Attached files
file | filename |
---|---|
EX-32 - National Investment Managers Inc. | v201560_ex32.htm |
EX-31.1 - National Investment Managers Inc. | v201560_ex31-1.htm |
EX-31.2 - National Investment Managers Inc. | v201560_ex31-2.htm |
EX-21.1 - National Investment Managers Inc. | v201560_ex21-1.htm |
EX-10.116 - National Investment Managers Inc. | v201560_ex10-116.htm |
EX-10.117 - National Investment Managers Inc. | v201560_ex10-117.htm |
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
ý
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
For the
quarterly period ended September 30, 2010
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
For the
transition period from ________________ to ________________
Commission
file number: 333-160488
NATIONAL
INVESTMENT MANAGERS INC.
(Exact
name of registrant as specified in its charter)
Florida
|
59-2091510
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
|
485
Metro Place South, Suite 275, Dublin, Ohio
|
43017
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(614)
923-8822
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o
No x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common
Shares
|
Outstanding
at November 8, 2010
|
|
Common
Stock, $0.001 par value per share
|
41,476,929
shares
|
NATIONAL INVESTMENT MANAGERS
INC.
INDEX
Page No.
|
||
PART I. FINANCIAL
INFORMATION
|
||
Item
1. Financial Statements
|
||
Condensed
Consolidated Balance Sheets - September 30, 2010 (unaudited) and December
31, 2009 (audited)
|
3
|
|
Condensed
Consolidated Statements of Operations - Nine months ended September 30,
2010 and 2009 (unaudited)
|
4
|
|
Condensed
Consolidated Statements of Operations – Three months ended September 30,
2010 and 2009 (unaudited)
|
5
|
|
Condensed
Consolidated Statements of Cash Flows - Nine months ended September 30,
2010 and 2009 (unaudited)
|
6-7
|
|
Notes
to Condensed Consolidated Interim Financial Statements
|
8-24
|
|
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
|
25-41
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risks
|
41
|
|
Item
4. Controls and Procedures
|
42
|
|
PART II. OTHER INFORMATION
|
||
Item
1. Legal Proceedings
|
43
|
|
Item
1A. Risk Factors
|
43
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
43
|
|
Item
3. Defaults upon Senior Securities
|
43
|
|
Item
4. (Removed and Reserved)
|
43
|
|
Item
5. Other Information
|
43-44
|
|
Item
6. Exhibits
|
45-60
|
|
SIGNATURES
|
|
61
|
Page
2
PART
I. FINANCIAL INFORMATION
ITEM
1. Financial Statements
National
Investment Managers Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(Unaudited)
|
(Audited)
|
|||||||
September 30, 2010
|
December 31, 2009
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
(includes restricted cash of $30,594 and $33,263)
|
$ | 1,107,737 | $ | 274,956 | ||||
Accounts
receivable, net
|
7,052,423 | 5,128,127 | ||||||
Prepaid
expenses and other current assets
|
962,381 | 893,864 | ||||||
Total
current assets
|
9,122,541 | 6,296,947 | ||||||
Property
and equipment, net
|
1,821,803 | 1,550,058 | ||||||
Other
assets:
|
||||||||
Goodwill
|
28,930,694 | 28,826,173 | ||||||
Customer
lists/relationships, net
|
22,306,388 | 24,697,027 | ||||||
Other
intangibles, net
|
2,732,826 | 4,258,586 | ||||||
Deferred
financing costs
|
827,077 | 611,838 | ||||||
Total
other assets
|
54,796,985 | 58,393,624 | ||||||
Total
assets
|
$ | 65,741,329 | $ | 66,240,629 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Revolving
line of credit
|
$ | 3,156,000 | $ | 2,500,000 | ||||
Long-term
debt, current portion
|
27,568,098 | 3,352,743 | ||||||
Accounts
payable
|
1,812,793 | 1,602,125 | ||||||
Unearned
revenue
|
3,947,451 | 4,331,108 | ||||||
Accrued
expenses and other current liabilities
|
4,818,322 | 3,851,586 | ||||||
Total
current liabilities
|
41,302,664 | 15,637,562 | ||||||
Long-term
liabilities:
|
||||||||
Long-term
debt, less current portion
|
22,453 | 23,116,367 | ||||||
Preferred
dividends payable
|
9,297,519 | 7,849,920 | ||||||
Derivative
financial instruments
|
11,508 | 1,724,219 | ||||||
Deferred
tax liability
|
4,405,121 | 5,589,839 | ||||||
Total
long-term liabilities
|
13,736,601 | 38,280,345 | ||||||
Total
liabilities
|
55,039,265 | 53,917,907 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, $.001 par value, 10,000,000 shares authorized; 4,000,000 designated
as Series A shares - 2,420,000 shares issued and outstanding as of
September 30, 2010 and December 31, 2009 (liquidation preference
$2,420,000 as of September 30, 2010 and December 31, 2009); 4,000,000
designated as Series B shares - 3,615,000 shares issued and outstanding as
of September 30, 2010 and December 31, 2009 (liquidation preference
$7,230,000 as of September 30, 2010 and December 31, 2009); 1,000,000
designated as Series C shares - 633,334 shares issued and outstanding as
of September 30, 2010 and 770,834 shares issued and outstanding
as of December 31, 2009 (liquidation preference $7,600,008 as of September
30, 2010 and $9,250,008 as of December 31, 2009); 500,000 designated as
Series D shares - 400,987 shares issued and outstanding as of September
30, 2010 and 409,500 shares issued and outstanding as of December 31, 2009
(liquidation preference $8,019,740 as of September 30, 2010 and $8,190,000
as of December 31, 2009); and 60,000 designated as Series E shares -
29,350 shares issued and outstanding as of September 30, 2010
and December 31, 2009 (liquidation preference $5,870,000 as of
September 30, 2010 and December 31, 2009)
|
7,099 | 7,245 | ||||||
Common
stock, $.001 par value, 100,000,000 shares authorized, 41,476,929 shares
issued and outstanding as of September 30, 2010 and 39,656,669 shares
issued and outstanding as of December 31, 2009
|
41,477 | 39,657 | ||||||
Additional
paid-in capital
|
35,867,006 | 35,840,231 | ||||||
Accumulated
deficit
|
(25,213,518 | ) | (23,564,411 | ) | ||||
Total
stockholders' equity
|
10,702,064 | 12,322,722 | ||||||
Total
liabilities and stockholders' equity
|
$ | 65,741,329 | $ | 66,240,629 |
See
accompanying notes to condensed consolidated interim financial
statements.
Page
3
National
Investment Managers Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(Unaudited)
Nine
Months Ended
|
Nine
Months Ended
|
|||||||
September
30, 2010
|
September
30, 2009
|
|||||||
Revenues:
|
$ | 35,811,942 | $ | 37,729,784 | ||||
Operating
expenses
|
||||||||
Selling,
general and administrative expenses
|
28,047,304 | 29,080,526 | ||||||
Depreciation
and amortization
|
4,519,491 | 5,605,675 | ||||||
Stock-based
compensation
|
28,449 | 337,030 | ||||||
Total
operating expenses
|
32,595,244 | 35,023,231 | ||||||
Net
operating income (loss)
|
3,216,698 | 2,706,553 | ||||||
Other
income (expenses):
|
||||||||
Change
in fair value of derivative financial instruments
|
1,712,711 | 207,587 | ||||||
Interest
expense
|
(4,988,074 | ) | (3,345,630 | ) | ||||
Debt
and other restructuring charges
|
(1,229,236 | ) | - | |||||
Interest,
dividend and rental income
|
17,249 | 21,162 | ||||||
Total
other expense, net
|
(4,487,350 | ) | (3,116,881 | ) | ||||
Net
income (loss) before income tax benefit (expense)
|
(1,270,652 | ) | (410,328 | ) | ||||
Income
tax benefit (expense)
|
1,069,144 | 1,527,826 | ||||||
Net
income (loss) before preferred stock dividends
|
(201,508 | ) | 1,117,498 | |||||
Preferred
stock dividends
|
(1,447,599 | ) | (1,483,200 | ) | ||||
Net
income (loss) available to common stockholders
|
$ | (1,649,107 | ) | $ | (365,702 | ) | ||
Net
income (loss) per common share - basic and diluted
|
$ | (0.04 | ) | $ | (0.01 | ) | ||
Weighted
average common shares outstanding - basic and diluted
|
40,460,000 | 39,557,000 |
See
accompanying notes to condensed consolidated interim financial
statements.
Page
4
National
Investment Managers Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(Unaudited)
Three
Months Ended
|
Three
Months Ended
|
|||||||
September
30, 2010
|
September
30, 2009
|
|||||||
Revenues:
|
$ | 14,004,120 | $ | 11,009,341 | ||||
Operating
expenses
|
||||||||
Selling,
general and administrative expenses
|
9,320,751 | 9,010,806 | ||||||
Depreciation
and amortization
|
1,416,791 | 1,847,722 | ||||||
Stock-based
compensation
|
2,815 | 122,351 | ||||||
Total
operating expenses
|
10,740,357 | 10,980,879 | ||||||
Net
operating income (loss)
|
3,263,763 | 28,462 | ||||||
Other
income (expenses):
|
||||||||
Change
in fair value of derivative financial instruments
|
138 | (515,297 | ) | |||||
Interest
expense
|
(1,968,358 | ) | (1,163,785 | ) | ||||
Debt
and other restructuring charges
|
(540,064 | ) | - | |||||
Interest,
dividend and rental income
|
5,797 | 5,361 | ||||||
Total
other expense, net
|
(2,502,487 | ) | (1,673,721 | ) | ||||
Net
income (loss) before income tax benefit (expense)
|
761,276 | (1,645,259 | ) | |||||
Income
tax benefit (expense)
|
358,128 | 553,863 | ||||||
Net
income (loss) before preferred stock dividends
|
1,119,404 | (1,091,396 | ) | |||||
Preferred
stock dividends
|
(467,096 | ) | (494,400 | ) | ||||
Net
income (loss) available to common stockholders
|
$ | 652,308 | $ | (1,585,796 | ) | |||
Net
income (loss) per common share - basic
|
$ | 0.02 | $ | (0.04 | ) | |||
Net
income (loss) per common share - diluted
|
$ | 0.02 | $ | (0.04 | ) | |||
Weighted
average common shares outstanding - basic
|
41,477,000 | 39,557,000 | ||||||
Weighted
average common shares outstanding - diluted
|
72,880,000 | 39,557,000 |
See
accompanying notes to condensed consolidated interim financial
statements.
Page
5
National
Investment Managers Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
Nine
Months Ended
|
Nine
Months Ended
|
|||||||
September
30, 2010
|
September
30, 2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss) before preferred stock dividends
|
$ | (201,508 | ) | $ | 1,117,498 | |||
Adjustments
to reconcile net income (loss) before preferred stock dividends to
net cash provided by (used in) operating activities:
|
||||||||
Depreciation
and amortization
|
4,519,491 | 5,605,675 | ||||||
Change
in allowance for doubtful accounts
|
(35,487 | ) | 8,192 | |||||
Noncash
interest
|
3,569,300 | 1,370,892 | ||||||
Stock-based
compensation
|
28,449 | 337,030 | ||||||
Deferred
income tax benefit
|
(1,184,718 | ) | (1,670,792 | ) | ||||
Change
in fair value of derivative financial instruments
|
(1,712,711 | ) | (207,587 | ) | ||||
Increase
(decrease) in cash attributable to changes in operating assets and
liabilities
|
||||||||
Accounts
receivable
|
(1,888,809 | ) | (1,018,963 | ) | ||||
Prepaid
expenses and other current assets
|
(68,517 | ) | 350,494 | |||||
Accounts
payable
|
210,668 | 1,113,080 | ||||||
Unearned
revenues
|
(389,657 | ) | (1,824,889 | ) | ||||
Accrued
expenses and other current liabilities
|
155,672 | (646,920 | ) | |||||
Net
cash provided by (used in) operating activities
|
3,002,173 | 4,533,710 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property and equipment
|
(922,836 | ) | (949,577 | ) | ||||
Acquisition
of Alaska Pension Services
|
(26,259 | ) | (36,053 | ) | ||||
Acquisition
of Lamoriello Entities
|
- | (50,810 | ) | |||||
Acquisition
of National Actuarial Pension Services, Inc.
|
- | (64,318 | ) | |||||
Acquisition
of the assets of Standard Retirement Services
|
(171,632 | ) | - | |||||
Acquisition
of Alan N. Kanter & Associates
|
(144,200 | ) | (151,063 | ) | ||||
Acquisition
of REPTECH Corp
|
- | (180,097 | ) | |||||
Acquisition
of The Pension Group, Inc.
|
- | (1,354,680 | ) | |||||
Net
cash provided by (used in) investing activities
|
(1,264,927 | ) | (2,786,598 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from revolving line of credit and short-term debt
|
1,156,000 | 3,043,908 | ||||||
Payments
on long-term debt and notes
|
(1,404,465 | ) | (3,802,081 | ) | ||||
Payments
on revolving line of credit and short-term debt
|
(500,000 | ) | (1,075,900 | ) | ||||
Payment
of deferred financing costs
|
(156,000 | ) | (50,625 | ) | ||||
Net
cash provided by (used in) financing activities
|
(904,465 | ) | (1,884,698 | ) | ||||
Net
increase (decrease) in cash
|
832,781 | (137,586 | ) | |||||
Cash,
beginning of period
|
274,956 | 531,446 | ||||||
Cash,
end of period
|
$ | 1,107,737 | $ | 393,860 | ||||
Supplemental
disclosure of cash flows information:
|
||||||||
Cash
paid during the period for interest
|
$ | 1,369,824 | $ | 1,933,128 | ||||
Cash
paid during the period for taxes
|
$ | 116,245 | $ | 211,273 | ||||
Supplemental
schedules of noncash investing and financing activites:
|
||||||||
Accrued
preferred dividends
|
$ | 1,447,599 | $ | 1,483,200 | ||||
Capitalization
of accrued interest on secured term notes
|
$ | 1,325,686 | $ | 286,572 | ||||
Capitalization
of deferred financing costs on secured term notes
|
$ | 1,442,000 | $ | 179,585 |
(continued)
Page
6
Supplemental
Disclosure of Non-Cash Investing and Financing Activities
The
Company endeavors to structure its stock purchase agreements with acquisition
candidates as cash and debt free transactions where the sellers retain all cash
and outstanding liabilities. If any net liabilities remain at the closing date,
they are settled as a reduction in the purchase proceeds. Proceeds paid to the
sellers typically include, cash, notes payables issued to the sellers and the
issuance of the common stock of the Company at the average of recent market
values. The majority of liabilities assumed by the Company represent unearned
revenues of the acquired company at the closing date and the deferred tax
liability related to the recorded intangible assets.
The
following schedule represents cumulative cash paid, notes and common stock
issued and liabilities assumed since acquisition date.
National
Actuarial
|
||||||||
2006:
|
Lamoriello
Entities
|
Pension
Services
|
||||||
Fair
value of assets acquired
|
$ | 6,656,190 | $ | 3,649,469 | ||||
Cash
paid
|
(3,354,190 | ) | (2,110,069 | ) | ||||
Notes
issued
|
- | (700,000 | ) | |||||
Common
stock issued
|
(1,500,000 | ) | - | |||||
Total
liabilities assumed
|
$ | 1,802,000 | $ | 839,400 | ||||
Alaska
Pension
|
Alan
N. Kanter
|
|||||||
2008:
|
Services,
Ltd.
|
&
Associates, Inc.
|
||||||
Fair
value of assets acquired
|
$ | 1,689,702 | $ | 2,741,941 | ||||
Cash
paid
|
(962,020 | ) | (2,237,976 | ) | ||||
Due
to sellers
|
- | - | ||||||
Notes
issued
|
(220,000 | ) | - | |||||
Common
stock issued
|
(220,000 | ) | - | |||||
Total
liabilities assumed
|
$ | 287,682 | $ | 503,965 | ||||
The
Pension
|
||||||||
2008:
|
REPTECH
Corp.
|
Group,
Inc.
|
||||||
Fair
value of assets acquired
|
$ | 5,001,218 | $ | 6,315,702 | ||||
Cash
paid
|
(2,036,652 | ) | (3,636,807 | ) | ||||
Notes
issued
|
(922,656 | ) | (617,500 | ) | ||||
Common
stock issued
|
(715,104 | ) | (467,500 | ) | ||||
Total
liabilities assumed
|
$ | 1,326,806 | $ | 1,593,895 | ||||
Standard
|
||||||||
2009:
|
Retirement
Services
|
|||||||
Fair
value of assets acquired
|
$ | 537,000 | ||||||
Cash
paid
|
(240,284 | ) | ||||||
Accrued
obligations
|
(296,716 | ) | ||||||
Total
liabilities assumed
|
$ | - |
See
accompanying notes to condensed consolidated interim financial
statements.
Page
7
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
Note
1. Basis of Presentation and Consolidation
The
accompanying unaudited condensed consolidated interim financial statements
included herein have been prepared in accordance with generally accepted
accounting principles for interim period reporting in conjunction with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these
statements do not include all of the information required by generally accepted
accounting principles for annual financial statements. In the opinion of
management, all known adjustments (consisting of normal recurring accruals and
reserves) necessary to present fairly the financial position, results of
operations and cash flows as of and for the interim periods have been included.
It is suggested that these condensed consolidated interim financial statements
be read in conjunction with the consolidated financial statements and related
notes included in National Investment Managers Inc. Form 10-K for the year ended
December 31, 2009.
The
operating results for the nine months ended September 30, 2010 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2010.
All
significant intercompany transactions and balances have been eliminated in
consolidation.
Certain
amounts in the 2009 condensed consolidated interim financial statements and
disclosures have been reclassified to conform to the current year
presentation.
The
preparation of condensed consolidated interim financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the condensed consolidated interim financial
statements as well as the reported amounts of revenue and expenses during the
reporting period. Actual amounts could differ from those estimates.
Note
2. Background and Liquidity
The
Company is in the principal business of acquiring and managing operating
entities that offer a full array of pension plan administration services,
including but not limited to plan design, consulting, installation, ongoing
annual administration and pension actuarial services, financial and investment
advisory services and sale of various insurance products to small and medium
sized businesses and high-net worth individuals in the United States. As of
September 30, 2010, the Company owned 22 operating units in fourteen states. The
Company’s headquarters is located in Dublin, Ohio.
At
September 30, 2010 and December 31, 2009, the Company's working capital deficit
was approximately $32.2 million and $9.3 million, respectively and its
accumulated deficit was approximately $25.2 million and $23.6 million,
respectively. Further, for the nine months ended September
30, 2010 and September 30, 2009, the Company's net income (loss) before
preferred stock dividends was approximately ($0.2) million and $1.1 million,
respectively and its cash flows from operations were approximately $3.0 million
and $4.5 million, respectively.
Through
its senior lending arrangements, the Company has access to a Revolving Line of
Credit of up to $2.0 million, which was temporarily increased to $2.5 million
through December 31, 2009 and further extended through February 28, 2010, to
supplement its cash generated from operations. Effective April 26, 2010, the
maximum principal amount available under the Revolving Line of Credit was
increased to $4.0 million as a result of an amendment to its current senior
lending arrangement as discussed in the Debt Amendments section of Note 5. At
September 30, 2010 and December 31, 2009, the Company had $3.2 million and $2.5
million, respectively, of principal outstanding under this
arrangement.
On April
12, 2010, in order to alleviate a lack of short-term liquidity, the Company
obtained an additional loan of $0.5 million for short-term working capital
purposes from its subordinated senior lenders due on May 15, 2010. On May 7,
2010, the Company used funds available from the increased Revolving Line of
Credit to pay off the short-term working capital loan.
The
Company’s existing commitments for term notes from senior and subordinated
senior lenders are currently exhausted. The Company has amended its current
lending arrangements, with its existing lenders, beyond 2010 as discussed in the
Debt Amendments section of Note 5. In the amendments, the Company has
agreed that its senior or subordinated senior lenders may terminate their
forbearance agreements if, in the lender’s reasonable judgment, the Company has
not made adequate progress toward a reasonably satisfactory recapitalization
initiative by July 15, 2010 or any date thereafter through the forbearance
period. The senior and subordinated lenders have elected not to terminate their
forbearance agreements as of the date of this report. If the Company is not
successful in its recapitalization or debt refinancing efforts, it will not have
the ability to pay the senior and subordinated senior debt at the end of the
forbearance period.
Page
8
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
Management
establishes an annual plan for operations and then utilizes the operating plan,
current financial results, equity and credit market conditions, and other
factors to forecast its quarterly and annual financial results and related cash
flows from operations. Based upon management's cash forecast for revenues,
operating expenses and debt services, the Company believes its cash resources
will be adequate to fund operations through December 31, 2010. However, there
can be no assurance that the Company’s senior and subordinated senior lenders
will not terminate their forbearance agreements with the Company, which could
result in such lenders electing to declare all amounts due and payable. There is
no assurance that the Company would be able to negotiate additional waivers or
obtain other financing needed to continue operations of the
Company.
As a
result of the Company’s current capital position, general liquidity constraints,
and its commitments in the amendments to its lending arrangements, management’s
primary focus will be to dedicate significant time and efforts in 2010 towards
the successful recapitalization or debt refinancing of the Company. Management
will also continue to enhance operating efficiencies and increase the
effectiveness of the current operating subsidiaries through the implementation
of technology and operational upgrades. The Company expects further
acquisition activity in 2010, if any, to be limited and only with the approval
of its lenders.
Note
3. Adoption of New Accounting Pronouncements
In
January 2010, the FASB issued guidance in the Fair Value Measurements and
Disclosures Topic of FASB ASC. The guidance requires reporting entities to make
new disclosures about recurring and nonrecurring fair value measurements
including significant transfers into and out of Level 1 and Level 2 fair value
measurements and information on purchases, sales, issuances, and settlements on
a gross basis in the reconciliation of Level 3 fair value measurements. The
guidance also clarified existing fair value measurement disclosure guidance
about the level of disaggregation, inputs and valuation techniques. The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuance, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The guidance does not have a material impact
on the Company’s condensed consolidated interim financial
statements.
Note 4. New Accounting
Pronouncements
In
September 2009, the FASB issued guidance in the Revenue Recognition Topic of
FASB ASC. This guidance updates the accounting and expands disclosures for
multiple-deliverable arrangements to enable vendors to account for products or
services separately rather than as a combined unit. The update will be effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Management is currently
evaluating the impact of applying the update to the Company’s future condensed
consolidated interim financial statements.
Note
5. Long-term Debt and Derivative Liabilities
Long-term
debt activity for the nine months ended September 30, 2010 consisted of the
following:
(Audited)
|
(Unaudited)
|
|||||||||||||||||||
Balances
at
|
Add:
|
Less:
|
Add:
|
Balances
at
|
||||||||||||||||
December 31, 2009
|
New Debt
|
Payments
|
Amortization
|
September 30, 2010
|
||||||||||||||||
Senior
Term Note
|
$ | 12,000,000 | (1,000,000 | ) | $ | 11,000,000 | ||||||||||||||
Subordinated
Sr Note
|
12,992,542 | 1,575,686 | 14,568,228 | |||||||||||||||||
Seller
notes
|
2,868,489 | (384,461 | ) | 2,484,028 | ||||||||||||||||
Capitalized
leases
|
62,254 | (20,003 | ) | 42,251 | ||||||||||||||||
27,923,285 | 28,094,507 | |||||||||||||||||||
Less:
unamortized debt discount
|
(1,454,175 | ) | 950,219 | (503,956 | ) | |||||||||||||||
26,469,110 | 27,590,551 | |||||||||||||||||||
Less:
current portion
|
(3,352,743 | ) | (27,568,098 | ) | ||||||||||||||||
$ | 23,116,367 | $ | 22,453 |
New debt
on the Subordinated Senior Note includes noncash interest of $1,305,292 and a
modification fee of principal and interest of $270,394 as discussed further in
the Debt Amendments section of this Note 5.
Page
9
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
Revolving
Line of Credit and Senior Term Note
On
November 30, 2007, the Company entered into (i) a Revolving Line of Credit and
Term Loan Agreement (the "Senior Loan Agreement") with RBS Citizens Bank
(“Senior Lender”) and (ii) a Securities Purchase and Loan Agreement (the
"Subordinated Senior Agreement") with Woodside Capital Partners IV, LLC,
Woodside Capital Partners IV QP, LLC and Lehman Brothers Commercial Bank (the
“Subordinated Senior Lenders”). A principal amount of the proceeds generated
from the two financings were used to retire existing debt. Pursuant to the
Senior Loan Agreement, the Company entered into a Revolving Line of Credit in
the initial amount of $1,000,000 (the "Revolver") and a Term Loan Promissory
Note in the initial amount of $8,000,000 (the "Term Loan"). If certain
conditions are satisfied, the Company may utilize additional financing under the
Revolver up to $1,000,000 (the "Additional Revolver") and additional term loans
up to $7,000,000 (the "Additional Term Loan") to fund future acquisitions (the
Term Loan and the Additional Term Loan are collectively referred to as the
“Senior Term Note”). In 2008, the Company borrowed the remaining $7,000,000 on
the Senior Term Note exhausting the availability of funds under the Senior Term
Note. The Senior Term Note and the Revolving Line of Credit bear interest at the
applicable LIBOR rate of interest. The Senior Term Note and the Revolving Line
of Credit were to mature on July 31, 2010; but, were extended under the April
26, 2010 amendment discussed further in the Debt Amendments section of this Note
5. From closing through November 30, 2008, the Company was required to pay
interest accruing on the Senior Term Note and the Revolving Line of Credit on
the last day of the applicable LIBOR interest period. Subsequent to November 30,
2008, the Company was required to pay the applicable amount of interest owed on
the Senior Term Note and the Revolving Line of Credit as well as a portion of
the principal of the Senior Term Note based upon a five year straight line
amortization schedule of $250,000 in principal on a monthly basis with the
remaining outstanding principal balance to be paid in one lump sum on the date
of maturity. Commencing January 1, 2008, the Company is obligated to pay an
unused commitment fee on the first business day of each quarter for any amounts
not used by the Company under the Additional Term Loan. The unused commitment
fee to be paid is equal to one-quarter multiplied by the applicable basis point
level, which is contingent upon the Company's ratio of total debt funded to
EBITDA. The Senior Lender has a secured lien on all assets of the Company and
its subsidiaries. The Company may prepay the Senior Term Note and the Revolving
Line of Credit at anytime.
As of
September 30, 2010, the outstanding principal balance on the Revolving Line of
Credit and Senior Term Note was approximately $3.2 million and $11.0 million,
respectively and the interest rate was 9.25% and 4.76%, respectively. As of
December 31, 2009, the outstanding principal balance on the Revolving Line of
Credit and Senior Term Note was approximately $2.5 million and $12.0 million,
respectively and the interest rate was 4.73%.
