<PAGE> 1
As filed with the Securities and Exchange Commission on September 27, 1996
Registration No. 333-08407
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NICHOLAS FINANCIAL, INC.
(Name of small business issuer in its charter)
British Columbia, Canada 6130 8736-3354
(State of Organization) (Standard Industrial (IRS Employer
Classification Code) Identification No.)
2454 McMullen Booth Road, Building C
Clearwater, Florida 34619
Telephone: (813) 726-0763
(Address and telephone number of principal executive offices)
2454 McMullen Booth Road, Building C
Clearwater, Florida 34619
(Address of principal place of business or intended principal place of business)
Peter L. Vosotas
2454 McMullen Booth Road, Building C
Clearwater, Florida 34619
(813) 726-0763
(Name, address and telephone number of agent for service)
Copies to:
Alton R. Neal, Esq. Ken R. Bramlett, Jr., Esq.
Jacobs, Forlizzo & Neal, P.A. Robinson, Bradshaw & Hinson, P.A.
13577 Feather Sound Drive, Suite 300 101 North Tryon Street, Suite 1900
Clearwater, Florida 34622 Charlotte, North Carolina 28246
_________________
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE> 2
1,250,000 Shares to 1,750,000 Shares
Nicholas Financial, Inc.
Common Stock
____________
Nicholas Financial, Inc. (the "Company") is offering for sale (the
"Offering") a minimum of 1,250,000 and a maximum of 1,750,000 shares
(the "Shares") of the Company's common stock, no par value (the "Common
Stock"). The Common Stock is listed on the Vancouver Stock Exchange
under the Symbol "NFC.U" and is also traded on the OTC Bulletin Board
under the symbol "NCFNF." On September 26, 1996, the last reported
sales price of the Common Stock on the Vancouver Stock Exchange was
Cdn. $ 3.42 per share or U.S. $2.50, based on the closing exchange
rate in effect on September 26, 1996. See "Price Range of Common
Stock." If subscriptions for 1,250,000 shares of Common Stock have not
been received by September 30, 1996, unless extended to not later than
October 31, 1996 (the "Initial Expiration Date"), the Offering will be
withdrawn and all subscription funds will be promptly refunded to
subscribers by First Union National Bank of North Carolina (the "Escrow
Agent"), together with any interest earned thereon. If subscriptions
for 1,250,000 shares have been received by the Initial Expiration Date,
the Offering may continue until December 31, 1996 or such earlier date
on which subscriptions for 1,750,000 shares of Common Stock have been
received or the Company elects to terminate the Offering (the
"Termination Date"). During the Offering, all subscription funds will
be promptly deposited in an escrow account with the Escrow Agent and
will not be released to the Company unless subscriptions for 1,250,000
shares are obtained by the Initial Expiration Date. See "Terms of the
Offering."
These securities involve a high degree of risk. A prospective
purchaser may sustain a loss of his total investment. See "Risk
Factors" on page 6 of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITI
ES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Selling Proceeds to
Public Commissions (1) Company (2)
<S> <C> <C> <C>
Per Share $ 2.125 $ .2125 $ 1.9125
Minimum - 1,250,000 shares $ 2,656,250 $ 265,625 $ 2,390,625
Maximum - 1,750,000 shares $ 3,718,750 $ 371,875 $ 3,346,875
<FN>
(1)Interstate/Johnson Lane Corporation (the "Sales Agent") will
receive a sales commission equal to 10% of the proceeds of the
Offering. The Company has agreed to reimburse the Sales Agent for
certain expenses and to indemnify the Sales Agent against certain
liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Terms of the
Offering -- Plan of Distribution."
(2)Before deducting expenses, payable by the Company, estimated to be
$150,000.
</TABLE>
The Common Stock will be offered on a "best efforts" basis through
Interstate/Johnson Lane Corporation. The Company may accept or reject
subscriptions in whole or in part and allocate Common Stock among
subscribers. Upon acceptance in writing by the Company, subscriptions
may not be canceled, terminated or revoked. Certificates for shares of
the Common Stock purchased by subscribers will be delivered promptly
after the initial or any subsequent closings of the Offering. See
"Terms of the Offering."
Shares of Common Stock may be purchased by properly completing a
written Subscription Agreement and forwarding it to Interstate/Johnson
Lane Corporation, Attention: Corporate Finance Department, Interstate
Tower, Suite 1500, 121 West Trade Street, Charlotte, NC 28202
(telephone: (704) 379-9268).
______________
The date of this Prospectus is September 27, 1996
<PAGE> 3
Except as otherwise indicated, all references to "dollars" and "$" in
this Prospectus are to U.S. dollars.
The Common Stock is being offered in the States of Florida, Georgia and
South Carolina, and a registration statement relating to the Common Stock
has been filed in the State of South Carolina.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE FLORIDA SECURITIES
ACT AND, IF OFFERED IN FLORIDA OR TO RESIDENTS OF FLORIDA, ARE BEING SOLD IN
RELIANCE UPON THE EXEMPTION CONTAINED IN SECTION 517.061(11) OF SUCH ACT.
FLORIDA SECURITIES ACT, SECTION 5177.061(11) PROVIDES THAT ANY SALES MADE
PURSUANT TO SUCH SUBSECTION ARE VOIDABLE AT THE OPTION OF THE PURCHASER
WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY THE
PURCHASER TO THE COMPANY OR ITS AGENT, OR WITHIN THREE DAYS AFTER THE
AVAILABILITY OF THE PRIVILEDGE IS COMMUNICATED TO THE PURCHASER, WHICHEVER
OCCURS LATER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF ANY OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR SOLICITATION OF, ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
THE SECURITIES OFFERED OR SOLD HEREUNDER SHALL BE SUBJECT TO A ONE YEAR HOLD
RESTRICTION PROHIBITING THE SALE OR TRANSFER OF SUCH SECURITIES IN BRITISH
COLUMBIA, EXCEPT AS MAY BE PERMITTED BY THE SECURITIES ACT (BRITISH
COLUMBIA) AND THE RULES AND REGULATIONS THERETO. THE CERTIFICATES FOR THE
SECURITIES WILL BEAR A LEGEND TO THIS EFFECT.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
All references to the Company refer to Nicholas Financial, Inc., a Canadian
corporation, and its subsidiaries and their respective operations.
The Company
Nicholas Financial, Inc. is a Florida-based consumer finance company,
focused primarily on the purchase of retail installment sales contracts
("Contracts") from automobile dealers and the origination of small direct
consumer loans. The Contracts are for the purchase of older model and high
mileage used cars and light trucks by borrowers who do not meet the credit
standards of traditional lenders. Since the inception of the Company's
finance business, gross finance receivables have grown from $634,000 at
March 31, 1991 to $29.6 million at June 30, 1996, as the Company has
successfully expanded its retail network through the State of Florida. The
Company currently operates ten branch offices in Clearwater, Pinellas Park,
Tampa, Lakeland, Orlando, Ocala, Tallahassee, Melbourne, Ft. Myers, and Ft.
Lauderdale.
As of June 30, 1996, the Company had non-exclusive agreements with
approximately 400 dealers in the State of Florida for the purchase of
Contracts that meet the Company's financing criteria. The dealer agreements
require the dealer to originate Contracts in accordance with the Company's
guidelines. The Company purchases Contracts from the automobile dealer at a
negotiated price that is less than the original principal amount being
financed by the purchaser of the automobile. The amount of the discount
depends upon factors such as the age and value of the automobile, the credit
worthiness of the purchaser and competitive conditions in the industry.
The obligors under the Contracts typically make down payments, in the
form of cash or a trade-in, ranging from 10% to 20% of the sale price of the
vehicle financed. The balance of the purchase price of the vehicle plus
taxes, title fees and, if applicable, premiums for accident and health
insurance and credit life insurance, is generally financed over a period of
12 to 60 months. The annual percentage rate ("APR") for Contracts purchased
by the Company ranges from 18% to 30%. As of June 30, 1996, the average APR
on Contracts outstanding was 25%, and the average discount from the initial
principal amount was 11.4%.
The Company requires the owner of the vehicle to obtain and maintain
collision insurance, naming the Company as a loss payee, in an amount not
less than the value of the vehicle, with a deductible of not more than $500.
The Company also offers purchasers of vehicles certain insurance products.
These products are offered on behalf of the Company by the automobile
dealer, typically at the time of sale, and consist of a roadside assistance
plan, mechanical breakdown protection plan, credit life insurance, credit
accident and health insurance and credit property insurance. Insurance
products are offered by the Company as agent for Voyager Property & Casualty
Insurance Company. If the purchaser so desires, the cost of these products
may be included in the amount financed under the Contract.
The Company is also licensed to make small direct consumer loans.
Although the Company is licensed to make loans of up to $25,000, the average
loan made to date by the Company has an initial principal balance of
approximately $2,795. The Company does not expect the average loan size to
increase significantly within the foreseeable future and does not presently
intend to make loans at or near the maximum size permitted under its
license. The Company offers loans primarily to borrowers under the
Contracts purchased by the Company. The direct consumer loan program was
implemented in April 1995 and currently is not a significant source of
revenue for the Company. As of June 30, 1996, loans made by the Company
pursuant to its direct consumer loan program constituted approximately 2% of
the aggregate principal amount of the Company's loan portfolio. As of June
30, 1996, the average APR for direct consumer loans made by the Company was
25.39%, with the range being from 20% to 30%. The Company is actively
seeking to expand its direct consumer loan business, but there can be no
assurance that the Company will be able to do so or that such expansion, if
undertaken, will be successful.
Over the last six years, the Company has developed its own proprietary
loan management system. Management believes that its software and hardware
design expertise is integral to the Company's finance business and provides
it with a competitive advantage at a low cost. This integrated system
enhances the Company's ability to respond to customer inquiries and to
monitor the performance of its loan portfolio and of individual borrowers
under Contracts. All management personnel are provided with instant,
simultaneous access to information from a single, shared database. The
Company has created specialized programs to automate the tracking of loans
from the point of inception. The capacity of the networking system has been
expanded to include the Company's branch office locations. The networking
system, including proprietary accounting software and state-of-the-art
telecommunications equipment, is designed, installed and maintained by
employees of the Company.
<PAGE> 5
The Company intends to continue its expansion through the purchase of
additional contracts and the expansion of its direct consumer loan program.
In order to increase the size of its loan portfolio of Contracts, it will be
necessary for the Company to open additional branch offices and increase the
size of its revolving credit facility. The Company believes that the
opportunity for growth continues to exist in the State of Florida and, for
the foreseeable future intends to concentrate its expansion activities
primarily in Florida, and to a lesser extent, in the state of Georgia. The
additional capital received from the Offering should provide the Company
with additional borrowing flexibility and added liquidity to initiate this
strategy. The ability to attract motivated and experienced employees from
other lending institutions who prefer the entrepreneurial environment of a
smaller company is also key to the Company's success. To this end, the
Company provides its management with significant incentive programs,
including the granting of stock options. The Company also expects to grow
its consumer loan portfolio through cross-marketing to its existing customer
base and through targeted sales and advertising programs.
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered Minimum: 1,250,000 shares
Maximum: 1,750,000 shares
Common Stock Outstanding
Before Offering 5,885,739 shares (1)
After Offering Minimum: 7,135,739 shares (1)
Maximum: 7,635,739 shares (1)
Use of Proceeds To repay indebtedness and for
general corporate purposes, including
future business expansion. See "Use
of Proceeds."
<FN>
___________________
(1) Does not include approximately 2,143,727 shares of Common Stock
issuable upon the exercise of outstanding options and warrants and the
conversion of outstanding convertible notes. See "Certain
Transactions" and "Principal Stockholders."
</TABLE>
<PAGE> 6
Summary Financial Data
<TABLE>
<CAPTION
Fiscal Year Ended Three Months Ended
March 31, June 30,
1994 1995(1) 1996 1995 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income on finance receivables $2,205,727 $3,514,246 $5,264,080 $1,107,006 $1,348,053
Interest expense 530,679 897,553 1,517,181 331,630 394,630
Sales (software) 741,523 601,925 565,645 151,258 113,711
Interest income on term deposits and lease receivables 3,976 2,861 3,450 2,123 11
Provision for credit losses 567,992 337,732 486,440 40,786 54,313
Other operating expenses 1,582,585 1,989,539 2,770,653 923,976 680,511
Operating income (loss) before taxes (2) 269,970 894,209 1,058,901 (36,005) 332,321
Income tax expense (benefit) 108,683 341,831 396,750 (14,037) 125,865
Income (loss) before cumulative effect of a change
in accounting principle 161,287 552,377 662,151 (21,968) 206,456
Cumulative effect of a change in accounting principle - 71,218 - - -
Net income (loss) 161,287 623,595 662,151 (21,968) 206,456
Earnings per common and common equivalent share:
Income before cumulative effect of a change in
accounting principle .03 .09 .11 - .03
Cumulative effect of a change in accounting principle - .01 - - -
Net income per common and common equivalent share $.03 $.10 $.11 - $.03
Weighted average number of common and
common equivalent shares 6,120,254 6,153,236 6,037,720 6,030,264 6,175,542
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended
March 31, June 30,
1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Number of branch locations (end of period) 5 7 9 7 10
Operating expenses as a percent of average net finance receivables(3) 24.47% 16.56% 13.85% 20.53% 12.19%
Delinquencies as a percent of average net finance receivables(4) 2.78% 4.28% 6.30% 2.98% 5.44%
Net charge-offs as a percent of average net finance receivables 3.50% 9.74% 9.97% 5.45% 10.82%
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1996
Pro Forma Pro Forma
At March 31, At June 30, As Adjusted As Adjusted
1994 1995 1996 1995 1996 (Minimum)(5) (Maximum)(5)
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Finance receivables, gross $11,528,878 $19,716,821 $27,814,597 $25,594,473 $29,561,777 $29,561,777 $29,561,777
Finance receivables, net(6) 7,372,497 12,780,0851 8,326,784 16,389,909 19,557,684 19,557,684 19,557,684
Total liabilities 6,905,328 11,597,218 16,547,936 14,948,538 17,532,209 15,291,584 14,335,334
Shareholders' equity 1,542,883 2,253,556 3,253,865 2,598,545 3,492,035 5,732,660 6,688,910
<FN>
__________________
(1) On April 1, 1994, the Company changed its method of accounting
for unearned interest and dealer discounts as well as reserves for
future credit losses. Application of the change resulted in an after
tax credit of approximately $71,000 to fiscal 1995 net income. See
Note 3 to the Consolidated Financial Statements of the Company.
(2) Amounts include non-cash stock compensation expense (recovery)
of $177,870, $(49,361) and $266,754 for the years ended March 31,
1994, 1995 and 1996, respectively, and $323,139 and $29,947 for the
three month periods ended June 30, 1995 and 1996, respectively,
related to options and warrants granted to key executives and
employees. Excluding this non-cash item, operating income (loss)
before taxes would have been $447,840, $844,847 and $1,325,655 for the
years ended March 31, 1994, 1995 and 1996, respectively, and $287,134
and $362,268 for the three month periods ended June 30, 1995 and 1996,
respectively.
(3) Operating expenses include all expenses associated with doing
business excluding interest expense and provision for credit losses.
(4) Delinquencies represent contractual obligations over 30 days past due.
(5) The Pro Forma As Adjusted balance sheet information gives effect
to (i) the issuance of 1,250,000 or 1,750,000 shares of Common Stock
at the public offering price of $2.125 and (ii) the receipt of
$2,240,625 or $3,196,875 in net proceeds, respectively, and the
application of such proceeds to pay down borrowings under the
Company's revolving line of credit.
(6) Net finance receivables represent gross finance receivables less
unearned interest, non-refundable dealer reserves, unearned dealer
discount and allowance for credit losses.
/TABLE>
<PAGE> 7
RISK FACTORS
In evaluating the Company and the Offering, prospective investors should
consider carefully all of the information set forth in this Prospectus and,
in particular, should evaluate the following risk factors before purchasing
the Common Stock offered hereby.
Fluctuating Interest Rates and Dependence on Line of Credit
The Company's operations require substantial borrowings to provide
funding for the Contracts purchased by the Company. Consequently, the
Company's profitability is affected by the difference between the rate of
interest paid on the funds it borrows and the rate of interest charged on
the Contracts it purchases. The Company generally charges the maximum
interest rate permitted by law on the Contracts. Currently, the principal
source of borrowing by the Company to fund its operations is a revolving
line of credit (the "Line of Credit") with BankAmerica Business Credit, Inc.
("BankAmerica"). At June 30, 1996, the Company had approximately $13.8
million outstanding under the Line of Credit and approximately $1.2 million
available to borrow under the Line of Credit. The Line of Credit is
renewable every two years, and its current term expires in June 1998. If
the Line of Credit is not renewed, the Company would be required to seek
alternative financing sources and repay its outstanding balance on or before
the expiration of the Line of Credit on June 3, 1998. No assurance can be
given that alternative financing sources would be available in such event.
While the Company benefits from declines in interest rates and the resulting
reduction in its cost of funds, future increases in interest rates could
adversely affect the Company's profitability. The Company has not purchased
any form of interest rate protection to reduce its exposure to an increase
in interest rates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"-- Impact of Inflation."
Defaults on Installment Contracts
The Company is engaged in purchasing Contracts for purchases of used
automobiles and light trucks entered into by dealers with consumers who have
limited access to traditional sources of consumer credit. The inability of
an individual to finance a used automobile purchase by means of traditional
credit sources is generally due to such individual's past credit history or
insufficient cash to make the required down payment on an automobile. As a
result, Contracts purchased by the Company are generally with purchasers of
automobiles who are considered to have a higher risk of default on an
installment contract than certain other automobile purchasers. Accordingly,
the finance activities engaged in by the Company typically have a higher
risk of loss than other consumer financing activities. While the Company
believes that its expertise in used automobile financing enables it to
evaluate and price accordingly based on the higher risk associated with the
Company's business, a significant economic downturn in the markets in which
the Company operates could materially increase over historical levels the
number of charged off and delinquent Contracts held by the Company. If the
Company were to experience a material increase in charge-offs or
delinquencies, its profitability could be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Analysis of Credit Losses."
Geographic Concentration
To date, the Company's offices are located exclusively in Florida. The
Company's profitability may be disproportionately affected by the general
economic conditions of and regulatory changes in Florida. The Company
believes, but there can be no assurance that, such geographic concentration
will decrease in the future as a result of its growth strategy, which
includes the possibility of further expansion into adjacent southeastern
states. See "Business -- Strategy."
Relationships With Dealers
The Company's business depends in large part upon its ability to
establish and maintain relationships with reputable dealers who originate
the Contracts that are subsequently purchased by the Company. Although the
Company believes that it has been successful in developing and maintaining
such relationships, such relationships are not exclusive, and many of them
are not longstanding. There can be no assurance that the Company will be
successful in maintaining such relationships, increasing the number of
dealers with whom it does business, or that its existing dealer base will
continue to generate a volume of Contracts comparable to the volume of such
contracts historically generated by such dealers. The agreements that the
Company enters into with dealers provide that all Contracts sold to the
Company are without recourse to the dealer.
<PAGE> 8
Risks Associated with Expansion
The Company's past growth has been due to, and its growth strategy
depends on, to a large extent, the opening of new offices that will focus
primarily on purchasing Contracts and making small direct consumer loans in
markets not previously served by the Company. The Company's future
expansion of its office network depends upon the Company's ability to
attract and retain qualified and experienced office managers and the ability
of such managers to develop relationships with dealers that serve those
markets. The Company generally does not open new offices until it has
located and hired a qualified and experienced individual to manage the
office. Typically, this individual will be familiar with local market
conditions and has existing relationships with dealers in the area to be
served. Although the Company believes that it can attract and retain
qualified and experienced personnel as it proceeds with its planned
expansion into new markets, no assurance can be given that it will be
successful in doing so. In addition, the success of the Company's expansion
strategy is dependent upon the Company's ability to maintain credit quality
as it seeks to increase the portfolio of Contracts and small direct consumer
loans generated by existing and new offices. No assurance can be given that
it will be successful in doing so.
Dependence Upon Key Executives
The Company's growth and development to date have been largely dependent
upon the services of Peter L. Vosotas, Chairman of the Board, President and
Chief Executive Officer, Keith A. Bertholf, Vice President-Operations, and
Ralph T. Finkenbrink, Vice President - Finance. Although the Company
believes that it has sufficient additional experienced management personnel
to accommodate the loss of any key executive, the loss of services of one or
more of these executives could have a material adverse effect on the
Company.
Competition
There are numerous providers of financing for the purchase of used
automobiles either through the direct financing of such purchases or on an
indirect basis through a dealer. Those financing sources include commercial
banks, savings and loan associations, consumer finance companies, credit
unions, financing divisions of automobile manufacturers or automobile
retailers, small sales contract companies and other consumer lenders. Many
of those providers of automobile financing have significantly greater
financial resources than the Company. The Company has focused on a segment
of the market composed of consumers who typically do not meet the more
stringent credit requirements of the traditional consumer financing sources
and whose needs, as a result, have not been addressed consistently by such
financing sources. If, however, the other providers of consumer finance
were to assert a significantly greater effort to penetrate the Company's
targeted market segment, the Company could be materially and adversely
affected. See "Business -- Competition."
Regulation
The Company's business is subject to regulation and licensing under
various federal, state and local statutes and regulations. The Company's
business operations are currently located exclusively in Florida, whose laws
and regulations govern the Company's operations conducted there. Florida
laws limit the interest rate, fees and other charges that may be imposed by
the Contracts, prescribe certain other terms of the Contracts and define the
Company's rights to repossess and sell collateral. In addition, the Company
is required to be, and is, licensed to conduct its operations in Florida.
As the Company expands its operations into other states, it will be required
to comply with the laws of such states.
An adverse change in those laws or regulations could have a material
adverse effect on the Company's profitability by, among other things,
limiting the states in which the Company may operate or the interest rate
that may be charged on Contracts or restricting the Company's ability to
realize the value of the collateral securing the Contracts. The Company is
not aware of any adverse legislation currently pending in Florida. See
"Business -- Regulation."
Limited Market for Common Stock; Possible Volatility of Stock Price
Prior to the Offering, there has been a limited public market for the
Common Stock consisting of transactions in the Common Stock on the Vancouver
Stock Exchange, where the Common Stock is listed, and the OTC Bulletin
Board. The public offering price for the Common Stock was determined by the
Board of Directors of the Company based upon discussions with the Sales
Agent in the context of the Board's consideration of several factors,
including the Company's financial and operating history and condition, its
prospects following the intended use of the estimated net proceeds from the
Offering, the consumer finance industry in general and
<PAGE> 9
various other factors in addition to the current market price of the Common
Stock. Accordingly, the public offering price may not bear a direct
relationship to the fair market value of the Common Stock, and there can be
no assurance that the Common Stock can be resold at the public offering
price or any other price. There also can be no assurance that the market
price of the Common Stock will not decline below the public offering price.
The only trading market that currently exists for the
Common Stock is the Vancouver Stock Exchange and the OTC Bulletin Board.
The average weekly trading volume of the Common Stock on the Vancouver Stock
Exchange during the last three fiscal quarters has been approximately 5,500
shares, and the trading markets for the common stock of companies traded on
the OTC Bulletin Board typically lack the depth, liquidity and orderliness
required to maintain an active market in the trading of common stocks.
The trading price of the Common Stock could be subject to significant
fluctuations in response to variations in the Company's quarterly operating
results, announcements by the Company, its competitors and others, general
trends and regulatory developments in the consumer finance industry and
other factors, including the potential sale of substantial amounts of the
Common Stock to the public beginning 180 days following the date of this
Prospectus. In addition, in recent years the stock market has experienced
large price and volume fluctuations which often have been unrelated to the
operating performance of specific companies or market segments. See "Terms
of the Offering" and "Shares Eligible for Future Sale."
Related Party Transactions and Conflicts of Interest
In the past, the Company has engaged in transactions with affiliates of
the Company which were not the result of arms-length negotiations, including
borrowing money from and issuing notes (some of which are convertible, at
the option of the noteholder, into Common Stock) to affiliates to finance
the Company's growth. In addition, as a guarantor of the Company's
indebtedness under the Line of Credit, Peter L. Vosotas has received
warrants to purchase 1,000,000 shares of Common Stock. Mr. Vosotas and the
noteholders may derive certain benefits from the Offering, including an
increase in the value of the Common Stock underlying the warrants and
convertible notes. See "Certain Transactions."
Shares Eligible for Future Sale
Sales of a substantial number of shares of the Common Stock to the
public following the Offering, or the perception that such sales may occur,
could adversely affect the market price of the Common Stock. Upon
completion of the Offering, there will be 7,135,739 to 7,635,739 shares of
Common Stock outstanding. Of these shares, the 1,250,000 to 1,750,000
shares offered hereby will be freely tradeable in the United States without
restriction under the Securities Act, except for any shares acquired by
"affiliates" of the Company, which will be subject to the resale limitations
of Rule 144 under the Securities Act. The securities offered or sold
hereunder shall be subject to a one year hold restriction prohibiting the
sale or transfer of such securities in British Columbia, except as may be
permitted by the Securities Act (British Columbia) and the rules and
regulations thereto. The certificates for the securities will bear a legend
to this effect. The balance of the shares outstanding after the Offering
will be eligible for sale in the public market at various times after
completion of the Offering, including 2,614,558 shares that will be eligible
for sale under the provisions of Rule 144 applicable to affiliates beginning
180 days after the date of this Prospectus. See "Shares Eligible for Future
Sale." In addition, upon completion of the Offering, the executive officers
and directors of the Company and its subsidiaries will beneficially own
approximately 48.4% (assuming the minimum Offering) or 45.8% (assuming the
maximum Offering) of the Common Stock of the Company, in each case nearly a
sufficient percentage to permit such persons, acting alone, to elect the
Company's Board of Directors and to control the outcome of other matters
requiring a vote of stockholders. See "Principal Stockholders."
Forward-Looking Information
This Prospectus contains various forward-looking statements and
information that are based on management's beliefs and assumptions, as well
as information currently available to management. When used in this
document, the words "anticipate," "estimate," "expect," and similar
expressions are intended to identify forward-looking statements. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to be correct. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
expected. Among the key factors that may have a direct bearing on the
Company's operating results are fluctuations in the economy, the degree and
nature of competition, demand for consumer financing in the markets served
by the Company, the Company's products and services, increases in the
default rates experienced on Contracts, adverse regulatory changes in the
Company's existing and future markets, the Company's ability to expand its
business, including its ability to complete acquisitions and integrate the
<PAGE> 10
operations of acquired businesses, to recruit and retain qualified
employees, to expand into new markets and to maintain profit margins in the
face of increased pricing competition.
TERMS OF THE OFFERING
Offering Price
The Company is hereby offering a minimum of 1,250,000 and a maximum of
1,750,000 shares of Common Stock at the public offering price of $2.125 per
share. The public offering price has been determined by the Board of
Directors of the Company following discussions between the Company and the
Sales Agent and the Board's consideration of several factors, including the
Company's financial and operating history and condition, its prospects
following the intended application of the estimated net proceeds from the
Offering, the prospects of the consumer finance industry in general, and
other factors deemed relevant by the Board of Directors, including reference
to current prices in the existing trading market for the Common Stock.
However, given the limited trading market for the Common Stock and the
consideration of the other factors described above in determining the public
offering price, the public offering price should not be viewed as having
been determined based on market value or any other objective standard of
worth.
Offering Period
The Offering to sell the minimum of 1,250,000 shares of Common Stock
will continue through September 30, 1996, subject to extension by mutual
agreement of the Company and the Sales Agent, at any time and from time to
time, but not beyond October 31, 1996 (September 30, 1996 as such date may
be so extended, the "Initial Expiration Date"). The Company is not
obligated to provide written notice of any such extension to persons who are
subscribers at the time of the extension, and any such extension will not
alter the binding nature of subscriptions already executed and delivered to
the Sales Agent. Extensions of the Initial Expiration Date could result in
an increase in the expenses incurred in connection with the Offering.
If the minimum of 1,250,000 shares has been subscribed by the Initial
Expiration Date, the Offering, at the option of the Company and the Sales
Agent, may be continued until December 31, 1996 or such earlier date as
subscriptions for 1,750,000 shares have been received and accepted by the
Company or the Company determines to terminate the Offering (December 31,
1996 as such date may be so accelerated, the "Termination Date"). While the
Company and the Sales Agent intend to use their best efforts to sell, or
cause to be sold, all of the 1,750,000 shares offered hereby, the Offering
may be terminated at the Company's option without notice to existing or
potential subscribers before all such shares are sold unless at least
1,250,000 shares have been sold by the Initial Expiration Date. The Company
also may terminate the Offering at any time prior to the sale of 1,250,000
shares by providing written notice of such termination to all existing
subscribers.
Minimum Offering Condition
If subscriptions to purchase at least 1,250,000 shares of Common Stock
have not been received and accepted by the Company by the Initial Expiration
Date, the Offering will be withdrawn and all subscription funds will be
promptly refunded by the Escrow Agent, together with any interest earned
thereon. See "-- Escrow Arrangements." The Offering is intended to raise
gross proceeds of between $2,656,250 and $3,718,750. Upon receipt by the
Escrow Agent of gross proceeds of at least $2,656,250 by the Initial
Expiration Date, such proceeds are expected to be transferred by the Escrow
Agent to the Company to be applied in a manner consistent with that set
forth herein under the caption "Use of Proceeds."
Method of Subscription
All subscriptions for Common Stock pursuant to the Offering must be made
by completing a subscription agreement (the "Subscription Agreement"), a
copy of which may be obtained by contacting the Sales Agent at the address
set forth below. The minimum subscription amount is 10,000 shares.
