ASFI Asta Funding Inc

PROPOSAL NO. 1—THE MERGER

This section of the proxy statement describes the principal aspects of the proposed merger. While we believe that this description covers the material terms of the merger and the related transactions, this summary may not contain all of the information that is important to Asta Funding stockholders. You can obtain a more complete understanding of the merger by reading the merger agreement and Amendment No. 1 to the merger agreement, copies of which are attached to this proxy statement as Annex A and Annex B, respectively. You are encouraged to read the merger agreement and the other annexes to this proxy statement carefully and in their entirety.

SPECIAL FACTORS

Parties to the Merger

Asta Funding, Inc.

Asta Funding, Inc., a Delaware corporation, is engaged in several business segments in the financial services industry including funding of personal injury claims, through our wholly owned subsidiaries Sylvave, LLC, Simia Capital, LLC and Arthur Funding LLC, social security disability advocacy through our wholly owned subsidiaries GAR Disability Advocates, LLC and Five Star Veterans Disability, LLC, and, through our wholly owned subsidiaries Palisades Collection, LLC, Palisades Acquisition XVI, LLC, Palisades XIX, LLC, Palisades Acquisitions XXIII, LLC and VATIV Recovery Solutions, LLC, the business of purchasing, managing for our own account and servicing distressed consumer receivables, including charged off receivables, and semi-performing receivables. For additional information, please visit www.astafunding.com. Our principal executive offices are located at 210 Sylvan Avenue, Englewood Cliffs, New Jersey 07632. Our telephone number is (201) 567-5648. Our common stock trades on the NASDAQ Global Select Market under the symbol “ASFI.” Please see the section entitled “Important Information Regarding Asta” beginning on page 93 of this proxy statement.

Asta Finance Acquisition Inc.

The Parent is a Delaware corporation formed on December 26, 2019 for purposes of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. The Parent has not engaged in any business except for activities incident to its formation and in connection with the transactions contemplated by the merger agreement. The Parent is affiliated with the Stern Group. Gary Stern serves as the sole officer and director of the Parent. Upon consummation of the merger, the stockholders of the Parent will be the members of the Stern Group, with their respective holdings being proportional to the shares of our Common Stock contributed to the Parent. The Parent is the sole stockholder of Merger Sub and, upon consummation of the merger, will be our sole stockholder. The address of the Parent is c/o Moomjian, Waite & Coleman, LLP, 350 Jericho Turnpike, Jericho, NY 11753. Please see the section entitled “Important Information Regarding the Parent Parties and the Stern Group” beginning on page 101 of this proxy statement.

Asta Finance Acquisition Sub Inc.

The Merger Sub is a Delaware corporation formed on December 26, 2019 for purposes of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. The Merger Sub has not engaged in any business except for activities incident to its formation and in connection with the transactions contemplated by the merger agreement. The Merger Sub is wholly owned by Parent, and will merge with and into the Company, with the Company as the surviving corporation. The address of Merger Sub is c/o Moomjian, Waite & Coleman, LLP, 350 Jericho Turnpike, Jericho, NY 11753. Please see the section entitled “Important Information Regarding the Parent Parties and the Stern Group” beginning on page 101 of this proxy statement.

Background of the Merger 

As part of their ongoing oversight and management of the Company’s business, the board of directors and senior management of the Company regularly review and assess the Company’s operations, performance, prospects and strategic direction, and evaluate the possibility of pursuing various strategic transactions and other strategic alternatives as part of ongoing efforts to strengthen the business and enhance stockholder value, while taking into account economic, regulatory, competitive and other conditions.

On October 30, 2019, Gary Stern, the Chairman, President and Chief Executive Officer and a major stockholder of the Company, submitted to the board of directors of the Company a non-binding offer to acquire all of the outstanding shares of common stock of the Company at a price of $10.75 per share and take the company private (sometimes referred to as the “proposed transaction”). In his initial proposal, Gary Stern stated that he was not interested in taking the Company private unless the transaction was approved by a special committee of independent directors and the Company obtained an affirmative vote of the majority of the minority stockholders, which include stockholders other than Gary Stern or members of the Stern Group, in favor of the proposed transaction. Additionally, in his initial proposal, Gary Stern stated that he was not interested in selling his shares in the Company to a third party or participating in any merger or other strategic transaction involving any third party, and did not intend to vote in his capacity as a stockholder in favor of any such alternative transaction.

On October 30, 2019, the board of directors adopted a resolution at a meeting, in which it appointed a special negotiating committee of independent and disinterested directors to consider and negotiate the proposed transaction (“Special Committee”), and appointed David Slackman (“Mr. Slackman”), Timothy Bishop (“Mr. Bishop”) and Michael Monteleone (“Mr. Monteleone”) as members of the Special Committee and appointed Mr. Slackman as Chair of the Special Committee.

On October 31, 2019, David Slackman interviewed Tannenbaum Helpern Syracuse & Hirschtritt, LLP (“Tannenbaum”) for the role of independent legal counsel for the Special Committee.

On November 1, 2019, the Special Committee retained Tannenbaum to act as legal counsel to the Special Committee.

The board of directors adopted a resolution by unanimous written consent, dated November 2, 2019, that, among other things, authorize and delegate to the Special Committee the exclusive power and authority of the board of directors to: (1) establish, approve, modify, monitor and direct the process and procedures related to the review and evaluation of the proposed transaction, including the authority to determine not to proceed with any such process, procedures, review or evaluation and the authority not to recommend the proposed transaction; (2) respond to any communications, inquiries or proposals regarding the proposed transaction; (3) review, evaluate, investigate, pursue and negotiate the terms and conditions of the proposed transaction with Gary Stern (sometimes referred to as “Mr. Stern”) or any other party the Special Committee deems appropriate; (4) determine on behalf of the board of directors and the Company whether the proposed transaction is advisable and is fair to, and in the best interests of, the Company and its stockholders (or any subset of the stockholders of the Company that the Special Committee determines to be appropriate); (5) reject or approve the proposed transaction; (6) recommend to the board of directors the consummation of the proposed transaction; (7) review, analyze, evaluate and monitor all proceedings and activities of the Company related to the proposed transaction; (8) investigate the Company, the potential buyer, the proposed transaction and matters related thereto as it deems appropriate; (9) consider, evaluate, and make recommendations to the board of directors concerning, other transactions presented to the Special Committee involving the acquisition of all of the outstanding common stock of the Company, or similar going private transactions; (10) retain such financial, legal and other advisers as the Special Committee may deem to be necessary or appropriate; and (11) take such other actions as the Special Committee may deem to be necessary or appropriate for the Special Committee to discharge its duties.

The board of directors also resolved not to recommend any going private transaction or any alternative transaction without a prior favorable recommendation by the Special Committee.

Between November 3, 2019 and November 7, 2019, representatives of Tannenbaum held discussions with two potential financial advisors (previously identified by the Special Committee members), who would be retained as financial advisor to assist the Special Committee in evaluating and negotiating the proposed transaction and provide an opinion as to the fairness of any proposed consideration to the stockholders of the Company (excluding any members of the Stern Group) in connection with the proposed transaction.

On November 4, 2019, a putative derivative action was filed by Daniel Litten, on behalf of the Company, asserting claims against certain current and former directors and officers of the Company regarding certain transactions occurring between March 2016 through December 2018 (the “Litten action”).

On November 7, 2019, Tannenbaum reported to the Special Committee on its discussions with the financial advisor candidates to the Special Committee. The Special Committee requested that Tannenbaum contact a third financial advisor candidate, arrange for the three candidates to meet with the Special Committee and present their respective proposals for an engagement by the Special Committee.

On November 13, 2019, the Special Committee held a meeting at the Tannenbaum offices in New York City, at which representatives of Tannenbaum were present. During the meeting, the three financial advisor candidates, Marshall Stevens, Lincoln and Duff & Phelps, presented their respective proposals for an engagement by the Special Committee. Representatives from each candidate presented their background, experience and expertise in mergers and acquisitions advisory matters, public company transactions, and going private transactions. In light of Gary Stern’s offer, which noted that he was not interested in selling his shares in the Company to a third party or participating in any merger or other strategic transaction involving any third party, and did not intend to vote in his capacity as a stockholder in favor of any such alternative transaction, it was determined that the Special Committee’s financial advisors would not solicit any other potential buyers for the Company or alternative transactions. The members of the Special Committee and Tannenbaum conducted a vigorous interview with each candidate.

On November 20, 2019, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum were present, and discussed and reviewed the three financial advisor candidates taking into consideration the background, experience and fees of each candidate. On the basis of Lincoln’s knowledge, background and deal experience, the Special Committee unanimously selected Lincoln to serve as its financial advisor for the proposed transaction. The Special Committee also discussed the Litten action.

On November 22, 2019, the Special Committee entered into an engagement letter agreement with Lincoln and the Company, in which the parties agreed that the Special Committee would retain Lincoln to act as its financial advisor in connection with the proposed going private transaction.

During November 2019 and December of 2019, representatives of Lincoln met with members of the Company’s management team both in person at the Company’s executive offices and telephonically. Representatives of Lincoln also commenced a review of the Company and reviewed and analyzed the macroeconomic and competitive challenges facing the Company and the industries in which the Company operates.

In early December 2019, following discussions with defense counsel to the Company and Tannenbaum with respect to the Litten action, the Special Committee decided to form a subcommittee of the Special Committee dedicated to evaluating the Litten action as it related to the proposed transaction (the “Litten action subcommittee”). The Special Committee determined that Mr. Slackman, a named defendant in the Litten action, would not be a member of the subcommittee to the Special Committee and would not take part in these discussions because he was a defendant in the action. The members of the subcommittee were Mr. Monteleone and Mr. Bishop.

On December 4, 2019, the Special Committee (with Mr. Monteleone unavailable and absent) held a telephonic meeting, at which representatives of Tannenbaum and Lincoln were present. Representatives of Lincoln discussed their meetings with the Company’s management team and requested that the Company provide a seven-year forecast for fiscal years 2020-2026, for purposes of Lincoln’s preliminary analysis of the Company and the proposed transaction. The Special Committee informed the representatives of Lincoln that the Company ordinarily only prepares annual forecasts and the Company’s management team may not have the capabilities to provide a seven-year forecast. The Special Committee and representatives of Lincoln discussed the various segments of the Company’s business and the outlook for each segment. The Special Committee discussed that the personal injury division was not profitable. It was also noted, however, that GAR, as an ongoing business was somewhat profitable, with low to medium growth. The Special Committee noted that, although the Company may purchase new consumer receivable portfolios in future periods, it may not be able to purchase consumer receivable portfolios domestically at favorable prices or terms. There was also a discussion at the meeting between the Company and representatives of Lincoln about future projected expenses. The Special Committee noted that one of the benefits of the merger transaction would be that the public company expenses would be eliminated. Additionally, Mr. Slackman, Chair of the Special Committee, expressed his view that it would be unlikely that the Company could find a buyer for the portfolios for the consumer receivables collection business and that the net present value of cash flow is most relevant for ascertaining the value of the Company.

In discussing the requested forecast, Mr. Slackman suggested that the Chief Financial Officer (“CFO”) of the Company, Steven Leidenfrost, a disinterested party to the proposed transaction, have ultimate authority over the forecast, as opposed to Gary Stern, and that the former CFO of the Company, Bruce Foster, who had only left the Company in September 2019, could be available to help with preparing the forecast.

On December 9, 2019, the Company submitted its seven-year forecast (the “Initial Management Forecast”) to the Special Committee for its review. The Initial Management Forecast baseline projections were based on actual 2019 revenues for the first half of fiscal year 2019.

On December 10, 2019, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum, representatives of Lincoln, Steven Leidenfrost, the Company’s CFO, and Monika Dasgupta, Controller of the Company, were present, to discuss the Initial Management Forecast. The Special Committee asked Steven Leidenfrost to provide the assumptions for the Initial Management Forecast. The Special Committee also discussed the treatment of certain expenses in the forecast. Additionally, Steven Leidenfrost noted that while management believed GAR would be profitable, it would not be experiencing meaningful growth.

On December 15, 2020, representatives of Tannenbaum spoke with the Company’s general counsel, Seth Berman, and its CFO, Steven Leidenfrost, to discuss Lincoln’s due diligence requests and, ongoing accounting matters such as the closing of the books and quarterly reporting, deferred tax assets and management forecasts and projections.

On December 16, 2019, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum and Lincoln were present. The Special Committee members discussed with representatives of Lincoln and Tannenbaum the Initial Management Forecast and the Special Committee’s outlook for the Company. The Special Committee raised concerns about the Initial Management Forecast. The Special Committee discussed the viability of certain divisions of the Company, including GAR and the Five Star Veterans, Social Security and Disability claims business. In light of the fact that the Initial Management Forecast presented declining revenues and no growth assumptions, the discussion then turned to the possibility of cutting certain corporate expenses. Finally, the Special Committee discussed with representatives of Lincoln the appropriate metrics that should be used to value the Company. At the time of the meeting, members of the Special Committee expressed their view that it was premature to discuss a valuation for the Company until management addressed the Special Committee’s concerns with respect to the Initial Management Forecast.

On December 18, 2019, the Special Committee held a meeting at Tannenbaum’s offices in New York City, at which representatives of Tannenbaum and Lincoln were present. The Special Committee reviewed financial forecasts for the Company prepared by management of the Company. Representatives of Lincoln provided an update with respect to Lincoln’s preparation of a preliminary financial analysis of the Company.