Subordinated
Senior Term Note
The
Subordinated Senior Note bears interest at 15% of which 12% is due and payable
on a monthly basis and 3% (the "Compounded Rate") is compounded monthly and
added to the principal amount of the Subordinated Senior Note. The Subordinated
Senior Note matures on the earlier of January 31, 2011, the occurrence of a
capital transaction, or an event of default. A capital transaction includes the
sale, disposition, dissolution or liquidation of the Company's assets or
subsidiaries, the acquisition by any person of 30% or more of the Company's
common stock or a public offering in the minimum amount of $20,000,000 (a
"Capital Transaction"). The Subordinated Senior Lenders have a secured lien on
all assets of the Company and its subsidiaries and would be entitled to
foreclose on the Company's assets in the event of default, subject to the rights
of the Senior Lender.
As of
September 30, 2010 and December 31, 2009, approximately $14.3 million and $13.0
million, respectively, were outstanding under the Subordinated Senior
Agreement.
At
closing, the Company issued warrants (“Subordinated Senior Warrants”) to
purchase an aggregate 5,742,789, 3,828,527 and 1,914,262 shares of common stock
at $0.50, $1.00 and $1.50 per share, respectively. The Subordinated Senior
Warrants are exercisable through November 2017 on a cash or cashless basis.
Subsequent to January 31, 2011, the consummation of a Capital Transaction or an
event of default, the Subordinated Senior Lenders may elect to sell to the
Company all or a portion of the shares issuable upon exercise of the
Subordinated Senior Warrants (the "Put"). The cash payment to be made by the
Company shall be determined by dividing the value of the Company's common stock
equity by the number of shares outstanding on a fully diluted basis (the
"Repurchase Price"). In the event that a Capital Transaction is entered into
during the six months following the closing of the Put, then the Company is
obligated to make an additional payment to the Subordinated Senior Lenders to
reflect the difference of the amount initially paid in connection with the Put
and the amount that would have been paid had the Put been exercised pursuant to
the second Capital Transaction.
Page
10
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
The
Subordinated Senior Lenders may elect to require the Company to pay an
additional fee (the "Fee Agreement") as well as the Conditional Interest Payment
("CIP Payment") at (i) January 31, 2011, (ii) the date of consummation of a
Capital Transaction, or (iii) an event of default. The Fee Agreement is based
upon the Subordinated Senior Lenders ownership in the Company and the per share
price of the Company's common stock. The CIP Payment is equal to 5% of the
Company's equity value which is payable on the 90th day following receipt of
such notice from the Subordinated Senior Lenders and an additional payment equal
to 1.5% of the Company's equity value is payable on the end of each calendar
quarter thereafter. The aggregate CIP Payment may not exceed 15% of the
Company's equity value. At any time after the Subordinated Senior Lenders
deliver notice with respect to the CIP Payment, the Company may elect to
purchase the shares of common stock underlying the Subordinated Senior Warrants
at the Repurchase Price.
The
Subordinated Senior Lenders have both demand and piggyback registration rights
with respect to shares issuable upon conversion of the Subordinated Senior
Warrants or any other shares held at the time of the request. The
Company must use its best efforts in good faith to affect the registration of
these shares.
On
November 3, 2008, Woodside Capital Partners V, LLC and Woodside Capital Partners
V QP, LLC (“Woodside Purchasers”) acquired all of the Subordinated Senior Notes
and Subordinated Senior Warrants held by Lehman Brothers Commercial Bank
(“Lehman”). The Woodside Purchasers together with the Woodside Capital Partners
IV, LLC and Woodside Capital Partners IV QP, LLC are hereinafter referred to as
the “Woodside Subordinated Senior Lenders”.
In
connection with the April 26, 2010 amendments, discussed further in the Debt
Amendments section of this Note 5, the Woodside Subordinated Senior Lenders
agreed to surrender the Subordinated Senior Warrants and relinquish their rights
to the CIP Payment and the Fee Agreement.
Covenant
Compliance and Related Debt Amendments
Under the
terms of the Senior Loan Agreement and the Subordinated Senior Agreement, the
Company is subject to meeting certain restrictive quarterly financial covenants
which, among other things, require the Company to maintain certain minimum
Adjusted EBITDA and certain leverage and fixed charge coverage ratios. Adjusted
EBITDA is a financial performance metric which is not recognized by accounting
principles generally accepted in the United States of America.
As of
December 31, 2008, the Company was not in compliance with certain covenants
under the Senior Loan Agreement and the Subordinated Senior Agreement. The
Company’s decline in asset based revenues, as a result of the dramatic decline
in the U.S. equity markets in the second half of 2008, negatively impacted its
ability to achieve Adjusted EBITDA targets as planned and three out of five
related debt covenants presented below. As a result, management entered into
Waiver and Amendment Agreements to the Senior Loan Agreement and the
Subordinated Senior Agreement (“Waiver and Amendment Agreements”) in March 2009.
Under the terms of the Waiver and Amendment Agreements, the Senior Lender and
Woodside Subordinated Senior Lenders waived the existing defaults on the debt
covenants at December 31, 2008 and revised future covenant
calculations. In exchange, the Company is subject to an increase in
the interest rates of 1.25% on the Senior Term Note and 1.75% on the outstanding
Revolving Line of Credit, over the remaining term of the Senior Loan Agreement.
In addition, the Company incurred one-time amendment fees totaling $100,625 (of
which $60,000 was added to the Subordinated Senior Note) upon the effective date
and is now subject to a 0.25% unused commitment fee on the Revolver which the
Company does not expect to be material. The Senior Lender and the Woodside
Subordinated Senior Lenders have approval rights for all future acquisitions and
the Company is subject to more frequent and timely compliance and reporting
requirements with the Senior Lender.
On
September 29, 2009, the Company and Senior Lender agreed to temporarily increase
the maximum principal amount available under the Revolving Line of Credit to
$2,500,000 through December 31, 2009. On December 14, 2009, the Senior Lender
further extended the Revolving Line of Credit through February 28, 2010. At
February 28, 2010, the Company was required to repay any amounts outstanding
under the Revolving Line of Credit in excess of $2,000,000. As part of the
transaction, the Company paid or accrued $61,583 in deferred financing costs
associated with the original increase in the Revolving Line of Credit dated
September 29, 2009, which will be amortized over the remaining life of the loan.
The agreement was further amended as part of the April 26, 2010 amendment
described further in the Debt Amendments section of this Note 5.
As of
September 30, 2009, the Company was not in compliance with certain restrictive
covenants in the Waiver and Amendment Agreements. As a result, the Senior Lender
and the Woodside Subordinated Senior Lenders issued the Company reservation of
rights letters, which notified the Company of default under the Waiver and
Amendment Agreements. The document indicates that this default entitles the
Senior Lender and the Woodside Subordinated Senior Lenders to exercise certain
rights and remedies under the Senior Loan Agreement and the Subordinated Senior
Agreement through issuance of a reservation of rights letter. The Senior Lender
and Woodside Subordinated Senior Lenders agreed to not exercise all their rights
and remedies at this time; but, reserve the right to do so in the future. The
Woodside Subordinated Senior Lenders exercised their right to increase the
interest rate by 3% on the Subordinated Senior Note effective November 15, 2009.
The increased interest is compounded monthly and added to the Subordinated
Senior Note.
Page
11
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
As of
March 31, 2010 and December 31, 2009, the Company was not in compliance with
certain restrictive covenants in the Waiver and Amendment Agreements. As a
result, on April 26, 2010, the Senior and Woodside Subordinated Senior Lenders
agreed to amend the existing loan agreements. Under the amendments, the Senior
and Woodside Subordinated Senior Lenders agreed to forbear from exercising their
rights and remedies for identified events of default and anticipated events of
default during the forbearance period subject to certain terms and conditions
which are discussed further in the Debt Amendments section of this Note
5.
As of
September 30, 2010, the Company continued to be out of compliance with certain
restrictive covenants in the Waiver and Amendment Agreements. Under the
amendments noted above, the Senior and Woodside Subordinated Senior Lenders
agreed to continue to forbear from exercising their rights and remedies for
identified events of default and anticipated events of default during the
forbearance period subject to certain terms and conditions.
The
tabular presentation sets forth the Company’s most restrictive covenants for the
trailing twelve month periods as amended by quarter for 2009 and
2010.
($
in millions)
|
Amended
|
|||||||||||||||||||||||||||
2009
|
2010
|
|||||||||||||||||||||||||||
Q1
|
Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | ||||||||||||||||||||||
Minimum
Adjusted EBITDA (1)
|
||||||||||||||||||||||||||||
Actual
|
$ | 8.80 | $ | 9.64 | $ | 8.78 | * | $ | 8.88 | ** | $ | 8.52 | ** | $ | 5.34 | ** | $ | 8.07 | ** | |||||||||
Covenant
|
$ | 8.40 | $ | 9.00 | $ | 9.05 | $ | 10.10 | $ | 10.70 | $ | 11.15 | $ | 11.15 | ||||||||||||||
Maximum
Leverage Ratio (2)
|
||||||||||||||||||||||||||||
Actual
|
3.11 | 3.05 | 3.48 | * | 3.42 | ** | 3.48 | ** | 5.76 | ** | 3.87 | ** | ||||||||||||||||
Covenant
|
3.25 | 3.25 | 3.25 | 2.75 | 2.60 | 2.50 | 2.50 | |||||||||||||||||||||
Minimum
Fixed Charge Coverage Ratio (3)
|
||||||||||||||||||||||||||||
Actual
|
1.12 | 1.02 | 0.95 | * | 1.16 | ** | 0.32 | ** | 0.17 | ** | 0.28 | ** | ||||||||||||||||
Covenant
|
1.05 | 1.00 | 1.00 | 1.20 | 1.25 | 1.25 | 1.25 | |||||||||||||||||||||
Minimum
Interest Coverage Ratio (4)
|
||||||||||||||||||||||||||||
Actual
|
3.09 | 3.27 | 2.93 | 2.94 | 2.70 | 1.63 | ** | 2.34 | ** | |||||||||||||||||||
Covenant
|
2.25 | 2.25 | 2.25 | 2.50 | 2.50 | 2.50 | 2.50 | |||||||||||||||||||||
Maximum
Ratio of Total Funded Debt to Net Worth (5)
|
||||||||||||||||||||||||||||
Actual
|
1.45 | 1.21 | 1.17 | 1.18 | 1.15 | 1.18 | 1.12 | |||||||||||||||||||||
Covenant
|
2.00 | 2.00 | 2.00 | 2.00 | 2.00 | 2.00 | 2.00 |
*
Reservation of rights issued by the Senior Lender and Subordinated Senior
Lenders dated November 13, 2009.
** Under
the Senior Loan Amendment and Subordinated Senior Amendment entered into on
April 26, 2010, the Senior and Woodside Subordinated Senior Lenders agreed
to forbear from accelerating or otherwise enforcing their rights and remedies
with respect to the above covenant defaults under the Senior Loan and
Subordinated Senior Amendments until January 2011.
(1)
Minimum Adjusted EBITDA includes, for the trailing twelve month period, net loss
plus the following items: consolidated interest expense, income taxes,
depreciation, amortization, non-cash charges for stock based compensation,
contractually specific charges to goodwill, and any non-cash extraordinary and
unusual or non-recurring write downs or write offs.
(2)
Maximum Leverage Ratio is total funded debt divided by the sum of Minimum
Adjusted EBITDA and the trailing twelve months Adjusted EBITDA for
acquisitions.
(3)
Minimum Fixed Charge Coverage Ratio is the quotient of Operating cash flow and
Debt Service. Operating cash flow is the sum of Minimum Adjusted
EBITDA and the trailing twelve months of Adjusted EBITDA from acquisitions less
taxes paid and capital expenditures during the trailing twelve month period.
Debt Service is the sum of the current portion of all long term debt, except the
Senior Term Note which if defined as $3,000,000 for this calculation, and the
trailing twelve months of interest expense.
(4)
Minimum Interest Coverage Ratio is the quotient of Minimum Adjusted EBITDA
divided by the trailing twelve month interest expense.
(5)
Maximum Ratio of Total Funded Debt to Net Worth is the quotient of funded debt
divided by the total of assets, less liabilities plus the accumulated
amortization of intangible assets recorded since November 30, 2007 (the date of
debt agreement).
Page
12
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
Following
is a reconciliation of Minimum Adjusted EBITDA to net loss available to common
stockholders:
|
Period
Ended
|
|||
|
September 30, 2010
|
|||
Minimum
Adjusted EBITDA for the trailing twelve months
|
$ | 8,072,612 | ||
|
||||
Depreciation
and amortization
|
(8,948,659 | ) | ||
|
||||
Stock
based compensation
|
(124,546 | ) | ||
|
||||
Change
in fair value of derivative financial
instruments
|
2,291,769 | |||
|
||||
Contractually
specific charges to goodwill
|
178,501 | |||
|
||||
Interest
expense
|
(3,451,409 | ) | ||
|
||||
Debt
and other restructuring charges
|
(1,289,236 | ) | ||
|
||||
Income
tax expenses
|
(157,294 | ) | ||
|
||||
Deferred
income tax benefit
|
1,633,001 | |||
|
||||
Preferred
stock dividends
|
(1,941,999 | ) | ||
|
||||
Fourth
quarter 2009 net loss available to common stockholders
|
2,088,153 | |||
|
||||
Net
loss available to common stockholders
|
$ | (1,649,107 | ) |
Debt
Amendments
On April
12, 2010, the Company entered into an agreement with the Woodside Subordinated
Senior Lenders to receive an additional loan (“Short-Term Working Capital Loan”)
of $500,000 to be used for short-term working capital needs. For use of the
funds, the Company paid a fee of $5,000. The Short-Term Working Capital Loan
accrues interest at 12% per annum. The principal amount and any accrued and
unpaid interest was due on May 15, 2010. On May 7, 2010, the Company paid all
outstanding principal and accrued interest on the Short-Term Working Capital
Loan.
On April
26, 2010, the Company entered into an amendment (“Senior Loan Amendment”) to the
Senior Loan Agreement. In the Senior Loan Amendment, the Senior Lender agreed to
forbear from accelerating or otherwise enforcing its rights and remedies with
respect to identified events of default and anticipated events of default under
the Senior Loan Agreement until January 2, 2011 (the “Forbearance Period”) and,
in addition, extended the maturity of the indebtedness until January 2, 2011.
During the Forbearance Period, the Senior Lender agreed to increase the maximum
principal amount available under the Revolving Line of Credit to $4,000,000. All
advances on the Revolving Line of Credit after the date of the Senior Loan
Amendment, including any outstanding draws, will incur interest, payable on a
monthly basis, at a rate of prime plus 6%. Also, the Senior Lender agreed to
suspend the monthly principal payments of $250,000 on the Senior Term Note. The
Company will continue to pay the applicable amount of interest owed on the
Senior Term Note on the last day of each month.
In
return, the Company agreed as part of the Senior Loan Amendment that, among
other things, the Senior Lender may terminate the Senior Loan Amendment during
the Forbearance Period if the Company does not (i) meet specified cash flow
tests of its cash receipts and disbursements measured weekly on a rolling six
week and forbearance period-to-date basis, as defined in the amendment and (ii)
maintain a specified minimum cash and available Revolving Line of Credit balance
of $500,000. As of September 30, 2010, the Company met the above cash covenants
as indicated in the following table:
Cash
Flow Test
|
Covenant
|
Range
of Results
|
||
Cash
Receipts
|
greater
than 80%
|
94.3%
- 138.3%
|
||
Cash
Disbursements
|
less
than 110%
|
94.5%
- 105.9%
|
||
Minimum
Cash Availability
|
greater
than $500,000
|
$1.6
million - $2.8 million
|
Page
13
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
The
Company agreed to pay the Senior Lender an amendment fee (“Amendment Fee”) of
$250,000, of which $50,000 was to be paid on the amendment date with the
remainder to be paid in $25,000 monthly installments beginning May 31, 2010 and
ending December 31, 2010. The Company also agreed to pay the Senior
Lender a monthly fee (“Monitoring Fee”) of $2,000 per month throughout the
duration of the Forbearance Period and reimburse the Senior Lender for any legal
fees in connection with the Senior Loan Amendment. As of September 30, 2010, the
company paid $150,000 of the Amendment Fee and $6,000 in Monitoring
Fees.
In
addition, upon closing of a capital transaction, the Company is required to pay
an additional fee to its Senior Lender. In the event of a sale to a third party,
the Company will pay the Senior Lender a fee (“Borrower Sale Fee”) equal to the
sum of $300,000 plus 0.75% of the excess of the gross purchase price paid for
the Company over the Company’s outstanding indebtedness less any exit fees paid
to the Woodside Subordinated Senior Lenders. In the case of a repayment in full
or maturity, the Company will pay the Senior Lender a fee (“Borrower Refinancing
Fee”) equal to 4% of the outstanding indebtedness to the Senior Lender. If a
Company sale were to take place within six months after the maturity date or the
repayment in full and if that sale transaction would result in a Borrower Sale
Fee greater than $300,000, then the Company would pay the Senior Lender an
amount equal to the difference between the Borrower Sale Fee and
$300,000.
On March
22, 2010, the Company engaged a financial advisor to assist in exploring,
evaluating and implementing one or more strategic alternatives for the
recapitalization of the Company (“Recapitalization Initiative”), including
refinancing its current debt, raising capital, and/or sale of the Company to a
third party. The Senior Lender may terminate the Forbearance Period if, in the
Senior Lender’s reasonable judgment, the Company has not made adequate progress
toward a reasonably satisfactory Recapitalization Initiative by July 15, 2010 or
any date thereafter. The Company paid the financial advisor $60,000 upon the
execution of an amendment to the loan agreements with Senior and Woodside
Subordinated Senior Lenders and agreed to pay a monthly service fee of $30,000.
In the event of a sale to a third party, the Company will pay the financial
advisor a transaction fee of $950,000. In the case of a refinancing, the Company
will pay the financial advisor a fee equal to (i) 1.5% of the total amount of
senior debt raised, plus (ii) 3.0% of the total amount of any one-stop debt
raised, plus (iii) 4.0% of the total amount of junior debt raised. On August 1,
2010, the Company amended the agreement with the financial advisor to replace
the fixed monthly service fee with an hourly rate.
On April
26, 2010, in addition to the Senior Loan Amendment, the Company entered into an
amendment (“Subordinated Senior Amendment”) to the Subordinated Senior Agreement
with the Woodside Subordinated Senior Lenders. In the Subordinated Senior
Amendment, the Woodside Subordinated Senior Lenders agreed to forbear from
accelerating or otherwise enforcing its rights and remedies with respect to
identified events of default and anticipated events of default under the
Subordinated Senior Agreement until January 2, 2011 (the “Forbearance Period”).
In addition, the Woodside Subordinated Senior Lenders agreed to surrender the
Subordinated Senior Warrants and relinquish their rights to the CIP Payment and
the Fee Agreement.
In
return, the Company agreed as part of the Subordinated Senior Amendment that,
among other things, the Woodside Subordinated Senior Lenders may terminate the
Subordinated Senior Amendment during the Forbearance Period if the Company does
not (i) meet specified cash flow tests of its cash receipts and disbursements
measured weekly on a rolling six week and forbearance period-to-date basis, as
defined in the agreements and (ii) maintain a specified minimum cash and
available Revolving Line of Credit balance of $500,000. The Company met the cash
covenants as indicated in the table above.
The
Subordinated Senior Note continues to bear interest at 18%; however, only 6% is
due and payable on a monthly basis and 12% is compounded monthly and added to
the principal amount of the Subordinated Senior Note. The Company agreed to pay
the Woodside Subordinated Senior Lenders a fee (“Modification Fee”) of $250,000,
which is to be paid on the earlier of January 31, 2011, a capitalization
transaction, or an event of default. The Modification Fee shall constitute an
additional debt obligation and accrues interest at 18% per annum, compounded
monthly, payable at the date the Modification Fee is due. As of September 30,
2010, $270,394 was outstanding under the Modification Fee
agreement.
In
addition, the Company agreed to pay the Woodside Subordinated Senior Lenders a
fee (“Exit Fee”) payable on the earlier of (i) a sale of the Company to a third
party, (ii) repayment of all amounts due the Woodside Subordinated Senior
Lenders (“Repayment Event”), or (iii) January 31, 2011 (“Maturity”). In the
event of a sale transaction occurring prior to a Repayment Event, the Exit Fee
will be $450,000 plus 1.5% of the excess of the gross purchase price paid for
the Company over the Company’s outstanding indebtedness less any Borrower Sale
Fee paid to the Senior Lender. Upon a Repayment Event or Maturity, the Exit Fee
shall be $450,000. If a Company sale were to take place within six
months after a Repayment Event or Maturity and if that sale transaction would
have resulted in an Exit Fee greater than $450,000, then the Company would pay
the Woodside Subordinated Senior Lenders an amount equal to the difference
between the greater Exit Fee and $450,000.
Page
14
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
On March
22, 2010, the Company engaged a financial advisor to assist in exploring,
evaluating and implementing one or more strategic alternatives for the
recapitalization of the Company (“Recapitalization Initiative”), including
refinancing its current debt, raising capital, and/or sale of the Company to a
third party. The Woodside Subordinated Senior Lenders may terminate the
Forbearance Period if, in the Woodside Subordinated Senior Lenders’ reasonable
judgment, the Company has not made satisfactory progress toward a
Recapitalization Initiative by July 15, 2010 or any date thereafter. The Company
has agreed to pay the financial advisor as discussed above.
Because
management believes that a sale is the most likely event to occur, the Company
has estimated sale related payments to the Senior Lender and Woodside
Subordinated Senior Lenders to be $1,598,000, which were added to deferred
financing costs and are being amortized over the remaining life of the
loan.
On August
12, 2010, the Company entered into Amendment No. 9 to the Securities Purchase
and Loan Agreement with the Woodside Subordinated Senior Lenders. In the
amendment, the Woodside Subordinated Senior Lenders agreed to convert the 6%
monthly cash interest payments (“Converted Interest”) to interest compounded
monthly and added to the principal amount of the Subordinated Senior Note so
that the Company has available cash to make payments under its retention and
recapitalization incentive plan, payments to the Company’s lead director and
additional recapitalization expenses, commencing with the cash interest payment
due on July 1, 2010. The retention and recapitalization incentive payments, lead
director payments and recapitalization expenses are not to exceed a combined
$67,000 for any month. Any shortfall in retention and recapitalization incentive
payments, lead director payments and recapitalization expenses are to be paid to
the Woodside Subordinated Senior Lenders and applied towards payment of the
compounded interest. Additionally, the interest rate on the Subordinated Senior
Note will increase by 2% on October 1, 2010 and 1% on January 1, 2011. In the
event that all obligations are paid in full in cash on or prior to the maturity
date, the additional compounded interest shall be waived and forgiven and during
the Forbearance Period only, with respect to any month, if the outstanding
balance of Converted Interest is zero for at least 22 days of such month, then
the additional compounded interest rate shall be reduced by 50% for such
month.
On November 5, 2010, December 3, 2010, and January 7, 2011, if the
Company’s net cumulative cash position exceeds the specified minimum cash
balance, as outlined in the Subordinated Senior Amendment, by more than
$500,000, the Company is required to pay that excess cash balance against the
Converted Interest. On November 5, 2010, the Company paid $353,840, which
represented the Converted Interest for the months of June through October
2010.
Seller
Financing
In
connection with the Company’s acquisition strategy, part of the purchase price
is paid through seller financed instruments. As of September 30, 2010, total
funds due to former owners were $2,484,028, all of which is due in the next
twelve months. Seller financed instruments bear interest at 6% to 8% per annum.
All seller financed instruments are uncollateralized. Under the terms of the
Senior Loan Amendment and the Subordinated Senior Amendment, any subordinated
payments, including seller financing, are not to be paid during the forbearance
period unless otherwise approved by the Senior Lender and Woodside Subordinated
Senior Lenders. The Company amended and restructured certain unpaid seller notes
as indicated below.
On
February 24, 2009, the Company executed a restructured promissory note (the “TPA
Restructured Note Agreement”) with the sellers of The Pension Alliance, Inc.
(“TPA”) under which the parties agreed to execute replacement notes superseding
and terminating all existing promissory notes with the sellers of TPA. Under the
TPA Restructured Note Agreement, the Company agreed to issue promissory notes
for an aggregate of $837,500 payable in nine equal principal monthly
installments of $93,056, plus accrued interest, beginning on July 1, 2009 and
ending March 1, 2010 at an interest rate of 8% per annum. Interest accrued on
superseded promissory notes was paid to the sellers within fifteen business days
after the effective date of the TPA Restructured Note Agreement.
On
September 29, 2009, the Company executed Amendment No. 1 to the TPA Restructured
Note Agreement with the sellers of TPA under which the sellers of TPA agreed to
replace the remaining monthly principal installments of $93,056 plus accrued
interest under the TPA Restructured Note Agreement, dated February 24, 2009,
with a single principal payment of $558,333 on March 1, 2010 plus interest
accrued from August 31, 2009. The Senior Lender and Woodside Subordinated Senior
Lenders have not authorized payment of the principal or accrued interest on this
note as of November 15, 2010.
On
February 28, 2009, the Company executed a restructured promissory note (the
“Pentec Restructured Note Agreement”) with the seller of Pentec, Inc. (“Pentec”)
and Pentec Capital Management, Inc. (“PCM”) under which the parties agreed to
execute replacement notes superseding and terminating, the prior unpaid notes
between the parties dated February 28, 2007. Under the Pentec Restructured Note
Agreement, the Company agreed to issue a promissory note of $600,000 payable in
six equal principal monthly installments of $100,000, plus accrued interest,
beginning on July 1, 2009 and ending December 1, 2009 at an interest rate of 8%
per annum. Any accrued interest on the remaining February 28, 2007 promissory
notes was paid to the seller within fifteen business days after the effective
date of the Pentec Restructured Note Agreement. At December 31, 2009, the
Restructured Promissory Note was paid in full.
Page
15
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
On March
16, 2009, the Company executed a restructured promissory note (“CIAS
Restructured Note Agreement”) with the sellers of California Investment and
Annuity Sales, Inc. (“CIAS”) under which the parties executed replacement notes
superseding and terminating, the prior note between the parties dated April 3,
2008. Under the CIAS Restructured Note Agreement, the Company issued two
promissory notes for an aggregate of $950,000 payable in eight monthly principal
only installments of $70,000 beginning on August 15, 2009 and ending March 15,
2010, and three monthly installments of $130,000 plus all accrued interest, less
any adjustments to the promissory notes under the CIAS agreement dated April 3,
2008, beginning on April 15, 2010 and ending on June 15, 2010. The notes pay
interest at 8% per annum. Accrued interest on the April 3, 2008 promissory notes
was paid to the CIAS Sellers within ten business days of the original scheduled
payment date of June 3, 2009.
On
September 28, 2009, the Company executed Amendment No. 1 to the CIAS
Restructured Note Agreement with the sellers of CIAS under which the sellers of
CIAS agreed to replace the remaining monthly installment payments under the CIAS
Restructured Note Agreement, dated March 16, 2009, with installment payments to
be made in six monthly principal only installments of $70,000 beginning on April
15, 2010 and ending September 15, 2010, and three monthly principal installments
of $130,000, plus all accrued interest, less any adjustments to the promissory
notes under the CIAS agreement dated April 3, 2008, beginning on October 15,
2010 and ending December 15, 2010. The Senior Lender and Woodside Subordinated
Senior Lenders have not authorized payment of the principal or accrued interest
on these notes as of September 30, 2010.