Subscriptions will not be accepted by the Company unless delivered to the
Sales Agent accompanied by payment in full of the subscription price (using
one of the two payment methods specified below). The Company reserves the
right to reject any offer of subscription in whole or in part until the date
the shares purchased thereunder are issued. If all or part of a
subscription is not accepted by the Company, all subscription funds relating
to the unaccepted portion will be promptly returned to the subscriber with
any interest earned thereon.
<PAGE> 11
A completed Subscription Agreement and payment in full (made in the
manner specified below) of the total subscription price for the number of
shares subscribed may be mailed or delivered to:
Interstate/Johnson Lane Corporation
Attention: Corporate Finance Department
Interstate Tower, Suite 1500
121 West Trade Street
Charlotte, North Carolina 28202
(telephone: (704) 379-9268)
Upon acceptance in writing by the Company, subscriptions will be
irrevocable and binding and legally enforceable. All questions regarding
the allocation of shares of the Common Stock will be determined by the
Company, and such determination shall be binding on all subscribers. Any
purchaser who otherwise is a customer of the Sales Agent or who wishes to
open a brokerage account with the Sales Agent may indicate in the
Subscription Agreement that shares purchased thereunder are to be issued in
"street name" for the account of the Sales Agent for the benefit of the
subscriber. In all other cases, the subscriber will receive physical
delivery of the certificate, registered as indicated on the Subscription
Agreement. Whether issued in street name or directly to subscribers,
certificates representing shares of Common Stock will be issued by the
Company's registrar and transfer agent promptly after the initial or any
subsequent closings of the Offering.
Payment Methods
Payment of the purchase price of the Common Stock may be made by one of
two methods. Prospective purchasers may submit full payment for the Common
Stock subscribed to the Sales Agent with their completed Subscription
Agreements, in which case all such checks or other payment instruments for
the purchase price of Common Stock should be made payable to "First Union
National Bank of North Carolina, as Escrow Agent for Nicholas Financial,
Inc." Alternatively, any purchaser who otherwise is a customer of the Sales
Agent may make payment for the Common Stock ordered by authorizing the Sales
Agent to debit the purchaser's customer securities account with the Sales
Agent in an amount equal to the total purchase price in accordance with the
procedures outlined below.
(1)The Sales Agent will obtain from its customers the Subscription
Agreement to purchase the Common Stock.
(2)Once the Sales Agent has determined that the total shares
subscribed equal or exceed the minimum of 1,250,000 shares and that
the Initial Expiration Date is imminent, the Sales Agent will deem
an order to have been placed (the "Order Date").
(3)Not later than the next business day after the Order Date, the
Sales Agent will submit to the Escrow Agent a minimum subscription
notice.
(4)On the date three business days after the Order Date (the
"Settlement Date"), the Sales Agent will debit the accounts of its
customers for the purchase price of the Common Stock to be
purchased. Customers whose brokerage accounts are to be debited in
this manner must have sufficient funds in their accounts on the
Settlement Date for the purchase price of the Common Stock
subscribed.
Escrow Arrangements
All subscription payments will be deposited in an interest-bearing
escrow account with First Union National Bank of North Carolina (the "Escrow
Agent"). If subscriptions for the minimum of 1,250,000 shares of Common
Stock have not been received by the Sales Agent and accepted by the Company
by the Initial Expiration Date, subscription funds held in the escrow
account will be promptly returned to subscribers by the Escrow Agent with
any interest earned thereon. If the minimum offering of 1,250,000 shares is
subscribed by the Initial Expiration Date, the subscription funds deposited
in the escrow account and any interest earned thereon will be disbursed by
the Escrow Agent to the Company upon the joint instructions of the Company
and the Sales Agent. Such instructions are expected to be given on the
Initial Expiration Date if the minimum of 1,250,000 shares has been
subscribed by that date and on the Termination Date if additional
subscriptions for shares of Common Stock are received and accepted by that
date. The giving of such instructions by the Sales Agent will be subject to
the satisfaction of certain conditions as provided in the Sales Agency
Agreement and to compliance with certain rules and regulations under the
Securities Exchange Act of 1934.
<PAGE> 12
Plan of Distribution
The Company has entered into a Sales Agency Agreement with
Interstate/Johnson Lane Corporation, which will act as the Company's
exclusive sales agent on a "best efforts" basis. The Sales Agent will
receive a commission of 10% of the purchase price of each share sold in the
Offering. The Company has agreed to reimburse the Sales Agent for certain
expenses in connection with the Offering, including the Sales Agent's out-of-
pocket expenses and legal fees, and to indemnify the Sales Agent against
certain liabilities, including certain liabilities under federal securities
laws. Additionally, the Company has granted the Sales Agent a right of
first refusal for a period of two years from the date of consummation of the
Offering to provide all financial advisory and underwriting services
required by the Company during such period. The Common Stock will not be
offered in any state with respect to which the Company determines, in its
sole discretion, that compliance with such state's securities laws would be
too expensive or burdensome.
Certain officers and directors of the Company have agreed that they will
not, directly or indirectly, offer, sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable for, or
any rights to purchase or acquire, Common Stock for a period of one hundred
and eighty (180) days after the date of this Prospectus, without the prior
written consent of the Sales Agent.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,250,000 to
1,750,000 shares of Common Stock offered hereby (at the public offering
price of $2.125 per share and after deducting sales commissions and fees and
estimated expenses of the Offering) are estimated to be between $2,240,625
and $3,196,875. The Company intends to use the net proceeds to repay
outstanding indebtedness under the Line of Credit, and the balance for
general corporate purposes, including future business expansion. The Line
of Credit is a secured $25 million credit line with a commercial lender,
which is used by the Company to purchase Contracts and originate small
direct consumer loans, bears interest at a floating rate ranging from 1.75%
to 1.00% over the lender's prime rate, based on outstanding borrowings, and
expires in June 1998. As of June 30, 1996, borrowings outstanding under the
Line of Credit Facility were approximately $13.8 million, and the interest
rate on the Company's outstanding borrowings under the Line of Credit was
9.5%. The Company expects to continue using the Line of Credit to fund the
growth of its business after the completion of the Offering. Pending
application of the net proceeds as described above, the Company intends to
invest the net proceeds in short-term, interest-bearing investment grade
securities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business -- Strategy."
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock. It
currently intends to retain its earnings to finance the growth and
development of its business and therefore does not anticipate paying any
cash dividends in the foreseeable future. Any future dividend payments will
depend upon the financial condition, funding requirements and earnings of
the Company, as well as other factors that the Board of Directors may deem
relevant. Certain restrictions on the payment of dividends will remain
applicable to the Company upon completion of the Offering in the form of
various affirmative and negative covenants included in the Line of Credit.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
<PAGE> 13
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been listed for trading on the Vancouver
Stock Exchange since 1987 under the symbol "NFC.U" and is also traded on the
OTC Bulletin Board under the symbol "NCFNF."
The following table reflects the high and low prices for the Company's
Common Stock on the Vancouver Stock Exchange during the periods indicated.
</TABLE>
<TABLE>
<CAPTION>
Price Range of Common Stock*
High Low
Cdn. U.S. Cdn. U.S.
Year ended March 31, 1997
<S> <C> <C> <C> <C>
First Quarter ending Year March 31, 1996 $3.55 $2.59 $2.19 $1.60
Second Quarter (through July 18, 1996) 4.03 2.95 3.01 2.20
</TABLE>
<TABLE>
<CAPTION>
Year ended March 31, 1996
<S> <C> <C> <C> <C>
First Quarter 2.25 1.65 2.06 1.50
Second Quarter 3.36 2.50 2.69 2.00
Third Quarter 3.55 2.60 2.93 2.15
Fourth Quarter 3.30 2.42 2.39 1.75
</TABLE>
<TABLE>
<CAPTION>
Year ended March 31, 1995
<S> <C> <C> <C> <C>
First Quarter 2.20 1.57 1.80 1.28
Second Quarter 3.05 2.17 1.81 1.28
Third Quarter 2.80 1.99 2.15 1.53
Fourth Quarter 2.20 1.57 1.65 1.17
<FN>
________________
* As reported on the Vancouver Stock Exchange. These prices have been
converted from Canadian to U.S. dollars at an exchange rate in effect on
the date that the disclosed price was reported on the Vancouver Stock
Exchange.
</TABLE>
On September 26, 1996, the last reported sales price of the Common Stock
on the Vancouver Stock Exchange was U.S. $2.50 (Cdn. $3.42). As of June 30,
1996, there were approximately 458 holders of record of the Common Stock.
During the periods indicated in the table above, trading activity on the
Vancouver Stock Exchange accounted for approximately 90% of all trading
volume of the Common Stock.
The securities offered or sold hereunder shall be subject to a one year hold
restriction prohibiting the sale or transfer of such securities in British
Columbia, except as may be permitted by the Securities Act (British
Columbia) and the rules and regulations thereto. The certificates for the
securities will bear a legend to this effect.
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996, on an actual basis and on a pro forma basis as adjusted to
reflect the sale by the Company of 1,250,000 or 1,750,000 shares of Common
Stock in the Offering and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
June 30, 1996
Pro Forma Pro Forma
As Adjusted As Adjusted
Actual (Minimum) (Maximum)
<S> <C> <C> <C>
Line of Credit $13,805,594 $11,564,969 $10,608,719
Notes payable - related party 2,280,223 2,280,223 2,280,223
Shareholders' equity:
Preferred Stock, no par value; 5,000,000 shares
authorized; no shares issued and outstanding - - -
Common Stock, no par value; 20,000,000 shares
authorized; 5,885,739 shares issued and
outstanding; 7,135,739 shares
issued and outstanding, pro forma as
adjusted (minimum); 7,635,739 shares
issued and outstanding pro forma as
adjusted (maximum) (1) 1,755,765 $3,996,390 $4,952,640
Retained earnings 1,736,270 1,736,270 1,736,270
Total shareholders' equity 3,492,035 5,732,660 6,688,910
Total capitalization $19,577,852 $19,577,852 $19,577,852
<FN>
_______________
(1) Excludes approximately 2,143,727 shares of Common Stock issuable upon
the exercise of outstanding options, warrants and convertible notes.
See "Certain Transactions" and "Principal Stockholders."
</TABLE>
<PAGE> 15
SELECTED FINANCIAL DATA
The following table sets forth selected income statement, operating and
balance sheet data of the Company. The selected income statement and
balance sheet data for each of the three fiscal years in the period ended
March 31, 1996 are derived from the Company's audited financial statements,
which in the case of the two most recent fiscal years are included elsewhere
in this Prospectus. The data as of June 30, 1995 and 1996 and for the three
month periods then ended are derived from the Company's unaudited financial
statements included elsewhere in this Prospectus, which, in the opinion of
management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the information set forth
therein. The results of operations for the three months ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
year ended March 31, 1997. The following data should be read in conjunction
with the financial statements of the Company including the notes thereto.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION
Fiscal Year Ended Three Months Ended
March 31, June 30,
1994 1995(1) 1996 1995 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income on finance receivables $2,205,727 $3,514,246 $5,264,080 $1,107,006 $1,348,053
Interest expense 530,679 897,553 1,517,181 331,630 394,630
Sales (software) 741,523 601,925 565,645 151,258 113,711
Interest income on term deposits and lease receivables 3,976 2,861 3,450 2,123 11
Provision for credit losses 567,992 337,732 486,440 40,786 54,313
Other operating expenses 1,582,585 1,989,539 2,770,653 923,976 680,511
Operating income (loss) before taxes (2) 269,970 894,209 1,058,901 (36,005) 332,321
Income tax expense (benefit) 108,683 341,831 396,750 (14,037) 125,865
Income (loss) before cumulative effect of a change
in accounting principle 161,287 552,377 662,151 (21,968) 206,456
Cumulative effect of a change in accounting principle - 71,218 - - -
Net income (loss) 161,287 623,595 662,151 (21,968) 206,456
Earnings per common and common equivalent share:
Income before cumulative effect of a change in
accounting principle .03 .09 .11 - .03
Cumulative effect of a change in accounting principle - .01 - - -
Net income per common and common equivalent share $.03 $.10 $.11 - $.03
Weighted average number of common and
common equivalent shares 6,120,254 6,153,236 6,037,720 6,030,264 6,175,542
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended
March 31, June 30,
1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Number of branch locations (end of period) 5 7 9 7 10
Operating expenses as a percent of average net finance receivables(3) 24.47% 16.56% 13.85% 20.53% 12.19%
Delinquencies as a percent of average net finance receivables(4) 2.78% 4.28% 6.30% 2.98% 5.44%
Net charge-offs as a percent of average net finance receivables 3.50% 9.74% 9.97% 5.45% 10.82%
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1996
Pro Forma Pro Forma
At March 31, At June 30, As Adjusted As Adjusted
1994 1995 1996 1995 1996 (Minimum)(5) (Maximum)(5)
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Finance receivables, gross $11,528,878 $19,716,821 $27,814,597 $25,594,473 $29,561,777 $29,561,777 $29,561,777
Finance receivables, net(6) 7,372,497 12,780,0851 8,326,784 16,389,909 19,557,684 19,557,684 19,557,684
Total liabilities 6,905,328 11,597,218 16,547,936 14,948,538 17,532,209 15,291,584 14,335,334
Shareholders' equity 1,542,883 2,253,556 3,253,865 2,598,545 3,492,035 5,732,660 6,688,910
<FN>
__________________
(1) On April 1, 1994, the Company changed its method of accounting
for unearned interest and dealer discounts as well as reserves for
future credit losses. Application of the change resulted in an after
tax credit of approximately $71,000 to fiscal 1995 net income. See
Note 3 to the Consolidated Financial Statements of the Company.
(2) Amounts include non-cash stock compensation expense (recovery)
of $177,870, $(49,361) and $266,754 for the years ended March 31,
1994, 1995 and 1996, respectively, and $323,139 and $29,947 for the
three month periods ended June 30, 1995 and 1996, respectively,
related to options and warrants granted to key executives and
employees. Excluding this non-cash item, operating income (loss)
before taxes would have been $447,840, $844,847 and $1,325,655 for the
years ended March 31, 1994, 1995 and 1996, respectively, and $287,134
and $362,268 for the three month periods ended June 30, 1995 and 1996,
respectively.
(3) Operating expenses include all expenses associated with doing
business excluding interest expense and provision for credit losses.
(4) Delinquencies represent contractual obligations over 30 days past due.
(5) The Pro Forma As Adjusted balance sheet information gives effect
to (i) the issuance of 1,250,000 or 1,750,000 shares of Common Stock
at the public offering price of $2.125 and (ii) the receipt of
$2,240,625 or $3,196,875 in net proceeds, respectively, and the
application of such proceeds to pay down borrowings under the
Company's revolving line of credit.
(6) Net finance receivables represent gross finance receivables less
unearned interest, non-refundable dealer reserves, unearned dealer
discount and allowance for credit losses.
</TABLE>
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company is a Florida-based consumer finance company, focused
primarily on the purchase of Contracts from automobile dealers and the
origination of small direct consumer loans. The Contracts are for the
purchase of used cars and light trucks by borrowers who do not meet the
credit standards of traditional lenders. The Company's small direct
consumer loans are made primarily to borrowers under the Contracts. As of
June 30, 1996, Contracts accounted for approximately 98% of the Company's
aggregate loan portfolio and small direct consumer loans accounted for
approximately 2%. The Company currently operates ten branch offices in
Florida.
In fiscal 1995, the Company adopted a change in accounting principle
that resulted in an increase to net income of $71,218, or $.01 per share.
This change was made following a determination by the Company that a
preferable method of accounting for the discount at which the Company
purchases Contracts from automobile dealers is to record all or a portion of
the discount as an allowance for losses against the unpaid balance of the
Contract. Utilization of this method reports Contracts at their estimated
net realizable value at the date of purchase by the Company and charges
losses against the discount. If, at the time of purchase of a Contract, the
Company determines that the amount of the discount does not provide a
sufficient allowance for anticipated losses, a portion of unearned finance
charges will also be added to the allowance for losses. If actual losses
exceed the amount of the reserve, such losses are charged against income as
incurred. If actual losses are less than the amount of the reserve, the
excess amount is amortized into income as an adjustment of the interest
yield once the contract is substantially liquidated. The Company believes
that the change in accounting for losses more accurately reports the
economic event which takes place at the time of purchase of Contracts, more
accurately reflects the Company's assets and liabilities, and better matches
its costs and revenues. The following table sets forth certain financial
data:
<TABLE>
<CAPTION>
Year Ended March 31, Three Months Ended June 30,
1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
Average Net Finance Receivables (1) $20,004,986 $12,013,883 $5,741,254 $22,332,463 $18,004,504
Average Indebtedness (2) 14,185,584 8,228,276 3,658,176 15,479,596 12,293,829
Total Revenues 5,264,080 3,514,246 2,205,727 1,348,053 1,107,006
Interest Expense 1,517,181 897,553 530,679 394,630 331,630
Net Interest Income 3,746,899 2,616,693 1,675,048 953,423 775,376
Gross Portfolio Yield (3) 26.31% 29.25% 38.42% 24.15% 24.59%
Average Cost of Borrowed Funds (2) 10.70% 10.91% 14.51% 10.20% 10.79%
Net Interest Spread (4) 15.62% 18.34% 23.91% 13.95% 13.80%
Net Portfolio Yield (3) 18.73% 21.78% 29.18% 17.08% 17.23%
Net Charge-Off Percentage (5) 9.97% 9.74% 3.50% 10.82% 5.45%
<FN>
__________________
(1) Average net finance receivables represents the average of net finance
receivables throughout the year. Net finance receivables represents
gross finance receivables less any unearned finance charges related to
those receivables.
(2) Average indebtedness represents the average outstanding borrowings under
the Line of Credit and notes payable-related party. Average cost of
borrowed funds represents interest expense as a percentage of average
indebtedness.
(3) Gross portfolio yield represents total revenues as a percentage of
average finance receivables. Net portfolio yield represents net
interest income as a percentage of average finance receivables.
(4) Net interest spread represents the gross portfolio yield less the
average cost of borrowed funds.
(5) Net charge-off percentage represents net charge-offs divided by average
net finance receivables outstanding during the period.
</TABLE>
<PAGE> 17
Three months ended June 30, 1996 compared to three months ended June 30,
1995
Revenue increased 16% to $1,461,775 for the period ended June 30,
1996, from $1,260,387 for the period ended June 30, 1995. This increase is
attributed to the increase in net finance receivables. The gross portfolio
yield decreased to 24.15% for the period ended June 30, 1996 from 24.59% for
the period ended June 30, 1995.
Operating expenses, excluding provision for credit losses, stock
compensation expense and interest expense, increased to $650,564 for the
three month period ended June 30, 1996 from $600,837 for the three month
period ended June 30, 1995. This increase is attributed to the opening of
one additional branch and the increase in transaction volume at existing
branches.
Interest expense increased to $394,630 for the period ended June 30,
1996 as compared to $331,630 for the period ended June 30, 1995. This
increase is attributed to the increase in average outstanding borrowings
during the comparable periods. The average cost of funds borrowed by the
Company was 10.20% for the period ended June 30, 1996 as compared to 10.79%
for the period ended June 30, 1995.
Net income for the three months ended June 30, 1996 increased to
$206,456 compared to a loss of $21,968 for the comparable period ended June
30, 1995. The three month period ended June 30, 1995 included non-cash stock
compensation expense of $323,129 ($201,542 after income taxes) related to
certain stock options and warrants previously granted to key executives and
employees. The comparable three month period ended June 30, 1995 included
only $29,947 of stock compensation expense ($18,605 after income taxes).
Net income excluding non-cash stock compensation expense would have been
$225,061 compared to $179,574, an increase of 25% for the three month
periods ended June 30, 1996 and 1995, respectively.
Fiscal year ended March 31, 1996 compared to fiscal year ended March 31,
1995
Revenue increased 42% in fiscal year 1996 to $5,833,175 from
$4,119,032 in fiscal 1995. The increase in revenue is attributed to the
opening of two additional branch offices and increasing the size of several
existing branch locations. The gross portfolio yield decreased from 29.25%
in fiscal 1995 to 26.31% in fiscal 1996. The decrease in the gross portfolio
yield was the result of competitive pressures that led the Company to
purchase more installment contracts that bear a lower interest rate and
lower discount.
Operating expenses, excluding provision for credit losses, deferred
compensation expense and interest expense, increased 23% to $2,503,899 in
fiscal 1996 as compared to $2,038,900 in fiscal 1995. This increase is
attributable to the opening of two additional branches and the increased
expenses associated with building and maintaining a corporate
infrastructure.
Interest expense increased to $1,517,181 for fiscal 1996 as compared
to $897,553 for fiscal 1995. This increase is the result of an increase in
average outstanding borrowings during the comparable periods. The average
cost of funds borrowed decreased from 10.91% in fiscal 1995 to 10.70% in
fiscal 1996.
Consolidated net income for the fiscal year ended March 31, 1996
increased to $662,151 or $.11 per share from $623,595 or $.10 per share in
fiscal year ended March 31, 1995. Consolidated net income for the fiscal
year ended March 31, 1996 included non-cash stock compensation expense of
$266,754 ($166,807 after income taxes) related to certain stock options and
warrants previously granted to key executives and employees. The comparable
period in the prior year included a credit to compensation expense of
$49,361 ($30,492 after income taxes). Additionally, net income for fiscal
1995 was increased by $71,218 for the impact of a change in accounting
principle. Excluding the non-cash stock compensation expense and the impact
of the accounting change, net income would have been $828,958 for fiscal
1996 as compared to $521,885 for fiscal 1995, an increase of 59%.
Fiscal year ended March 31, 1995 as compared to fiscal year ended March 31,
1994
Revenue increased 40% to $4,119,032 in fiscal 1995 as compared to
$2,951,226 in fiscal 1994. This increase is attributable to the opening of
new branch offices and the increasing size of existing branches. The gross
portfolio yield decreased from 38.42% in fiscal 1994 to 29.25% in fiscal
1995. This decrease was the result of competitive pressures that led to the
purchase of a greater percentage of contracts bearing lower interest rates
and lower discounts.
<PAGE> 18
Operating expenses, excluding provision for credit losses, deferred
compensation expense and interest expense, increased to $2,038,900 in fiscal
1995 from $1,404,715 in fiscal 1994. This increase is attributed to the
opening of additional branch offices and the process of beginning to build a
corporate infrastructure.
Interest expense increased to $897,553 in fiscal 1995 from $530,679
in fiscal 1994. This increase is the result of the increase in the average
outstanding borrowings from $3,658,176 in fiscal 1994 to $8,228,276 in
fiscal 1995. The average cost of funds borrowed decreased from 14.51% in
fiscal 1994 to 10.91% in fiscal 1995.
Consolidated net income increased from $161,287 or $.03 per share in
fiscal 1994 to $623,595 or $.10 per share in fiscal 1995. Consolidated net
income for the fiscal year ended March 31, 1995 included a credit to non-
cash stock compensation expense of $49,361 ($30,492 after income taxes)
related to certain stock options and warrants previously granted to key
executives and employees. The comparable period in the prior year included
compensation expense of $177,870 ($110,280 after income taxes).
Additionally, net income for fiscal 1995 was increased by $71,218 for the
impact of a change in accounting principle. Excluding the non-cash stock
compensation expense and the impact of the accounting change, net income
would have been $521,885 for fiscal 1995 as compared to $271,567 for fiscal
1994, an increase of 92%.
Analysis of Credit Losses
Because of the nature of the borrowers under the Contracts and its
direct consumer loan program, the Company considers the establishment of
adequate reserves for credit losses to be imperative. The Company batches
its Contracts into pools for purposes of establishing reserves for losses.
Each such pool consists of the loans processed by a Company branch office
during a fiscal quarter. In the last two fiscal years the average pool has
consisted of 79 Contracts with an aggregate initial principal amount of
approximately $509,000. As of June 30, 1996, the Company had 97 active
pools. The effective APR for these pools ranges from 20% to 30%, and the
discount averages between 10% and 12%. Loan pools are analyzed monthly and
the effective return for each pool is recomputed, if necessary, based upon
changes during the month.
The Company pools Contracts according to branch location because the
branches purchase Contracts in different markets located in the State of
Florida. All Contracts purchased by a branch during a fiscal quarter
comprise a pool. This method of pooling by branch and quarter allows the
Company to evaluate the different markets where the branches operate. The
pools also allow the Company to evaluate the different levels of customer
income, stability, credit history, and the types of automobiles purchased in
each market.
A pool retains an amount equal to 100% of the discount into a non-
refundable dealer reserve. In situations where the discount is determined
to be insufficient to absorb all of the potential losses associated with the
pool, unearned income will be added to reserves until total reserves have
reached the appropriate level. If the non-refundable reserve and the
unearned revenue reserve are exhausted for a pool which is not fully
liquidated, then a charge to income will be used to reestablish the
reserves. If a pool is fully liquidated and has excess reserves, the excess
reserves are credited to income.
In analyzing a pool, the Company considers the performance of prior
pools originated by the branch office, the performance of prior Contracts
purchased from the dealers whose Contracts are included in the current pool,
the credit rating of the borrowers under the Contracts in the pool, and
current market and economic conditions. Each pool is analyzed monthly to
determine if the loss reserves are adequate, and adjustments are made if
they are determined to be necessary. As of June 30, 1996, the Company had
established reserves for losses on Contracts of $3,310,607, or 14.5% of net
outstanding receivables. The Company has experienced a historical charge-off
rate of 9.97%, 9.74% and 3.5% respectively, for the years ended March 31,
1996, 1995, and 1994. The experience of the Company is that the longer the
period of time during which the borrower has made payments under his
Contract, the less likelihood there is of a default. ^SENTENCE DELETED
Because of the small number of loans currently outstanding, loans made
by the Company in its direct consumer loan program are currently analyzed as
made and a reserve for losses is established at that time. When the volume
of such loans increases, the Company intends to utilize a pooling
arrangement similar to that used in connection with Contracts in
establishing reserves. As of June 30, 1996, the Company had experienced
immaterial losses under its direct consumer loan program; however, the
program was implemented in April 1995 and these results cannot be considered
representative of results that will be experienced in the future. As of
June 30, 1996, the Company had established reserves for losses on direct
consumer loans of $19,663, or 2.93% of gross outstanding receivables under
the loans.
<PAGE> 19
The Company defines any account that is more than ten days past due as
"delinquent." The following tables present certain information regarding
the delinquency rates experienced by the Company with respect to Contracts
and under its direct consumer loan program:
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
June 30, 1996 March 31, 1996 March 31, 1995
<S> <C> <C> <C>
Contracts
Net Amount Outstanding $28,889,689 $27,250,451 $19,713,879
</TABLE>
<TABLE>
<CAPTION>
Dollar Dollar Dollar
Delinquencies Amount Percent * Amount Percent * Amount Percent *
<S> <C> <C> <C> <C> <C> <C>
30 to 59 days $1,244,020 4.31% $1,346,150 4.94% $777,623 3.94%
60 to 89 days 261,739 0.91% 326,542 1.20% 60,331 0.31%
90 + days 62,354 0.22% 44,746 0.16% 6,865 0.03%
Total Delinquencies $1,568,113 $1,717,438 $844,819
*Total Delinquencies as
percent of outstanding balance 5.44% 6.30% 4.28%
Direct Loans
Net Amount Outstanding $558,400 $459,147 ----
Delinquencies
30 to 59 days 18,596 3.33% 321 0.07%
60 to 89 days 0 0.00% 3,197 0.70%
90 + days 0 0.00% 0 0.00%
Total Delinquencies $18,596 $3,518
Total Delinquencies as a
percent of outstanding balance 3.33% 0.77%
</TABLE>
<PAGE> 20
Income Taxes
The provision for income taxes for the three months ended June 30, 1996
increased to $125,865 from an income tax benefit of $14,037 for the three
month period ended June 30, 1995. The Company's effective tax rate decreased
from 38.99% for the three month period ended June 30, 1995 to 37.87% for the
three month period ended June 30, 1996.
The provision for income taxes in fiscal 1996 increased 16% to $396,750
from $341,831 in fiscal 1995 as a result of higher pre-tax income. The
Company's effective tax rate decreased from 38.23% in fiscal 1995 to 37.47%
in fiscal 1996.
Liquidity and Capital Resources
The Company's cash flows for the years ended March 31, 1996 and 1995 and the
three months ended June 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Three months ended Year Ended Year Ended
June 30, March 31, March 31,
1996 1996 1995
<S> <C> <C> <C>
Cash provided by (used in):
Operating Activities - $ 409,787 $1,234,592 $1,544,685
Investing Activities -
(primarily purchase of Contracts) (1,311,331) (6,128,516) (5,912,641)
Financing Activities 730,686 5,101,373 4,374,474
Net increase (decrease) in cash (170,858) 207,449 6,518
</TABLE>
The Company's primary use of working capital during fiscal year 1996
and for the three months ended June 30, 1996 was the funding of the purchase
of Contracts. The Contracts were financed partially through borrowings on
the BankAmerica Line of Credit. The Line of Credit is secured primarily by
Contracts and provides the Company with financing to increase the number of
Contracts for its loan portfolio. Under the Line of Credit, the Company is
subject to customary covenants such as the maintenance of certain financial
ratios and minimum net worth requirements, and certain restrictions on the
payment of cash dividends on the Common Stock and a requirement to maintain
minimum subordinated indebtedness of $400,000.
Since inception, the Company has funded operations from the following
sources: borrowings under the Line of Credit, proceeds from the issuance of
subordinated debt, funds provided from payments received under Contracts,
and cash flows from operating activities.
The increases in net cash flows used in investing activities during
fiscal 1996 and for the three months ended June 30, 1996 was primarily
attributable to the growth in the size of the Contract portfolio owned by
the Company.
In May 1996, through a series of negotiations, the Company increased
its Line of Credit to $25 million from $20 million. The Company was also
able to increase the percentage of Contracts that qualify for funding and
reduce the amount of subordinated debt required by BankAmerica.