On December 19, 2019, the board of directors met and determined that the compensation for the Special Committee members for their service on such committee would be $15,000 for Mr. Bishop and Mr. Monteleone, respectively, and $30,000 for Mr. Slackman, for his service as the chair of the Special Committee. This compensation is consistent with the amounts paid to the members of the Special Committee in their capacities as members of the board of directors, and consistent with past payment amounts to those directors who serve on special committees to the board of the directors.

Representatives of Lincoln also reported to the Special Committee that on December 17, 2019, as part of Lincoln’s review of the financial forecasts for the Company, and at the request of the Special Committee, representatives from Lincoln met with Ricky Stern and Gary Stern, as members of the Company’s executive team, and discussed the Company’s corporate expenses and allocation of costs. A principal concern raised by the members of the Special Committee with respect to the Initial Management Forecast was its projection of corporate and public company expenses throughout the business. This concern was due in large part to the lack of anticipated growth throughout the Company’s business segments projected over the 7 years forecasted which was not offset with meaningful reductions in corporate and public company expenses. The Special Committee reviewed and approved for Lincoln’s use an alternative forecast for corporate expenses for Lincoln to use along with the Initial Management Forecast in its preliminary financial analysis. At the end of the meeting, representatives of Lincoln informed the Special Committee that it would be preparing a preliminary financial analysis of the Company.

On December 27, 2019, the Litten action subcommittee, consisting of Messrs. Monteleone and Bishop, held a meeting at which representatives of Tannenbaum were present. The parties discussed a process for considering whether the claims in the Litten action had merit in order to determine whether any value should be placed on the action for the purposes of determining the overall value of the Company.

On December 30, 2019, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum and Lincoln were present. At the meeting, representatives of Lincoln presented Lincoln’s preliminary financial analysis of the Company using the Initial Management Forecast and incorporating the alternative forecast for corporate expenses. Representatives of Lincoln reviewed with the Special Committee the methodologies in its preliminary financial analysis, including, among other things, a preliminary analysis of the high end of the equity value of the Company, the book value of the Company (which the presentation noted was for reference only), an illustrative perspective on potential negotiation positions, the Company’s corporate overhead expenses, the trading history of the Company’s common stock and an illustrative analysis of premiums paid in recent transactions in the diversified financials industry. After a review and discussion of Lincoln’s preliminary financial analysis, the Special Committee decided to indicate, in its negotiations with Gary Stern, that the book value of the Company was a factor that should be considered in valuing the Company, and at the conclusion of the meeting made the decision to discuss its views on value with Gary Stern and seek an increase in price with respect to the proposed transaction from Mr. Stern.

On December 31, 2019, Mr. Slackman had a teleconference with Gary Stern, his attorneys, including a representative of Moomjian, Waite & Coleman, LLP (“MWC”), and representatives of Tannenbaum and Lincoln. The parties discussed Lincoln’s preliminary financial analysis of the Company. Mr. Slackman informed Gary Stern that the book value of the Company was approximately $13.00 per share, and while the Special Committee understood that other factors would be considered when determining a reasonable price in the proposed transaction, the Special Committee requested that he increase his offer. Gary Stern disagreed with relative importance of book value, and stated he would not be interested in a transaction at more than $11.00 per share. Mr. Stern explained that the GAR business, the Company’s most profitable arm, had suffered a significant decline in the six months ended on December 31, 2019, which had not been considered in the Initial Management Forecast. Additionally, Mr. Stern did not agree that all of the Company’s expenses associated with being a public company would immediately cease following consummation of the proposed transaction, Directors and Officers (“D&O”) insurance and accountant costs would remain, and also that a high level of fixed costs would result in negative cash flow at some point during the seven year projection period. In addition, Mr. Stern stated that he disagreed with the numbers used in the GAR forecast of the Initial Management Forecast. Ricky Stern, the Chief Executive Officer of GAR, did not review the GAR portion of the Initial Management Forecast prior to its distribution to the Special Committee.

After Gary Stern left the meeting, Mr. Slackman discussed with the representatives from Tannenbaum and Lincoln the concerns Mr. Stern raised as to the possibility of outdated numbers and/or assumptions in the Initial Management Forecast, such as the absence of the latest actual cash collected for the fiscal period ending December 31, 2019. Of note was the fact that Mr. Stern had not reviewed the Initial Management Forecast prior to its distribution to the Special Committee. Since Mr. Stern was an integral part of the Company’s management team with overall oversight for its businesses as the President and Chief Executive Officer, the Special Committee viewed his understanding of the metrics and assumptions used in the Initial Management Forecast as important and not to be wholly disregarded, despite Mr. Stern’s position as the principal of the acquiror in the proposed merger. After a long discussion with the representatives from Tannenbaum and Lincoln, taking into account, among other things, the concerns raised as to the numbers and assumptions used in the Initial Management Forecast, as well as the concerns regarding projections of corporate and public company expenses, Mr. Slackman suggested that the Company should revise the Initial Management Forecast to include more accurate and supportable assumptions. The Company subsequently prepared and provided a revised forecast (the “First Revised Management Forecast”) to the Special Committee. Due to the material changes from the Initial Management Forecast reflected in the First Revised Management Forecast, representatives of Lincoln, at the request of the Special Committee, requested the Company’s management to provide a memorandum explaining how the First Revised Management Forecast was formulated.

On January 2, 2020, representatives of Lincoln, Tannenbaum and Lincoln’s outside counsel held a telephonic meeting at which the parties discussed the vetting process for the First Revised Management Forecast delivered by the Company to the Special Committee. Later that day, Steven Leidenfrost provided the Special Committee and representatives of Tannenbaum and Lincoln with the requested explanatory memo. The memorandum described the assumptions included in the First Revised Management Forecast and noted that it reflected actual cash collected related to GAR revenue for the six months ended December 31, 2019. The memorandum also explained that the First Revised Management Forecast projected reduced revenue for GAR and income (loss) before taxes. Additionally, the First Revised Management Forecast re-allocated a portion of the annual executive salary of GAR’s president as part of the Company’s corporate overhead expenses, and provided for a 2% growth rate for GAR beginning in 2022.

On January 3, 2020, the Special Committee held a telephonic meeting at which representatives of Tannenbaum and Lincoln were in attendance, and Steven Leidenfrost, Monika Dasgupta and Ricky Stern, members of the Company’s management team, joined the meeting. Prior to the management team joining the meeting, Mr. Slackman reported to the Special Committee his discussions with Gary Stern on December 31, 2019. The Special Committee, and representatives of Lincoln and Tannenbaum also discussed the importance of having the best currently available financial forecasts for the Company. The Special Committee members and representatives of Lincoln discussed the differences and similarities between the Initial Management Forecast and the First Revised Management Forecast. It was noted that, per the explanatory memorandum concerning the GAR segment provided to the Special Committee from the management team, the Initial Management Forecast and the First Revised Management Forecast included assumptions around direct expenses, but not corporate expenses. Also, the Initial Management Forecast and First Revised Management Forecast differed in that revenue and net income were lower in the First Revised Management Forecast. Representatives of Lincoln also reported at this meeting that Gary Stern told representatives of Lincoln and Mr. Slackman that he was willing to increase his offer from $10.75 to $11.00 per share. However, the Special Committee members expressed skepticism that $11.00 was the best and highest price per share that Gary Stern would offer, based on the previous preliminary financial analysis reviewed by the Special Committee. The Special Committee members questioned the appropriateness of a forecast that reduced revenue without also forecasting reduced expenses.

After the members of the management team joined the January 3, 2020 meeting, the Special Committee asked the management team to explain the differences between the Initial Management Forecast and the First Revised Management Forecast. The members of the management team explained that the First Revised Management Forecast reflected the most recent six-month trend for GAR revenue rather than the trend from the first six-months of fiscal 2019. The most recent six-month trend indicated that GAR’s revenue was trending lower. One contributing factor that the management team mentioned was the fact that there was an acceleration in processing disability benefit applications by the Federal government, and other industry factors, which were out of the Company’s control. The Special Committee requested that members of the management team produce a revised forecast and consider how it could reduce Company expenses in later years of the forecast so as to correlate to the reduction of revenue over the seven year period. The members of the management team agreed to prepare a revised forecast for the Company, noting that they had not considered the levels of operating expenses in light of the forecasted revenue, nor were future growth assumptions included. At the Special Committee’s suggestion, management agreed to also use a longer history of GAR’s cash collections and include future growth assumptions in the revised forecast.

On January 3, 2020, the Litten action subcommittee held a meeting, at which representatives of Tannenbaum were present. The parties further discussed the process of evaluating the Litten action. A representative from Tannenbaum advised that he would schedule calls with litigation counsel for the parties involved in the Litten action to discuss their respective positions concerning the lawsuit.

On January 6, 2020, in connection with the Litten action, representatives of Tannenbaum had a conference call with the Company’s litigation defense counsel, a representative from Pepper Hamilton LLP (now known as Troutman Pepper Hamilton Sanders LLP), and with a representative from Abrams & Bayliss LLP, the litigation defense counsel for Louis Piccolo, Mr. Slackman, Mark Levenfus and Bruce Foster. The parties discussed the merits of the claims alleged in the Litten action.

On January 6, 2020, the Company’s management team prepared revisions to the seven year forecast for GAR and presented the second revised consolidated seven year forecast for the Company (the “Second Revised Management Forecast”), along with an explanatory memorandum, to the Special Committee. The Special Committee noted that the Second Revised Management Forecast reflected updated financial information for GAR, but did not yet address the Special Committee’s concerns around the levels of forecasted operating expenses in light of a reduction in forecasted revenue or the need to include future growth initiatives

On or about January 8, 2020, a motion to dismiss the Litten action complaint was filed on behalf of all individual defendants and the Company as nominal defendant.

On January 9, 2020, representatives of Tannenbaum held a conference call with respect to the Litten action with plaintiff’s counsel, a representative from Faruqi & Faruqi, LLP. At the meeting, plaintiff’s counsel provided a general view of the Litten action. Plaintiff’s counsel noted that it was too early in the litigation process to state the damages or consider the monetary value of the claims.

On January 10, 2020, the Litten action subcommittee held a telephonic meeting, at which representatives of Tannenbaum were present. A representative from Tannenbaum explained that the role of the Litten action subcommittee was to evaluate the merits of the Litten action and, if it found the claims to have merit, attempt to assign some value to those claims in connection with the proposed transaction. There was then a discussion regarding the specific claims asserted by the plaintiff in the Litten action. Tannenbaum then reported on its January 6, 2020 conference call with certain defense counsel and its January 9, 2020 conference call with plaintiff’s counsel.

The Litten action subcommittee requested Tannenbaum to prepare a memorandum on behalf of the Special Committee, analyzing the merits and potential value, if any, of the Litten action.

On January 16, 2020, the Special Committee held a meeting, at which members of the Special Committee and representatives of Tannenbaum and Lincoln were present. At the meeting, representatives of Lincoln reviewed with the Special Committee its updated preliminary financial analysis of the Company using the Second Revised Management Forecast, including, among other things, an updated preliminary analysis of the equity value of the Company, the book value of the Company, and the Company’s corporate overhead expenses. Representatives of Lincoln also reviewed with the Special Committee a preliminary financial analysis of the Company on a sum-of-the-parts basis using the Second Revised Management Forecast for each of the Company’s business segments (including the Company’s corporate overhead). Lincoln’s updated preliminary financial analysis, which was based on market data through January 15, 2020, also reflected updated values for the Company’s cash and marketable securities as of such date. At the meeting, the Special Committee discussed the Initial Management Forecast, the First Revised Management Forecast and Second Revised Management Forecast, as well as the GAR projections set forth therein, and the Special Committee determined to instruct representatives of Lincoln to use the Second Revised Management Forecast going forward for purposes of Lincoln’s future analyses.

On January 17, 2020, Tannenbaum provided the Litten action subcommittee with the memorandum in which it evaluated the merits and value, if any, of the Litten action. Tannenbaum concluded that it believed the claims were unlikely to survive a motion to dismiss, and that there are likely no meaningful financial damages associated with the claims. Further, Tannenbaum concluded that it believed there was a reasonable basis for the Special Committee not to attribute value to the Litten action in evaluating an adequate offer price per share in the proposed transaction.

On January 19, 2020, the Litten action subcommittee held a telephonic meeting, at which representatives from Tannenbaum attended. A discussion was held concerning the memorandum previously provided to the Litten action subcommittee. The subcommittee members advised Tannenbaum that they reviewed certain documents related to the transactions involved in the complaint. The subcommittee also agreed that no value should be attributed to the claims in the Litten action for the purpose of evaluating the going-private transaction.

A meeting of the full Special Committee was also held on January 19, 2020 following the meeting of the Litten action subcommittee, at which a representative of Tannenbaum was present. At the beginning of the meeting, Mr. Monteleone and Mr. Bishop, in their capacity as members of the Litten action subcommittee, stated that, in their view, no value should be attributed to the claims in the Litten action for the purpose of evaluating the going-private transaction. During the meeting, the Special Committee authorized Mr. Slackman to request that Gary Stern increase his offer of $11.00 per share. The Special Committee also authorized Mr. Slackman to preliminarily accept an offer that is no less than $11.00 per share as a basis to negotiate the merger agreement. Following the meeting, Mr. Slackman and Gary Stern discussed increasing Mr. Stern’s offer, and Mr. Stern agreed to offer $11.05 per share, which Mr. Slackman preliminarily accepted on behalf of the Special Committee as a basis to negotiate the merger agreement.