On
October 13, 2010, the Company executed Amendment No. 2 to the CIAS Restructured
Note Agreement dated March 16, 2009, with the sellers of CIAS under which the
sellers of CIAS agreed to reduce the remaining outstanding principal to $580,000
as a result of not achieving certain revenue targets as noted in the original
stock purchase agreement dated April 3, 2008. The remaining outstanding
principal will be paid in six monthly principal installments of $96,667, plus
accrued interest, beginning on February 15, 2011 and ending July 15,
2011.
On March
24, 2009, the Company executed two promissory notes each for $75,000 payable to
two of the sellers of The Pension Group, Inc. (“TPG”) in lieu of full payment of
their portion of a cash payment of $467,500, prior to any adjustments, due at
March 26, 2009 under the TPG purchase agreement (“TPG Agreement”) dated November
26, 2008. The notes plus interest accrued at 8% per annum were paid in full on
June 26, 2009.
On
September 24, 2009, the Company executed Amendment No. 1 to the TPG Agreement
with the sellers of TPG under which the sellers of TPG agreed to replace the
maturity date and payment terms under the promissory notes, dated November 26,
2008, with installment payments to be made in twelve monthly principal
installments of $38,958, plus accrued interest, beginning on July 25, 2010 and
ending June 25, 2011 at an interest rate of 8% per annum beginning on October 1,
2009. Interest accrued on the promissory notes through September 30, 2009 was
paid to the sellers of TPG within fifteen business days of January 25,
2010.
On
September 25, 2009, the Company executed Amendment No. 1 to the REPTECH purchase
agreement (“REPTECH Agreement”) with the sellers of Pension Technical Services,
Inc. (“REPTECH”) under which the sellers of REPTECH agreed to replace the
payments due under the promissory notes, dated October 2, 2008, with installment
payments to be made in twelve monthly principal installments of $76,888, plus
accrued interest, beginning on May 15, 2010 and ending April 15, 2011 at an
interest rate of 8% per annum beginning on October 1, 2009. Interest accrued on
the promissory notes through September 30, 2009 was paid to the sellers of
REPTECH within fifteen business days of December 1, 2009.
On May
14, 2010, the Company executed Amendment No. 2 to the REPTECH Agreement with the
sellers of REPTECH under which the sellers of REPTECH agreed to replace the
twelve monthly principal installments of $76,888 plus accrued interest under
Amendment No. 1 to the REPTECH purchase agreement dated September 25, 2009, with
monthly installment payments beginning on May 15, 2010 and ending on July 14,
2011, totaling $922,656 in principal plus accrued interest.
Derivative
Liabilities
Pursuant
to the Derivatives and Hedging Topic of FASB ASC, the Subordinated Senior
Warrants and the Fee Agreement, meet the requirements of and are accounted for
as a liability since they could require net-cash settlement by the
Company. This option to net-cash settle is out of the Company’s
control. The initial value of the Subordinated Senior Warrants and
the Fee Agreement was treated as a discount to the corresponding note and
recorded as a liability. The Company calculated the initial value of the
Subordinated Senior Warrants to be $2,522,661 and the value of the Fee Agreement
to be $654,575. The value of the Subordinated Senior Warrants and the Fee
Agreement was determined using the formula outlined in section 11 of the
Securities Purchase and Loan Agreement and section 1.3 of the Fee
Agreement. The value of the derivative financial instruments are
reassessed at each balance sheet date and marked to market as a derivative gain
or loss until exercised or expiration. Upon exercise of the derivative financial
instruments, the related liability is removed by recording an adjustment to
additional paid-in-capital. Pursuant to the Subordinated Senior Amendment, dated
April 26, 2010 and discussed in the Debt Amendments section of this Note 5, the
Woodside Subordinated Senior Lenders have agreed to surrender the Subordinated
Senior Warrants and relinquish their rights to the Fee Agreement. At December
31, 2009, the Subordinated Senior Warrants had a value of $0, and the Fee
Agreement had a value of $1,635,321.
Page
16
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
In March
2005, as part of the since retired debt offering, the Company issued Laurus
Master Fund, Ltd. (“Laurus”) a common stock purchase warrant (the "2005
Warrant") entitling Laurus to purchase up to 1,084,338 shares of the Company’s
common stock at a per share exercise price of $1.00, which was subsequently
reduced to $0.50, and a stock option (the "2005 Option") entitling Laurus to
purchase up to 643,700 shares of common stock at a per share purchase price of
$0.01.
On May
30, 2006, as part of another since retired debt offering, the Company issued
Laurus a common stock purchase warrant to purchase 700,000 shares of common
stock of the Company, at a purchase price of $0.01 per share, exercisable until
May 30, 2011 (the "May 2006 Warrant"). On June 12, 2006, the
Company and Laurus entered into an agreement pursuant to which the May 2006
Warrant was rescinded and a new common stock purchase warrant (the "New
Warrant") was issued to Laurus. The New Warrant, dated May 30, 2006, entitles
Laurus to purchase up to 700,000 shares of common stock of the Company, at an
exercise price of $0.1667 per share, exercisable until May 30,
2011.
Pursuant
to the Derivatives and Hedging Topic of FASB ASC, the 2005 Warrant, the 2005
Option and the New Warrant (collectively, “Laurus Derivative Financial
Instruments”), meet the requirements of and are accounted for as a liability
since they contain registration rights and the agreement is silent on how the
contract would be settled and thus assumes net-cash settlement in the event that
the Company is unable to deliver registered shares. The initial value of the
Laurus Derivative Financial Instruments was treated as a discount to their
corresponding notes and recorded as a liability. The Company calculated the
initial value of the Laurus Derivative Financial Instruments on the closing date
of the transactions as being $1,578,159. The value of the Laurus Derivative
Financial Instruments was determined using a Black-Scholes option pricing model
with the following assumptions: expected term - 3-8 years, volatility - 25%,
risk free rate - 4%, and zero dividend yield. Using the Black-Scholes
option-pricing method, the value of the Laurus Derivative Financial Instruments
are reassessed at each balance sheet date and marked to market as a derivative
gain or loss until exercised or expiration. Upon exercising the Laurus
Derivative Financial Instruments, the related liability is removed by recording
an adjustment to additional paid-in-capital. At September 30, 2010 and December
31, 2009, the Laurus Derivative Financial Instruments have a value of $11,508
and $88,898, respectively.
Note
6. Stockholders’ Equity
Series
C Preferred Stock Conversion
On June
18, 2010, a holder of 137,500 shares of Series C Convertible Preferred Stock
converted such shares into 1,650,000 shares of common stock.
Series
D Preferred Stock Conversion
On
January 4, 2010, a holder of 8,513 shares of Series D Convertible Preferred
Stock converted such shares into 170,260 shares of common stock.
Common
Stock and Stock Options
On April
14, 2009, the Company issued a Stock Option Agreement to the President and COO
granting him the option to purchase 600,000 shares of restricted common stock of
the Company at a price of $0.20 per share as part of his April 14, 2009
employment agreement. These options may be exercised only if authorized shares
are available.
On April
15, 2009, the Company issued a Stock Option Agreement to the Chief Financial
Officer granting him the option to purchase 250,000 shares of restricted common
stock of the Company at a price of $0.20 per share as part of his April 15, 2009
employment agreement. These options may be exercised only if authorized shares
are available.
On July
8, 2009, the Company issued Stock Option Agreements to various members of
management and staff granting them the option to purchase shares of restricted
common stock of the Company at a price of $0.20 per share, of which, 600,000
were granted to the Chief Executive Officer. These options may be
exercised only if authorized shares are available.
On
December 31, 2009, the Company issued 100,000 shares of restricted common stock
to the Chief Executive Officer as part of his November 30, 2007 employment
agreement.
Page
17
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
Note
7. Stock-Based Compensation
The
Company complies with the fair value recognition provisions of the Compensation
and Equity Topics of FASB ASC which requires compensation cost for all stock
awards be calculated and recognized over the service period (generally equal to
the vesting period). This compensation cost is determined using option pricing
models intended to estimate the fair value of the awards at the grant date. An
offsetting increase to stockholders' equity is recorded equal to the amount of
the compensation expense charge. The fair value of issued stock options and
warrants are estimated on the date of grant using the Black-Scholes
option-pricing model including the following assumptions: expected volatility
range of 25.0% to 60.0%, expected dividend yield rate of 0%, expected life over
the term, generally, 5 or 7 years, and a range of risk-free interest rates of
1.55% to 4.19% which coincides with the expected life of the options and
warrants at the time of issuance. During the nine month periods ended September
30, 2010 and September 30, 2009, the Company recorded stock-based compensation
of $28,449 and $337,030, respectively. During the three month periods ended
September 30, 2010 and September 30, 2009, the Company recorded stock-based
compensation of $2,815 and $122,351, respectively. There was no cash flow effect
resulting from these arrangements.
The
following is a summary of all option activity through September 30,
2010:
Weighted
|
||||||||||||||||
Average
|
||||||||||||||||
Number
of
|
Remaining
|
Aggregate
|
||||||||||||||
Shares
|
Weighted
|
Term
|
Instrinsic
|
|||||||||||||
Outstanding
|
Avg.
Price
|
(in
years)
|
Value
|
|||||||||||||
Outstanding,
January 1, 2009
|
4,488,463 | $ | 0.81 | 3.07 | $ | - | ||||||||||
Granted
|
2,502,000 | $ | 0.20 | |||||||||||||
Exercised
|
- | $ | - | |||||||||||||
Forfeited
|
(1,120,500 | ) | $ | 0.90 | ||||||||||||
Expired
|
(25,000 | ) | $ | 1.00 | ||||||||||||
Outstanding,
January 1, 2010
|
5,844,963 | $ | 0.53 | 3.13 | $ | - | ||||||||||
Granted
|
- | $ | - | |||||||||||||
Exercised
|
- | $ | - | |||||||||||||
Forfeited
|
(450,000 | ) | $ | 0.20 | ||||||||||||
Expired
|
(60,500 | ) | $ | 1.50 | ||||||||||||
Outstanding,
September 30, 2010
|
5,334,463 | $ | 0.55 | 2.31 | $ | - | ||||||||||
Exercisable,
September 30, 2010
|
5,134,463 | $ | 0.56 | 2.26 | $ | - |
The
Company settles stock option exercises with newly issued shares of common stock.
For the periods ended September 30, 2010 and September 30, 2009, respectively,
total compensation cost not yet recognized for non-vested awards of $2,815 and
$112,361 have a weighted average period of 0.25 years and 0.48 years over which
compensation expense is expected to be recognized.
Note
8. Earnings (Loss) Per Common Share
The
Company complies with the accounting and reporting requirements of the Earnings
Per Share Topic of FASB ASC. Basic net income (loss) per common share includes
no dilution and is computed by dividing net loss available to common
stockholders by the weighted average number of shares of common stock
outstanding for the period. Diluted net income per common share reflects, in the
periods in which they have a dilutive effect, the dilution which would occur
upon the exercise of stock options and warrants, and the conversion of
convertible preferred stock and notes.
Unexercised
stock options and warrants to purchase common stock and preferred stock
convertible into common stock as of September 30, 2010 and 2009, respectively,
are as follows:
September
30, 2010
|
September
30, 2009
|
|||||||
Options
and warrants
|
15,073,794 | 28,470,019 | ||||||
Preferred
stock
|
31,139,748 | 32,960,008 | ||||||
46,213,542 | 61,430,027 |
For the
periods ended September 30, 2010 and September 30, 2009, respectively, options
and warrants include non-vested shares of 200,000 and
1,540,000.
Page
18
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
The
foregoing common stock equivalents were excluded from the calculation of diluted
net loss per common share for the nine months ended September 30, 2010 and all
options and warrants with an exercise price greater than $0.03 per share were
excluded from diluted net income per common share for the three months ended
September 30, 2010, as well as, all common stock equivalents were excluded from
the calculation of diluted net loss per common share for the nine months ended
September 30, 2009 and three months ended September 30, 2009, respectively,
since their inclusion would be anti-dilutive.
Note
9. Income Taxes
The
Company complies with the Income Taxes Topic of the FASB ASC, which requires an
asset and liability approach to financial accounting and reporting for income
taxes. Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that
will result in future taxable or deductible amounts, based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established, when necessary, to
reduce deferred income tax assets to the amount expected to be
realized.
In
accordance with the guidance of the Income Taxes Topic of the FASB ASC, there
were no unrecognized tax benefits as of September 30, 2010 and 2009. This
guidance prescribes a recognition threshold and a measurement attribute for the
financial statement recognition and measurement of tax positions taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax
position must be more-likely-than-not sustainable upon examination by taxing
authorities. The Company recognizes accrued interest and penalties related to
unrecognized tax expense or benefits as income tax expense. No amounts were
accrued for the payment of interest and penalties at September 30, 2010 and
2009. Management is currently unaware of any issues under review that could
result in significant payments, accruals or material deviations from its
position. The adoption of the provisions of this guidance did not have a
material impact on the Company's condensed consolidated interim financial
position, results of operations and cash flows.
The
Company may be subject to potential examination by U.S. federal, U.S. states or
foreign jurisdiction authorities in the areas of income taxes. These potential
examinations may include questioning the timing and amount of deductions, the
nexus of income among various tax jurisdictions and compliance with U.S.
federal, U.S. state and foreign tax laws. The Company’s management does not
expect that the total amount of unrecognized tax benefits will materially change
over the next twelve months.
Note
10. Fair Value Measurements
Fair
Value Measurements and Disclosures Topic of FASB ASC establishes a three-level
valuation hierarchy for disclosure of fair value measurements. The valuation
hierarchy categorizes assets and liabilities measured at fair value into one of
three different levels depending on the observability of the inputs employed in
the measurement. The three levels are defined as follows:
|
·
|
Level
1 – inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
|
·
|
Level
2 – inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
·
|
Level
3 – inputs to the valuation methodology are unobservable and are
significant to the fair value
measurement.
|
A
financial instrument’s categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement. The Company’s assessment of the significance of a particular input
to the fair value measurement in its entirety requires judgment and considers
factors specific to the liability. The liabilities measured at fair value on a
recurring basis as of September 30, 2010 are as follows:
Fair Value at Reporting Date Using
|
||||||||||||||||
Quoted Price in
|
||||||||||||||||
Active Markets
|
Significant Other
|
Significant
|
||||||||||||||
for Indentical
|
Observable
|
Unobservable
|
||||||||||||||
Assets
|
Inputs
|
Inputs
|
||||||||||||||
Description
|
September 30, 2010
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Derivative
financial instruments
|
$ | 11,508 | $ | - | $ | - | $ | 11,508 |
Page
19
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
Reconciliation
of liabilities measured at fair value on a recurring basis using significant
unobservable inputs as of September 30, 2010 is as follows:
Fair
Value
|
||||
Measurments
|
||||
Using
Significant
|
||||
Unobservable
|
||||
Inputs
|
||||
(Level
3)
|
||||
Beginning
balance - January 1, 2010
|
$ | 1,724,219 | ||
Total
(gains) losses (realized/unrealized)
|
||||
Included
in earnings (or changes in net liabilities)
|
(1,712,711 | ) | ||
Ending
balance - September 30, 2010
|
$ | 11,508 | ||
The
amount of total (gains) losses for the period included in earnings
(or changes in net liabilities) attributable to the change in
unrealized (gains) losses relating to assets still held at the
reporting date
|
$ | (1,712,711 | ) |
The
derivative liability measured at fair value of $11,508 consists of stock options
and warrants. The fair value assessment of 2,159,331 options and warrants
equaling $11,508 are valued using the Black-Scholes option-pricing model based
on assumptions for expected volatility, expected dividend yield rate, expected
life, and risk-free interest rates.
Note
11. Acquisitions of Subsidiaries and Other Assets
The
acquisition of each subsidiary is being accounted for under the acquisition
method of accounting in accordance with the Business Combinations Topic of the
FASB ASC. Under the acquisition method, assets acquired and liabilities assumed
are recorded at their estimated fair values. The Company allocates the excess of
purchase price over net assets acquired to customer relationships, covenants not
to compete, employment contracts, trade name and goodwill. The Company amortizes
intangibles such as customer relationships, covenants not to compete, employment
contracts and trade name over their estimated useful lives. In accordance with
Intangibles-Goodwill and Others Topic of the FASB ASC, the Company does not
amortize goodwill.
The
Company has incorporated contingent consideration into the structure of certain
acquisitions completed. These arrangements generally result in the payment of
additional consideration to the sellers upon the satisfaction of certain
events.
For
acquisitions prior to 2009, the additional cash payments or share issuances are
contingent considerations and are considered to be additional purchase
consideration and will be accounted for as part of the purchase price of the
firms when the outcome of the contingency is determinable beyond a reasonable
doubt.
For
acquisitions beginning in 2009, the additional cash payments or share issuances
are contingent consideration accounted for under the Business Combinations Topic
of the FASB ASC and are considered to be additional purchase consideration as
part of the purchase price of the firms at the time of acquisition. These
contingencies will be reassessed on a periodic basis until the final outcome of
the contingency is determinable but not longer than the measurement period, with
the change recorded to goodwill or identifiable intangibles.
The
acquisitions completed by the Company in 2009 are discussed below:
Standard
Retirement Services, Inc.
On
October 28, 2009, the Company entered into an asset purchase agreement
(“Standard Agreement”) to purchase certain assets of Standard Retirement
Services, Inc (“Standard”). The final purchase price will be determined based on
retention rates as of February 28, 2011 and annual revenues of the acquired
assets. The Company paid $68,653 in cash at closing, which represented 10% of
the purchase price. An additional 25% of the purchase price totaling $171,631
was paid on August 16, 2010, and the final 65% of the purchase price is due on
March 15, 2011, less any adjustments in accordance with the Standard Agreement.
The Company has accrued $296,716 as an estimate for settling the remaining
contingent payment.
Page
20
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
The total
purchase price for the acquisition of Standard was estimated to be about
$537,000. It is being accounted for under the acquisition method of accounting
in accordance with the Business Combinations Topic of the FASB ASC and is
allocated as indicated:
|
Standard
|
|||
Assets
acquired:
|
||||
Customer
lists/relationships
|
$ | 537,000 | ||
|
537,000 | |||
|
||||
Liabilities
assumed
|
- | |||
|
||||
Net
purchase price
|
$ | 537,000 |
The
identifiable intangible asset is amortized for book purposes over the estimated
useful life of the asset. Additional contingent consideration under the asset
purchase agreement, if any, is considered to be additional purchase
consideration as part of the purchase price of the firms at the time of
acquisition. These contingencies will be reassessed on a periodic basis until
the final outcome of the contingency is determinable but not longer than the
measurement period, with the change recorded to the identifiable
intangible.
Note
12. Unaudited Pro forma Interim Financial Information – Nine and three months
ended September 30, 2010 and 2009
The
following unaudited pro forma information gives effect to the asset acquisitions
of Standard Retirement Services, Inc. and Custom K, Inc. as if the acquisitions
all took place on January 1, 2009. The Pro forma information does not
necessarily reflect the results of operations that would have occurred had the
entities been a single company during the periods presented.
(Unaudited)
|
(Unaudited)
|
|||||||
Nine
Months Ended
|
Nine
Months Ended
|
|||||||
September
30, 2010
|
September
30, 2009
|
|||||||
Revenues
|
$ | 35,811,942 | $ | 38,495,021 | ||||
Net
income (loss) available to common stockholders
|
$ | (1,649,107 | ) | $ | 331,714 | |||
Net
income (loss) per common stock - basic
|
$ | (0.04 | ) | $ | 0.01 | |||
Net
income (loss) per common stock - diluted
|
$ | (0.04 | ) | $ | 0.01 | |||
(Unaudited)
|
(Unaudited)
|
|||||||
Three
Months Ended
|
Three
Months Ended
|
|||||||
September
30, 2010
|
September
30, 2009
|
|||||||
Revenues
|
$ | 14,004,120 | $ | 11,264,420 | ||||
Net
income (loss) available to common stockholders
|
$ | 652,308 | $ | (1,353,326 | ) | |||
Net
income (loss) per common stock - basic
|
$ | 0.02 | $ | (0.03 | ) | |||
Net
income (loss) per common stock - diluted
|
$ | 0.02 | $ | (0.03 | ) |
Note
13. Separation Agreements
On
January 30, 2009, the Company entered into a Separation Agreement with John
Schroepfer, Interim Chief Financial Officer, under which the parties agreed that
Mr. Schroepfer would resign as Interim Chief Financial Officer. The Agreement
called for a continuation of his salary, as well as, his life, health and
disability insurance through July 21, 2009.
On May
14, 2009, the Company entered into a Separation Agreement with Robert C.
Thompson, Senior Vice President and National Sales Manager, under which the
parties agreed that Mr. Thompson would resign as Senior Vice President and
National Sales Manager. The Agreement called for a continuation of his salary,
as well as, his life, health and disability insurance through August 15,
2009.
Page
21
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
Note
14. Related Party Transactions
On
November 6, 2008, the Company entered into a two year Management Agreement
beginning October 1, 2008 with Nicholas J. Lamoriello and Stephen R. Zito
(“Managers”) under which the Managers will provide business management services
for three wholly-owned subsidiaries of the Company for a 24 month period. In
exchange for the business management services, the Company will pay the Managers
a management fee of $30,000 per month, plus out of pocket expenses while
providing services to the Company. Both Nicholas J. Lamoriello and Stephen R.
Zito are shareholders of the Company. While the agreement has expired, the
parties have agreed to maintain the current terms of the agreement during the
negotiation period.
LAMCO
Advisory Services, Inc. is the investment advisor on the Company’s 401(k)
retirement plan and owned by Nicholas J. Lamoriello, a shareholder of the
Company. The Company paid approximately $18,000 and $12,000 in advisor fees to
LAMCO Advisory Service, Inc. as of September 30, 2010 and September 30, 2009,
respectively.
Renee
Conner and William Renninger, former owners and former employees of TPA and
current shareholders of the Company, collectively own 100% of Conner Management
Group, LLC (“CMG”). TPA is a lessee under an office lease agreement with CMG and
paid approximately $104,000 and $99,000 in rent to CMG as of September 30, 2010
and September 30, 2009, respectively, which approximates fair market value. This
lease agreement subsequently terminated on October 31, 2010.
Stephen
H. Rosen, former owner of Stephen H. Rosen & Associates, Inc. (“SHRA”) and
current employee of the Company, owns an interest in 89 Haddon Avenue
Associates, L.L.C. (“HAA”). SHRA is a lessee under an office lease agreement
with HAA and paid approximately $129,000 and $126,000 in rent to HAA as of
September 30, 2010 and September 30, 2009, respectively, which approximates fair
market value.
Michael
Callahan, former owner of Pentec and PCM and current employee and shareholder of
the Company, owns 100% of MJM MILESTONE, LLC (“MJM”). Pentec and PCM are lessees
under an office lease agreement with MJM and paid approximately $77,000 and
$69,000 in rent to MJM as of September 30, 2010 and September 30, 2009,
respectively, which approximates fair market value.
Note
15. Employment Agreements
On
November 30, 2007, the Company entered into a new employment agreement with
Steven J. Ross, the Company's CEO. The agreement provides for a term through
December 31, 2009, which is automatically renewable for a period of one year
unless either party provides the other with notice 30 days prior to the end of
the term that the term shall not be extended. The employment agreement was
extended through December 31, 2010 under the existing terms. Mr. Ross is
entitled to the following compensation pursuant to the employment
agreement:
|
·
|
Annual
compensation in the amount of
$475,000;
|
|
·
|
A
bonus of 50% of his base salary in year one and 65% of his base salary in
all subsequent years if certain targets set by the Board of Directors are
satisfied;
|
|
·
|
700,000
shares of common stock issued on January 2, 2008, 100,000 shares of common
stock issued on December 31, 2008 and 100,000 shares of common stock
issued on December 31, 2009;
|
|
·
|
An
option to receive 800,000 shares of common stock at an exercise price of
$0.65 per share vesting half on December 31, 2008 and half on December 31,
2009; and
|
|
·
|
A
housing and office allowance of $5,000 per
month.
|
On August
12, 2010, the Company entered into an amendment to the employment agreement
dated November 30, 2007 with Steven J. Ross, the Company’s CEO. The following
summarizes the material terms of the amendment:
|
·
|
The
term of the agreement was extended to March 31,
2011;
|
|
·
|
Any
potential bonus opportunity as referenced in the original employment
agreement will expire on December 31,
2010;
|
|
·
|
If
employment is terminated by the Company other than for cause, Mr. Ross is
now entitled to receive his current base salary and medical benefits
through March 31, 2011, plus his targeted bonus
compensation;
|
|
·
|
In
the event of a change of control on or before March 31, 2011 and he has
not resigned his position, Mr. Ross is now entitled to a one-time payment
equal to $700,000 which would preclude any other compensation to him. In
addition, Mr. Ross would receive medical benefits through December 31,
2011; and
|
|
·
|
Except
as set forth in the amendment, all other terms of the original agreement
remain the same.
|
Page
22
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
On April
14, 2009, the Company entered into a new employment agreement with John M.
Davis, the Company’s President and Chief Operating Officer. The employment
agreement provides for a term through December 31, 2010, which is automatically
renewable for a period of one year unless either party provides the other with
notice 30 days prior to the end of the term that the term shall not be extended.
Mr. Davis is entitled to receive the following compensation in accordance with
his employment agreement:
|
·
|
Annual
salary of $309,000;
|
|
·
|
For
each year under the term of the employment agreement, Mr. Davis is
eligible to receive a bonus equal to 50% of his annual salary based upon
the achievement of performance targets and objectives as established by
the Company’s Board of Directors;
|
|
·
|
Option
grant to purchase 600,000 shares of common stock of the Company at $0.20
per share of which 300,000 shares vested on April 14, 2009, 150,000 shares
vested on December 31, 2009 and 150,000 shares will vest on December 31,
2010;
|
|
·
|
A
home office and car allowance of $1,000 per
month;
|
|
·
|
Continuation
of health, life and disability insurance;
and
|
|
·
|
If
employment is terminated by the Company other than for cause or in the
event of a change in control, Mr. Davis is entitled to a one-time payment
equal to one year of his current base salary, his targeted bonus
compensation and medical benefits for a period of twelve
months.
|
On August
12, 2010, the Company entered into an amendment to the employment agreement
dated April 14, 2009 with John M. Davis, the Company’s President and Chief
Operating Officer. The following summarizes the material terms of the
amendment:
|
·
|
The
term of the agreement was extended to June 30,
2011;
|
|
·
|
Any
potential bonus opportunity as referenced in the original employment
agreement will expire on December 31,
2010;
|
|
·
|
In
consideration of recapitalization work, Mr. Davis shall receive a
recapitalization incentive of 50% of his annual base salary, of which 20%
of the total is paid in the form of bi-monthly payments until the earlier
of December 31, 2010 or the close of a recapitalization transaction. At
the close of a recapitalization transaction, Mr. Davis will be paid the
remaining unpaid amount of the incentive;
and
|
|
·
|
Except
as set forth in the amendment, all other terms of the original agreement
remain the same.
|
On April
15, 2009, the Company entered into an employment agreement with Christopher W.