The Company intends to continue opening additional branches and
increasing its portfolio of Contracts and continues to explore alternative
financing sources in order to satisfy its ongoing needs for additional
capital resources. The Company will make additional capital expenditures as
it opens new branches and increases the number of employees. The Company
believes that net proceeds from this Offering, cash flow from operations,
current borrowing capacity under the Line of Credit and other available
financing alternatives will be adequate to meet its presently anticipated
needs for working capital and capital expenditures, but no assurance can be
given that the Line of Credit will be increased or that alternative sources
of capital will be available on terms acceptable to permit the Company to
finance future expansion.
<PAGE> 21
Impact of Inflation
The Company is affected by inflation primarily by increased operating
costs and expenses. Inflationary pressures on operating costs and expenses
have been offset by the Company's continued emphasis on tight operating and
cost controls and to a lesser extent by modest increases in technical
support fees from its software subsidiary, NDS. The Company's strong
balance sheet enabled it to negotiate favorable interest rates, which
minimized the impact of prime rate increases.
The Company is dependent upon the Line of Credit with BankAmerica for
the significant source of funds with which to purchase Contracts. Any
increase in the interest rate payable by the Company under that line, or any
replacement credit facility, would increase the costs of such borrowings,
with a corresponding decrease in net income. For example, if the interest
rate payable on amounts outstanding under the Line of Credit on June 30,
1996 were increased by 1%, the annual interest cost to the Company would
increase by approximately $138,000, before the effect of income taxes.
The Company believes that a downturn in the economy would increase the
number of purchasers of automobiles financed with Contracts. During a
modest downturn in economic activity more people will experience a reduction
in income because of downsizing, fewer and smaller raises and the necessity
of accepting lower paying jobs. In addition, it may be difficult for
individuals who have over-extended themselves to meet their debt
obligations, and they may find it necessary to purchase used automobiles
rather than new ones. Although the number of potential customers can be
expected to increase during periods of slow economic activity, the number of
defaults in payment obligations can also be expected to increase with a
resulting increase in repossessions of vehicles securing Contracts. The
Company is not able to predict whether or not the net effect of such a
downturn would be favorable or unfavorable to the operating results of the
Company, although the Company believes that a severe downturn in economic
activities would have an adverse effect on its business.
The maximum finance charges that may be charged to the borrower in
connection with the financing of a used automobile in Florida is determined
by the Florida legislature and is set forth in the Florida statutes.
Generally, for older automobiles, higher interest rates may be charged. If
the Florida legislature were to reduce the statutory interest rates that can
be charged, the return realized by the Company on Contracts would be reduced
unless it could offset the reduction with a corresponding reduction in
funding costs (such as through the infusion of equity or a lower interest
rate on its Line of Credit) or an increase in the discount at which it
purchases Contracts.
Future Expansion
The Company intends to continue its expansion through the purchase of
additional Contracts and the expansion of its direct consumer loan program.
In order to increase the size of its loan portfolio of Contracts, it will be
necessary for the Company to open additional branch offices and increase the
size of its Line of Credit, either with BankAmerica or another lender.
The Company believes that opportunity for growth continues to exist in
the State of Florida and for the foreseeable future intends generally to
concentrate its expansion activities primarily there. The Company has
identified Pensacola, Jacksonville and Boca Raton as areas in Florida in
which it may open additional branch offices during fiscal 1997.
<PAGE> 22
BUSINESS
General
The Company is a Canadian holding company incorporated under the laws
of British Columbia. The business activities of the Company are conducted
exclusively in the United States through its wholly-owned subsidiaries
formed pursuant to the laws of the State of Florida, Nicholas Financial,
Inc. ("Nicholas Financial-Florida") and Nicholas Data Services, Inc.,
("NDS"). Nicholas Financial-Florida is a specialized consumer finance
company engaged primarily in acquiring and servicing Contracts for purchases
of used automobiles and light trucks. NDS is engaged in designing,
developing, marketing and supporting of industry-specific computer
application software for small businesses located primarily in the
southeastern United States. Nicholas Financial-Florida's financing
activities accounted for approximately 90.3% of consolidated revenues for
the fiscal year ended March 31, 1996 and NDS's activities accounted for
approximately 9.7% of such revenues. For the three months ended June 30,
1996 Nicholas Financial-Florida's financing activities accounted for
approximately 92.2% of consolidated revenues and NDS's activities accounted
for approximately 7.8% of such revenues.
The Company's principal executive offices are located at 2454 McMullen
Booth Road, Building C, Clearwater, Florida 34619, and its telephone number
is (813) 726-0763.
Background
NDS was formed pursuant to the laws of the State of Florida on March
18, 1985 to engage in the design, development and marketing of computer
software programs. On July 28, 1986, Nicholas Data Services, Ltd. was
incorporated as a Limited Company pursuant to the laws of British Columbia,
Canada. Concurrent with the formation of Nicholas Data Services, Ltd., the
shareholders of NDS exchanged all their stock in NDS for shares of stock in
Nicholas Data Services, Ltd., and NDS became a wholly-owned subsidiary of
Nicholas Data Services, Ltd. On July 20, 1993, Nicholas Data Services, Ltd.
changed its name to Nicholas Financial, Inc. in order to reflect the shift
in primary focus of its business operations from a software company to a
financial services company. On July 23, 1990, Nicholas Financial-Florida
was formed pursuant to the laws of the State of Florida.
From inception through July 1990, the Company was engaged exclusively
in designing, developing and marketing computer software programs. Since
July 1990, the primary focus of the Company's business has been the
purchasing and servicing of Contracts for used automobiles and light trucks.
The decision to change the focus of the Company's business was based upon
management's belief that the consumer finance industry offered greater
potential to the Company for growth than the computer software industry
because of the intense price competition that then existed in the computer
industry. Additional factors considered by management in deciding to
redirect the business activities of the Company were the availability of
financing sources to enable it to enter that business, the availability of
personnel with experience in the finance business, and the expertise of its
personnel in developing computer software applications, which enabled it to
develop the accounting and other systems necessary to manage a portfolio of
Contracts.
Since changing the focus of its business activities, revenues realized
by the Company from the operations of the software business have decreased
slightly. During that period, revenues from the finance business have
increased from $88,546 in fiscal 1991, its first full year of operations, to
$5,267,530 in the fiscal year ended March 31, 1996. Overall, consolidated
net income rose from $9,313 in fiscal 1991 to $662,151 in the fiscal year
ending March 31, 1996.
Automobile Finance Business
The Company is engaged in the business of providing financing programs,
primarily on behalf of purchasers of used cars and light trucks who meet the
Company's credit standards, but who do not meet the credit standards of
traditional lenders, such as banks and credit unions, because of the age of
the vehicle being financed, the customer's job instability or credit
history. Unlike traditional lenders who look primarily to the credit
history of the borrower in making lending decisions and typically finance
new automobiles, the Company is willing to purchase Contracts for purchases
made by borrowers who do not have a good credit history and for older model
and high mileage automobiles. In making decisions regarding the purchase of
a particular Contract the Company considers the following factors related to
the borrower: current and prior job status, history in making installment
payments for automobiles, current income, general credit history, prior
experience with Contracts purchased from the dealer from which the Company
is purchasing the Contract, and the value of the automobile in relation to
the purchase price of the Contract.
<PAGE> 23
The Company's automobile finance business operations are currently
located exclusively in the State of Florida under the name "Nicholas
Financial, Inc." In March 1996, the Company began purchasing certain
Contracts originated in Georgia. As of June 30, 1996, the Company had non-
exclusive agreements with approximately 400 dealers in the State of Florida
and 10 dealers in the State of Georgia for the purchase of Contracts that
meet the Company's financing criteria. The dealer agreements require the
dealer to originate Contracts in accordance with the Company's guidelines.
From July 1990 through June 30, 1996, the Company had purchased over
8,427 Contracts with an initial principal amount aggregating approximately
$53,756,694. The average initial principal amount of Contracts purchased by
the Company was approximately $6,379, with an initial term of 31 months.
The obligors under the Contracts typically make down payments, in the
form of cash or trade-in, ranging from 10% to 20% of the sale price of the
vehicle financed. The balance of the purchase price of the vehicle plus
taxes, title fees and, if applicable, premiums for accident and health
insurance and/or credit life insurance, is generally financed over a period
of 12 to 60 months. Accident and health insurance coverage enables the
borrower to make required payments under the Contract in the event the
borrower becomes unable to work because of illness or accident and credit
life insurance pays the borrower's obligations under the Contract upon his
or her death.
The annual percentage rate ("APR") is the actual cost of borrowing
money, expressed in form of the annual interest rate payable by the
borrower. The APR for Contracts purchased by the Company range from 18% to
30%. As of June 30, 1996, the average APR on Contracts outstanding was
25.0%.
The Company purchases Contracts from the automobile dealer at a
negotiated price that is less than the original principal amount being
financed by the purchaser of the automobile. The amount of the discount
depends upon factors such as the age and value of the automobile, the
creditworthiness of the purchaser and competitive conditions in the
industry. Historically, the Contracts purchased by the Company have been
purchased at discounts that range from 5% to 30% of the original principal
amount of the Contract, with the average discount being approximately 12.9%.
In addition to the discount, the Company charges the dealer a processing fee
of $75 per Contract purchased. Because of competitive conditions in the
industry, all Contracts purchased by the Company since April 1, 1992 have
been purchased from dealers without recourse against the dealer, meaning
that the Company, not the dealer, bears the risk of nonpayment by the
borrower under the Contract. Prior to then, some Contracts were acquired
with full recourse against the dealer for nonpayment by the borrower. As of
June 30, 1996, substantially all of the Company's loan portfolio consisted
of Contracts that were purchased without recourse against the dealer.
Although substantially all the Contracts in the Company's loan portfolio
were acquired without recourse, the dealer remains liable to the Company for
liabilities arising from certain representations and warranties made by the
dealer with respect to compliance with applicable federal and state laws and
valid title to the vehicle.
The Company purchases a Contract only after the Company and the
automobile dealer arrive at a negotiated price for the Contract and the
dealer has provided the Company with the requisite proof that the vehicle is
properly titled, that the Company has a perfected first priority lien on the
financed vehicle, that the customer has obtained the required collision
insurance naming the Company as loss payee and that the Contract has been
fully and accurately completed and validly executed. Once the Company has
received and approved all required documents, it pays the dealer for the
Contract and commences servicing the Contract through maturity.
The Company requires the owner of the vehicle to obtain and maintain
collision insurance, naming the Company as a loss payee, in an amount not
less than the value of the vehicle, with a deductible of not more than $500.
The Company does not offer collision insurance. The Company offers
purchasers of vehicles certain other insurance products. These products are
offered on behalf of the Company by the automobile dealer, typically at the
time of sale, and consist of a roadside assistance plan, mechanical
breakdown protection plan, credit life insurance, credit accident and health
insurance and credit property insurance. Insurance products are offered by
the Company as agent for Voyager Property & Casualty Insurance Company. If
the purchaser so desires, the cost of these products may be included in the
amount financed under the Contract. As of June 30, 1996, less than 1% of
the borrowers under Contracts in the Company's loan portfolio had elected to
purchase insurance products offered by the Company.
The Company is also licensed to make small direct consumer loans.
Although the Company is licensed to make loans of up to $25,000, the average
loan made to date by the Company has an initial principal balance of
approximately $2,795. The Company does not expect the average loan size to
increase significantly within the foreseeable future and does not presently
<PAGE> 24
intend to make loans at or near the maximum size permitted under its
license. The Company offers loans primarily to borrowers who have
previously been obligated under Contracts purchased by the Company. In
deciding whether or not to make a loan the Company considers the
individual's credit history, job stability and income and impressions
created during a personal interview with a Company loan officer.
Approximately 90% of the direct consumer loans made to date have been made
to borrowers who have previously been obligated under Contracts purchased by
the Company, and the payment history of the borrower under the previous
Contract is a significant factor in making the loan decision. The direct
consumer loan program was implemented in April 1995 and is not currently a
significant source of revenue for the Company. As of June 30, 1996, loans
made by the Company pursuant to its direct consumer loan program constituted
approximately 2% of the aggregate principal amount of the Company's loan
portfolio. As of June 30, 1996, the average APR for direct consumer loans
made by the Company was 25.39%, with the range being from 20% to 30%.
In connection with its direct consumer loan program the Company also
offers health and accident insurance coverage and credit life insurance to
borrowers. Borrowers in approximately 85% of the 351 loan transactions
closed by the Company as of June 30, 1996 had elected to purchase insurance
coverage offered by the Company. The cost of this insurance is included in
the amount financed by the borrower.
As of June 30, 1996, approximately 98% of the aggregate outstanding
principal balance of loans in the Company's loan portfolio was comprised of
Contracts purchased from automobile dealers and 2% consisted of loans made
pursuant to the Company's direct loan program. The Company currently
typically purchases between 150 and 350 Contracts each month and originates
between 30 and 50 direct consumer loans each month.
The Company currently operates ten branch offices in Florida. These
offices are located in Clearwater, Pinellas Park, Tampa, Lakeland, Orlando,
Ocala, Tallahassee, Melbourne, Ft. Myers, and Ft. Lauderdale. Contract
purchases are approved or rejected by the branch manager at the branch
location based upon criteria established by the Company. If a particular
transaction does not meet the criteria established by the Company, a branch
manager does not have the authority to purchase the Contract without the
prior approval of home office management.
Underwriting Guidelines
The Company's typical customer is approximately 30 years old, has a
monthly gross income of approximately $1,500 and a credit history that fails
to meet the lending standards of banks and credit unions. Among the credit
problems experienced by the Company's customers that resulted in a poor
credit history are: unpaid revolving credit card obligations; unpaid medical
bills; unpaid student loans; prior bankruptcy; and evictions for nonpayment
of rent. The Company believes that its customer profile is similar to that
of its direct competitors.
The Company uses essentially the same criteria in analyzing the
purchase of a Contract as it does in analyzing a direct consumer loan.
Lending decisions regarding direct consumer loans are made based upon a
review of the customer's loan application, credit history, job stability,
income, in-person interviews with a Company loan officer and the value of
the collateral offered by the borrower to secure the loan. To date, since
approximately 90% of the Company's direct loans have been made to
individuals whose automobiles have been financed by the Company, the
customer's payment history under the automobile installment sale agreement
is a significant factor in the lending decision. The decision process with
respect to the purchase of Contracts is similar; however, the customer's
prior payment history with automobile loans is weighted more heavily in the
decision making process and the collateral value of the automobile being
financed is taken into account.
After reviewing the information included in the loan application and
taking the other factors into account, Company representatives categorize
the borrower using traditional credit classifications of "A," indicating
high creditworthiness, through "D," indicating lower creditworthiness.
In the absence of other factors, such as a favorable payment history on
a Contract held by the Company, the Company generally makes direct consumer
loans only to individuals rated in categories "B" or higher. Contracts are
financed for individuals who fall within all four acceptable rating
categories utilized, "A" through "D." Usually borrowers who fall within the
two highest categories are purchasing a two- to four-year old, low mileage
used automobile from the inventory of a new car dealer, while borrowers in
the two lowest categories are purchasing an older, high mileage automobile
from an independent used automobile dealer. Approximately 5% of the loans
financed by the Company are with customers rated in the "A" category, 10%
are rated "B," 65% are rated "C" and 20% are rated "D."
<PAGE> 25
Upon credit approval and the receipt of all required title and
insurance documentation, the Company pays the dealer for the Contract. The
Company typically purchases the Contract for a price that approximates the
wholesale value of the automobile being financed. The amount the Company is
willing to pay a dealer for a particular Contract depends upon the credit
rating of the customer. The Company will pay more (e.g., purchase the
Contract at a smaller discount from the original principal amount) for
Contracts as the credit risk of the customer improves, but the amount paid
to the dealer rarely exceeds the wholesale value of the vehicle. The
discounts from the initial principal amount of Contracts purchased by the
Company range from 5% to 30%. The Company's current established guidelines
for discounts are 7.5% for borrowers rated in the "A" category, 10% for
those in the "B" and the "C" categories and 20% for those in the "D"
category. Purchases of Contracts at discounts that do not fall within the
guidelines require the prior approval of the Company's senior management.
Approximately 25% of the Contracts that have been purchased by the Company
were purchased with discounts that do not fall within the guidelines.
Servicing and Monitoring of Contracts
The Company requires all customers to obtain and maintain collision
insurance covering damage to the vehicle. Failure to maintain insurance
constitutes a default under the Contract and the Company may, at its
discretion, repossess the vehicle. To reduce potential loss due to
insurance lapse, the Company has the legal and contractual right to
purchase, at the borrower's expense, its own collateral protection insurance
policy which covers loss due to physical damage to vehicles not covered by
collision insurance.
The Company's Management Information Services personnel maintain a
number of reports to monitor compliance by borrowers with their obligations
under Contracts and direct loans made by the Company. These reports may be
accessed on a real-time basis by management personnel, including branch
office managers, at computer terminals located in the main office and each
branch office. The reports include: delinquency aging reports, insurance
due reports, customer promises reports, vehicle information reports,
purchase reports, dealer analysis reports, static pool reports, and
repossession reports.
The delinquency report is an aging report that provides basic
information regarding each account and reports accounts that are past due.
The report includes information such as the account number, address of the
borrower, home and work phone numbers of the borrower, original term of the
Contract, number of remaining payments, outstanding balance, due dates, date
of last payment, number of days past due, scheduled payment amount, amount
of last payment, total past due, and special payment arrangements or
agreements.
Accounts that are less than 120 days matured are reported one day past
due after their due date. After an account has matured more than 120 days,
it does not show up on the delinquency report until it is 11 days past due,
at which time a late charge is assessed. Once an account becomes 30 days
past due, repossession proceedings are implemented unless the borrower
provides the Company with an acceptable explanation for the delinquency and
displays a willingness and ability to make the payment, and there is an
agreed upon plan to return the account to current status. When an account
is 60 days past due, the Company ceases amortization of the Contract and
repossession proceedings are initiated. At 120 days delinquent, if the
vehicle has not yet been repossessed, the account is written off. Once a
vehicle has been repossessed, it no longer appears on the delinquency
report. It then appears on the Company's repossession report and is sold,
either at auction or to an automobile dealer.
When an account becomes delinquent, the Company immediately contacts
the borrower to determine the reason for the delinquency and to determine if
arrangements for payment can appropriately be made. Once payment
arrangements acceptable to the Company have been made, the information is
entered in its data base and generated on a "Promises Report," which is
utilized by the collection staff for account follow-up.
The Company also generates an insurance report to monitor compliance
with the insurance obligations imposed upon borrowers. This report includes
the account number, name and address of the borrower and information
regarding the insurance carrier, summarizes the insurance coverage,
identifies the expiration date of the policy, and provides basic information
regarding payment dates and term of the Contract. This report helps the
Company in identifying borrowers whose insurance policy is up for renewal or
in jeopardy of being canceled. The Company sends written notices to, and
makes direct contact with, borrowers whose insurance policies are about to
lapse or be canceled. If the borrower fails to provide proof of coverage
within 30 days of notice, the Company has the option of purchasing insurance
and adding the cost to the balance of the Contract.
The Company prepares a repossession report that provides information
regarding repossessed vehicles and aids the Company in disposing of
repossessed vehicles. In addition to information regarding the borrower,
this report provides information regarding the date of repossession, date
the vehicle was sold, number of days it was held in inventory prior to sale,
year make and model of the vehicle, mileage, payoff amount on the Contract,
NADA book value, black book value, suggested sale price, location of the
vehicle, original dealer, and other information that may be helpful to the
Company, such as information on the condition of the vehicle.
<PAGE> 26
The Company also prepares a dealer analysis report that provides
information regarding each dealer from whom it purchases Contracts. This
report allows the Company to analyze the volume of business done with each
dealer and the terms on which it purchased Contracts from the dealer.
The Company's policy is to aggressively pursue legal remedies to
collect deficiencies from customers. ^SENTENCE DELETED Delinquency notices
are sent to customers and verbal requests for payment are made beginning
when an account becomes 11 days delinquent. When an account becomes 30 days
delinquent and the borrower has not made payment arrangements acceptable to
the Company or has failed to respond to the requests for payment, a
repossession request form is prepared by the responsible branch office
employee for approval by the branch manager for the vicinity in which the
borrower lives. Once the repossession request has been approved by the
branch manager, the repossessor delivers the vehicle to a company-selected
automobile dealer, who holds the vehicle for the Company. The Company
maintains relationships with several repossession firms which repossess
vehicles for a fee that ranges from $100 to $250 for each vehicle
repossessed. As required by Florida law, the customer is notified by
certified letter that the vehicle has been repossessed and that to retain
the vehicle he must make arrangements satisfactory to the Company and pay
the amount owed under the Contract within ten days after delivery of the
letter. The minimum requirement for return of the vehicle is payment of all
past due amounts under the Contract and all expenses of repossession
incurred by the Company. If satisfactory arrangements for return of the
vehicle are not made within the statutory period, the Company then sends
title to the vehicle to the state title transfer department, which then
registers the vehicle in the name of the Company. The Company then either
sells the vehicle to a dealer or has it transported to an automobile auction
for sale. On average, approximately 30 days lapse between the time the
Company takes possession of a vehicle and the time it is sold by a dealer or
at auction. During its most recent fiscal year, repossessed vehicles have
been sold at prices that average approximately $1,000 less than the price
paid by the Company for the Contract. When the Company determines that
there is a reasonable likelihood of recovering part or all of any deficiency
against the borrower under the Contract, it pursues legal remedies available
to it, including law suits, judgement liens and wage garnishments.
Historically, the Company has recovered approximately 9.83% of charge-offs
more than 180 days outstanding.
Marketing and Advertising
As its sole marketing activity, the Company relies on its branch
managers to solicit agreements for the purchase of Contracts with automobile
dealers located within a radius of 25 miles of the branch office. The
branch manager provides dealers with information regarding the Company and
the general terms upon which the Company is willing to purchase Contracts.
The Company presently has no plans to implement any other forms of
advertising for the purchase of Contracts, such as radio or newspaper
advertisements.
Currently, the primary method utilized by the Company in soliciting
borrowers under its direct consumer loan program is direct mailings to
individuals who have a good credit history under Contracts purchased by the
Company. The Company intends to expand its solicitation of such loans when
management believes its staff is adequately trained to evaluate credit risks
associated with such loans.
The Used Car Industry
The used car industry in the United States can be characterized as a
mature but growing market. According to statistics from the National
Automobile Dealers Association, in 1992 aggregate used car retail purchases
by consumers totalled 22 million vehicles. These sales resulted in an
aggregate in excess of $110 billion in sales, both by franchised dealers and
independent used car dealers. The United States Department of Commerce
reported the overall growth of used car retail purchases by consumers
between the years 1979 and 1992 to be in excess of 10% annually. The
Company targets customers who earn between $15,000 - $35,000 per year.
Typically, individuals with a gross annual income of less than $24,000
cannot meet the requirements of traditional lenders to finance an automobile
costing over $10,000. According to information complied by the University
of Florida and published in the 1994 Florida Statistical Abstract, the
average per capita income of the total Florida work force was $20,857, and
there were approximately 5,567,000 persons in the Florida work force.
<PAGE> 27
Computerized Information System
Over the last six years, the Company has developed its own proprietary
loan management system. Management believes that its software and hardware
design expertise is integral to the Company's finance business and provides
it with a competitive advantage at a low cost. This integrated system
enhances the Company's ability to respond to customer inquiries and to
monitor the performance of its loan portfolio and of individual borrowers
under Contracts. All management personnel are provided with instant,
simultaneous access to information from a single, shared database. The
Company has created specialized programs to automate the tracking of loans
from the point of inception. The capacity of the networking system has been
expanded to include the Company's branch office locations. The networking
system, including proprietary accounting software and state-of-the-art
telecommunications equipment, is designed, installed and maintained by
employees of the Company. See "--Servicing and Monitoring of Contracts" for
a summary of the different reports prepared by the Company.
Strategy
The Company intends to continue its expansion through the purchase of
additional Contracts and the expansion of its direct consumer loan program.
In order to increase the size of its investment portfolio of Contracts, it
will be necessary for the Company to open additional branch offices and
increase the size of its Line of Credit, either with BankAmerica or another
lender. The Company believes that opportunity for growth continues to exist
in the State of Florida and for the foreseeable future intends to
concentrate its expansion activities primarily there. The Company has
identified Pensacola, Jacksonville and Boca Raton as areas in Florida in
which it may open additional branch offices during fiscal 1997. The Company
believes that the addition of equity from this Offering will make it
possible for the Company to continue to meet or exceed its covenants under
the Line of Credit, to increase the amount of funds drawn down under the
Line of Credit and to draw down funds under the line at a faster rate. The
Company also intends to continue its policy of not paying dividends and
using any earnings from operations to purchase Contracts or make direct
consumer loans.
The ability to attract motivated and experienced employees from other
lending institutions who prefer the entrepreneurial environment of a smaller
company is also key to the Company's success. To this end, the Company
provides its management with significant incentive programs, including the
grant of stock options. At June 30, 1996, options to purchase an aggregate
of 376,500 shares of Common Stock were outstanding to directors, officers
and employees of the Company, of which 283,300 were exercisable.
The Company's recently implemented direct consumer loan program is
directed by a manager located in its home office. The direct loan manager
is responsible for training personnel located in the branch offices to
solicit and close loan transactions. Currently, the Company solicits
consumer loans primarily from borrowers under Contracts purchased by the
Company. The Company's current direct consumer loan portfolio consists
almost exclusively of loans made to either current or previous borrowers
under Contracts purchased by the Company. The Line of Credit permits the
use of $2 million of availability thereunder to fund direct loan activities.
As of June 30, 1996, $401,020 had been drawn down under that portion of the
Line of Credit. Subject to its ability to expand the availability of funds
under the Line of Credit for direct loans, the Company intends to expand its
consumer loan portfolio through continued cross-marketing to its existing
customers and through the solicitation of new customers when management
believes its staff is adequately trained to evaluate credit risks associated
with such loans. The Company contemplates that such solicitations will
include advertising in local newspapers, direct mailings and telemarketing.
Competition
The consumer finance industry is fragmented and highly competitive.
There are numerous financial service companies that provide consumer credit
in the markets served by the Company, including banks, other consumer
finance companies, and captive finance companies owned by automobile
manufacturers and retailers. Many of these companies have significantly
greater resources than the Company. As other lenders enter into this
market, competition for the Company's target customer is expected to
increase. The Company does not believe that increased competition for the
purchase of Contracts will cause a reduction in the interest rate payable by
the purchaser of the automobile. However, increased competition for the
purchase of Contracts will enable automobile dealers to shop for the best
price, thereby causing a reduction in the discount from the initial
principal amount at which the Company will be able to purchase Contracts.
The Company's target market consists of persons who are generally
unable to obtain traditional used car financing because of their credit
history, the vehicle's mileage or age. The Company has been able to expand
its automobile finance business in the non- prime credit market by offering
<PAGE> 28
to purchase Contracts on terms that are competitive with those of other
companies which purchase automobile receivables in that market segment.
Because of the daily contact that many of its employees have with automobile
dealers located throughout the market areas served by it, the Company is
generally aware of the terms upon which its competitors are offering to
purchase Contracts. The Company's policy is to modify its terms if
necessary to remain competitive. The Company continues to analyze new
lending programs and marketing methods which may be implemented with the
objective of increasing its market share, including the possibility of
offering to purchase portfolios of seasoned Contracts from dealers in bulk
transactions from $50,000 to $750,000.
The Company's ability to compete effectively with other companies
offering similar financing arrangements depends upon maintaining close
business relationships with dealers of used motor vehicles. No single
dealer out of the approximately 400 dealers with whom the Company has
contractual relationships accounted for over 5% of its business volume in
the past year.
Regulation
The Company's finance business and insurance operations are subject to
regulation, supervision and licensing under various federal, state and local
statutes and ordinances. Additionally, the procedures that must be followed
by the Company in connection with the repossession of vehicles securing
Contracts, as well as various other aspects of the Company's business, are
regulated by the State of Florida, where to date the Company's operations
have been exclusively located. Various other applicable federal laws govern
the Company's operations. Compliance with existing laws and regulations
applicable to the Company has not had a material adverse effect on the
Company's operations. Management believes that it maintains all requisite
licenses and permits and is in substantial compliance with all applicable
local, state and federal regulations.
The Company has been issued a Retail Installment Seller's License and a
Sales Finance Company License by the Florida Department of Banking and
Finance. Pursuant to regulations of the State of Florida governing the
Company's finance business activities, the Department of Banking and Finance
conducts a review of the Company's activities, at least annually, to monitor
compliance with the applicable regulations. The regulations govern, among
other matters, licensure requirements, requirements for maintenance of
proper records, payment of required fees to the State of Florida, maximum
interest rates that may be charged on loans to finance used vehicles, and
proper disclosure to customers regarding financing terms.
Computer Software Business
Since its formation in 1985 Nicholas Data Services, Inc. ("NDS") has
been engaged in the design, development and marketing of industry-specific
accounting software and technical services to small businesses, primarily in
the southeastern United States. Its principal product is ROUTEMAN, a
receivables account tracking and scheduling software program that is
currently installed in over 600 pest control and service related companies.
The software packages that have been developed by NDS are available in Unix,
Xenix, Novell and DOS versions. The Company has not sought patent or
trademark protection for its products. The Company decided to redirect its
business activities to consumer finance in July 1990 and no longer actively
markets any computer software products and does not seek to expand this line
of business, although the Company continues to service existing NDS
customers. As of June 30, 1996, the operations of NDS accounted for 7.8% of
the combined revenues of the Company. Because the Company does not intend
to expand its software operations, it does not monitor competition; however,
the Company is aware of a number of competitors that offer competitive
products and services as their primary business. As noted above, the
software and hardware design expertise of NDS is currently utilized by the
Company to support the Company's finance business, but NDS will continue to
support its customer base while servicing the requirements of the Company's
finance business. See "--Computerized Information System."
