other outstanding convertible
securities).
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Sum-of-the-parts Analysis
Lincoln performed a sum-of-the-parts financial analysis to
determine a range of indicated equity values for the Company and a
range of indicated values per share of Company common stock.
Lincoln calculated these indicated value ranges by performing a
discounted cash flow analysis for each of the business segments of
the Company based on the Final Management Forecast and the Extended
Management Projections, as applicable, approved for Lincoln’s use
by the Special Committee. Lincoln also performed a selected public
companies / M&A transactions analysis to determine a range of
indicated enterprise values for the Personal Injury Claims segment
and a selected public companies analysis to determine a range of
indicated enterprise values for the Social Security Disability
Advocacy/GAR segment.
Lincoln derived the range of indicated equity values of the Company
by calculating (i) the value of the March 31, 2020 balances of
Company’s cash and cash equivalents, investments and available for
sale securities using market prices as of June 18, 2020, plus (ii)
the indicated enterprise value ranges for each of the business
segments of the Company (consumer receivables, personal injury
claims, GAR/social security disability advocacy and small business
lending), minus corporate overhead expenses (with and without the
effect of corporate taxes), plus (iii) the value of the Company’s
other assets (the present value of the tax benefits of the
Company’s net operating losses, the Company’s 49% ownership
interest in a joint venture with Serlefin Peru, the Company’s
settlements receivable relating to a lawsuit filed by the Company
against a third-party servicer, and the Company’s other assets).
The resulting low, midpoint and high equity values for the Company
were then divided by the number of fully-diluted shares outstanding
to determine a range of indicated values per share of Company
common stock. This analysis resulted in the following range of
indicated equity values per share of Company common stock, compared
to the merger consideration of $13.10 per share.
Low
|
Midpoint
|
High
|
$11.31
|
$12.07
|
$12.91
|
Discounted Cash Flow Analysis - Consumer Receivables
Segment
Lincoln performed a discounted cash flow analysis of the projected
unlevered free cash flows of the Consumer Receivables business
segment of the Company based on the Final Management Forecast and
the Extended Management Projections, as applicable, for the fiscal
years ending September 30, 2020 through September 30, 2029. Lincoln
defines “free cash flow” as the cash generated by the Consumer
Receivables business segment that is available either to reinvest,
service debt or to distribute to stockholders. Lincoln calculated
the Consumer Receivables business segment’s projected unlevered
free cash flows by taking its earnings before interest and taxes
(“EBIT”), subtracting taxes, adding back depreciation, and
subtracting the change in working capital and capital expenditures.
The projected unlevered free cash flows were then discounted to
their net present value using an estimate of the Company’s weighted
average cost of capital of 14.0% and applying a range of
plus-or-minus 2.5% to derive an illustrative range of discount
rates of 11.5% to 16.5%. Based on discussions with Company
management, the Consumer Receivables business segment, which had
not made any new portfolio purchases in several years, was assumed
for purposes of this analysis to be liquidated at the end of fiscal
year 2029 following its substantially complete run-off.
Accordingly, no terminal value calculation was included in
Lincoln’s discounted cash flow analysis for the Consumer
Receivables business segment.
Based on these assumptions, Lincoln’s discounted cash flow analysis
indicated an estimated enterprise value range for the Consumer
Receivables business segment of approximately $16.3 million to
$17.8 million.
Discounted Cash Flow Analysis - Personal Injury Claims Segment
(Simia Capital, LLC and Sylvave, LLC)
Lincoln performed a discounted cash flow analysis of the projected
unlevered free cash flows of the Personal Injury Claims business
segment which includes legal entities Simia Capital, LLC (“Simia”)
and Sylvave, LLC (“Sylvave”) based on the Final Management Forecast
for the fiscal years ending September 30, 2020 through September
30, 2024. Lincoln defines “free cash flow” as the cash generated by
Simia and Sylvave that is available to reinvest, service debt or to
distribute to stockholders. Lincoln calculated Simia and Sylvave’s
projected unlevered free cash flows by taking the total amount of
principal and interest collections from Simia’s and Sylvave’s
portfolio, and subtracting operating expenses and pro forma taxes
for the business segment. The projected unlevered free cash flows
were then discounted to their net present value using an estimate
of the Company’s weighted average cost of capital of 14.0% and
applying a range of plus-or-minus 2.5% to derive an illustrative
range of discount rates of 11.5% to 16.5%. Based on discussions
with Company management, Simia and Sylvave, which have had no new
personal injury claims portfolio fundings in several years, were
assumed for purposes of this analyses to be fully wound down by the
end of fiscal year 2024. Accordingly, no terminal value calculation
was included in Lincoln’s discounted cash flow analysis for Simia
and Sylvave.
Based on these assumptions, Lincoln’s discounted cash flow analysis
indicated an estimated enterprise value range for Simia and Sylvave
of approximately $2.95 million to $3.15 million.