Larkin, the Company’s Chief Financial Officer. The employment agreement provides
for a term through December 31, 2010, which is automatically renewable for a
period of one year unless either party provides the other with notice 30 days
prior to the end of the term that the term shall not be extended. Mr. Larkin is
entitled to receive the following compensation in accordance with his employment
agreement:
|
·
|
Annual
salary of $200,000;
|
|
·
|
For
each year under the term of the employment agreement, Mr. Larkin is
eligible to receive a bonus equal to 35% of his annual salary based upon
the achievement of performance targets and objectives as established by
the Company’s Board of Directors;
|
|
·
|
Option
grant to purchase 250,000 shares of common stock of the Company at $0.20
per share of which 150,000 shares vested on April 15, 2009, 50,000 shares
vested on December 31, 2009 and 50,000 shares will vest on December 31,
2010; and
|
|
·
|
Continuation
of health, life and disability
insurance.
|
On August
12, 2010, the Company entered into an amendment to the employment agreement
dated April 15, 2009 with Christopher W. Larkin, the Company’s Chief Financial
Officer. The following summarizes the material terms of the
amendment:
|
·
|
The
term of the agreement was extended to June 30,
2011;
|
|
·
|
If
employment is terminated by the Company other than for cause, Mr. Larkin
is entitled to a one-time payment equal to nine months of his current base
salary and receive medical benefits through December 31,
2011;
|
|
·
|
In
consideration of recapitalization work, Mr. Larkin shall receive a
recapitalization incentive of 50% of his annual base salary, of which 20%
of the total is paid in the form of bi-monthly payments until earlier of
December 31, 2010 or the close of a recapitalization transaction. At the
close of a recapitalization transaction, Mr. Larkin will be paid the
remaining unpaid amount of the incentive;
and
|
|
·
|
Except
as set forth in the amendment, all other terms of the original agreement
remain the same.
|
Page
23
National Investment Managers Inc. and
Subsidiaries
Notes
to Condensed Consolidated Interim Financial Statements
(Unaudited)
Note
16. Contingencies
Coghill
Capital Management LLC (“CCM”) filed a complaint on June 1, 2010 in the Supreme
Court of the State of New York alleging that the Company failed to file a
registration statement with the Securities and Exchange Commission (“SEC”)
registering the potential resale of common shares issuable upon conversion of
its preferred shares, under the terms of a subscription agreement between the
Company and CCM (“Subscription Agreement”). CCM also made additional claims
related to the Subscription Agreement, including breach of contract and
conversion. CCM is seeking total damages of $1.8 million. The Company intends to
defend the claims vigorously based on a number of defenses. Regardless of the
outcome, the litigation could have a material adverse impact on the Company’s
financial results because of defense costs, diversion of management’s attention
and resources, and other factors, however, a range of loss can not be determined
at this time.
On August
16, 2010, Orthopaedic Specialty Group, P.C. (“OSG”), the Orthopaedic Specialty
Group, P.C. 401(k) Pension Plan (the "OSG Plan") and the trustees of the OSG
Plan filed a lawsuit in the Connecticut Superior Court against the Company's
wholly-owned subsidiary, Pentec, Inc., and a corporate officer of Pentec,
alleging negligence and breach of contract. The trustees had invested
assets of the OSG Plan directly with Bernard Madoff and the OSG Plan claims to
have lost all of those assets. Plaintiffs allege that the principal amount of
the investments totaled approximately $10.1 million and Mr. Madoff had shown
investment returns on those investments for a total loss of approximately $34
million. Among other items, Plaintiffs allege that Pentec should have
notified OSG, the OSG Plan and its fiduciaries that they could structure the OSG
Plan to permit participant directed investments, which they allege would have
reduced the trustee’s fiduciary liability to the OSG plan participants.
Plaintiffs also allege that Pentec should have advised the trustees to obtain
fiduciary liability insurance coverage. The Company believes that Pentec
had no duty (whether under law, contract, or industry practice) to advise OSG,
the OSG Plan or the trustees that they could limit liability by creating a
participant directed plan or that they should obtain fiduciary insurance
coverage. Further, Pentec’s service agreement with OSG limited the services
to be performed by Pentec as administrative in nature, and specifically excludes
the provision of legal, accounting, or investment related services. The Company
has engaged outside counsel to defend these claims and believes they are without
merit.
Note
17. Other
In July
2009, the Company executed a contract to sell the flex administration business
to the Total Administrative Services Corporation (“TASC”) which is expected to
be closed before the end of 2010. As part of the contract, TASC will pay the
Company a percentage of the annual revenues transferred sixty days after
closing, a percentage of annual revenues based bonus payment if a target
retention level is obtained nine months after closing and a percentage of
ongoing revenues beginning thirteen months after closing. This transaction is
not material to the financial statements and thus is not necessary to be
disclosed separately in the condensed consolidated interim financial statements.
In addition, this transaction does not meet the definition of a capital
transaction as defined in Note 5.
Note
18. Subsequent Events
Execution of
Amendment to Seller Notes
On
October 13, 2010, the Company executed Amendment No. 2 to the CIAS Restructured
Note Agreement dated March 16, 2009, with the sellers of CIAS. The terms of the
amendment are discussed in the Seller Financing section of Note 5.
Execution of Non-binding Letter of
Intent
On
November 4, 2010, the Company entered into a non-binding letter of intent with
exclusivity for the sale of the Company to Stonehenge Partners, Inc. for $48
million, subject to a negotiated net working capital
target. Completion of the sale is subject to certain conditions,
including negotiation and execution of a mutually satisfactory definitive
acquisition agreement, completion of financing arrangements and due diligence by
the buyer, and requisite Senior and Subordinated Senior Lenders and Company
shareholder approvals. There can be no assurance that the transaction
will be completed as specified in the letter of intent, however, assuming all
conditions are satisfied, the Company would expect to complete the transaction
in early 2011.
Page
24
The
following discussion and analysis summarizes the significant factors affecting
our condensed consolidated interim results of operations, financial condition
and liquidity position for the nine months ended September 30, 2010. This
discussion and analysis should be read in conjunction with our audited financial
statements and notes thereto included in our Annual Report on Form 10-K for our
year-ended December 31, 2009 and the condensed consolidated unaudited interim
financial statements and related notes included elsewhere in this filing. The
following discussion and analysis contains forward-looking statements that
reflect our plans, estimates and beliefs. Actual results could differ materially
from those discussed in the forward-looking statements.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains forward looking statements, including
without limitation, statements related to our plans, strategies, objectives,
expectations, intentions and adequacy of resources. Investors are cautioned that
such forward-looking statements involve risks and uncertainties including
without limitation the following: (i) our plans, strategies, objectives,
expectations and intentions are subject to change at any time at our discretion;
(ii) our plans and results of operations will be affected by our ability to
manage growth; and (iii) other risks and uncertainties indicated from time to
time in our filings with the Securities and Exchange Commission.
In some
cases, you can identify forward-looking statements by terminology such as
‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’
‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or
‘‘continue’’ or the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We are under
no duty to update any of the forward-looking statements after the date of this
Report.
Overview
The
Company is in the principal business of acquiring and managing operating
entities that offer administration services of retirement plans, financial and
investment advisory services and sale of various insurance products to small and
medium sized businesses and high-net worth individuals in the United States of
America. As of September 30, 2010, the Company owned 22 operating units in
fourteen states. The wholly-owned subsidiaries are based in Lake Mary, FL; North
Attleboro, MA; Haddonfield, NJ; Yorktown Heights, NY; New York, NY; Beaverton,
OR; Horsham, PA; Wayne, PA; Warwick, RI; Houston, TX; Marina Del Rey, CA;
Seattle, WA; Harrisburg, PA; Southington, CT; Pikesville, MD; Anchorage, AK;
Denver, CO and Laguna Hills, CA. The Company’s corporate headquarters is located
in Dublin, Ohio.
Page
25
Results
of Operations
Nine
Month Period Ended September 30, 2010 Compared to September 30,
2009
(Unaudited)
|
(Unaudited)
|
|||||||||||||||||||||||
Nine Months Ended
|
% of
|
Nine Months Ended
|
% of
|
$ Change
|
% Change
|
|||||||||||||||||||
September 30, 2010
|
Revenues
|
September 30, 2009
|
Revenues
|
2010 to 2009
|
2010 to 2009
|
|||||||||||||||||||
Revenues
|
$ | 35,811,942 | 100.0 | % | $ | 37,729,784 | 100.0 | % | $ | (1,917,842 | ) | -5.1 | % | |||||||||||
Operating
expenses:
|
||||||||||||||||||||||||
Selling,
general and administrative expenses
|
28,047,304 | 78.3 | % | 29,080,526 | 77.0 | % | (1,033,222 | ) | -3.6 | % | ||||||||||||||
Depreciation
and amortization
|
4,519,491 | 12.6 | % | 5,605,675 | 14.9 | % | (1,086,184 | ) | -19.4 | % | ||||||||||||||
Stock-based
compensation
|
28,449 | 0.1 | % | 337,030 | 0.9 | % | (308,581 | ) | -91.6 | % | ||||||||||||||
Total
operating expenses
|
32,595,244 | 91.0 | % | 35,023,231 | 92.8 | % | (2,427,987 | ) | -6.9 | % | ||||||||||||||
Net
operating income (loss)
|
3,216,698 | 9.0 | % | 2,706,553 | 7.2 | % | 510,145 | 18.8 | % | |||||||||||||||
Other
income (expenses):
|
||||||||||||||||||||||||
Change
in fair value of derivative financial instruments
|
1,712,711 | 4.8 | % | 207,587 | 0.6 | % | 1,505,124 | 725.1 | % | |||||||||||||||
Interest
expense
|
(4,988,074 | ) | -14.0 | % | (3,345,630 | ) | -8.9 | % | (1,642,444 | ) | 49.1 | % | ||||||||||||
Debt
and other restructuring charges
|
(1,229,236 | ) | -3.4 | % | - | 0.0 | % | (1,229,236 | ) | |||||||||||||||
Interest,
dividend and rental income
|
17,249 | 0.0 | % | 21,162 | 0.1 | % | (3,913 | ) | -18.5 | % | ||||||||||||||
Total
other expense, net
|
(4,487,350 | ) | -12.6 | % | (3,116,881 | ) | -8.2 | % | (1,370,469 | ) | -18.5 | % | ||||||||||||
Net
income (loss) before income tax benefit (expense)
|
(1,270,652 | ) | -3.6 | % | (410,328 | ) | -1.0 | % | (860,324 | ) | 44.0 | % | ||||||||||||
Income
tax benefit (expense)
|
1,069,144 | 3.0 | % | 1,527,826 | 4.0 | % | (458,682 | ) | 209.7 | % | ||||||||||||||
Net
income (loss) before preferred stock dividends
|
(201,508 | ) | -0.6 | % | 1,117,498 | 3.0 | % | (1,319,006 | ) | -30.0 | % | |||||||||||||
Preferred
stock dividends
|
(1,447,599 | ) | (1,483,200 | ) | ||||||||||||||||||||
Net
income (loss) available to common stockholders
|
$ | (1,649,107 | ) | $ | (365,702 | ) |
Revenues
for the nine months ended September 30, 2010 decreased $1,917,842 to $35,811,942
compared to the nine months ended September 30, 2009. The decrease in revenues
was due primarily to a decrease in revenue of $2,144,110 at our third party
administration subsidiaries offset by an increase in revenue of $226,268
generated by the subsidiaries that provide financial planning, investment
advisory and insurance products. Retirement plans are restated pursuant to The
Economic Growth and Tax Relief Reconciliation Act (“EGTRRA”), an Internal
Revenue Service cycle that generally requires restatement of retirement plan
documents every six years. The decrease in revenue from our third party
administration subsidiaries was the result of a decrease in these retirement
plan document restatement fees of approximately $3,118,000 as the restatement
cycle for defined contribution retirement plans came to an end on April 30,
2010. The decrease was partially offset by EGTRRA restatement fees on defined
benefit retirement plans that began in the third quarter of 2010. The revenue
for the nine month period ended September 30, 2010, was generated from three
sources; third party administration, $32,899,456; financial planning and
investment advisory fees, $2,530,067; and insurance commissions, $382,419. The
revenue for the nine month period ended September 30, 2009, was generated from
three sources; third party administration, $35,043,566; financial planning and
investment advisory fees, $2,351,078; and insurance commissions,
$335,140.
Operating
expenses for the nine months ended September 30, 2010 decreased $2,427,987 to
$32,595,244 over the prior year's comparable nine month period. As a percentage
of revenue, operating expenses decreased to 91.0% for the nine months ended
September 30, 2010 as compared to 92.8% for the nine months ended September 30,
2009.
Selling,
general and administrative expenses for the nine months ended September 30, 2010
decreased $1,033,222 to $28,047,304 over the prior year's comparable nine month
period. The decrease was the result of the Company’s efforts to enhance
operating efficiencies and reduce operating costs.
Page
26
The
September 30, 2010 and 2009 selling, general and administrative expenses
consisted of the following:
(Unaudited)
|
(Unaudited)
|
|||||||||||
Nine Months Ended
|
Nine Months Ended
|
$ Change 2010
|
||||||||||
September 30, 2010
|
September 30, 2009
|
to 2009
|
||||||||||
Selling,
general and administrative expenses:
|
||||||||||||
Salaries
and related payroll costs
|
$ | 18,792,900 | $ | 19,816,837 | $ | (1,023,937 | ) | |||||
Rent
and utilities
|
2,371,654 | 2,411,815 | (40,161 | ) | ||||||||
Professional
fees
|
1,837,812 | 1,934,032 | (96,220 | ) | ||||||||
Office
expenses
|
1,404,518 | 1,505,258 | (100,740 | ) | ||||||||
Insurance
expense
|
1,457,812 | 1,526,044 | (68,232 | ) | ||||||||
Computer
related expense
|
574,223 | 507,057 | 67,166 | |||||||||
Bad
debt expense
|
232,606 | 73,352 | 159,254 | |||||||||
Travel
and entertainment
|
326,523 | 285,940 | 40,583 | |||||||||
Commission
expense
|
244,864 | 192,460 | 52,404 | |||||||||
Miscellaneous
other expenses
|
804,392 | 827,731 | (23,339 | ) | ||||||||
Total
selling, general and administrative expenses
|
$ | 28,047,304 | $ | 29,080,526 | $ | (1,033,222 | ) |
As a
percentage of revenue, selling, general and administrative expenses increased to
78.3% for the nine months ended September 30, 2010 as compared to 77.0% for the
nine months ended September 30, 2009.
Depreciation
and amortization for the nine months ended September 30, 2010 decreased
$1,086,184 to $4,519,491 over the prior year's comparable nine month period
primarily due to intangible assets from prior years’ acquisitions becoming fully
amortized. As a percentage of revenue, depreciation and amortization decreased
to 12.6% for the nine months ended September 30, 2010 as compared to 14.9% for
the nine months ended September 30, 2009.
Stock-based
compensation for the nine months ended September 30, 2010 decreased $308,581 to
$28,449 over the prior year's comparable nine month period due primarily to
800,000 stock options issued in 2007 to the Chief Executive Officer as part of
his November 30, 2007 employment agreement which were still vesting and thus
being expensed through third quarter 2009, 200,000 stock options issued in 2008
to the President and Chief Operating Office as part of his April 2008 employment
agreement, which became fully vested and expensed in first quarter 2009, as well
as, 300,000 stock options issued in 2009 to the President and Chief Operating
Officer as part of his April 2009 employment agreement and 150,000 stock options
issued in 2009 to the Chief Financial Officer as part of his April 2009
employment agreement, both of which were fully expensed when issued in second
quarter 2009. Additionally, 930,000 stock options, 465,000 of which were
expensed immediately upon issuance, were issued in the third quarter of 2009 to
various members of management and staff, of which 600,000 were granted to the
Chief Executive Officer. As a percentage of revenue, stock based
compensation decreased to 0.1% for the nine months ended September 30, 2010 as
compared to 0.9% for the nine months ended September 30, 2009.
Net other expense was $4,487,350 for
the nine months ended September 30, 2010 as compared to $3,116,881 for the nine
months ended September 30, 2009. The increase was due primarily to an increase
in interest expense of $1,642,444, an increase in debt and other restructuring
charges of $1,229,236 and a decrease in interest and rental income of $3,913,
offset by an increase in the change of the fair value of the derivative
financial instruments of $1,505,124. The change in the fair value of derivative
financial instruments increased as a result of the Woodside Subordinated Senior
Lenders agreeing to surrender the Subordinated Senior Warrants and relinquish
their rights to the Fee Agreement. Interest expense increased as a result
of an increase in amortization of debt discount resulting from the use of the
effective interest rate method of amortization, additional borrowings plus an
increase in the borrowing rate on the Revolving Line of Credit and additional
borrowings on the Subordinated Senior Term Note resulting from the
capitalization of interest plus a 3% increase in the borrowing rate on the
Subordinated Senior Term Note from failing debt covenants at September 30, 2009.
Debt and other restructuring charges increased as a result of fees incurred by
the Company for failing debt covenants at September 30, 2009 and the resulting
forbearance agreements.
Preferred
stock dividends were $1,447,599 for the nine months ended September 30, 2010 as
compared to $1,483,200 for the nine months ended September 30, 2009. The
decrease was due to a conversion of 8,513 shares of Series D Convertible
Preferred Stock into 170,260 shares of common stock during the first quarter of
2010 and a conversion of 137,500 shares of Series C Convertible Preferred Stock
into 1,650,000 shares of common stock during the second quarter of
2010.
Page
27
Three
Month Period Ended September 30, 2010 Compared to September 30,
2009
(Unaudited)
|
(Unaudited)
|
|||||||||||||||||||||||
Three Months Ended
|
% of
|
Three Months Ended
|
% of
|
$ Change
|
% Change
|
|||||||||||||||||||
September 30, 2010
|
Revenues
|
September 30, 2009
|
Revenues
|
2010 to 2009
|
2010 to 2009
|
|||||||||||||||||||
Revenues
|
$ | 14,004,120 | 100.0 | % | $ | 11,009,341 | 100.0 | % | $ | 2,994,779 | 27.2 | % | ||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||
Selling,
general and administrative expenses
|
9,320,751 | 66.6 | % | 9,010,806 | 81.8 | % | 309,945 | 3.4 | % | |||||||||||||||
Depreciation
and amortization
|
1,416,791 | 10.1 | % | 1,847,722 | 16.8 | % | (430,931 | ) | -23.3 | % | ||||||||||||||
Stock-based
compensation
|
2,815 | 0.0 | % | 122,351 | 1.1 | % | (119,536 | ) | -97.7 | % | ||||||||||||||
Total
operating expenses
|
10,740,357 | 76.7 | % | 10,980,879 | 99.7 | % | (240,522 | ) | -2.2 | % | ||||||||||||||
Net
operating income (loss)
|
3,263,763 | 23.3 | % | 28,462 | 0.3 | % | 3,235,301 | 11367.1 | % | |||||||||||||||
Other
income (expenses):
|
||||||||||||||||||||||||
Change
in fair value of derivative financial instruments
|
138 | 0.0 | % | (515,297 | ) | -4.7 | % | 515,435 | -100.0 | % | ||||||||||||||
Interest
expense
|
(1,968,358 | ) | -14.0 | % | (1,163,785 | ) | -10.5 | % | (804,573 | ) | 69.1 | % | ||||||||||||
Debt
and other restructuring charges
|
(540,064 | ) | -3.9 | % | - | 0.0 | % | (540,064 | ) | |||||||||||||||
Interest,
dividend and rental income
|
5,797 | 0.0 | % | 5,361 | 0.0 | % | 436 | 8.1 | % | |||||||||||||||
Total
other expense, net
|
(2,502,487 | ) | -17.9 | % | (1,673,721 | ) | -15.2 | % | (828,766 | ) | 8.1 | % | ||||||||||||
Net
income (loss) before income tax benefit (expense)
|
761,276 | 5.4 | % | (1,645,259 | ) | -14.9 | % | 2,406,535 | 49.5 | % | ||||||||||||||
Income
tax benefit (expense)
|
358,128 | 2.6 | % | 553,863 | 5.0 | % | (195,735 | ) | -146.3 | % | ||||||||||||||
Net
income (loss) before preferred stock dividends
|
1,119,404 | 8.0 | % | (1,091,396 | ) | -9.9 | % | 2,210,800 | -35.3 | % | ||||||||||||||
Preferred
stock dividends
|
(467,096 | ) | (494,400 | ) | ||||||||||||||||||||
Net
income (loss) available to common stockholders
|
$ | 652,308 | $ | (1,585,796 | ) |
Revenues
for the three months ended September 30, 2010 increased $2,994,779 to
$14,004,120 compared to the three months ended September 30, 2009. The increase
in revenues was due primarily to an increase in revenue of $2,929,846 at our
third party administration subsidiaries and an increase in revenue of $64,933
generated by the subsidiaries that provide financial planning, investment
advisory and insurance products. The increase in revenues was primarily due to
delays in the first six months of 2010 in completing 2009 plan year valuations
and 5500 filings on recurring plans resulting from the new ERISA Filing
Acceptance System (“EFAST”) requirements. This resulted in revenue normally
earned and recognized in the first two quarters of the fiscal year being delayed
until the third quarter. Retirement plans are restated pursuant to The Economic
Growth and Tax Relief Reconciliation Act (“EGTRRA”), an Internal Revenue Service
cycle that generally requires restatement of retirement plan documents every six
years. The increase in revenue from our third party administration subsidiaries
was partially offset by a decrease in these retirement plan document restatement
fees. The revenue for the three month period ended September 30, 2010, was
generated from three sources; third party administration, $13,006,937; financial
planning and investment advisory fees, $851,635; and insurance commissions,
$145,548. The revenue for the three month period ended September 30, 2009, was
generated from three sources; third party administration, $10,077,091; financial
planning and investment advisory fees, $843,663; and insurance commissions,
$88,587.
Operating
expenses for the three months ended September 30, 2010 decreased $240,522 to
$10,740,357 over the prior year's comparable three month period. As a percentage
of revenue, operating expenses decreased to 76.7% for the three months ended
September 30, 2010 as compared to 99.7% for the three months ended September 30,
2009.
Selling,
general and administrative expenses for the three months ended September 30,
2010 increased $309,945 to $9,320,751 over the prior year's comparable three
month period. The increase was the result of one time employee incentives
associated with the Company’s efforts to catch-up and complete 2009 plan year
valuations and 5500 filings delayed in prior quarters due to the new EFAST
requirements.
Page
28
The
September 30, 2010 and 2009 selling, general and administrative expenses
consisted of the following:
(Unaudited)
|
(Unaudited)
|
|||||||||||
Three Months Ended
|
Three Months Ended
|
$ Change 2010
|
||||||||||
September 30, 2010
|
September 30, 2009
|
to 2009
|
||||||||||
Selling,
general and administrative expenses:
|
||||||||||||
Salaries
and related payroll costs
|
$ | 6,279,110 | $ | 6,089,853 | $ | 189,257 | ||||||
Rent
and utilities
|
801,824 | 827,176 | (25,352 | ) | ||||||||
Professional
fees
|
592,313 | 539,480 | 52,833 | |||||||||
Office
expenses
|
467,405 | 474,294 | (6,889 | ) | ||||||||
Insurance
expense
|
474,189 | 481,743 | (7,554 | ) | ||||||||
Computer
related expense
|
193,496 | 172,667 | 20,829 | |||||||||
Bad
debt expense
|
100,343 | 12,154 | 88,189 | |||||||||
Travel
and entertainment
|
134,582 | 100,518 | 34,064 | |||||||||
Commission
expense
|
85,249 | 52,961 | 32,288 | |||||||||
Miscellaneous
other expenses
|
192,240 | 259,960 | (67,720 | ) | ||||||||
Total
selling, general and administrative expenses
|
$ | 9,320,751 | $ | 9,010,806 | $ | 309,945 |
As a
percentage of revenue, selling, general and administrative expenses decreased to
66.6% for the three months ended September 30, 2010 as compared to 81.8% for the
three months ended September 30, 2009.
Depreciation
and amortization for the three months ended September 30, 2010 decreased
$430,931 to $1,416,791 over the prior year's comparable three month period
primarily due to intangible assets from prior years’ acquisitions becoming fully
amortized. As a percentage of revenue, depreciation and amortization decreased
to 10.1% for the three months ended September 30, 2010 as compared to 16.8% for
the three months ended September 30, 2009.
Stock-based
compensation for the three months ended September 30, 2010 decreased $119,536 to
$2,815 over the prior year's comparable three month period due primarily to
800,000 stock options issued in 2007 to the Chief Executive Officer as part of
his November 30, 2007 employment agreement which were still vesting and thus
being expensed through third quarter 2009, as well as, 930,000 stock options,
465,000 of which were expensed immediately upon issuance, were issued in the
third quarter of 2009 to various members of management and staff, of which
600,000 were granted to the Chief Executive Officer. As a percentage
of revenue, stock based compensation decreased to 0.0% for the three months
ended September 30, 2010 as compared to 1.1% for the three months ended
September 30, 2009.
Net other expense was $2,502,487 for
the three months ended September 30, 2010 as compared to $1,673,721 for the
three months ended September 30, 2009. The increase was due primarily to an
increase in interest expense of $804,573 and an increase in debt and other
restructuring charges of $540,064, offset by an increase in the change of the
fair value of the derivative financial instruments of $515,435 and an increase
in interest and rental income of $436. The change in the fair value of
derivative financial instruments increased as a result of the Woodside
Subordinated Senior Lenders agreeing to surrender the Subordinated Senior
Warrants and relinquish their rights to the Fee Agreement. Interest expense increased as a result
of an increase in amortization of debt discount resulting from the use of the
effective interest rate method of amortization, additional borrowings plus an
increase in the borrowing rate on the Revolver Line of Credit and additional
borrowings on the Subordinated Senior Term Note resulting from the
capitalization of interest plus a 3% increase in the borrowing rate on the
Subordinated Senior Term Note from failing debt covenants at September 30, 2009.
Debt and other restructuring charges increased as a result of fees incurred by
the Company for failing debt covenants at September 30, 2009 and the resulting
forbearance agreements.
Preferred
stock dividends were $467,096 for the three months ended September 30, 2010 as
compared to $494,400 for the three months ended September 30, 2009. The decrease
was due to a conversion of 8,513 shares of Series D Convertible Preferred Stock
into 170,260 shares of common stock during the first quarter of 2010 and a
conversion of 137,500 shares of Series C Convertible Preferred Stock into
1,650,000 shares of common stock during the second quarter of 2010.