Legal Proceedings
The Company is a party from time to time to certain disputes and
litigation relating to claims arising out of its operations in the ordinary
course of business. Further, the Company periodically is subject to
regulatory audits and inspections. Management believes that matters
presently pending will not in the aggregate have a material adverse effect
on the Company.
<PAGE> 29
Employees
The Company's executive management and various support functions are
centralized at the Company's corporate headquarters in Clearwater, Florida.
As of June 30, 1996, the Company employed a total of 42 persons, five of
whom work for NDS and 37 of whom work in the finance business. The Company
provides health and life insurance, long-term disability insurance, dental
insurance, employee stock options and a 401(k) plan for all employees. No
employees are covered by a collective bargaining agreement, and the Company
believes it has good relations with its employees.
Properties
The Company rents its home office and branch office facilities. Its
home office, located at 2454 McMullen Booth Road, Building C in Clearwater,
Florida, consists of approximately 4,500 square feet. The Company occupies
the space pursuant to a lease that commenced on July 1, 1995 and expires on
June 30, 1999. The lease provides for certain rent abatements during the
first year. During the first year rent is payable at a rate of $2,182 per
month. In the second year, the monthly rate is $4,251, with annual
increases of approximately 2.25% in each subsequent year of the lease. In
the opinion of management, the current home office space is adequate to meet
the needs of the Company for the foreseeable future.
The Company's branch offices all consist of approximately 1,000 square
feet and are located in shopping centers or strip malls. These offices are
occupied pursuant to leases with an initial term of from one to three years
at annual rates ranging from $6 to $11 per square foot.
MANAGEMENT
The names, ages, and positions of the directors and officers of the
Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Peter L. Vosotas 55 Chairman, Chief Executive Officer, Director and President
Raymond Cottrell 49 Director
Joseph G. Bowes 42 Director
Keith A. Bertholf 40 Secretary and Vice President-Operations
Ralph T. Finkenbrink 35 Vice President-Finance
</TABLE>
All directors hold office until the next annual meeting of the
shareholders of the Company or until their successors have been elected and
qualified. The directors of Nicholas-Florida and NDS are Keith A. Bertholf,
Ellis P. Hyman and Stephen Bragin. Officers serve at the discretion of the
board of Directors. Additional information regarding such persons is set
forth below.
Peter L. Vosotas is the founder of the Company and majority stockholder
of the Company. He has served as Chairman, Chief Executive Officer,
Director and President of the Company and each subsidiary since formation.
Prior to forming the Company, Mr. Vosotas held a variety of sales and
marketing positions with Ford Motor Company, GTE and AT&T Paradyne
Corporation. Mr. Vosotas attended the United States Naval Academy and
earned a Bachelor of Science Degree in Electrical Engineering from the
University of New Hampshire.
Raymond Cottrell has served as a director of the Company since November
1990. Since 1987, he has been a Director and President of Grey Point
Capital, Inc., ERI Ventures Inc. and ICM Ventures, Inc., all located in
Vancouver, British Columbia. Mr. Cottrell has been Executive Vice President
of Biocoll Medical Corp. since September 1994. He is a member of the Board
of Directors of Golden Knight Resources, Inc., and Annex Ventures Inc.
<PAGE> 30
Joseph G. Bowes has served as a director of the Company since June
1991. He has been a self-employed Financial Consultant in Vancouver,
British Columbia since 1990. Prior to starting his consulting firm, Mr.
Bowes was Vice President, Finance and Administration and Director of
Achievers International, Vancouver, British Columbia. Mr. Bowes is a
Chartered Public Accountant and received a Masters Degree in Business
Administration from the University of Western Ontario.
Ellis P. Hyman has served as a Director of Nicholas Financial--Florida
and NDS since September 1986. Dr. Hyman has been a practicing dentist in
Clearwater, Florida for over fifteen years.
Stephen Bragin has served as a Director of Nicholas Financial-Florida
and NDS since May 1989. Since 1993, Mr. Bragin has been Development
Director, University of South Florida, Tampa, Florida. Prior to his
involvement with the University, Mr Bragin was, for 36 years, a principal in
a commercial citrus business based in Clearwater, Florida. He is also a
director of Curlew Gardens, Clearwater Florida, and The First National Bank
of Commerce, Clearwater, Florida.
Keith A. Bertholf has been an employee of the Company since March 1985
and held a variety of sales and marketing positions with the Company prior
to his appointment as Vice President-Operations of Nicholas Financial-
Florida and NDS in 1991. He has been a Director and Secretary of Nicholas
Financial-Florida and NDS since 1992. Mr. Bertholf received a Bachelors
Degree in Accounting from the University of Kansas.
Ralph T. Finkenbrink has been employed by the Company since March 1988.
Mr. Finkenbrink held the position of Controller prior to assuming his
present duties in 1992. Prior to joining the Company, he was a staff
accountant for MBI, Inc. from January 1984 to March 1985 and Inventory
Control Manager for The Dress Barn, Inc. from March 1985 to December 1987.
Mr. Finkenbrink received his Bachelor of Science Degree in Accounting from
Mount St. Mary's University in Emmitsburg, Maryland.
Executive Compensation
The following table sets forth a summary of compensation paid by the
Company to its Chief Executive Officer. There are no other officers who
received compensation exceeding in the aggregate $100,000 during the last
completed fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
(stated in U.S. dollars)
Long-Term
Compensation Awards
Annual Compensation Securities Underlying
Name and Position Year Salary Bonus Options
<S> <C> <C> <C> <C>
Peter L. Vosotas 1996 $98,000 $21,864 0
Chief Executive Officer 1995 $88,000 $23,900 50,000
and Director 1994 $88,000 $25,800 0
</TABLE>
The only other benefit plans offered at the present time are health and
life insurance, long-term disability insurance, dental insurance, and a
401(k) plan. All of these plans are available to all full-time employees on
a non-discriminatory basis.
The current policy of the Company is to compensate directors who are not
officers $400 for attending each director's meeting. Directors are
reimbursed for related out-of-pocket expenses of attending meetings.
<PAGE> 31
CERTAIN TRANSACTIONS
The Company has granted Peter L. Vosotas a warrant to purchase up to
1,000,000 shares of its Common Stock in consideration for certain personal
guarantees given by him in connection with the increase of the BankAmerica
Line of Credit to $25 million. Concurrent with the granting of the warrant,
a previously outstanding warrant for the purchase of up to 550,000 shares of
Common Stock that was granted to Mr. Vosotas in connection with the initial
$4 million Line of Credit was amended and restated into the warrant to
purchase 1,000,000 shares described above. Mr. Vosotas has the right to
purchase shares of Common Stock at a price of Cdn. $2.55 at any time prior
to June 3, 1999. As of September 26, 1996, Mr. Vosotas had not exercised
rights to purchase shares under the warrant.
A family trust and several members of Mr. Vosotas's family have
purchased Notes from the Company. In April 1992, the Paula J. Vosotas
Family Trust purchased a Note in the original principal amount of $30,000,
which has subsequently been amended and restated in connection with
additional investments. At June 30, 1996, the current outstanding principal
balance of this Note was $51,730. The Note accrues interest at 12% per annum
with all principal and accrued interest due and payable at maturity, March
31, 1997. In connection with this Note, the Company issued 3,000 shares of
Common Stock to the holder.
In May 1994 Paula J. Vosotas, wife of Peter L. Vosotas, purchased a Note
in the original principal amount of $150,000, which has been subsequently
amended and restated in connection with additional investments. At June 30,
1996, the aggregate principal balance of this Note was $181,611. This Note
bears interest at 12% per annum. Principal and interest on this Note are
payable upon demand.
In December 1993 Jennifer L. Vosotas, daughter of Peter L. Vosotas,
purchased a Note in the original principal amount of $20,000, which has been
subsequently amended and restated in connection with subsequent investments.
At June 30, 1996, the aggregate principal balance of this Note was $46,882.
Interest on this Note accrues at the rate of 12% per annum. Principal and
any accrued interest on this Note are payable upon demand.
On February 28, 1994 Stephen Bragin purchased a Note in the original
principal amount of $150,000. This Note bears interest at 12% per annum.
The Company makes semi-annual payments of interest only on this Note, and
payment of this Note is subordinated to payment of the BankAmerica Line of
Credit. This Note matures on February 28, 1998. Mr. Bragin has the option
of converting this Note into Common Stock at a price of $2.00 per share.
On April 20, 1992 and January 26, 1994, Dr. Ellis Hyman purchased two
Notes in the original principal amount of $150,000 each. These Notes bear
interest at 12% per annum. The Company makes payments of interest only
under both of these Notes. The first Note requires interest to be paid
quarterly, and the second Note requires semi-annual payments. Payment of
both Notes is subordinated to payment of the BankAmerica Line of Credit. On
April 19, 1996, Dr. Hyman and the Company agreed to extend the maturity date
on his first Note to April 20, 2000 and also increase the size of the Note
to $200,000. Dr. Hyman has the option of converting the first Note into
Common Stock at a price of $2.75 per share. The second Note matures on
January 28, 1998.
As of June 30, 1996, the outstanding aggregate principal balance of all
Notes was $2,280,223, of which approximately $1,500,000 was represented by
Notes convertible into Common Stock at the option of the holder, at
conversion prices ranging from $1.75 to $2.75 per share. The conversion in
full of the aggregate principal balance of all convertible Notes outstanding
at June 30, 1996 would result in the issuance of approximately 744,156
additional shares of Common Stock to the holders of such convertible Notes.
The Company has adopted a policy that all future transactions with its
affiliates will be on terms no less favorable to the Company or the
affiliates than could be obtained in transactions with unrelated parties.
<PAGE> 32
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the Common
Stock owned as of September 26, 1996, and as adjusted to give effect to the
sale of the minimum and maximum number of shares of Common Stock pursuant to
the Offering, by (1) any person (including any "group") who is known by the
Company to own beneficially more than 5% of its outstanding Common Stock,
(2) each director and executive officer of the Company and each subsidiary,
and (3) all officers and directors as a group, assuming no purchase of
Common Stock in the Offering by the persons named in the table.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
the Offering the Offering
Percent Percent
Name and Address Number Percentage (Minimum) (Maximum)
<S> <C> <C> <C> <C>
Peter L. Vosotas
2454 McMullen Booth Road
Clearwater, FL 34619 3,333,500 (1) 47.9% 40.6% 38.3%
Keith A. Bertholf
2454 McMullen Booth Road
Clearwater, FL 34619 409,100 (2) 6.6% 5.5% 5.2%
Stephen Bragin
2454 McMullen Booth Road
Clearwater, FL 34619 157,708 (3) 2.7% 2.2% 2.1%
Dr. Ellis Hyman
2454 McMullen Booth Road
Clearwater, FL 34619 327,977 (4) 5.5% 4.5% 4.2%
Raymond Cottrell
2250-650 W. Georgia St.
Vancouver, B.C., V6B-4N7 * * * *
Joseph Bowes
1826 W. 63rd. Avenue
Vancouver, B.C. V6P-2J1 10,000 * * *
Stephen G. Blume
6350 118th Avenue North
Largo, Florida 366,984 (5) 6.2% 5.1% 4.8%
All directors and executive officers
as a group (6 persons) 4,238,285 (6) 56.5% 48.4% 45.8%
<FN>
* Represents less than 1% of the outstanding Common Stock.
(1) Includes 100,000 shares issuable upon exercise of certain options and
1,000,000 shares issuable upon exercise of warrants exercisable within 60
days of September 26, 1996. Also includes 250,000 shares transferable to Mr.
Keith A. Bertholf upon the exercise of a personal option exercisable
within 60 days of September 26, 1996.
(2) Includes 54,000 shares issuable upon exercise of certain options
exercisable within 60 days of July 18, 1996 and 250,000 shares
transferable from Mr. Peter L. Vosotas upon exercise of a personal option
exercisable within 60 days of September 26, 1996.
(3) Includes 75,000 shares issuable upon exercise of certain options and
conversion of Notes exercisable within 60 days of September 26, 1996.
(4) Includes 144,727 shares issuable upon conversion of Notes exercisable
within 60 days of September 26, 1996.
(5) Includes 53,571 shares issuable upon exercise of a warrant exercisable
within 60 days of September 26, 1996.
(6) Includes 1,623,727 shares issuable upon exercise of certain options,
warrants, compensation arrangements and convertible Notes exercisable
within 60 days of September 26, 1996.
</TABLE>
<PAGE> 33
DESCRIPTION OF CAPITAL STOCK
The Company's Articles of Incorporation authorize it to issue 20,000,000
shares of Common Stock, no par value, and 5,000,000 shares of Preferred
Stock.
Common Stock
As of the date of this Prospectus, the only outstanding class of capital
stock is Common Stock, of which 5,885,739 shares were outstanding at
September 26, 1996. Each share of Common Stock is entitled to one vote at
all meetings of shareholders. All shares of Common Stock are equal to each
other with respect to liquidation rights and dividend rights. In the event
of liquidation, dissolution or winding up of the Company, holders of the
Common Stock will be entitled to receive on a pro rata basis all assets of
the Company remaining after satisfaction of all liabilities. There are no
preemptive rights to purchase additional shares of Common Stock.
There is no cumulative voting for the election of directors. Accordingly,
the owners of a majority of Common Stock outstanding may elect all of the
directors.
Preferred Stock
The Company's Board of Directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or
all of the authorized but unissued shares of Preferred Stock with such
dividend, redemption, conversion and exchange provisions as may be provided
in the particular series. Any series of Preferred Stock may possess voting,
dividend, liquidation and redemption rights superior to that of the Common
Stock. The rights of the holders of Common Stock will be subject to and may
be adversely affected by the rights of the holders of any Preferred Stock
that may be issued in the future. Issuance of a new series of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of
entrenching the Company's Board of Directors and making it more difficult
for a third party to acquire, or discouraging a third party from acquiring,
a majority of the outstanding voting stock of the Company. The Company has
no present plans to issue any series of Preferred Stock.
The Certificate of Incorporation of the Company provides that the Company
shall indemnify a director or former director of the Company and the heirs
and personal representatives of any such person against all costs, charges
and expenses actually and reasonably incurred by an indemnified party,
including an amount paid to settle an action or satisfy a judgment in a
civil, criminal or administrative action or proceeding to which they are
made a party by reason of being or having been a director, including any
action brought by the Company. The Certificate of Incorporation also
provides that the directors may cause the Company to indemnify, to the same
extent as for directors, any officer, employee or agent of the Company or
any director, officer, employee or agent of the Company's subsidiaries.
<PAGE> 34
SHARES ELIGIBLE FOR FUTURE SALE
At September 26, 1996, there were 5,885,739 shares of Common Stock
outstanding. Upon consummation of the Offering, the number of shares of
Common Stock outstanding will be 7,135,739 (assuming the minimum Offering)
and 7,635,739 (assuming the maximum Offering). The 1,250,000 to 1,750,000
shares sold in the Offering will be freely tradeable without restriction or
further registration under the Securities Act, unless acquired by an
"affiliate" of the Company (as that term is defined in the Securities Act).
Shares acquired by an affiliate will be subject to the resale limitations of
Rule 144 under the Securities Act. The securities offered or sold hereunder
shall be subject to a one year hold restriction prohibiting the sale or
transfer of such securities in British Columbia, except as may be permitted
by the Securities Act (British Columbia) and the rules and regulations
thereto. The certificates for the securities will bear a legend to this
effect.The balance of the 5,885,739 shares will be eligible for sale in the
public market at various times after completion of the Offering, including
approximately 2,614,558 shares that will be eligible for sale under the
provisions of Rule 144 applicable to affiliates beginning 180 days after the
date of this Prospectus.
In general, under Rule 144 as currently in effect, a shareholder who has
beneficially owned for at least two years shares privately acquired directly
or indirectly from the Company or from an affiliate of the Company, and
persons who are affiliates of the Company, will be entitled to sell within
any three-month period a number of shares that does not exceed the greater
of (i) one percent of the outstanding shares of the Common Stock
(approximately 71,000 to 76,000 shares immediately after completion of the
Offering) or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements relating to the manner and notice
of sale and the availability of current public information about the
Company. The Securities and Exchange Commission is considering a proposal
to amend Rule 144 to reduce the two year holding period described above to
one year.
In addition, at September 26, 1996, the Company had outstanding (i)
options to purchase an aggregate of 346,000 shares of Common Stock, of which
options with respect to 255,600 shares were exercisable, (ii) warrants to
purchase an aggregate of 1,053,571 shares of Common Stock and (iii) Notes
convertible into approximately 744,156 shares of Common Stock. Absent
registration, the shares issuable upon the exercise of the options and
warrants and upon the conversion of the Notes generally will be subject to
the holding period and other resale restrictions of Rule 144. Although the
Company currently has no obligation to register any of such shares, it
intends to register the shares issuable upon the exercise of outstanding
options, in which case such shares would become immediately saleable without
restriction unless acquired by an "affiliate" of the Company.
Sales of substantial amounts of the Common Stock in the public market
following the Offering, or the perception that such sales may occur, could
adversely affect the market price of the Common Stock or the ability of the
Company to raise capital through sales of its equity securities.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Jacobs, Forlizzo
& Neal, P.A., Clearwater, Florida. Certain legal matters will be passed
upon for the Sales Agent by Robinson, Bradshaw & Hinson, P.A., Charlotte,
North Carolina.
EXPERTS
The consolidated financial statements of Nicholas Financial, Inc. at March
31, 1996 and 1995 and for each of the two years in the period ended March
31, 1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2, including
amendments thereto (the "Registration Statement"), relating to the Common
Stock offered hereby with the Securities and Exchange Commission (the
"Commission"). This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract
or other document to which reference is made are not necessarily complete
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to such Registration Statement, exhibits and schedules.
<PAGE> 35
The Company is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the
Commission. Since June 27, 1996, the Company has filed all such reports and
information electronically with the Commission via the Commission's
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). A copy
of the Registration Statement and the reports, proxy and information
statements filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected without
charge at the Commission's principal office at 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Northeast Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048; and Midwest Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of all or any part
of the Registration Statement, including the exhibits thereto, may be
obtained, upon payment of the prescribed fees, at such offices of the
Commission. Additionally, such information filed via EDGAR is available at
the Commission's Web site: (http://www.sec.gov).
In addition, reports, proxy statements and other information concerning
the Company (Symbol: NFC.U) can be inspected and copied at the offices of
the Vancouver Stock Exchange, 609 Granville Street, Vancouver, British
Columbia, Victor 7Y-1 HI, on which the Common Stock is listed.
STATUTORY RIGHTS OF ACTION
In certain circumstances, an investor who purchases Securities has, by
contract, the same right of action against the Company for rescission or
damages as are afforded to a person who purchases Securities in respect of
which a Prospectus has been filed. This right of action is in addition to
any other right or remedy the investor may have at law and may be summarized
as follows.
In the event that this Registration Statement, including any amendment
thereto, contains a misrepresentation which was a misrepresentation on the
date of investment, an investor to whom the Registration Statement was
delivered and who purchases the Securities and who is still the owner of the
Securities has a right of action against the Company either for damages or
alternatively for rescission of the purchase provided that:
(a) the right is only enforceable on written notice being given to the
Company not later than 90 days subsequent to the date of investment, and
provided that the action is commenced within 180 days from the date of the
investment;
(b) the Company is not liable if the investor purchased the Securities with
knowledge of the misrepresentation;
(c) in an action for damages, the Company is not liable for all or any
portion of such damages that the Company proves does not represent the
depreciation in value of the Securities as a result of the misrepresentation
relied upon; and
(d) in no case shall the amount recoverable exceed the price at which the
Securities were offered or sold to the investors.
For these purposes "misrepresentation" means an untrue statement of a
material fact or an omission to state a material fact that is required to be
stated or which is necessary to prevent any statement that is made from
being false or misleading in the circumstances in which it is made. The
right of action for rescission or damages conferred by statute is in
addition to and without derogation from any other right the investor may
have at law.
For further information concerning the above, the investor should refer to
Section 133 of the Securities Rules (British Columbia) and Sections 114 and
124 of the Securities Act (British Columbia) or consult a lawyer.
Accredited investors that reside in the United States have various rights
and remedies under applicable federal and state laws.
<PAGE> 36
Certificate
The foregoing contains no untrue statement of a material fact and
does not omit to state a material fact that is required to be
stated or that is necessary to prevent a statement that is made
from being false or misleading in the circumstances in which it
was made.
Dated : September 27, 1996
NICHOLAS FINANCIAL, INC.
/s/ Peter L. Vosotas /s/ Ralph T. Finkenbrink
____________________________________ _______________________________
Peter L. Vosotas, Chairman, Ralph T. Finkenbrink
Chief Executive Officer and President Vice President
Finance
<PAGE> F - 1
Index to Financial Statements
<TABLE>
<CAPTION>
Page
Audited Year End Financial Statements
<S> <C>
Report of Independent Auditors F - 2
Consolidated Balance Sheets as of March 31, 1996 and 1995 F - 3
Consolidated Statements of Income and Retained Earnings for the
fiscal years ended March 31, 1996 and 1995 F - 4
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 1996 and 1995 F - 6
Notes to the Consolidated Financial Statements F - 7
</TABLE>
<TABLE>
<CAPTION>
Unaudited Quarterly Financial Statements
<S> <C>
Condensed Consolidated Balance Sheet as of June 30, 1996 F - 17
Condensed Consolidated Statements of Income for the three
months ended June 30, 1996 and 1995 F - 18
Condensed Consolidated Statements of Cash Flows for the three
months ended June 30, 1996 and 1995 F - 19
Notes to the Condensed Consolidated Financial Statements F - 20
</TABLE>
<PAGE> F - 2
Report of Independent Auditors
To the Board of Directors of
Nicholas Financial, Inc.
We have audited the accompanying consolidated balance sheets of
Nicholas Financial, Inc. as of March 31, 1996 and 1995, and the
related consolidated statements of income and retained earnings
and cash flows for the years then ended. These financial
statements are the responsibility of the Company=s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Nicholas Financial, Inc. at March 31, 1996
and 1995, and the consolidated results of its operations and its
cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements,
in fiscal 1995 the Company changed its method of accounting for
unearned interest, dealer discounts and reserves for future
credit losses.
Ernst & Young, LLP
May 13, 1996
<PAGE> F - 3
Nicholas Financial, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31
1996 1995
--------------------------
<S> <C> <C>
Assets
Cash $490,791 $283,342
Accounts receivable 25,154 27,992
Prepaid expenses and other assets 270,700 203,492
Finance receivables, net 18,326,784 12,780,085
Property and equipment, net 180,417 186,602
Intangible assets 2,530 15,632
Deferred loan costs 19,627 21,027
Deferred income taxes 485,798 332,602
--------------------------
Total assets $19,801,801 $13,850,774
==========================
Liabilities
Line of credit $13,130,365 $8,750,840
Notes payable-related party 2,226,533 1,576,089
Deferred revenues 188,894 140,538
Accounts payable 851,258 841,272
Other liabilities 28,804 176,171
Income taxes payable 122,082 112,308
--------------------------
16,547,936 11,597,218
Shareholders' equity
Preferred stock, no par: 5,000,000 shares
authorized; - -
none issued and outstanding
Common stock, no par: 20,000,000 shares
authorized; 5,838,339 and 5,774,539 shares 1,724,051 1,385,893
issued and outstanding, respectively
Retained earnings 1,529,814 867,663
--------------------------
3,253,865 2,253,556
--------------------------
Total liabilities and shareholders'equity $19,801,801 $13,850,774
==========================
</TABLE>
See accompanying notes.
<PAGE> F - 4
Nicholas Financial, Inc.
Consolidated Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
Year ended March 31
1996 1995
---------------------------
<S> <C> <C>
Revenue:
Interest income on finance receivables $5,264,080 $3,514,246
Sales 565,645 601,925
Interest income on term deposits and lease
receivables 3,450 2,861
---------------------------
5,833,175 4,119,032
Expenses:
Cost of sales 140,786 138,879
Marketing 216,198 245,397
Administrative 2,060,251 1,529,338
Provision for credit losses 486,440 337,732
Deferred compensation expense (recovery) 266,754 (49,361)
Depreciation and amortization 86,664 125,286
Interest expense 1,517,181 897,553
---------------------------
4,774,274 3,224,824
---------------------------
Operating income before income taxes 1,058,901 894,208
Income tax expense (benefit):
Current 550,346 392,603
Deferred (153,596) (50,772)
---------------------------
396,750 341,831
---------------------------
Income before cumulative effect of a change
in accounting principle 662,151 552,377
Cumulative effect of a change in accounting
principle - 71,218
---------------------------
Net income 662,151 623,595
Retained earnings, beginning of year 867,663 244,068
---------------------------
Retained earnings, end of year $1,529,814 $ 867,663
===========================
</TABLE>
<PAGE> F - 5
Nicholas Financial, Inc.
Consolidated Statements of Income and Retained Earnings (continued)
<TABLE>
<CAPTION>
Year ended March 31
1996 1995
---------------------------
<S> <C> <C>
Earnings per common and common
equivalent share:
Income before cumulative effect of a
change in accounting principle $.11 $.09
Cumulative effect of a change in
accounting principle - .01
---------------------------
Net income $.11 $.10
===========================
Weighted average number of common and
common equivalent shares 6,037,720 6,153,236
===========================
</TABLE>
See accompanying notes.
<PAGE> F - 6
Nicholas Financial, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended March 31
1996 1995
-------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 662,151 $ 623,595
Adjustments to reconcile net income to net
cash flows provide by operating activities:
Cumulative effect of a change in accounting
principle - 71,218
Depreciation of property and equipment 73,562 87,022
Provision for credit losses 486,440 337,732
Amortization of intangible assets and
deferred loan costs 42,502 99,064
Deferred compensation expense (recovery) 266,754 (49,361)
Deferred income taxes (153,196) (50,772)
Changes in operating assets and liabilities:
Accounts receivable 2,838 15,421
Prepaid expenses and other assets (67,208) (43,089)
Deferred revenues 48,356 35,643
Accounts payable (176,267) 428,301
Other liabilities 38,886 74,444
Income taxes payable 9,774 (84,533)
---------------------------
Net cash provided by operating activities 1,234,592 1,544,685
Investing activities
Increase in finance receivables, net of
principal collected (6,033,139) (5,816,538)
Purchase of property and equipment (67,377) (96,103)
Increase in deferred loan costs (28,000) -
---------------------------
Net cash used by investing activities (6,128,516) (5,912,641)
Financing activities
Repayment of notes payable-related party
and line of credit borrowings (5,670,031) (301,965)
Proceeds from notes payable-related party
and line of credit borrowings 10,700,000 4,540,000
Proceeds from sale of the Company's common
stock 71,404 136,439
---------------------------
Net cash provided by financing activities 5,101,373 4,374,474
---------------------------
Net increase in cash 207,449 6,518
Cash, beginning of year 283,242 276,824
---------------------------
Cash, end of year $490,791 $283,342
===========================
</TABLE>
See accompanying notes.
<PAGE> F - 7
Nicholas Financial, Inc.
Notes to the Consolidated Financial Statements
March 31, 1996
1. Organization
Nicholas Financial, Inc. (NFI, Canada) is a Canadian holding company
incorporated under the laws of British Columbia with two wholly-owned
United States subsidiaries, Nicholas Data Services, Inc. (NDSI) and
Nicholas Financial, Inc. (NFI). NDSI is engaged principally in the
development, marketing and support of computer application software.
NFI is engaged principally in providing installment sales financing.
Both NDSI and NFI are based in Florida, U.S.A.
2. Accounting Policies
Consolidation
The consolidated financial statements include the accounts of NFI,
Canada and its wholly-owned subsidiaries, NDSI and NFI, collectively
referred to as the Company. All intercompany transactions and balances
have been eliminated.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for repairs
and maintenance are charged to expense as incurred. Depreciation of
property and equipment is computed using the straight-line method
(accelerated method for assets acquired prior to April 1, 1994) over
the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Automotive 3 years
Equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements Lease term
</TABLE>
Intangible Assets
Intangible assets consist principally of rights and privileges of
certain computer software and customer lists acquired. Such amounts
are being amortized over their estimated useful lives of five years
using the straight-line method.
Costs incurred to develop new software and to enhance existing
software for internal use are charged to operations as incurred. Costs
to develop new software for resale are capitalized and amortized over
the expected useful life of the related product, generally five years.
The amount capitalized is included in the caption "intangible assets."
<PAGE> F - 8
2. Accounting Policies (continued)
Allowance for Loan Losses
The allowance for loan losses is increased by charges against earnings
and decreased by charge-offs (net of recoveries). In addition to the
allowance for loan losses, a nonrefundable dealer reserve has been
established using unearned interest and dealer discounts to absorb
future credit losses. To the extent actual credit losses exceed the
reserves, a bad debt provision is recorded and to the extent credit
losses are less than the reserve, the reserve is accreted into income
as an adjustment to the interest yield over the term of the underlying
finance receivables.
Management's periodic evaluation of the adequacy of the allowance is
based on the Company's past loan experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral,
and current economic conditions.
Deferred Loan Costs
The Company defers costs related to obtaining loans. Such costs are
charged to operations as an adjustment of interest expense over the
life of the related loan.
Income Taxes
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," which requires the use of an asset and liability
approach for financial accounting and reporting.
Revenue Recognition
Revenues resulting from the sale of hardware and software are
recognized upon delivery of the goods. Revenues from software support
maintenance and lease agreements are recognized pro rata over the life
of the agreements. The unamortized amounts are included in the caption
"deferred revenues."
Interest income on finance receivables is recognized using the
interest (actuarial) method. Accrual of interest income on finance
receivables is suspended when a loan is contractually delinquent for
60 days or more or the collateral is repossessed, whichever is
earlier.
