1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 13, 2000
MCM CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-26489 48-1090909
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
500 N. FIRST, HUTCHINSON, KANSAS 67501
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (800) 759-0327
Not applicable.
(Former name or former address, if changed since last report.)
2
ITEM 5. OTHER EVENTS
Closing of Senior Note Financing
On January 13, 2000, MCM Capital Group, Inc. ("MCM") closed a financing
transaction in which MCM issued $10 million of its senior unsecured notes (the
"Debt") to a major financial institution (the "Investor"). The Debt includes the
following terms:
- Interest is payable semi-annually at the rate of 12% per
annum, in cash or, on any payment date on or prior to January
15, 2002, additional notes ("Interest Notes"), at MCM's
option.
- The Debt matures on January 15, 2007. Interest Notes mature on
July 1, 2005.
- The Debt may be redeemed without premium or penalty at any
time. If there is a change in control (as defined) of MCM, MCM
must offer to repurchase the Debt without premium or penalty.
- The Debt is an unsecured obligation of the Company and is
guaranteed by Midland Credit Management, Inc. ("Midland
Credit"), a wholly-owned subsidiary of MCM. Any other material
subsidiary of MCM, other than its securitization subsidiaries,
must also guarantee the Debt.
- In connection with issuance of the Debt, the Company issued a
warrant to the Investor to acquire up to 428,571 shares of the
Company's common stock (subject to adjustment) at a price of
$0.01 per share. This warrant is not exercisable until April
12, 2000. From April 12, 2000 to October 9, 2000, the Investor
can exercise the warrant for up to 50% of the common stock
covered by the warrant. Beginning on October 10, 2000 through
January 12, 2005, the Investor can exercise the warrant for
100% of the covered common stock. The holder was also granted
certain registration rights in connection with the common
stock issuable upon exercise of the warrant.
- Up to $10 million principal amount of the Debt is
guaranteed by Triarc Companies, Inc. ("Triarc"), subject to
reduction under certain circumstances. However, no demand or
claim may be made on the guarantee prior to July 12, 2001.
Triarc indirectly owns approximately 8.4% of the outstanding
common stock of MCM. In addition, Nelson Peltz, Peter W. May
and Eric D. Kogan, each of whom are directors of MCM and are
officers and/or directors of Triarc, directly or indirectly
own approximately 13.5% of the outstanding common stock of
MCM. In consideration for the Guaranty, MCM paid Triarc a fee
of $200,000 and issued a warrant to Triarc for the purchase of
up to 100,000 shares of common stock of MCM (subject to
adjustment) at $0.01 per share at any time on or before
January 12, 2005. Triarc has the right to purchase the Debt
from the Investor under certain circumstances. If Triarc (or
any third party designated by Triarc) purchases the Debt on or
prior to April 11, 2000, Triarc (or the designated third
party) will receive 100% of the warrants issued to the
Investor, and if Triarc (or the designated third party)
purchases the Debt on or after April 12, 2000 but prior to
October 9, 2000, Triarc (or the designated third party) will
receive 50% of the warrants issued to the Investor.
3
The board of directors of MCM approved the issuances of the Debt and
related transactions, and the disinterested members of the board of directors of
MCM approved the payment of the fee and the issuance of the warrants to Triarc.
Under the terms of the Debt, MCM can issue up to an additional $40
million principal amount of notes ("Additional Notes") on substantially similar
terms as the Debt. MCM must use the proceeds from any Additional Notes issued in
excess of $25.0 million to permanently reduce certain existing indebtedness of
Midland Credit. MCM is in discussions with various parties regarding the
purchase of Additional Notes. However, MCM does not currently have commitments
for any Additional Notes, and there can be no assurance that MCM will be able to
sell any of the Additional Notes. The note purchase agreement under which the
Debt was issued (the "Note Purchase Agreement") supersedes the indication of
interest previously given by the Investor, which was referenced in MCM's Report
on Form 10-Q for the quarter ended September 30, 1999 (the "Third Quarter
10-Q").
For further information regarding the transaction, see the documents
filed as exhibits in Item 7 hereof.
Closing of Securitization Transaction
On January 18, 2000, MCM closed a securitization transaction (the
"Securitization Transaction"). Midland Receivables 99-1 Corporation, a
bankruptcy remote special purpose entity formed by Midland Credit, issued
nonrecourse notes in the amount of $28.9 million, bearing interest at 9.63% per
annum. The notes are collateralized by the securitized charged-off receivables
and an initial cash reserve account of approximately $1.5 million and are
insured through a financial guarantee insurance policy. The securitized
receivables had an original aggregate charged-off balance of approximately
$658.9 million without giving effect to recoveries or settled balances and an
aggregate adjusted original cost of approximately $39.5 million. The
securitization will be accounted for as a financing transaction. MCM will
recognize income over the estimated life of the receivables securitized and the
receivables and corresponding debt will remain on MCM's balance sheet.