Liquidity
and Capital Resources
At
September 30, 2010 and December 31, 2009, the Company's working capital deficit
was approximately $32.2 million and $9.3 million, respectively and its
accumulated deficit was approximately $25.2 million and $23.6 million,
respectively. Further, for the nine months ended September
30, 2010 and September 30, 2009, the Company's net income (loss) before
preferred stock dividends was approximately ($0.2) million and $1.1 million,
respectively and its cash flows from operations were approximately $3.0 million
and $4.5 million, respectively.
Page
29
Through
its senior lending arrangements, the Company has access to a Revolving Line of
Credit of up to $2.0 million, which was temporarily increased to $2.5 million
through December 31, 2009 and further extended through February 28, 2010, to
supplement its cash generated from operations. Effective April 26, 2010, the
maximum principal amount available under the Revolving Line of Credit was
increased to $4.0 million as a result of an amendment to its current senior
lending arrangement as discussed further below in the Debt Amendments section of
this Management Discussion and Analysis of Financial Condition and Results of
Operations (the “MD&A”). At September 30, 2010 and December 31, 2009, the
Company had $3.2 million and $2.5 million, respectively, of principal
outstanding under this arrangement.
On April
12, 2010, in order to alleviate a lack of short-term liquidity, the Company
obtained an additional loan of $0.5 million for short-term working capital
purposes from its subordinated senior lenders due on May 15, 2010. On May 7,
2010, the Company used funds available from the increased Revolving Line of
Credit to pay off the short-term working capital loan.
The
Company’s existing commitments for term notes from senior and subordinated
senior lenders are currently exhausted. The Company has amended its current
lending arrangements, with its existing lenders, beyond 2010 as discussed in the
Debt Amendments section below of this MD&A. In the amendments, the Company
has agreed that its senior or subordinated senior lenders may terminate its
forbearance agreements if, in the lender’s reasonable judgment, the Company has
not made adequate progress toward a reasonably satisfactory recapitalization
initiative by July 15, 2010 or any date thereafter through the forbearance
period. The senior and subordinated lenders have elected not to terminate their
forbearance agreements as of the date of this report. If the Company is not
successful in its recapitalization or debt refinancing efforts, it will not have
the ability to pay the senior and subordinated senior debt at the end of the
forbearance period.
Management
establishes an annual plan for operations and then utilizes the operating plan,
current financial results, equity and credit market conditions, and other
factors to forecast its quarterly and annual financial results and related cash
flows from operations. Based upon management's cash forecast for revenues,
operating expenses and debt services, the Company believes its cash resources
will be adequate to fund operations through December 31, 2010. However, there
can be no assurance that the Company’s senior and subordinated senior lenders
will not terminate their forbearance agreements with the Company, which could
result in such lenders electing to declare all amounts due and payable. There is
no assurance that the Company would be able to negotiate additional waivers or
obtain other financing needed to continue operations of the
Company.
As a
result of the Company’s current capital position, general liquidity constraints,
and its commitments in the amendments to its lending arrangements, management’s
primary focus will be to dedicate significant time and efforts in 2010 towards
the successful recapitalization or debt refinancing of the Company. Management
will also continue to enhance operating efficiencies and increase the
effectiveness of the current operating subsidiaries through the implementation
of technology and operational upgrades. The Company expects further
acquisition activity in 2010, if any, to be limited and only with the approval
of its lenders.
Page
30
Details
of the changes in cash flows during the nine month periods ended September 30,
2010 and 2009 are as follows:
(Unaudited)
|
(Unaudited)
|
|||||||
Nine Months Ended
|
Nine Months Ended
|
|||||||
September 30, 2010
|
September 30, 2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss) before preferred stock dividends
|
$ | (201,508 | ) | $ | 1,117,498 | |||
Adjustments
to reconcile net income (loss) before preferred stock dividends to net
cash provided by (used in) operating activities:
|
||||||||
Depreciation
and amortization
|
4,519,491 | 5,605,675 | ||||||
Change
in allowance for doubtful accounts
|
(35,487 | ) | 8,192 | |||||
Noncash
interest
|
3,569,300 | 1,370,892 | ||||||
Stock-based
compensation
|
28,449 | 337,030 | ||||||
Deferred
income tax benefit
|
(1,184,718 | ) | (1,670,792 | ) | ||||
Change
in fair value of derivative financial instruments
|
(1,712,711 | ) | (207,587 | ) | ||||
Increase
(decrease) in cash attributable to changes in operating assets and
liabilities
|
||||||||
Accounts
receivable
|
(1,888,809 | ) | (1,018,963 | ) | ||||
Prepaid
expenses and other current assets
|
(68,517 | ) | 350,494 | |||||
Accounts
payable
|
210,668 | 1,113,080 | ||||||
Unearned
revenues
|
(389,657 | ) | (1,824,889 | ) | ||||
Accrued
expenses and other current liabilities
|
155,672 | (646,920 | ) | |||||
Net
cash provided by (used in) operating activities
|
3,002,173 | 4,533,710 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property and equipment
|
(922,836 | ) | (949,577 | ) | ||||
Acquisition
of Alaska Pension Services
|
(26,259 | ) | (36,053 | ) | ||||
Acquisition
of Lamoriello Entities
|
- | (50,810 | ) | |||||
Acquisition
of National Actuarial Pension Services, Inc.
|
- | (64,318 | ) | |||||
Acquisition
of the assets of Standard Retirement Services
|
(171,632 | ) | - | |||||
Acquisition
of Alan N. Kanter & Associates
|
(144,200 | ) | (151,063 | ) | ||||
Acquisition
of REPTECH Corp
|
- | (180,097 | ) | |||||
Acquisition
of The Pension Group, Inc.
|
- | (1,354,680 | ) | |||||
Net
cash provided by (used in) investing activities
|
(1,264,927 | ) | (2,786,598 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from convertible notes
|
||||||||
Proceeds
from revolving line of credit and short-term debt
|
1,156,000 | 3,043,908 | ||||||
Payments
on long-term debt and notes
|
(1,404,465 | ) | (3,802,081 | ) | ||||
Payments
on revolving line of credit and short-term debt
|
(500,000 | ) | (1,075,900 | ) | ||||
Payment
of deferred financing costs
|
(156,000 | ) | (50,625 | ) | ||||
Net
cash provided by (used in) financing activities
|
(904,465 | ) | (1,884,698 | ) | ||||
Net
increase (decrease) in cash
|
$ | 832,781 | $ | (137,586 | ) |
2010
Cash Flow Analysis – Nine Month Period Ended September 30, 2010
The
Company had cash as of September 30, 2010 of $1,107,737, an increase of $832,781
from December 31, 2009.
Net cash
provided by operating activities of $3,002,173 was primarily due to non-cash
expenses of $5,184,324, an increase in accounts payable of $210,668, and an
increase in accrued expenses and other current liabilities of $155,672, offset
by a net loss before preferred stock dividends of $201,508, an increase in
accounts receivable of $1,888,809, an increase in prepaid expenses of $68,517,
and a decrease in unearned revenues of $389,657.
The
non-cash items were primarily composed of depreciation and amortization of
$4,519,491, noncash interest of $3,569,300, and stock-based compensation of
$28,449, offset by a decrease in the allowance for doubtful accounts of $35,487,
deferred tax liabilities of $1,184,718, and a decrease in the fair value of
derivative financial instruments of $1,712,711.
Net cash
of $1,264,927 used in investing activities was due to $315,832 in funds expended
relating to the acquisitions of Alan N. Kanter & Associates and the assets
of Standard Retirement Services, $26,259 in funds expended in contingency
payments for Alaska Pension Services Ltd., and $922,836 used in the purchase of
property and equipment.
Page
31
Net cash
of $904,465 used in financing activities was due to $1,156,000 in proceeds from
short-term debt offset by $1,404,465 in payments of long-term debt, $500,000 in
payments of short-term debt and $156,000 in payments of deferred financing
charges.
2009
Cash Flow Analysis – Nine Month Period Ended September 30, 2009
The
Company had cash as of September 30, 2009 of $274,956, a decrease of $137,586
from December 31, 2008.
Net cash
provided by operating activities of $4,533,710 was primarily due to a net income
before preferred stock dividends of $1,117,498, non-cash expenses of $5,443,410,
a decrease in prepaid expenses of $350,494, and an increase in accounts payable
of $1,113,080, offset by an increase in accounts receivable of $1,018,963, a
decrease in unearned revenue of $1,824,889, and a decrease in accrued expenses
and other current liabilities of $646,920.
The
non-cash items were primarily composed of depreciation and amortization of
$5,605,675, an increase in the allowance for doubtful accounts of $8,192,
noncash interest of $1,370,892, and stock-based compensation of $337,030, offset
by deferred tax liabilities of $1,670,792 and a decrease in the fair value
of derivative financial instruments of $207,587.
Net cash
of $2,786,598 used in investing activities was due to $1,688,316 in funds
expended in the acquisitions of Alaska Pension Services Ltd, Alan N. Kanter
& Associates, REPTECH Corp., and The Pension Group, Inc., $148,705 in funds
expended in contingency payments for the Lamoriello Entities, National Actuarial
Pension Services, Inc., and Alaska Pension Services Ltd., and $949,577 used in
the purchase of property and equipment.
Net cash
of $1,884,698 used in financing activities was due to $3,043,908 in proceeds
from short-term debt offset by $3,802,081 in payments of long-term debt,
$1,075,900 in payments of short-term debt and $50,625 in payments of deferred
financing charges.
Debt
Financing Arrangements
Revolving
Line of Credit and Senior Term Note
On
November 30, 2007, the Company entered into (i) a Revolving Line of Credit and
Term Loan Agreement (the "Senior Loan Agreement") with RBS Citizens Bank
(“Senior Lender”) and (ii) a Securities Purchase and Loan Agreement (the
"Subordinated Senior Agreement") with Woodside Capital Partners IV, LLC,
Woodside Capital Partners IV QP, LLC and Lehman Brothers Commercial Bank (the
“Subordinated Senior Lenders”). A principal amount of the proceeds generated
from the two financings were used to retire existing debt. Pursuant to the
Senior Loan Agreement, the Company entered into a Revolving Line of Credit in
the initial amount of $1,000,000 (the "Revolver") and a Term Loan Promissory
Note in the initial amount of $8,000,000 (the "Term Loan"). If certain
conditions are satisfied, the Company may utilize additional financing under the
Revolver up to $1,000,000 (the "Additional Revolver") and additional term loans
up to $7,000,000 (the "Additional Term Loan") to fund future acquisitions (the
Term Loan and the Additional Term Loan are collectively referred to as the
“Senior Term Note”). In 2008, the Company borrowed the remaining $7,000,000 on
the Senior Term Note exhausting the availability of funds under the Senior Term
Note. The Senior Term Note and the Revolving Line of Credit bear interest at the
applicable LIBOR rate of interest. The Senior Term Note and the Revolving Line
of Credit were to mature on July 31, 2010; but, were extended under the April
26, 2010 amendment discussed further in the Debt Amendments section below of
this MD&A. From closing through November 30, 2008, the Company was required
to pay interest accruing on the Senior Term Note and the Revolving Line of
Credit on the last day of the applicable LIBOR interest period. Subsequent to
November 30, 2008, the Company was required to pay the applicable amount of
interest owed on the Senior Term Note and the Revolving Line of Credit as well
as a portion of the principal of the Senior Term Note based upon a five year
straight line amortization schedule of $250,000 in principal on a monthly basis
with the remaining outstanding principal balance to be paid in one lump sum on
the date of maturity. Commencing January 1, 2008, the Company is obligated to
pay an unused commitment fee on the first business day of each quarter for any
amounts not used by the Company under the Additional Term Loan. The unused
commitment fee to be paid is equal to one-quarter multiplied by the applicable
basis point level, which is contingent upon the Company's ratio of total debt
funded to EBITDA. The Senior Lender has a secured lien on all assets of the
Company and its subsidiaries. The Company may prepay the Senior Term Note and
the Revolving Line of Credit at anytime.
As of
September 30, 2010, the outstanding principal balance on the Revolving Line of
Credit and Senior Term Note was approximately $3.2 million and $11.0 million,
respectively and the interest rate was 9.25% and 4.76%, respectively. As of
December 31, 2009, the outstanding principal balance on the Revolving Line of
Credit and Senior Term Note was approximately $2.5 million and $12.0 million,
respectively and the interest rate was 4.73%.
Subordinated
Senior Term Note
The
Subordinated Senior Note bears interest at 15% of which 12% is due and payable
on a monthly basis and 3% (the "Compounded Rate") is compounded monthly and
added to the principal amount of the Subordinated Senior Note. The Subordinated
Senior Note matures on the earlier of January 31, 2011, the occurrence of a
capital transaction, or an event of default. A capital transaction includes the
sale, disposition, dissolution or liquidation of the Company's assets or
subsidiaries, the acquisition by any person of 30% or more of the Company's
common stock or a public offering in the minimum amount of $20,000,000 (a
"Capital Transaction"). The Subordinated Senior Lenders have a secured lien on
all assets of the Company and its subsidiaries and would be entitled to
foreclose on the Company's assets in the event of default, subject to the rights
of the Senior Lender.
Page
32
As of
September 30, 2010 and December 31, 2009, approximately $14.3 million and $13.0
million, respectively, were outstanding under the Subordinated Senior
Agreement.
At
closing, the Company issued warrants (“Subordinated Senior Warrants”) to
purchase an aggregate 5,742,789, 3,828,527 and 1,914,262 shares of common stock
at $0.50, $1.00 and $1.50 per share, respectively. The Subordinated Senior
Warrants are exercisable through November 2017 on a cash or cashless basis.
Subsequent to January 31, 2011, the consummation of a Capital Transaction or an
event of default, the Subordinated Senior Lenders may elect to sell to the
Company all or a portion of the shares issuable upon exercise of the
Subordinated Senior Warrants (the "Put"). The cash payment to be made by the
Company shall be determined by dividing the value of the Company's common stock
equity by the number of shares outstanding on a fully diluted basis (the
"Repurchase Price"). In the event that a Capital Transaction is entered into
during the six months following the closing of the Put, then the Company is
obligated to make an additional payment to the Subordinated Senior Lenders to
reflect the difference of the amount initially paid in connection with the Put
and the amount that would have been paid had the Put been exercised pursuant to
the second Capital Transaction.
The
Subordinated Senior Lenders may elect to require the Company to pay an
additional fee (the "Fee Agreement") as well as the Conditional Interest Payment
("CIP Payment") at (i) January 31, 2011, (ii) the date of consummation of a
Capital Transaction, or (iii) an event of default. The Fee Agreement is based
upon the Subordinated Senior Lenders ownership in the Company and the per share
price of the Company's common stock. The CIP Payment is equal to 5% of the
Company's equity value which is payable on the 90th day following receipt of
such notice from the Subordinated Senior Lenders and an additional payment equal
to 1.5% of the Company's equity value is payable on the end of each calendar
quarter thereafter. The aggregate CIP Payment may not exceed 15% of the
Company's equity value. At any time after the Subordinated Senior Lenders
deliver notice with respect to the CIP Payment, the Company may elect to
purchase the shares of common stock underlying the Subordinated Senior Warrants
at the Repurchase Price.
The
Subordinated Senior Lenders have both demand and piggyback registration rights
with respect to shares issuable upon conversion of the Subordinated Senior
Warrants or any other shares held at the time of the request. The
Company must use its best efforts in good faith to affect the registration of
these shares.
On
November 3, 2008, Woodside Capital Partners V, LLC and Woodside Capital Partners
V QP, LLC (“Woodside Purchasers”) acquired all of the Subordinated Senior Notes
and Subordinated Senior Warrants held by Lehman Brothers Commercial Bank
(“Lehman”). The Woodside Purchasers together with the Woodside Capital Partners
IV, LLC and Woodside Capital Partners IV QP, LLC are hereinafter referred to as
the “Woodside Subordinated Senior Lenders”.
In
connection with the April 26, 2010 amendments, discussed further in the Debt
Amendments section below of this MD&A, the Woodside Subordinated Senior
Lenders agreed to surrender the Subordinated Senior Warrants and relinquish
their rights to the CIP Payment and the Fee Agreement.
Covenant
Compliance and Related Debt Amendments
Under the
terms of the Senior Loan Agreement and the Subordinated Senior Agreement, the
Company is subject to meeting certain restrictive quarterly financial covenants
which, among other things, require the Company to maintain certain minimum
Adjusted EBITDA and certain leverage and fixed charge coverage ratios. Adjusted
EBITDA is a financial performance metric which is not recognized by accounting
principles generally accepted in the United States of America.
As of
December 31, 2008, the Company was not in compliance with certain covenants
under the Senior Loan Agreement and the Subordinated Senior Agreement. The
Company’s decline in asset based revenues, as a result of the dramatic decline
in the U.S. equity markets in the second half of 2008, negatively impacted its
ability to achieve Adjusted EBITDA targets as planned and three out of five
related debt covenants presented below. As a result, management entered into
Waiver and Amendment Agreements to the Senior Loan Agreement and the
Subordinated Senior Agreement (“Waiver and Amendment Agreements”) in March 2009.
Under the terms of the Waiver and Amendment Agreements, the Senior Lender and
Woodside Subordinated Senior Lenders waived the existing defaults on the debt
covenants at December 31, 2008 and revised future covenant
calculations. In exchange, the Company is subject to an increase in
the interest rates of 1.25% on the Senior Term Note and 1.75% on the outstanding
Revolving Line of Credit, over the remaining term of the Senior Loan Agreement.
In addition, the Company incurred one-time amendment fees totaling $100,625 (of
which $60,000 was added to the Subordinated Senior Note) upon the effective date
and is now subject to a 0.25% unused commitment fee on the Revolver which the
Company does not expect to be material. The Senior Lender and the Woodside
Subordinated Senior Lenders have approval rights for all future acquisitions and
the Company is subject to more frequent and timely compliance and reporting
requirements with the Senior Lender.
Page
33
On
September 29, 2009, the Company and Senior Lender agreed to temporarily increase
the maximum principal amount available under the Revolving Line of Credit to
$2,500,000 through December 31, 2009. On December 14, 2009, the Senior Lender
further extended the Revolving Line of Credit through February 28, 2010. At
February 28, 2010, the Company was required to repay any amounts outstanding
under the Revolving Line of Credit in excess of $2,000,000. As part of the
transaction, the Company paid or accrued $61,583 in deferred financing costs
associated with the original increase in the Revolving Line of Credit dated
September 29, 2009, which will be amortized over the remaining life of the loan.
The agreement was further amended as part of the April 26, 2010 amendment
described further in the Debt Amendments section below of this
MD&A.
As of
September 30, 2009, the Company was not in compliance with certain restrictive
covenants in the Waiver and Amendment Agreements. As a result, the Senior Lender
and the Woodside Subordinated Senior Lenders issued the Company reservation of
rights letters, which notified the Company of default under the Waiver and
Amendment Agreements. The document indicates that this default entitles the
Senior Lender and the Woodside Subordinated Senior Lenders to exercise certain
rights and remedies under the Senior Loan Agreement and the Subordinated Senior
Agreement through issuance of a reservation of rights letter. The Senior Lender
and Woodside Subordinated Senior Lenders agreed to not exercise all their rights
and remedies at this time; but, reserve the right to do so in the future. The
Woodside Subordinated Senior Lenders exercised their right to increase the
interest rate by 3% on the Subordinated Senior Note effective November 15, 2009.
The increased interest is compounded monthly and added to the Subordinated
Senior Note.
As of
March 31, 2010 and December 31, 2009, the Company was not in compliance with
certain restrictive covenants in the Waiver and Amendment Agreements. As a
result, on April 26, 2010, the Senior and Woodside Subordinated Senior Lenders
agreed to amend the existing loan agreements. Under the amendments,
the Senior and Woodside Subordinated Senior Lenders agreed to forbear from
exercising their rights and remedies for identified events of default and
anticipated events of default during the forbearance period subject to certain
terms and conditions which are discussed further in the Debt Amendments section
below of this MD&A.
As of
September 30, 2010, the Company continued to be out of compliance with certain
restrictive covenants in the Waiver and Amendment Agreements. Under the
amendments noted above, the Senior and Woodside Subordinated Senior Lenders
agreed to continue to forbear from exercising their rights and remedies for
identified events of default and anticipated events of default during the
forbearance period subject to certain terms and conditions.
Page
34
The
tabular presentation sets forth the Company’s most restrictive covenants for the
trailing twelve month periods as amended by quarter for 2009 and
2010.
($
in millions)
|
Amended
|
|||||||||||||||||||||||||||
2009
|
2010
|
|||||||||||||||||||||||||||
Q1
|
Q2
|
Q3
|
Q4
|
Q1
|
Q2
|
Q3
|
||||||||||||||||||||||
Minimum
Adjusted EBITDA (1)
|
||||||||||||||||||||||||||||
Actual
|
$ | 8.80 | $ | 9.64 | $ | 8.78 | * | $ | 8.88 | ** | $ | 8.52 | ** | $ | 5.34 | ** | $ | 8.07 | ** | |||||||||
Covenant
|
$ | 8.40 | $ | 9.00 | $ | 9.05 | $ | 10.10 | $ | 10.70 | $ | 11.15 | $ | 11.15 | ||||||||||||||
Maximum
Leverage Ratio (2)
|
||||||||||||||||||||||||||||
Actual
|
3.11 | 3.05 | 3.48 | * | 3.42 | ** | 3.48 | ** | 5.76 | ** | 3.87 | ** | ||||||||||||||||
Covenant
|
3.25 | 3.25 | 3.25 | 2.75 | 2.60 | 2.50 | 2.50 | |||||||||||||||||||||
Minimum
Fixed Charge Coverage Ratio (3)
|
||||||||||||||||||||||||||||
Actual
|
1.12 | 1.02 | 0.95 | * | 1.16 | ** | 0.32 | ** | 0.17 | ** | 0.28 | ** | ||||||||||||||||
Covenant
|
1.05 | 1.00 | 1.00 | 1.20 | 1.25 | 1.25 | 1.25 | |||||||||||||||||||||
Minimum
Interest Coverage Ratio (4)
|
||||||||||||||||||||||||||||
Actual
|
3.09 | 3.27 | 2.93 | 2.94 | 2.70 | 1.63 | ** | 2.34 | ** | |||||||||||||||||||
Covenant
|
2.25 | 2.25 | 2.25 | 2.50 | 2.50 | 2.50 | 2.50 | |||||||||||||||||||||
Maximum
Ratio of Total Funded Debt to Net Worth (5)
|
||||||||||||||||||||||||||||
Actual
|
1.45 | 1.21 | 1.17 | 1.18 | 1.15 | 1.18 | 1.12 | |||||||||||||||||||||
Covenant
|
2.00 | 2.00 | 2.00 | 2.00 | 2.00 | 2.00 | 2.00 |
*
Reservation of rights issued by the Senior Lender and Subordinated Senior
Lenders dated November 13, 2009.
** Under
the Senior Loan Amendment and Subordinated Senior Amendment entered into on
April 26, 2010, the Senior and Woodside Subordinated Senior Lenders agreed
to forbear from accelerating or otherwise enforcing their rights and remedies
with respect to the above covenant defaults under the Senior Loan and
Subordinated Senior Amendments until January 2011.
(1)
Minimum Adjusted EBITDA includes, for the trailing twelve month period, net loss
plus the following items: consolidated interest expense, income taxes,
depreciation, amortization, non-cash charges for stock based compensation,
contractually specific charges to goodwill, and any non-cash extraordinary
and unusual or non-recurring write downs or write offs.
(2)
Maximum Leverage Ratio is total funded debt divided by the sum of Minimum
Adjusted EBITDA and the trailing twelve months Adjusted EBITDA for
acquisitions.
(3)
Minimum Fixed Charge Coverage Ratio is the quotient of Operating cash flow and
Debt Service. Operating cash flow is the sum of Minimum Adjusted
EBITDA and the trailing twelve months of Adjusted EBITDA from acquisitions less
taxes paid and capital expenditures during the trailing twelve month
period. Debt Service is the sum of the current portion of all long term debt,
except the Senior Term Note which if defined as $3,000,000 for this
calculation, and the trailing twelve months of interest expense.
(4)
Minimum Interest Coverage Ratio is the quotient of Minimum Adjusted EBITDA
divided by the trailing twelve month interest expense.
(5)
Maximum Ratio of Total Funded Debt to Net Worth is the quotient of funded debt
divided by the total of assets, less liabilities plus the accumulated
amortization of intangible assets recorded since November 30, 2007 (the date of
debt agreement).
Page
35
Following
is a reconciliation of Minimum Adjusted EBITDA to net loss available to common
stockholders:
Period Ended
|
||||
September 30, 2010
|
||||
Minimum
Adjusted EBITDA for the trailing twelve months
|
$ | 8,072,612 | ||
Depreciation
and amortization
|
(8,948,659 | ) | ||
Stock
based compensation
|
(124,546 | ) | ||
Change
in fair value of derivative financial
instruments
|
2,291,769 | |||
Contractually
specific charges to goodwill
|
178,501 | |||
Interest
expense
|
(3,451,409 | ) | ||
Debt
and other restructuring charges
|
(1,289,236 | ) | ||
Income
tax expenses
|
(157,294 | ) | ||
Deferred
income tax benefit
|
1,633,001 | |||
Preferred
stock dividends
|
(1,941,999 | ) | ||
Fourth
quarter 2009 net loss available to common stockholders
|
2,088,153 | |||
Net
loss available to common stockholders
|
$ | (1,649,107 | ) |
Debt
Amendments
On April
12, 2010, the Company entered into an agreement with the Woodside Subordinated
Senior Lenders to receive an additional loan (“Short-Term Working Capital Loan”)
of $500,000 to be used for short-term working capital needs. For use of the
funds, the Company paid a fee of $5,000. The Short-Term Working Capital Loan
accrues interest at 12% per annum. The principal amount and any accrued and
unpaid interest was due on May 15, 2010. On May 7, 2010, the Company paid all
outstanding principal and accrued interest of the Short-Term Working Capital
Loan.
On April
26, 2010, the Company entered into an amendment (“Senior Loan Amendment”) to the
Senior Loan Agreement. In the Senior Loan Amendment, the Senior Lender agreed to
forbear from accelerating or otherwise enforcing its rights and remedies with
respect to identified events of default and anticipated events of default under
the Senior Loan Agreement until January 2, 2011 (the “Forbearance Period”) and,
in addition, extended the maturity of the indebtedness until January 2, 2011.
During the Forbearance Period, the Senior Lender agreed to increase the maximum
principal amount available under the Revolving Line of Credit to $4,000,000. All
advances on the Revolving Line of Credit after the date of the Senior Loan
Amendment, including any outstanding draws, will incur interest, payable on a
monthly basis, at a rate of prime plus 6%. Also, the Senior Lender agreed to
suspend the monthly principal payments of $250,000 on the Senior Term Note. The
Company will continue to pay the applicable amount of interest owed on the
Senior Term Note on the last day of each month.