On January 20, 2020, counsel for the Stern Group, MWC, sent a draft merger agreement to Tannenbaum.

From January 20, 2020 until the execution of the merger agreement on April 8, 2020, the Special Committee, Mr. Stern and their respective legal advisors exchanged several drafts of, and engaged in numerous discussions and negotiations concerning the terms of, the merger agreement and the Stern Group voting agreement. Significant areas of discussion and negotiation included the amount of the merger consideration; the scope and terms of the representations, warranties and covenants, including the interim operating restrictions; the circumstances in which the Company would be permitted to terminate the agreement and the termination-related fees payable in connection therewith; and the consequences for certain breaches of the agreement.

On January 24, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum were present. A representative from Tannenbaum discussed the most recent draft of the merger agreement, which he distributed to the Special Committee on January 23, 2020. The representative from Tannenbaum discussed the remaining open issues in the merger agreement and answered questions posed by the Special Committee members. Following the meeting, Tannenbaum distributed a revised draft of the merger agreement to MWC.

On January 30, 2020, representatives of Tannenbaum and Mr. Monteleone, in his capacity as a member of the Company's Audit Committee and the Special Committee, had a telephonic conference call. The membership of the Company's Audit Committee and the Special Committee consists of the same individuals, i.e., Messrs. Slackman, Monteleone and Bishop. These members, in their capacities as members of the Audit Committee and the Special Committee, requested the Company's management to prepare a new forecast and include in the forecast a business plan to address the previously requested growth initiatives, as the prior forecasts did not plan for any meaningful growth, which both the Special Committee and Audit Committee regarded as a concern for the future outlook of the Company, and to reflect the proper alignment of forecasted expenses with forecasted revenue in light of the projected decline in revenues and net income.

From February 3, 2020 through February 12, 2020, members of the Special Committee and representatives of Tannenbaum held numerous conversations with members of the Company’s management team to discuss the development of a new seven-year forecast for the Company and a new business plan. The new forecast would address the existing concerns of the Special Committee about expenses and future growth, and would include the available financial results of the first fiscal quarter of 2020.

On February 7, 2020, MWC sent a revised draft of the merger agreement to Tannenbaum.

On February 17, 2020, in light of the discussions between the members of the Special Committee and the Company’s management team between February 3, 2020 and February 12, 2020, Steven Leidenfrost distributed to the Special Committee and representatives of Tannenbaum, a third, and final, revised seven-year forecast (the “Final Management Forecast”) and supporting memorandum detailing assumptions used and processes utilized in developing such forecast. The Final Management Forecast included revenue associated with future growth plans, including plans for a new business segment to be involved in small business lending, and an alignment of forecasted operating expenses with forecasted revenue. As a result, the Final Management Forecast addressed the concerns raised by the Special Committee, as well as the Audit Committee. 

The Final Management Forecast was prepared by numerous members of the Company’s management team. David Cavill, Director of Business Intelligence prepared the Final Management Forecast for the Company’s Consumer Receivables business. Monika Dasgupta, Corporate Controller, prepared the Company’s business segments portion of the Final Management Forecast, including GAR, Five Star Veterans Disability LLC (“Five Star”) and Personal Injury, and corporate portion of the Final Management Forecast, which includes certain non-allocated administrative costs, interest income and various other non-operating income and expenses and assets including cash and cash equivalents, investments in equity securities and available-for-sale debt securities, settlement receivable, property and equipment, goodwill, deferred taxes and other assets. Ricky Stern, as Senior Vice President and President of GAR reviewed and approved the GAR and Five Star forecast. Lou Piccolo, a member of the Company’s board of directors who is not a member of the Special Committee provided consulting services to the Company in preparing the Small Business Lending business plan. Key assumptions and forecast information with respect to such Small Business Lending plan were reviewed with Gary Stern, in his capacity as the President and Chief Executive Officer of the Company. Gary Stern, in his role as President and Chief Executive Officer, provided strategic directions, and assumptions regarding the Personal Injury business, Consumer Receivables business and overhead expenses. Gary Stern also reviewed and approved the final forecasted results used in the Final Management Forecast. Steven Leidenfrost, Chief Financial Officer, reviewed the Final Management Forecast for accuracy within the forecasted worksheet, and overall reasonableness. Mr. Leidenfrost also reviewed and approved the assumptions used by David Cavill, Louis Piccolo and Monika Dasgupta.  Ricky Stern reviewed and approved the assumptions used for GAR and Five Star.

On February 18, 2020, the Special Committee and a representative from Tannenbaum held a telephonic meeting to discuss the Final Management Forecast and explanatory memorandum from Steven Leidenfrost on behalf of the Company.

On February 21, 2020, the Final Management Forecast was approved by the Special Committee for Lincoln’s use and shared with representatives of Lincoln.

On February 27, 2020, Seth Berman, general counsel to the Company, sent Tannenbaum a revised draft of the merger agreement, which included comments from the Company’s Accounting Department. Tannenbaum forwarded such draft to MWC.

On February 29, 2020, the Special Committee entered into an amendment (the “Engagement Letter Amendment No. 1”) to the engagement letter agreement with Lincoln, dated November 22, 2019 with Lincoln, to increase the fees to be paid to Lincoln as a result of the additional work conducted by Lincoln in connection with the several revised management forecasts that the Special Committee asked Lincoln to review.

On March 13, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum and Lincoln were present. At the meeting, representatives of Lincoln reviewed with the Special Committee its updated preliminary financial analysis of the Company using the Final Management Forecast, including an updated preliminary financial analysis of the items Lincoln reviewed with the Special Committee in Lincoln’s previous presentation on January 16, 2020. Representatives of Lincoln also discussed with the Special Committee its preliminary financial analysis of the proposed small business lending segment, identified by Company management in the Final Management Forecast. Lincoln’s preliminary financial analysis, which was based on market data through March 12, 2020, also reflected the actual results of the Company, including its cash position, through December 31, 2019, and the value of the Company’s marketable securities as of March 12, 2020, which had increased significantly. The Special Committee then discussed with representatives of Lincoln the current offer price of $11.05 per share, as compared to the preliminary financial analysis in Lincoln’s presentation, which included an indicated equity value range for the Company of $11.28 to $11.68 per share. After discussion, the Special Committee determined that the current offer price of $11.05 per share was insufficient based on the improvement in the Company’s balance sheet. The Special Committee authorized Mr. Slackman and Mr. Monteleone to contact Gary Stern and request that his offer be increased.

Following the Special Committee meeting on March 13, 2020, Mr. Slackman, Mr. Monteleone and a representative of Lincoln had a telephonic meeting with Gary Stern to discuss the Special Committee’s determination that the $11.05 offer price was insufficient and to present the case to Mr. Stern for increasing his offer for the Company. Mr. Stern proposed $11.25 per share, and Messrs. Slackman and Monteleone told Mr. Stern that the Special Committee would not consider such price. Messrs. Slackman and Monteleone asked Mr. Stern to increase his $11.05 offer by $0.59 to $11.64 per share, but Mr. Stern was unwilling to agree to such an increase. Following an extensive discussion, Mr. Stern agreed to increase his offer to $11.47 per share, which reflected an increase of $0.42 per share that was equal to the per share increase in the cash and cash equivalents, investments and available-for-sale securities on the Company’s balance sheet as of December 31, 2019 as compared to September 30, 2019. Messrs. Slackman and Monteleone agreed to present this price to the Special Committee at its next meeting.

On March 16, 2020, the Special Committee held a telephonic meeting with representatives of Lincoln and Tannenbaum present. Mr. Slackman reported on the discussion with Gary Stern, in which he offered $11.47 per share. After much discussion, the Special Committee unanimously approved Mr. Stern’s latest offer of $11.47 per share. On March 16, 2020, a representative from Tannenbaum communicated to Mr. Stern’s counsel that the Special Committee supported Mr. Stern’s $11.47 per share offer.

On March 19, 2020, Mr. Stern called Mr. Slackman to discuss the impact of COVID-19 on the Company’s collection efforts with respect to several categories of receivables and Mr. Stern’s belief that an $11.47 per share offer price was not justified by the current operating and economic environment. Over the next several days, Mr. Stern’s counsel and lawyers from Tannenbaum had several teleconferences to discuss COVID-19, the merger process and the offer price. In the last of those discussions, Mr. Stern agreed that he would not withdraw his $11.47 offer or try to negotiate a lower price.

On March 26, 2020, the Special Committee held a telephonic meeting with representatives of Tannenbaum to discuss the state of the draft merger agreement and open issues therewith.

From April 3 through April 7, 2020, counsel for the Stern Group, the Company and the Special Committee continued to negotiate the merger agreement. At this time, certain open issues remained on the draft merger agreement, including the amount of the termination fees. On April 6, 2020, the members of the Special Committee were given a draft of the merger agreement and ancillary documents in substantially final form. On April 7, 2020, the parties came to an agreement on all of the open issues and a revised draft of the merger agreement was distributed to the members of the Special Committee, the Company, the Stern Group and each party’s respective legal and financial advisors.

On April 8, 2020, the Special Committee held a meeting at which representatives of Tannenbaum and Lincoln were present. Representatives of Tannenbaum discussed the process and procedures undertaken by the Special Committee and their fiduciary duties. Representatives of Lincoln delivered Lincoln’s opinion as to the fairness of the merger consideration of $11.47 per share in cash to be received by the holders of shares of Company common stock (other than Gary Stern and members of the Stern Group) in the proposed transaction. Following the delivery of Lincoln’s opinion, the Special Committee, after discussions on the merits of the proposed transaction, unanimously approved the resolution to recommend the board of directors approve the proposed transaction and determined that the merger and the other transactions contemplated by the merger agreement are advisable and are fair to, and in the best interests of, the Company and the Company stockholders (other than Gary Stern and members of the Stern Group).

Following the Special Committee meeting, the board of directors held a telephonic meeting to hear and discuss the Special Committee’s unanimous recommendation as to the proposed transaction. The board of directors thereafter (without the participation of Gary Stern) determined that the merger and the other transactions contemplated by the merger agreement are advisable and are fair to, and in the best interests of, the Company and the Company’s stockholders (other than Gary Stern and members of the Stern Group) and approved the merger agreement and the merger and the other transactions contemplated by the merger agreement. The board of directors also (without the participation of Gary Stern) resolved that the merger agreement be submitted for consideration by the stockholders of the Company at a special meeting of stockholders and recommended (without the participation of Gary Stern) that the stockholders of the Company vote to adopt the merger agreement.

Later that same day, the Company and Parent, Merger Sub and the applicable Stern Group members executed the merger agreement and the ancillary documents thereto.

On the evening of April 8, 2020, the Company issued a joint press release and filed a Current Report on Form 8-K announcing the merger transaction and the execution of the merger agreement.

In light of the execution of the merger agreement, on April 14, 2020, the parties to the Litten action entered into a joint stipulation and submitted a proposed order to stay proceedings in the Litten action until the earlier of: (i) an announcement by the Company of the completion or cancellation of the merger; or (ii) June 30, 2020. The court granted the parties’ stipulation and proposed order the same day.

On May 22, 2020, RBF Capital, LLC (“RBF”), a stockholder owning approximately 8.9% of the outstanding shares of the Company, provided the Company with an offer letter to buy the outstanding shares of the Company for $13.00 per share (“RBF Proposal”). This information was also disclosed in a Schedule 13D, filed on May 22, 2020.

On May 26, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum were present. The Special Committee and representatives of Tannenbaum discussed the RBF Proposal. The Special Committee and Tannenbaum discussed the terms of the Agreement and Plan of Merger relating to other acquisition proposals and options for potential next steps in light of the RBF Proposal.  After lengthy discussions, it was determined that the representatives from Tannenbaum would have a discussion with counsel for each of the Stern Group and RBF and that the Special Committee would meet again on May 29, 2020.

Following the May 26, 2020 Special Committee meeting, representatives of Tannenbaum had separate discussions with RBF and its counsel, the Company’s counsel, and with the Stern Group’s counsel.

On May 28, 2020, the Company’s securities counsel received two letters and a draft complaint from attorneys for certain stockholders in connection with the Company's preliminary proxy statement, filed May 7, 2020, which were subsequently shared with the Special Committee.  The letters and draft complaint contained allegations regarding the adequacy of disclosures in the preliminary proxy statement, particularly with respect to the disclosures relating to financial projections.

On May 29, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum were present. At the meeting, the Special Committee and representatives of Tannenbaum continued to discuss the RBF Proposal. The Special Committee discussed the potential re-engagement and role of Lincoln in connection with the RBF Proposal. Representatives from Tannenbaum then reported on their conversation with RBF and stated that RBF provided information concerning its background and how long it would take to conduct diligence, if the Company was willing to share information with RBF. The representatives of Tannenbaum then reported on their discussions with counsel for the Company, as well as counsel for the Stern Group.

The Special Committee also discussed how to ascertain whether the members of the Stern Group would be willing to sell their respective shares to a third party. After further discussion, the Special Committee asked representatives of Tannenbaum, as its counsel, to request counsel for the Stern Group to formally state whether or not the members of the Stern Group were interested in selling shares in response to the RBF Proposal. The Special Committee also requested that the Tannenbaum representatives ask counsel for the Stern Group whether the Stern Group was willing to have a discussion with RBF concerning its proposal. The Special Committee also discussed the potential outcomes of a vote of the Company’s minority stockholders with respect to the Stern Group’s current proposal in light of the RBF Proposal.