Selected Public Companies Analysis - Personal Injury Claims
Segment (Arthur Funding)
Lincoln reviewed and compared certain financial information of the
Personal Injury Claims business segment legal entity Arthur
Funding, LLC (“Arthur Funding”) to corresponding financial
multiples, metrics and ratios for publicly traded companies in the
specialty finance industry:
The tables below identify the companies reviewed and summarize
certain observed trading multiples of the selected public companies
as of June 18, 2020.
Company Name
|
Market
Capitalization
|
Equity Value as a Multiple of:
|
|
($ millions) |
Book Value
|
Tangible Book Value
|
LTM Earnings
|
Arrow Global Group PLC
|
199.4 |
0.76x |
NMF |
5.4x |
Axactor SE
|
130.6 |
0.39x |
0.52x |
5.9x |
Cembra Money Bank AG
|
2,951.1 |
2.62x |
3.40x |
17.6x |
Collection House Limited
|
103.3 |
0.86x |
1.06x |
NMF |
Credit Acceptance Corporation
|
7,740.0 |
3.93x |
3.93x |
20.0x |
Encore Capital Group, Inc.
|
1,163.5 |
1.26x |
NMF |
10.6x |
KRUK Spolka Akcyjna
|
521.5 |
1.11x |
1.17x |
18.9x
|
PRA Group, Inc.
|
1,775.2 |
1.62x |
2.67x |
19.4x
|
Average
|
1,823.1 |
1.57x |
2.12x |
13.9x
|
Median
|
842.5 |
1.18x |
1.92x |
17.6x
|
Note: “NMF” means not meaningful figure.
Source: S&P Capital IQ and public filings.
None of the selected public companies were identical to Arthur
Funding. As a result, a complete valuation analysis cannot be
limited to a quantitative review of the selected public companies,
but also requires complex considerations and judgments concerning
differences in financial and operating characteristics of such
companies, as well as other factors that could affect their value
relative to that of Arthur Funding. Although none of these selected
public companies is directly comparable to Arthur Funding, Lincoln
selected these companies for its analysis based on their geographic
footprint, relative size, historical and projected financial
performance and profitability, to that of Arthur Funding. For
purposes of its analysis, Lincoln used certain publicly available
historical financial data for the selected public companies. This
analysis produced valuation multiples of selected financial metrics
which Lincoln utilized to estimate the enterprise value of Arthur
Funding.
Selected M&A Transactions Analysis - Personal Injury Claims
Segment (Arthur Funding)
Lincoln reviewed publicly available information related to the
precedent acquisition transactions in the specialty finance
industry listed in the table below, including each transaction’s
equity value as a multiple of book value and last-twelve-month
earnings. The selection of these transactions was based, among
other things, on the target company’s industry, the relative size
of the transaction compared to the proposed transaction, and the
availability of public information related to the selected
transaction.
Date
|
Target
|
Acquiror
|
Equity
Value
|
Equity Value as a
Multiple of:
|
|
|
|
($ millions) |
Book
Value
|
LTM
Earnings
|
July 2014
|
Aktiv Kapital ASA
|
Portfolio Recovery Associates, Inc. (aka PRA Group, Inc.)
|
872.6
|
2.02x
|
6.1x
|
June 2013
|
Asset Acceptance Capital Corp.
|
Encore Capital Group, Inc.
|
215.2
|
1.43x
|
36.6x
|
March 2012
|
Aktiv Kapital ASA
|
Geveran Trading Co., Ltd.
|
1,416.3
|
0.94x
|
5.4x
|
Average
|
|
|
834.7
|
1.46x
|
16.0x
|
Median
|
|
|
872.6
|
1.43x
|
6.1x
|
Source: S&P Capital IQ and public filings.
No company or transaction utilized in the precedent transactions
analysis was identical or directly comparable to Arthur Funding or
the proposed transaction.
In order to estimate a range of indicated equity values for Arthur
Funding, Lincoln applied a selected range of book value multiples
of 1.25x to 1.50x to Arthur Funding’s book value of $519,900 as of
June 15, 2020. Arthur Funding’s book value represents the Company’s
investment in Arthur Funding as of such date. This analysis
resulted in an indicated equity value range for Arthur Funding of
approximately $0.65 million to $0.78 million. The indicated equity
value range for Arthur Funding was equivalent to the indicated
enterprise value range for Arthur Funding on account of Arthur
Funding having no segment-level leverage.
Valuation multiples were selected, in part, by taking into
consideration historical and projected financial performance
metrics of Arthur Funding relative to such metrics of the selected
public companies and selected M&A transactions, and other
factors including, but not limited to, geographic footprint,
relative size, historical and projected financial performance and
profitability, the length of time Arthur Funding has been
originating new business, and Arthur Funding’s revenue and earnings
composition.