<PAGE> F - 9
2. Accounting Policies (continued)
Earnings Per Share
Earnings per share is calculated using the weighted average number of
common shares outstanding during the year, adjusted for the dilutive
effect of stock options and warrants and is the same on both a primary
and fully-diluted basis.
Financial Instruments
The Company's financial instruments consist of accounts receivable,
finance receivables, line of credit, notes payable-related party and
accounts payable. For each of these financial instruments, the
carrying value approximates its fair value except as noted below:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
------------------------------
<S> <C> <C>
Finance receivables $18,326,784 $18,504,899
</TABLE>
The fair value of finance receivables was estimated by adding the
unpaid principal (net of allowances) to the present value of the
portion of the nonrefundable dealer discount which will not be
utilized to offset future credit losses.
The Company's financial instruments that are exposed to concentrations
of credit risk are primarily finance receivables, which are
concentrated in the State of Florida. The Company provides credit
during the normal course of business and performs ongoing credit
evaluations of its customers. The Company maintains allowances for
potential credit losses which, when realized, have been within the
range of management's expectations. The Company perfects a primary
interest in all vehicles financed as a form of collateral.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Statement of Cash Flows
Cash paid for income taxes for the years ended March 31, 1996 and 1995
was $540,167 and $520,150, respectively. Cash paid for interest for
the years ended March 31, 1996 and 1995 was $1,447,437 and $787,207,
respectively.
<PAGE> F - 10
3. Change in Accounting Method
On April 1, 1994, the Company changed its method of accounting for
unearned interest and dealer discounts as well as reserves for future
credit losses. Historically, dealer holdbacks were recorded as
deferred revenue and amortized to income over the life of the loans
and an allowance for uncollectible accounts was established by charges
against income.
The Company concluded that a more appropriate method of accounting for
dealer holdback was to record some or all of the holdback as an
allowance against the unpaid balance of the loans to state such loans
at their estimated net realizable value at date of purchase and to
charge credit losses against this account to the extent of its
availability. If the dealer holdback is insufficient at the date of
purchase, unearned income is also deferred as necessary. Future
additions to the allowance for uncollectible amounts are made by a
charge against income. If holdback amounts credited to the allowance
become unnecessary, the unnecessary amounts are credited to income as
an adjustment of the interest yield once the contract is substantially
liquidated. The Company believed that the change was to a preferable
method because it more appropriately records the economic event which
takes place at the time a loan is purchased, and it provides a more
accurate reflection of the Company's assets and liabilities and better
matching of its costs and revenues. The cumulative effect as of
April 1, 1994 of the change in method increased fiscal 1995 net
income by approximately $71,000 after reduction for income taxes of
approximately $43,000.
4. Finance Receivables
Finance receivables consist of consumer automobile finance installment
contracts and are detailed as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
Finance receivables, gross contract $27,814,597 $19,716,821
Less:
Unearned interest (6,401,336) (4,696,000)
Unearned dealer discount (11,617) (124,210)
----------------------------
21,401,644 14,896,611
Nonrefundable dealer reserves (2,229,571) (1,519,852)
Allowance for credit losses (845,289) (596,674)
----------------------------
Finance receivables, net $18,326,784 $12,780,085
============================
</TABLE>
The terms of the receivables range from 6 to 60 months and bear a
weighted average effective interest rate of 25% and 26% for 1996 and
1995, respectively.
<PAGE> F - 11
5. Property and Equipment
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Depreciation Value
--------------------------------------
<S> <C> <C> <C>
1996
Automotive $118,246 $ 64,740 $ 53,506
Equipment 203,586 117,114 86,473
Furniture and fixtures 76,708 42,676 34,032
Leasehold improvements 40,227 33,820 6,406
--------------------------------------
$438,767 $258,350 $180,417
======================================
1995
Automotive $ 93,725 $ 32,091 $ 61,634
Equipment 176,992 94,913 82,079
Furniture and fixtures 64,772 34,072 30,700
Leasehold improvements 36,710 24,521 12,189
--------------------------------------
$372,199 $185,597 $186,602
======================================
</TABLE>
6. Intangible Assets
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Depreciation Value
--------------------------------------
<S> <C> <C> <C>
1996
Computer software rights $406,312 $406,312 $ -
Internally developed
computer software 471,661 469,131 2,530
--------------------------------------
$877,973 $875,443 $ 2,530
======================================
1995
Computer software rights $406,312 $406,312 $ -
Internally developed
computer software 471,661 456,029 15,632
--------------------------------------
$877,973 $862,341 $15,632
======================================
</TABLE>
<PAGE> F - 12
7. Line of Credit
The Company has a $20,000,000 line of credit facility (the Line) with
BA Business Credit, Inc. which expires on June 3, 1996. Borrowings
under the Line bear interest at the Bank of America prime rate plus
1.25% and 1.00%, when the outstanding balance exceeds $10,000,000 and
$15,000,000, respectively (9.5% at March 31, 1996). If the outstanding
balance falls below $10,000,000 the Line bears interest at the Bank of
America prime rate plus 1.75%. Pledged as collateral for this credit
facility are all of the assets of Nicholas Financial, Inc. and the
unconditional guarantee of NDSI, NFI, Canada,and Peter L. Vosotas, a
shareholder.
On May 13, 1996, the Company negotiated a new line of credit facility
with BA Business Credit, Inc. The new agreement, which expires on
June 3, 1998, allows for borrowings of up to $25,000,000 under similar
terms as the previous credit facility.
8. Notes Payable-Related Party
Notes payable are as follows at March 31:
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
Notes payable, unsecured, with interest at
varying rates up to 12%, quarterly and
semiannual interest payments due through
June 1998, at which time entire principal
balances and unpaid interest is due,
subordinated to the Line. The notes are
convertible at the option of the holder,
into common shares at prices from $1.75 to
$2.00 per share. $1,800,000 $1,100,000
Note payable, unsecured, interest at 12%,
quarterly interest due through April 1996,
at which time entire balance and unpaid
interest is due, subordinated to the Line. 150,000 150,000
Notes payable, unsecured interest at 12%,
principal and interest due through May 1998. 233,341 218,846
Note payable, unsecured, interest at 12%,
quarterly principal and interest payments
due through April 1996. 18,495 87,243
Note payable, unsecured, interest at 12%,
quarterly interest payments due through
August 1997, at which time the entire
principal balance and unpaid interest is due. 24,697 20,000
-------------------------
$2,226,533 $1,576,089
=========================
</TABLE>
<PAGE> F - 13
8. Notes Payable-Related Party (continued)
Maturities of notes payable are summarized as follows:
<TABLE>
<CAPTION>
Year ending March 31
--------------------
<S> <C>
1997 $ 168,495
1998 1,400,000
1999 658,038
-------------
$2,226,533
=============
</TABLE>
9. Income Taxes
The provision for income taxes reflects an effective tax rate
which differs from the corporate tax rate for the following
reasons:
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
Combined basic Canadian federal and
provincial income tax rate 45.34% 45.34%
========================
Income before income taxes $1,058,901 $894,208 901 8
========================
Provision for income taxes based on
above rate $ 480,106 $405,434
Increase (decrease) resulting from:
NDSI's income taxed at lower (U.S.)
rates (88,718) (74,621)
Other 5,362 11,018
------------------------
$ 396,750 $341,831
========================
</TABLE>
The Company's deferred tax assets consist of the following as of:
<TABLE>
<CAPTION>
March 31
1996 1995
------------------------
<S> <C> <C>
Allowance for credit losses not
deductible for tax purposes $ 309,000 $254,000
Deferred compensation related to stock
options and warrants 157,000 66,000
Other items 20,000 13,000
------------------------
$486,000 $333,000
========================
</TABLE>
<PAGE> F - 14
9. Income Taxes (continued)
NFI, Canada has income tax loss carryforward balances of
approximately $180,000 (1995-$187,000) which are available to
reduce future taxable income and which expire as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 20,000
1998 17,000
1999 23,000
2000 59,000
2001 36,000
2002 16,000
2003 9,000
----------
$180,000
==========
</TABLE>
For the years ended March 31, 1996 and 1995, the Company would
have recorded deferred tax assets of approximately $68,000 and
$71,000, respectively, due primarily to income tax loss
carryforwards. The assets, however, are offset entirely by a
valuation allowance due to the relative uncertainty surrounding
the realization of the assets.
10. Shareholders' Equity
Changes in the outstanding common stock during the years are as
follows:
<TABLE>
<CAPTION>
Number Common
of Shares Stock
--------------------------
<S> <C> <C>
Balance at March 31, 1994 $5,511,739 $1,298,815
Changes in 1995:
Issued for cash on exercise of options 182,800 36,439
Issued on exercise of convertible notes
payable 80,000 100,000
Deferred compensation recovery - (49,361)
-------------------------
Balance at March 31, 1995 5,774,539 1,385,893
Changes in 1996:
Issued for cash on exercise of options 39,800 35,004
Issued in connection with note payable 20,000 28,000
Issued for services rendered 4,000 8,400
Deferred compensation expense - 266,754
-------------------------
Balance at March 31, 1996 5,838,339 $1,724,051
=========================
</TABLE>
<PAGE> F - 15
10. Shareholders' Equity (continued)
The Company has warrants outstanding at March 31, 1996 entitling a
director to purchase 1,000,000 common shares at Cdn$2.55 until
June 3, 1999. The Company also has warrants outstanding at
March 31, 1996 entitling an investor to purchase 53,571 shares at
Cdn$2.27 which expire May 12, 1997. At March 31, 1996, all
warrants were fully exercisable.
As of March 31, 1996, stock options outstanding to directors,
officers and employees are as follows:
<TABLE>
<CAPTION>
Number of Shares Exercise Price Expiration Date
<S> <C> <C>
20,000 $.48 April 5, 1996
27,000 .75 August 28, 1996
52,000 .90 September 4, 1997
21,500 1.20 November 30, 1997
31,500 1.40 November 20, 1998
180,000 1.70 February 28, 2000
4,500 2.15 June 10, 1999
48,000 3.23 September 8, 2000
------------
384,500
============
</TABLE>
During 1996 and 1995, 20,400 options and -0- warrants and 7,000
options and 62,500 warrants were canceled, respectively. During
1996, 48,000 options were granted to directors, officers and
employees. As of March 31, 1996, 294,811 of the above options were
exercisable. During 1996, the weighted average price of options
exercised was $.88.
11. Related Party Transactions
At March 31, 1996 and 1995, all notes payable were owing to
shareholders, directors and individuals related to directors of
the Company, with terms described in Note 8 of these consolidated
financial statements.
During fiscal 1996, the Company incurred interest expense of
$260,547 (1995-$200,077) on the notes described above.
<PAGE> F - 16
12. Commitments
The Company leases its corporate office and sales offices under
operating lease agreements which provide for annual minimum rental
payments as follows:
<TABLE>
<CAPTION>
Year ending March 31
<S> <C>
1997 $ 84,189
1998 61,921
1999 52,995
2000 13,319
----------
$212,424
==========
</TABLE>
Rent expense for the years ended March 31, 1996 and 1995 was
$66,819 and $50,650, respectively.
13. Segmented Information
Substantially all of the Company's operations are in the United
States. The industry segments are as follows:
<TABLE>
<CAPTION>
Computer
Application
General Software and Corporate Total
Financing Support
<S> <C> <C> <C> <C>
1996
Revenue $5,267,530 $ $565,465 $ - $5,833,175
Operating (loss) profit 1,088,188 (20,298) (8,989) 1,058,901
Identifiable assets 19,626,132 174,645 1,024 19,801,801
Capital expenditures 67,377 - - 67,377
Depreciation and 42,456 44,208 - 86,664
amortization
1995
Revenue $3,516,834 $602,198 $ - $4,119,032
Operating (loss) profit 901,860 5,933 (13,585) 894,208
Identifiable assets 13,719,414 130,485 875 13,850,774
Capital expenditures 86,411 9,692 - 96,103
Depreciation and 41,067 84,219 - 125,286
amortization
</TABLE>
<PAGE> F - 17
Nicholas Financial, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
June 30
1996
------------
<S> <C>
Assets
Cash $319,933
Accounts receivable 24,113
Prepaid expenses and other assets 419,820
Finance receivables, net 19,557,684
Property and equipment, net 187,035
Intangible assets 1,265
Deferred loan costs 14,677
Deferred income taxes 499,717
------------
Total assets $21,024,244
------------
Liabilities
Line of credit $13,805,594
Notes payable-related party 2,280,223
Deferred revenues 202,283
Accounts payable 687,863
Other liabilities 427,380
Income taxes payable 128,866
-----------
17,532,209
Shareholders' equity
Preferred stock, no par: 5,000,000 shares
authorized; -
none issued and outstanding
Common stock, no par: 20,000,000 shares
authorized; 5,858,339 shares issued and
outstanding 1,755,765
Retained earnings 1,736,270
-----------
3,492,035
-----------
Total liabilities and shareholders= equity $21,024,244
-----------
</TABLE>
See accompanying notes.
<PAGE> F - 18
Nicholas Financial, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30
1996 1995
---------------------------
<S> <C> <C>
Revenue:
Interest income on finance receivables $1,348,053 $1,107,006
Sales 113,711 151,258
Interest income on term deposits and
lease receivabl 11 2,123
---------------------------
1,461,775 1,260,387
Expenses:
Cost of sales 22,465 34,469
Marketing 59,587 46,246
Administrative 547,747 490,967
Provision for credit losses 54,313 40,786
Deferred compensation expense 29,947 323,139
Depreciation and amortization 20,765 29,155
Interest expense 394,630 331,630
1,129,454 1,296,392
---------------------------
Operating income before income taxes 332,321 (36,005)
Income tax expense (benefit):
Current 139,784 176,213
Deferred (13,919) (190,250)
---------------------------
125,865 (14,037)
---------------------------
Net Income (loss) $206,456 $(21,968)
Net Income per common and common
equivalent share $0.03 -
---------------------------
Weighted average number of common and
common equivalent shares 6,361,675 6,384,196
---------------------------
</TABLE>
See accompanying notes.
<PAGE> F - 19
Nicholas Financial, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30
1996 1995
--------------------------
<S> <C> <C>
Operating activities
Net income (loss) $206,456 (21,968)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation of property and equipment 19,500 24,000
Provision for credit losses 54,313 40,786
Amortization of intangible assets and 6,215 5,155
deferred loan costs
Deferred compensation expense 29,947 323,139
Deferred income taxes (13,919) (190,250)
Changes in operating assets and liabilities:
Accounts receivable 1,041 6,205
Prepaid expenses and other assets (149,120) (36,681)
Deferred revenues 13,389 46,955
Accounts payable (163,395) (358,371)
Other liabilities 398,576 191,746
Income taxes payable 6,784 87,423
--------------------------
Net cash provided by operating activities 409,787 118,139
Investing activities
Increase in finance receivables, net of
principal collected (1,285,213) (3,650,610)
Purchase of property and equipment (26,118) (1,455)
Increase in deferred loan costs - (21,715)
--------------------------
Net cash used by investing activities (1,311,331) (3,673,780)
Financing activities
Net Proceeds from notes payable-related
party and line of credit borrowings 728,919 3,383,567
Proceeds from sale of the Company's common
stock 1,767 43,758
--------------------------
Net cash provided by financing activities 730,686 3,427,325
--------------------------
Net decrease in cash (170,858) (128,316)
Cash, beginning of period 490,791 283,342
--------------------------
Cash, end of period $319,933 $155,026
</TABLE>
See accompanying notes.
<PAGE> F - 20
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month period ended June 30, 1996
are not necessarily indicative of the results that may be
expected for the year ended March 31, 1997. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended March 31, 1996.
2. Earnings Per Share
Net Income per share is based upon the weighted average number of
shares outstanding, adjusted for the dilutive effect of stock
options and warrants.
3. Finance Receivables
Finance receivables consist of consumer automobile finance
installment contracts and are detailed as follows:
<TABLE>
<CAPTION>
<S> <C>
Finance receivables, gross contract $29,561,777
Less:
Unearned interest (6,693,486)
Unearned dealer discount -
---------------
22,868,291
Nonrefundable dealer reserves (2,445,049)
Allowance for credit losses (865,558)
---------------
Finance receivables, net $19,557,684
---------------
</TABLE>
The terms of the receivables range from 6 to 60 months and bear a
weighted average effective interest rate of 25%.
<PAGE> F - 21
4. Line of Credit
The Company has a $25,000,000 line of credit facility (the Line)
with BA Business Credit, Inc. which expires on June 3, 1998.
Borrowings under the Line bear interest at the Bank of America
prime rate plus 1.25% and 1.00%, when the outstanding balance
exceeds $10,000,000 and $15,000,000, respectively (9.5% at
June 30, 1996). If the outstanding balance falls below
$10,000,000 the Line bears interest at the Bank of America prime
rate plus 1.75%. Pledged as collateral for this credit facility
are all of the assets of Nicholas Financial, Inc. and the
unconditional guarantee of it's subsidiaries, Canadian parent and
Peter L. Vosotas the majority shareholder.
5. Notes Payable-Related Party
Notes payable consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Notes payable, unsecured, with interest
at varying rates up to 12%, quarterly
and semiannual interest payments due
through June 1998, at which time the
entire principal balance and unpaid
interest is due, subordinated to the
Line. The notes are convertible at the
option of the holder, into common shares
at prices from $1.75 to $2.00 per share. $1,800,000
Note payable, unsecured, interest at
12%, quarterly interest due through
April 2000, at which time entire balance
and unpaid interest is due, subordinated
to the Line. The note is convertible at
$2.75 per share. 200,000
Notes payable, unsecured interest at
12%, principal and interest due through
May 1998. 233,341
Note payable, unsecured, interest at
12%, quarterly interest due through
August 1997, at which time the entire
principal balance is due. 46,882
------------
$2,280,223
------------
</TABLE>
6. Impact of New Accounting Pronouncement
Statement of Financial Accounting Standards No 123, "Accounting
for Stock-Based Compensation " ("SFAS 123"), effective for the
company in fiscal 1997, provides an alternative method for
accounting for stock-based compensation and requires certain
disclosures regarding the fair value of stock-based compensation.
The Company does not expect to adopt the alternative method of
accounting for stock-based compensation and, accordingly, the
adoption of SFAS 123 will not have any effect on the Company's
financial position or results of operations. The Company expects
to expand its disclosure of stock-based compensation plans to
include proforma fair value information for grants in it's fiscal
1997 Annual Report.
<PAGE>
No dealer, sales representative
or any other person has been
authorized to give any
information or to make any
representations in connection
with the Offering other than
those contained in this
Prospectus and, if given or
made, such information or
representations must not be
relied upon as having been
authorized by the Company or any
underwriter. This Prospectus
does not constitute an offer of
any securities other than those
to which it relates or an offer
to sell, or a solicitation of
any offer to buy, to any person
in any jurisdiction in which
such offer or solicitation is
not authorized, or to any person
to whom it is unlawful to make
such offer or solicitation.
Neither the delivery of this
Prospectus nor any sale made
hereunder shall, under any
circumstances, create any
implication that there has been
no change in the affairs of the
Company since the date hereof or
that the information contained
herein is correct as of any time
subsequent to the date hereof.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Prospectus Summary 3
Risk Factors 6
Terms of the Offering 9
Use of Proceeds 11
Dividend Policy 11
Price Range of Common Stock 12
Capitalization 13
Selected Financial Data 14
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations 16
Business 22
Management 29
Certain Transactions 31
Principal Stockholders 32
Description of Capital Stock 33
Shares Eligible for Future
Sale 34
Legal Matters 34
Experts 34
Available Information 34
Statutory Rights of Action 35
Financial Statements F-1
</TABLE>
<PAGE>
1,250,000 Shares to
1,750,000 Shares
Nicholas Financial, Inc.
Common Stock
PROSPECTUS
September 27, 1996
<PAGE> II - 1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Certificate of Incorporation of the Company provides that the
Company shall indemnify a director or former director of the Company and
the heirs and personal representatives of any such person against all
costs, charges and expenses actually and reasonably incurred by an
indemnified party, including an amount paid to settle an action or satisfy
a judgment in a civil, criminal or administrative action or proceeding to
which they are made a party by reason of being or having been a director,
including any action brought by the Company. The Certificate of
Incorporation also provides that the directors may cause the Company to
indemnify, to the same extent as for directors, any officer, employee or
agent of the Company or any director, officer, employee or agent of the
Company's subsidiaries.
Item 25. Other Expenses of Issuances and Distribution
Set forth below is a table which lists the Securities and Exchange
Commission registration fee and estimates of all of the other expenses
expected to be incurred in connection with the issuance and distribution of
the securities described in the Registration Statement:
<TABLE>
<CAPTION>
<S> <C>
Registration Fee $ 1,811
National Association of Securities
Dealers, Inc. Filing Fee 1,025
Blue Sky Fees and Expenses 3,000
Accounting Fees and Expenses 50,000
Legal Fees and Expenses 85,000
Escrow Agent's fees and expenses 3,000
Miscellaneous expenses 6,164
Total $ 150,000
</TABLE>
Item 26. Recent Sales of Unregistered Securities
The Company has from time to time issued Subordinated Promissory
Notes (the "Notes") in private offerings to investors, some of whom are
directors or executive officers or family members of such persons. The
Notes bear interest at rates ranging from 10.5% to 12.0% and mature at
various times from 1997 to 2000. The Company's obligation to repay certain
of the Notes is subordinated to its obligations under the BankAmerica Line
of Credit. During the three years prior to the filing of this Registration
Statement, the Company issued Notes to nine investors in the aggregate
principal amount of $1,928,493.
On June 3, 1994, the Company granted Peter L. Vosotas a
warrant to purchase up to 1,000,000 shares of its Common Stock in
consideration for certain personal guarantees given by him in connection
with the increase of the BankAmerica Line of Credit to $25 million.
Concurrent with the granting of this warrant, a previously outstanding
warrant for the purchase of up to 550,000 shares of Common Stock that was
granted to Mr. Vosotas on April 20, 1993 in connection with the initial $4
million Line of Credit was amended and restated into the warrant to
purchase 1,000,000 shares described above. The warrant grants Mr. Vosotas
the right to purchase shares of Common Stock at a price of $2.55 Cdn. at
any time prior to June 3, 1999.
On May 12, 1995, the Company granted to Stephen G. Blume, an
investor and beneficial owner of 5% of the Common Stock, a warrant to
purchase 53,571 shares of Common Stock in consideration of the purchase of
Notes in the aggregate principal amount of $500,000. Pursuant to the
warrant, Mr. Blume may purchase Common Stock at a price of $1.66 per share
at any time prior to May 12, 1997.
The Company believes that the issuance of the Notes and warrants
was exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the "Securities Act") inasmuch as such securities were
issued in transactions not involving a public offering to persons who were
affiliates of the Company or members of their families or to other
investors who were familiar with the business and affairs of the Company
and who acquired such securities solely for investment.
<PAGE> II - 2
During the three years preceding the filing of this Registration
Statement and prior to the registration in August 1995 of the Common Stock
under the Securities Exchange Act of 1934 (the "Exchange Act"), the Company
has awarded to its employees and directors pursuant to written compensatory
plans or contracts options to purchase an aggregate of 344,500 shares at an
aggregate exercise price of $453,122 (of which options with respect to
128,500 of such shares were subsequently canceled). A total of 322,600
shares of Common Stock have been issued during the three years preceding
the filing of this Registration Statement upon the exercise of previously
granted options, at an aggregate exercise price of $103,322. The Company
believes that the foregoing transactions were exempt from registration
under the Securities Act pursuant to Section 4(2) and Rule 701 thereunder.
Subsequent to the registration in August 1995 of the Common Stock
under the Exchange Act, the Company has awarded to its employees and
directors pursuant to written compensatory plans or contracts options to
purchase an aggregate of 103,500 shares at an aggregate exercise price of
$220,450 (of which options with respect to 43,500 of such shares were
subsequently canceled). None of these options has been exercised as of
July 18, 1996. The foregoing transactions, which did not involve a public
offering, were made in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act. The Company intends to file a Form
S-8 to register the aforementioned securities and future grants and
exercises of compensatory benefit plan securities.
Item 27. Index to Exhibits
See Exhibit Index.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each such post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
<PAGE> II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and
authorized this Registration Statement to be signed on its behalf by the
undersigned, in the City of Clearwater, State of Florida, on July 18, 1996.
<TABLE>
<CAPTION>
NICHOLAS FINANCIAL, INC.
<S> <C>
By: /s/ Peter L. Vosotas
Peter L. Vosotas, President
</TABLE>
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Peter L. Vosotas
Peter L. Vosotas Chairman, President, September 27, 1996
Chief Executive Officer
(PrincipaL Executive Officer)
/s/ Raymond Cottrell*
Raymond Cottrell Director September 27, 1996
/s/ Joseph G. Bowes*
Joseph G. Bowes Director September 27, 1996
/s/ Ralph T. Finkenbrink
Ralph T. Finkenbrink Vice President - Finance September 27, 1996
(Principal Financial Officer
and Accounting Officer)
</TABLE>
*By: /s/ Peter L. Vosotas
(Peter L. Vosotas, Attorney in - fact)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Document
<S> <C>
1.1 Form of Sales Agency Agreement between the Company
and Interstate/Johnson Lane Corporation
1.2 Form of Escrow Agreement by and among the Company,
Interstate/Johnson Lane Corporation and First Union
National Bank of North Carolina
3.1* Articles of Incorporation and By-Laws
4.1* Stock Certificate
5.1 Opinion of Jacobs, Forlizzo & Neal, P.A.
5.2 Opinion of Salley Bowes Harwardt
10.1.1* Loan and Security Agreement dated March 31, 1993 between
BankAmerica Business Credit, Inc. and Nicholas Financial, Inc.
10.1.2* Loan Modification Agreement dated January 14, 1994
10.1.3* Temporary Line Increase Agreement dated March 28, 1994
10.1.4* Second Loan Modification Agreement dated June 3, 1994
10.1.5* Amendment No. 3 to Loan Agreement dated July 5, 1994
10.1.6* Amendment No. 4 to Loan Agreement and Security Agreement
10.1.7*** Amendment No. 5 to Loan Agreement and Security Agreement
dated July 5, 1995
10.1.8*** Amendment No. 6 to Loan Agreement and Security Agreement
dated May 13, 1996
21.1* Registrant's Subsidiaries
23.1 Consent of Ernst & Young LLP
23.2 Consent of Jacobs, Forlizzo & Neal, P.A.
24.1 Power of Attorney (included in the signature pages to the
Registration Statement)
27.1 Financial Data Schedule (for SEC purposes only)
<FN>
_______________________________
* Incorporated by reference to the Company's Form 10-SB.
** Previously Filed
*** Incorporated by reference to the Company's Form 10-KSB for the fiscal
year ended March 31, 1996.
</TABLE>
<PAGE>
EXHIBIT 1.1
NICHOLAS FINANCIAL, INC.
SALES AGENCY
AGREEMENT
September 27, 1996
Interstate/Johnson Lane Corporation
121 West Trade Street
Charlotte, North Carolina 28202
Ladies and Gentlemen:
Nicholas Financial, Inc., a corporation organized under
the laws of British Columbia, Canada (the "Company"), hereby
confirms its agreement with you as follows:
1. Introduction.
This Agreement sets forth the understanding and agreement
between the Company and you whereby you will use your best
efforts to offer and sell, as exclusive sales agent (the
"Sales Agent") for the Company, a minimum of 1,250,000 and a
maximum of 1,750,000 shares (the "Shares") of the Company's
common stock, no par value, at the purchase price of $2.125
per share (the "Purchase Price") to be agreed upon by the
Company and the Sales Agent and set forth in a separate
written instrument substantially in the form of Exhibit A
hereto (the "Pricing Agreement"). The Pricing Agreement may
take the form of and exchange of any standard form of written
telecommunication between the Company and the Sales Agent and
shall specify such applicable information as is indicated in
Exhibit A hereto. The offering of the Shares will be governed
by this Agreement, as supplemented by the Pricing Agreement.
From and after the date of the execution and delivery of the
Pricing Agreement, this Agreement shall be deemed to
incorporate, and, unless the context otherwise indicates, all
references contained herein to "this Agreement" and to the
phrase "herein" shall be deemed to include the Pricing
Agreement.
2. Representations and Warranties of the Company.
The Company represents and warrants to you and agrees
with you that:
(a) The Company meets the requirements for use of Form
SB2 and a registration statement (Registration No. 333-08407)
on Form SB-2 relating to the Shares, including a Preliminary
Prospectus (as defined below) and such amendments to such
registration statement as may have been required to the date
of this Agreement, has been prepared by the Company under the
provisions of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (collectively referred
to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The term "Preliminary
Prospectus" as used herein means a preliminary prospectus as
contemplated by Rule 430 or Rule 430A of the Rules and
Regulations included at any time as part of the Registration
<PAGE>
Statement (as defined below). Copies of the Registration
Statement and of each related Preliminary Prospectus have
been delivered to the Sales Agent. If the Registration
Statement has not become effective, a further amendment to
such Registration Statement, including a form of final
prospectus, necessary to permit the Registration Statement to
become effective will be filed promptly by the Company with
the Commission. If the Registration Statement has become
effective, a final prospectus containing information
permitted to be omitted at the time of effectiveness by Rule
430A of the Rules and Regulations will, if required, be filed
promptly by the Company with the Commission in accordance
with Rule 424 or Rule 434 of the Rules and Regulations.
As used in this Agreement, the term "Registration
Statement" means the registration statement as amended at the
time the Commission declares or declared it effective
pursuant to Section 8 of the Act (the "Effective Date"),
including financial statements and all exhibits and the
information, of any, deemed to be included by Rule 430A, and,
in the event of any amendment thereto after the Effective
Date, shall also mean (from and after the effectiveness of
such amendment) such registration statement as so amended.