The Special Committee also discussed the two letters and draft complaint received by the Company, and shared with the Special Committee, from attorneys for certain stockholders concerning the adequacy of disclosures in the preliminary proxy statement. The Special Committee noted that those concerns would be considered in the amended proxy statement.

On May 29, representatives from Tannenbaum had a call with the Stern Group’s counsel to discuss the RBF Proposal and their position with respect thereto.

On June 1, 2020, the Special Committee received a formal letter from Mr. Stern, on behalf of the Stern Group and pursuant to the Special Committee’s request, which reiterated the Stern Group’s position stated in its original offer letter that the Stern Group was not interested in selling its shares in the Company or participating in a merger or other strategic transaction with a third party and would not vote its shares in favor of such a transaction

On June 2, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum were present. During the meeting, the representatives of Tannenbaum reported on their discussions with the Stern Group’s counsel, as well as the June 1, 2020 letter from Mr. Stern. The Special Committee further discussed the Stern Group’s position, as set forth in the letter.

The Tannenbaum representatives also reported that the Stern Group’s counsel preferred that the Special Committee communicate with RBF with respect to the RBF Proposal rather than the Stern Group doing so. A representative of Tannenbaum requested that the Stern Group confirm in writing that it would not view the Special Committee’s communications with RBF to constitute a breach of the merger agreement, and counsel for the Stern Group agreed to provide such confirmation and did so in writing on June 2, 2020.  Following a discussion, the Special Committee determined by unanimous vote to authorize Mr. Slackman to conduct such discussions with RBF on behalf of the Special Committee, with Tannenbaum as counsel to the Special Committee, after the written confirmation was received from the Stern Group’s counsel.

The Special Committee and representatives of Tannenbaum also discussed various potential scenarios relating to the RBF Proposal, which would depend upon the outcome of the Special Committee’s discussions with representatives of RBF and the Stern Group. Additionally, there were discussions about the Special Committee’s duties and responsibilities in connection with responding to the RBF Proposal.

On June 4, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum were present. At the meeting, the Special Committee discussed a draft non-disclosure agreement, to be executed by RBF and its affiliates and the Company, in connection with preliminary discussions regarding the RBF Proposal. Such draft agreement had been distributed to the Special Committee prior to the meeting. The Special Committee then discussed the potential role of Lincoln in assisting the Special Committee with evaluating the RBF Proposal, if they were to re-engage Lincoln. Among the topics that were discussed were whether or not the Special Committee should request an updated opinion from Lincoln in light of the RBF Proposal, as well as whether further information was needed from the Company.  Following this discussion, the Special Committee directed Mr. Slackman and the representatives from Tannenbaum to have a preliminary conversation with representatives of Lincoln to update them on the new developments concerning RBF. It was also decided that after Mr. Slackman conferred with RBF, the Special Committee should meet with representatives of Lincoln to discuss what further steps the Special Committee and Lincoln should take.

On June 4, 2020, the Company entered into a non-disclosure agreement with RBF and its affiliate, to govern any preliminary discussions between the Company and RBF and its affiliates.

On June 5, 2020, Mr. Slackman and a representative of Tannenbaum had a telephonic meeting with RBF and Richard Fullerton, President of RBF, and RBF’s counsel. During the meeting, Mr. Fullerton discussed some of the reasons why RBF was interested in acquiring the Company. Mr. Slackman and a representative from Tannenbaum informed the RBF representatives that Gary Stern reiterated to the Special Committee his previously stated position of not being willing to sell his shares in the Company to a third party. Mr. Fullerton inquired if that included the whole Stern Group or just Gary Stern and the representative of Tannenbaum reported that it included the entire Stern Group. Mr. Fullerton expressed his view that RBF raising its $13.00 per share offer would be futile in light of the Stern Group’s position.  Mr. Slackman and the representative of Tannenbaum asked Mr. Fullerton if RBF would be supportive of an increased offer from the Stern Group in light of their position that they did not intend to sell their shares  of the Company’s stock to a third party. Mr. Fullerton responded that there could be a number that RBF would be willing to sell at, but did not indicate what that number was. Mr. Slackman and the Tannenbaum representative then asked if the RBF team would be interested in joining a call hosted by the Special Committee with the Stern Group regarding the RBF Proposal and/or a potential increased offer that the Special Committee would seek from the Stern Group. The RBF team indicated that they would be interested in participating in such a discussion. 

 On June 8, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum were present. Mr. Slackman and a representative of Tannenbaum reported on the call they had on June 5, 2020 with RBF and Richard Fullerton, President of RBF, and RBF’s counsel. Following the discussion of the RBF meeting, the Special Committee members authorized Mr. Slackman to participate in the call with the RBF team and the Stern Group, along with representatives from Tannenbaum.

The next item of discussion at this meeting was the re-engagement of Lincoln to advise the Special Committee in evaluating the RBF Proposal and to potentially render an opinion as to the fairness of the RBF Proposal.  The Special Committee determined that it would re-engage Lincoln and planned to hold a meeting at which representatives of Lincoln would be present to discuss with the Special Committee its request for an opinion with respect to the RBF Proposal.  The Special Committee authorized Mr. Slackman to reach out to representatives of Lincoln to express the Special Committee’s interest in re-engaging Lincoln and to ask representatives of Lincoln to propose terms to the Special Committee for Lincoln’s re-engagement.

The Special Committee also discussed different strategies for negotiating with both RBF and the Stern Group in light of the terms of the merger agreement.

On June 10, 2020, Mr. Slackman and a representative of Tannenbaum had a call with Gary Stern, counsel for the Stern Group, Richard Fullerton from RBF and its counsel, which was arranged at the request of the Special Committee. During the call, Mr. Fullerton explained why he did not believe $11.47 was adequate consideration in connection with the merger. Mr. Stern reiterated the Stern Group’s position that, even in light of RBF’s current $13.00 per share offer for the Company, the members of the Stern Group were not interested in selling their respective shares in the Company to a third party under any circumstances. After considerable discussion among the parties, the call ended with no agreement in place and no indication that RBF or the Stern Group were interested in continuing the discussions.

Following the meeting with the RBF team and the Stern Group team, a representative of Tannenbaum had a call with the Stern Group’s counsel, at which the representative from Tannenbaum asked if the Stern Group was receptive to increasing its offer above $11.47 per share. The Stern Group’s counsel reported that Mr. Stern might be receptive to offering a higher price closer to $13.00 per share or slightly more. During this call, the representative from Tannenbaum informed Stern Group’s counsel that the Special Committee intended to re-engage Lincoln as its financial advisor to assist it with the evaluation of RBF’s $13.00 per share offer and/or any other subsequent offer made by the Stern Group.

Later that same day, following the call with the Stern Group’s counsel, a representative of Tannenbaum and Mr. Slackman had a call with Mr. Fullerton from RBF. During this call, Mr. Fullerton informed Mr. Slackman and the representative of Tannenbaum that RBF disagreed with the $11.47 price as a fair price, and that RBF would support a $13.50 per share offer. Mr. Fullerton also indicated that RBF was open to a price below $13.50.

Also on June 10, 2020, following the call with Mr. Fullerton, Mr. Slackman had a call with Mr. Stern. During the call, Mr. Stern questioned why re-engaging Lincoln was required, to which Mr. Slackman advised Mr. Stern to talk to his counsel and have his counsel contact a representative of Tannenbaum. They also discussed the possibility of Mr. Stern raising his offer to $13.00 or more per share.

Later that day, the Special Committee received a letter from counsel to the Stern Group. The letter stated that Mr. Stern and the Stern Group believed that there was no reasonable basis for the Special Committee to conclude that the RBF Proposal constituted, or could reasonably be expected to lead to, a Superior Proposal, as that term is defined in the merger agreement. Thus, the Stern Group was ready, willing and able to proceed with the merger agreement on its current terms. Nevertheless, the letter stated that the Stern Group was prepared to increase its offer to $12.00 per share.  The letter further stated that if the Stern Group were to so increase its offer, it did not anticipate that the Special Committee would waste the parties’ time or the Company’s money consulting with a financial advisor given the increased amount of the offer over the $11.47 offer for which the Special Committee had already received a fairness opinion. 

On June 11, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum were present. Mr. Slackman and a representative of Tannenbaum reported on the numerous discussions they had with members of the RBF team and the Stern Group team on June 10, 2020. The Special Committee then discussed the letter it received from the Stern Group’s counsel on June 10, 2020, regarding the $12.00 offer.  Representatives of Tannenbaum advised the Committee that they believed Mr. Stern’s counsel’s position was without merit, and that the Special Committee was not precluded under the merger agreement from considering the RBF Proposal or from seeking further advice from Lincoln.

At this meeting, the Special Committee also discussed when to re-engage Lincoln, and what Lincoln’s role would be with respect to advising the Special Committee in evaluating the RBF Proposal, or any new proposal by Mr. Stern.  The Special Committee discussed the proposed terms of Lincoln’s re-engagement, which had been set forth in a draft engagement letter and sent to the Special Committee members prior to the meeting. The Special Committee determined that it would re-engage Lincoln while the Special Committee simultaneously continued to try to negotiate a deal between Mr. Stern and RBF in which Mr. Stern would substantially increase his offer. The Special Committee determined to schedule a meeting at which representatives of Lincoln would be present to discuss with the Special Committee the RBF Proposal and whether the Special Committee would request an opinion with respect to the RBF Proposal. The Special Committee authorized Mr. Slackman to reach out to representatives of Lincoln to invite them to the next Special Committee meeting. 

The Special Committee asked a representative of Tannenbaum to talk to MWC, counsel to the Stern Group, to inquire as to whether the Stern Group would still consider making a $13.00 per share offer, since the representative from MWC indicated in the earlier call that he was willing to communicate that request to the Stern Group. Additionally, the Special Committee authorized Mr. Slackman and a representative of Tannenbaum to talk to RBF to determine what price per share it would consider fair and would support from the Stern Group.

On June 11, 2020, following the Special Committee meeting, representatives of Tannenbaum spoke to counsel for the Stern Group, to discuss a process for the Special Committee to operate as the negotiating agent to bring the Stern Group and RBF to a negotiated transaction at a price acceptable to the Special Committee and RBF.  Later that day, representatives of Tannenbaum spoke to counsel and asked whether the Stern Group would be agreeable to a price substantially in excess of $11.47 but less than the $13.50 per share price that RBF had asked for in an earlier call, if the Special Committee were to negotiate with RBF and get them to support an increased offer from the Stern Group. Counsel said the Stern Group was open to the Special Committee attempting to negotiate an increased price acceptable to the Stern Group and RBF.

On June 12, 2020, Mr. Slackman and a representative of Tannenbaum had a call with Richard Fullerton from RBF and his counsel, whereby, after an extensive discussion, Mr. Fullerton advised that he believed $13.10 would be a fair price that RBF would fully support, and he would agree to rescind the RBF Proposal and enter into a voting agreement at that price. Following this discussion, representatives from Tannenbaum had a call with Stern Group counsel, in which they informed Stern Group counsel that RBF would be agreeable to a $13.10 per share offer from the Stern Group. Stern Group counsel informed the representatives from Tannenbaum that they would discuss this price with Mr. Stern.

Between June 12 and 14, 2020, Mr. Slackman had a number of discussions with Louis Piccolo, a member of the board of directors. In his first discussion with Mr. Piccolo, in which Mr. Piccolo inquired about the status of the negotiations, Mr. Slackman explained why he thought Mr. Stern should increase his per share offer price.  Following this call, Mr. Piccolo spoke to Mr. Stern and reported to Mr. Slackman that Mr. Stern did not want to increase his offer above $12.00 per share. Mr. Slackman explained to Mr. Piccolo that Mr. Stern probably would not obtain the requisite votes of the minority stockholders to approve an offer price of $12.00, in light of the RBF Proposal of $13.00. Mr. Piccolo later informed Mr. Slackman that he had a further conversation with Mr. Stern in which Mr. Piccolo reiterated the points raised by Mr. Slackman in support of an increased offer by Mr. Stern.  Following these discussions, on June 14, 2020, Mr. Stern informed Mr. Slackman that he was open to increasing the Stern Group’s offer to $13.00 per share or higher.  

On the morning of June 15, 2020, a representative from Tannenbaum received an email from the Stern Group’s  counsel stating that Mr. Stern was not inclined to raise his offer to the levels being requested and that, if he were to raise his offer, he felt that $12.00 per share was a fair price, substantially higher than the price he originally offered and at the high end of the indicated equity value range of the Company included in Lincoln’s presentation to the Special Committee on April 8, 2020.  This email was shared with the members of the Special Committee.

Later that morning, a representative of Tannenbaum received another email from the Stern Group’s counsel stating that Mr. Stern believed that it might be helpful if the Special Committee could facilitate another all hands call with RBF to see if some resolution could be reached.  Following receipt of this email and the distribution of the email to the members of the Special Committee, Mr. Slackman called a representative from Tannenbaum to discuss the possibility of Mr. Slackman calling Mr. Stern to report their discussions with RBF and the $13.10 proposed offer price. The representative of Tannenbaum agreed that Mr. Slackman should call Mr. Stern to discuss and negotiate an increased offer price from Mr. Stern of $13.10 per share which the Special Committee believed was attractive and which Mr. Fullerton indicated was the minimum amount RBF would accept.