In
return, the Company agreed as part of the Senior Loan Amendment that, among
other things, the Senior Lender may terminate the Senior Loan Amendment during
the Forbearance Period if the Company does not (i) meet specified cash flow
tests of its cash receipts and disbursements measured weekly on a rolling six
week and forbearance period-to-date basis, as defined in the amendment and (ii)
maintain a specified minimum cash and available Revolving Line of Credit balance
of $500,000. As of September 30, 2010, the Company met the above cash covenants
as indicated in the following table:
Cash Flow Test
|
Covenant
|
Range of Results
|
||
Cash
Receipts
|
greater
than 80%
|
94.3%
- 138.3%
|
||
Cash
Disbursements
|
less
than 110%
|
94.5%
- 105.9%
|
||
Minimum
Cash Availability
|
greater
than $500,000
|
$1.6
million - $2.8 million
|
Page
36
The
Company agreed to pay the Senior Lender an amendment fee (“Amendment Fee”) of
$250,000, of which $50,000 was to be paid on the amendment date with the
remainder to be paid in $25,000 monthly installments beginning May 31, 2010 and
ending December 31, 2010. The Company also agreed to pay the Senior
Lender a monthly fee (“Monitoring Fee”) of $2,000 per month throughout the
duration of the Forbearance Period and reimburse the Senior Lender for any legal
fees in connection with the Senior Loan Amendment. As of September 30, 2010, the
Company paid $150,000 of the Amendment Fee and $6,000 in Monitoring
Fees.
In
addition, upon closing of a capital transaction, the Company is required to pay
an additional fee to its Senior Lender. In the event of a sale to a third party,
the Company will pay the Senior Lender a fee (“Borrower Sale Fee”) equal to the
sum of $300,000 plus 0.75% of the excess of the gross purchase price paid for
the Company over the Company’s outstanding indebtedness less any exit fees paid
to the Woodside Subordinated Senior Lenders. In the case of a repayment in full
or maturity, the Company will pay the Senior Lender a fee (“Borrower Refinancing
Fee”) equal to 4% of the outstanding indebtedness to the Senior Lender. If a
Company sale were to take place within six months after the maturity date or the
repayment in full and if that sale transaction would result in a Borrower Sale
Fee greater than $300,000, then the Company would pay the Senior Lender an
amount equal to the difference between the Borrower Sale Fee and
$300,000.
On March
22, 2010, the Company engaged a financial advisor to assist in exploring,
evaluating and implementing one or more strategic alternatives for the
recapitalization of the Company (“Recapitalization Initiative”), including
refinancing its current debt, raising capital, and/or sale of the Company to a
third party. The Senior Lender may terminate the Forbearance Period if, in the
Senior Lender’s reasonable judgment, the Company has not made adequate progress
toward a reasonably satisfactory Recapitalization Initiative by July 15, 2010 or
any date thereafter. The Company paid the financial advisor $60,000 upon the
execution of an amendment to the loan agreements with Senior and Woodside
Subordinated Senior Lenders and agreed to pay a monthly service fee of $30,000.
In the event of a sale to a third party, the Company will pay the financial
advisor a transaction fee of $950,000. In the case of a refinancing, the Company
will pay the financial advisor a fee equal to (i) 1.5% of the total amount of
senior debt raised, plus (ii) 3.0% of the total amount of any one-stop debt
raised, plus (iii) 4.0% of the total amount of junior debt raised. On August 1,
2010, the Company amended the agreement with the financial advisor to replace
the fixed monthly service fee with an hourly rate.
On April
26, 2010, in addition to the Senior Loan Amendment, the Company entered into an
amendment (“Subordinated Senior Amendment”) to the Subordinated Senior Agreement
with the Woodside Subordinated Senior Lenders. In the Subordinated Senior
Amendment, the Woodside Subordinated Senior Lenders agreed to forbear from
accelerating or otherwise enforcing its rights and remedies with respect to
identified events of default and anticipated events of default under the
Subordinated Senior Agreement until January 2, 2011 (the “Forbearance Period”).
In addition, the Woodside Subordinated Senior Lenders agreed to surrender the
Subordinated Senior Warrants and relinquish their rights to the CIP Payment and
the Fee Agreement.
In
return, the Company agreed as part of the Subordinated Senior Amendment that,
among other things, the Woodside Subordinated Senior Lenders may terminate the
Subordinated Senior Amendment during the Forbearance Period if the Company does
not (i) meet specified cash flow tests of its cash receipts and disbursements
measured weekly on a rolling six week and forbearance period-to-date basis, as
defined in the agreements and (ii) maintain a specified minimum cash and
available Revolving Line of Credit balance of $500,000. The Company met the cash
covenants as indicated in the table above.
The
Subordinated Senior Note continues to bear interest at 18%; however, only 6% is
due and payable on a monthly basis and 12% is compounded monthly and added to
the principal amount of the Subordinated Senior Note. The Company agreed to pay
the Woodside Subordinated Senior Lenders a fee (“Modification Fee”) of $250,000,
which is to be paid on the earlier of January 31, 2011, a capitalization
transaction, or an event of default. The Modification Fee shall constitute an
additional debt obligation and accrues interest at 18% per annum, compounded
monthly, payable at the date the Modification Fee is due. As of September 30,
2010, $270,394 was outstanding under the Modification Fee
agreement.
In
addition, the Company agreed to pay the Woodside Subordinated Senior Lenders a
fee (“Exit Fee”) payable on the earlier of (i) a sale of the Company to a third
party, (ii) repayment of all amounts due the Woodside Subordinated Senior
Lenders (“Repayment Event”), or (iii) January 31, 2011 (“Maturity”). In the
event of a sale transaction occurring prior to a Repayment Event, the Exit Fee
will be $450,000 plus 1.5% of the excess of the gross purchase price paid for
the Company over the Company’s outstanding indebtedness less any Borrower Sale
Fee paid to the Senior Lender. Upon a Repayment Event or Maturity, the Exit Fee
shall be $450,000. If a Company sale were to take place within six
months after a Repayment Event or Maturity and if that sale transaction would
have resulted in an Exit Fee greater than $450,000, then the Company would pay
the Woodside Subordinated Senior Lenders an amount equal to the difference
between the greater Exit Fee and $450,000.
On March
22, 2010, the Company engaged a financial advisor to assist in exploring,
evaluating and implementing one or more strategic alternatives for the
recapitalization of the Company (“Recapitalization Initiative”), including
refinancing its current debt, raising capital, and/or sale of the Company to a
third party. The Woodside Subordinated Senior Lenders may terminate the
Forbearance Period if, in the Woodside Subordinated Senior Lenders’ reasonable
judgment, the Company has not made satisfactory progress toward a
Recapitalization Initiative by July 15, 2010 or any date thereafter. The Company
has agreed to pay the financial advisor as discussed above.
Page
37
Because
management believes that a sale is the most likely event to occur, the Company
has estimated sale related payments to the Senior Lender and Woodside
Subordinated Senior Lenders to be $1,598,000, which were added to deferred
financing costs and are being amortized over the remaining life of the
loan.
On August
12, 2010, the Company entered into Amendment No. 9 to the Securities Purchase
and Loan Agreement with the Woodside Subordinated Senior Lenders. In the
amendment, the Woodside Subordinated Senior Lenders agreed to convert the 6%
monthly cash interest payments (“Converted Interest”) to interest compounded
monthly and added to the principal amount of the Subordinated Senior Note so
that the Company has available cash to make payments under its retention and
recapitalization incentive plan, payments to the Company’s lead director and
additional recapitalization expenses, commencing with the cash interest payment
due on July 1, 2010. The retention and recapitalization incentive payments, lead
director payments and recapitalization expenses are not to exceed a combined
$67,000 for any month. Any shortfall in retention and recapitalization incentive
payments, lead director payments and recapitalization expenses are to be paid to
the Woodside Subordinated Senior Lenders and applied towards payment of the
compounded interest. Additionally, the interest rate on the Subordinated Senior
Note will increase by 2% on October 1, 2010 and 1% on January 1, 2011. In the
event that all obligations are paid in full in cash on or prior to the maturity
date, the additional compounded interest shall be waived and forgiven and during
the Forbearance Period only, with respect to any month, if the outstanding
balance of Converted Interest is zero for at least 22 days of such month, then
the additional compounded interest rate shall be reduced by 50% for such
month.
On November 5, 2010, December 3, 2010, and January 7, 2011, if the
Company’s net cumulative cash position exceeds the specified minimum cash
balance, as outlined in the Subordinated Senior Amendment, by more than
$500,000, the Company is required to pay that excess cash balance against the
Converted Interest. On November 5, 2010, the Company paid $353,840, which
represented the Converted Interest for the months of June through October
2010.
Seller
Financing
In
connection with the Company’s acquisition strategy, part of the purchase price
is paid through seller financed instruments. As of September 30, 2010, total
funds due to former owners were $2,484,028, all of which is due in the next
twelve months. Seller financed instruments bear interest at 6% to 8% per annum.
All seller financed instruments are uncollateralized. Under the terms of the
Senior Loan Amendment and the Subordinated Senior Amendment, any subordinated
payments, including seller financing, are not to be paid during the forbearance
period unless otherwise approved by the Senior Lender and Woodside Subordinated
Senior Lenders. The Company amended and restructured certain unpaid seller notes
as indicated below. To the extent the Company is unsuccessful in amending the
seller financing agreements or meet its obligations therein, the Company could
realize negative variances relative to its financial plans in certain
subsidiaries, especially new business and client retention, as the holders of
the notes are current or former employees and managers of certain operating
units.
On
February 24, 2009, the Company executed a restructured promissory note (the “TPA
Restructured Note Agreement”) with the sellers of The Pension Alliance, Inc.
(“TPA”) under which the parties agreed to execute replacement notes superseding
and terminating all existing promissory notes with the sellers of TPA. Under the
TPA Restructured Note Agreement, the Company agreed to issue promissory notes
for an aggregate of $837,500 payable in nine equal principal monthly
installments of $93,056, plus accrued interest, beginning on July 1, 2009 and
ending March 1, 2010 at an interest rate of 8% per annum. Interest accrued on
superseded promissory notes was paid to the sellers within fifteen business days
after the effective date of the TPA Restructured Note Agreement.
On
September 29, 2009, the Company executed Amendment No. 1 to the TPA Restructured
Note Agreement with the sellers of TPA under which the sellers of TPA agreed to
replace the remaining monthly principal installments of $93,056 plus accrued
interest under the TPA Restructured Note Agreement, dated February 24, 2009,
with a single principal payment of $558,333 on March 1, 2010 plus interest
accrued from August 31, 2009. The Senior Lender and Woodside Subordinated Senior
Lenders have not authorized payment of the principal or accrued interest on this
note as of November 15, 2010.
On
February 28, 2009, the Company executed a restructured promissory note (the
“Pentec Restructured Note Agreement”) with the seller of Pentec, Inc. (“Pentec”)
and Pentec Capital Management, Inc. (“PCM”) under which the parties agreed to
execute replacement notes superseding and terminating, the prior unpaid notes
between the parties dated February 28, 2007. Under the Pentec Restructured Note
Agreement, the Company agreed to issue a promissory note of $600,000 payable in
six equal principal monthly installments of $100,000, plus accrued interest,
beginning on July 1, 2009 and ending December 1, 2009 at an interest rate of 8%
per annum. Any accrued interest on the remaining February 28, 2007 promissory
notes was paid to the seller within fifteen business days after the effective
date of the Pentec Restructured Note Agreement. At December 31, 2009, the
Restructured Promissory Note was paid in full.
On March
16, 2009, the Company executed a restructured promissory note (“CIAS
Restructured Note Agreement”) with the sellers of California Investment and
Annuity Sales, Inc. (“CIAS”) under which the parties executed replacement notes
superseding and terminating, the prior note between the parties dated April 3,
2008. Under the CIAS Restructured Note Agreement, the Company issued two
promissory notes for an aggregate of $950,000 payable in eight monthly principal
only installments of $70,000 beginning on August 15, 2009 and ending March 15,
2010, and three monthly installments of $130,000 plus all accrued interest, less
any adjustments to the promissory notes under the CIAS agreement dated April 3,
2008, beginning on April 15, 2010 and ending on June 15, 2010. The notes pay
interest at 8% per annum. Accrued interest on the April 3, 2008 promissory notes
was paid to the CIAS Sellers within ten business days of the original scheduled
payment date of June 3, 2009.
Page
38
On
September 28, 2009, the Company executed Amendment No. 1 to the CIAS
Restructured Note Agreement with the sellers of CIAS under which the sellers of
CIAS agreed to replace the remaining monthly installment payments under the CIAS
Restructured Note Agreement, dated March 16, 2009, with installment payments to
be made in six monthly principal only installments of $70,000 beginning on April
15, 2010 and ending September 15, 2010, and three monthly principal installments
of $130,000, plus all accrued interest, less any adjustments to the promissory
notes under the CIAS agreement dated April 3, 2008, beginning on October 15,
2010 and ending December 15, 2010. The Senior Lender and Woodside Subordinated
Senior Lenders have not authorized payment of the principal or accrued interest
on these notes as of September 30, 2010.
On
October 13, 2010, the Company executed Amendment No. 2 to the CIAS Restructured
Note Agreement dated March 16, 2009, with the sellers of CIAS under which the
sellers of CIAS agreed to reduce the remaining outstanding principal to $580,000
as a result of not achieving certain revenue targets as noted in the original
stock purchase agreement dated April 3, 2008. The remaining outstanding
principal will be paid in six monthly principal installments of $96,667, plus
accrued interest, beginning on February 15, 2011 and ending July 15,
2011.
On March
24, 2009, the Company executed two promissory notes each for $75,000 payable to
two of the sellers of The Pension Group, Inc. (“TPG”) in lieu of full payment of
their portion of a cash payment of $467,500, prior to any adjustments, due at
March 26, 2009 under the TPG purchase agreement (“TPG Agreement”) dated November
26, 2008. The notes plus interest accrued at 8% per annum were paid in full on
June 26, 2009.
On
September 24, 2009, the Company executed Amendment No. 1 to the TPG Agreement
with the sellers of TPG under which the sellers of TPG agreed to replace the
maturity date and payment terms under the promissory notes, dated November 26,
2008, with installment payments to be made in twelve monthly principal
installments of $38,958, plus accrued interest, beginning on July 25, 2010 and
ending June 25, 2011 at an interest rate of 8% per annum beginning on October 1,
2009. Interest accrued on the promissory notes through September 30, 2009 was
paid to the sellers of TPG within fifteen business days of January 25,
2010.
On
September 25, 2009, the Company executed Amendment No. 1 to the REPTECH purchase
agreement (“REPTECH Agreement”) with the sellers of Pension Technical Services,
Inc. (“REPTECH”) under which the sellers of REPTECH agreed to replace the
payments due under the promissory notes, dated October 2, 2008, with installment
payments to be made in twelve monthly principal installments of $76,888, plus
accrued interest, beginning on May 15, 2010 and ending April 15, 2011 at an
interest rate of 8% per annum beginning on October 1, 2009. Interest accrued on
the promissory notes through September 30, 2009 was paid to the sellers of
REPTECH within fifteen business days of December 1, 2009.
On May
14, 2010, the Company executed Amendment No. 2 to the REPTECH Agreement with the
sellers of REPTECH under which the sellers of REPTECH agreed to replace the
twelve monthly principal installments of $76,888 plus accrued interest under
Amendment No. 1 to the REPTECH purchase agreement dated September 25, 2009, with
monthly installment payments beginning on May 15, 2010 and ending on July 14,
2011, totaling $922,656 in principal plus accrued interest.
Future
Contractual Obligations
The
following table shows the Company's present and future contractual obligations
as of September 30, 2010:
(Unaudited)
|
||||||||||||||||||||
September 30, 2010
|
||||||||||||||||||||
Payments due by period
|
||||||||||||||||||||
Total
|
Less than 1 year
|
1-3 years
|
3-5 years
|
Thereafter
|
||||||||||||||||
Operating
Lease Obligations
|
$ | 6,096,100 | $ | 2,005,402 | $ | 2,463,813 | $ | 1,431,046 | $ | 195,839 | ||||||||||
Employment
Contracts
|
$ | 1,105,083 | $ | 1,105,083 | $ | - | $ | - | $ | - | ||||||||||
Revolving
Line of Credit
|
$ | 3,156,000 | $ | 3,156,000 | $ | - | $ | - | $ | - | ||||||||||
Short
and Long Term Debt
|
$ | 28,094,507 | $ | 28,072,054 | $ | 22,453 | $ | - | $ | - | ||||||||||
Total
Contractual Cash Obligations
|
$ | 38,451,690 | $ | 34,338,539 | $ | 2,486,266 | $ | 1,431,046 | $ | 195,839 |
Page
39
Critical
Accounting Policies and Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements.
Actual results could differ significantly from those estimates. The policies
below are considered by management to be critical to the understanding of the
Company’s condensed consolidated interim financial statements because their
application places a significant demand on management’s judgment, with financial
reporting results relying on estimation about the effects of matters that are
inherently uncertain.
·
|
Revenue
Recognition
|
|
·
|
Management's
Estimates
|
|
·
|
Goodwill
/ Intangible Assets
|
|
·
|
Share-based
Payments
|
Revenue
Recognition
The
Company generates revenue primarily from the following sources:
|
·
|
Third
party administration – The Company earns fees for the development and
implementation of corporate and executive benefit programs, as well as
fees for the duration that these programs are
administered.
|
|
·
|
Financial
planning and investment advisory fees and securities commissions – The
Company receives commissions related to the sale of securities and certain
investment-related insurance products as well as fees for offering
financial advice through financial intermediaries and related services.
These fees are based on a percentage of assets under management and are
generally paid quarterly. The Company also charges fees for evaluations of
the performance of portfolios.
|
|
·
|
Insurance
commissions - Insurance and annuity commissions paid by insurance
companies are paid to the Company for policies sold based on a percentage
of the premium that the insurance company charges to the policyholder.
First-year commissions are calculated as a percentage of the first twelve
months premium on the policy and earned in the year that the policy is
originated. In many cases, the Company receives renewal commissions for
periods following the first year, if the policy remains in
force.
|
Revenue
is recognized only when all of the following are present: persuasive evidence of
an arrangement exists, delivery has occurred or services have been rendered, the
fee to the client is fixed or determinable, and collectability is reasonably
assured. These criteria are in accordance with GAAP and the Revenue Recognition
Topic of FASB ASC.
The
Company recognizes revenue from these sources, as follows:
Third party
administration:
·
|
Persuasive
evidence of an arrangement between the Company and its clients
exists;
|
|
·
|
Delivery
of a completed product to the client has occurred or the service has been
provided to the customer;
|
|
·
|
The
price to the client is fixed and determinable;
|
|
·
|
Collectability
of the sales price is reasonably
assured.
|
Financial planning and
investment advisory fees and securities:
·
|
As
services are rendered;
|
|
·
|
Contingent
commissions are recorded as revenue when earned and determinable and
collection is reasonably assured.
|
Insurance:
·
|
The
policy application is substantially complete;
|
|
·
|
The
premium is paid;
|
|
·
|
The
insured party is contractually committed to the purchase of the insurance
policy.
|
Management's
Estimates
The
discussion and analysis of our financial condition and results of operations are
based upon our condensed consolidated interim financial statements which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these condensed consolidated interim financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities and related disclosure of contingent
assets and liabilities at the date of the condensed consolidated interim
financial statements and the reported amounts for revenues and expenses during
the reporting period. On an ongoing basis, management evaluates estimates,
including those related to allowances for doubtful accounts, as described above,
income taxes, bad debts, and contingencies. We base our estimates on historical
data, when available, experience, and on various other assumptions that are
believed to be reasonable under the circumstances, the combined results of which
form the basis for making judgments approximating the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.
Page
40
Goodwill
and Other Intangible Assets
Goodwill
represents the excess of cost over the fair value of net assets of businesses
acquired. The Company accounts for goodwill under the guidance of the
Intangibles-Goodwill and Other Topic of FASB ASC. Goodwill and other intangible
assets acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for impairment, at
least annually, in accordance with this guidance. This guidance also requires
that intangible assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with the provisions of the Property,
Plant, and Equipment Topic of FASB ASC.
In
accordance with the Property, Plant, and Equipment Topic of FASB ASC, long-lived
assets, such as property and equipment and purchased intangible assets subject
to amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
No
impairment losses have been recognized on goodwill and other intangible assets
as of September 30, 2010 and December 31, 2009.
Share
Based Payments
The
Company complies with the fair value recognition provisions of the Compensation
and Equity Topics of FASB ASC. This guidance requires that compensation cost for
all stock awards be calculated and recognized over the service period (generally
equal to the vesting period). This compensation cost is determined using option
pricing models intended to estimate the fair value of the awards at the grant
date. An offsetting increase to stockholders' equity is recorded equal to the
amount of the compensation expense charge. The fair value of issued stock
options and warrants are estimated on the date of grant using the Black-Scholes
option-pricing model.
Inflation
While
inflation has not had a material effect on our operations in the past, there can
be no assurance that we will be able to continue to offset the effects of
inflation on the costs of our services through price increases to our clients
without experiencing a reduction in the demand for our services; or that
inflation will not have an overall effect on the retirement market that would
have a material effect on us.
Adoption
of New Accounting Pronouncements
In
January 2010, the FASB issued guidance in the Fair Value Measurements and
Disclosures Topic of FASB ASC. The guidance requires reporting entities to make
new disclosures about recurring and nonrecurring fair value measurements
including significant transfers into and out of Level 1 and Level 2 fair value
measurements and information on purchases, sales, issuances, and settlements on
a gross basis in the reconciliation of Level 3 fair value measurements. The
guidance also clarified existing fair value measurement disclosure guidance
about the level of disaggregation, inputs and valuation techniques. The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuance, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The guidance does not have a material impact
on the Company’s condensed consolidated interim financial
statements.
New Accounting
Pronouncements
In
September 2009, the FASB issued guidance in the Revenue Recognition Topic of
FASB ASC. This guidance updates the accounting and expands disclosures for
multiple-deliverable arrangements to enable vendors to account for products or
services separately rather than as a combined unit. The update will be effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Management is currently
evaluating the impact of applying the update to the Company’s future condensed
consolidated interim financial statements.
Off-Balance
Sheet Arrangements
We have
no significant off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to our
stockholders.
As a
“Smaller Reporting Company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this item.
Page
41
ITEM
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
The
Company’s management, under the supervision of and with the participation of the
Company’s principal executive officer and principal financial officer, has
evaluated the effectiveness of the Company’s disclosure controls and procedures,
as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on such evaluation,
the Company’s principal executive officer and principal financial officer have
concluded that the Company’s disclosure controls and procedures were effective
as of September 30, 2010.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
during the quarter ended September 30, 2010, which were identified in connection
with management’s evaluation required by paragraph (d) of Rules 13a-15 and
15d-15 under the Exchange Act, that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
Page
42
The
Company is from time to time subject to claims and suits arising in the ordinary
course of business. Although the ultimate disposition of such proceedings is not
presently determinable, management does not believe that the ultimate resolution
of these matters will have a material adverse effect on the financial condition,
results of operations or cash flows of the Company.
Coghill
Capital Management LLC (“CCM”) filed a complaint on June 1, 2010 in the Supreme
Court of the State of New York alleging that the Company failed to file a
registration statement with the Securities and Exchange Commission (“SEC”)
registering the potential resale of common shares issuable upon conversion of
its preferred shares, under the terms of a subscription agreement between the
Company and CCM (“Subscription Agreement”). CCM also made additional claims
related to the Subscription Agreement, including breach of contract and
conversion. CCM is seeking total damages of $1.8 million. The Company intends to
defend the claims vigorously based on a number of defenses. Regardless of the
outcome, the litigation could have a material adverse impact on the Company’s
financial results because of defense costs, diversion of management’s attention
and resources, and other factors.
On August
16, 2010, Orthopaedic Specialty Group, P.C. (“OSG”), the Orthopaedic Specialty
Group, P.C. 401(k) Pension Plan (the "OSG Plan") and the trustees of the OSG
Plan filed a lawsuit in the Connecticut Superior Court against the Company's
wholly-owned subsidiary, Pentec, Inc., and a corporate officer of Pentec,
alleging negligence and breach of contract. The trustees had invested
assets of the OSG Plan directly with Bernard Madoff and the OSG Plan claims to
have lost all of those assets. Plaintiffs allege that the principal amount of
the investments totaled approximately $10.1 million and Mr. Madoff had shown
investment returns on those investments for a total loss of approximately $34
million. Among other items, Plaintiffs allege that Pentec should have
notified OSG, the OSG Plan and its fiduciaries that they could structure the OSG
Plan to permit participant directed investments, which they allege would have
reduced the trustee’s fiduciary liability to the OSG plan participants.
Plaintiffs also allege that Pentec should have advised the trustees to obtain
fiduciary liability insurance coverage. The Company believes that Pentec
had no duty (whether under law, contract, or industry practice) to advise OSG,
the OSG Plan or the trustees that they could limit liability by creating a
participant directed plan or that they should obtain fiduciary insurance
coverage. Further, Pentec’s service agreement with OSG limited the services
to be performed by Pentec as administrative in nature, and specifically excludes
the provision of legal, accounting, or investment related services. The Company
has engaged outside counsel to defend these claims and believes they are without
merit.
ITEM
1A. Risk Factors
As a
“Smaller Reporting Company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this item.
ITEM
2. Unregistered Sales of Equity Securities and Use of Proceeds
On
January 4, 2010, a holder of 8,513 shares of Series D Convertible Preferred
Stock converted such shares into 170,260 shares of common stock.
On June
18, 2010, a holder of 137,500 shares of Series C Convertible Preferred Stock
converted such shares into 1,650,000 shares of common stock.
The above
issuances were made in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933 and/or Rule 506 promulgated under
Regulation D there under. The holders of the above securities are accredited
investors as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.
ITEM
3. Defaults Upon Senior Securities
None.
ITEM
4. (Removed and Reserved)
ITEM
5. Other Information
Execution
of a Book of Business Sale
In July 2009, the Company executed a
contract to sell the flex administration business to the Total Administrative
Services Corporation (“TASC”) which is expected to be closed by the end of 2010.