Lincoln calculated an indicated enterprise value range for the
Personal Injury Claims business segment by adding the indicated
value ranges for the Simia, Sylvave and Arthur Funding legal
entities that were derived using the discounted cash flows
analysis, selected public companies analysis, and selected M&A
transactions analysis described above. Based on these analyses,
this resulted in a range of indicated enterprise values for the
Personal Injury Claims business segment of approximately $3.6
million to $3.9 million.
Discounted Cash Flow Analysis - Social Security Disability
Advocacy Segment (GAR)
Lincoln performed a discounted cash flow analysis of the projected
unlevered free cash flows of the Social Security Disability
Advocacy business segment of the Company, or GAR, based on the
Final Management Forecast for the fiscal years ending September 30,
2020 through September 30, 2026. Lincoln defines “free cash flow”
as the cash generated by GAR that is available either to reinvest,
service debt or to distribute to stockholders. Lincoln calculated
GAR’s projected unlevered free cash flows by taking its earnings
before interest and taxes (“EBIT”), subtracting taxes, adding back
depreciation, and subtracting the change in working capital and
capital expenditures. Lincoln calculated the terminal value of GAR
using an assumed perpetuity growth rate of 2.0%, based on
discussions with Company management regarding its view of the
long-term growth rate of GAR. The projected unlevered free cash
flows for the fiscal years ending September 30, 2020 through
September 30, 2026 and terminal value of GAR as of September 30,
2026 were then discounted to their net present value using an
estimate of the Company’s weighted average cost of capital of 14.0%
and applying a range of plus-or-minus 1.5% to derive an
illustrative range of discount rates of 12.5% to 15.5%. The net
present values of the unlevered free cash flows and the terminal
value of GAR were then added together to determine a range of
indicated enterprise values for GAR.
Based on these assumptions, Lincoln’s discounted cash flow analysis
indicated an estimated enterprise value range for GAR of
approximately $7.8 million to $10.1 million.
Selected Public Companies Analysis - Social Security Disability
Advocacy Segment (GAR)
Lincoln reviewed and compared certain financial information of GAR
to corresponding financial multiples, metrics and ratios for the
selected public companies listed above in the Selected Public
Companies Analysis - Personal Injury Claims Segment (Arthur
Funding).
In order to estimate a range of indicated enterprise values for GAR
based on the selected public companies analysis, Lincoln applied a
selected range of enterprise value to EBITDA multiples of 5.0x to
6.0x to GAR’s projected fiscal year 2021 EBITDA of approximately
$1.3 million. This analysis resulted in an indicated enterprise
value range for GAR of approximately $6.3 million to $7.6
million.
Valuation multiples were selected, in part, by taking into
consideration historical and projected financial performance
metrics of GAR relative to such metrics of the selected public
companies, including, but not limited to, the size of GAR on a
revenue and EBITDA basis, historical and projected EBITDA margins
compared to the selected public companies, and historical and
projected revenue and EBITDA growth compared to the selected public
companies.
None of the selected public companies were identical to GAR. As a
result, a complete valuation analysis cannot be limited to a
quantitative review of the selected public companies, but also
requires complex considerations and judgments concerning
differences in financial and operating characteristics of such
companies, as well as other factors that could affect their value
relative to that of GAR. Although none of these selected public
companies is directly comparable to GAR, Lincoln selected these
companies for its analysis based on their geographic footprint,
relative size, historical and projected financial performance and
profitability, to that of GAR. For purposes of its analysis,
Lincoln used certain publicly available historical financial data
for the selected public companies summarized below. This analysis
produced valuation multiples of selected financial metrics which
Lincoln utilized to estimate the enterprise value of GAR. These
valuation multiples are set forth below. The estimated 2021
enterprise value to EBITDA multiples for the selected public
companies in this analysis ranged from a low of 1.8x to a high of
4.2x, with a median of 3.6x.
Company Name
|
Enterprise Value
|
Enterprise Value as a Multiple of:
|
|
($ millions) |
LTM EBITDA
|
2020 EBITDA
|
2021 EBITDA
|
LTM Revenue
|
Arrow Global Group PLC
|
N/A
|
NMF
|
NMF
|
NMF
|
NMF
|
Axactor SE
|
1,254.8
|
4.3x
|
7.9x
|
4.2x
|
4.27x
|
Cembra Money Bank AG
|
N/A
|
NMF
|
NMF
|
NMF
|
NMF
|
Collection House Limited
|
208.7
|
1.6x
|
2.0x
|
1.8x
|
1.64x
|
Credit Acceptance Corporation
|
N/A
|
NMF
|
NMF
|
NMF
|
NMF
|
Encore Capital Group, Inc.
|
4,395.4
|
3.3x
|
3.1x
|
2.8x
|
3.26x
|
KRUK Spolka Akcyjna
|
1,132.8
|
4.1x
|
4.6x
|
3.6x
|
4.10x
|
PRA Group, Inc.
|
4,585.0
|
4.4x
|
4.4x
|
4.0x
|
4.43x
|
Average
|
2,315.3
|
3.5x
|
4.4x
|
3.3x
|
3.54x
|
Median
|
1,254.8
|
4.1x
|
4.4x
|
3.6x
|
4.10x
|
Note: “N/A” means not available; “NMF” means not meaningful
figure.