Immediately following this call, Mr. Slackman called Mr. Stern and described his call with RBF from Friday, June 12, 2020, and the $13.10 price point recommended by RBF. Mr. Slackman urged Mr. Stern to agree to the price of $13.10 per share and not continue to negotiate for a lower price. Mr. Stern acquiesced and stated he would have his lawyer contact representatives from Tannenbaum. Shortly thereafter, a representative of Stern Group’s counsel called a representative from Tannenbaum and informed him that the Stern Group was willing to increase its offer to $13.10 per share. 

Later in the day on June 15, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum and Lincoln were present. Prior to representatives of Lincoln joining the meeting, Mr. Slackman and a representative from Tannenbaum reported to the Special Committee the foregoing discussions, leading up to the $13.10 offer made by the Stern Group. In the discussion that followed, the members of the Special Committee stated that the price of $13.10 per share was a very favorable price for the stockholders in light of the previous offer of $11.47 per share and the financial analyses that Lincoln had performed with respect to that offer. In the course of a discussion amongst the members of the Special Committee and the representatives of Tannenbaum, regarding the next steps, it was suggested that RBF should be asked to enter into a voting agreement in which it would agree to vote its shares in favor of the going private deal from the Stern Group at $13.10. 

After representatives of Lincoln joined the meeting, representatives from Lincoln and the Special Committee discussed the status of the Company’s financials for the quarter ended March 31, 2020.  The Special Committee then inquired about Lincoln delivering an updated opinion with respect to the fairness of the $13.10 per share offer from the Stern Group.  Representatives of Lincoln described the process for providing an updated opinion and also explained what information Lincoln would need from the Company in order to render an opinion. During the course of this meeting, members of the Special Committee and representatives of Lincoln discussed the assumptions set forth in the RBF Proposal in support of its assessment of the value of the Company.

After the representatives of Lincoln left the meeting, there was a further conversation about RBF’s valuation of the Company. It was decided that Mr. Slackman should request that representatives of Lincoln be ready to discuss RBF’s assumptions and assessment of the value of the Company at its next meeting with the Special Committee.

There was then further extensive discussion about the assumptions RBF was making in its Schedule 13D filing, and members of the Special Committee expressed the view that these assumptions were not applicable to evaluating the overall value of the Company, particularly to bidders other than RBF. In their discussions, members of the Special Committee noted, among other things, that because of the age of the portfolios being carried by the Company’s business segments, they would not be easy to price or sell. Mr. Monteleone noted, that while RBF was in a unique position to reduce costs by taking on some of the responsibilities of the Company’s current management, other acquirors of the Company would not necessarily be in a similar position to reduce such expenses. Additionally, it was noted by members of the Special Committee that the RBF Proposal was preliminary, and that due diligence outside of publicly available information had not yet been conducted by RBF, and as such, the offer was not necessarily a true or accurate indication of the value of the Company.

On June 15, 2020, following the Special Committee meeting, the Special Committee entered into a second amendment (the “Engagement Letter Amendment No. 2”) to the engagement letter agreement with Lincoln, dated November 22, 2019, and as amended on February 29, 2020, to increase the fees to be paid to Lincoln as a result of the additional work conducted by Lincoln related to the revised merger consideration of $13.10 per share offered by Mr. Stern and the Special Committee’s evaluation of such offer.  On June 17, 2020, the Company’s Chief Financial Officer informed representatives of Lincoln that following his review, the Final Management Forecast had been updated to include the Company’s actual results of the quarter ended March 31, 2020 and that there were no material changes to such Final Management Forecast.  The Company’s Chief Financial Officer provided a certificate to representatives of Lincoln on June 19, 2020 as to the assumptions used in the Final Management Forecast.

On June 19, 2020, the Special Committee held a telephonic meeting, at which representatives of Tannenbaum and Lincoln were present. Prior to representatives of Lincoln joining the meeting, representatives from Tannenbaum discussed the process going forward in light of the $13.10 per share offer made by Mr. Stern following the Special Committee’s negotiations with RBF. Additionally, prior to representatives of Lincoln joining the meeting, the Special Committee discussed the updated financial analysis prepared by Lincoln, which served as an update to the financial analysis presented to the Special Committee on April 8, 2020. The Special Committee noted that the updated financial analysis reflected that the range of values per share were $11.31 (low), $12.07 (mid), $12.91 (high), which were below the $13.10 price per share that the Stern Group was willing to offer. The Special Committee also discussed, among other things, the portion of the updated financial analysis which contained a summary of the key changes from the April 8, 2020 presentation by Lincoln. For further information regarding Lincoln's presentation to the Special Committee dated June 19, 2020, see “Special Factors -- Opinion of the Financial Advisor to the Special Committee of Our Board of Directors” beginning on page 36. 

Once representatives of Lincoln joined the meeting, representatives of Lincoln delivered to the Special Committee Lincoln’s opinion to the effect that, as of the date of such opinion and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Lincoln as set forth in its written opinion, the merger consideration of $13.10 per share in cash to be received by the holders of shares of Company common stock (other than Gary Stern and members of the Stern Group) in the proposed transaction, was fair, from a financial point of view, to the holders of such shares. Representatives of Lincoln also reviewed with the Special Committee the updated financial analysis.  The Special Committee and representatives of Lincoln discussed the assumptions identified by RBF at the time it made its offer of $13.00 per share, and it was noted that RBF had not conducted diligence outside of publicly available information. Prior to leaving the meeting, the Special Committee members then requested a written copy of Lincoln’s opinion.

After representatives of Lincoln left the meeting, the Special Committee members continued to discuss the $13.10 offer.  It was noted that the Stern Group’s offer was above the high end of the range of values in the updated financial analysis and appeared to be a favorable price for stockholders.  After a lengthy discussion, the Special Committee, upon motion made and duly seconded, unanimously approved a resolution to recommend that the board of directors approve the proposed transaction at $13.10 per share and determined that the merger and the other transactions contemplated by the amended merger agreement were advisable and fair to, and in the best interests of, the Company and the Company’s stockholders (other than Gary Stern and members of the Stern Group).  Subsequently that day, the full board of directors of the Company met by teleconference, without the participation of Gary Stern, and determined that the merger and the other transactions contemplated by the amended merger agreement were advisable and fair to, and in the best interests of, the Company and the Company’s stockholders (other than Gary Stern and members of the Stern Group). 

On June 25, 2020, the Company, Parent and Merger Sub executed Amendment No. 1. Additionally, in connection with the execution of the Amendment No. 1, RBF entered into a Settlement and Voting Agreement with the Company (“RBF voting agreement”), pursuant to which RBF has, among other things, agreed to vote the shares of Common Stock beneficially owned by it, or that may become beneficially owned by it during the term of the agreement, in favor of adopting of the merger agreement, and any other matters necessary for consummation of the merger and the other transactions contemplated by the merger agreement.  RBF and its affiliates beneficially own 8.9% of the outstanding shares of the Company, or approximately 23.3% of the outstanding shares of Common Stock of the Company entitled to vote thereon not owned, directly or indirectly, by the Parent, the Stern Group, any officers and directors of the Company or any other person having an equity interest in, or any right to acquire an equity interest in, Merger Sub or any entity of which Merger Sub is a direct or indirect subsidiary.  Accordingly, RBF’s anticipated vote in favor of the merger represents approximately 46.6% of the vote required by holders of shares of Common Stock of the Company entitled to vote thereon not owned, directly or indirectly, by the Parent, the Stern Group, any officers and directors of the Company or any other person having an equity interest in, or any right to acquire an equity interest in, Merger Sub or any entity of which Merger Sub is a direct or indirect subsidiary.

On July 7, 2020, in light of the further developments since April 14, 2020 described herein, the parties to the Litten action submitted a joint stipulation extending the stay in that matter until the earlier of (i) an announcement by the Company of the completion or cancellation of the merger; or (ii) September 30, 2020, and the Court entered an order granting the parties’ joint stipulation on July 8, 2020.

Interests of Our Directors and Executive Officers in the Merger

Certain executive officers of the Company and members of our board of directors may be deemed to have interests in the merger that are different from or in addition to the interests of our stockholders generally. Our board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the merger. Described below are the interests of the current executive officers of our management and members of our board of directors.

With regard to our directors serving on the Special Committee and the Board (other than Mr. Stern), areas where their interests may differ from those of stockholders in general relate to the impact of the transaction on the directors’ outstanding equity awards and the provision of indemnification and insurance arrangements pursuant to the merger agreement and the Company’s certificate of incorporation, bylaws and indemnification agreements, which reflect the fact that, by their service on the Board, they may be subject to claims arising from such service. Because of their existing compensation arrangements, the differences in interests for our executive officers involve the possible receipt of the following types of payments and benefits that may be triggered by or otherwise relate to the merger:

These interests are described in more detail below, and certain of them are quantified in the tables below. In addition, Parent has the right, under the merger agreement, to negotiate and enter into agreements with other executive officers prior to the closing of the merger pursuant to which our executive officers would roll over some or all of their shares of Common Stock or Company options into Parent equity interests, though no agreements, arrangements or understandings with respect to any such potential investment exist between the Parent Parties and any executive officer (other than Gary Stern and Ricky Stern) as of the date of this proxy statement.

Payments to the Special Committee

The members of the Special Committee evaluated and negotiated the merger agreement and evaluated whether the merger is in the best interests of the Company’s unaffiliated stockholders. Mr. Stern did not participate in the deliberations of the Special Committee regarding the merger agreement and the transactions contemplated by the merger agreement. The members of the Special Committee were aware of these differing interests and considered them, among other matters, in evaluating and negotiating the merger agreement and the merger and in recommending to the stockholders that the merger agreement be adopted. See “Special Factors—Background of the Merger” beginning on page 14 and “Special Factors—Reasons for the Merger and Recommendation of Our Board of Directors” beginning on page 29 for a further discussion of these matters. You should take these interests into account in deciding whether to vote “FOR” the proposal to adopt the merger agreement.

In consideration of the time and effort required of the members of the Special Committee in connection with evaluating strategic alternatives available to the Company, the proposed merger (including negotiating the terms and conditions of the merger agreement), and possible negotiations with parties making alternative acquisition proposals, the Board (excluding Gary Stern) determined that each member of the Special Committee received a $15,000, during the duration of their service on the Special Committee plus out of pocket expenses. The Chairman of the Special Committee received $30,000, plus out of pocket expenses. These fees are not dependent on the closing of the merger or on the Special Committee’s or the Board’s approval of, or recommendations with respect to, the merger or any other transaction. As of the date of the filing of this proxy statement, the aggregate amount paid to the Chairman of the Special Committee for his service on the Special Committee was approximately $30,000, and the aggregate amount paid to each of the other Special Committee members for their service on the Special Committee was approximately $15,000.

Payments to Directors and Executive Officers

Severance and Change-in-Control Benefits

None of our Named Executive Officers are currently providing services under an employment agreement, and upon a termination by the Company, they would not receive severance benefits pursuant to any formal plan or program currently in place. Prior to his resignation, Mr. Foster was a party to an employment agreement with us. His employment agreement provided for severance benefits upon an involuntary termination by the Company. However, no severance benefits became payable to Mr. Foster in connection with his voluntary resignation from the Company on September 22, 2019.

Outstanding Option Awards at Fiscal Year-End

The following table provides information on exercisable options held by the Named Executive Officers on June 30, 2020. As of June 30, 2020 none of the Named Executive Officers held unvested stock option or stock awards. More information can be found in the Company’s Annual Report on Form 10-K, for the fiscal year ended September 30, 2019, as amended.

The merger agreement provides that, unless otherwise agreed by Parent and a holder of outstanding options, as of the effective time of the merger, each of the outstanding options, whether vested or unvested, will be cancelled and will entitle the holder thereof to receive, as soon as reasonably practicable after the effective time (but in any event no later than the first payroll date after the effective time), an amount in cash equal to the product of (i) the total number of shares subject to the option immediately prior to the effective time times (ii) the excess, if any, of the per share merger consideration over the exercise price per share under such option, less any required withholding taxes.

The following table sets forth, as of June 30, 2020, for each of our directors and executive officers holding stock options: (a) the aggregate number of shares of Company common stock subject to vested stock options and the value of such vested stock options, on a pre-tax basis, at the per share merger consideration; (b) the aggregate number of unvested stock options that will vest in connection with the merger, assuming the director or executive officer remains employed by the Company at the effective time of the merger, and the value of those unvested stock options, on a pre-tax basis, at the per share merger consideration; (c) the aggregate number of shares of Company common stock subject to vested and unvested stock options for each individual, assuming the director or executive officer remains employed by the Company at the effective time of the merger; and (d) the aggregate amount of consideration that we expect to pay to all such individuals with respect to their stock options in connection with the merger.

Recommendation of Our Board of Directors

After deliberation and consultation with its legal advisors, and acting upon the recommendation of the Special Committee, which retained and was advised by its own financial and legal advisors, our board of directors has determined (without the participation of Gary Stern) that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable and are fair to, and in the best interests of, our stockholders (other than Gary Stern and members of the Stern Group). Our board of directors recommends (without the participation of Gary Stern) that our stockholders vote FOR the proposal to adopt the merger agreement and FOR the adjournment proposal.