As part of the contract, TASC will pay the Company a percentage of the annual
revenues transferred sixty days after closing, a percentage of annual revenues
based bonus payment if a target retention level is obtained nine months after
closing and a percentage of ongoing revenues beginning thirteen months after
closing. This transaction is not material to the financial statements and thus
is not necessary to be disclosed separately in the condensed consolidated
interim financial statements. In addition, this transaction does not meet the
definition of a capital transaction as defined in the Debt Financing
Arrangements section of the MD&A.Page
43
Execution
of Amendment to Financial Advisor Agreement
On August 1, 2010, the
Company executed Amendment No. 1 to the financial advisor agreement dated March
22, 2010. The terms of the amendment are discussed in the Debt Amendments
section of this MD&A.Execution
of Amendment to Seller Notice
On October 13, 2010, the Company
executed Amendment No. 2 to the CIAS Restructured Note Agreement dated March 16,
2009, with the sellers of CIAS. The terms of the amendment are discussed in the
Seller Financing section of this MD&A.Execution
of Non-binding Leter of Intent
On November 4, 2010, the Company
entered into a non-binding letter of intent with exclusivity for the sale of the
Company to Stonehenge Partners, Inc. for $48 million, subject to a negotiated
net working capital target. Completion of the sale is subject to
certain conditions, including negotiation and execution of a mutually
satisfactory definitive acquisition agreement, completion of financing
arrangements and due diligence by the buyer, and requisite Senior and
Subordinated Senior Lenders and Company shareholder approvals. There
can be no assurance that the transaction will be completed as specified in the
letter of intent, however, assuming all conditions are satisfied, the Company
would expect to complete the transaction in early 2011.Page
44
ITEM 6. Exhibits
Exhibit
Number
|
Description
|
|
3.1
|
Articles
of Incorporation of the Company, as amended (Incorporated by reference to
Form S-18 filed with the Securities and Exchange Commission on October 7,
1985.)
|
|
3.2
|
Amended
and Restated Bylaws of the Company (Incorporated by reference to Form
8-K_filed with the Securities and Exchange Commission on April 19, 2005.
(File No. 333-124161))
|
|
3.3
|
Certificate
of Designation of Preferences, Rights and Limitations of Series B
Cumulative Convertible Preferred Stock (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on October 19, 2005.
(File No. 000-51252))
|
|
3.4
|
Certificate
of Designation of Preferences, Rights and Limitations of Series C
Cumulative Convertible Preferred Stock (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on November 14,
2005. (File No. 000-51252))
|
|
3.5
|
Articles
of Amendment to the Articles of Incorporation dated August19, 2004
(Incorporated by reference to Form SB-2 filed with the Securities and
Exchange Commission on November 21, 2006. (File No.
333-136790))
|
|
3.6
|
Articles
of Amendment to the Articles of Incorporation dated March 2, 2005
(Incorporated by reference to Form SB-2 filed with the Securities and
Exchange Commission on November 21, 2006. (File No.
333-136790))
|
|
3.7
|
Articles
of Amendment to the Articles of Incorporation dated March 15, 2005
(Incorporated by reference to Form SB-2 filed with the Securities and
Exchange Commission on November 21, 2006. (File No.
333-136790))
|
|
3.8
|
Articles
of Amendment to the Articles of Incorporation dated March 21, 2005
(Incorporated by reference to Form SB-2 filed with the Securities and
Exchange Commission on November 21, 2006. (File No.
333-136790))
|
|
3.9
|
Certificate
of Designation of Preferences, Rights and Limitations of Series D
Cumulative Convertible Preferred Stock (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on March 27, 2006.
(File No. 002-98138-A))
|
|
3.10
|
Certificate
of Designation of Preferences, Rights and Limitations of Series E
Cumulative Convertible Preferred Stock (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on December 26,
2006. (File No. 002-98138-A))
|
|
4.1
|
Securities
Purchase Agreement dated March 9, 2005 by and between the Company and
Laurus Master Fund, Ltd. (Incorporated by reference to Form 8-K filed with
the Securities and Exchange Commission on March 15, 2005. (File No.
002-98138-A))
|
|
4.2
|
Secured
Convertible Term Note dated March 9, 2005 issued by the Company to Laurus
Master Fund, Ltd. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on March 15, 2005. (File No.
002-98138-A))
|
|
4.3
|
Secured
Convertible Term Note dated March 9, 2005 issued by the Company to Laurus
Master Fund, Ltd. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on March 15, 2005. (File No.
002-98138-A))
|
|
4.4
|
Common
Stock Option dated March 9, 2005 issued by the Company to Laurus Master
Fund, Ltd. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on March 15, 2005. (File No.
002-98138-A))
|
Page
45
4.5
|
Master
Security Agreement dated March 9, 2005 among Fast Eddie Racing Stables,
Inc., Duncan Capital Financial Group, Inc., Pension Administration
Services, Inc., Complete Investment Management Inc. of Philadelphia, MD
Bluestein, Inc. and Laurus Master Fund, Ltd. (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission on March 15,
2005. (File No.
002-98138-A))
|
4.6
|
Stock
Pledge Agreement dated March 9, 2005 among Fast Eddie Racing Stables,
Inc., Duncan Capital Financial Group, Inc., Pension Administration
Services, Inc., Complete Investment Management Inc. of Philadelphia, MD
Bluestein, Inc. and Laurus Master Fund, Ltd. (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission on March 15,
2005. (File No. 002-98138-A))
|
|
4.7
|
Subsidiary
Guaranty dated March 9, 2005 executed by Duncan Capital Group, Inc.,
Pension Administration Services, Inc., Complete Investment Management Inc.
of Philadelphia, MD Bluestein, Inc. and Laurus Master Fund, Ltd.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 15, 2005. (File No.
002-98138-A))
|
|
4.8
|
Registration
Rights Agreement dated March 9, 2005 by and between Fast Eddie Racing
Stables, Inc. and Laurus Master Fund, Ltd. (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission on March 15,
2005. (File No. 002-98138-A))
|
|
4.9
|
Common
Stock Purchase Warrant dated March 9, 2005 issued by Duncan Capital
Financial Group, Inc. to Richard E. Stierwalt (Incorporated by reference
to Form 8-K filed with the Securities and Exchange Commission on March 15,
2005. (File No. 002-98138-A))
|
|
4.10
|
Common
Stock Purchase Warrant dated March 9, 2005 issued by Duncan Capital
Financial Group, Inc. to Leonard Neuhaus (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission on March 15,
2005. (File No. 002-98138-A))
|
|
4.11
|
Exhibit
number was intentionally not used.
|
|
4.12
|
Securities
Purchase Agreement dated November 30, 2005 entered by and between National
Investment Mangers Inc. and Laurus Master Fund, Ltd. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 6, 2005. (File No. 000-51252))
|
|
4.13
|
Securities
Purchase Agreement dated November 30, 2005 entered by and between National
Investment Mangers Inc. and Laurus Master Fund, Ltd. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 6, 2005. (File No. 000-51252))
|
|
4.14
|
Securities
Purchase Agreement dated November 30, 2005 entered by and between National
Investment Mangers Inc. and Laurus Master Fund, Ltd. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 6, 2005. (File No. 000-51252))
|
|
4.15
|
Convertible
Promissory Note, dated August 2, 2005, issued by the Company to Stephen H.
Rosen. (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on August 5, 2005. (File No.
000-51252))
|
|
4.16
|
Convertible
Promissory Note, dated August 2, 2005, issued by the Company to Elizabeth
Davies. (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on August 5, 2005. (File No.
000-51252))
|
|
4.17
|
Common
Stock Option, dated August 2, 2005, issued by the Company to Stephen H.
Rosen. (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on August 5, 2005. (File No.
000-51252))
|
|
4.18
|
Common
Stock Option, dated August 2, 2005, issued by the Company to Stephen H.
Rosen. (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on August 5, 2005. (File No.
000-51252))
|
Page
46
4.19
|
Form
of Subscription Agreement for Series B Cumulative Convertible Preferred
Stock (Incorporated by reference to the Form 8-K Current Report filed with
the Securities and Exchange Commission on October 20, 2005. (File No.
000-51252))
|
4.20
|
Form
of Subscription Agreement for Series C Cumulative Convertible Preferred
Stock (Incorporated by reference to the Form 8-K Current Report filed with
the Securities and Exchange Commission on November 14, 2005. (File No.
000-51252))
|
|
4.21
|
Exhibit
number was intentionally not used.
|
|
4.22
|
Securities
Purchase Agreement dated May 30, 2006 by and between National Investment
Managers Inc. and Laurus Master Fund, Ltd. (Incorporated by reference to
the Form 8-K Current Report filed with the Securities and Exchange
Commission on June 5, 2006. (File No. 000-51252))
|
|
4.23
|
Secured
Non-Convertible Term Note payable to Laurus Master Fund, Ltd.
(Incorporated by reference to the Form 8-K Current Report filed with the
Securities and Exchange Commission on June 5, 2006. (File No.
000-51252))
|
|
4.24
|
Secured
Non-Convertible Term Note payable to Laurus Master Fund, Ltd.
(Incorporated by reference to the Form 8-K Current Report filed with the
Securities and Exchange Commission on June 5, 2006. (File No.
000-51252))
|
|
4.25
|
Registration
Rights Agreement dated May 30, 2006 by and between National Investment
Managers Inc. and Laurus Master Fund, Ltd. (Incorporated by reference to
the Form 8-K Current Report filed with the Securities and Exchange
Commission on June 5, 2006. (File No. 000-51252))
|
|
4.26
|
Letter
Agreement dated May 30, 2006 by and between National Investment Managers
Inc. and Laurus Master Fund, Ltd. (Incorporated by reference to the Form
8-K Current Report filed with the Securities and Exchange Commission on
June 5, 2006. (File No. 000-51252))
|
|
4.27
|
Amendment
dated May 30, 2006 by and between National Investment Managers Inc. and
Laurus Master Fund, Ltd. (Incorporated by reference to the Form 8-K
Current Report filed with the Securities and Exchange Commission on June
5, 2006. (File No. 000-51252))
|
|
4.28
|
Agreement
dated June 14, 2006 by and between National Investment Managers Inc. and
Laurus Master Fund, Ltd. (Incorporated by reference to the Form 8-K
Current Report filed with the Securities and Exchange Commission on June
16, 2006. (File No. 000-51252))
|
|
4.29
|
Common
Stock Purchase Warrant dated May 30, 2006 issued to Laurus Master Fund,
Ltd. (Incorporated by reference to the Form 8-K Current Report filed with
the Securities and Exchange Commission on June 16, 2006. (File No
.000-51252))
|
|
4.30
|
Letter
from Laurus Master Fund, Ltd. to National Investment Managers Inc., dated
June 14, 2006 (Incorporated by reference to the Form 8-K Current Report
filed with the Securities and Exchange Commission on June 16, 2006. (File
No. 000-51252))
|
|
4.31
|
Form
of Subscription Agreement for Series D Cumulative Convertible Preferred
Stock (Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 27, 2006. (File No.
002-98138-A))
|
|
4.32
|
Form
of Common Stock Purchase Warrant (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on March 27, 2006. (File
No. 002-98138-A))
|
|
4.33
|
Form
of Common Stock Purchase Warrant (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on March 27, 2006. (File
No. 002-98138-A))
|
|
4.34
|
Form
of Common Stock Purchase Warrant (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on December 26, 2006.
(File No. 002-98138-A))
|
Page
47
4.35
|
Revolving
Line of Credit and Term Loan Agreement by and between National Investment
Managers Inc. and RBS Citizens, National Association dated November 30,
2007 (Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on December 4, 2007. (File No.
000-51252))
|
|
4.36
|
Revolving
Line of Credit Note issued by National Investment Managers Inc. issued to
RBS Citizens, National Association dated November 30, 2007 (Incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission
on December 4, 2007. (File No. 000-51252))
|
|
4.37
|
Term
Promissory Note issued by National Investment Managers Inc. issued to RBS
Citizens, National Association dated November 30, 2007 (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 4, 2007. (File No. 000-51252))
|
|
4.38
|
Stock
Pledge Agreement by and between National Investment Managers Inc. and RBS
Citizens, National Association dated November 30, 2007 (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 4, 2007. (File No. 000-51252))
|
|
4.39
|
Security
Agreement by and between National Investment Managers Inc. and RBS
Citizens, National Association dated November 30, 2007 (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 4, 2007. (File No. 000-51252))
|
|
4.40
|
Form
of Stock Pledge Agreement by and between the subsidiaries of National
Investment Managers Inc. and RBS Citizens, National Association dated
November 30, 2007 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on December 4, 2007. (File No.
000-51252)
|
|
4.41
|
Form
of Security Agreement by and between the subsidiaries of National
Investment Managers Inc. and RBS Citizens, National Association dated
November 30, 2007 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on December 4, 2007. (File No.
000-51252))
|
|
4.42
|
Form
of Guaranty by and between the subsidiaries of National Investment
Managers Inc. and RBS Citizens, National Association dated November 30,
2007 (Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on December 4, 2007. (File No.
000-51252))
|
|
4.43
|
Securities
Purchase and Loan Agreement by and between National Investment Managers
Inc. and Woodside Capital Partners IV, LLC, Woodside Capital Partners IV
QP, LLC, Lehman Brothers Commercial Bank and Woodside Agency Services,
LLC, as collateral agent, dated November 30, 2007 (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 4, 2007. (File No. 000-51252))
|
|
4.44
|
Securities
Purchase and Loan Agreement by and between National Investment Managers
Inc. and Woodside Capital Partners IV, LLC, Woodside Capital Partners IV
QP, LLC, Lehman Brothers Commercial Bank and Woodside Agency Services,
LLC, as collateral agent, dated November 30, 2007 (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 4, 2007. (File No. 000-51252))
|
|
4.45
|
Form
of Warrant exercisable at $0.50 per share issued by National Investment
Managers Inc. to Woodside Capital Partners IV, LLC, Woodside Capital
Partners IV QP, LLC, and Lehman Brothers Commercial Bank dated November
30, 2007 (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on December 4, 2007. (File No.
000-51252))
|
|
4.46
|
Form
of Warrant exercisable at $1.00 per share issued by National Investment
Managers Inc. to Woodside Capital Partners IV, LLC, Woodside Capital
Partners IV QP, LLC, and Lehman Brothers Commercial Bank dated November
30, 2007 (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on December 4, 2007. (File No.
000-51252))
|
Page
48
4.47
|
Form
of Warrant exercisable at $1.50 per share issued by National Investment
Managers Inc. to Woodside Capital Partners IV, LLC, Woodside Capital
Partners IV QP, LLC, and Lehman Brothers Commercial Bank dated November
30, 2007 (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on December 4, 2007. (File No.
000-51252))
|
|
4.48
|
Registration
Rights Agreement by and between National Investment Managers Inc. and
Woodside Capital Partners IV, LLC, Woodside Capital Partners IV QP, LLC,
and Lehman Brothers Commercial Bank dated November 30, 2007 (Incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission
on December 4, 2007. (File No. 000-51252))
|
|
4.49
|
Contingent
Interest Payment Agreement by and between National Investment Managers
Inc. and Woodside Capital Partners IV, LLC, Woodside Capital Partners IV
QP, LLC, and Lehman Brothers Commercial Bank dated November 30, 2007
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on December 4, 2007. (File No.
000-51252))
|
|
4.50
|
Fee
Agreement by and between National Investment Managers Inc. and Woodside
Capital Partners IV, LLC, Woodside Capital Partners IV QP, LLC, and Lehman
Brothers Commercial Bank dated November 30, 2007 (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 4, 2007. (File No. 000-51252))
|
|
4.51
|
Securities
Pledge Agreement by and between National Investment Managers Inc. and
Woodside Capital Partners IV, LLC, Woodside Capital Partners IV QP, LLC,
and Lehman Brothers Commercial Bank dated November 30, 2007 (Incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission
on December 4, 2007. (File No. 000-51252))
|
|
4.52
|
Security
Agreement by and between National Investment Managers Inc., its
subsidiaries and Woodside Agency Services, LLC dated November 30, 2007
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on December 4, 2007. (File No.
000-51252))
|
|
4.53
|
Guaranty
by and between National Investment Managers Inc., its subsidiaries and
Woodside Agency Services, LLC dated November 30, 2007 (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 4, 2007. (File No. 000-51252))
|
|
4.54
|
Securities
Purchase Agreement by and between National Investment Managers Inc. and
Valens U.S. SPV I, LLC and Valens Offshore SPV I, Ltd. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 4, 2007. (File No. 000-51252))
|
|
4.55
|
Amendment
No., 1 to Revolving Line of Credit and Term Loan Agreement by and between
Citizens RBS, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on April 8, 2008. (File No.
000-51252))
|
|
4.56
|
Consent
and Amendment No. 1 to Securities Purchase and Loan Agreement by and among
National Investment Managers Inc., Woodside Capital Partners IV, LLC,
Woodside Capital Partners IV QP, LLC, Lehman Brothers Commercial Bank and
Woodside Agency Services, LLC as collateral agent (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
April 8, 2008. (File No. 000-51252))
|
|
4.57
|
Amendment
No., 4 to Revolving Line of Credit and Term Loan Agreement by and between
Citizens RBS, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 10-Q filed with the Securities and
Exchange Commission on August 14, 2008. (File No.
000-51252))
|
|
4.58
|
|
Amendment
No. 4 to Intercreditor and Subordination Agreement by and between RBS
Citizens, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 10-Q filed with the Securities and
Exchange Commission on August 14, 2008. (File No.
000-51252))
|
Page
49
4.59
|
Letter
Agreement entered into by and between National Investment Managers Inc.,
Woodside Capital Partners V, LLC, Woodside Capital Partners V QP, LLC,
Woodside Capital Partners IV, LLC, Woodside Capital Partners IV QP, LLC
and Woodside Agency Services LLC (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on November 7, 2008
(File No. 000-51252))
|
|
4.60
|
Letter
Agreement entered into by and between National Investment Managers Inc.,
Woodside Capital Partners V, LLC, Woodside Capital Partners V QP, LLC,
Woodside Capital Partners IV, LLC and Woodside Capital Partners IV QP, LLC
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on November 7, 2008. (File No.
000-51252))
|
|
4.61
|
Stock
Transfer Agreement dated November 3, 2008 among IBF Fund Liquidating LLC,
National Investment Managers Inc., DCI Master LDC and Duncan Capital Group
LLC (Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on November 7, 2008. (File No.
000-51252))
|
|
4.62
|
Amendment
No. 1 and Allonge to Revolving Line of Credit Note by and between Citizens
RBS, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 10-K filed with the Securities and
Exchange Commission on March 31, 2009. (File No.
000-51252))
|
|
4.63
|
Amendment
No. 3 and Allonge to Term Promissory Note by and between Citizens RBS,
National Association, and National Investment Managers Inc. (Incorporated
by reference to Form 10-K filed with the Securities and Exchange
Commission on March 31, 2009. (File No. 000-51252))
|
|
4.64
|
Amendment
No. 7 to Revolving Line of Credit and Term Loan Agreement by and between
Citizens RBS, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 10-K filed with the Securities and
Exchange Commission on March 31, 2009. (File No.
000-51252))
|
|
4.65
|
Amendment
No. 7 to Intercreditor and Subordination Agreement by and between RBS
Citizens, National Association, Woodside Capital Partners IV, LLC,
Woodside Capital Partners IV QP, LLC, Woodside Capital Partners V, LLC as
assignee of Woodlands Commercial Bank (f/k/a Lehman Brothers Commercial
Bank), Woodside Capital Partners V QP, LLC as assignee of Woodlands
Commercial Bank (f/k/a Lehman Brothers Commercial Bank), and Woodside
Agency Services, LLC, as collateral agent and National Investment Managers
Inc. (Incorporated by reference to Form 10-K filed with the Securities and
Exchange Commission on March 31, 2009. (File No.
000-51252))
|
|
4.66
|
Securities
Purchase and Loan Agreement by and between National Investment Managers
Inc. and Woodside Capital Partners IV, LLC, Woodside Capital Partners IV
QP, LLC, Woodside Capital Partners V, LLC as assignee of Woodlands
Commercial Bank (f/k/a Lehman Brothers Commercial Bank), Woodside Capital
Partners V QP, LLC as assignee of Woodlands Commercial Bank (f/k/a Lehman
Brothers Commercial Bank), and Woodside Agency Services, LLC, as
collateral agent. (Incorporated by reference to Form 10-K filed with the
Securities and Exchange Commission on March 31, 2009. (File No.
000-51252))
|
|
4.67
|
Amendment
No. 2 and Allonge to Revolving Line of Credit Note by and between RBS
Citizens, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on October 2, 2009. (File No.
333-160488))
|
|
4.68
|
Amendment
No. 9 to Revolving Line of Credit and Term Loan Agreement by and between
RBS Citizens, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on October 2, 2009. (File No.
333-160488))
|
|
4.69
|
Consent
and Amendment No. 8 to Securities Purchase and Loan Agreement by and
between Woodside Capital Partners IV, LLC, Woodside Capital Partners IV
QP, LLC, Woodside Capital Partners V, LLC as assignee of Woodlands
Commercial Bank (f/k/a Lehman Brothers Commercial Bank), Woodside Capital
Partners V QP, LLC as assignee of Woodlands Commercial Bank (f/k/a Lehman
Brothers Commercial Bank), and Woodside Agency Services, LLC, as
collateral agent and National Investment Managers Inc. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
October 2, 2009. (File No.
333-160488))
|
Page
50
4.70
|
Reservation
of rights by RBS Citizens, National Association (Incorporated by reference
to Form 10Q Quarterly Report filed with the Securities and Exchange
Commission on November 16, 2009. (File No. 333-160488))
|
|
4.71
|
Reservation
of rights by Woodside Capital Partners IV, LLC, Woodside Capital Partners
IV QP, LLC, Woodside Capital Partners V, LLC as assignee of Woodlands
Commercial Bank (f/k/a Lehman Brothers Commercial Bank), Woodside Capital
Partners V QP, LLC as assignee of Woodlands Commercial Bank (f/k/a Lehman
Brothers Commercial Bank), and Woodside Agency Services, LLC, as
collateral agent (Incorporated by reference to Form 10-Q Quarterly Report
filed with the Securities and Exchange Commission on November 16, 2009.
(File No. 333-160488))
|
|
4.72
|
Amendment
No. 3 and Allonge to Revolving Line of Credit Note and Amendment No. 10 to
Revolving Line of Credit and Term Loan Agreement by and between RBS
Citizens, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on December 17, 2009. (File No.
333-160488))
|
|
4.73
|
2005
Stock Option Plan (Incorporated by reference to Form S-8 filed with the
Securities and Exchange Commission on July 9, 2009. (File No.
333-160488))
|
|
4.74
|
Short-Term
Working Capital Loan by and between Woodside Capital Partners IV, LLC,
Woodside Capital Partners IV QP, LLC, Woodside Capital Partners V, LLC as
assignee of Woodlands Commercial Bank (f/k/a Lehman Brothers Commercial
Bank), Woodside Capital Partners V QP, LLC as assignee of Woodlands
Commercial Bank (f/k/a Lehman Brothers Commercial Bank), and Woodside
Agency Services, LLC, as collateral agent and National Investment Managers
Inc. (Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on April 16, 2010. (File No.
333-160488))
|
|
4.75
|
Amendment
No. 11 to Revolving Line of Credit and Term Loan Agreement by and between
RBS Citizens, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 10-K filed with the Securities and
Exchange Commission on April 30, 2010. (File No. 333-160488))
|
|
4.76
|
Amendment
No. 4 and Allonge to Revolving Line of Credit Note by and between RBS
Citizens, National Association, and National Investment Managers Inc.
(Incorporated by reference to Form 10-K filed with the Securities and
Exchange Commission on April 30, 2010. (File No. 333-160488))
|
|
4.77
|
Amendment
No. 4 and Allonge to Term Promissory Note by and between RBS Citizens,
National Association, and National Investment Managers Inc. (Incorporated
by reference to Form 10-K filed with the Securities and Exchange
Commission on April 30, 2010. (File No. 333-160488))
|
|
4.78
|
Amendment
No. 8 to Securities Purchase and Loan Agreement by and between Woodside
Capital Partners IV, LLC, Woodside Capital Partners IV QP, LLC, Woodside
Capital Partners V, LLC as assignee of Woodlands Commercial Bank (f/k/a
Lehman Brothers Commercial Bank), Woodside Capital Partners V QP, LLC as
assignee of Woodlands Commercial Bank (f/k/a Lehman Brothers Commercial
Bank), and Woodside Agency Services, LLC, as collateral agent and National
Investment Managers Inc. (Incorporated by reference to Form 10-K filed
with the Securities and Exchange Commission on April 30, 2010. (File No.
333-160488))
|
|
4.79
|
Amendment
to Intercreditor and Subordination Agreement by and between RBS Citizens,
National Association, Woodside Capital Partners IV, LLC, Woodside Capital
Partners IV QP, LLC, Woodside Capital Partners V, LLC as assignee of
Woodlands Commercial Bank (f/k/a Lehman Brothers Commercial Bank),
Woodside Capital Partners V QP, LLC as assignee of Woodlands Commercial
Bank (f/k/a Lehman Brothers Commercial Bank), and Woodside Agency
Services, LLC, as collateral agent and National Investment Managers Inc.
(Incorporated by reference to Form 10-K filed with the Securities and
Exchange Commission on April 30, 2010. (File No.
333-160488))
|
Page
51
4.80
|
Side
Letter Fee Arrangement by and between Woodside Capital Partners IV, LLC,
Woodside Capital Partners IV QP, LLC, Woodside Capital Partners V, LLC as
assignee of Woodlands Commercial Bank (f/k/a Lehman Brothers Commercial
Bank), Woodside Capital Partners V QP, LLC as assignee of Woodlands
Commercial Bank (f/k/a Lehman Brothers Commercial Bank), and Woodside
Agency Services, LLC, as collateral agent and National Investment Managers
Inc. (Incorporated by reference to Form 10-K filed with the Securities and
Exchange Commission on April 30, 2010. (File No.
333-160488))
|
|
4.81
|
Side
Letter Repayment of Short-Term Working Capital and Participation
Arrangement by and between RBS Citizens, National Association, Woodside
Capital Partners IV, LLC, Woodside Capital Partners IV QP, LLC, Woodside
Capital Partners V, LLC as assignee of Woodlands Commercial Bank (f/k/a
Lehman Brothers Commercial Bank), Woodside Capital Partners V QP, LLC as
assignee of Woodlands Commercial Bank (f/k/a Lehman Brothers Commercial
Bank), and Woodside Agency Services, LLC, as collateral agent and National
Investment Managers Inc. (Incorporated by reference to Form 10-K filed
with the Securities and Exchange Commission on April 30, 2010. (File No.
333-160488))
|
|
4.82
|
Termination
Agreement by and between Woodside Capital Partners IV, LLC, Woodside
Capital Partners IV QP, LLC, Woodside Capital Partners V, LLC as assignee
of Woodlands Commercial Bank (f/k/a Lehman Brothers Commercial Bank),
Woodside Capital Partners V QP, LLC as assignee of Woodlands Commercial
Bank (f/k/a Lehman Brothers Commercial Bank), and Woodside Agency
Services, LLC, as collateral agent and National Investment Managers Inc.
(Incorporated by reference to Form 10-K filed with the Securities and
Exchange Commission on April 30, 2010. (File No.
333-160488))
|
|
4.83
|
Amendment
No. 9 to Securities Purchase and Loan Agreement by and between Woodside
Capital Partners IV, LLC, Woodside Capital Partners IV QP, LLC, Woodside
Capital Partners V, LLC as assignee of Woodlands Commercial Bank (f/k/a
Lehman Brothers Commercial Bank), Woodside Capital Partners V QP, LLC as
assignee of Woodlands Commercial Bank (f/k/a Lehman Brothers Commercial
Bank), and Woodside Agency Services, LLC, as collateral agent and National
Investment Managers Inc. (Incorporated by reference to Form 10-Q filed
with the Securities and Exchange Commission on August 13, 2010. (File No.