Source: S&P Capital IQ and public filings.
Lincoln calculated an indicated enterprise value range for GAR of
approximately $6.4 million to $8.1 million by calculating the
average of the range of enterprise values that were derived from
the discounted cash flows analysis and selected public companies
analysis of GAR described above.
Discounted Cash Flow Analysis - Small Business Lending
Segment
Lincoln performed a discounted cash flow analysis of the projected
unlevered free cash flows of the Small Business Lending business
segment of the Company based on the Final Management Forecast for
the fiscal years ending September 30, 2021 through September 30,
2026. Lincoln defines “free cash flow” as the cash generated by the
Small Business Lending business segment that is available either to
reinvest, service debt or to distribute to stockholders. Lincoln
calculated the Small Business Lending business segment’s projected
unlevered free cash flows by taking its earnings before interest
and taxes (“EBIT”), subtracting taxes and subtracting the Company’s
net investment in the Small Business Lending segment. Lincoln
calculated the terminal value of the Small Business Lending
business segment using a terminal book value multiple of 1.50x,
based on an analysis of selected public companies in the small
business lending industry. The projected unlevered free cash flows
for the fiscal years ending September 30, 2021 through September
30, 2026 and terminal value of Small Business Lending as of
September 30, 2026 were then discounted to their net present value
using a range of discount rates of 17.5% to 22.5% based on an
estimate of venture-like rates of return given the uncertainty and
risk associated with the early-stage development nature of the
Small Business Lending business segment. The net present values of
the unlevered free cash flows and the terminal value of the Small
Business Lending business segment were then added together to
determine a range of indicated enterprise values for the Small
Business Lending business segment.
This analysis indicated an estimated enterprise value range for the
Small Business Lending business segment of approximately $20,000 to
$2.57 million.
Discounted Cash Flow Analysis - Corporate Overhead
Lincoln performed a discounted cash flow analysis of the projected
unlevered free cash flows related to the Company’s corporate
overhead expenses, with and without the effect of corporate taxes,
based on the Final Management Forecast and the Extended Management
Projections, as applicable, for the fiscal years ending September
30, 2020 through September 30, 2028. Lincoln defines “free cash
flow” as the cash generated (or used by) the Company related to its
corporate overhead expenses that is available either to reinvest,
service debt or to distribute to stockholders. Lincoln calculated
the projected unlevered free cash flows related to the Company’s
corporate overhead expenses by taking its earnings before interest
and taxes (“EBIT”) (which for corporate overhead expenses was a
negative number), subtracting taxes, adding back depreciation, and
subtracting capital expenditures and the change in working capital.
The projected unlevered free cash flows were then discounted to
their net present value using an estimate of the Company’s weighted
average cost of capital of 14.0% and applying a range of
plus-or-minus 2.5% to derive an illustrative range of discount
rates of 11.5% to 16.5%. Based on discussions with the Special
Committee and with the Special Committee’s approval, Lincoln
assumed that the Company would cease operating when each of the
Company’s consumer receivables segment and Simia and Sylvave
segments have liquidated, and the Company’s other business segments
have matured and would be able to be sold to facilitate a wind down
of the Company. Accordingly, no terminal value calculation was
included in Lincoln’s discounted cash flow analysis for corporate
overhead expenses of the Company.
Based on these assumptions, Lincoln’s discounted cash flow analysis
indicated an estimated enterprise value range for the corporate
overhead expenses of the Company (pre-tax) of approximately $(26.2)
million to $(29.6) million, and an estimated enterprise value range
for the corporate overhead expenses of the Company (post-tax) of
approximately $(18.6) million to $(21.0) million, resulting in an
overall range (calculated by taking the low end of the pre-tax
range and the high end of the post-tax range) of approximately
$(21.0) million to approximately $(26.2) million.
Other Presentations by Lincoln
December 30, 2019 Presentation
The December 30 Presentation referenced, for informational
purposes, among other things: (i) an overview of Lincoln’s
valuation methodology; (ii) a preliminary analysis of the high end
of the equity value of the Company, which resulted in an indicated
equity value of $11.76 per share; (iii) a preliminary analysis of
the book value of the Company (for reference only), which resulted
in an indicated equity value of $13.23 per share; (iv) an
illustrative perspective on potential negotiation positions; and
(v) a preliminary analysis of the Company’s corporate overhead
expenses.