In considering the recommendation of our board of directors with respect to the merger agreement, you should be aware that certain of our directors and executive officers have interests in the merger that are different from, or are in addition to, the interests of our stockholders. Please see the section entitled “Special Factors—Interests of Our Directors and Executive Officers in the Merger” beginning on page 26 of this proxy statement.

Reasons for the Merger and Recommendation of Our Board of Directors

At a meeting held on June 19, 2020 our board of directors, acting upon the unanimous recommendation of the Special Committee, without the participation of Gary Stern, approved the merger agreement, as amended, the merger and the other transactions contemplated by the merger agreement and determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable and are fair to, and in the best interests of, our stockholders (other than Gary Stern and members of the Stern Group), approved the execution and delivery by the Company of the merger agreement and the consummation of the merger transactions, resolved that the merger agreement be submitted for consideration by the stockholders at the virtual special meeting and recommended that our stockholders vote FOR adopting the merger agreement.

In making its recommendation, our board of directors (without the participation of Gary Stern) considered the recommendation of the Special Committee. In addition, our board of directors and the Special Committee consulted with our outside legal and financial advisors and our senior management team at various times, and considered a number of factors, in its analysis of the fairness of the merger to the unaffiliated stockholders, that they believed supported their decision to approve and recommend the merger and the merger agreement, including the following principal factors:

The Special Committee and our board of directors (without the participation of Gary Stern) also weighed the factors described above against the following factors and risks that generally weighed against entering into the merger agreement (not in any relative order of importance):

In the course of reaching the determinations and decisions and making the recommendations described above, that the merger is substantively and procedurally fair to the Company’s unaffiliated stockholders, our board of directors (without the participation of Gary Stern) and the Special Committee also considered the following factors relating to the procedural safeguards that our board of directors and the Special Committee implemented to permit the Special Committee to effectively represent the interests of the Company’s unaffiliated stockholders:

In considering the recommendation of our board of directors with respect to the proposal to adopt the merger agreement, you should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, yours. The Special Committee and our board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the stockholders of the Company. See the section entitled “Special Factors—Interests of Our Directors and Executive Officers in the Merger” beginning on page 26 of this proxy statement.

In the course of reaching its decision to recommend to the board of directors that it approve and declare advisable the merger agreement, the merger and the transactions contemplated therein, the Special Committee did not seek to determine a pre-merger going concern value for the Common Stock to determine the fairness of the merger consideration to the Company’s unaffiliated stockholders. Further, the Special Committee did not consider net book value, which is an accounting concept, as a primary factor in assessing the fairness of the merger to the Company and its unaffiliated stockholders, because of its belief that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical acquisition costs and therefore not a relevant measure in the determination of the fairness of the merger. Net book value does not take into account the prospects of the Company, contingent liabilities, market conditions, trends in the industries in which the Company operates, the business risks inherent in those industries or the probability that such net book value could be achieved in a liquidation or other similar restructuring. Further, the Special Committee did not believe that net book value on its own accurately reflects the Company’s present market value. The Special Committee believes that the trading price of the Common Stock represents the best available indicator of the Company’s going concern value and that the merger consideration is fair to the Company’s unaffiliated stockholders.

The Special Committee was not aware of any firm offers made by any unaffiliated person, other than the Stern Group, during the past two years for a merger, sale or other transfer of all or any substantial part of the Company’s assets, or purchase of the Company’s securities that would enable the holder to exercise control of the Company.

The foregoing discussion of the information and factors considered by the Special Committee and our board of directors in reaching their conclusions and recommendations in connection with the fairness of the merger to the Company’s unaffiliated stockholders are not intended to be exhaustive, but includes the material factors considered by the Special Committee and the board of directors. In view of the variety of factors considered in connection with its evaluation of the fairness of the merger and the complexity of these matters, the Special Committee and our board of directors did not find it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The Special Committee and our board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Special Committee based its recommendation to our board of directors on the totality of the information presented and our board of directors considered all of the foregoing factors as a whole and based its recommendation on the totality of the information presented.

Based upon the foregoing, the board of directors and Special Committee believes that the merger agreement, the merger and the other transactions contemplated by the merger agreement, are fair to, and in the best interest of, the Company’s unaffiliated stockholders.

Purposes and Reasons of the Company for the Merger

The Company’s purpose for engaging in the merger is to enable its stockholders to receive $13.10 per share of Company Common Stock, which represents a premium of approximately 13.2% to the 30-trading day average stock price of $11.57 as of June 24, 2020, a premium of approximately 25.1% to the average closing share price of our common stock for the 90 days ended on June 24, 2020, a premium of approximately 42.0% to the average price of our common stock during the 52 weeks prior to June 24, 2020 and a premium of approximately 17.6% to the last trading day before the announcement that the Company, Parent and Merger Sub had entered into Amendment No. 1, of $11.14. The Company believes its long-term objectives can best be pursued as a private company. The Company has determined to undertake the merger at this time based on the conclusions, determinations and reasons of the Special Committee and the board of directors described in detail above under “Special Factors—Background of the Merger” beginning on page 14 and “Special Factors—Recommendation of Our Board of Directors; Special Factors—Reasons for the Merger and Recommendation of our Board of Directors” beginning on page 29.

Purposes and Reasons of the Parent Parties and the Stern Group for the Merger

Each of the Parent Parties and the Stern Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of each of the Parent Parties and the Stern Group should not be construed as a recommendation to any Company stockholder as to how that stockholder should vote on the proposal to adopt the merger agreement.

If the merger is completed, the Company will become a wholly-owned subsidiary of Parent, and the Company Common Stock will cease to be publicly traded. The purpose of the merger is to effectuate the transactions contemplated by the merger agreement. Each of the Parent Parties and the Stern Group believe that structuring the transaction in such manner is preferable to other alternative transaction structures because (i) it will enable Parent to directly acquire all of the outstanding shares of the Company at the same time and (ii) it will allow the Company to cease to be a publicly registered and reporting company.

Each of the Parent Parties and the Stern Group believe that it is in the best interests of the Company to operate as a privately held entity. Given the changing nature of the Company’s business, particularly as it relates to the run-off of the consumer receivable portfolios, the increased regulatory scrutiny, and the high expense and declining benefit of being a public company without having been successful at unlocking stockholder value, the Parent Parties and the Stern Group believe that now is an opportune time to take the Company private.  The Parent Parties and the Stern Group believe that, as a privately held entity, the Company will have greater operational flexibility to pursue alternatives that it would not have as a public company, and management will be able to concentrate on long-term growth, reducing the focus on the quarter-to-quarter performance often emphasized by the public equity market’s valuation of the Common Stock. Each of the Parent Parties and the Stern Group also believe that the merger will provide the Company with flexibility to pursue transactions with a risk profile that may be unacceptable to many public stockholders, and that these transactions can be more effectively executed as a private company. As a result of being privately held, the Company will also enjoy certain additional efficiencies, such as a reduction of the time devoted by its management and certain other employees to compliance with the reporting and other requirements applicable to a public company.

Parent Parties’ and the Stern Group’s Position as to the Fairness of the Merger

Each of the Parent Parties and the Stern Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of each of the Parent Parties and the Stern Group should not be construed as a recommendation to any Company stockholder as to how that stockholder should vote on the proposal to adopt the merger agreement.

The Parent Parties and the Stern Group have interests in the merger that are different from, and in addition to, those of the other security holders of the Company, including the interests that are described under “—Interests of Our Directors and Executive Officers in the Merger.” In light of these different interests, and the fact that Gary Stern is an officer and director of the Company and Ricky Stern is an officer of the Company, the board of directors established a Special Committee consisting solely of independent and disinterested directors who are not affiliated with any of the Stern Group or the Parent Parties, are not employees of the Company or any of its affiliates and have no financial interest in the merger different from, or in addition to, the Company’s stockholders (other than their interests described under “Special Factors—Interests of Our Directors and Executive Officers in the Merger” beginning on page 26) to negotiate with, among others, the Parent Parties, with the assistance of independent legal and financial advisors. None of the Parent Parties nor the Stern Group participated in the deliberations of the Special Committee or the board of directors regarding, or received advice from the Company’s legal advisors or financial advisors as to, the substantive or procedural fairness of the merger to the Company’s unaffiliated stockholders. For these reasons, each of the Parent Parties and the Stern Group does not believe that their interests in the merger influenced the decision of the Special Committee or the board of directors with respect to the merger agreement or the merger.

None of the Parent Parties nor Stern Group has performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the merger to the Company’s unaffiliated stockholders. Based on the knowledge and analysis of each of the Parent Parties and the Stern Group of available information regarding the Company, as well as discussions with the Company’s senior management regarding the Company and its business and the factors considered by, and the analysis and resulting conclusions of, the Board and the Special Committee discussed under “Special Factors—Reasons for the Merger and Recommendation of our Board of Directors” beginning on page 29, each of the Parent Parties and the Stern Group, believes that the merger is substantively and procedurally fair to the Company’s unaffiliated stockholders. In particular, each of the Parent Parties and the Stern Group believes that the proposed merger is substantively and procedurally fair to the Company’s unaffiliated stockholders based on its consideration of the following factors, among others:

The foregoing discussion of the factors considered by each of the Parent Parties and the Stern Group in connection with the fairness of the merger is not intended to be exhaustive but is believed to include material factors considered by them. The Parent Parties and the Stern Group did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the merger. Rather, each of the Parent Parties and the Stern Group made its fairness determination after considering all of the foregoing factors as a whole. The Parent Parties and the Stern Group believe these factors provide a reasonable basis upon which to form their belief that the merger is fair to the Company’s unaffiliated stockholders. This belief should not, however, be construed as a recommendation to any Company stockholder to vote in favor of the proposal to adopt the merger agreement. None of the Parent Parties nor the Stern Group make any recommendation as to how stockholders of the Company should vote their shares of Common Stock on the proposal to adopt the merger agreement.

Opinion of the Financial Advisor to the Special Committee of Our Board of Directors

On June 19, 2020, Lincoln rendered its opinion to the Special Committee of the board of directors of the Company to the effect that, as of the date of such opinion and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Lincoln as set forth in its written opinion, the merger consideration of $13.10 per share in cash to be received by the holders of shares of common stock of the Company (other than Gary Stern and members of the Stern Group) in the proposed transaction, was fair, from a financial point of view, to the holders of such shares.

Lincoln’s opinion was directed to the Special Committee (in its capacity as such) and only addressed the fairness, from a financial point of view, to the non-Stern Group holders of the merger consideration to be received by such stockholders in the proposed transaction and did not address any other aspect or implication of the proposed transaction, any related transaction or any other agreement, arrangement or understanding entered into in connection therewith or otherwise. The summary of Lincoln’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex C to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Lincoln in connection with the preparation of its opinion. However, neither Lincoln’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Special Committee, any security holder of the Company or any other person as to how to act or vote with respect to any matter relating to the proposed transaction or otherwise.

In arriving at its Opinion, Lincoln, among other things:

In preparing its Opinion, Lincoln relied upon and assumed the accuracy and completeness of all of the financial, accounting, legal, tax and other information Lincoln reviewed, and Lincoln did not assume any responsibility for the independent verification of any of such information. With respect to the Final Management Forecast and other financial information provided to Lincoln by management of the Company, Lincoln assumed that they were reasonably prepared in good faith on a basis reflecting the best currently available estimates and judgments of the management of the Company as to the future financial results of the Company and the other matters covered thereby. With respect to the Extended Management Projections, Lincoln reviewed and discussed such projections and other financial information with the Special Committee, and Lincoln was advised by the Special Committee and assumed, that the Extended Management Projections were a reasonable basis upon which to evaluate the proposed transaction. At the direction of the Special Committee, Lincoln used the Final Management Forecast and the Extended Management Projections in performing its analyses and in arriving at its Opinion. Lincoln assumed no responsibility for the assumptions, estimates and judgments on which the Final Management Forecast, the Extended Management Projections, the interim financial statements and other financial information were based, and Lincoln expressed no opinion with respect to the Final Management Forecasts, the Extended Management Projections, or the interim financial statements and other financial information. In addition, Lincoln was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities (contingent, derivative, off-balance sheet or otherwise) of the Company or Parent, or any of their respective subsidiaries, nor was Lincoln furnished with any such evaluations or appraisals. Lincoln did not undertake an independent analysis of any potential or actual litigation, possible unasserted claims or other contingent liabilities, to which the Company was, is or may be a party or was, is or may be subject, or of any possible unasserted claims or other contingent liabilities to which the Company was, is or may be a party or was, is or may be subject. With regard to the information provided to Lincoln by the Company, Lincoln relied upon the assurances of management of the Company that they were unaware of any facts or circumstances that would make such information materially incomplete or misleading. Lincoln also assumed that there was no material change in the assets, liabilities, business, condition (financial or otherwise), results of operations or prospects of the Company since the date of the most recent financial statements made available to Lincoln. With the Special Committee’s consent, Lincoln also assumed that in the course of obtaining any necessary regulatory and third party consents, approvals and agreements for the proposed transaction, no modification, delay, limitation, restriction or condition would be imposed that would have an adverse effect on the Company or the proposed transaction, and that the proposed transaction would be consummated in accordance with the terms of the amended merger agreement and other documents made available to Lincoln, without waiver, modification or amendment of any term, condition or agreement therein that was material to Lincoln’s analysis.