The term "Prospectus" means the prospectus as first filed
with the Commission pursuant to Rule 424 or Rule 434 of the
Rules and Regulations or, if no such filing is required, the
form of final prospectus included in the Registration
Statement, and, in the event of any supplement or amendment
to such prospectus after the Effective Date, shall also mean
(from and after the filing with the Commission of such
amendment or supplement or of the effectiveness of such
amendment or supplement) such prospectus as so supplemented
or amended. All references to the Registration Statement and
Prospectus (including any Preliminary Prospectus) shall be
deemed to include all documents incorporated by reference
therein. The terms "supplement" and "amendment" or "amend"
as used in this Agreement shall also include all documents
subsequently filed by the Company with the Commission
pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are deemed to be incorporated by
reference in the Prospectus or Registration Statement.
(b) The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus with
respect to the Shares. Each Preliminary Prospectus, at the
time of filing thereof, has complied in all material respects
with the requirements of the Act and the Rules and
Regulations, and no Preliminary Prospectus has included any
untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein not
misleading. On the Effective Date, the date the Prospectus
is first filed with the Commission pursuant to Rule 424 or
Rule 434 (if required), at all times subsequent to and
including the First Closing Date (as defined below) and, if
<PAGE>
later, the Second Closing Date (as defined below) and when
any post-effective amendment to the Registration Statement
becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration
Statement and the Prospectus (as amended or as supplemented
if the Company shall have filed with the Commission any
amendment or supplement thereto), including the financial
statements included in the Prospectus, did or will comply in
all material respects with all applicable provisions of the
Act and the Rules and Regulations and will contain all
financial statements required to be stated therein in
accordance with the Act and the Rules and Regulations. On
the Effective Date and when any post-effective amendment to
the Registration Statement becomes effective, no part of the
Registration Statement, the Prospectus or any such amendment
or supplement did or will contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading. At the Effective Date, the date the Prospectus
or any amendment or supplement to the Prospectus is filed
with the Commission and at the First Closing Date and the
Second Closing Date (if any), the Prospectus or any such
amendment or supplement did not or will not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Each document, if any, filed or to be filed
pursuant to the Exchange Act and incorporated by reference in
the Prospectus complied or will comply when so filed in all
material respects with the Exchange Act and the applicable
rules and regulations of the Commission thereunder. The
foregoing representations and warranties in this Section 2(b)
do not apply to any statements or omissions in the
Registration Statement or Prospectus made in reliance on and
in conformity with information relating to the Sales Agent
furnished in writing to the Company by the Sales Agent
specifically for inclusion therein. The Company acknowledges
that the statements set forth under the heading "Terms of the
Offering -- Plan of Distribution" in the Prospectus
constitute the only information relating to the Sales Agent
furnished in writing to the Company by the Sales Agent
specifically for inclusion in the Registration Statement or
Prospectus.
(c) The outstanding shares of the Company's Common
Stock, no par value (the "Common Stock"), have been, and the
Shares to be issued and sold by the Company upon such
issuance will be, duly authorized, validly issued, fully paid
and nonassessable and will not be subject to any preemptive
or similar right. The description of the Common Stock in the
Registration Statement and the Prospectus is, and at the
<PAGE>
First Closing Date and the Second Closing Date will be,
complete and accurate in all material respects. Except as
set forth in the Prospectus, the Company does not have
outstanding, and at the First Closing Date and the Second
Closing Date will not have outstanding, any options to
purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts
or commitments to issue or sell any shares of Common Stock,
or any such warrants, convertible securities or obligations.
No securities of the Company, or of a predecessor of the
Company, have been sold in violation of the registration
provisions of the Act. No securities of the Company (or any
affiliate or predecessor of the Company) have been sold
within the past three years except as set forth in the
Registration Statement.
(d) The financial statements and schedules included in
the Registration Statement or the Prospectus present fairly
the consolidated financial condition of the Company as of the
respective dates thereof and the consolidated results of
operations and cash flows of the Company for the respective
periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the entire period involved, except as otherwise
disclosed in the Prospectus. Ernst & Young LLP, independent
certified public accountants (the "Accountants"), who have
reported on such financial statements and schedules (which
are the most recently audited financial statements of the
Company), are independent accountants with respect to the
Company as required by the Act and the Rules and Regulations.
(e) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus and prior to the First Closing Date and the Second
Closing Date, if any, except as set forth in or contemplated
by the Registration Statement and the Prospectus, (i) there
has
not been and will not have been any change in the
capitalization of the Company, or any material adverse change
in the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the
Company and its subsidiaries, taken as a whole, arising for
any reason
whatsoever, (ii) neither the Company nor any of its
subsidiaries has incurred nor will incur any material
liabilities or obligations, direct or contingent, nor has any
of them entered into nor will they enter into any material
<PAGE>
transactions other than in the ordinary course of business
and the transactions contemplated by this Agreement and (iii)
the Company has not and will not have paid or declared any
dividends or other distributions of any kind on any class of
its capital stock.
(f) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment
company" or an "affiliated person" of, an entity "controlled"
by, or a "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
(g) There are no actions, suits or proceedings pending
or threatened against or affecting the Company, its
subsidiaries, or any of their respective officers in their
capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, wherein an
unfavorable ruling, decision or finding might have a material
adverse effect on the business, properties, business
prospects, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a
whole.
(h) Each of the Company and its subsidiaries has, and
at the First Closing Date and the Second Closing Date will
have, (i) all governmental licenses, permits, consents,
orders, approvals and other authorizations necessary to carry
on its business as contemplated in the Prospectus, (ii)
complied in all material respects with all laws, regulations
and orders applicable to them or their business and (iii)
performed all its obligations required to be performed by it
thereunder.
(i) Neither the Company nor any of its subsidiaries is,
and at the First Closing Date and the Second Closing Date (if
any), will be (i) in violation of any provision of their
respective Articles of Incorporation or Bylaws, (ii) in
default (nor has an event occurred which with notice or lapse
of time or both would constitute a default) in the
performance of any obligation, agreement or condition in any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which any of them is a party or by
which any of them is bound or to which any of the property or
assets of any of them is subject (and to the knowledge of the
Company no other party under any such agreement is in
default), or (iii) in violation of any judgment, ruling,
decree, order, franchise, license or permit or any statute,
rule or regulation of any court or other governmental
authority applicable to the business or properties of the
<PAGE>
Company or any subsidiary, including, without limitation,
statutes, rules and regulations commonly referred to as the
Environmental Protection Act, the Americans with Disabilities
Act, the Truth in Lending Act, the Equal Credit Opportunity
Act, the Fair Credit Reporting Act, the Federal Trade
Commission Act, the Employee Retirement Income Security Act
of 1974 and all applicable state retail installment sales and
consumer finance statutes, rules and regulations, in each
case together with the rules and regulations promulgated
thereunder and related thereto (including, without
limitation, Regulation Z promulgated under the Truth in
Lending Act and the Federal Trade Commission Credit Practices
Rule promulgated under the Federal Trade Commission Act),
other than violations or defaults described in (ii) or (iii)
above which, individually or in the aggregate, would not have
a material adverse effect upon the business, properties,
business prospects,
condition (financial or otherwise) or results of operations
of the Company and its subsidiaries, taken as a whole.
(j) No consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental
agency or body is required for the consummation by the
Company of the transactions on its part herein contemplated,
except such as may be required under the Act or the Exchange
Act or under state securities or blue sky laws.
(k) The Company has full corporate power and authority
to enter into this Agreement. This Agreement has been duly
authorized, executed and delivered by the Company and
constitutes a valid and binding agreement of the Company and
is enforceable against the Company in accordance with the
terms hereof. The performance of this Agreement and the
consummation of the transactions contemplated hereby will not
result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of the Company or its
subsidiaries pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under,
the Articles of Incorporation or Bylaws of the Company or any
of its subsidiaries, any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract
or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company, any
of its subsidiaries or any of their properties are bound or
affected, or violate or conflict with any judgment, ruling,
decree, order, statute, rule or regulation of any court or
other governmental agency or body applicable to the business
<PAGE>
or properties of the Company or any of its subsidiaries.
(l) The Company is, and at the First and Second Closing
Dates will be, duly incorporated and validly existing in good
standing as a corporation under the laws of the province of
British Columbia, Canada, and each of the Company's
subsidiaries is, and at the First and Second Closing Dates
will be, duly incorporated and validly existing as a
corporation under the laws of the jurisdiction of its
incorporation. The Company and each of its subsidiaries has,
and at the First and Second Closing Dates will have, full
power and authority (corporate and other) to conduct all the
activities conducted by it, to own or lease all the assets
owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus.
The Company and each of its subsidiaries is duly qualified
and in good standing as a foreign corporation in each
jurisdiction in which it owns or leases real property or
transacts business requiring such qualification. Except as
disclosed in the Registration Statement, the Company does not
own, and at the First and Second Closing Dates will not own,
directly or indirectly, any shares of stock or any other
equity or long-term debt securities of any corporation or
have any equity interest inany firm, partnership, joint
venture, association or other entity. Complete and correct
copies of the Articles of Incorporation and Bylaws of the
Company and the corresponding organizational documents of
each of its subsidiaries and all amendments thereto have been
delivered to the Sales Agent, and no changes therein will be
made subsequent to the date hereof and prior to the First and
Second Closing Dates.
(m) The Company, or its subsidiaries, has good and
marketable title to all properties and assets owned by it or
them, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Prospectus
or such as do not materially affect the value of such
property and do not interfere with the use made and proposed
to be made of such property by them. The Company, or its
subsidiaries, has valid, subsisting and enforceable leases
for the properties described in the Prospectus as leased by
it or them, with such exceptions as are not material and do
not interfere with the use made and proposed to be made of
such properties by the Company or its subsidiaries.
(n) The Company has filed all federal and state tax
returns that are required to be filed by it and has paid all
taxes shown on such returns and on all assessments received
by it to the extent such taxes have become due. All taxes
with respect to which the Company is obligated have been paid
or adequate accruals have been established with respect
<PAGE>
thereto.
(o) There is no document or contract of a character required
to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration
Statement that is not described or filed as required. Each
contract to which the Company or its subsidiaries is a party
and to which reference is made in the Prospectus or
Registration Statement (including the exhibits thereto) has
been duly authorized, executed and delivered by the Company
or such subsidiary, constitutes the valid and binding
agreement of the Company or such subsidiary and is
enforceable against the Company or such subsidiary in
accordance with the terms thereof. The Company knows of no
present situation or condition or fact that would prevent
compliance with the terms of such contracts, as amended to
date. Except for amendments or modifications of such
contracts in the ordinary course of business, neither the
Company nor any such subsidiary has any intention of
exercising any right that it may have to cancel any of its
obligations under any of such contracts, and has no knowledge
that any other party to any of such contracts has any
intention not to render full performance under such
contracts.
(p) No statement, representation, warranty or covenant
made by the Company in this Agreement or made in any
certificate or document required by this Agreement to be
delivered by the Company to the Sales Agent was or will be,
when made, inaccurate, untrue or incorrect in any material
respect.
(q) Neither the Company nor any of its directors,
officers or controlling persons has taken, directly or
indirectly, any action designed, or which might reasonably be
expected, to cause or result, under the Act or otherwise, in,
or which has constituted, stabilization or manipulation of
the price of any security of the Company to facilitate the
sale or resale of the Shares or the Common Stock.
(r) There are no contracts, agreements or
understandings between the Company and any person granting
such person the right (i) to require the Company to file a
registration statement under the Act with respect to any
securities of the Company, except as disclosed in the
Registration Statement, or (ii) to require the Company to
include securities in the securities registered pursuant to
the Registration Statement, except any such right that has
been effectively waived or satisfied by the inclusion of
securities therein.
(s) Other than as contemplated by this Agreement, there
<PAGE>
is no broker, finder or other party that is entitled to
receive from the Company any brokerage or finder's fee or
other fee or commission as a result of any of the
transactions contemplated by
this Agreement.
(t) The Company and its subsidiaries have complied with
all provisions of Section 517.075, Florida Statutes (Chapter
92198, Laws of Florida), relating to doing business with the
Government of Cuba or with any person or affiliate located in
Cuba.
(u) The Shares are not "penny stock" within the meaning
of such term under the Exchange Act or any rules or
regulations promulgated thereunder.
3. Sale of Shares by the Sales Agent.
(a) On the basis of the representations, warranties,
and covenants herein contained, but subject to the terms and
conditions herein set forth, the Company hereby appoints you
its exclusive sales agent to offer and sell, on a best
efforts basis, for the account and risk of the Company a
minimum of 1,250,000 and a maximum of 1,750,000 Shares. Your
appointment hereunder shall continue from the effective date
of this Agreement until the earlier to occur of (i) the date
this Agreement terminates or (ii) the date the offering is
fully subscribed as determined by the Company. You agree to
use your best efforts as selling agent to offer and sell such
number of Shares as contemplated by this Agreement at the
price and subject to the terms and conditions set forth in
the Prospectus; provided, however, that the Company reserves
the right to reject any prospective investor ("Investor") or
restrict the number of Shares sold to any Investor. Subject
to the terms and conditions and upon the basis of the
representations and warranties set forth herein, you accept
such appointment and agree to use your best efforts to find
purchasers for the Shares. You shall not act as a firm
commitment underwriter for the Shares and are in no way
obligated, directly or indirectly, to advance your own funds
to purchase the Shares.
(b) Each person desiring to purchase Shares will be
required to complete and execute the Subscription Agreement
in the form included in the Prospectus (the "Subscription
Agreement") and to deliver the Subscription Agreement to you
at Interstate Tower, Suite 1500, 121 West Trade Street,
Charlotte, North Carolina 28202, Attention: Corporate
Finance Department (telephone: (704) 379-9268). You shall
promptly, but in no event later than noon of the next
<PAGE>
business day after receipt by you of payment for the Shares
subscribed to under Subscription Agreements received by you,
deposit all such subscription funds received by you from the
subscribers for Shares with First Union National Bank of
North Carolina (the "Escrow Agent") pursuant to the Escrow
Agreement dated as of September 27, 1996, among the Company,
you and the Escrow Agent (the "Escrow Agreement").
Any Investor who is a customer of the Sales Agent may
make payment for Shares subscribed to by such Investor by
authorizing the Sales Agent to debit such Investor's customer
securities account with the Sales Agent in an amount equal to
the total purchase price in accordance with the following
procedures:
(i) The Sales Agent will obtain a Subscription
Agreement from its customer.
(ii) Once the Sales Agent has determined that the
total Shares subscribed equal or exceed the minimum of
1,250,000 Shares and that the First Closing Date is
imminent, the Sales Agent shall deem an order to have
been placed (the "Order Date").
(iii) Not later than the next business day after the
Order Date the Sales Agent will submit to the Escrow
Agent a minimum subscription notice.
(iv) Three business days after the Order Date (the
"Settlement Date"), the Sales Agent will debit the
account of its customers for the purchase price of the
Shares to be purchased.
(v) On the Settlement Date, the Sales Agent will
transmit all such debited funds to the Escrow Agent in
the form of immediately available funds. Funds so
deposited will receive interest, as provided above,
beginning on the Settlement Date.
(c) All sales to Investors will be conditioned upon the
receipt of subscriptions accepted by the Company for a
minimum of 1,250,000 Shares (the "Minimum Sales"), on or
before September 30, 1996, at 5:00 P.M., local time or, if
the offering is extended by mutual agreement of the Company
and the Sales Agent, up to October 31, 1996 or a prior date
designated by the Company and the Sales Agent (the "Initial
Expiration Date"). If subscriptions for the Minimum Sales
have been accepted by the Company by the Initial Expiration
Date, the offering of Shares may, by mutual agreement of the
Company and the Sales Agent, continue until December 31, 1996
or such earlier date on which subscriptions for 1,750,000
Shares have been accepted by the Company or the Company
determines to terminate the offering of Shares (the
"Termination Date"). If Minimum Sales have not been made by
the Initial Expiration Date, or if the Company has exercised
its discretion, as provided in the Prospectus, to terminate
<PAGE>
the offering before subscriptions for the Minimum Shares have
been received, this Agreement shall terminate and there shall
be returned, within 30 days of such termination, to Investors
who have subscribed for Shares, a refund by the Escrow Agent
of their subscription payments, with interest, as provided in
the Escrow Agreement.
(d) At the First Closing Date and the Second Closing
Date (if any), you and the Company will direct the Escrow
Agent to deliver to the Company the subscription funds, with
interest thereon, and other documents in its possession
attributable to subscribers whose subscription agreements
have been accepted in accordance with the Escrow Agreement.
Upon receipt of subscription funds from the Escrow Agent, the
Company will pay all sums then currently due to you.
(e) The term "First Closing Date" as used herein shall
refer to the date on which the Escrow Agent first transfers
funds to the Company. The First Closing Date may occur on
such date as you and the Company shall agree at any time
after you have received, and the Company has accepted,
subscriptions for at least 1,250,000 Shares on or before the
Initial Expiration Date. The right of the Company to receive
such funds on the First Closing Date is subject to
fulfillment of the conditions of the Escrow Agreement.
(f) The term "Second Closing Date" as used herein shall
refer to the date on which the Escrow Agent transfers funds
held by it under the Escrow Agreement to the Company after
the First Closing Date. The Second Closing Date may occur on
such date as you and the Company shall agree at any time
after the First Closing Date on which you have received, and
the Company has accepted, subscriptions for Shares on or
before the Termination Date. The right of the Company to
receive such funds on the Second Closing Date is subject to
fulfillment of the conditions
of the Escrow Agreement.
(g) The Shares shall be offered and sold only by you.
4. Sales Agent's Fees and Expenses.
(a) If the payments and deliveries provided for in
Section 3, above, are made at the First or Second Closing
Dates, then the Company as compensation for your services
will pay to you commissions calculated at 10% of the Purchase
Price of the Shares sold.
(b) In addition, without regard to whether the First
Closing or Second Closing occurs, the Company agrees to pay
the fees and disbursements of counsel for you and your out-of
<PAGE>
- -pocket expenses.
(c) All of the foregoing commissions, fees and expenses
payable to you shall be paid by certified or official bank
check as soon after the First Closing Date and the Second
Closing Date (if any) as sufficient funds become available to
the Company from the proceeds of the sale of the Shares, and
in any event not more than ten days following each such
closing date.
5. Further Agreements of the Company.
The Company further agrees with you as follows:
(a) The Company will not, either prior to the Effective Date
or thereafter during such period as the Prospectus is
required by law to be delivered in connection with sales of
the Shares by the Sales Agent, file any amendment or
supplement to the Registration Statement or the Prospectus,
unless a copy thereof shall first have been submitted to the
Sales Agent within a reasonable period of time prior to the
filing thereof and the Sales Agent shall not have objected
thereto in good faith.
(b) The Company will use its best efforts to cause the
Registration Statement and any post-effective amendment
subsequently filed to become effective as promptly as
reasonably practicable, and will notify you promptly, and
will confirm such advice in writing, (1) when the
Registration Statement has become effective and when any post-
effective amendment thereto becomes effective, (2) of any
request by the Commission for amendments or supplements to
the Registration Statement or the Prospectus or for
additional information, (3) of the issuance by the Commission
of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings
for that purpose or the threat thereof, (4) of the happening
of any event during the period mentioned in the third
sentence of Section 5(e) that in the judgment of the Company
makes any statement made in the Registration Statement or the
Prospectus untrue or that requires the making of any changes
in the Registration Statement or the Prospectus in order to
make the statements therein, in light of the circumstances in
which they are made, not misleading, (5) of receipt by the
Company or any representatives or attorney of the Company of
any other communication from the Commission relating to the
Company, the Registration Statement, any Preliminary
Prospectus or the Prospectus, and (6) of the refusal to
qualify or the suspension of the qualification of the Shares
for offering or sale in any jurisdiction, or of the
institution of any proceeding for any such purposes. If at
any time the Commission shall issue any order suspending the
<PAGE>
effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such
order at the earliest possible moment. If the Company has
omitted any information from the Registration Statement
pursuant to Rule 430A of the Rules and Regulations, the
Company will use its best efforts to comply with the
provisions of and make all requisite filings with the
Commission pursuant to Rule 430A and to notify the Sales
Agent promptly of all such filings.
(c) The Company will furnish to the Sales Agent,
without charge, one signed copy of the Registration Statement
and of any post-effective amendment thereto, including
financial statements and schedules, and all exhibits thereto
(including any document filed under the Exchange Act and
deemed to be incorporated by reference into the Prospectus),
and such number of conformed copies of the Registration
Statement, with or without exhibits, and any supplement or
amendment thereto, as the Sales Agent shall reasonably
request.
(d) The Company will comply with all the provisions of
any undertakings contained in the Registration Statement.
(e) Prior to the Effective Date, and thereafter from
time to time, the Company will deliver to the Sales Agent,
without charge, as many copies of the Preliminary Prospectus
and the Prospectus or any amendment or supplement thereto as
the Sales Agent may reasonably request. The Company consents
to the use of the Preliminary Prospectus and the Prospectus,
or any amendment or supplement thereto by the Sales Agent
both in connection with the offering or sale of the Shares
and for any period of time thereafter during which the
Prospectus is required by law to be delivered in connection
therewith. If during such period of time any event shall
occur which in the judgment of the Company, its counsel or
the Sales Agent's counsel should be set forth in the
Preliminary Prospectus or the Prospectus to make any
statement therein, in the light of the circumstances under
which it was made, not misleading, or if it is necessary to
supplement or amend the Preliminary Prospectus or the
Prospectus to comply with law, the Company will forthwith
prepare and duly file with the Commission an appropriate
supplement or amendment thereto, and will deliver to the
Sales Agent, without charge, such number of copies thereof as
the Sales Agent may reasonably request.
(f) Prior to any public offering of the Shares by the
Sales Agent, the Company will cooperate with the Sales Agent
and the Sales Agent's counsel in connection with the
registration or qualification of the Shares for offer and
<PAGE>
sale under the securities or blue sky laws of such
jurisdictions as the Sales Agent may request.
(g) During the period of five years commencing on the
Effective Date, the Company will furnish to the Sales Agent,
copies of such financial statements and other periodic and
special reports as the Company may from time to time
distribute generally to the holders of any class of its
capital stock, and will furnish to the Sales Agent a copy of
each annual or other report it shall be required to file with
the Commission.
(h) The Company will make generally available to
holders of its securities as soon as may be practicable but
in no event later than the last day of the fifteenth full
calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not
be audited but shall be in reasonable detail) for a period of
12 months ended commencing after the Effective Date, and
satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is
terminated, the Company will pay, or reimburse if paid by the
Sales Agent, all costs and expenses incident to the
performance of the obligations of the Company under this
Agreement, including but not limited to costs and expenses of
or relating to (1) the preparation, printing and filing of
the Registration Statement or supplement to the Registration
Statement or the Prospectus, (2) the preparation and delivery
of certificates representing the Shares, (3) the printing of
this Agreement, (4) furnishing (including costs of shipping
and mailing) such copies of the Registration Statement, the
Prospectus and any Preliminary Prospectus, and all amendments
and supplements thereto, as may be requested for use in
connection with the offering and sale of the Shares by the
Sales Agent, (5) the quotation of the Shares on the NASDAQ
SmallCap Market, (6) any filing fees required to be paid to
the National Association of Securities Dealers, Inc.
("NASD"), (7) the registration or qualification of the Shares
for offer and sale under the securities or blue sky laws of
such jurisdictions designated pursuant to Section 5(f),
including the fees, disbursements and other charges of your
counsel in connection therewith, and the preparation and
printing of preliminary, supplemental and final Blue Sky
memoranda, (8) counsel to the Company and (9) the transfer
agent for the Shares.
(j) The Company will apply the net proceeds from the
<PAGE>
offering and sale of the Shares in the manner set forth in
the Prospectus under the caption "Use of Proceeds."
(k) The Company will not, and will cause each of its
executive officers, directors and each beneficial owner of
more than 5% of the outstanding shares of Common Stock (if
any) to enter into agreements with the Sales Agent to the
effect that they will not, prior to the Effective Date and
for a period of 180 days after the Effective Date, without
the Sales Agent's prior written consent, sell, contract to
sell or otherwise dispose of any shares of Common Stock or
rights to acquire such shares (including options, warrants or
other securities convertible into or exchange for shares of
Common Stock).
(l) The Company will not change or terminate the
appointment of Montreal Trust as transfer agent for the
Shares for a period of one year from the Effective Date
without first obtaining the Sales Agent's written consent,
which shall not be unreasonably withheld.
(m) The Company will use all reasonable efforts to
comply or cause to be complied with the conditions precedent
to the several obligations of the Sales Agent in Section 6
hereof.
(n) The Company agrees to file with the Commission all
required reports on Form SR, if applicable, in accordance
with the provisions of Rule 463 promulgated under the Act and
to provide a copy of such reports to the Sales Agent and
Sales Agent's counsel.
(o) The Company shall use its best efforts to (i)
encourage and assist a market maker to establish and maintain
a market for the Common Stock and (ii) qualify the Common
Stock for quotation on the NASDAQ Small-Cap Market on or
prior to the First Closing Date, including, if necessary, the
effectuation of any reverse stock split needed to establish a
per share price for the Common Stock necessary to meet any
per share bid price requirement for quotation on the NASDAQ
Small-Cap Market quotation (subject to meeting all other
applicable requirements for such quotation).
6. Conditions of Your Obligations.
Your obligations hereunder are subject to the accuracy of
any compliance with the representations and warranties of the
Company, to the performance of the Company of its obligations
hereunder, and to the following conditions:
(a) Notification that the Registration Statement has
<PAGE>
become effective shall be received on the Sales Agent not
later than 10:00 a.m., Charlotte, North Carolina time, on the
first full business day after the date hereof or at such
later date and time as shall be consented to in writing by
the Sales Agent and all filings required by Rule 424, Rule
430A and Rule 434 of the Rules and Regulations shall have
been made.
(b) (i) No stop order suspending the effectiveness of
the Registration Statement shall have been issued and no
proceedings for that purpose shall be pending or threatened
by the Commission, (ii) no order suspending the effectiveness
of the Registration Statement or the qualification or
registration of the Shares under the securities or blue sky
laws or any jurisdiction shall be in effect and no proceeding
for such purpose shall be pending before or threatened or
contemplated by the Commission or the authorities of such
jurisdiction, (iii) any request for additional information on
the part of the staff of the Commission or any such
authorities shall have been complied with to the satisfaction
of the staff of the Commission or such authorities and (iv)
after the date hereof no amendment or supplement to the
Registration Statement or the Prospectus shall have been
filed unless a copy thereof was first submitted to the Sales
Agent and the Sales Agent did not reasonably object thereto
in good faith, and the Sales Agent shall have received
certificates, dated the First Closing Date and the Second
Closing Date (if any) signed by the Chief Executive Officer
of the Company and the Chief Financial Officer of the
Company, to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus,
(i) there shall not have been a material adverse change in
the general affairs, business, business prospectus,
properties, management, condition (financial or otherwise) or
results of operations of the Company, taken as a whole,
whether or not arising from transactions in the ordinary
course of business, in each case other than as set forth in
or contemplated by the Registration Statement and the
Prospectus and (ii) the Company shall have not sustained any
material loss or interference with it business or properties
from fire, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or any court
or legislative or other governmental action, order or decree,
which is not set forth in the Registration Statement and the
Prospectus, if in the Sales Agent's reasonable judgment any
such development makes it impracticable or inadvisable to
consummate the sale and delivery of Shares at the Purchase
Price.
<PAGE>
(d) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus,
there shall have been no litigation or other proceeding
instituted against the Company, its subsidiaries or any of
the Company's officers or directors in their capacities as
such, before or by any Federal, state or local court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation
or proceeding an unfavorable ruling, decision or finding
would have a material adverse effect on the business,
properties, business prospects, condition (financial or
otherwise) or results of operations of the Company or its
subsidiaries, taken as a whole.
(e) Each of the representations and warranties of the
Company contained herein shall be true and correct in all
material respects at the First Closing Date and the Second
Closing Date (if any), as if made at such date, and all
covenants and agreements herein contained to be performed on
the part of the Company at or prior to the First Closing Date
shall have been duly performed, fulfilled or complied with in
all material respects.
(f) Jacobs, Forlizzo & Neal, P.A., counsel to the
Company, shall have furnished to you their written opinion,
dated the date of the First Closing Date, in form and
substance satisfactory to you, to the effect that:
(i) The Company and each of its subsidiaries has
been duly incorporated and is validly existing as a
corporation in good standing under the laws of the
jurisdiction of its incorporation, with full corporate
power and authority to own or lease all the assets owned
or leased by it and conduct its business as described in
the Prospectus; and all of the issued shares of capital
stock of each of the Company's subsidiaries have been
duly and validly authorized and issued, are fully paid
and nonassessable, and are owned directly by the
Company, free and clear of all liens, encumbrances,
equities or claims;
(ii) All of the issued shares of Common Stock of
the Company (including the Shares) have been validly
issued and are fully paid and non-assessable, and are
not subject to any preemptive or similar rights; the
Shares conform to the description of the Common Stock
contained in the Prospectus; there are no contracts,
agreements or understandings known to such counsel
between the Company and any person granting such person
the right to require the Company to file a registration
statement under the Act with respect to any securities
of the Company owned or to be owned by such person or to
require the Company to include such securities in the
<PAGE>
Registration Statement or to register securities
pursuant to any other registration statement filed by
the Company under the Act; and, except as described in
the Registration Statement and the Prospectus, there is
no commitment or arrangement to issue, and there are no
outstanding options, warrants or other rights calling
for the issuance of, any share of capital stock of the
Company or any Subsidiary to any person or any security
or other instrument that by its terms is convertible
into, exercisable for or exchangeable for capital stock
of the Company.
(iii) The authorized and issued outstanding capital
stock of the Company is as set forth in the Registration
Statement and the Prospectus. The description of the
capital stock of the Company contained in the
Registration Statement and Prospectus is complete and
accurate in all material respects. The form of
certificate used to evidence the Common Stock is in due
and proper form and complies with all applicable
statutory requirements.