January 16, 2020 Presentation
The January 16 Presentation referenced, for informational purposes,
among other things: (i) preliminary analyses that were
substantially similar to those contained in the December 30
Presentation and updated based on then-current market information;
(ii) a preliminary financial analysis of the Company on a
sum-of-the-parts basis using the Second Revised Management Forecast
for each of the Company’s business segments (including an analysis
of the Company’s corporate overhead expenses, without the effect of
corporate taxes), which resulted in an indicated equity value range
of $10.72 to $10.93 per share; and (iii) updated values for the
Company’s cash and marketable securities based on market data
available as of January 15, 2020.
March 13, 2020 Presentation
The March 13 Presentation referenced, for informational purposes,
among other things: (i) preliminary analyses that were
substantially similar to those contained in the January 16
Presentation and updated based on then-current market information;
(ii) a per-share value bridge from the January 16 Presentation;
(iii) updated values for the Company’s cash and marketable
securities based on market data available as of March 12, 2020; and
(iv) a preliminary financial analysis of a new potential business
segment, small business lending, identified by Company management
in the Final Management Forecast. The preliminary financial
analysis resulted in an indicated equity value range for the
Company of $11.28 to $11.68 per share.
April 8, 2020 Presentation
The April 8 Presentation referenced, among other things: (i)
analyses that were substantially similar to those contained in the
June 19 Presentation (except that the estimated enterprise value
range for the corporate overhead expenses of the Company was
calculated without the effect of corporate taxes) and based on
then-current market information and the Final Management Forecast;
and (ii) updated values for the Company’s cash and marketable
securities based on market data available as of April 6, 2020. The
financial analysis resulted in an indicated equity value range for
the Company of $11.32 to $11.70 per share.
Miscellaneous
Lincoln and its affiliates provide a range of investment banking
and financial advisory services and, in that regard, may in the
future provide investment banking and other financial services to
the Company, Gary Stern or members of the Stern Group or their
respective affiliates, for which Lincoln and its affiliates would
expect to receive customary compensation. During the two year
period prior to the date of its opinion and other than in
connection with services to the Special Committee related to the
proposed transaction, Lincoln and its affiliates have not been
engaged to provide investment banking or financial advisory
services to the Company, Gary Stern or the Stern Group, and Lincoln
has not received any compensation from the Company, Gary Stern or
the Stern Group during such period for any such
services. Lincoln will receive a fee of $350,000 from the
Company for its services related to the proposed transaction,
$100,000 of which was paid upon the execution of Lincoln’s
engagement letter, $75,000 of which was paid upon the execution of
the Engagement Letter Amendment No. 1, $100,000 of which was paid
upon Lincoln informing the Special Committee that Lincoln was
prepared to render an opinion on April 8, 2020, $37,500 of which
was paid upon the execution of the Engagement Letter Amendment No.
2, and $37,500 of which was paid upon Lincoln informing the Special
Committee that Lincoln was prepared to render an opinion on June
19, 2020. No portion of Lincoln’s fees are contingent upon the
consummation of the proposed transaction. Furthermore, in
connection with bankruptcies, restructurings, distressed situations
and similar matters, Lincoln and certain of its affiliates may have
in the past acted, may currently be acting and may in the future
act as financial advisor to debtors, creditors, equity holders,
trustees, agents and other interested parties (including, without
limitation, formal and informal committees or groups of creditors)
that may have included or represented and may include or represent,
directly or indirectly, or may be or have been adverse to, the
Company, Gary Stern or members of the Stern Group, other
participants in the proposed transaction or certain of their
respective affiliates or security holders, for which advice and
services Lincoln and its affiliates have received and may receive
compensation.
Management
Estimates
We do not, as a matter of course, publicly disclose financial
projections as to future financial performance, earnings or other
results (other than guidance regarding revenue and earnings per
share for the current year) and are especially cautious of making
financial projections because of unpredictability of the underlying
assumptions and estimates. However, in connection with the
evaluation of a possible transaction, we provided our board of
directors, the Special Committee and Lincoln with certain
management estimates, which contained certain non-public financial
forecasts that were prepared by our management, which we may refer
to as Management Estimates.
A summary of the financial projections included in the Final
Management Forecast, which we also refer to as the Management
Estimates has been included below. This summary is not being
included in this document to influence your decision whether to
vote for or against the proposal to adopt the merger agreement, but
is being included because these Management Estimates, as well as
the Initial Management Forecast, First Revised Management Forecast
and Second Revised Management Forecast (the “Preliminary
Forecasts”), were made available to our board of directors, the
Special Committee and Lincoln. The inclusion of this information
should not be regarded as an indication that our board of directors
or its advisors or any other person considered, or now considers,
such Management Estimates and Preliminary Forecasts to be material
or to be necessarily predictive of actual future results, and this
information should not be relied upon as such. Our management’s
internal financial projections, upon which the Management Estimates
and the Preliminary Forecasts were based, are subjective in many
respects. There can be no assurance that these financial forecasts
will be realized or that actual results will not be significantly
higher or lower than forecasted.