Lincoln was not requested to, and did not, seek alternative candidates for a transaction with the Company. Lincoln relied upon the fact that the proposed transaction would be consummated in a manner that complies in all respects with all applicable federal and state statutes, rules and regulations. Representatives of the Company have advised Lincoln, and Lincoln further assumed, that the final terms of the draft Amendment No. 1 and the proposed transaction would not vary materially from those set forth in the copies or drafts, as applicable, reviewed by Lincoln. Lincoln’s Opinion was and is necessarily based on financial, economic, market and other conditions as they existed on and the information made available to Lincoln as of the date thereof. Although subsequent developments may affect Lincoln’s Opinion, Lincoln does not have any obligation to update, revise or reaffirm its Opinion. Lincoln’s opinion noted that, as the Special Committee was aware, the credit, financial and stock markets, and the industry in which the Company operates, have experienced and may continue to experience volatility and Lincoln expressed no view or opinion as to any potential effects of such volatility on the Company or the proposed transaction.

It is understood that Lincoln’s Opinion was for the use and benefit of the Special Committee in connection with the proposed transaction. Neither Lincoln’s Opinion nor any other advice or information provided by Lincoln, whether oral or written, may be disclosed, reproduced, disseminated, summarized, quoted from or referred to, in whole or in part, without Lincoln’s prior written consent, except that the Company may reproduce a copy of Lincoln’s Opinion in full in any document that is required to be filed with the SEC and required to be mailed by the Company to holders of shares of Company common stock relating to the proposed transaction. Lincoln’s Opinion only addressed the fairness from a financial point of view of the merger consideration to be received by the non-Stern Group holders in the proposed transaction and did not address any other terms, aspects or implications of the proposed transaction, or any agreements, arrangements or understandings entered into in connection with the proposed transaction or otherwise. In addition, Lincoln’s Opinion did not address the relative merits of the proposed transaction as compared to other transaction structures, transactions or business strategies that may be available to the Company or the Special Committee, nor did it address or constitute a recommendation regarding the decision of the Special Committee to recommend the proposed transaction, or the decision of the Board to authorize the execution of Amendment No. 1 or to engage in the proposed transaction. Lincoln’s Opinion was authorized for issuance by the Fairness Opinion Committee of Lincoln. Lincoln’s Opinion does not constitute advice or a recommendation to the Special Committee, the Company or any security holder as to how it should act or vote on any matter relating to the proposed transaction or otherwise. Lincoln expressed no opinion as to what the market price or value of the shares of Company common stock would be after the announcement of the proposed transaction. Lincoln also expressed no opinion about the amount or nature of the compensation to the Company’s officers, directors or employees, or class of such persons in connection with the proposed transaction relative to the merger consideration in the proposed transaction or otherwise.

Lincoln Presentations

Lincoln delivered presentations to the Special Committee on December 30, 2019, January 16, 2020, March 13, 2020, April 8, 2020 and June 19, 2020 (together, the “Lincoln Presentations”). The summaries of the Lincoln Presentations in this proxy statement are qualified in their entirety by reference to the full text of the Lincoln Presentations, copies of which have been attached as exhibits to the transaction statement on Schedule 13E-3. For further information regarding the Final Management Forecast and the Extended Management Projections, see the full text of the June 19, 2020 Lincoln Presentation, a copy of which has been attached as an exhibit to the transaction statement on Schedule 13E-3. 

Summary of Lincoln’s Financial Analysis

Set forth below is a summary of the material financial analyses in the June 19, 2020 Presentation reviewed by Lincoln with the Special Committee on June 19, 2020 in connection with rendering Lincoln’s Opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Lincoln. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Lincoln. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before June 18, 2020 and is not necessarily indicative of then-current market conditions.

The following summary of Lincoln’s financial analyses includes information presented in tabular format. Several financial analyses were employed and no one method of analysis should be regarded as critical to the overall conclusion reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the relevance of particular techniques. Each of the analyses conducted was carried out to provide a particular perspective of the merger consideration. In order to fully understand the analyses, the tables must be read together with the full text of each summary. The tables are not intended to stand alone and alone do not constitute a complete description of Lincoln’s financial analyses. Considering the tables below without considering the full narrative description of Lincoln’s financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of such analyses. Lincoln did not form a conclusion as to whether any individual analysis, when considered in isolation, supported or failed to support its opinion as to the fairness of the merger consideration. Lincoln did not place any specific reliance or weight on any individual analysis, but instead, concluded that its analyses, taken as a whole, supported its opinion.

For purposes of its analyses, Lincoln reviewed a number of financial metrics including:

Sum-of-the-parts Analysis

Lincoln performed a sum-of-the-parts financial analysis to determine a range of indicated equity values for the Company and a range of indicated values per share of Company common stock. Lincoln calculated these indicated value ranges by performing a discounted cash flow analysis for each of the business segments of the Company based on the Final Management Forecast and the Extended Management Projections, as applicable, approved for Lincoln’s use by the Special Committee. Lincoln also performed a selected public companies / M&A transactions analysis to determine a range of indicated enterprise values for the Personal Injury Claims segment and a selected public companies analysis to determine a range of indicated enterprise values for the Social Security Disability Advocacy/GAR segment.

Lincoln derived the range of indicated equity values of the Company by calculating (i) the value of the March 31, 2020 balances of Company’s cash and cash equivalents, investments and available for sale securities using market prices as of June 18, 2020, plus (ii) the indicated enterprise value ranges for each of the business segments of the Company (consumer receivables, personal injury claims, GAR/social security disability advocacy and small business lending), minus corporate overhead expenses (with and without the effect of corporate taxes), plus (iii) the value of the Company’s other assets (the present value of the tax benefits of the Company’s net operating losses, the Company’s 49% ownership interest in a joint venture with Serlefin Peru, the Company’s settlements receivable relating to a lawsuit filed by the Company against a third-party servicer, and the Company’s other assets). The resulting low, midpoint and high equity values for the Company were then divided by the number of fully-diluted shares outstanding to determine a range of indicated values per share of Company common stock. This analysis resulted in the following range of indicated equity values per share of Company common stock, compared to the merger consideration of $13.10 per share.

Discounted Cash Flow Analysis - Consumer Receivables Segment

Lincoln performed a discounted cash flow analysis of the projected unlevered free cash flows of the Consumer Receivables business segment of the Company based on the Final Management Forecast and the Extended Management Projections, as applicable, for the fiscal years ending September 30, 2020 through September 30, 2029. Lincoln defines “free cash flow” as the cash generated by the Consumer Receivables business segment that is available either to reinvest, service debt or to distribute to stockholders. Lincoln calculated the Consumer Receivables business segment’s projected unlevered free cash flows by taking its earnings before interest and taxes (“EBIT”), subtracting taxes, adding back depreciation, and subtracting the change in working capital and capital expenditures. The projected unlevered free cash flows were then discounted to their net present value using an estimate of the Company’s weighted average cost of capital of 14.0% and applying a range of plus-or-minus 2.5% to derive an illustrative range of discount rates of 11.5% to 16.5%. Based on discussions with Company management, the Consumer Receivables business segment, which had not made any new portfolio purchases in several years, was assumed for purposes of this analysis to be liquidated at the end of fiscal year 2029 following its substantially complete run-off. Accordingly, no terminal value calculation was included in Lincoln’s discounted cash flow analysis for the Consumer Receivables business segment.

Based on these assumptions, Lincoln’s discounted cash flow analysis indicated an estimated enterprise value range for the Consumer Receivables business segment of approximately $16.3 million to $17.8 million.

Discounted Cash Flow Analysis - Personal Injury Claims Segment (Simia Capital, LLC and Sylvave, LLC)

Lincoln performed a discounted cash flow analysis of the projected unlevered free cash flows of the Personal Injury Claims business segment which includes legal entities Simia Capital, LLC (“Simia”) and Sylvave, LLC (“Sylvave”) based on the Final Management Forecast for the fiscal years ending September 30, 2020 through September 30, 2024. Lincoln defines “free cash flow” as the cash generated by Simia and Sylvave that is available to reinvest, service debt or to distribute to stockholders. Lincoln calculated Simia and Sylvave’s projected unlevered free cash flows by taking the total amount of principal and interest collections from Simia’s and Sylvave’s portfolio, and subtracting operating expenses and pro forma taxes for the business segment. The projected unlevered free cash flows were then discounted to their net present value using an estimate of the Company’s weighted average cost of capital of 14.0% and applying a range of plus-or-minus 2.5% to derive an illustrative range of discount rates of 11.5% to 16.5%. Based on discussions with Company management, Simia and Sylvave, which have had no new personal injury claims portfolio fundings in several years, were assumed for purposes of this analyses to be fully wound down by the end of fiscal year 2024. Accordingly, no terminal value calculation was included in Lincoln’s discounted cash flow analysis for Simia and Sylvave.

Based on these assumptions, Lincoln’s discounted cash flow analysis indicated an estimated enterprise value range for Simia and Sylvave of approximately $2.95 million to $3.15 million.

Selected Public Companies Analysis - Personal Injury Claims Segment (Arthur Funding)

Lincoln reviewed and compared certain financial information of the Personal Injury Claims business segment legal entity Arthur Funding, LLC (“Arthur Funding”) to corresponding financial multiples, metrics and ratios for publicly traded companies in the specialty finance industry:

The tables below identify the companies reviewed and summarize certain observed trading multiples of the selected public companies as of June 18, 2020.

Note: “NMF” means not meaningful figure.

Source: S&P Capital IQ and public filings.

None of the selected public companies were identical to Arthur Funding. As a result, a complete valuation analysis cannot be limited to a quantitative review of the selected public companies, but also requires complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of Arthur Funding. Although none of these selected public companies is directly comparable to Arthur Funding, Lincoln selected these companies for its analysis based on their geographic footprint, relative size, historical and projected financial performance and profitability, to that of Arthur Funding. For purposes of its analysis, Lincoln used certain publicly available historical financial data for the selected public companies. This analysis produced valuation multiples of selected financial metrics which Lincoln utilized to estimate the enterprise value of Arthur Funding.

Selected M&A Transactions Analysis - Personal Injury Claims Segment (Arthur Funding)

Lincoln reviewed publicly available information related to the precedent acquisition transactions in the specialty finance industry listed in the table below, including each transaction’s equity value as a multiple of book value and last-twelve-month earnings. The selection of these transactions was based, among other things, on the target company’s industry, the relative size of the transaction compared to the proposed transaction, and the availability of public information related to the selected transaction.

Source: S&P Capital IQ and public filings.

No company or transaction utilized in the precedent transactions analysis was identical or directly comparable to Arthur Funding or the proposed transaction.

In order to estimate a range of indicated equity values for Arthur Funding, Lincoln applied a selected range of book value multiples of 1.25x to 1.50x to Arthur Funding’s book value of $519,900 as of June 15, 2020. Arthur Funding’s book value represents the Company’s investment in Arthur Funding as of such date. This analysis resulted in an indicated equity value range for Arthur Funding of approximately $0.65 million to $0.78 million. The indicated equity value range for Arthur Funding was equivalent to the indicated enterprise value range for Arthur Funding on account of Arthur Funding having no segment-level leverage.

Valuation multiples were selected, in part, by taking into consideration historical and projected financial performance metrics of Arthur Funding relative to such metrics of the selected public companies and selected M&A transactions, and other factors including, but not limited to, geographic footprint, relative size, historical and projected financial performance and profitability, the length of time Arthur Funding has been originating new business, and Arthur Funding’s revenue and earnings composition.

Lincoln calculated an indicated enterprise value range for the Personal Injury Claims business segment by adding the indicated value ranges for the Simia, Sylvave and Arthur Funding legal entities that were derived using the discounted cash flows analysis, selected public companies analysis, and selected M&A transactions analysis described above. Based on these analyses, this resulted in a range of indicated enterprise values for the Personal Injury Claims business segment of approximately $3.6 million to $3.9 million.

Discounted Cash Flow Analysis - Social Security Disability Advocacy Segment (GAR)

Lincoln performed a discounted cash flow analysis of the projected unlevered free cash flows of the Social Security Disability Advocacy business segment of the Company, or GAR, based on the Final Management Forecast for the fiscal years ending September 30, 2020 through September 30, 2026. Lincoln defines “free cash flow” as the cash generated by GAR that is available either to reinvest, service debt or to distribute to stockholders. Lincoln calculated GAR’s projected unlevered free cash flows by taking its earnings before interest and taxes (“EBIT”), subtracting taxes, adding back depreciation, and subtracting the change in working capital and capital expenditures. Lincoln calculated the terminal value of GAR using an assumed perpetuity growth rate of 2.0%, based on discussions with Company management regarding its view of the long-term growth rate of GAR. The projected unlevered free cash flows for the fiscal years ending September 30, 2020 through September 30, 2026 and terminal value of GAR as of September 30, 2026 were then discounted to their net present value using an estimate of the Company’s weighted average cost of capital of 14.0% and applying a range of plus-or-minus 1.5% to derive an illustrative range of discount rates of 12.5% to 15.5%. The net present values of the unlevered free cash flows and the terminal value of GAR were then added together to determine a range of indicated enterprise values for GAR.

Based on these assumptions, Lincoln’s discounted cash flow analysis indicated an estimated enterprise value range for GAR of approximately $7.8 million to $10.1 million.