(iv) The Company and each of its subsidiaries is
qualified as an extra-provincial or foreign corporation,
as the case may be, in each jurisdiction in which the
ownership of property or the conduct of business by the
Company or such subsidiary requires such qualification
and where the failure to so qualify would have a
material adverse affect on the Company and its
subsidiaries, taken as a whole;
(v) No consent, approval, authorization or order of,
or filing or declaration with, any governmental agency
or body or any court is required in connection with the
authorization, issuance, transfer, sale or delivery of
the Shares by the Company, in connection with the
execution, delivery and performance of this Agreement by
the Company or in connection with the taking by the
Company of any action contemplated thereby, except such
as have been obtained and made under the Act and such as
may be required under state securities laws;
(vi) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the
Company or any of its subsidiaries or any of their
respective officers or directors, in their capacity as
such, is a party, or of which any property of the
Company or any of its subsidiaries is the subject, that
are reasonably likely to be determined adversely to the
Company or any of its subsidiaries and that if
determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future
<PAGE>
consolidated financial position, shareholders' equity or
results of operations of the Company and its
subsidiaries taken as a whole; and, to the best of such
counsel's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or
threatened by others;
(vii) The execution, delivery and performance of
this Agreement and the consummation of the transactions
herein contemplated, including the issuance and sale of
the Shares and compliance with the provisions thereof,
will not conflict with, result in a breach or violation
of any of the terms or provisions of, or constitute a
default under, (A) the Articles of Incorporation or
Bylaws of the Company, (B) any statute, rule, regulation
or, to the knowledge of such counsel, any order of any
governmental agency or body or any court having
jurisdiction over the Company, its subsidiaries or any
of their properties, or (C) any material obligation,
agreement, covenant or condition contained in any
agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or
to which any of the properties of the Company or any of
its subsidiaries is subject;
(viii) To the best of such counsel's knowledge,
each of the Company and its subsidiaries has obtained
all licenses, permits and other governmental or
regulatory authorizations required for the conduct of
its respective businesses, and such licenses, permits
and authorizations are in full force and effect, except
where the absence thereof would not have a material
adverse effect on the Company and its subsidiaries,
taken as a whole;
(ix) Neither the Company nor any of its
subsidiaries is in violation of its Articles of
Incorporation or Bylaws or in default in the performance
or observance of any material obligation, agreement,
covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement or other
material agreement or instrument known to such counsel
to
which it is a party or by which it or its properties may be
bound;
(x) the Company is not an "investment company" or an
"affiliated person" of, an entity "controlled" by, or a
"promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment
Company Act of 1940, as amended;
(xi) Such counsel rendered legal advice and
assistance to the Company in the course of the preparation
<PAGE>
of the Registration Statement, which assistance involved,
among other things, the review of the forms of agreement
and related disclosure documents used by the Company and
its subsidiaries in connection with the purchase of
installment sales contracts and the origination of direct
consumer loans, as well as discussions and inquiries with
officers and certain employees concerning the methods and
practices used by the Company to conduct its business and
on the basis of the information developed in the course of
the performance of the services rendered to the Company by
such counsel, such counsel will advise the Sales Agent that
nothing came to their attention that caused such counsel to
believe that the Company is in violation of any judgment,
ruling, decree, order, franchise, license or permit of any
court or other governmental authority applicable to the
business or properties of the Company or is in violation of
the statutes commonly referred to as the Truth in Lending
Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Federal Trade Commission Act, or any
applicable state rules and regulations governing retail
installment sales and consumer finance, in each case
together with the rules and regulations promulgated
thereunder (including, without limitation, Regulation Z
promulgated under the Truth in Lending Act, Regulation B
promulgated under the Equal Credit Opportunity Act, and the
Federal Trade Commission Credit Practices Rule promulgated
under the Federal Trade Commission Act and any comparable
provisions of state law).
(xii) The Registration Statement was declared
effective under the Act as of the date and time specified
in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) or
434 specified in such opinion on the date specified therein
or was included in the Registration Statement (as the case
may be), and, to the best of the knowledge of such counsel,
no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued
and no proceedings for that purpose have been instituted or
are pending or contemplated under the Act; and the
Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial
statements and schedules, as to which such counsel need not
express any opinion), comply as to form in all material
respects with the requirements of the Act and the Rules and
Regulations (and, with respect to any documents, if any,
filed pursuant to the Exchange Act and incorporated by
reference into the Prospectus (other than the financial
statements and schedules, as to which such counsel need not
express any opinion), when so filed, complied as to form in
all material respects with the Exchange Act and the rules
and regulations of the Commission thereunder).
<PAGE>
(xiii) Such counsel has no reason to believe that the
Registration Statement, or any amendment thereto, as of its
Effective Date, contained any untrue statement of a
material fact or omitted to state any material fact
required to bestated therein or necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading, or that the
Prospectus, or any supplement thereto, as of its issue
date, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading, or that, as of
the First Closing Date or Second Closing Date, as
applicable, either the Registration Statement or Prospectus
or any further amendment or supplement thereto contains an
untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statement
and Prospectus of statutes, laws, legal and governmental
proceedings and contracts and other documents are accurate
and fairly summarize the matters purported to be summarized
therein, and such counsel does not know of any amendment to
the Registration Statement required to be filed or any
contracts, statutes or laws required to be summarized or
disclosed or filed or any legal or governmental proceedings
pending or threatened to which the Company is the subject
of such character required to be disclosed in the
Registration Statement or Prospectus that are not disclosed
and properly described therein; it being understood that
such counsel need express no opinion as to the financial
statements or other financial data contained in the
Registration Statement or the Prospectus; and
(xiv) The Company has full corporate power and
authority to enter into this Agreement, and this Agreement
has been duly authorized, executed and delivered by the
Company and constitutes a valid and legally binding
obligation of the Company enforceable in accordance with
its terms, except (A) as such enforceability may be limited
by bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws now or hereafter in effect
relating to creditors' rights or debtors' obligations
generally; (B) that the remedies of specific performance
and injunctive and other forms of relief are subject to
general equitable principles, whether enforcement is sought
at law or in equity, and that such enforcement may be
subject to the discretion of the court before which any
proceedings therefor may be brought; and (C) as rights to
indemnity and contribution may be limited by state or
federal laws relating to securities or the policies
underlying such laws.
<PAGE>
(xv) a court of competent jurisdiction in the
Province of British Columbia would give effect to the
choice of the law of the State of North Carolina as the
proper law governing this Agreement provided that such
choice of law is bona fide (in the sense that it was not
made with a view to avoiding the consequences of the laws
of any other jurisdiction) and provided that such choice of
law is not contrary to public policy, as that term is
understood under the laws of Canada or the laws of the
Province of British Columbia. In such counsel's opinion,
based solely upon a
review of this Agreement, the choice of North Carolina law
to govern this Agreement is not contrary to the public
policy of Canada or British Columbia and, to the best of
such counsel's knowledge, such choice of North Carolina law
is bona fide.
(xvi) The Shares are not "penny stock" within the
meaning of such term under the Exchange Act or any rules or
regulations promulgated thereunder. In rendering such
opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the
laws of the United States and the State of Florida; and
that they have relied as to matters related to the laws of
Canada or any Province thereof upon the opinion of Salley,
Bowes & Harward, as to which they believe that the Sales
Agent and they are justified in relying upon for such
matters.
(g) At the First Closing Date and the Second Closing Date
(if any investor on the Second Closing Date resides in states
other than those covered by the survey provided on the First
Closing Date), you shall receive a survey dated the date of such
closing date, addressed to you and the Company, prepared by
Robinson, Bradshaw & Hinson, P.A., and related to the securities
or blue sky laws of the jurisdictions designated by you
indicating that the offering of the Shares is in compliance with
such securities or blue sky laws and advising that appropriate
blue sky action, if any, was taken in each of such jurisdictions
so as to permit the offering by you of the Shares in the
jurisdictions indicated in such survey. Such survey may be
based upon an examination of the statutes and regulations, if
any, of such jurisdictions as reported in standard compilations
and upon interpretive advice obtained from representatives of
certain securities commissions.
(h) Concurrently with the execution and delivery of this
Agreement, the Accountants shall have furnished to the Sales
Agent a letter, dated the date of its delivery, addressed to the
Sales Agent and in form and substance satisfactory to the Sales
Agent, confirming that they are independent accountants with
respect to the Company as required by the Act and the Rules and
<PAGE>
Regulations and with respect to the financial and other
statistical and numerical information contained in the
Registration Statement.
(i) At the First Closing Date and the Second Closing Date
(if any), the Accountants shall have furnished to the Sales
Agent a letter, dated the date of its delivery, which shall
confirm, on the basis of a review in accordance with the
procedures set forth above and in the letter from the
Accountants, that nothing has come to their attention during the
period from the date of the letter previously delivered on the
date hereof to a date (specified in the letter) not more than
five days prior to the First Closing Date and the Second Closing
Date (if any), that would require any material change in their
letter dated the date hereof if it were required to be dated and
delivered at the First Closing Date and the Second Closing Date.
(j) At the First Closing Date and the Second Closing Date
(if any), there shall be furnished to the Sales Agent an
accurate certificate, dated the date of its delivery, signed by
each of the Chief Executive Officer and the Chief Financial
Officer of the Company, in form and substance satisfactory to
the Sales Agent, as to the matters set forth in subsections (a),
(b)(i)(iii) (with respect to which, as to threatened
proceedings, such officers may rely on the best of their
information and belief), (c) and (e) of this Section 6, and as
to such other matters as the Sales Agent may have reasonably
requested as to the accuracy and completeness at the First
Closing Date and the Second Closing Date, if any, of any
statement in the Registration Statement or the Prospectus, as to
the accuracy at the First Closing Date and the Second Closing
Date (if any), of the representations and warranties of the
Company herein, as to the performance by the Company of its
obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to the Sales Agent's
obligations hereunder.
(k) On or prior to the First Closing Date, the Sales Agent
shall have received the executed agreements referred to in
Section 5(k).
(l) The Shares shall be qualified for sale in such states
as the Sales Agent may reasonably request, each such
qualification shall be in effect and not subject to any stop
order or other proceeding on the First Closing Date and the
Second Closing Date (if any).
7. Indemnification.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless you and your affiliates,
<PAGE>
directors, officers, agents and employees and each other person
(if any), who controls you within the meaning of Section 15 of
the Act, against any and all losses, liabilities, claims,
damages and expenses whatsoever (including, but not limited to,
any and all expenses whatsoever reasonably incurred in
investigating, preparing for, defending against or settling any
litigation, commenced or threatened, or any claim whatsoever)
arising out of or based upon your engagement as Sales Agent
hereunder, and will reimburse you and each such controlling
person for any legal or other expenses reasonably incurred by
you or any such controlling person in connection with
investigating or defending any such loss, claim, damage,
liability or action, provided that the Company shall not be
liable in any such case to the extent that any such loss,
liability, claim or expense arise out of or are based upon any
statements or omissions in the Registration Statement or
Prospectus made in reliance on and in conformity with
information relating to the Sales Agent furnished in writing to
the Company by the Sales Agent specifically for inclusion
therein.
(b) You agree to indemnify and hold harmless the Company,
its officers and directors and each person (if any), who
controls the Company or any of the foregoing persons within the
meaning of Section 15 of the Act against any and all losses,
liabilities, claims, damages and expenses whatsoever (including,
but not limited to, any and all expense whatsoever reasonably
incurred in investigating, preparing for, defending against or
settling any litigation, commenced or threatened, or any claim
whatsoever), but only insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any statements or omissions in the Registration
Statement or Prospectus made in reliance on and in conformity
with information relating to the Sales Agent furnished in
writing to the Company by the Sales Agent specifically for
inclusion therein.
(c) Promptly after receipt by an indemnified party under
this section of notice of the commencement of any action, but in
no event later than five business days after receipt of notice
of such commencement, such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party
under this section, notify in writing the indemnifying party of
the commencement thereof; provided that no failure or delay on
the part of the indemnified party in notifying any indemnifying
party shall relieve the indemnifying party from any obligation
hereunder unless (and then solely to the extent) the
indemnifying party thereby is prejudiced. If the indemnified
party notifies an indemnifying party of the commencement of any
such action, the indemnifying party will be entitled to
participate therein, and, to the extent that it may wish,
<PAGE>
jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel who shall be to the
reasonable satisfaction of such indemnified party, and after
notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this
section for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof
other than reasonable costs of investigation incurred at the
written request of the indemnifying party; provided, however,
that if, notwithstanding the election of an indemnifying party
to assume the defense thereof, the indemnifying party shall not
have employed counsel to take charge of the defense of such
action or proceeding or such indemnified party shall have
reasonably concluded that there may be defenses available to it
that are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall
not have the right to direct the defense of such action or
proceeding on behalf of the indemnified party), then in any such
events such legal or other expenses of the indemnified party
shall be borne by the indemnifying party. Any such indemnifying
party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected
without the consent of such indemnifying party, which shall not
be unreasonably withheld. No indemnifying party will, without
the prior written consent of the indemnified party, settle or
compromise or consent to the entry of any judgment with respect
to, any pending or threatened action or claim, suit or
proceeding in respect of which indemnification may be sought
hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of
the indemnified party from all liability arising out of such
action or claim, (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on
behalf of any indemnified party, and (iii) involves only the
payment of money damages for which the indemnifying party will
be responsible and does not involve any injunction or other
equitable relief against the indemnified party.
(d) To provide for just and equitable contribution in
circumstances in which the indemnification provided for in this
Section 7 is due in accordance with its terms but is for any
reason held by a court to be unavailable from the Company on the
grounds of policy or otherwise, the Company and you shall
contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) to
which the Company and you may be subject (i) in such proportion
as is appropriate to reflect the relative benefits received by
the indemnifying party on the one hand and the indemnified party
<PAGE>
on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above
but also the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other hand in
connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits
received by the Company on the one hand and you on the other
hand in connection with the offering of the Shares shall be
deemed to be in the same respective proportions as the net
proceeds from the offering of the Shares (before deducting
expenses) received by the Company and the total discounts and
commissions received by you, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate
public offering price of the Shares. The relative fault of the
Company on the one hand and you on the other hand shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or by you and the parties'
relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Notwithstanding the provisions of this Section 7, you shall not
be required to contribute any amount in excess of the discounts
and commissions received by you. Notwithstanding the provisions
of this Section 7, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes
of this Section 7, each person who controls you within the
meaning of the Act shall have the same rights to contribution as
you, and each person who controls the Company within the meaning
of either the Act or the Exchange Act, each officer of the
Company and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to
the provisions of this paragraph (d).
(e) The obligations of the parties under this Section 7
shall be in addition to any rights that any indemnified party
may have at common law or otherwise, and shall be in addition to
any liability that the Company or you may otherwise have.
8. Representations and Agreements to Survive.
All representations, warranties, indemnities and agreements
contained in this Agreement shall remain operative and in full
force and effect regardless of any investigation made by you, or
on your behalf, or by any controlling persons or by or on behalf
of the Company and shall survive the First Closing Date and the
<PAGE>
Second Closing Date.
9. Effective Date; Termination.
(a) This Agreement shall become effective as of the date
first written above. This Agreement may be terminated:
(i) upon the exercise by the Company of its
discretion to terminate the offering prior to the First
Closing Date; provided that if so terminated after Minimum
Sales are made by reason of any failure on the part of the
Company to perform any undertaking or to satisfy any
condition of this Agreement by it to be performed or
satisfied, the Company shall be obligated to pay you the
commission as described in Section 4(a) related to
Investors you solicited and found to purchase Shares, and
to reimburse your expenses (including the fees and
disbursements of your counsel) as provided in Section 4(b),
but will have no additional liability to you except for
such liabilities (if any), as may exist or thereafter arise
under Sections 5(i) and 7 hereof;
(ii) upon the failure of the Minimum Sales to be made
by the Initial Expiration Date; provided that if so
terminated the Company will have no additional liability to
you except for the obligation to reimburse your expenses
(including the fees and disbursements of your counsel) as
provided in Section 4(b) and such liabilities (if any) as
may exist or thereafter arise under Sections 5(i) and 7
hereof; or
(iii) at any time prior to the First Closing Date or
Second Closing Date (if any), if, in the Sales Agent's
reasonable judgment:
(1) additional material governmental
restrictions, not in force and effect on the date
hereof, shall have been imposed upon trading in
securities general or a suspension or limitation in
trading in securities generally has occurred on the
New York Stock Exchange or American Stock Exchange or
in the over-the-counter market, or quotations have
been halted generally on the NASDAQ System, or minimum
or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been
required by either of such exchanges or the NASD or by
order of the Commission or any other governmental
authority; or the engagement or continued engagement
by the United States
in major hostilities or the declaration of a national
emergency or war or a material decline in the price of
equity or debt securities if the effect of such
hostilities, national emergency or war or decline, in
<PAGE>
the Sales Agent's judgment, makes it impracticable or
inadvisable to proceed with the offering of the
delivery of Shares on the terms and in the manner
contemplated in the Registration Statement and the
Prospectus;
(2) any event shall have occurred or shall
exist which makes untrue or incorrect in any material
respect any statement or information contained in the
Registration Statement or the Prospectus or which is
not reflected in the Registration Statement or the
Prospectus but should be reflected therein in order to
make the statements or information contained therein
not misleading in any material respect (unless the
Registration Statement or the Prospectus, as
appropriate, is amended or supplemented appropriately
in a timely manner to the satisfaction of the Sales
Agent);
(3) the Company shall have sustained a loss
by fire, flood, accident or other calamity which is
material to the property, business or financial
condition of the Company whether or not such loss
shall have been insured, or there shall have been,
since the respective dates as of which information is
given in the Prospectus, any material adverse change
in the business, condition or prospects of the Company
whether or not arising in the ordinary course of
business, or in the market for the securities of the
Company, which in the Sales Agent's reasonable
judgment shall render it inadvisable to proceed with
the delivery of the Shares; provided, that if so
terminated by you pursuant to Section 9(a)(iii)(1),
(2) or (3), the Company will have no additional
liability to you except for the obligation to
reimburse your expenses (including the fees and
disbursements of your counsel) as provided in Section
4(b) and such liabilities (if any) as may exist or
thereafter arise under Section 5(i) or 7 hereof.
10. Right of First Refusal.
For a period of two (2) years from the date of the
definitive Prospectus, the Company will not (1) enter into an
agreement for the engagement of any person, firm or corporation
other than you relating to any financial advisory services or
(2) undertake any public or private offering (other than to
employees) of any securities of the Company (as defined below)
(each of (1) and (2) above, an "Engagement") unless and until
the Company shall have first negotiated with you with respect to
the Engagement. The Company shall notify you in writing of the
Company's intention to enter into an Engagement, including a
specific description of the terms of the financial advisory
<PAGE>
assignment or the proposed offering of the securities of the
Company. You shall then have thirty (30) days from the date you
receive such written notice from the Company to decide whether
to undertake the proposed Engagement. If you determine that you
do not wish to undertake the proposed Engagement, then you shall
so notify the Company of your intention in writing within such
thirtyday period. The Company may within a period of thirty
(30) days from the date of receipt of such notice then enter
into a letter of intent or other agreement relating to such
Engagement with any other person, firm or corporation on the
same general terms and conditions (not more favorable to such
other person, firm or corporation) as those which were tendered
to you. However, if a definitive engagement agreement or
underwriting agreement is not executed by the Company with such
third party within sixty (60) days after your refusal, your
rights of first refusal under this Section 10 shall be
reinstated. Nothing in this Agreement shall be construed as
granting the continuation of such preferential right to you
beyond such two-year period.
For purposes of this Section 10, the term "securities of
the Company" shall be deemed to include any debt or equity
securities of the Company (other than traditional commercial
financing or bank financing). The Company shall not be required
to consult with you concerning any borrowings from banks and
institutional lenders or concerning financing under any
equipment leasing or similar arrangements.
11. Notices.
(a) All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent
to you shall be mailed by overnight delivery or certified mail,
return receipt requested, postage prepaid, and hand-delivered
to:
Interstate/Johnson Lane Corporation
121 West Trade Street, Suite 1500 Charlotte,
North Carolina 28202
Attention: W. Brent Kuhlman,
Managing Director
with a copy to:
Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
Attention: Ken R. Bramlett, Jr.
If sent to the Company, such communications
shall be mailed by overnight delivery or
certified mail, return receipt requested,
<PAGE>
postage prepaid, or hand-delivered to:
Nicholas Financial, Inc.
2454 McMullen Booth Road, Building C
Clearwater, Florida 34619
Attention: Peter L. Vosotas
with a copy to:
Jacobs, Forlizzo & Neal, P.A.
13577 Feather Sound Drive, Suite
300 Clearwater, Florida 34622
Attention: A. R. Neal
(b) A notice shall be deemed to be given by you to the
Company or by the Company to you when it is mailed as provided
in Subsection (a) of this Section 11 or upon hand delivery to
the appropriate address.
12. Miscellaneous.
(a) This Agreement shall inure solely to the benefit of, and
shall be binding upon you, the Company and the controlling
persons referred to in Section 7 hereof, and their respective
successors, heirs, legal representatives and assigns, and no
other person shall be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of
this Agreement or any provision herein contained.
(b) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of North
Carolina.
(c) In case any provision in this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
(d) This Agreement set forth the entire agreement and
understanding between the parties hereto with respect to the
subject matter hereof and supersedes all cancels and all prior
agreements and understandings, written or oral, among the
parties hereto with respect to the subject matter.
(e) This Agreement may be amended only by a writing signed
by all of the parties hereto. Except as otherwise provided
herein, any provision contained in this Agreement may be waived
by any party hereto upon a writing signed by the party against
whom such waiver is sought to be enforced.
<PAGE>
(f) This Agreement and the duties, rights and obligations
arising hereunder may be assigned by a party hereto only with
the prior written consent of all other parties hereto.
(g) The headings of this Agreement are for the purposes of
reference only and shall not limit or otherwise affect the
meaning hereof.
(h) This Agreement may be executed in counterparts, each
of which shall constitute an original, but all for which shall
together constitute on instrument.
If the foregoing correctly sets forth the understanding between
you and the Company, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Sincerely yours,
NICHOLAS FINANCIAL, INC.
By: /S/ PETER L. VOSOTAS
Peter L. Vosotas, President
Approve and Agreed to:
INTERSTATE/JOHNSON LANE CORPORATION
By: /S/ W. BRENT KUHLMAN
W. Brent Kuhlman, Managing Director
Date: September 27, 1996
<PAGE>
EXHIBIT 1.2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of September 27, 1996,
("Escrow Agreement"), is by and between INTERSTATE/JOHNSON
LANE CORPORATION, a North Carolina corporation ("Sales
Agent"); NICHOLAS FINANCIAL, INC., a corporation organized
under the laws of British Columbia, Canada ("Issuer"); and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national
banking association, as Escrow Agent hereunder ("Escrow
Agent").
BACKGROUND
A. Issuer has engaged Sales Agent as its agent to
sell up to One Million Seven Hundred Fifty Thousand
(1,750,000) shares of common stock, no par value (the
"Shares"), on a "best efforts" basis, at a price to agreed
upon between the Issuer and Sales Agent, which price shall
be communicated in writing to the Escrow Agent by the Sales
Agent and set forth in a final Prospectus to by filed with
the Securities and Exchange Commission (the "Porspectus").
B. In accordance with the Prospectus, subscribers to
the Shares (the "Subscribers" and individually, a
"Subscriber") will be required to submit full payment for
their respective investments at the time they enter into
subscription agreements.
C. In accordance with the Prospectus, all payments
received by Sales Agent in connection with subscriptions for
Shares shall be promptly forwarded to Escrow Agent, and
Escrow Agent has agreed to accept, hold and disburse such
funds deposited with it and the earnings thereon in
accordance with the terms of this Escrow Agreement.
D. In order to establish the escrow of funds and to
effect the provisions of the Prospectus, the parties hereto
have entered into this Escrow Agreement.
STATEMENT OF AGREEMENT
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
the parties hereto, for themselves, their successors and
assigns, hereby agree as follows:
1. Definition. The following terms shall have the
following meanings when used herein:
"Cash Investment" shall mean the number of Shares to be
purchased by any Subscriber multiplied by the offering
price per Share set forth in the Prospectus.
"Cash Investment Instrument" shall mean a check, money
order or similar instrument, made payable to "First
Union National Bank of North Carolina, as Escrow Agent
for Nicholas Financial, Inc." in full payment for the
Shares to be purchased by any Subscriber.
"Commission" shall mean the United States Securities and
Exchange Commission.
"Escrow Funds" shall mean the funds deposited with
Escrow Agent pursuant to this Agreement, together with
any interest and other income thereon.
"Minimum Offering" shall mean One Million Two Hundred
Fifty (1,250,000) Shares.
"Minimum Offering Notice" shall mean a written
notification, signed by Sales Agent, which shall specify
<PAGE>
that subscriptions for the Minimum Offering have been
received; that, to the best of Sales Agent's knowledge
after due inquiry and review of its records, Cash
Investment Instruments in full payment for that number
of Shares equal to or greater than the Minimum Offering
have been received, deposited with and collected by
Escrow Agent; that, to the best knowledge of Sales
Agent, such subscriptions have not been withdrawn,
rejected or otherwise terminated; and that the
liquidated Escrow Funds shall be paid to the Issuer (or
as otherwise directed in the Minimum Offering Notice) on
a specified date.
"Pro Rata Basis," with respect to the allocation among
Subscribers of interest and other earnings held in the
Escrow Funds, shall mean, for each Subscriber, the
Subscriber's Cash Investment multiplied by the number of
days the Cash Investment of such Subscriber was held in
interest-bearing investments pursuant to Section 6
hereof, multiplied by the average yield earned on the
Escrow Funds during such period of days.
"Registration Statement" shall mean Issuer's
Registration Statement on Form SB-2 (File No. 33308407)
and any amendments or supplements thereto filed by
Issuer with the Commission.
"Shares" shall have the meaning set forth in the section
of this Escrow Agreement titled "Background."
"Subscriber" or "Subscribers" shall have the meaning set
forth in the section of this Escrow Agreement titled
"Background."
"Subscription Accounting" shall mean an accounting of
all subscriptions for Shares received and accepted by
Sales Agent as of the date of such accounting,
indicating for each subscription the Subscriber's name,
social security number and address, the number and total
purchase price of subscribed Shares, the date of receipt
by Sales Agent of the Cash Investment Instrument, and
notations of any nonpayment of the Cash Investment
Instrument submitted with such subscription, any
withdrawal of such subscription by the Subscriber, any
rejection of such subscription by Sales Agent, or other
termination, for whatever reason, of such subscription.
2. Appointment of and Acceptance by Escrow Agent.
Issuer and Sales Agent hereby appoint Escrow Agent to serve
as escrow agent hereunder, and Escrow Agent hereby accepts
such appointment in accordance with the terms of this Escrow
Agreement.
3. Deposits into Escrow.
a. Upon receipt by Sales Agent of any Cash
Investment Instrument for the purchase of Shares, Sales
Agent shall forward to Escrow Agent, by 12:00 noon of
the next business day, the Cash Investment Instrument
for deposit into the following escrow account:
First Union National Bank of North Carolina,
Charlotte, North Carolina
ABA # 053000219
Account No. 465946
Attn: Corporate Trust Department
For: Nicholas Financial, Inc. Escrow Account
Notify: Ms. Shannon Stahel, (704) 374-2080
Each such deposit shall be accompanied by the following
documents:
(1) a completed substitute W-9 Form for each
of the Subscribers to which such deposit
relates, containing such Subscriber's name,
social security number or taxpayer
identification number, address and other
information required for withholding
purposes;
<PAGE>
(2) a Subscription Accounting; and
(3) instructions regarding the investment of
such deposited funds in accordance with
Section 6 hereof.
ALL FUNDS SO DEPOSITED SHALL REMAIN THE PROPERTY OF THE
SUBSCRIBERS ACCORDING TO THEIR RESPECTIVE INTERESTS AND
SHALL NOT BE SUBJECT TO ANY LIEN OR CHARGE BY ESCROW AGENT
OR BY JUDGMENT OR CREDITORS' CLAIMS AGAINST ISSUER UNTIL
RELEASED TO ISSUER IN ACCORDANCE WITH SECTION 4(a) HEREOF.
b. Sales Agent and Issuer understand and
agree that all checks and similar instruments received
by Escrow Agent hereunder are subject to collection
requirements of presentment and final payment, and that
the funds represented thereby cannot be drawn upon or
disbursed until such time as final payment has been
made and is not longer subject to dishonor. Upon
receipt, Escrow Agent shall process each Cash
Investment Instrument for collection, and the proceeds
thereof shall be held as part of the Escrow Funds until
disbursed in accordance with Section 4 hereof. If, upon
presentment for payment, any Cash Investment Instrument
is dishonored, Escrow Agent's sole obligation shall be
to notify Sales Agent of such dishonor and to return
such Cash investment Instrument to Sales Agent to take
whatever action it deems necessary. Notwithstanding
the foregoing, if for any reason any Cash Investment
Instrument is uncollectible after payment of the funds
represented thereby has been made by Escrow Agent,
Issuer shall immediately reimburse Escrow Agent upon
receipt from Escrow Agent of written notice thereof.
c. The Escrow Agent shall notify Sales Agent and
Issuer of any discrepancy between the subscription
amounts set forth on any Subscription Accounting and
the subscription amounts received by the Escrow Agent.
4. Disbursement of Escrow Funds.
a. Completion of Minimum Offering. Subject to the
provisions of Section 10 hereof, Escrow Agent shall pay
to Issuer (or as directed by Issuer) the liquidated
value of the Escrow Funds, by certified or bank check
or by wire transfer, on the date specified in the
Minimum Offering Notice, which shall be not less than
two (2) nor more than seven (7) business days following
the Escrow Agent's receipt of the following documents:
(1) A Minimum Offering Notice;
(2) Subscription Accounting, substantiating the sale of the
Minimum Offering; and
(3) Such other certificates, notices or other documents as
Escrow Agent shall reasonably require.