In addition, the Management Estimates and the Preliminary Forecasts
were not prepared with a view toward public disclosure or toward
complying with generally accepted accounting principles in the
United States of America, which we may refer to in this proxy
statement as GAAP, the published guidelines of the SEC regarding
projections and the use of non-GAAP financial measures or the
guidelines established by the American Institute of Certified
Public Accountants for preparation and presentation of prospective
financial information. Neither our independent registered public
accounting firm, nor any other independent accountants, have
compiled, examined or performed any procedures with respect to the
Management Estimates, nor have they expressed any opinion or any
other form of assurance on such information or its
achievability.
The Final Management Forecast, which was utilized by the Special
Committee’s financial advisor in analyzing the offer of the Stern
Group, was prepared by numerous members of the Company’s management
team. David Cavill, Director of Business Intelligence prepared the
Final Management Forecast for the Company’s Consumer Receivables
business. Monika Dasgupta, Corporate Controller, prepared the
Company’s business segments portion of the Final Management
Forecast, including GAR, Five Star and Personal Injury, and
corporate portion of the Final Management Forecast, which includes
certain non-allocated administrative costs, interest income and
various other non-operating income and expenses and assets
including cash and cash equivalents, investments in equity
securities and available-for-sale debt securities, settlement
receivable, property and equipment, goodwill, deferred taxes and
other assets. Ricky Stern, as Senior Vice President and President
of GAR reviewed and approved the GAR and Five Star forecast. Lou
Piccolo, a member of the Company’s board of directors who is not a
member of the Special Committee provided consulting services to the
Company in preparing the Small Business Lending business plan. Key
assumptions and forecast information with respect to such Small
Business Lending plan were reviewed with Gary Stern, in his
capacity as the President and Chief Executive Officer of the
Company. Gary Stern, in his role as President and Chief Executive
Officer, provided strategic directions, and assumptions regarding
the Personal Injury business, Consumer Receivables business and
overhead expenses. Gary Stern also reviewed and approved the final
forecasted results used in the Final Management Forecast. Steven
Leidenfrost, Chief Financial Officer, reviewed the Final Management
Forecast for accuracy within the forecasted worksheet, and overall
reasonableness. Mr. Leidenfrost also reviewed and approved the
assumptions used by David Cavill, Louis Piccolo and Monika
Dasgupta. Ricky Stern reviewed and approved the assumptions
used for GAR and Five Star.
The Management Estimates, and the Preliminary Forecasts, were based
on a number of variables and assumptions that are inherently
uncertain and may be beyond our control. Our management team
believes that the assumptions that our management used as a basis
for this projected financial information were reasonable at the
time our management prepared the Management Estimates and the
Preliminary Forecasts, given the information our management had at
the time. Important factors that may affect actual results and
cause these Management Estimates not to be achieved include, but
are not limited to, risks and uncertainties relating to our
business (including its ability to achieve strategic goals,
objectives and targets over the applicable periods), industry
performance, the regulatory environment, general business and
economic conditions and other factors described or referenced under
“Risk Factors” in our Annual Report on Form 10-K for the year ended
September 30, 2019 and Form 10-Q for the six months ended March 31,
2020. In addition, the Management Estimates reflect assumptions
that are subject to change and do not reflect revised prospects for
our business, changes in general business or economic conditions,
or any other transaction or event that has occurred or that may
occur and that was not anticipated at the time the financial
forecasts were prepared. Accordingly, there can be no assurance
that the Management Estimates will be realized or that our future
financial results will not materially vary from the Management
Estimates.
Those assumptions included, but were not limited to:
Consumer Receivables (Finance Income)
|
●
|
The Company recognizes revenue on a cost recovery method in
accordance with Generally Accepted Accounting Principles (GAAP).
Under the cost recovery method no income is recognized until the
cost of the portfolio has been fully recovered. Once a consumer
receivables portfolio cost has been recovered all consumer
receivable cash collections are recognized as revenue (Finance
Income) when received.
|
|
●
|
Finance Income reflects actual results through March 31,
2020.
|
|
●
|
No new consumer receivable portfolios were assumed to be purchased
through the 2026 forecast period. As a result, forecasted finance
income through 2026 is expected to decline each forecast year as
the existing consumer receivables portfolios wind down. Forecasted
revenues through 2026 (Finance Income) are an estimate of monthly
collections for consumer receivables over the estimated collection
period of seven years.
|
|
●
|
Finance Income was computed using the Company’s proprietary
forecasting model for domestic consumer receivables and Serlefin’s
performance model for international consumer receivables. Certain
assumptions used in these models were developed based on historical
performance of several consumer receivable categories (credit card,
telecom, personal loan, etc.). In addition, the age of the customer
account and the number of months from purchase of the portfolio are
factored into the model. The proprietary forecasting model is
adjusted annually based on actual performance unless there is an
impairment of a portfolio, which results in a portfolio adjustment
during the year.