Liquidity and Capital Resources
In 1999, Midland Credit was a party to three separate forward flow
agreements under which it purchased substantially all of its receivables. One of
these agreements terminated in November of 1999, and one terminated on December
31, 1999. Neither of these forward flow agreements was renewed. The remaining
forward flow agreement terminates by its terms in February 2001. Midland Credit
recently obtained an amendment to this agreement that permits termination by
either party on 30 days notice, although Midland Credit agreed to pay for
its January and February 2000 purchases under the agreement in advance. If
Midland Credit terminates this agreement, the seller will be released from its
obligation to repurchase or replace previously acquired receivables that
violated certain representations and warranties contained in the forward flow
agreement. If any of the receivables also breach representations in Midland
Credit's securitization transactions and Midland Credit has to repurchase those
receivables, it could not seek compensation or substitution from the seller and
Midland Credit would ultimately be liable for any repurchase or substitution
obligation under the securitization transactions. Midland Credit obtains
substantially all receivables that it currently purchases and services under
4
this forward flow agreement. In addition, the forward flow agreement is subject
to early termination by Midland Credit and the seller upon the occurrence of
specific events, so there can be no assurance that the forward flow contract
will remain in effect until its scheduled termination date. There can be no
assurance that Midland Credit will be able to obtain a sufficient number of
receivables to maintain a profitable level of collections, retain qualified
personnel or sustain its current growth.
Under the Securitization Transaction, Midland Credit is prohibited from
purchasing more than $3 million in the aggregate of receivables until it has
obtained $10 million in additional financing. Thereafter, during any period in
which Midland Credit has less than $10 million of committed and fully available
financing, it may only purchase an additional $3 million in receivables. Midland
Credit believes that if it obtains approximately $10 million in additional
financing prior to March 15, 2000 and thereafter maintains $10 million in
committed and fully available financing, it will have sufficient liquidity to
continue to purchase receivables pursuant to its forward flow agreement and fund
its operations and working capital needs for at least the next twelve months.
There can be no assurance however that Midland Credit will be able to obtain and
maintain such financing. If Midland Credit does not obtain such additional
financing, it would cease making purchases of receivables under and, if
necessary, terminate its forward flow agreement.
Under the Securitization Transaction, if Midland Credit does not
maintain certain specified amounts of unrestricted cash and/or availability
under committed working capital facilities (varying over the period to February
28, 2001 from a low of $1 million to a high of $5 million and thereafter $5
million), an event of default will occur. If an event of default occurs, Midland
Credit may be removed as servicer and the receivables in the Securitization
Transaction can be liquidated to pay off the related notes issued in the
securitization. The note insurer for the securitization (or noteholders under
certain circumstances) can waive the event of default or elect not to remove
Midland Credit as the servicer or to liquidate the receivables. In addition,
under the Securitization Transaction, the note insurer or other controlling
party must reappoint Midland Credit as the servicer prior to the end of each
quarter. Should such an event of default occur, Midland Credit believes that it
would have sufficient liquidity to fund its operations and working capital needs
through at least December 2000, provided (i) the event of default is waived or
the election is made not to remove Midland Credit as the servicer or liquidate
the receivables, (ii) the controlling party continues to reappoint Midland
Credit as the servicer on a quarterly basis, and (iii) Midland Credit ceases
making purchases of receivables. If, however, the controlling party does not
reappoint Midland Credit as servicer or an event of default occurs, including
Midland Credit's inability to maintain the required liquidity or any event of
default under any securitization transaction insured by the note insurer, and
the controlling party removes Midland Credit as servicer or liquidates the
receivables, MCM or Midland Credit may be required to, among other things, (i)
cease making purchase of receivables and, if necessary, terminate its forward
flow agreement, (ii) reduce future capital expenditures scheduled for computer,
telephone and system upgrades, (iii) sell certain of its receivables portfolios
for cash, (iv) reduce the number of employees and overall scope of operations,
(v) pursue strategic alternatives such as a sale, merger or recapitalization of
MCM or Midland Credit, or (vi) seek protection under reorganization, insolvency
or similar laws. In addition, if an event of default under the Securitization
Transaction occurs and is continuing, and the controlling party removes Midland
Credit as servicer, that would also cause an event of default under the Debt.
5
Reference is made to the Third Quarter 10-Q for additional information
about MCM's commitments and contingencies.