Notwithstanding the foregoing, Escrow Agent shall not
be obligated to disburse the Escrow Funds to Issuer if
Escrow Agent has grounds to believe that (a) Cash
Investment Instruments in full payment for that number
of Shares equal to or greater than the Minimum Offering
have not been received, deposited with and collected by
the Escrow Agent or (b) any of the certifications set
forth herein or in the documents described above are
incorrect or incomplete. After the disbursement of
Escrow Funds to Issuer pursuant to this Section 4(a),
this Agreement shall terminate. In the event Escrow
Agent receives any additional funds with respect to
Shares after such termination, Escrow Agent shall pay
such additional funds to Issuer by certified or bank
check or wire transfer, no later than five (5) business
days after receipt of such funds.
b. Rejection of Any Subscription or Termination
of the Offering. No later than five (5) business days
after receipt by Escrow Agent of written notice (i)
from Issuer or Sales Agent that Sales Agent or Issuer
<PAGE>
intends to reject a Subscriber's subscription, (ii)
from Issuer or Sales Agent that there will be no
closing of the sale of Shares to Subscribers, or (iii)
from the Commission or any other federal or state
regulatory authority that a stop order has been issued
with respect to the Registration Statement and has
remained in effect for at least twenty (20) days,
Escrow Agent shall pay to the applicable Subscriber(s),
by certified or bank check and by first class mail, the
amount of the Cash Investment paid by each Subscriber,
and shall pay as soon as practicable to the applicable
Subscriber(s), by certified or bank check and by first
class mail, each Subscriber's share of income earned on
the Escrow Funds, each such share to be calculated on a
Pro Rata Basis. The Escrow Agent shall notify the
Issuer and Sales Agent of the distribution of such
funds to the Subscribers.
c. Expiration of Offering Period. Notwithstanding
anything to the contrary contained herein, if Escrow
Agent shall not have received a Minimum Offering Notice
on or before September 30, 1996 (or October 31, 1996 if
on or before September 30, 1996 Issuer notifies Escrow
Agent in writing that Issuer has elected to extend the
offering period), Escrow Agent shall, on the next
business day after such date and without further
instruction or direction from Sales Agent or Issuer,
return to each Subscriber, by certified or bank check
and by first class mail, the Cash Investment made by
such Subscriber and shall pay as soon as practicable to
the applicable Subscriber(s), by certified or bank
check and by first class mail, each Subscriber's share
of income earned on the Escrow Funds, each such share
to be calculated on a Pro Rata Basis. The Escrow Agent
shall notify the Issuer and Sales Agent of the
distribution of such funds to the Subscribers.
d. Form 1099. On a date following the transfer
of any interest earned for the account of a Subscriber
or Issuer pursuant to Section 4(a), (b) or (c), but not
later than January 31, 1997, the Escrow Agent shall
provide such transferee with tax form 1099 setting for
the amount of such interest.
5. Suspension of Performance or Disbursement Into
Court. If, at any time, there shall exist any dispute
between Sales Agent, Issuer, Escrow Agent, any Subscriber or
any other person with respect to the holding or disposition
of any portion of the Escrow Funds or any other obligations
of Escrow Agent hereunder, or if at any time Escrow Agent is
unable to determine, to Escrow Agent's sole satisfaction,
the proper disposition of any portion of the Escrow Funds or
Escrow Agent's proper actions with respect to its
obligations hereunder, or if Sales Agent and Issuer have not
within thirty (30) days of the furnishing by Escrow Agent of
a notice of resignation pursuant to Section 7 hereof,
appointed a successor Escrow Agent to act hereunder, then
Escrow Agent may, in its sole discretion, take either or
both or the following actions:
a. suspend the performance of any of its
obligations under this Escrow Agreement until such
dispute or uncertainty shall be resolved to the sole
satisfaction of Escrow Agent or until a successor
Escrow Agent shall have been appointed (as the case may
be); provided, however, that Escrow Agent shall
continue to invest the Escrow Funds in accordance with
Section 6 hereof; and/or
b. petition (by means of an interpleader action
or any other appropriate method) any court of competent
jurisdiction in Charlotte, North Carolina, for
instructions with respect to such dispute or
uncertainty, and pay into such court all funds held by
it in the Escrow Funds for holding and disposition in
accordance with the instructions of such court. Escrow
Agent shall have no liability to Sales Agent, Issuer,
any Subscriber or any other person with respect to any
such suspension of performance or disbursement into
court, specifically including any liability or claimed
liability that may arise, or be alleged to have arisen,
out of or as a result of any delay in the disbursement
of funds held in the Escrow Funds or any delay in or
with respect to any other action required or requested
of Escrow Agent.
6. Investment of Funds. Escrow Agent shall invest and
reinvest the Escrow Funds as Sales Agent shall direct
(subject to applicable minimum investment requirements) in
<PAGE>
writing; provided, however, that no investment or
reinvestment my be made except in the following:
a. direct obligations of the United States of
America or obligations the principal of and interest on
which are unconditionally guaranteed by the United
States of America; or
b. savings or money-market accounts of any bank,
trust company, or national banking association
(including
Escrow Agent and its affiliates).
If Escrow Agent has not received written instructions from
Sales Agent at any time that an investment decision must be
made, Escrow Agent shall invest the Escrow Funds, or such
portion thereof as to which no written instructions have
been received, in investments described in clause (b) above.
Each of the foregoing investments shall be made in the name
of Escrow Agent in its stated capacity as escrow agent. No
investment shall be made in any instrument or security that
has a maturity of greater than twentyfour (24) hours unless
such instrument or security is specifically approved by the
Issuer and may be liquidated without penalty or loss of
interest upon twenty-four (24) hours notice. Notwithstanding
anything to the contrary contained herein, Escrow Agent may,
without notice to Sales Agent or Issuer, sell or liquidate
any of the foregoing investments at any time if the proceeds
thereof are required for any release of funds permitted or
required hereunder, and Escrow Agent shall not be liable or
responsible for any loss, cost or penalty resulting from any
such sale or liquidation. With respect to any funds
received by Escrow Agent for deposit into the Escrow Funds
or any written investment instruction of Sales Agent
received by Escrow Agent after ten o'clock, a.m., Charlotte,
North Carolina, time, Escrow Agent shall not be required to
invest such funds or to effect such investment instruction
until the next day upon which banks in Charlotte, North
Carolina are open for business.
7. Resignation and Removal of Escrow Agent. Escrow Agent
may resign from the performance of its duties hereunder at
any time by giving ten (10) days' prior written notice to
Sales Agent and Issuer or may be removed, with or without
cause, by Sales Agent and Issuer, acting jointly in writing,
at any time by the giving of ten (10) days' prior written
notice to Escrow Agent. Such resignation or removal shall
take effect upon the appointment of a successor Escrow Agent
as provided hereinbelow. Upon any such notice of resignation
or removal, Sales Agent and Issuer jointly shall appoint a
successor Escrow Agent hereunder, which shall be a
commercial bank, trust company or other financial
institution with a combined capital and surplus in excess of
$10,000,000. Upon the acceptance in writing of any
appointment as Escrow Agent hereunder by a successor Escrow
Agent, such successor Escrow Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges
and duties of the retiring Escrow Agent and the retiring
Escrow Agent shall be discharged from its duties and
obligations under this Escrow Agreement, but shall not be
discharged from any liability for actions taken as Escrow
Agent hereunder prior to such succession. After any retiring
Escrow Agent's resignation or removal, the provisions of
this Escrow Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was
Escrow Agent under this Escrow Agreement.
8. Liability of Escrow Agent. Escrow Agent shall
have no liability or obligation with respect to the Escrow
Funds except for Escrow Agent's willful misconduct or gross
negligence. Escrow Agent's sole responsibility shall be for
the safekeeping, investment and disbursement of the Escrow
Funds in accordance with the terms of this Escrow Agreement.
Escrow Agent shall have no implied duties or obligations and
shall not be charged with knowledge or notice of any fact or
circumstance not specifically set forth herein. Escrow
Agent may rely upon any instrument, not only as to its due
execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein
which Escrow Agent shall in good faith believe to be
<PAGE>
genuine, to have been signed or presented by the person or
parties purporting to sign the same and to conform to the
provisions of this Escrow Agreement. In no event shall
Escrow Agent be liable for incidental, indirect, special,
consequential or punitive damages. Escrow Agent shall not be
obligated to take any legal action or commence any
proceeding in connection with the Escrow Funds or any
account in which Escrow Funds are deposited or this Escrow
Agreement, or to appear in, prosecute or defend any such
legal action or proceeding. Without limiting the generality
of the foregoing, Escrow Agent shall not be responsible for
or required to enforce any of the terms or conditions of any
subscription agreement with any Subscriber or any other
agreement between Issuer, Sales Agent and/or any Subscriber.
Escrow Agent shall not be responsible or liable in any
manner for the performance by Issuer or any Subscriber of
their respective obligations under any subscription
agreement nor shall Escrow Agent be responsible or liable in
any manner for the failure of Issuer, Sales Agent or any
third party (including any Subscriber) to honor any of the
provisions of this Escrow Agreement. Escrow Agent may
consult legal counsel selected by it in the event of any
dispute or question as to the construction of any of the
provisions hereof or of any other agreement or of its duties
hereunder, and shall incur no liability and shall be fully
protected from any liability whatsoever in acting in good
faith in accordance with the opinion or instruction of such
counsel. Issuer shall promptly pay, upon demand, the
reasonable fees and expenses of any such counsel.
9. Indemnification of Escrow Agent. From and at all
times after the date of this Escrow Agreement, Issuer shall,
to the fullest extent permitted by law and to the extent
provided herein, indemnify and hold harmless Escrow Agent
and each director, officer, employee, attorney, agent and
affiliate of Escrow Agent (collectively, the "Indemnified
Parties") against any and all actions, claims (whether or
not valid), losses, damages, liabilities, costs and expenses
of any kind or nature whatsoever (including without
limitation reasonable attorneys' fees, costs and expenses)
incurred by or asserted against any of the Indemnified
Parties from and after the date hereof, whether direct,
indirect or consequential as a result of or arising from or
in any way relating to any claim, demand, suit, action or
proceeding (including any inquiry or investigation) by any
person, whether threatened or initiated, asserting a claim
for any legal or equitable remedy against any person under
any statute or regulation, including, but not limited to,
any federal or state securities laws, or under any common
law or equitable cause or otherwise, arising from or in
connection with the negotiation, preparation, execution,
performance or failure of performance of this Escrow
Agreement or any transactions contemplated herein, whether
or not any such Indemnified Party is a party to any such
action, proceeding, suit or the target of any such inquiry
or investigation; provided, however, that no Indemnified
Party shall have the right to be indemnified hereunder for
any liability finally determined by a court of competent
jurisdiction, subject to no further appeal, to have resulted
from the gross negligence or willful misconduct of such
Indemnified Party. If any such action or claim shall be
brought or asserted against any Indemnified Party, such
Indemnified Party shall promptly notify Issuer in writing,
and Issuer shall assume the defense thereof, including the
employment of counsel and the payment of all expenses. Such
Indemnified Party shall, in its sole discretion, have the
right to employ separate counsel in any such action and to
participate, in the defense thereof, and the fees and
expenses of such counsel shall be paid by such Indemnified
Party unless (a) Issuer agrees to pay such fees and
expenses, or (b) Issuer shall fail to assume the defense of
such action or proceeding or shall fail, in the reasonable
discretion of such Indemnified Party, to employ counsel
satisfactory to the Indemnified Party in any such action or
proceeding, or (c) the named parties to any such action or
proceeding (including any impleaded parties) include both
Indemnified Party and Issuer, and Indemnified Party shall
have been advised by counsel that there may be one or more
legal defenses available to it which are different from or
additional to those available to Issuer. All such fees and
expenses payable by Issuer pursuant to the foregoing
sentence shall be paid from time to time as incurred, both
in advance of and after the final disposition of such action
or claim. The obligations of Issuer under this Section 9
shall survive any termination of this Escrow Agreement and
the resignation or removal of Escrow Agent.
10. Compensation to Escrow Agent.
a. Fees and Expenses. Issuer shall compensate
Escrow Agent for its services hereunder in accordance
with Exhibit B attached hereto and, in addition, shall
reimburse Escrow Agent for all of its reasonable out-of
pocket expenses, including attorneys' fees, travel
expenses, telephone and facsimile transmission costs,
postage (including express mail and overnight delivery
charges), copying charges and the like. All of the
compensation and reimbursement obligations shall be
payable by Issuer upon demand by Escrow Agent. The
obligations of Issuer under Section 10 shall survive
<PAGE>
any termination of this Escrow Agreement and the
resignation or removal of Escrow Agent.
b. Disbursements from Escrow Funds to Pay
Escrow Agent. The Escrow Agent is authorized to and
may disburse from time to time, to itself or to any
Indemnified Party from the Escrow Funds (to the extent
of Issuer's rights thereto), the amount of any
compensation and reimbursement of out-of-pocket
expenses due and payable hereunder (including any
amount to which Escrow Agent or any Indemnified Party
is entitled to seek indemnification pursuant to Section
9 a hereof.) Escrow Agent shall notify Issuer of any
disbursement from the Escrow Funds to itself or to any
Indemnified Party in respect of any compensation or
reimbursement hereunder and shall furnish to Issuer
copies of all related invoices and other statements.
c. Security and Offset. Issuer hereby grants
to Escrow Agent and the Indemnified Parties a security
interest in and lien upon the Escrow Funds (to the
extent of Issuer's rights thereto) to secure all
obligations hereunder, and Escrow Agent and the
Indemnified Parties shall have the right to offset the
amount of any compensation or reimbursement due any of
them hereunder (including any claim for indemnification
pursuant to Section 9 hereof) against the Escrow Funds
(to the extent of Issuer's rights thereto). If for any
reason the Escrow Funds available to Escrow Agent and
the Indemnified Parties pursuant to such security
interest or right or offset are insufficient to cover
such compensation and reimbursement, Issuer shall
promptly pay such amounts to Escrow Agent and the
Indemnified Parties upon receipt of an itemized
invoice.
11. Representations and Warranties.
a. Issuer makes the following representations
and warranties to Escrow Agent:
(1) Issuer is a corporation duly organized,
validly existing, and in good standing under the laws
of British Columbia, Canada, and has full power and
authority to execute and deliver this Escrow Agreement
and to perform its obligations hereunder;
(2) This Escrow Agreement has been duly
approved by all necessary action of Issuer, has been
executed by a duly authorized officer of Issuer, and
constitutes a valid and binding agreement of Issuer,
enforceable in accordance with its terms.
(3) The execution, delivery and performance
by Issuer of this Escrow Agreement will not violate,
conflict with, or cause a default under the articles of
incorporation or bylaws of Issuer, any applicable law
or regulation, any court order or administrative ruling
or decree to which Issuer is a party or any of its
property is subject, or any agreement, contract,
indenture, or other binding arrangement to which Issuer
is a party or any of its property is subject. The
execution, delivery and performance of this Agreement
is consistent with and accurately described in the
Prospectus, and the allocation of interest and other
earnings to Subscribers, as set forth in Sections 4(b)
and 4(c) hereof, has been properly described therein.
(4) No party other than the parties hereto
and the prospective Subscribers have, or shall have,
any lien, claim or security interest in the Escrow
Funds or any part thereof. No financing statement
under the Uniform Commercial Code is on file in any
jurisdiction claiming a security interest in or
describing (whether specifically or generally) the
Escrow Funds or any part thereof.
(5) Issuer hereby acknowledges and agreesthat
the status of Escrow Agent is that of agent only for
the limited purposes set forth herein, and hereby
represents and covenants that no representation or
implication shall be made that the Escrow Agent has
investigated the desirability or advisability of
investment in the Shares or has approved, endorsed or
passed upon the merits of the investment therein and
that the name of the Escrow Agent has not and shall not
be used in any manner in connection with the offer or
sale of the Shares other than to state that the Escrow
Agent has agreed to serve as escrow agent for the
limited purposes set forth herein.
<PAGE>
(6) All of the representations and warranties of
Issuer contained herein are true and complete as of the
date hereof and will be true and complete at the time
of any disbursement from the Escrow Funds.
b. Sales Agent makes the following
representations and warranties to Escrow Agent:
(1) Sales Agent is a corporation duly organized,
validly existing, and in good standing under the laws
of the State of North Carolina, and has full power and
authority to execute and deliver this Escrow Agreement
and to perform its obligations hereunder;
(2) This Escrow Agreement has been duly approved
by all necessary corporate action of Sales Agent, has
been executed by a duly authorized officer of Sales
Agent, and constitutes a valid and binding agreement of
Sales Agent, enforceable in accordance with its terms.
(3) The execution, delivery and performance by
Sales Agent of this Escrow Agreement will not violate,
conflict with, or cause a default under the articles of
incorporation or bylaws of Sales Agent, any applicable
law or regulation, any court order or administrative
ruling or decree to which Sales Agent is a party or any
of its property is subject, or any agreement, contract,
indenture, or other binding arrangement to which Sales
Agent is a party or any of its property is subject.
The execution, delivery and performance of this
Agreement is consistent with and accurately described
in the Prospectus, and the allocation of interest and
other earnings to Subscribers, as set forth in Sections
4(b) and 4(c) hereof, has been properly described
therein.
(4) The deposit with Escrow Agent by Sales Agent
of Cash Investment Instruments pursuant to Section 3
hereof shall be deemed a representation and warranty by
Sales Agent that such Cash Investment Instrument
represents a bona fide sale to the Subscriber described
therein of the amount of Shares set forth therein,
subject to and in accordance with the terms of the
Prospectus.
(5) Sales Agent hereby acknowledges that the
status of Escrow Agent is that of agent only for the
limited purposes set forth herein, and hereby
represents and covenants that no representation or
implication shall be made that the Escrow Agent has
investigated the desirability or advisability of
investment in the Shares or has approved, endorsed or
passed upon the merits of the investment therein and
that the name of the Escrow Agent has not and shall not
be used in any manner in connection with the offer or
sale of the Shares other than to state that the Escrow
Agent has agreed to serve as escrow agent for the
limited purposes set forth herein.
(6) All of the representations and warranties of
Sales Agent contained herein are true and complete as
of the date hereof and will be true and complete at
the time of any disbursement from the Escrow Funds.
12. Consent to Jurisdiction and Venue. In the event
that any party hereto commences a lawsuit or other
proceeding relating to or arising from this Agreement, the
parties hereto agree that the United States District Court
for the Western District of North Carolina shall have the
sole and exclusive jurisdiction over any such proceeding.
If all such courts lack federal subject matter jurisdiction,
the parties agree that the Superior Court Division of the
General Court of Justice of Mecklenburg County, North
Carolina shall have sole and exclusive jurisdiction. Any of
these courts shall be proper venue for any such lawsuit or
judicial proceeding and the parties hereto waive any
objection to such venue. The parties hereto consent to and
agree to submit to the jurisdiction of any of the courts
specified herein and agree to accept service or process to
vest personal jurisdiction over them in any of these courts.
13. Notice. All notices and other communications
hereunder shall be in writing and shall be deemed to have
<PAGE>
been validly served, given or delivered five (5) days after
deposit in the United States mails, by certified mail with
return receipt requested and postage prepaid, when delivered
personally, one (1) day after delivery to any overnight
courier, or when transmitted by facsimile transmission
facilities, and addressed to the party to be notified as
follows:
If to Issuer at: Nicholas Financial, Inc.
2454 McMullen Booth Road
Building C #501B
Clearwater, Florida 34619
ATTENTION: Peter L. Vosotas
Facsimile Number: (813) 726-2140
With a Copy to: A.R. Neal
Jacobs, Forlizzo & Neal, P.A.
Feather Sound Corporate Center II
13577 Feather Sound Drive, Suite
300 Clearwater, Florida 34622-5547
Facsimile Number: (813) 572-9454
If to Sales Agent at:Interstate/Johnson Lane
Interstate Tower
121 West Trade Street, Suite 1500
P.O. Box 1012
Charlotte, North Carolina 28201-
1012
ATTENTION: W. Brent Kulman
Facsimile Number: (704) 379-9025
with a Copy to: Ken R. Bramlett, Esq.
Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
Facsimile Number: (704) 378-4000
If to the Escrow
Agent at: First Union National Bank of
North Carolina, as Escrow Agent
Corporate Trust Department
230 South Tryon Street, 8th Floor
Charlotte, North Carolina 28288-1179
ATTENTION: Shannon Stahel
Facsimile Number: (704) 383-7316
or to such other address as each party may designate for
itself by like notice.
14. Amendment or Waiver. This Escrow Agreement may be
changed, waived, discharged or terminated only by a writing
signed by Sales Agent, Issuer and Escrow Agent. No delay or
omission by any party in exercising any right with respect
hereto shall operate as a waiver. A waiver on any one
occasion shall not be construed as a bar to, or waiver of,
any right or remedy on any future occasion.
15. Severability. To the extent any provision of this
Escrow Agreement is prohibited by or invalid under
applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the
remaining provisions of this Escrow Agreement.
16. Governing Law. This Escrow Agreement shall be
construed and interpreted in accordance with the internal
laws of the State of North Carolina without giving effect to
the conflict of laws principles thereof.
<PAGE>
17. Entire Agreement. This Escrow Agreement
constitutes the entire agreement between the parties
relating to the acceptance, collection, holding, investment
and disbursement of the Escrow Funds and sets forth in their
entirety the obligations and duties of Escrow Agent with
respect to the Escrow Funds.
18. Binding Effect. All of the terms of this Escrow
Agreement, as amended from time to time, shall be binding
upon, inure to the benefit of and be enforceable by the
respective heirs, successors and assigns of Sales Agent,
Issuer and Escrow Agent.
19. Execution in Counterparts. This Escrow Agreement
may be executed in two or more counterparts, which when so
executed shall constitute one and the same agreement.
20. Termination. Upon the first to occur of the
disbursement of all amounts in the Escrow Funds or deposit
of all amounts in the Escrow Funds into court pursuant to
Section 5 hereof, this Escrow Agreement shall terminate and
Escrow Agent shall have no further obligation or liability
whatsoever with respect to this Escrow Agreement or the
Escrow Funds.
21. Other Transactions. The Escrow Agent and any
stockholder, director, officer or employee of the Escrow
Agent may buy, sell, and deal in any of the securities of
Issuer and become pecuniarily interested in any transaction
in which the Issuer may be interested, and contract and lend
money to Issuer and otherwise act as fully and freely as
though it were not Escrow Agent under this Agreement.
Nothing herein shall preclude the Escrow Agent from acting
in any other capacity for the Issuer or for any other
entity.
22. Headings. The section headings herein are for
convenience only, are not a part of this Agreement, and
shall not affect the construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Escrow Agreement to be executed as of the date first above
written.
NICHOLAS FINANCIAL, INC.
By: /S/Peter L. Vosotas
Peter L. Vosotas, President
INTERSTATE/JOHNSON LANE CORPORATION, Sales Agent
By:_________________________________
Name: __________________________
Title: _________________________
FIRST UNION NATIONAL
BANK OF NORTH
CAROLINA, as Escrow Agent
By:________________________________
Name: __________________________
Title: _________________________
<PAGE>
Exhibit A
Prospectus
Exhibit B
Fees Payable to Escrow Agent
<PAGE>
EXHIBIT 5.1
[JACOBS, FORIIZZO & NEAL, P.A. LETTERHEAD]
September 26, 1996
Board of Directors
c/o Peter L. Vosotas
Nicholas Financial, Inc.
2454 McMullen Booth Road
Clearwater, Florida 34619
Gentlemen:
We have acted as counsel to Nicholas Financial, Inc.
(hereinafter called the "Company") for the purpose of
rendering this opinion in connection with the Company's filing
of a registration statement on Form SB-2 (file no. 333-08407)
and amendments thereto (which registration statement, as
amended at the time of its effectiveness, is hereinafter
call the "Registration Statement"), covering a minimum of
1,250,000 and a maximum of 1,750,000 shares of the Company's
common stock, no par value (which shares are hereinafter
called the "Shares").
As such counsel, we have examined original copies, or copies
certified to our satisfaction, of the corporate records of the
company, agreements and other instruments, certificates of
public officials and such other documents as we deemed necessary
as a basis for the opinion hereinafter set forth.
On the basis of the foregoing, we are of the opinion that the
Shares have been validly authorized and will, when sold as
contemplated by the Registration Statement, be legally issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference made to us
under the caption "Legal Matters" in the prospectus constituting
part of such Registration Statement.
Very truly yours,
/s / Jacobs, Forlizzo & Neal, P.A.
JACOBS, FORLIZZO & NEAL, P.A.
<PAGE>
EXHIBIT 5.2
[SALLEY BOWES HARWARDT, P.A. LETTERHEAD]
September 26, 1996
Nicholas Financial, Inc.
2454 McMullen Booth Road
Building C, Suite 501B
Clearwater, Florida 34619 U.S.A.
Dear Sirs:
We refer to the Registration Statement on Form SB-2 (Sec.
File No. 333-08407), (the "Registration Statement") as
amended, of Nicholas Financial, Inc., a company incorporated
under the laws of British Columbia (the "Company"), filed
with the Securities and Exchange Commission for the purpose
of registering under the Securities Act of 1933, as amended,
up to 1,750,000 shares of the Company's common stock without
par value (the "Shares"). We have examined the Altered
Memorandum and Articles of the company, minutes of applicable
meetings of the Board of Directors of the Company, and other
records of the Company, together with the applicable
certificates of public officials and other documents that we
have deemed relevant in rendering this opinion.
Based upon the foregoing and subject to the conditions set
forth below, it is our opinion that the Shares, when sold as
contemplated by the Registration Statement, will be legally
issued, fully paid and non-accessible.
The opinion expressed herein is contingent upon the Company's
Altered Memorandum and Articles not being further amended
prior to the issuance of any shares issued after the date
hereof.
We hereby consent of the filing of our opinion as an Exhibit
to the Registration Statement. In giving such consent, we
do not hereby admit that we are in the category of person's
whose consent is required under Section 7 of the Securities
Act of 1933.
This opinion is limited to the laws of the Province of British
Columbia, and the federal laws of Canada applicable therein,
and we express no opinion with respect to the laws of any other
state or jurisdiction.
Yours truly,
SALLEY BOWES HARWARDT
/s/ Paul A. Bowes
Per:
Paul A Bowes
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated May 13, 1996,
in the Registration Statement (Form SB-2) and related
Prospectus of Nicholas Financial, Inc. dated July 19, 1996.
/s/ Ernst & Young LLP
Tampa, Florida
September 27, 1996
<PAGE>
[JACOBS, FORIIZZO & NEAL, P.A. LETTERHEAD]
September 27, 1996
VIA EDGAR
Securities and Exchange Commission
Division of Corporation Finance
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Nicholas Financial, Inc. -- Amendment No. 2
to Registration Statement on Form SB-2
Ladies and Gentlemen:
On behalf of Nicholas Financial, Inc. (the "Company"),
we hereby transmit for filing with the Commission via EDGAR
the Company's registration statement on From SB-2. Pursuant
to the general instructions to Form SB-2, the Company is
also filing today paper copies of the Company's appointment
of agent for service of process on Form F-X.
If you have any questions or comments regarding this
filing, please do not hesitate to contact me at the address
or telephone number indicated above.
Sincerely,
JACOBS, FORIIZZO & NEAL, P.A.
/s/ A.R. Neal
A.R. Neal
ARN:
Enclosure
cc: Peter L. Vosotas
Ken R. Bramlett, Jr.
<PAGE>
[ARTICLE] 5
[LEGEND]
This Schedule Contains Summary Information Extracted From The Condensed
Consolidated Balance Sheet At June 30, 1996 And The Condensed Consolidated
Statements Of Income For The Three Months Ended June 30,1996 And June 30, 1995
And Is Qualified In Its Entirety By Reference To Such Financial Statements.
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 3-MOS 3-MOS
[FISCAL-YEAR-END] MAR-31-1997 MAR-31-1996
[PERIOD-END] JUN-30-1996 JUN-30-1995
[CASH] 319,933 0
[SECURITIES] 0 0
[RECEIVABLES] 19,557,684 0
[ALLOWANCES] 3,310,607 0
[INVENTORY] 0 0
[CURRENT-ASSETS] 20,837,209 0
[PP&E] 464,886 0
[DEPRECIATION] 277,851 0
[TOTAL-ASSETS] 21,024,244 0
[CURRENT-LIABILITIES] 17,532,209 0
[BONDS] 0 0
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[COMMON] 1,755,765 0
[OTHER-SE] 1,736,270 0
[TOTAL-LIABILITY-AND-EQUITY] 21,024,244 0
[SALES] 113,711 151,258
[TOTAL-REVENUES] 1,461,775 1,260,387
[CGS] 22,465 34,469
[TOTAL-COSTS] 471,408 406,885
[OTHER-EXPENSES] 658,046 889,507
[LOSS-PROVISION] 54,313 40,786
[INTEREST-EXPENSE] 394,630 331,630
[INCOME-PRETAX] 332,321 (36,005)
[INCOME-TAX] 125,865 (14,037)
[INCOME-CONTINUING] 206,456 (21,968)
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 206,456 (21,968)
[EPS-PRIMARY] .03 0
[EPS-DILUTED] .03 0
<FN>
<F1> [RECEIVABLES] ARE PRESENTED NET OF UNEARNED FINANCE CHARGES, NON-REFUNDABLE DEALER
RESERVE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2> [RECEIVABLES] ARE PRESENTED AS TOTAL RESERVES, COMPRISED OF NON-REFUNDABLE DEALER
RESERVE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS.
</TABLE>