Selected Public Companies Analysis - Social Security Disability Advocacy Segment (GAR)

Lincoln reviewed and compared certain financial information of GAR to corresponding financial multiples, metrics and ratios for the selected public companies listed above in the Selected Public Companies Analysis - Personal Injury Claims Segment (Arthur Funding).

In order to estimate a range of indicated enterprise values for GAR based on the selected public companies analysis, Lincoln applied a selected range of enterprise value to EBITDA multiples of 5.0x to 6.0x to GAR’s projected fiscal year 2021 EBITDA of approximately $1.3 million. This analysis resulted in an indicated enterprise value range for GAR of approximately $6.3 million to $7.6 million.

Valuation multiples were selected, in part, by taking into consideration historical and projected financial performance metrics of GAR relative to such metrics of the selected public companies, including, but not limited to, the size of GAR on a revenue and EBITDA basis, historical and projected EBITDA margins compared to the selected public companies, and historical and projected revenue and EBITDA growth compared to the selected public companies.

None of the selected public companies were identical to GAR. As a result, a complete valuation analysis cannot be limited to a quantitative review of the selected public companies, but also requires complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of GAR. Although none of these selected public companies is directly comparable to GAR, Lincoln selected these companies for its analysis based on their geographic footprint, relative size, historical and projected financial performance and profitability, to that of GAR. For purposes of its analysis, Lincoln used certain publicly available historical financial data for the selected public companies summarized below. This analysis produced valuation multiples of selected financial metrics which Lincoln utilized to estimate the enterprise value of GAR. These valuation multiples are set forth below. The estimated 2021 enterprise value to EBITDA multiples for the selected public companies in this analysis ranged from a low of 1.8x to a high of 4.2x, with a median of 3.6x.

Note: “N/A” means not available; “NMF” means not meaningful figure.

Source: S&P Capital IQ and public filings.

Lincoln calculated an indicated enterprise value range for GAR of approximately $6.4 million to $8.1 million by calculating the average of the range of enterprise values that were derived from the discounted cash flows analysis and selected public companies analysis of GAR described above.

Discounted Cash Flow Analysis - Small Business Lending Segment

Lincoln performed a discounted cash flow analysis of the projected unlevered free cash flows of the Small Business Lending business segment of the Company based on the Final Management Forecast for the fiscal years ending September 30, 2021 through September 30, 2026. Lincoln defines “free cash flow” as the cash generated by the Small Business Lending business segment that is available either to reinvest, service debt or to distribute to stockholders. Lincoln calculated the Small Business Lending business segment’s projected unlevered free cash flows by taking its earnings before interest and taxes (“EBIT”), subtracting taxes and subtracting the Company’s net investment in the Small Business Lending segment. Lincoln calculated the terminal value of the Small Business Lending business segment using a terminal book value multiple of 1.50x, based on an analysis of selected public companies in the small business lending industry. The projected unlevered free cash flows for the fiscal years ending September 30, 2021 through September 30, 2026 and terminal value of Small Business Lending as of September 30, 2026 were then discounted to their net present value using a range of discount rates of 17.5% to 22.5% based on an estimate of venture-like rates of return given the uncertainty and risk associated with the early-stage development nature of the Small Business Lending business segment. The net present values of the unlevered free cash flows and the terminal value of the Small Business Lending business segment were then added together to determine a range of indicated enterprise values for the Small Business Lending business segment.

This analysis indicated an estimated enterprise value range for the Small Business Lending business segment of approximately $20,000 to $2.57 million.

Discounted Cash Flow Analysis - Corporate Overhead

Lincoln performed a discounted cash flow analysis of the projected unlevered free cash flows related to the Company’s corporate overhead expenses, with and without the effect of corporate taxes, based on the Final Management Forecast and the Extended Management Projections, as applicable, for the fiscal years ending September 30, 2020 through September 30, 2028. Lincoln defines “free cash flow” as the cash generated (or used by) the Company related to its corporate overhead expenses that is available either to reinvest, service debt or to distribute to stockholders. Lincoln calculated the projected unlevered free cash flows related to the Company’s corporate overhead expenses by taking its earnings before interest and taxes (“EBIT”) (which for corporate overhead expenses was a negative number), subtracting taxes, adding back depreciation, and subtracting capital expenditures and the change in working capital. The projected unlevered free cash flows were then discounted to their net present value using an estimate of the Company’s weighted average cost of capital of 14.0% and applying a range of plus-or-minus 2.5% to derive an illustrative range of discount rates of 11.5% to 16.5%. Based on discussions with the Special Committee and with the Special Committee’s approval, Lincoln assumed that the Company would cease operating when each of the Company’s consumer receivables segment and Simia and Sylvave segments have liquidated, and the Company’s other business segments have matured and would be able to be sold to facilitate a wind down of the Company. Accordingly, no terminal value calculation was included in Lincoln’s discounted cash flow analysis for corporate overhead expenses of the Company.

Based on these assumptions, Lincoln’s discounted cash flow analysis indicated an estimated enterprise value range for the corporate overhead expenses of the Company (pre-tax) of approximately $(26.2) million to $(29.6) million, and an estimated enterprise value range for the corporate overhead expenses of the Company (post-tax) of approximately $(18.6) million to $(21.0) million, resulting in an overall range (calculated by taking the low end of the pre-tax range and the high end of the post-tax range) of approximately $(21.0) million to approximately $(26.2) million. 

Other Presentations by Lincoln

December 30, 2019 Presentation

The December 30 Presentation referenced, for informational purposes, among other things: (i) an overview of Lincoln’s valuation methodology; (ii) a preliminary analysis of the high end of the equity value of the Company, which resulted in an indicated equity value of $11.76 per share; (iii) a preliminary analysis of the book value of the Company (for reference only), which resulted in an indicated equity value of $13.23 per share; (iv) an illustrative perspective on potential negotiation positions; and (v) a preliminary analysis of the Company’s corporate overhead expenses.

January 16, 2020 Presentation

The January 16 Presentation referenced, for informational purposes, among other things: (i) preliminary analyses that were substantially similar to those contained in the December 30 Presentation and updated based on then-current market information; (ii) a preliminary financial analysis of the Company on a sum-of-the-parts basis using the Second Revised Management Forecast for each of the Company’s business segments (including an analysis of the Company’s corporate overhead expenses, without the effect of corporate taxes), which resulted in an indicated equity value range of $10.72 to $10.93 per share; and (iii) updated values for the Company’s cash and marketable securities based on market data available as of January 15, 2020.

March 13, 2020 Presentation

The March 13 Presentation referenced, for informational purposes, among other things: (i) preliminary analyses that were substantially similar to those contained in the January 16 Presentation and updated based on then-current market information; (ii) a per-share value bridge from the January 16 Presentation; (iii) updated values for the Company’s cash and marketable securities based on market data available as of March 12, 2020; and (iv) a preliminary financial analysis of a new potential business segment, small business lending, identified by Company management in the Final Management Forecast. The preliminary financial analysis resulted in an indicated equity value range for the Company of $11.28 to $11.68 per share.

April 8, 2020 Presentation

The April 8 Presentation referenced, among other things: (i) analyses that were substantially similar to those contained in the June 19 Presentation (except that the estimated enterprise value range for the corporate overhead expenses of the Company was calculated without the effect of corporate taxes) and based on then-current market information and the Final Management Forecast; and (ii) updated values for the Company’s cash and marketable securities based on market data available as of April 6, 2020. The financial analysis resulted in an indicated equity value range for the Company of $11.32 to $11.70 per share.

Miscellaneous

Lincoln and its affiliates provide a range of investment banking and financial advisory services and, in that regard, may in the future provide investment banking and other financial services to the Company, Gary Stern or members of the Stern Group or their respective affiliates, for which Lincoln and its affiliates would expect to receive customary compensation. During the two year period prior to the date of its opinion and other than in connection with services to the Special Committee related to the proposed transaction, Lincoln and its affiliates have not been engaged to provide investment banking or financial advisory services to the Company, Gary Stern or the Stern Group, and Lincoln has not received any compensation from the Company, Gary Stern or the Stern Group during such period for any such services. Lincoln will receive a fee of $350,000 from the Company for its services related to the proposed transaction, $100,000 of which was paid upon the execution of Lincoln’s engagement letter, $75,000 of which was paid upon the execution of the Engagement Letter Amendment No. 1, $100,000 of which was paid upon Lincoln informing the Special Committee that Lincoln was prepared to render an opinion on April 8, 2020, $37,500 of which was paid upon the execution of the Engagement Letter Amendment No. 2, and $37,500 of which was paid upon Lincoln informing the Special Committee that Lincoln was prepared to render an opinion on June 19, 2020. No portion of Lincoln’s fees are contingent upon the consummation of the proposed transaction. Furthermore, in connection with bankruptcies, restructurings, distressed situations and similar matters, Lincoln and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees, agents and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, the Company, Gary Stern or members of the Stern Group, other participants in the proposed transaction or certain of their respective affiliates or security holders, for which advice and services Lincoln and its affiliates have received and may receive compensation.

 Management Estimates

We do not, as a matter of course, publicly disclose financial projections as to future financial performance, earnings or other results (other than guidance regarding revenue and earnings per share for the current year) and are especially cautious of making financial projections because of unpredictability of the underlying assumptions and estimates. However, in connection with the evaluation of a possible transaction, we provided our board of directors, the Special Committee and Lincoln with certain management estimates, which contained certain non-public financial forecasts that were prepared by our management, which we may refer to as Management Estimates.

A summary of the financial projections included in the Final Management Forecast, which we also refer to as the Management Estimates has been included below. This summary is not being included in this document to influence your decision whether to vote for or against the proposal to adopt the merger agreement, but is being included because these Management Estimates, as well as the Initial Management Forecast, First Revised Management Forecast and Second Revised Management Forecast (the “Preliminary Forecasts”), were made available to our board of directors, the Special Committee and Lincoln. The inclusion of this information should not be regarded as an indication that our board of directors or its advisors or any other person considered, or now considers, such Management Estimates and Preliminary Forecasts to be material or to be necessarily predictive of actual future results, and this information should not be relied upon as such. Our management’s internal financial projections, upon which the Management Estimates and the Preliminary Forecasts were based, are subjective in many respects. There can be no assurance that these financial forecasts will be realized or that actual results will not be significantly higher or lower than forecasted.

In addition, the Management Estimates and the Preliminary Forecasts were not prepared with a view toward public disclosure or toward complying with generally accepted accounting principles in the United States of America, which we may refer to in this proxy statement as GAAP, the published guidelines of the SEC regarding projections and the use of non-GAAP financial measures or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither our independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the Management Estimates, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

The Final Management Forecast, which was utilized by the Special Committee’s financial advisor in analyzing the offer of the Stern Group, was prepared by numerous members of the Company’s management team. David Cavill, Director of Business Intelligence prepared the Final Management Forecast for the Company’s Consumer Receivables business. Monika Dasgupta, Corporate Controller, prepared the Company’s business segments portion of the Final Management Forecast, including GAR, Five Star and Personal Injury, and corporate portion of the Final Management Forecast, which includes certain non-allocated administrative costs, interest income and various other non-operating income and expenses and assets including cash and cash equivalents, investments in equity securities and available-for-sale debt securities, settlement receivable, property and equipment, goodwill, deferred taxes and other assets. Ricky Stern, as Senior Vice President and President of GAR reviewed and approved the GAR and Five Star forecast. Lou Piccolo, a member of the Company’s board of directors who is not a member of the Special Committee provided consulting services to the Company in preparing the Small Business Lending business plan. Key assumptions and forecast information with respect to such Small Business Lending plan were reviewed with Gary Stern, in his capacity as the President and Chief Executive Officer of the Company. Gary Stern, in his role as President and Chief Executive Officer, provided strategic directions, and assumptions regarding the Personal Injury business, Consumer Receivables business and overhead expenses. Gary Stern also reviewed and approved the final forecasted results used in the Final Management Forecast. Steven Leidenfrost, Chief Financial Officer, reviewed the Final Management Forecast for accuracy within the forecasted worksheet, and overall reasonableness. Mr. Leidenfrost also reviewed and approved the assumptions used by David Cavill, Louis Piccolo and Monika Dasgupta.  Ricky Stern reviewed and approved the assumptions used for GAR and Five Star.

The Management Estimates, and the Preliminary Forecasts, were based on a number of variables and assumptions that are inherently uncertain and may be beyond our control. Our management team believes that the assumptions that our management used as a basis for this projected financial information were reasonable at the time our management prepared the Management Estimates and the Preliminary Forecasts, given the information our management had at the time. Important factors that may affect actual results and cause these Management Estimates not to be achieved include, but are not limited to, risks and uncertainties relating to our business (including its ability to achieve strategic goals, objectives and targets over the applicable periods), industry performance, the regulatory environment, general business and economic conditions and other factors described or referenced under “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2019 and Form 10-Q for the six months ended March 31, 2020. In addition, the Management Estimates reflect assumptions that are subject to change and do not reflect revised prospects for our business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the financial forecasts were prepared. Accordingly, there can be no assurance that the Management Estimates will be realized or that our future financial results will not materially vary from the Management Estimates.

Those assumptions included, but were not limited to:

Consumer Receivables (Finance Income)

Personal Injury

The Company’s personal injury claims business segment is comprised of purchased interests in personal injury claimants who are a party in personal injury claims litigation.

Social Security Disability Advocacy (GAR and Five Star)

Small Business Lending

Other Income

                Income Taxes Expense

Overall Assumptions