000-51252))
|
|
10.1
|
Agreement
and Plan of Reorganization, dated as of February 18, 2005 by and among
Fast Eddie Racing Stables, Inc, Glenn A. Little, Duncan Capital Financial
Group, Inc. and FERS Acquisition Corp. (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on February 23,
2005. (File No. 002-98138-A))
|
|
10.2
|
Employment
Agreement, dated as of December 23, 2004, between Duncan Capital Financial
Group, Inc. and Richard E. Stierwalt. (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on March 15, 2005.
(File No. 002-98138-A))
|
|
10.3
|
|
Employment
Agreement, dated as of January 1, 2005, between Duncan Capital Financial
Group, Inc. and Leonard Neuhaus. (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on March 15, 2005. (File
No. 002-98138-A))
|
10.4
|
12%
Senior Secured Note, dated January 27, 2005, in the original principal
amount of $350,000, delivered by Duncan Capital Financial Group, Inc. to
CAMOFI Master LDC (formerly known as DCOFI Master LDC) (Incorporated by
reference to Form SB-2 Registration Statement filed with the Securities
and Exchange Commission on April 19, 2005. (File
No.333-124161))
|
|
10.5
|
Securities
Purchase Agreement, dated as of January 27, 2005, between Duncan Capital
Financial Group, Inc. and CAMOFI Master LDC(Incorporated by reference to
Form SB-2 filed with the Securities and Exchange Commission on April 19,
2005. (File No.333-124161))
|
|
10.6
|
Security
Agreement, dated as of January 27, 2005, among Duncan Capital Financial
Group, Inc., Pension Administration Services, Inc., Complete Investment
Management Inc. of Philadelphia, MD Bluestein Inc. and CAMOFI Master LDC.
(Incorporated by reference to Form SB-2_filed with the Securities and
Exchange Commission on April 19, 2005. (File
No.333-124161))
|
Page
52
10.7
|
Subsidiary
Guarantee, dated as of January 27, 2005, among Duncan Capital Financial
Group, Inc., Pension Administration Services, Inc., Complete Investment
Management Inc. of Philadelphia and MD Bluestein Inc. in favor of CAMOFI
Master LDC. (Incorporated by reference to Form SB-2/A_filed with the
Securities and Exchange Commission on June 17, 2005. (File
No.333-124161))
|
|
10.8
|
12%
Senior Secured Note, dated May 4, 2005, in the original principal amount
of $150,000, delivered by Duncan Capital Financial Group, Inc. to CAMOFI
Master LDC. (Incorporated by reference to Form SB-2/A_filed with the
Securities and Exchange Commission on June 17, 2005. (File No.
333-124161))
|
|
10.9
|
Agreement,
dated as of June 15, 2005, between the Company and Richard Berman.
(Incorporated by reference to Form SB-2/A filed with the Securities and
Exchange Commission on June 17, 2005. (File No.
333-124161))
|
|
10.10
|
Asset
Purchase Agreement between National Investment Mangers Inc. and American
Benefit Resources, Inc. dated November 1, 2005 (Incorporated by reference
to Form 8-K filed with the Securities and Exchange Commission on November
4, 2005. (File No. 000-51252))
|
|
10.11
|
A/R
Escrow Agreement by and among National Investment Mangers Inc., JP Morgan
Chase Bank, N.A. and American Benefit Resources, Inc. dated November 30,
2005 (Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on December 6, 2005. (File No.
000-51252)
|
|
10.12
|
Indemnification
Escrow Agreement by and among National Investment Mangers Inc., JP Morgan
Chase Bank, N.A. and American Benefit Resources, Inc. dated November 30,
2005 (Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on December 6, 2005. (File No.
000-51252)
|
|
10.13
|
Registration
Rights Agreement between National Investment Mangers Inc., American
Benefit Resources, Inc. and Arthur J. Steinberg as manager of IBF Fund
Liquidating LLC dated November 30, 2005 (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on December 6, 2005.
(File No. 000-51252))
|
|
10.14
|
Stock
Purchase Agreement, dated August 2, 2005, among the Company, Stephen H.
Rosen Associates, Inc., Stephen H. Rosen and Elizabeth Davies.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on August 5, 2005. (File No.
000-51252))
|
|
10.15
|
Stock
Purchase Agreement, dated August 2, 2005, among the Company, Haddon
Strategic Alliances, Inc. and John Ermilio. (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission on August 5,
2005. (File No. 000-51252))
|
|
10.16
|
|
Employment
Agreement, dated as of August 2, 2005, between the Company and Stephen H.
Rosen. (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on August 5, 2005. (File No.
000-51252))
|
10.17
|
Noncompetition
Agreement, dated as of August 2, 2005, between the Company and Stephen H.
Rosen. (Incorporated by reference to Form 8-Kfiled with the Securities and
Exchange Commission on August 5, 2005 (File
No.000-51252))
|
|
10.18
|
Noncompetition
Agreement, dated as of August 2, 2005, between the Company and John
Ermilio. (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on August 5, 2005. (File No.
000-51252))
|
|
10.19
|
Agreement
and Plan of Merger Dated as of January 4, 2006 by and among Jack C.
Holland, Steven R. Eyer, Valley Forge Enterprises, Ltd., VFE Merger Corp.
and National Investment Managers Inc. (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on January 12, 2006.
(File No. 000-51252))
|
Page
53
10.20
|
Employment
Agreement dated January 1, 2006 by and between Steven R. Eyer and Valley
Forge Enterprises, Ltd (Incorporated by reference to Form 8-K filed with
the Securities and Exchange Commission on January 12, 2006. (File No.
000-51252))
|
|
10.21
|
Employment
Agreement dated January 1, 2006 by and between Jack C. Holland and Valley
Forge Enterprises, Ltd. (Incorporated by reference to Form 8-K filed with
the Securities and Exchange Commission on January 12, 2006. (File No.
000-51252))
|
|
10.22
|
Non-Competition,
Non-Disclosure and Non-Solicitation Agreement dated January 1, 2006 by and
between Steven R. Eyer and National Investment Managers Inc. (Incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission
on January 12, 2006. (File No. 000-51252))
|
|
10.23
|
Non-Competition,
Non-Disclosure and Non-Solicitation Agreement dated January 1, 2006 by and
between Jack C. Holland and National Investment Managers Inc.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on January 12, 2006. (File No.
000-51252))
|
|
10.24
|
Employment
Agreement dated March 1, 2006 by and between Leonard Neuhaus and the
Company (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on March 6, 2006. (File No.
000-51252)
|
|
10.25
|
Consulting
Agreement dated March 1, 2006 by and between Richard Stierwalt and the
Company (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on March 6, 2006. (File No.
000-51252))
|
|
10.26
|
Employment
Agreement dated March 2006 by and between Steven Ross and the Company
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 17, 2006. (File No.
000-51252))
|
|
10.27
|
Consulting
Agreement dated January 1, 2006 by and between DC Associates LLC and the
Company (Incorporated by reference to Form 10-KSB filed with the
Securities and Exchange Commission on March 31, 2006. (File No.
000-51252))
|
|
10.28
|
Exhibit
number was intentionally not used.
|
|
10.29
|
Exhibit
number was intentionally not used.
|
|
10.30
|
|
Stock
Purchase Agreement by and between National Investment Managers Inc., The
LAMCO Group, Inc., Lamoriello & Co., Inc., Circle Pension, Inc.,
Southeastern Pension Services, Inc. and Nicholas J. Lamoriello
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on October 10, 2006. (File No.
000-51252))
|
10.31
|
Stock
Option issued to Nicholas J. Lamoriello (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on October 10, 2006.
(File No. 000-51252))
|
|
10.32
|
Escrow
Agreement entered by and between National Investment Managers Inc. and The
LAMCO Group, Inc. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on October 10, 2006. (File No.
000-51252))
|
|
10.33
|
Cross
Sales Agreement entered between National Investment Managers Inc. and The
LAMCO Group, Inc. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on October 10, 2006. (File No.
000-51252))
|
|
10.34
|
Technology
Agreement entered between National Investment Managers Inc. and The LAMCO
Group, Inc. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on October 10, 2006. (File No.
000-51252))
|
|
10.35
|
Management
entered between National Investment Managers Inc., Nicholas J. Lamoriello
and Stephen R. Zito (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on October 10, 2006. (File No.
000-51252))
|
Page
54
10.36
|
Non-Competition,
Non-Disclosure and Non-Solicitation Agreement between National Investment
Managers Inc., Nicholas J. Lamoriello and The LAMCO Group, Inc.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on October 10, 2006. (File No.
000-51252))
|
|
10.37
|
Joinder
Agreement between Laurus Master Fund, Ltd., Lamoriello & Co. Inc.,
Circle Pension, Inc., and Southeastern Pension Services, Inc.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on October 10, 2006. (File No.
000-51252))
|
|
10.38
|
Employment
Agreement dated October 24, 2006 by and between Steven Ross and the
Company. (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on October 26, 2006. (File No.
000-51252))
|
|
10.39
|
Stock
Purchase Agreement by and between National Investment Managers Inc.,
National Actuarial Pension Services, Inc., Charles McLeod and Mary H.
McLeod (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on December 4, 2006. (File No.
000-51252))
|
|
10.40
|
Promissory
Note issued by National Investment Managers Inc. to Charles McLeod and
Mary H. McLeod (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on December 4, 2006. (File No.
000-51252))
|
|
10.41
|
Promissory
Note issued by National Investment Managers Inc. to Charles McLeod and
Mary H. McLeod (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on December 4, 2006. (File No.
000-51252)
|
|
10.42
|
Promissory
Note issued by National Investment Managers Inc. to Charles McLeod and
Mary H. McLeod (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on December 4, 2006. (File No.
000-51252))
|
|
10.43
|
Employment
Agreement entered between National Investment Managers Inc. and Mary
McLeod (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on December 4, 2006. (File No.
000-51252))
|
|
10.44
|
|
Non-Competition,
Non-Disclosure and Non-Solicitation Agreement between National Investment
Managers Inc. and Charles McLeod and Mary H. McLeod. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 4, 2006. (File No. 000-51252))
|
10.45
|
Joinder
Agreement between Laurus Master Fund, Ltd. and National Actuarial Pension
Services, Inc. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on December 4, 2006. (File No.
000-51252))
|
|
10.46
|
Joinder
Agreement between Laurus Master Fund, Ltd. and National Actuarial Pension
Services, Inc. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on December 4, 2006. (File No.
000-51252))
|
|
10.47
|
Agreement
between National Investment Managers Inc. and Duncan Capital Group LLC, a
Delaware limited liability company and DCI Master LDC. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
December 22, 2006. (File No. 000-51252))
|
|
10.48
|
Stock
Purchase Agreement by and between National Investment Managers Inc.,
Benefit Dynamics, Inc., Jo Ann Massanova and Carmen Laverghetta
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on January 4, 2007. (File No.
000-51252))
|
|
10.49
|
Form
of Promissory Note issued by National Investment Managers Inc. payable
March 2, 2008 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on January 4, 2007. (File No.
000-51252))
|
|
10.50
|
Form
of Promissory Note issued by National Investment Managers Inc. payable
March 2, 2009 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on January 4, 2007. (File No.
000-51252))
|
Page
55
10.51
|
Employment
Agreement entered between Benefit Dynamics, Inc. and Jo Ann Massanova
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on January 4, 2007. (File No.
000-51252))
|
|
10.52
|
Employment
Agreement entered between Benefit Dynamics, Inc. and Carmen Laverghetta
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on January 4, 2007. (File No.
000-51252))
|
|
10.53
|
Non-Competition,
Non-Disclosure and Non-Solicitation Agreement between National Investment
Managers Inc. and Jo Ann Massanova (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on January 4, 2007.
(File No. 000-51252))
|
|
10.54
|
Non-Competition,
Non-Disclosure and Non-Solicitation Agreement between National Investment
Managers Inc. and Jo Ann Massanova (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on January 4, 2007.
(File No. 000-51252))
|
|
10.55
|
Joinder
Agreement between Laurus Master Fund, Ltd. and Benefit Dynamics, Inc.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on January 4, 2007. (File No.
000-51252))
|
|
10.56
|
Stock
Option Agreement entered by and between the Company and Jo Ann Massanova
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on January 4, 2007. (File No.
000-51252))
|
|
10.57
|
Stock
Purchase Agreement by and between National Investment Managers Inc., Renee
J. Conner, William Renninger and The Pension Alliance, Inc. (Incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission
on March 6, 2007. (File No. 000-51252))
|
|
10.58
|
|
Promissory
Note issued by National Investment Managers Inc. to Renee J. Conner due
April 28, 2008 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on March 6, 2007. (File No.
000-51252))
|
10.59
|
Promissory
Note issued by National Investment Managers Inc. to William Renninger due
April 28, 2008 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on March 6, 2007. (File No.
000-51252))
|
|
10.60
|
Promissory
Note issued by National Investment Managers Inc. to Renee J. Conner due
April 28, 2009 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on March 6, 2007. (File No.
000-51252))
|
|
10.61
|
Promissory
Note issued by National Investment Managers Inc. to Renee J. Conner due
April 28, 2009 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on March 6, 2007. (File No.
000-51252))
|
|
10.62
|
Employment
Agreement entered between National Investment Managers Inc. and Renee J.
Conner (Incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on March 6, 2007. (File No.
000-51252))
|
|
10.63
|
Non-Competition,
Non-Disclosure and Non-Solicitation Agreement between National Investment
Managers Inc. and Charles McLeod and Mary H. McLeod. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
March 6, 2007. (File No. 000-51252))
|
|
10.64
|
Non-Competition,
Non-Disclosure and Non-Solicitation Agreement between National Investment
Managers Inc. and Charles McLeod and Mary H. McLeod. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
March 6, 2007. (File No.000-51252))
|
|
10.65
|
Stock
Purchase Agreement by and between National Investment Managers Inc.,
Pentec, Inc., Pentec Capital Management, Inc. and Michael E. Callahan
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 6, 2007. (File No.
000-51252))
|
Page
56
10.66
|
Promissory
Note issued by National Investment Managers Inc. to Michael E. Callahan
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 6, 2007. (File No.
000-51252))
|
|
10.67
|
Employment
Agreement entered between Pentec, Inc., Pentec Capital Management, Inc.
and Michael Callahan (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on March 6, 2007. (File No.
000-51252))
|
|
10.68
|
Non-Competition,
Non-Disclosure and Non-Solicitation Agreement between National Investment
Managers Inc. and Michael Callahan (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on March 6, 2007. (File
No. 000-51252))
|
|
10.69
|
Addendum
to Employment Agreement by and between the Company and Steven J. Ross
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 29, 2007. (File No.
000-51252))
|
|
10.70
|
Addendum
to Employment Agreement by and between the Company and Leonard Neuhaus
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 29, 2007. (File No.
000-51252))
|
|
10.71
|
Employment
Agreement by and between the Company and John Davis (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
March 29, 2007. (File No. 000-51252))
|
|
10.72
|
Second
Omnibus Amendment and Waiver, dated as of May 2, 2007, by and between
National Investment Managers, Inc. and Laurus Master Fund, Ltd.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on May 7, 2007. (File No.
000-51252))
|
|
10.73
|
|
Second
Omnibus Amendment and Waiver, dated as of May 2, 2007, by and between
National Investment Managers, Inc. and Laurus Master Fund, Ltd.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on May 7, 2007. (File No.
000-51252))
|
10.74
|
Second
Omnibus Amendment and Waiver, dated as of May 2, 2007, by and between
National Investment Managers, Inc. and Laurus Master Fund, Ltd.
(Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on May 7, 2007. (File No.
000-51252))
|
|
10.75
|
Employment
Agreement entered by and between the Company and Steven J. Ross dated
November 30, 2007 (Incorporated by reference to Form 10-Q filed with the
Securities and Exchange Commission on August 13, 2010. (File No.
333160488))
|
|
10.76
|
Agreement
by and between National Investment Managers Inc. and DC Associates LLC
(“DCA”), and Michael Crow (Incorporated by reference to Form 8-K filed
with the Securities and Exchange Commission on December 4, 2007. (File No.
000-51252))
|
|
10.77
|
Amendment
No. 1 to the Agreement, dated as of November 30, 2007 by and among
National Investment Managers Inc. Duncan Capital Group LLC and DCI Master
LDC (Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on December 4, 2007. (File No.
000-51252))
|
|
10.78
|
Stock
Purchase Agreement among National Investment Managers Inc., California
Investment Annuity Sales, Inc., Richard L. Kaplan and Hana E. Kaplan Inter
Vivos Trust Agreement dated 1/29/97 as amended and restated 1/10/03 and
Anthony Delfino dated April 3, 2008 (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on April 8, 2008. (File
No. 000-51252))
|
|
10.79
|
Employment
Agreement by and between Richard L. Kaplan and VEBA Administrators, Inc.
dated April 3, 2008 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on April 8, 2008. (File No.
000-51252))
|
Page
57
10.80
|
Consulting
Agreement by and between Anthony S. Delfino and VEBA Administrators, Inc.
dated April 3, 2008 (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on April 8, 2008. (File No.
000-51252))
|
|
10.81
|
Non-Disclosure
and Non-Solicitation Agreement by and between Anthony S. Delfino and
National Investment Managers Inc. dated April 3, 2008 (Incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on
April 8, 2008. (File No. 000-51252))
|
|
10.82
|
Non-Disclosure
and Non-Solicitation Agreement by and between Richard Kaplan and National
Investment Managers Inc. dated April 3, 2008 (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission on April 8,
2008. (File No. 000-51252))
|
|
10.83
|
Promissory
Note payable to Anthony S. Delfino (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on April 8, 2008. (File
No. 000-51252))
|
|
10.84
|
Promissory
Note payable to Richard Kaplan (Incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on April 8, 2008. (File
No. 000-51252))
|
|
10.85
|
Settlement
Agreement and Release by and between Renee J. Conner, William E. Renninger
and National Investment Managers Inc. dated May 15, 2008. (Incorporated by
reference to the Form 10-Q filed with the Securities and Exchange
Commission on May 15, 2008. (File No. 000-51252))
|
|
10.86
|
Promissory
Note issued by National Investment Managers, Inc. to Renee J. Conner and
William E. Renninger due April 30, 2009 (Incorporated by reference to the
Form 10-Q filed with the Securities and Exchange Commission on May 15,
2008. (File No. 000-51252))
|
|
10.87
|
Promissory
Note issued by National Investment Managers, Inc. to Renee J. Conner and
William E. Renninger due October 31, 2009 (Incorporated by reference to
the Form 10-Q filed with the Securities and Exchange Commission on May 15,
2008. (File No. 000-51252))
|
|
10.88
|
Addendum
to the Employment Agreement by and between National Investment Managers
Inc. and John M. Davis (Incorporated by reference to the Form 10-Q filed
with the Securities and Exchange Commission on August 14, 2008. (File No.
000-51252))
|
|
10.89
|
Agreement
by and between National Investment Managers Inc. and Richard Berman
(Incorporated by reference to the Form 10-Q filed with the Securities and
Exchange Commission on November 14, 2008. (File No.
000-51252))
|
|
10.90
|
Stock
Purchase Agreement by and among National Investment Managers, Pension
Technical Services, Inc., Ralph W. Shaw and Eileen A. Baldwin-Shaw
(Incorporated by reference to Form 8-K filled with the Securities and
Exchange Commission on October 6, 2008. (File No.
000-51252))
|
|
10.91
|
Promissory
Note issued to Ralph W. Shaw and Eileen A. Baldwin-Shaw due December 2009
(Incorporated by reference to Form 8-K filled with the Securities and
Exchange Commission on October 6, 2008. (File No.
000-51252))
|
|
10.92
|
Promissory
Note issued to Ralph W. Shaw and Eileen A. Baldwin-Shaw due December 2010
(Incorporated by reference to Form 8-K filled with the Securities and
Exchange Commission on October 6, 2008. (File No.
000-51252))
|
|
10.93
|
Employment
Agreement entered by and between Pension Technical Services, Inc. and
Ralph W. Shaw (Incorporated by reference to Form 8-K filled with the
Securities and Exchange Commission on October 6, 2008. (File No.
000-51252))
|
|
10.94
|
Employment
Agreement entered by and between Pension Technical Services, Inc. and
Eileen A. Baldwin-Shaw (Incorporated by reference to Form 8-K filled with
the Securities and Exchange Commission on October 6, 2008. (File No.
000-51252))
|
Page
58
10.95
|
Stock
Purchase Agreement by and among National Investment Managers, Peter R.
Stephan, individually and as Trustee of The Stephan Family Trust Dated
August 2, 1993, James R. Norman, Jr., individually and as Trustee of The
Norman Living Trust Dated December 7, 2005, Rise Spiegel, individually and
as Trustee of The Rise Norris Spiegel Trust Dated November 16, 2005 and
the Pension Group, Inc. (Incorporated by reference to Form 8-K/A filed
with the Securities and Exchange Commission on December 3, 2008. (File No.
000-51252))
|
|
10.96
|
Promissory
Note issued to Peter R. Stephan, James R. Norman, Jr. and Rise Spiegel due
January 2010 (Incorporated by reference to Forms 8-K and 8-K/A filed with
the Securities and Exchange Commission on December 1, 2008 and December 3,
2008, respectively. (File No. 000-51252))
|
|
10.97
|
Promissory
Note issued to Peter R. Stephan, James R. Norman, Jr. and Rise Spiegel due
January 2011 (Incorporated by reference to Forms 8-K and 8-K/A filed with
the Securities and Exchange Commission on December 1, 2008 and December 3,
2008, respectively. (File No. 000-51252))
|
|
10.98
|
Employment
Agreement entered by and between The Pension Group, Inc. and Peter R.
Stephan (Incorporated by reference to Forms 8-K and 8-K/A filed with the
Securities and Exchange Commission on December 1, 2008 and December 3,
2008, respectively. (File No. 000-51252))
|
|
10.99
|
Employment
Agreement entered by and between The Pension Group, Inc. and James R.
Norman, Jr. (Incorporated by reference to Forms 8-K and 8-K/A filed with
the Securities and Exchange Commission on December 1, 2008 and December 3,
2008, respectively. (File No. 000-51252))
|
|
10.100
|
Employment
Agreement entered by and between The Pension Group, Inc. and Rise Spiegel.
(Incorporated by reference to Forms 8-K and 8-K/A filed with the
Securities and Exchange Commission on December 1, 2008 and December 3,
2008, respectively. (File No. 000-51252))
|
|
10.101
|
Promissory
Note issued by National Investment Managers, Inc. to Renee J. Conner and
William E. Renninger due March 1, 2010. (Incorporated by reference to Form
10K filed with the Securities and Exchange Commission on March 31, 2009.
(File No. 000-51252))
|
|
10.102
|
Promissory
Note issued by National Investment Managers, Inc. to Renee J. Conner and
William E. Renninger due March 1, 2010. (Incorporated by reference to Form
10K filed with the Securities and Exchange Commission on March 31, 2009.
(File No. 000-51252))
|
|
10.103
|
Promissory
Note issued by National Investment Managers, Inc. to Michael E. Callahan
due December 1, 2009. (Incorporated by reference to Form 10K filed with
the Securities and Exchange Commission on March 31, 2009. (File No.
000-51252))
|
|
10.104
|
Promissory
Note issued by National Investment Managers, Inc. to Richard Kaplan due
June 15, 2010. (Incorporated by reference to Form 10K filed with the
Securities and Exchange Commission on March 31, 2009. (File No.
000-51252))
|
|
10.105
|
Promissory
Note issued by National Investment Managers, Inc. to Anthony Delfino due
June 15, 2010. (Incorporated by reference to Form 10K filed with the
Securities and Exchange Commission on March 31, 2009. (File No.
000-51252))
|
|
10.106
|
Employment
Agreement entered by and between the Company and John M. Davis dated April
14, 2009 (Incorporated by reference to the Form 10Q Quarterly Report filed
with the Securities and Exchange Commission on May 15, 2009. (File No.
000-51252))
|
|
10.107
|
Employment
Agreement entered by and between the Company and Christopher W. Larkin
dated April 15, 2009 (Incorporated by reference to the Form 10Q Quarterly
Report filed with the Securities and Exchange Commission on May 15, 2009.
(File No. 000-51252))
|
|
10.108
|
Amendment
No. 1 to Subordinated Promissory Notes by and between National Investment
Managers Inc., James R. Norman, Jr., Peter R. Stephan and Rise Norris
Spiegel due January 2010 and January 2011. (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission on October 2,
2009. (File No. 333-160488))
|
Page
59
10.109
|
Amendment
No. 1 to Promissory Notes by and between National Investment Managers
Inc., Ralph W. Shaw and Eileen A. Baldwin-Shaw due December 2009 and
December 2010. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on October 2, 2009. (File No.
333-160488))
|
|
10.110
|
Amendment
No. 1 to Promissory Note by and between National Investment Managers Inc.
and Richard L. Kaplan due June 15, 2010. (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission on October 2,
2009. (File No. 333-160488))
|
|
10.111
|
Amendment
No. 1 to Promissory Note by and between National Investment Managers Inc.
and Anthony S. Delfino due June 15, 2010. (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission on October 2,
2009. (File No. 333-160488))
|
|
10.112
|
Amendment
No. 1 to Promissory Note by and between National Investment Managers Inc.,
Renee J. Conner and William E. Renninger due March 1, 2010. (Incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission
on October 2, 2009. (File No. 333-160488))
|
|
10.113
|
Amendment
No. 1 to the Employment Agreement entered by and between the Company and
Steven J. Ross dated August 12, 2010 (Incorporated by reference to Form
10-Q filed with the Securities and Exchange Commission on August 13, 2010.
(File No. 333160488))
|
|
10.114
|
Amendment
No. 1 to the Employment Agreement entered by and between the Company and
John M. Davis dated August 12, 2010 (Incorporated by reference to Form
10-Q filed with the Securities and Exchange Commission on August 13, 2010.
(File No. 333160488))
|
|
10.115
|
Amendment
No. 1 to the Employment Agreement entered by and between the Company and
Christopher W. Larkin dated August 12, 2010 (Incorporated by reference to
Form 10-Q filed with the Securities and Exchange Commission on August 13,
2010. (File No. 333160488))
|
|
10.116
|
Agreement
for Services as Lead Director by and between National Investment Managers
Inc. and Steven Virany dated August 5, 2010.
|
|
10.117 | Description of agreement regarding payment of Director's Fees to Jeff Cooke. | |
21.1
|
List
of subsidiaries of the Company. (Incorporated by reference to Form 10-K
filed with the Securities and Exchange Commission on March 30, 2009 (File
No. 000-51252))
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
Page
60
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
NATIONAL
INVESTMENT MANAGERS INC.
Registrant
Dated:
November 15, 2010
|
/s/ Steven J. Ross
|
Steven
J. Ross
|
|
Chief
Executive Officer
|
|
Dated:
November 15, 2010
|
/s/ Christopher W.
Larkin
|
Christopher
W. Larkin
|
|
Chief
Financial Officer
|
Page
61