|
Personal Injury
The Company’s personal injury claims business segment is comprised
of purchased interests in personal injury claimants who are a party
in personal injury claims litigation.
|
●
|
Personal Injury claims revenue reflects actual results through
March 31, 2020.
|
|
●
|
The Company historically funded personal injury claims in Simia and
Silvave. These entities are no longer funding any new
advances, but continue to collect on outstanding personal injury
claim advances. Forecasted revenue for the remainder of fiscal year
2020 (April – September 30, 2020) for Simia and Sylvave is
$588,000.
|
|
●
|
Arthur Funding is the vehicle through which the Company will
continue funding its personal injury claims business. The Company’s
investment in the Arthur Funding personal injury claims portfolio
is projected to be:
|
|
o
|
$250,000 per quarter for the third and fourth quarters of fiscal
2020.
|
|
o
|
$500,000 per quarter for the first and second quarters of fiscal
2021.
|
|
o
|
$750,000 per quarter for the third and fourth quarters of fiscal
2021.
|
|
o
|
$1,000,000 per quarter starting in fiscal 2022 for an annual total
of $4,000,000 per year, through 2026.
|
|
●
|
Management estimates that a personal injury claims advance will be
recovered in 24 months from the date of the advance.
|
|
●
|
Open personal injury claims revenue is estimated and accrued based
on the expected realization for each individual personal injury
claims advance. An outstanding advance is charged interest at a
17.5% interest rate every six months compounded every six
months.
|
|
●
|
Bad debt expense for Arthur Funding is estimated to be 5% of the
funded personal injury claim amount.
|
Social Security Disability Advocacy (GAR and Five Star)
|
●
|
GAR and Five Star revenue reflects actual results through March 31,
2020.
|
|
●
|
GAR revenues for 2020 were forecasted based on annualizing actual
revenues from July 2019 through December 2019, which averaged
approximately $317,000 per month. Management believes this estimate
better reflects the actual performance of GAR.
|
|
●
|
GAR revenues for 2021 were forecasted based on a monthly average of
$371,000 per month.
|
|
●
|
Five Star revenue was expected to be: $150,000 in 2020; $75,000 in
2021 and $0 in 2022 and thereafter.
|
|
●
|
GAR revenue forecasts 2% growth per year starting in 2022,
reflecting an approximate 2% growth rate in the overall
economy.
|
Small Business Lending
|
●
|
Management’s revenue estimates are based on an assumption that each
advance will be recovered at 117% of the original advance amount
based on a five - month recovery period.
|
|
●
|
Individual advances are not expected to exceed $50,000.
|
|
●
|
Bad debt expense was determined to be 5% of aggregate advances made
in each year of the forecast.
|
|
●
|
In addition to bad debt expense, overhead expenses for this
business include salaries for up to three individuals and
advertising/marketing costs (including the costs of out-sourcing
the financial operations of this business).
|
Other Income
|
●
|
The forecast for other income (dividends and interest from the
Company’s investments in available for sale debt securities
(primarily US Treasuries) and equity securities) is based on the
estimated dollar amount of U.S. Treasury investments held at
September 30 of each forecast year, multiplied by an assumed U.S.
Treasury rate of 1.6%.
|
Income Taxes Expense
|
●
|
Income tax expense reflects actual results through March 31,
2020
|
|
●
|
The Company used a total tax rate of 30.0% (21.0% federal and 9.0%
for state income taxes) in determining forecasted income tax
expense.
|
Overall Assumptions
|
●
|
The forecast was prepared with the assumption that the Company
remains a public company for the entirety of the forecast
period.