Legal Proceedings
As disclosed in the Third Quarter 10-Q, Varmint Investments Group, LLC
and Panagora Partners, LLC filed suit against Midland Credit on July 22, 1998 in
the United States District Court for the Southern District of Texas, Houston
Division. The plaintiffs allege securities fraud, common law fraud, and
fraudulent inducement based upon the sale of receivables by Midland Credit to
the plaintiffs in 1997. The plaintiffs seek recovery of the purchase prices for
the receivables, or approximately $1.3 million and, in addition, other damages,
including exemplary or punitive damages, attorneys' fees, expenses, and court
costs. Midland Credit has denied the allegations and is vigorously defending
this suit. On November 8, 1999 the court issued orders denying Midland Credit's
motion for summary judgment and a motion by Midland Credit to assert certain
counterclaims. The trial, originally scheduled for January 10, 2000, has been
rescheduled for April 3, 2000. Although any litigation is inherently uncertain,
Midland Credit believes it has certain contractual defenses to the asserted
claims. Notwithstanding the foregoing, a judgment adverse to Midland Credit
involving this litigation could have a material adverse impact on MCM's business
and its financial condition.
Forward Looking Statement Disclaimer
The statements in this report that are not historical facts, including
most importantly, those statements preceded by, or that include the words "may,"
"believes," "expects," "anticipates," or the negation thereof, or similar
expressions, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve risks, uncertainties and other facts which may cause the
actual results, performance or achievements of MCM and its subsidiaries to be
materially different from any future results, performance or achievements
express or implied by such forward-looking statements. Such factors include, but
are not limited to, the following: MCM's ability to obtain sufficient quantities
of receivables at favorable prices and to recover sufficient amounts on
receivables to fund operations; MCM's ability to hire and retain qualified
personnel to recover its receivables efficiently; the availability of financing;
MCM's ability to maintain sufficient liquidity to operate its business; MCM's
continued servicing of the receivables in its securitization transactions;
unexpected costs associated with Year 2000 compliance or the business risk
associated with Year 2000 non-compliance by suppliers; changes in, or failure to
comply with, government regulations; the costs, uncertainties and other effects
of legal and administrative proceedings and other risks and uncertainties
detailed in MCM's Securities and Exchange Commission filings. MCM will not
undertake and specifically declines any obligation to publicly release the
result of any revisions to any forward-looking statements to reflect events or
circumstances after the date of such statements or unanticipated events. In
addition, it is MCM's policy generally not to make any specific projections as
to future earnings, and MCM does not endorse any projections regarding future
performance that may be made by third parties.
6
ITEM 7. EXHIBITS
10.1 Note Purchase Agreement dated as of January 12, 2000 between MCM and
ING (U.S.) Capital LLC ("ING")
10.2 Warrant Agreement dated as of January 12, 2000 between MCM and ING
10.3 Warrant Agreement dated as of January 12, 2000 between MCM and Triarc
Companies, Inc. ("Triarc").
10.4 Registration Rights Agreement dated as of January 12, 2000 between MCM
and ING
10.5 Registration Rights Agreement dated as of June 30, 1999 among MCM, C.P.
International Investments Limited, MCM Holding Company, LLC, and other
persons
10.6 Subsidiary Guaranty dated as of January 12, 2000
10.7 Guaranty and Option Agreement dated as of January 12, 2000 between
Triarc and ING
10.8 First Amendment to Loan Sale Agreement between Midland Credit
Management, Inc. and MBNA America Bank N.A., dated as of
January 13, 2000
SIGNATURE
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 hereunto duly authorized.
MCM CAPITAL GROUP, INC.
Date: January 20, 2000 By: /s/ R. Brooks Sherman, Jr.
---------------------------------------------
R. Brooks Sherman, Jr.
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
7
EXHIBIT INDEX
10.1 Note Purchase Agreement dated as of January 12, 2000 between MCM and
ING (U.S.) Capital LLC ("ING")
10.2 Warrant Agreement dated as of January 12, 2000 between MCM and ING
10.3 Warrant Agreement dated as of January 12, 2000 between MCM and Triarc.
10.4 Registration Rights Agreement dated as of January 12, 2000 between MCM
and ING
10.5 Registration Rights Agreement dated as of June 30, 1999 among MCM, C.P.
International Investments Limited, MCM Holding Company, LLC, and other
persons
10.6 Subsidiary Guaranty dated as of January 12, 2000
10.7 Guaranty and Option Agreement dated as of January 12, 2000 between
Triarc Companies, Inc. ("Triarc") and ING
10.8 First Amendment to Loan Sale Agreement between Midland Credit
Management, Inc. and MBNA America Bank N.A., dated January 13, 2000