|
Management Estimates (June 19, 2020)
Asta Funding, Inc. & Subsidiaries
Consolidated Income Statement
|
|
FY 2020
|
|
|
FY 2021
|
|
|
FY 2022
|
|
|
FY 2023
|
|
|
FY 2024
|
|
|
FY 2025
|
|
|
FY 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Income
|
|
$ |
10,267,000 |
|
|
$ |
7,889,000 |
|
|
$ |
6,138,000 |
|
|
$ |
5,022,000 |
|
|
$ |
4,214,000 |
|
|
$ |
2,915,000 |
|
|
$ |
2,239,000 |
|
Personal injury claims income
|
|
|
776,000 |
|
|
|
661,000 |
|
|
|
1,739,000 |
|
|
|
2,344,000 |
|
|
|
2,370,000 |
|
|
|
2,361,000 |
|
|
|
2,361,000 |
|
Small Business Lending Fee Income
|
|
|
- |
|
|
|
923,000 |
|
|
|
2,407,000 |
|
|
|
4,087,000 |
|
|
|
5,549,000 |
|
|
|
5,857,000 |
|
|
|
6,197,000 |
|
Disability fee income
|
|
|
3,684,000 |
|
|
|
4,528,000 |
|
|
|
4,542,000 |
|
|
|
4,633,000 |
|
|
|
4,726,000 |
|
|
|
4,821,000 |
|
|
|
4,917,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
14,727,000 |
|
|
|
14,001,000 |
|
|
|
14,826,000 |
|
|
|
16,086,000 |
|
|
|
16,859,000 |
|
|
|
15,954,000 |
|
|
|
15,714,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
1,089,000 |
|
|
|
1,067,000 |
|
|
|
965,000 |
|
|
|
901,000 |
|
|
|
837,000 |
|
|
|
773,000 |
|
|
|
693,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,816,000 |
|
|
$ |
15,068,000 |
|
|
$ |
15,791,000 |
|
|
$ |
16,987,000 |
|
|
$ |
17,696,000 |
|
|
$ |
16,727,000 |
|
|
$ |
16,407,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
$ |
13,080,000 |
|
|
$ |
12,759,000 |
|
|
$ |
13,305,000 |
|
|
$ |
13,995,000 |
|
|
$ |
13,790,000 |
|
|
$ |
13,509,000 |
|
|
$ |
13,603,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
2,736,000 |
|
|
|
2,309,000 |
|
|
|
2,486,000 |
|
|
|
2,992,000 |
|
|
|
3,906,000 |
|
|
|
3,218,000 |
|
|
|
2,804,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
919,000 |
|
|
|
693,000 |
|
|
|
746,000 |
|
|
|
898,000 |
|
|
|
1,172,000 |
|
|
|
965,000 |
|
|
|
841,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,817,000 |
|
|
$ |
1,616,000 |
|
|
$ |
1,740,000 |
|
|
$ |
2,094,000 |
|
|
$ |
2,734,000 |
|
|
$ |
2,253,000 |
|
|
$ |
1,963,000 |
|
Asta Funding, Inc.
Balance Sheet
|
|
FY 2020
|
|
|
FY 2021
|
|
|
FY 2022
|
|
|
FY 2023
|
|
|
FY 2024
|
|
|
FY 2025
|
|
|
FY 2026
|
|
|
|
9/30/2020
|
|
|
9/30/2021
|
|
|
9/30/2022
|
|
|
9/30/2023
|
|
|
9/30/2024
|
|
|
9/30/2025
|
|
|
9/30/2026
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
|
$ |
1,947,000 |
|
|
$ |
1,931,000 |
|
|
$ |
2,220,000 |
|
|
$ |
1,853,000 |
|
|
$ |
1,258,000 |
|
|
$ |
1,680,000 |
|
|
$ |
1,746,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENTS
|
|
|
8,111,000 |
|
|
|
8,234,000 |
|
|
|
8,234,000 |
|
|
|
8,234,000 |
|
|
|
8,234,000 |
|
|
|
8,234,000 |
|
|
|
8,234,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE-FOR-SALE SECURITIES
|
|
|
65,216,000 |
|
|
|
64,556,000 |
|
|
|
58,816,000 |
|
|
|
55,212,000 |
|
|
|
52,044,000 |
|
|
|
46,312,000 |
|
|
|
40,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSUMER RECEIVABLES
|
|
|
817,000 |
|
|
|
313,000 |
|
|
|
57,000 |
|
|
|
(32,000 |
) |
|
|
(32,000 |
) |
|
|
(32,000 |
) |
|
|
(32,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN PERSONAL INJURY CLAIMS
|
|
|
3,543,000 |
|
|
|
5,368,000 |
|
|
|
8,315,000 |
|
|
|
8,492,000 |
|
|
|
7,693,000 |
|
|
|
7,702,000 |
|
|
|
7,713,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY METHOD INVESTMENT (SERLEFIN)
|
|
|
223,000 |
|
|
|
223,000 |
|
|
|
223,000 |
|
|
|
223,000 |
|
|
|
223,000 |
|
|
|
223,000 |
|
|
|
223,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS RECEIVABLE - GAR
|
|
|
212,000 |
|
|
|
212,000 |
|
|
|
212,000 |
|
|
|
212,000 |
|
|
|
212,000 |
|
|
|
212,000 |
|
|
|
212,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DUE FROM THIRD PARTY COLLECTION AGENCIES AND ATTORNEYS
|
|
|
464,000 |
|
|
|
142,000 |
|
|
|
109,000 |
|
|
|
88,000 |
|
|
|
72,000 |
|
|
|
49,000 |
|
|
|
38,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN SMALL BUSINESS LENDING
|
|
|
– |
|
|
|
2,485,000 |
|
|
|
7,673,000 |
|
|
|
14,508,000 |
|
|
|
22,752,000 |
|
|
|
30,991,000 |
|
|
|
39,096,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SETTLEMENTS RECEIVABLE
|
|
|
319,000 |
|
|
|
– |
|
|